It’s not just the right that’s in thrall to the fantasy of trickle-down economics

We’ve had centrists willing to critique this dangerous myth for decades, and there has been no let-up in the implementation of policies that turn out to be trickle-down in a trenchcoat

Phil McDuff
Sunday 25 September 2022 18:10 BST
Fallout and reaction to Chancellor Kwasi Kwarteng's mini-budget

The phrase “trickle-down economics” is rearing its ugly head in the news again, following the appointment of Liz Truss as prime minister and the introduction of “trussonomics”.

The new chancellor, Kwasi Kwarteng, has introduced the largest package of tax cuts since 1972. All economic policies that emphasise tax cuts disproportionately benefit the wealthy, but the particulars of Trussonomics thumb the scale more than most: analysis by the Resolution Foundation has found that almost two-thirds of the benefits of these new tax cuts will go to the 20 per cent of households with the highest income.

This move is widely seen as a return to the heyday of the economic ideology touted by Margaret Thatcher and Ronald Reagan, and appears to put Truss directly at odds with the president of the USA, Joe Biden, whose White House recently tweeted that he is “sick and tired of trickle-down economics”. Labour’s shadow chancellor Rachel Reeves quoted the White House tweet, simply adding “me too”.

Truss’s team, for their part, have denied that this is the plan, with a Foreign Office minister saying: “There’s no way you could describe our approach as trickle-down.” But they are also marketing the Budget as “The growth plan”, so presumably this government does, in fact, believe that you get economic growth by giving money to rich people.

The problem with arguing over the terminology is that trickle-down economics is not really an economic policy – it’s a prediction. “If the rich get richer, then some of this money will flow downhill to the rest of the economy.” The phrase “trickle-down” itself originates with the American satirist Will Rogers in 1932, and has historically almost always been used by critics of particular policies, as a mark of derision, rather than by their advocates.

While there isn’t really a formal economic theory that you could call trickle-down economics, there very much is an ideological position that can be defined in this way. The idea that the rich are the drivers of growth and prosperity, and that the rest of us ought to be pathetically grateful that they are here to help us out, is part of the bedrock of the right-wing approach that, explicitly or not, underpins most of the policy decisions in capitalist states.

The evidence supporting this ideology is very thin indeed, and even the theoretical basis for it is sketchy. When the rich have a surfeit of money, they do not, for the most part, reinvest it in a productive capacity. Far more often, they drive up asset prices, seek economic rents to capture, or shift their accumulated money offshore to avoid getting taxed.

When their money is occasionally turned towards actual economic activity, they have a bias towards chasing quick returns. This can lead to predatory asset-stripping, as we’ve seen with Thames Water, or getting scammed by smooth-talking Next Big Thing hucksters who will gladly throw billions of dollars into a big pit and set it on fire, or simply following the crowd into the next boom and bust.

Through tax cuts and deregulation, the right wing promises the freeing up of money and dynamism in the economy, which it claims will result in shared prosperity for all. But this must be contrasted with the current overlapping crises in the UK – including a long-term decline in living standards, stagnating wages, energy markets so broken that the government has been forced to introduce a £60bn support package to prevent widespread bankruptcy, and a huge increase in personal debt, as people’s bills outpace their incomes.

Whether Trussonomics is explicitly badged as trickle-down or not, the impetus to funnel money upwards to the wealthy and claim that this will result in growth is still clearly alive and well. Despite the evidence that it doesn’t actually work, it’s not hard to see why it’s so stubbornly embedded in our political consensus. The people in charge of society, by definition, did well out of the current system. They are rich and powerful, and wish to remain so.

As such, they are going to be susceptible to believing anyone who tells them that the rich and powerful are important and necessary dynamos of growth who should be protected and nurtured, rather than, as the evidence of our eyes seems to suggest, bumbling wastrels sitting on top of massive hoards that the rest of us could use to, for instance, stay warm this winter.

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It is this motivated reasoning that explains why the fundamentals of trickle-down economics are so prevalent in policymaking on the right, and why we should be sceptical of the liberal politicians like Biden and Reeves who point out its failures. They are just as much products of the elite consensus as their right-wing counterparts. They may well stop shy of pure Thatcherite looting and pillaging of the state, and bonfires of regulations, but their redistributive efforts are likely to fall far short of the actual amount of plunder extracted in the name of free enterprise over the last few decades.

Ultimately, even the centre-left can’t quite bring itself to reject the underpinning mythos of trickle-down – the idea that the ultra-wealthy are useful to society, if only they can be properly corralled and pointed in the right direction.

On the surface, it’s good that we have politicians who are willing to critique the idea of trickle-down economics, but we’ve had those for decades, and there has been no let-up in the implementation of policies that turn out to be trickle-down in a trenchcoat. We need to turn the consensus on its head, tax the unproductive rich until the pips squeak, and start shovelling their money back down the ladder at a rate of knots.

As Will Rogers himself pointed out, way back in the 1930s: “Give it to the people at the bottom, and the people at the top will have it before night, anyhow. But it will at least have passed through the poor fellow’s hands.”

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