Just Another Day in Trickle-Down America

Two hotspots of the trickle-down economy, from 270towin.com.

Two hotspots of the trickle-down economy, from 270towin.com.

Part of the reason why we’re finally recognizing trickle-down economics as a scam is that we have so many examples of its failures. The clearest and most obvious failure, of course, is Kansas, which is maybe the purest laboratory of trickle-down economics ever devised by politicians. Governor Sam Brownback and his conservative legislature pushed through tax cut after tax cut, driving more and more money to Kansas’s top one percent. They cut regulations for corporations, and they did as much trickle-down triage as possible. As we all know by now, the trickle down motto is that if you give enough money to the wealthiest Americans, that money will then trickle down (often in the form of jobs) for everyone else. How’s it working out?

The Chicago Tribune‘s Eric Zorn did a little check-in on Kansas last week. Seems that Governor Brownback is the least popular governor in America right now—yes, even lower-rated than Michigan Governor Rick Snyder, who is largely viewed as responsible for Flint’s over-leaded water supply. Zorn continues:

The Congressional Joint Economic Committee reported earlier this year that Kansas had just 9,400 new private-sector jobs in 2015 (out of 2.6 million nationwide). U.S. Department of Commerce data show that, prior to Brownback’s tax cuts, Kansas ranked 12th in the nation in personal income growth; after the tax cuts it fell to 41st.

A handful of school districts in the state had to close early last year for lack of funds, and the state Supreme Court has had to issue orders requiring Kansas to cough up enough money to pay for K-12 education.

In March, Brownback cut $17 million in funding, 3 percent, from the state’s six public universities in response to revenue shortfalls. In April, he announced that he was going to have to delay a $93 million contribution to the state pension fund, prompting Moody’s Investors Services to downgrade Kansas’ outlook from stable to negative.

Compare these results to high-wage areas like Seattle, where trickle-downers like to warn that paying dishwashers $15 an hour will devastate the economy, and tell me which economy looks worse to you. Why aren’t jobs flowing to low-wage states like Kansas? Maybe because true wealth comes from the middle class, and not from the top down? Could it be that areas where everyone has money to spend in the local economy are economically stronger, and therefore more desirable, than areas where the poorest citizens can’t afford anything?

Of course, some trickle down regions are doing better than others. There are lots of reasons for that. In some cases, the trickle-down politicians aren’t able to institute all of the ruinous policies that Brownback was able to pass in Kansas. And in other cases, the economy might be buoyed unexpectedly by a natural resource.

To study that last example, consider North Dakota. In 2012, Mitt Romney repeatedly used North Dakota as an example of what his energy policy would look like if he was elected president. Here’s an LA Times account of a Romney visit to the state in March of 2012:

[Romney] argued that Obama has tried to stifle the development of oil and gas resources in the U.S. and said the president was wrong to try to strengthen federal oversight of fracking — a technique where fluids are blasted into the ground to help extract oil and gas.

While North Dakota’s rich natural resources have created a thriving economy compared to many other states — its 3.3% unemployment rate is the lowest in the nation — Romney said the Obama administration has thwarted the efforts of other states to tap into their natural resources.

By demanding laxer regulations, Romney was playing the trickle-downer’s second-favorite game (after demanding lower taxes.) This is another way that politicians can move money from the poorest Americans (who often have to live with the terrible damage caused by the unfettered industries) to the wealthiest. In 2012, North Dakota was undeniably doing well by hacking their regulatory safety net to pieces, so Romney praised the state at every opportunity. But how’s North Dakota doing now?

According to Ernest Schuyder at Reuters, not so hot:

That [bright] future [promised by the fracking economy] has evaporated. Those who haven’t packed up and left the Bakken [oil fields] are facing a new reality of smaller budgets, fewer residents and the physical detritus of a building boom that left behind hundreds of empty apartments.

Williston’s Walmart has cut hourly pay 15 percent. The Salvation Army, facing slipping donations, reduced gasoline and food assistance by a third. Statewide, oil tax revenue is down nearly 70 percent from this time last year…The slowdown has also inflicted pain on community budgets. Williston’s debt and other liabilities nearly quadrupled from 2008 to 2014, to $158 million, as the city sought to keep pace with growth.

Yet the city’s sales tax receipts fell 47 percent in March from a year earlier, according to the state treasurer.

Moody’s Corp, the credit rating agency, downgraded Williston’s general obligation bonds in March to junk status, citing the city’s reliance on those sales taxes to repay debt.

Putting all your eggs in one basket can be very risky, and I think we’re seeing that bear out in Williston and North Dakota now,” said Hetty Chang, a Moody’s analyst.

When you rely on a single industry to prop up your economy, you are deferring a disaster for another day. If North Dakota had taken advantage of the fracking boom to build up the middle class, to institute a higher minimum wage and other policies to ensure that more people had money to start small businesses and consume goods and services from other local businesses, the bust would likely not have been as bad as it was. When you have more economic drivers than one—when you have thousands of people creating a virtuous cycle of innovation and demand—your economy is more diverse and therefore stronger. Now North Dakota has to start all over again, and if they don’t include the middle class in their upward growth, they’ll continue to suffer from the same brutal boom and bust cycle that has always tormented the state.

Nobody is taking any joy from the destruction of the economies of North Dakota and Kansas. The fact is, the entire United States is a single ecosystem with many different climates, and the collapse of these two states affect us all. When we all do better, we all do better. It would be in our best interests, both as a local economy and as a larger American economy to ensure that every economy is stronger. The best way to do that is to stamp out trickle-down economies wherever they are, and to foster more inclusive economies in their place. The experiment is over. Their side is wrong.

Paul Constant

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