Why trickle down economics doesn’t work

by Chris Becker

From the chaps at The Renegade Economist, an interesting preview into why trickle down economics – Reagonomics or supply side or more plainly, bullshit economics – doesn’t work and why it has captured the political process.

The IMF recently disproved the theory but like a lot of the stink arising from modern economics, it will take more than proof and hard evidence to reverse a generational quango of politics and money.

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    • Yeah it is truly disgusting. Ideally, any political donations/bribes over $500 or so should be punishable by a large (50%) confiscation of all wealth considering the harm that big money does. Instead, it is celebrated as a human right of free speech.

      Should be very simple to follow such a rule and a referendum on the issue would surely deliver a landslide victory in favour of a ban. A good indicator why we do not really have democracy.

      • I believe it was a Republican stacked Supreme Court that ruled campaign donations were an exercise of “freedom of speech.” Problem is it is only the wealthy that get to be heard. Truly despise Republicans and Democrats alike. As with the LNP and Labor the differences are now on the margins. When it comes to abhorrent American foreign policy, Democrat and Republican alike adhere to the same playbook.

    • Yep – we could do a lot worse than starting with getting rid of the soft corruption of the parties undermining the whole shebang.

    • I watched The News Hour with Jim Lehrer a few years back and they interviewed an author who wrote a book about the Greatest Presidents in US history. He mentioned the fact that when Lincoln was leading the Republican party, at the time it was the progressive party and the Democrats where the conservatives. (Just proves the one constant in life is change). He also mentioned that all of the reforms that were made during that era would not have been possible if they had the political donation process that exists today – a sobering thought. The only thing about the author that I disagreed with was that he included Raygun as one of “the greats” and that made me want to barf. It just goes to show how the vested interests (neo-libs anyone?) have hijacked political/educational/social discourse, especially over the last 100 or so years.

  1. Good ol’ Horse and Sparrow theory…didn’t work the first time, anyone wanna tell me why they tried again?

    • Laffer curves, and it excites fiscal conservatives more than sex.

      Skippy… the graph compelled them with its religious symbolism and iconography…

    • Probably the same reason middle management always thinks we should try the same shit over and over. Because nobody learns from the past, they say things like “Oh but this time it’s different” or “we haven’t tried it this way”, “let’s just give it a try and see if it works”. You can argue till your blue in the face but eventually you’ll be forced to go along with it.

    • George Mason University
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      George Mason himself.

      George Mason University is a distinguished (and sometimes merely distinguishable) public university in Virginia known for its various public outreach and research programs. One of their most well-known programs is their Center for History and New Media, which provides resources for history teachers and hosts the History News Network, a forum for commentary by historians from a number of universities on historical scholarship and current events.

      Unfortunately, it’s also a hotbed of crankery and prime supplier of experts for hire. Most of its crank hires are employed in global warming denial, libertarian wingnuttery, and the occasional creationism. Some of its notable, questionable professors and programs include:
      Contents [hide]

      1 Global warming denial
      2 Intelligent design
      3 Libertarianism
      4 Funding
      5 External links
      6 Footnotes

      [edit] Global warming denial

      Patrick Michaels, “distinguished senior fellow in public policy,” also bankrolled by the Cato Institute.
      S. Fred Singer, physicist, left GMU in 2000. Another occasional Cato hack.
      Edward Wegman, statistician and author of the discredited and plagiarized Wegman Report, cleared after a foot-dragging “investigation” by GMU that violated the university’s own policies on timeliness of such inquiries.

      [edit] Intelligent design

      Caroline Crocker, fired from GMU in 2005 for teaching intelligent design and featured in the film Expelled.
      Sal Cordova, another IDiot. Holds the honor of being Entry #81 on the Encyclopedia of American Loons.

      [edit] Libertarianism

      Their public policy and economics departments employ a number of professors well-known for libertarian views, ranging from ‘meh’ to full-on crazy (again, with some climate denial mixed in for good measure). They’re all part of the Mercatus Center, which is funded by Koch Industries. Persons associated with GMU, past and present include:

      James M. Buchanan, Nobel-winning economist known for developing public choice theory.
      Vernon Smith, Nobel-winning economist and libertarian known for developing experimental economics.

      Wendy Gramm, chair of Mercatus, wife of former Senator Phil Gramm; known for her role in the Enron scandal.

      Peter Boettke, prominent Austrian school economist.

      Tyler Cowen and Alex Tabarrok, economists who run the Marginal Revolution blog. By comparison, a moderate duo who try to eschew denialism and anti-science crankery.

      Arnold Kling and Bryan “Keynes = militant unions” Caplan, the proprietors of EconLog along with David Henderson (a notable climate denier, though not employed by GMU).
      Walter E. Williams, economist infamously known for filling in for El Rushbo on his radio show.

