Are You Ready for the Trickle Down Economics Comeback Tour?

Remember how this guy's policies almost destroyed the economy forever? Some folks are arguing that the only way to fix the problems in the economy are by bringing this guy's policies back.

Remember how this guy’s policies almost destroyed the economy forever? Some folks are arguing that the only way to fix the problems in the economy are by bringing this guy’s policies back.

“Supply-side economics has been discredited since the Bush tax cuts failed to boost economic growth, but there is another way of thinking about the problem,” Bloomberg’s Tyler Cowen writes in his review of Edward Conard’s new book. That other way? “It is not enough for funds to be left in the hands of the wealthy; rather they must be invested in risk-bearing equity capital, focused on innovation.”

Conard argues in his new book The Upside of Inequality: How Good Intentions Undermine the Middle Class that trickle down economics—he calls it “supply-side economics,” but they’re the same thing; “supply-side” is just a fresh coat of lipstick on a pig—is still the best way to boost the economy. The trick, Cowen explains, is to put the “concept of risk-bearing at the core” of trickle down, which means encouraging the top one percent to invest their money in the economy rather than dumping it in offshore accounts or sealing it away in illiquid accounts.

But forty years of trickle-down policies have proven that when you give money to the top one percent, they keep it and figure out new ways to hoard even more of it. How do you supposedly encourage the wealthy to undertake risky investments? Cowen proposes ending the “bureaucratization of society” and “excess regulation,” which are, in fact, the same goals that trickle-downers like Ronald Reagan, Paul Ryan, Mitt Romney, and George W. Bush have been aspiring toward for generations.

The concept of trickle down economics has been propped up for all these years by three core strategies: trickle-down clowns demand tax cuts for the rich, deregulation for the powerful, and wage suppression for everyone else. As we’ve seen, Cowen has already made the case for deregulation. Where does he stand on tax cuts?

While we shouldn’t rely on tax cuts, they may still play a role in this debate. Cuts in marginal tax rates became overrated after the Reagan recovery years of the 1980s, but maybe after the failed Bush experience they are now somewhat underrated.

Uh-huh. So he’s arguing that tax cuts are a part of the solution to the problems caused by tax cuts. Cowen also refers to wages as “only one small part of a much bigger story,” which is as close to a capitulation to reality as we’ll find in this piece. (When even Donald Trump admits that the minimum wage should be increased, you know it’s well past time to raise the minimum wage.) If trickle-downers get their way, this crack in their paradigm will be easily spackled over by a tiny increase in the federal minimum wage—maybe adding two or three quarters to the current $7.25 minimum—whereupon pundits like Cowen will declare the mission accomplished and move back to cutting taxes and regulations like usual.

So what, in a perfect world, would be the end result of this zombie trickle down economics? Let’s pretend for a moment that cutting taxes and regulations would inspire a bunch of risky investments, even though they clearly won’t. Cowen drops this doozy of a best-case scenario:

You may recall that the iPhone made its debut in 2007, and it sold very well during the tough economic times that followed.  Had there been more innovations of import, a simultaneous growth of production and market demand could have been self-validating and pulled the economy out of recession more quickly.

This is…not good policy. This is the equivalent of someone taking over a failing Hollywood movie studio with a simplistic plan of making more big blockbusters like Titanic and The Avengers to repair the studio’s finances. While there will always be outlying successes like the iPhone and Amazon and Avatar to lead a particular field,  you simply can’t rely on or even plan for that outsize success. You can’t build an economy on one or two huge winners; you have to foster an environment that creates more winners up and down the income scale. By embracing policies that encourage more people to have an opportunity to succeed, you’re not taking away from the success of companies like Apple, you’re creating a positive environment for everyone.

Still, I do find a small amount of hope in reading Cowen’s post. It marks an important stage in the lifespan of trickle down economics. For many decades, we couldn’t get conservative politicians and policy-makers to even begin to admit that trickle down wasn’t working. Now that Cowen is trying to repackage and ever-so-slightly reformulate trickle down, perhaps this is a sign that conservatives are finally ready to move toward a new economic model? After all, admitting that you have a problem is the first step toward bettering yourself.

Paul Constant

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