Lies, damned lies and economic theory in the hands of politicians

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, and in particular is aimed at people who think that raising taxes has its limits.

Yet from the way it is usually described, “trickle-down” 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. . . .

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.

The left want to spend and they want to tax and are irritated by arguments that suggest that higher taxation does harm, and especially to the poor. De Blasio is a phenomenon, a congeries of every leftist meme around. He may yet become Hillary’s VP so populist is he. Ruining New York City is such a modest ambition when he can take up for the US as a whole where Obama will have just left off.

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38 Responses to Lies, damned lies and economic theory in the hands of politicians

  1. Roger

    Just wonder whether the “Trickle Down” concept is sometimes considered by non-left non-economists as a way of explaining the undoubted benefits of capitalism to the world – and especially the poor – over the last 200 years or so. To move on (as they say) from Trickle Down, you need an easily explained tag that does this effectively and clearly. It is always so easy and popular for the left to say that socialism and hand-outs are the solution to poverty, even though the evidence of real world experience has never proven it to be so. Any suggestions, Steve?

  2. WhaleHunt Fun

    It works for stupid.
    They put stupid in as President and look how the stupid has trickled down through the voters of all levels.
    The ruinous incompetent could probably win a new term if he was allowed one.

  3. Baldrick

    To move on (as they say) from Trickle Down, you need an easily explained tag that does this effectively and clearly.

    Shit runs downhill – never uphill.

  4. Empire Strikes Back

    Who’d a thunk it? The left making shit up and the MSM giving legs to the lie. I’m shocked.

  5. Abraham

    Perhaps a little authoritarian tyranny and socialist wealth redistribution might remind the good folks of NYC of how wonderfully f****up the communist Utopias of Eastern Europe and the old USSR really were. But then again … perhaps not. Just ask Dennis Rodman … he loves the North Korean paradise where everything has gone to the dogs … literally.

  6. Darryl Adams

    People, do you know how to google?

    http://en.wikipedia.org/wiki/Trickle-down_economics
    http://en.wikipedia.org/wiki/Supply-side_economics

    Variations of Trickle Down have been tried in the US since 1890′s, however it has had numerous names.

  7. Ellen of Tasmania

    I think what most people are thinking about is ‘trickle down’ technology.

  8. Ant

    De Blahsio’s first act as NYC mayor was to clean up the horse shit from the streets around Central Park.

    That could become his most significant achievement.

    I was in NYC several months ago. The streets were dirty and condition of the roads was shocking. The subway, although extensive and seemingly efficient, looked and felt Third World next to cities such as Singapore and Bangkok.

    It’s downhill from there for that city under that communist clown – former hardline supporter of the Sandinistas.

  9. Andrew

    Strangely enough when the R-G-R govt pissed on the rich in their War on Wealth, it splashed all over the poor. 110,000 new unemployed persons (and another 50,000 hidden by the participation rate) during the Gillard term. I don’t recall seeing 110,000 senior bank execs retrenched – seems like a whole lot of people who couldn’t afford it copped a face-full of urine.

  10. Alan Moran

    When I think of trickle down effects I think not of injections to the rich having an incidental benefit to those from whom they buy things but people obtaining wealth from trade, investment or entrepreneurial fortune and then, (a) spending the money they obtain in creating the wealth on goods and services that raise the income of their suppliers, most of whom are local; and (b) cheapening the goods and services obtainable by others.

    In that respect trickle down is the normal process by which income growth takes place. Those contesting it usually try to tax success on the basis that the wealth would be created come what may. Hence the antipathy to the notion by socialists

  11. History

    Free market capitalism is the rising tide that lifts all boats.

  12. .

    Darryl Adams #1140517, posted on January 8, 2014 at 9:23 am

    Variations of Trickle Down have been tried in the US since 1890′s, however it has had numerous names.

    …and it worked – despite the absurd name you give it.

    Lower taxes increase capital investment through increased savings and retained profits. Capital intensity raises real wages. This is standard, non “supply side” economics.

    Take it up with Harrod & Domar, Swan & Solow if you disagree.

  13. Empire Strikes Back

    People, do you know how to google?

    As a matter of fact I do. What’s your point Dazzler?

  14. Megan

    People, do you know how to google?

    Indeed, as a former research librarian, I do.

    As such, wikipedia can be a useful tool but when it comes to matters of authority, authorship, accuracy, credibility, currency, and objectivity, it is not necessarily a reliable one.

  15. Token

    Are you suggesting the leftards are attacking a strawman built to reinforce vile prejudices so poor people ignore the decisions which are being made which hurt their interests?

    I’m shocked. Shock I tell you.

