Trickle-Down Nonsense

The following is from the blog Economics Online Tutor, well worth a visit for the entire post:

Fallacies of Republican Party and Trickle Down Economic Policies

Trickle down economics is the main source of the problems facing the economy over the past 30 years or longer. Trickle down economics is nothing more than wealth redistribution to the very rich.

No matter how progressive the income tax rates are, the wealthy never lose wealth from the tax rates, and the poor never gain wealth from the tax rates. The system says that wealth redistributes upward, always. When the tax rates on the rich are lowered, this means that it redistributes at a faster rate. The question becomes, not whether the rich deserve more, but how much the new gains should be taxed. In the past the economy simply worked better when the income tax rates were more progressive. They have become much less progressive, due to lower rates at the top and more loopholes, and the overall economy has suffered because of it. These changes are due to “trickle down” concepts. In a practical sense, the change from “how it used to be” to “how it is now” is by definition a redistribution. Trickle down economics redistributes wealth to the rich. The result is that the gap between the wealthy and everybody else has grown tremendously by these policies; the American dream of upward mobility is available to fewer people. The middle class is shrinking. The poor are becoming poorer. These changes mean less economic activity, fewer jobs, less money for basic purchases that create the incentives for investment and job growth, and more people living in poverty in the richest nation in the world. We have the resources to eliminate this poverty, but we choose, through economic policies based on a misguided philosophy and fear tactics that falsely characterize the alternatives, to maintain and compound these problems.

The first pie chart in the first image shows clearly that prior to the widespread implementation of trickle down economic policies in the Reagan administration, the rich (shown here as the top 10% of income earners) received more of the income gains per person than everybody else. This is consistent with market incentives for innovation, investment, and risk-taking under all market-based economic schools of thought. But the top 10% did not receive everything: they shared one-third of all income gains among 10% of earners; the lower 90% shared the other two-thirds. The rich gained more, but everybody gained. Just as economic theory would suggest. By having gains throughout the different classes of earners, the economy could keep moving ahead with consumption, investments, savings, and wages.

But over time, under policies consistent with trickle down economics, that has all changed. The second pie chart in that first image shows that the gains have ALL gone to the top 10%, with the top 1% receiving most of the gains. The bottom 90% has received NO gains – this group has actually lost income. The result is that the largest segment of the economy has lost purchasing power. The standard of living for most Americans has either declined, or has been maintained only through borrowing. Notice that this chart immediately precedes the Great Recession, which was brought on largely due to credit bubbles. Without purchasing power, people will spend less and save less. This equates to less investment, less production in the economy.

These charts and many similar charts have been circulating around Facebook pages. They get shared often, and the information on who originated them sometimes gets lost in the process. These are sourced in regards to the data being used, and are consistent with what is known through many sources, including both private and government sources. To see more such images, check out the photo albums on the Facebook page for this website.

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