      [edit] Funding

      Why so many hacks and quacks? GMU gets boatloads of funding from ultra-rich libertarian and conservative donors, including the Koch brothers, Richard Mellon Scaife, and ExxonMobil. Charles Koch also sits on the boards of the Mercatus Center and the “Institute for Humane Studies.”[1][2][3] We need to stress the comedy one more time — this is from a campus that is also desperately trying to increase its taxpayer-funded endowment.[4]

      Skippy… the entire school represents the core features in the book the Merchants of Doubt, flimflam sham…

      • 3d1k I have to heavily discount anyone who is a Koch bro lickspittle, who’s employ is at a Uni that is also a well know Koch PR firm in guise.

        George Mason University is a Virginia-based public university near Washington, D.C. A “magnet for right-wing money” [1] and heavily Koch-funded[1], it is notable for hosting over 40 libertarian research centers and affiliates including the Institute for Humane Studies and the Mercatus Center.

        The Koch brothers — David and Charles — are the right-wing billionaire co-owners of Koch Industries. As two of the richest people in the world, they are key funders of the right-wing infrastructure, including the American Legislative Exchange Council (ALEC) and the State Policy Network (SPN).

        Key articles on the Kochs include: Koch Brothers, Koch Industries, Americans for Prosperity, American Encore, and Freedom Partners.

        The university began as the Northern Virginia branch of the University of Virginia in 1957. In 1972 it had grown to the point where it officially separated from its parent institution.

        It became a “magnet for right-wing money” during the 1990s: from 1992 through 1994, 12 libertarian foundations invested a combined total of $8.55 million in various academic programs and institutes of George Mason University.

        It was this funding that help establish (and continues to support) the University’s unrivaled set of libertarian “study centers”, which aim to recruit and support young, free-market-oriented students – typically through paid-for “study trips”, seminars, and placements.

        Skippy… when you make the Chicago school look good… ouch. GMU gives Academe a bad name.

    • What has Tyler Cowen been right about?
      – He diagnosed the US slump as structural, not on the demand side – wrong (where is the inflation)
      – He said Obama shouldn’t undertake stimulus, because long-run costs outweigh short term gains – Wrong, IMF have said so
      – He said the Fed could end the slump through monetary stimulus – 3.9T USD, 3 QE packages and 81 consecutive months of zero interest rates later – Completely wrong

      • The only economists who are never wrong are those who never say anything.

        I like Cowen’s world view, suspect he’s going to be close to the mark re disruption of technology and dramatic change in living conditions for the majority, his obscure taste in books has led me to some gems and although I’m not a foodie, I always read his food blogs, again have benefited from his or his readership’s knowledge of great authentic cuisine spots in cities everywhere.

        Put him on your daily feed http://marginalrevolution.com

    • I don’t think Cowen has truly grasped the inherent inconsistency of his thesis; it is in many regards quite a naïve, ahistorical view of the world and human behaviour. But who knows. You can see how those more inclined to utilitarianism would find Cowen’s reasoning appealing as a justification for maintaining the status quo.

    • On cue, one of Cowen’s pet topics is technological disruption. There is growing concern

      “Fears are mounting that robots could replace as many as one third of jobs in the country, transforming the economy and society .

      The concerns are echoed by a former Cabinet Office adviser, co-author of a new book welcoming technological progress but warning professional jobs will be among those under threat from technology.
      :: The Coolest Robots Around
      In The Future of the Professions, economist Daniel Susskind and legal expert Richard Susskind are calling for the creation of a national task force to investigate the moral constraints needed, as the roles of doctors and lawyers fall increasingly to intelligent machines.
      “The professions are creaking – these increasingly capable machines and systems offer us a way to provide far more affordable access to expertise,” said Daniel Susskind.
      “We are going to see more change in the next two decades than we have in the last two centuries in the professions.”

      When lawyers too realise their jobs are under threat, expect action 😉


      • When lawyers too realise their jobs are under threat, expect action

        Technology has been eating lawyers’ jobs in the States for at least 10 years, and there has been no action, other than some handwringing and an increase in the number of full fee law school places.

  2. It works perfectly for the purpose it’s have been invented: to justify a system in which ruling class is given free hands to exploit the rest of population for personal benefits; and to brainwash exploited class to support it.

    Huge majority of people who support the theory and policies based on it are from exploited class yet they are supporting it – so it works – neoliberals are in power in large majority (if not all) of western developed world.

    • Yes, and the great majority of those from the exploited class that supporting the current political, economic, and financial systems have absolutely no idea of what they are actually supporting and are likely never to since those exploiting run and/or own the institutions responsible for the education of the public, such as, public education systems and media.