    This article notes how de Blasio is using the lies to hide the fact he promising a return the failed policies which made NY a crime filled toilet:

    Over the last 50 years, two — count ’em, two – early-education experiments arguably produced some slight lasting benefits, but those boutique programs enrolled a mere handful of students and wrapped them in expensive, high-quality services and personnel that could never be (and never have been) reproduced on a large scale, as Manhattan Institute fellow Kay Hymowitz has explained.

    The rest of de Blasio’s platform is similarly familiar. He wants to co-locate social-service agencies in schools (a chestnut dating from the early 1960s Gray Areas program in New Haven), create more “affordable housing” (a perennial favorite of New York’s governing class), and subject the city’s successful public exam schools, which select students by a color-blind entrance test, to heavy-handed “diversity” pressures. He supports “critical thinking” over so-called “rote learning” (i.e., knowledge) and actually views private-sector experience as a disqualifier for a job in his administration. As New York’s public advocate, de Blasio helped eviscerate New York’s welfare-fraud protections; now, he has promised to reverse the city’s policy of asking welfare users to work in exchange for their benefits. The city’s 1.9 million food-stamp recipients — 21 percent of the population — is at least a quarter million recipients too low, per the new mayor.

    …His understanding of conservative ideas comes straight from Howard Zinn: “Some on the far right,” he intoned righteously, “believe that the way to move forward is to give more to the most fortunate. . . . They sell their approach as the path of ‘rugged individualism.’” As Peggy Noonan caustically points out, that latter phrase has not been heard in New York for 100 years.

  16. Hawkeye P.

    “Alan Moran

    #1140545, posted on January 8, 2014 at 9:45 am

    When I think of trickle down effects I think not of injections to the rich having an incidental benefit to those from whom they buy things but people obtaining wealth from trade, investment or entrepreneurial fortune and then, (a) spending the money they obtain in creating the wealth on goods and services that raise the income of their suppliers, most of whom are local; and (b) cheapening the goods and services obtainable by others.”

    This is pretty much spot on, Alan (though you’ve missed the bit about the extra jobs (and their added spending) resulting from entrepreneurial activity stimulated by a less-taxed economic environment), and precisely the mechanism discussed in my economics lectures when doing my B Ec at Monash University during the 80s.

    So, what’s the mystery here? Have we unlearned something?

  17. Jessie

    Steve this is an interesting insight in to the lack of a theory.

    WHO definition of Health (not amended since 1948)

    Health is a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity.

    Professional activists work to implement this definition at a global scale using grass roots [environmental, local government and peoples network] approach:

    The goal of universal health coverage is to ensure that all people obtain the health services they need without suffering financial hardship when paying for them.

    And further developed this definition: What are social determinants of health?

    The social determinants of health are the conditions in which people are born, grow, live, work and age. These circumstances are shaped by the distribution of money, power and resources at global, national and local levels.

    For many decades the activist health brigade in all its garb has supported their argument, taught and published with terms such as trickle down and neo-liberals.

  18. Chris M

    What a classy black US president Thomas would have made instead of the Marxist Moslem charlatan.

  19. Pedro

    WTF? Are there no economists who think that reducing taxes leads to greater investment in capital goods and that investment leads to an increase in productivity and thus wages? Wouldn’t trickle-down be a reasonable shorthand description of how people down the income scale can see a benefit in the long run from tax reductions that lead to increases in investment?

  20. Pedro

    And while I’m at it, you don’t have to be a Keynsian to think that reductions in tax will lead to increases in demand that then spur investment in the supply side. If you reduce marginal tax from 75% to 50%, say, then one of the first effects will be an increase in demand for both consumer and capital goods and investment will respond to those increases . In the long run, wealth can only increase through production, but only an idiot thinks there are no short run effects from changes in the supply of money or in taxation.

  21. .

    Pedro

    I basically did that, didn’t I?

  22. Percy

    Clearly a reduction in the tax load leads to increased investment in business activities and a resultant increase in supply. I’m guessing the protest is to the term used, not the process itself. Personally I don’t have a problem with it. The benefits of ‘trickle down’ are easily explained to the uneducated. I say, take the term and run with it. Make it our own.

  23. Notafan

    After WW II Finland were a whisker from being taken over by Russia but managed to stay capitalist-seemed to work out pretty well for them too.

  24. Hawkeye P.

    “I’m guessing the protest is to the term used, not the process itself.”

    I’m guessing it’s a fundamental lack of understanding (deliberate or otherwise) of what the term means and entails, which the statements these leftists make when framing their objections clearly demonstrate. For example:

    “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.’”

    (Bolding mine.)

    No, Mayor, they believe the way to move forward is to take away less. I dare say Mayor de Blasio is thoroughly welded to his version, however, and will steadfastly remain that way because it excuses his all-pervasive interventions. He’s righting wrongs, doncha know.

