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Trickle Down Economics

Policy & Politics

“Trickle Down Economics” Is A Lie Designed To Make Rich People Richer

A report from the World Inequality Lab explodes several myths about the global economy, especially the old canard that giving more money to the rich will result in more money for ordinary people. That myth has now been conclusively proven to be a lie (again).

We have been hearing about “trickle down economics” since Ronnie Rayguns was striding around the White House ripping solar panels off its roof. The theory is simple: give more money to rich people and they will invest that money to create more industry, more jobs, and more wealth for everyone. Horse puckey. Give rich people more money and they will stuff it into their own pockets faster than it takes Superman to jump over tall buildings, and then will scream for more.

World Inequality Report and trickle down economicsThe most recent example? The recent tax law passed by Congress designed to shovel gigadollars toward wealthy individuals and corporations. Since the Trumpenator signed that legislation, corporations have used the majority of their newfound wealth to fund enormous share repurchase plans, which fatten their stock prices while diminishing the power of shareholders. Since executive compensation at the upper levels is based primarily on stock price, the fat cats in the C suites now have billions more in personal wealth than they did 6 months ago. Meanwhile, Congress is hard at work figuring out how to slash funding for Medicare and Medicaid while eviscerating Social Security to pay for that billionaire booster.

Here’s an example of how the system works: Walmart made a big show of paying bonuses to some of its employees. Then it laid them off. They are eligible to apply for reinstatement, however, provided they accept lower wages. See how the little people get it in the neck every time? The rich get richer. Everybody else gets a slap in the face. Welcome to the brave new world of benevolent corporatism.

A report from the World Inequality Lab makes the lie behind “trickle down economics” crystal clear. The report is featured in the March edition of the Harvard Business Review. The stated mission of the Lab is set forth in the Executive Summary of the report: “By developing this report, the World Inequality Lab seeks to fill a democratic gap and to equip various actors of society with the necessary facts to engage in informed public debates on inequality.” The Executive Summary is available in 8 languages.

“The series presented in this report rely on the collective efforts of more than a hundred researchers, covering all continents, who contribute to the database. All the data are available online on and are fully reproducible, allowing anyone to perform their own analysis and make up their own mind about inequality.”

3 Myths Exploded

Myth #1: Globalization Leads To A Decrease In Income Inequality

This one is just flat out wrong, the report shows. HBR explains why. “Inequality between individuals across the world is the result of two competing forces: inequality between countries and inequality within countries. For example, strong growth in China and India contributed to significant global income growth, and therefore, decreased inequality between countries. However, inequality within these countries rose sharply. The top 1% income share rose from 7% to 22% in India, and 6% to 14% in China between 1980 and 2016.

“Until recently, it has been impossible to know which of these two forces dominates globally, because of lack of data on inequality trends within countries, which many governments do not release publicly or uniformly. The World Inequality Report 2018 addresses this issue, relying on systematic, comparable, and transparent inequality statistics from high-income and emerging countries.

“The conclusion is striking. Between 1980 and 2016, inequality between the world’s citizens increased, despite strong growth in emerging markets. Indeed, the share of global income accrued by the richest 1% grew from 16% in 1980 to 20% by 2016. Meanwhile, the income share of the poorest 50% hovered around 9%. The top 1% — individuals earning more than $13,500 per month — globally captured twice as much income growth as the bottom 50% of the world population over this period.”

Myth #2: Income Trickles Down

Trickle Down EconomicsThis myth refuses to go away. Like Charlie Brown attempting to kick the football, Americans in particular continue to buy this line of codswallop over and over again despite abundant proof that they are being lied to. As just one idiotic example, Trump’s latest member of the Cabinet Of The Week Club, Larry Kudlow, is a Reagan-era holdover who continues to beat the “trickle down” drum. From HBR:

“The second belief contests that high growth at the top is necessary to achieve some growth at the bottom of the distribution, in other words that rising inequality is necessary to elevate standards of living among the poorest. However, this idea is at odds with the data. When we compare Europe with the U.S., or China with India, it is clear that countries that experienced a higher rise in inequality were not better at lifting the incomes of their poorest citizens.

“Indeed, the U.S. is the extreme counterargument to the myth of trickle down (emphasis added). While incomes grew by more than 600% for the top 0.001% of Americans since 1980, the bottom half of the population was actually shut off from economic growth, with a close to zero rise in their yearly income. In Europe, growth among the top 0.001% was five times lower than in the U.S., but the poorest half of the population fared much better, experiencing a 26% growth in their average incomes.

“Despite having a consistently higher growth rate since 1980, the rise of inequality in China was much more moderate than in India. As a result, China was able to lift the incomes of the poorest half of the population at a rate that was four times faster than in India, enabling greater poverty reduction.

