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The ‘Trickle-Down’ Economics Bogeyman

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.

But, contrary to Mayor de Blasio, this is not a view confined to people on the “far right.” Such liberal icons as Presidents John F. Kennedy and Woodrow Wilson likewise argued that tax rates can be so high that they have an adverse effect on the economy.

In his 1919 address to Congress, Woodrow Wilson warned that, at some point, “high rates of income and profits taxes discourage energy, remove the incentive to new enterprise, encourage extravagant expenditures, and produce industrial stagnation with consequent unemployment and other attendant evils.”

In a 1962 address to Congress, John F. Kennedy said, “it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.”

This was not a new idea. John Maynard Keynes said, back in 1933, that “taxation may be so high as to defeat its object,” that in the long run, a reduction of the tax rate “will run a better chance, than an increase, of balancing the budget.” And Keynes was not on “the far right” either.

  • DogmaelJones1

    Here are some sources for the “trickle down” economic policy. Apparently it was
    started by Will Rogers in the 1920s: Although trickle-down economics is often associated with the policies of Ronald Reagan in the 1980s, the theory dates back to the 1920s. The name also has roots in the ’20s, when humorist Will Rogers coined the term, saying, “The money was all appropriated for the top in the hopes it would trickle down to the needy” [source: Shafritz].

    http://money.howstuffworks.com/trickle-down-economics.htm

    Rogers’ comment cemented negative associations with the theory for several generations to come.

    David Stockman, Ronald Reagan’s budget director, told journalist William Greider: “It’s
    kind of hard to sell ‘trickle down,’ so the supply-side formula was the only way to get a tax policy that was really ‘trickle down.’ Supply-side is ‘trickle-down’ theory.”

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

    Of course, the term “trickle down economics” is a red flag for leftists like Obama and
    de Blasio and any other liberal you care to name.

  • Steven Smith

    Multi-billionaire Bill Gates and friends create Microsoft and in the process enrich all who use their products. This sounds like trickle down economics to me. Henry Ford produces a car that commoners can afford. Sounds like trickle down economics to me.

  • Sindustry

    Technology is not Economics

    I didn’t realize the Sheriff of Nottingham was such a good guy!

    Take from the poor, give to the rich. This will obviously help the poor.

  • Steven Smith

    Really, I thought goods (technology) and services is economics. I thought wealth creation (for instance, technology) is economics. It’s so easy to win an argument when you rig the definitions

  • writeby

    Simplistic reasoning. You fail to distinguish how the folks got rich. In the case of the Sheriff, it was by force of arms, i.e., theft. So in his case, it would be: Steal from the robbing, despotic rich rulers and give (back) to the productive, property owning poor.

    Gee, Robin sure would be busy today if he lived in D.C.

  • writeby

    Technology is a product of a certain form of economics: capitalism.

    Technology under a dictatorship tends to be, well, limited, shall we say.

    Just ask any of those who drove Yugos or Zaporozhets’ or anyone who shopped at the local Soviet Torgsin stores and Kolkhoz markets or even a 1986 Soviet grocery store (http://www.youtube.com/watch?v=jWTGsUyv8IE); or anyone who lived in the vicinity of Chernobyl.

  • Sindustry

    Right so if we rob the rich then everyone is poor. I like simplistic :D

    Truthfully, system is built to make sure the poor can’t get rich.

  • writeby

    If you mean by ‘system,’ the Welfare State or communism, socialism or fascism, you are indeed spot on.

    On the other hand, rags-to-riches bios fill a library under capitalism, from Astor to Jobs.

  • indyop

    Rags-to-riches bios by the bucket full… There’s thousands more about poor people.. but let’s not digress.

  • John J. King

    While there is no trickle down in economic history or literature, there are those on the progressive left who believe so much in its existence that they are attempting to provide their own version of the alchemy. Printing money and passing it on to crony friends in the hope that you will revive a moribund economy is the current fashionable dysfunction of the self deluded presently in power.

  • writeby

    And many millions more stories of poor-to-middle class. Especially in 19th Century America, the only time in history a nation came close to full capitalism. And when self-made industrialists created the most wealth.

    Check the demographics.

    When men are free, the ablest rise and create wealth in the form of productive enterprises for which many, many other ambitious men can work and rise, too.

    Neither a digression nor simplistic.