September 15, 2009--Trickle Up
Rarely do we get to see an economic theory tested in real life. Most are so nuanced or qualified that it is difficult to link evidence from experience to predictive behavior.
But there is one glaring exception—the fabled trickle-down theory that has guided conservative Republican tax policy and sought justification for itself for decades.
This theory, which came to considerable prominence during the Reagan administration in the 1980s, over-simply put claimed that dramatic tax rate cuts for the wealthiest were justified since these people are our most productive citizens and if they are allowed to keep more of their money it would be good for everyone. The benefits would trickle down.
The seemingly twisted logic of this—since there were at the time no comparable tax cuts approved for middle- or working-class people—that this tax relief bounty for the most affluent would work its way down to produce equivalent benefit for the less productive--was promoted to Americans by asserting that the affluent, with the money they would not have to pay in taxes, would in turn invest these savings and create businesses and jobs that would benefit everyone. Millions of new jobs would be established in the process, the middle class and working poor would see their lot in life improve, and those at the bottom of the economic pyramid would be rescued from the despair of poverty.
The almost religious belief in the power of the free market—unfettered by the interventions of government regulation and tax policy—was purported to be an eternal truth, which, if allowed to function freely, would be good for all. Thus it was asserted.
The latest report from the Bureau of the Census, the Current Population Survey, however, puts the lie to much of this.
Yes, while the wealthiest five percent have benefited mightily from both the massive Reagan and more recent Bush tax cuts, pocketing trillions of dollars (all added to our debt) and benefiting from the further concentration of wealth, the rest of us have slipped further and further behind and the net-worth gap between “them” and “us” has widened and widened. Though made worse by the recent Great Recession, if you look closely at the data in the Survey and especially its dramatic charts and graphs, it is sadly not difficult to find the economic and social wreckage that has been the real result of this theory.
The linked New York Times article offers a glimpse of some of the key findings. Let me here tick off a few.
Assuming ideological conservatives actually care about the rate of poverty, or if they more honestly allow themselves to feel that at its most blatant, according to the natural law of the Market, those who wind up in poverty are there because they deserve to be (they had every opportunity to succeed but didn’t), the Survey starkly reveals that between the 1960s, when the War on Poverty was implemented, poverty rates declined significantly—from about 23 percent in 1960 to “only” 12 percent by 1970. So in spite of all the ranting that this War initiated by political liberals failed, it in fact succeeded.
But then when trickle-down free-marketeers came to power—during the Reagan and first Bush administrations and then more recently with George W. Bush—the poverty rate soared. Up about five percentage points during each of these three presidencies.
In regard to the middle class, as evidence that trickle-down theory is not only bad for the poor, they too did not benefit. The Survey reveals that since 1999, median family income has not kept pace with inflation. In 2008, to cite just one year, even before the full impact of the recession, adjusted for inflation, it fell to $50,300 from $52,200. In the words of Lawrence Katz, an economist at Harvard, “We’ve seen a lost decade for the typical American family.”
No wonder tea-baggers are rallying in anger and shouting down any governmental attempts to bail out corporations or bring healthcare benefits to the under-covered and uninsured. They see this as more of the same—government claiming that it is our friend when all their experience tells them that it is a big part of the problem.
But ironically these understandably frustrated people are missing the real point—that the failed policies that have victimized them were not in truth designed to benefit them directly. Instead, they were supposed to be indirect, one-off beneficiaries. Bring relief to the rich, they were sold, and the rest of us would be helped by their entrepreneurship and largess. It seems that this hasn’t quite worked out as well as promised. The latest data are the evidence of that continuing failure, that deception.
But there is one glaring exception—the fabled trickle-down theory that has guided conservative Republican tax policy and sought justification for itself for decades.
This theory, which came to considerable prominence during the Reagan administration in the 1980s, over-simply put claimed that dramatic tax rate cuts for the wealthiest were justified since these people are our most productive citizens and if they are allowed to keep more of their money it would be good for everyone. The benefits would trickle down.
The seemingly twisted logic of this—since there were at the time no comparable tax cuts approved for middle- or working-class people—that this tax relief bounty for the most affluent would work its way down to produce equivalent benefit for the less productive--was promoted to Americans by asserting that the affluent, with the money they would not have to pay in taxes, would in turn invest these savings and create businesses and jobs that would benefit everyone. Millions of new jobs would be established in the process, the middle class and working poor would see their lot in life improve, and those at the bottom of the economic pyramid would be rescued from the despair of poverty.
The almost religious belief in the power of the free market—unfettered by the interventions of government regulation and tax policy—was purported to be an eternal truth, which, if allowed to function freely, would be good for all. Thus it was asserted.
The latest report from the Bureau of the Census, the Current Population Survey, however, puts the lie to much of this.
Yes, while the wealthiest five percent have benefited mightily from both the massive Reagan and more recent Bush tax cuts, pocketing trillions of dollars (all added to our debt) and benefiting from the further concentration of wealth, the rest of us have slipped further and further behind and the net-worth gap between “them” and “us” has widened and widened. Though made worse by the recent Great Recession, if you look closely at the data in the Survey and especially its dramatic charts and graphs, it is sadly not difficult to find the economic and social wreckage that has been the real result of this theory.
The linked New York Times article offers a glimpse of some of the key findings. Let me here tick off a few.
Assuming ideological conservatives actually care about the rate of poverty, or if they more honestly allow themselves to feel that at its most blatant, according to the natural law of the Market, those who wind up in poverty are there because they deserve to be (they had every opportunity to succeed but didn’t), the Survey starkly reveals that between the 1960s, when the War on Poverty was implemented, poverty rates declined significantly—from about 23 percent in 1960 to “only” 12 percent by 1970. So in spite of all the ranting that this War initiated by political liberals failed, it in fact succeeded.
But then when trickle-down free-marketeers came to power—during the Reagan and first Bush administrations and then more recently with George W. Bush—the poverty rate soared. Up about five percentage points during each of these three presidencies.
In regard to the middle class, as evidence that trickle-down theory is not only bad for the poor, they too did not benefit. The Survey reveals that since 1999, median family income has not kept pace with inflation. In 2008, to cite just one year, even before the full impact of the recession, adjusted for inflation, it fell to $50,300 from $52,200. In the words of Lawrence Katz, an economist at Harvard, “We’ve seen a lost decade for the typical American family.”
No wonder tea-baggers are rallying in anger and shouting down any governmental attempts to bail out corporations or bring healthcare benefits to the under-covered and uninsured. They see this as more of the same—government claiming that it is our friend when all their experience tells them that it is a big part of the problem.
But ironically these understandably frustrated people are missing the real point—that the failed policies that have victimized them were not in truth designed to benefit them directly. Instead, they were supposed to be indirect, one-off beneficiaries. Bring relief to the rich, they were sold, and the rest of us would be helped by their entrepreneurship and largess. It seems that this hasn’t quite worked out as well as promised. The latest data are the evidence of that continuing failure, that deception.
posted by Steven Zwerling at
5:07 AM
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home