“The trickle down myth may have been debunked, but its ideas are still rooted in a number of current policies. For example, the idea that high income growth for rich individuals is a precondition to create jobs and growth at the bottom continues to be used to justify tax reductions for the richest, as seen in recent tax reform in the U.S. and France. A closer look at the data demands we rethink the rationale and legitimacy of such policies (emphasis added).”

Myth #3: Trade And Technology Are Responsible For Rising Inequality

HBR has the antidote to that myth. “It is often said that rising inequality is inevitable — that it is a natural consequence of trade openness and digitalization that governments are powerless to counter. But the numbers presented above clearly demonstrate the diversity of inequality trajectories experienced by broadly comparable regions over the past decades.

“The U.S. and Europe, for instance, had similar population size and average income in 1980 — as well as analogous inequality levels. Both regions have also faced similar exposure to international markets and new technologies since, but their inequality trajectories have radically diverged. In the U.S., the bottom 50% income share decreased from 20% to 10% today, whereas in Europe it decreased from 24% to 22%.

“Rather than openness to trade or digitalization, it is policy choices and institutional changes that explain divergences in inequality (emphasis added). After the neoliberal policy shift of the early 1980s, Europe resisted the impulse to turn its market economy into a market society more than the US — evidenced by differences on key policy areas concerning inequality. The progressivity of the tax code — how much more the rich pay as a percentage — was seriously undermined in the U.S., but much less so in continental Europe. The U.S. had the highest minimum wage of the world in the 1960s, but it has since decreased by 30%, whereas in France, the minimum wage has risen 300%.

“Access to higher education is costly and highly unequal in the U.S., whereas it is free in several European countries. Indeed, when Bavarian policymakers tried to introduce small university fees in the late 2000s, a referendum invalidated the decision. Health systems also provide universal access to good-quality healthcare in most European countries, while millions of Americans do not have access to healthcare plans.

“Re-examining these pervasive beliefs around globalization and its impacts on global inequality is more important now than ever before. Using new data from the World Inequality Report is the first step in rectifying these myths and generating a new public discourse that has the potential to effect long-lasting, systemic change.”

[Editor’s note: As an American living in the US, I thought European policies regarding such matters seemed more sensible. After living in Europe for a decade, and especially upon plans to move back to the States for some time, I can’t help but view the educational and health care systems in the US as insane and “underdeveloped.” Europe is at another tier of civilization with these policies, in my opinion, and the American public suffers a great deal from not catching up. The US does have various benefits of its own, but our deep deficiency in equitable education and health care is like heart disease for our society.]

The Wrap Up

When a writer such as myself quotes extensively from another writer, it is the highest of compliments. The HBR article was written by Lucas Chancel, who acted as the general coordinator of the World Inequality Report 2018. He is the co-director of the World Inequality Lab at the Paris School of Economics and teaches at Sciences Po. I find his writing to be unusually clear and concise. He does a better job explaining the inequality report than I ever could, which is why I have relied so heavily on his explanations.

His writing makes it abundantly clear the American people have been hoodwinked on economic policy by their leaders — whether Republicans or Democrats — going back to at least the Reagan administration. Insanity is doing the same thing over and over while expecting different results. By that definition, the US electorate is clinically dysfunctional.

But that hasn’t happened by chance. As pointed out in our recent article on evangelicals and climate change, the very people who stand to profit the most from policies that slam ordinary citizens the hardest are in complete control of the news media, the courts, the Congress, and the White House. It’s no wonder people vote against their own economic interests again and again.

The game is called “divide and conquer” and it has been well known since at least the days of Sun Tzu in 512 BC. The appeal to single-issue voters made easier by digital communications means whenever the people begin to get a whiff of the deceit rolling downhill towards them, the masters of the universe distract them with cries of “What about abortion?” or “What about transgender kids urinating in the wrong toilet?” or “What about forcing people to bake cakes that offend their religious principles?” or “Carrying a rifle that spits out 100 bullets a minute is right guaranteed by the Constitution!”

When the smoke clears, the rich get what they want and the rest of us get bupkes. If you are a single-issue voter, you are not a patriot, you are just a patsy begging to be manipulated by special interests who do not have your best interests at heart. At least as far as American politics is concerned, it is clear that both political parties have aligned to punish the majority in order to enrich the minority.

America desperately needs new political institutions. That’s the conversation we should we be having now, not whether Trump did this or Nancy Pelosi said that. The students at Parkland High School have shown us we don’t have to accept being be stepped on by our government and its so-called leaders. If the people will lead, their leaders will follow. Let the leading begin!

Update: Here is a headline from The Guardian on April 7, 2018:  Richest 1% on target to own two-thirds of all wealth by 2030. If you aren’t pissed off by how the hogs are gorging themselves at your expense, you just aren’t paying attention.

Don’t think for a minute these people give a flying fig leaf about you. They are largely in it for themselves and only themselves. They deliberately pit us against each other so they can rob us blind while we are busy fighting each other. We can choose to not let this happen, but it means taking off our “single issue” blinders and talking to each other rather than past each other.

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