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.

The 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.

Ronald 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.

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.