It Trickles Up … Not Down!

Posted on by under Economic issues, Global Issues, Political commentary, Social commentary

Can She Really Be So Stupid???

Liz Truss, the new Prime Minister of the United Kingdom who replaced bumbling Boris Johnson, has proven in a relatively short time that she is a damned fool.  She is leading the UK down a path to economic disaster and not only that, but she wants all other western nations to follow her down that pathway to nowhere.  In a recent interview, echoing Donald Trump, she said …

“We do have to take difficult decisions to get our economy right. We have to look at our tax rates. So corporation tax needs to be competitive with other countries so that we can attract that investment.”

And so, for the sake of Ms. Truss, the good citizens of the United Kingdom, and as a reminder to the people of the United States, I am reprising a portion of my 2017 post here, explaining why and how ‘trickle down’ economics is a myth … a fool’s errand.  I have cut some of the original post out because the post was lengthy (over 1600 words) and a part of it was about Trump at that time (2017) and his proposals, now irrelevant. But somebody please pass this on to Ms. Truss so that perhaps she can gain a smidge of understanding about how the real world works and so that the UK doesn’t have to follow the U.S. down that damned disastrous pathway!

Trickle-down economics is a theory that says benefits for the wealthy trickle down to everyone else. It is a theory that makes sense … on paper.  In reality, it has been tried more than once and proven that it does not work.  Repeat after me:  Trickle-down economics does not work.  It does not trickle down, but rather pools in the bank accounts and investment portfolios of those who already own most of the nation’s wealth.

economy-8The theory is that if the government provides substantial tax cuts, industry de-regulations, and negotiates trade agreements that favour the big businesses of the nation, those big businesses will earn higher profit margins, and will therefore use their additional wealth to build more factories, hire more people, create more jobs, increase workers’ wages and benefits. The workers will have more money to spend, will buy more ‘things’, thereby increasing the profits of the big businesses who will use that additional profit to … well, you get the picture, right?  Sounds about right, don’t you think?  Yes, it sounds good, looks good on paper or white boards in boardrooms and congressional offices around the nation … but it does not work in reality.

economy-3Ronald Reagan tried it in the 1980s, thus leading to some calling it ‘Reaganomics’.  It did not work.  The U.S. economy was in a slump when Reagan took office in 1981, so he did two things:  lowered taxes and increased government spending.  Now, at this juncture I want to take a minute to let you know that I do not intend to provide a lesson in economics.  I am savvy enough, but I am not an economist, and I typically leave these discussions to fellow-blogger Erik Hare over at Barataria.  But Erik sometimes goes into more depth than is needed, as he IS an economist.  Since I am not, I will put what little explanation I deem necessary in layman’s terms.  So, using an over-simplification to explain what happened under Reagan …

Think of it on a personal level.  You decide you want to enjoy life more, so you cut back your hours, thereby reducing the income from your job.  At the same time, since you want to enjoy life more, you spend more money on such things as dining out, travel and household goods & clothing.  For a while, perhaps, life is great, but then … the homeowner’s insurance comes due, there is a huge auto repair, and your daughter starts college.  Uh-oh … it just caught up with you and now you must take out … loans.  Go further into debt.

This is what happened under Reagan.  He decreased the federal revenue by cutting taxes, increased federal spending in order to stimulate the economy, and for a while there was the illusion that it was working.  People had more money, and spent more, and they were happy.  But … time came to pay the piper and the money wasn’t in the treasury, so our federal debt tripled from $997 billion in 1981 when Reagan took office to $2.85 trillion in 1989 when he left office. Money is a finite resource.  If you rob from Peter to pay Paul, as the saying goes, then soon you will need to rob from somebody else to pay Peter back.  And remember that debt is not free.  Take out a loan for that new car, and you will pay approximately 4.5% in interest.  The federal government must also pay interest on its debt.

