Trickle-down economics, to put it crudely, is the argument that you help the poor by giving money, usually in the form of tax cuts, to the not-so-poor. Their spending will create a multiplier process in which the poor are benefited as the second and later rounds of expenditure by others. At least that’s how I would interpret it although, as Thomas Sowell points out below, it is a theory never taught to anyone, shows up in no textbooks and has never been advocated. As far as it goes, it is a theory that has been created so that the left can accuse advocates of market-based solutions of not really doing things to help the poor.
Yet from the way it is usually described, the theory, to the extent that there is an associated theory, seems about as Keynesian as any notion I can think of. Let anyone increase their expenditure and the poor will be made better off. John Stuart Mill was particularly scathing about such beliefs, and certainly it would not have been part of classical theory to suggest that demand side could have a positive effect on the supply side.
What makes Thomas Sowell so extraordinary is his ability to see things that are right in front of everyone’s eyes. This is from Sowell in an article titled, “The ‘Trickle-Down’ Lie”.
New York’s new mayor, Bill de Blasio, in his inaugural speech, denounced people ‘on the far right’ who ‘continue to preach the virtue of trickle-down economics.’ According to Mayor de Blasio, ‘They believe that the way to move forward is to give more to the most fortunate, and that somehow the benefits will work their way down to everyone else.’
If there is ever a contest for the biggest lie in politics, this one should be a top contender.
While there have been all too many lies told in politics, most have some little tiny fraction of truth in them, to make them seem plausible. But the ‘trickle-down’ lie is 100 percent lie.
It should win the contest both because of its purity — no contaminating speck of truth — and because of how many people have repeated it over the years, without any evidence being asked for or given.
Years ago, this column challenged anybody to quote any economist outside of an insane asylum who had ever advocated this ‘trickle-down’ theory. Some readers said that somebody said that somebody else had advocated a ‘trickle-down’ policy. But they could never name that somebody else and quote them.
Mayor de Blasio is by no means the first politician to denounce this non-existent theory. Back in 2008, presidential candidate Barack Obama attacked what he called ‘an economic philosophy’ which ‘says we should give more and more to those with the most and hope that prosperity trickles down to everyone else.’
Let’s do something completely unexpected: Let’s stop and think. Why would anyone advocate that we ‘give’ something to A in hopes that it would trickle down to B? Why in the world would any sane person not give it to B and cut out the middleman? But all this is moot, because there was no trickle-down theory about giving something to anybody in the first place.
The ‘trickle-down’ theory cannot be found in even the most voluminous scholarly studies of economic theories — including J.A. Schumpeter’s monumental History of Economic Analysis, more than a thousand pages long and printed in very small type.
It is not just in politics that the non-existent ‘trickle-down’ theory is found.
It has been attacked in the New York Times, in the Washington Post and by professors at prestigious American universities — and even as far away as India. Yet none of those who denounce a “trickle-down” theory can quote anybody who actually advocated it.
The book ‘Winner-Take-All Politics’ refers to ‘the “trickle-down” scenario that advocates of helping the have-it-alls with tax cuts and other goodies constantly trot out.’ But no one who actually trotted out any such scenario was cited, much less quoted.
One of the things that provoke the left into bringing out the ‘trickle-down’ bogeyman is any suggestion that there are limits to how high they can push tax rates on people with high incomes, without causing repercussions that hurt the economy as a whole.