    Truth is irrelevant to people like this. As are the outcomes, actually. What they’re about is power.

    PS: ‘trickle down economics’ is a term that’s been around for at least the last 30 years.

  25. gabrianga

    No doubt the new Mayor will derclare himself an “Independent” just like the green loon and major funder of the Dems…former Mayor Bloomberg.

  26. LordAzrael

    I’d argue that it is actually advocated by the right, but in an inverse way. The left describe it as providing incentives to the rich, the right would argue that it is about removing disincentives.

    As the article notes many conservatives argue that high taxes act as a disincentive to entrepreneurial activity – basically if any reward for risk disappears to the govt there is no incentive to the intrepreneur to take risk (i.e. create economic activity). If you believe that high taxes can reduce economic activity, what is classed as “trickle down economics” is merely the corrollory to that. Of course the left frame it in negative rhetoric but the fundamental argument is sound.

    So correctly framed the argument is that reducing the disincentive arising from punative taxes can lead to an increase in economic activity due to the restoration of activity that was destroyed by the institution of the taxes in the first place.

  27. LordAzrael

    Also note leftists commonly believe that increasing taxes (alcohol, cigarettes, gambling, bad foods) etc can reduce behaviour but consistently claim that high taxes on economic activity do not reduce economic activity. Different sides of the same coin.

  28. Pedro

    Mark, my amazement was directed at the post not the comments (though some unthinkingly joined in).

    Hawkeye, it’s old news that a tax cut is a gift to you from the govt and that a tax deduction is a subsidy rather than a definition of your taxable income. Sheesh, there’s a whole progressive world out there doncha know!

    Another stupid thing is that the greatest hero of the relatively sensible left acknowledged that too much redistribution would reduce the capacity of the state to redistribute; the avoidance of which is therefore another version of trickle-down.

  29. Dan

    Sounds like De Blasio wants to reintroduce every trendoid government program of his childhood. Much of it is being currently implemented in California. Coast to coast the US is being wound down

  30. Rob MW

    In the production of agriculture goods the ‘Trickle Down’ theory has been a disaster, not least of which and specific to the Cattle job, trickle down was in effect legislated through the (forced) establishment of ‘Strategic Alliances’, or vertical integration, from retailers down to suppliers. Medium and small suppliers were to be left out in the cold and to their own devices and ingenuity.

    The problem being that profit taking and dividend payments at the top end meant that there is very little left over to actually trickle down to anybody.

    Based on very poor policy, it is a very sorry saga indeed.

  31. Hawkeye P.

    “…trickle down was in effect legislated through the (forced) establishment of ‘Strategic Alliances’, or vertical integration, from retailers down to suppliers.”

    Trickle down (a laissez-faires expression) and market distortions due to regulation do not play well together.

    I’m not at all surprised there were problems, although dividends and profits are inevitably spent (rather than being hoarded, which the erroneous leftist interpretation suggests), so down the line someone benefited.

  32. Capitalist Piggy

    Socialists have their own trickle down theory. If we give more of our freedom and income to the government, it will trickle down and make us all better off.

  33. .

    Rob – you don’t think tax cuts and increased investment/retained profits seeing more capital expenditure helped the annualised returns of operators or wages of workers in ag?

    Ag is warped as a lot of consolidation was of old soldier-settler farms. This has largely taken place and won’t happen much more.

  34. Hawkeye P.

    “If we give more of our freedom and income to the government, it will trickle down and make us all better off.”

    Until the money runs out because no one’s bothering to work as much anymore, let alone be enterprising…

    You’d think the lefties would have woken up to this by now, given we’ve seen this specific anti-dynamic in action for at least the last century.

    But then, for most lefties, leftism isn’t really about ‘social justice’; leftism is about getting even.

  35. Rob MW

    Dot – I’m not talking about that.

    I’m talking about the negative case of this which failed to register when the Government intervened with this and with this.

  36. .

    Surely it can work if you leave it open to being non-exclusive in the future. Contract design might be key.

  37. Rob MW

    Dot – yes……….. but if, and only if Paul Howes was to become the minister of agriculture.

    In all other circumstances the freedom part of ‘free enterprise’ should prevail and not the enforced funding by the vast majority non-aligned ‘free enterprise’ sector for the specific benefit of the Strategic aligned sector and other assorted sucklings.

    Remember, Cattle producers produce live healthy animals which are taxed every time a live animal is sold, the proceeds of which go to promote ‘Meat’ which the taxpayer no longer owns. This legislated action, in turn, is supposed to force an ongoing interest (by the taxpayer) in the upstream chain, and in-effect, force the formation of strategic alliances, the ultimate beneficiaries. The problem is……….the fucking stupid policy failed because only a hand full of producers wanted to align their businesses in this ideological fashion.

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