Then in 2001, George W. Bush tried the theory once again, cutting income taxes in an effort to stimulate the economy.  Which it did … temporarily, until unemployment began to rise.  So in 2003, he further cut taxes on business.  According to the theory, the tax cuts should have helped people in all income levels. In fact, the opposite occurred. Income inequality worsened. Household income rose 6 percent for the bottom fifth. And 80 percent for the top 1 percent who saw their income triple. Instead of trickling down, it appears that prosperity trickled up.

economy-4

Okay, so we see that it does not work, but why?  I could point you to any number of studies with lots of graphs and charts to show inverse correlations, etc., but we would all be bored.  The bottom line, I firmly believe is multi-fold.  First, tax cuts reduce the revenue of the federal government, meaning that, since our government will almost never cut military spending, it will instead cut funding for social welfare programs, meaning the lowest income families will actually have less spending power.  Second, federal debt will have to increase to cover the deficiencies caused by the tax cuts.  And … here is, perhaps, the biggest reason:  GREED.  Big businesses that benefit from tax cuts are typically corporations who owe their very existence to their stockholders.  They will keep those stockholders happy with higher annual dividends before they consider paying their employees higher wages or increasing benefits, let alone hiring additional staff.  Purchasing additional factories?  Perhaps, but that is not likely to increase jobs significantly, especially with today’s rapidly growing technological advances cutting jobs in many fields.

The bottom line is that if you give the wealthy more money, they will NOT share it with ANYBODY … they will hoard it.  We have had a federal minimum wage rate of $7.25 since 2009 … 13 years … while the CPI (Consumer Price Index) has risen during that period by 27%.  Corporate profits have increased dramatically during that same period.  No, my friends, one last time …

TRICKLE DOWN ECONOMICS IS A MYTH … IT DOES NOT HAPPEN!!!

Wake up, Ms. Truss.

55 thoughts on “It Trickles Up … Not Down!”

  2. It’s really quite simple. The Government now consists of lying, corrupt, self-serving bastards whose sole concern is to line their own pockets and those of their rich friends. They don’t give a flying f*ck about anyone else.

    Liked by 1 person

  4. I think there may be one or two wealthy people who would give “extra” money to the poor, but not enough to make any significant difference. The wine glasses and cartoons do a good job of clarifying reality.

    Liked by 2 people

  5. Trickle Down Economics [TDE] is like Marxism – nice in theory, useless in practice. Why? Because neither theory takes human nature into account.
    Marxism is based on the idea that humans will /want/ to share the wealth…out of altruism. TDE is based on the idea that self interest will make humans want to share the profits.
    Marxism is wrong because humans are not, as a species, altruistic. That’s why Capitalism is a better fit for our innate self-centredness. TDE is wrong because humans are not, as a species, capable of long term thinking. In any contest between ‘I grab a pot of gold now’ and ‘I share now and grab a bigger pot later’, the /now/ always wins.
    In the past, capital was forced to make concessions to labour because labour was needed to build wealth. These days? Corporations are automating as fast as their grubby little budgets will allow.
    The modern world is very different to the world I grew up in, but the theory makers are still working with outdated concepts and realities. The crunch, when it comes, will be painful.

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    • I will dispute that every day of the week. Humans can learn not to be greedy. Humans can learn to be altruistic. Capitalism prevents altruism while praising greediness. Marxism offers true equality. As long as we have capitalism, the majority of the people suffer in one way or another, and it is getting worse every year. The only people who would suffer under Marxism are the ones who never have enough, who always want more than others have — i.e., capitalists. Get rid of the capitalists, and true Marxism becomes possible. Don’t get rid of the capitalists, and the world ends. Your choice!

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      • Ugh…I wish I could agree with you…but I can’t. Human nature will out. It always does.
        I was born in Hungary and returned there in 1973 [while it was still part of the Iron Curtain] to visit relatives. What I found was that the communist system had brought out the very /worst/ in people. Not the best. Young girls selling sex for a pair of nylon stockings [from a ‘rich’ Westerner]. Work colleagues back stabbing each other in order to get a little bit higher, earn a little bit more, ‘get’ a few more consumer goods.
        Honestly, Hungarians had become defacto capitalists – small scale but very, very nasty. Imho, capitalism is ok when there is actually competition in the market place. AND it’s properly regulated.
        What we have at the moment is not capitalism. It’s corporatism, and the most telling thing about corporatism is that it stiffles competition, eats it up until only a few massive corporate entities are left. They are defacto monopolies because they’re really only pretending to compete.
        As for humans, I believe that roughly 1/2 of the world’s population is even capable of the empathy required for altruism. The other 1/2 can be cowed into ‘acting’ in an altruistic way, but it’s under duress. Release the social pressures that force them to behave and…you get the world in which we’re currently living.
        I wish I had a better opinion of humanity but… -sigh-