      • you mean public and private and religious and independent educational system. The only difference between these is a fee

      • You might be right. Though, I wouldn’t be surprised that in private schools it would be promoted as being the best systems whereas in public schools it would simply be presented as the being the current systems. Of course, in both types of schools the current systems are not critically analysed.

      • I can’t recall in School but can recall this was taught as fact at university along with a lot of other neoclassical economics which have been proven wrong

    • Josh MoorreesMEMBER

      exactly this is the real power of what people call democracy nowadays. The problem with dictatorships is it only works as long as you can control the population, but with our system the population thinks they are in control and that voting for the other team makes a difference. Meanwhile the people who fund the parties (usually both parties equally) are laughing all the way to the bank.

  3. I argue that it does, but not the way we imagine it does.

    It tends to go from the pool at the very, very top to the very, very bottom with almost no one in the middle.

    More like a bush shower than a wine fountain.

    Actually, the Horseshit analogy isn’t too bad. It goes from the rich industrialists to the poor, honest, hardworking peoples of… wherever.

  4. Yeah, but I wouldn’t call it modern economics. It’s been around for 50 years or so, it’s just part of the mainstream dogma supporting a neoliberal agenda. Small government, low regulatory, free market thinkers have pummelled economies with this half arsed framework for so long that commentators think it underpins economic thinking. It don’t …….the theories were promoted out of the 70’s supply side oil shocks to politicise their agenda ….. the twisted ideas of Friedman et al supported by moronic politicians like Thatcher and Reagan.
    It’s interesting that some posters and bloggers on this and other sites who decry the dark side utilise the language of this free market thinking – shows how ingrained the message has become. But things are changing. We are living through the evidence of failed policy based on misused economic theory, so the message that many economists in recent years have been banging on about will eventually get through. A nice start would be for everyone to stop using the jargon and explain what they mean rather than uttering sound grabs. Gets boring.

    • Absolutely,
      It has nothing to do with economics; it’s just ideological prejudice which doesn’t pass Poppers test of scientific theory.
      – Does mainstream economics say tax cuts encourage growth? No
      – 2% stable inflation is better than 5% stable inflation for growth or welfare? No
      – Active fiscal policy is bad? No
      – Welfare State retards growth? No
      – Natural monopolies should be in private hands? No
      – Free trade is always good for growth? No
      – Bubbles are impossible? No

  5. Michael Hudson’s new book, ‘Killing the Host’, is a good look at the parasitic nature of modern finance and the Orwellian use of language that is used to support it.

  6. The intersection of economics and ethics Is the central domain of the societal experience.

    No greater drongo exists than he who proclaims that I am worth and deserve everything I have gleaned from the market. What about the fact that I wasn’t born in Sierra Leone, the car crash that didn’t leave me with physical and intellectual disability, the vaccines I was given? What about Mum, Dad, the schooling they gave me? I could fill the page but you already get the infinite chain of “interdependencies” and “pure luck” I am referring to.

    society must exist to pool risk risk, provide a decent safety net and, equally importantly, to promote equal opportunities through health, education, law and order, civil societyetc If you don’t want to pay the price of civilisation, go live in the wilderness and enjoy the money you make there.

  7. http://www.news.com.au/finance/work/desperate-law-graduates-are-apparently-prepared-to-pay-for-their-jobs/story-fnkgbb3b-1227510570892

    “SO this is what it’s come to.

    University graduates are so desperate to kickstart their careers they’re willing to pay big bucks to land their first job.

    A South Australian law firm is on its way to launching a “unique opportunity” for budding lawyers, offering grads a position that will allow them to receive on the job training for two years at a cost of $22,000.”

    Future of work in this country. You pay your employer to get a job.
    I wonder if its a tax deduction for you ?
    I guess this is what all those foreign students have been waiting for.
    Pay for a degree.
    Then pay for a job.

    • Paying the employer to work! ! Already happens in a lot of low budget airlines for pilots (thankfully not in Australia).

  8. And yet both our major parties are dominated by internal right factions which continue to push trickle down policies and economic theory under other names. Even the Greens try to build sensible policy on an economics foundation that still contains Neoclassical stupidity (presumably because if they refer to anyone who has read Marx they get accused of being watermelons).

    • We are dealing with a matter of faith. Think upon how long it took to break down the long dominant Christian paradigms in Western institutions and thinking, and it gives you some indication of how dark things might become before the penny drops.

  9. Trickle down works excellently for those who created it and their heirs.

    A poor, disorganised population is a desired outcome. If they could work out how, exterminations would start. One way to ensure the propagation of one’s genes is to kill as many of the competition as possible. This has happened time and time again in the last century.