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    • Very astute observations, my friend, and you are exactly right! Both Marxism and ‘trickle down theory of economics’ fail to take into account the greed that is inherent in human nature. And what they all fail to realize is that money has value only so long as we all agree that it has value. In and of itself, that gold coin or hundred dollar/pound/ruble bill is worthless. The 99% of us who aren’t wealthy will have less to lose when that point is finally driven home.

      Liked by 1 person

  6. Yes, she really is that stupid. I just wonder how much more damage she and her party will inflict on our country before they hopefully become history in two years. They have had twelve years in power and the country is in an infinitely worse state than when they took over. Brexit was a disastrous act of mass suicide and it went downhill from there, and is still going.

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  7. So, in essence, the new tax cut, doesn’t help those who are, actually, in need, but adds more cash, into the pockets of those sho already have, too much to, kinda reminds us of, how Trump did it, during his, presidency, doesn’t it…

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    • Tax cuts almost never actually help those who need it, but are geared to help the wealthiest. Yep, Trump was one of those who believed that the wealthy were entitled to more than the lion’s share, while the other 99% should be thankful for the tidbits thrown their way.

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  9. Jill, Well said. I pulled a reference from a recent post regarding a similar theme:

    I should also caution my British friends they are in for an even rockier road with new Prime Minister Liz Truss’ infatuation with trickle-down economics, which has been proven in five studies to have failed. The state of Kansas recently had a huge failure with this theory and almost went bankrupt before it was overturned. Per Mother Jones, “After years of budgetary ruin, Kansas’ experiment in trickle-down economics is finally coming to a close. Late Tuesday night, the state Legislature voted overwhelmingly to override a veto from Gov. Sam Brownback and increase a slew of taxes in the state.” Trickle-down economics is not the best of names, but it is better than what it was called in the late 1890s – the “Horse and sparrow theory,” meaning what you feed the horse (the wealthy) is excreted to feed the sparrows (everyone else).

    It should also be emphasized that one of those studies was conducted by the nonpartisan Congressional Research Service. I know this as it is reported by The New York Times that Senate leader Mitch McConnell had the study buried in the late summer of 2012 as presidential candidate Mitt Romney was campaigning on, you guessed it Trickle-down economics.

    Keith

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    • PS – Two more fun facts. First, George HW Bush, who later became Reagan’s VP, called Reagan’s Trickle-down economics “Voodoo Economics” during the 1980 presidential campaign. Second, the younger Bush had a Sec. of the Treasury named Paul O’Neill who said in the press the tax cut was not needed as Bush unbalanced Clinton’s net positive budget. Bush fired O’Neill and we have not had a non-deficit budget since. On anecdotal basis, I later saw on Bill Maker’s show one of Reagan’s advisors named David Stockman tell another Reagan advisor named Arthur Laffer that Trickle-down economics did not work. Laffer was the Reagan architect. Keith

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      • He called it “Voodoo Economics” did he? And him a Republican, too! Shouldn’t that speak volumes? And on that last point, with Stockman and Laffer … OH THE IRONY! Thanks, Keith!!!

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    • The “horse and sparrow theory” … I think I’ve heard that before … how very apt! Love it! And old Mitchie McConnell had the study buried, did he? What a surprise … not. You’d think that after decades of the ‘trickle down’ theory being disproven time and again, people would wake up. I guess we believe what we want to believe, that which makes us feel good and gives us hope, even though it is false hope.

      P.S. I did get your email and will respond soon … sorry, I’m behind on everything at the moment!

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      • Jill, the Kansas example is recent and very telling. In North Carolina, Republicans will say they did Trickle-down economics, but they actually increased fees on various services when they reduced taxes. That is a reason revenue did not decline. As for Mitch, he should be well remembered for his Machiavellian nature. Keith

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