Robert Reich: Why Is Trickle-Down Economics Still With Us? – OpEd


Within weeks of taking office, Britain’s new Prime Minister, Liz Truss, and her chancellor of the Exchequer, Kwasi Kwarteng, proposed a radical new set of economic measures that echoed the trickle-down policies of Margaret Thatcher and Ronald Reagan — heavy on tax cuts for the rich and deregulation.

Last Monday, after a backlash from investors, economists and members of his own party, Mr. Kwarteng reversed one of the proposals, deciding against abolishing the tax rate of 45 percent on the highest earners. But proposals for other tax cuts worth tens of billions of pounds remain intact, as the government insists it is on the right path.

What’s bizarre about this latest episode of trickle-down economics — the abiding faith on the political right that tax cuts and deregulation are good for an economy — is that this gonzo economic theory continues to live on, notwithstanding its repeated failures.

Ever since Reagan and Thatcher first tried them, trickle-down policies have exploded budget deficits and widened inequality. At best, they’ve temporarily increased consumer demand (the opposite of what’s needed during the high inflation that Britain, the US, and much of the world are experiencing).

Reagan’s tax cuts and deregulation at the start of the 1980s were not responsible for America’s rapid growth through the late 1980s. His exorbitant spending (mostly on national defense) fueled a temporary boom that ended in a fierce recession. 

Trump’s 2018 tax cut never trickled down.

Yet the US never restored the highest marginal tax rates before Reagan. And deregulation — especially of financial markets — continues to endanger the stability of the economy and expose workers, consumers, and the environment to unnecessary risk. 

The result? From 1989 to 2019, typical working families in the United States saw negligible increases in their real (inflation-adjusted) incomes and wealth.

Over the same period, the wealthiest 1 percent of Americans became $29 trillion richer. The national debt exploded. And Wall Street’s takeover of the economy continued.

Meanwhile, and largely as a result, America has become more bitterly divided along the fissures of class and education. Donald Trump didn’t cause this. He exploited it.

The situation in the UK after Thatcher has not been dramatically different. 

So why is trickle-down economics still with us? What explains the fatal attraction of this repeatedly failed economic theory?

The easiest answer is that it satisfies politically powerful moneyed interests who want to rake in even more. Armies of lobbyists in Washington, London, and Brussels continuously demand tax cuts and “regulatory relief” for their wealthy patrons.

But why has the public been repeatedly willing to go along with trickle-down economics when nothing ever trickles down? What accounts for the collective amnesia?

Part of the answer is that the moneyed interests have also invested a portion of their gains in an intellectual infrastructure of economists and pundits who continue to promote this failed doctrine — along with institutions that house them, such as, in the US, the Heritage Foundation, Cato Institute, and Club for Growth.

Consider Stephen Moore, the founder and past president of the Club for Growth and a leading economist at the Heritage Foundation, whose columns appear regularly in the Wall Street Journal and is a frequent guest on Fox News.

Moore helped draft and promote Trump’s trickle-down tax. In recent weeks he praised Ms. Truss for her willingness “to challenge the reigning orthodoxy by sharply cutting taxes to boost growth,” calling her package “a gutsy and sound policy decision,” that “will bring jobs, capital and businesses back to the U.K.”

Moore and others like him are happy to disregard the history of trickle-down’s abject failures. They simply repeat the same set of promises made decades ago when Reagan and Thatcher set out to convince the public that trickle-down would work splendidly.

The public has so much else on its mind, and is so confused by the cacophony, that it doesn’t remember — until immediately after the next trickle-down failure. 

But perhaps the main reason for the public’s amnesia is that Democrats in the US and Labor in the UK have failed to offer what should be the obvious alternative: A bottom-up economics that invests in the education and health of the public, and the infrastructure connecting them. 

This is the only true path to higher productivity and widely-shared prosperity.

Robert Reich

Robert B. Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies, and writes at Reich served as Secretary of Labor in the Clinton administration, for which Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century. He has written fifteen books, including the best sellers "Aftershock", "The Work of Nations," and"Beyond Outrage," and, his most recent, "The Common Good," which is available in bookstores now. He is also a founding editor of the American Prospect magazine, chairman of Common Cause, a member of the American Academy of Arts and Sciences, and co-creator of the award-winning documentary, "Inequality For All." He's co-creator of the Netflix original documentary "Saving Capitalism," which is streaming now.

One thought on “Robert Reich: Why Is Trickle-Down Economics Still With Us? – OpEd

  • October 13, 2022 at 8:54 am

    How can the Democrats ” in the US ……offer what should be obvious alternative: a bottom-up economics that invest in the education and health of the public, and the infrastructure connecting them,” when the American people continues to vote for the GOP who not only favors tricle-down economics, but also obstructs regulation and health care policies of the Democrats.
    You have agreed that there are wealthy powerful interests at work to perpetuate this obviously unscientific economic conclusion. It is this interests that unfortunately influence which of the two parties controls the US Congress. It could well be that the way out is to get the general public informed and aware of the fallacy of trickle-down economy and at the same time prevent those powerful, wealthy interests from influencing US elections. The only Party that could/would do this is the Democratic Party. But how could they do this unless they have a strong enough Congress that can make positive changes without GOP obstructions. At the end of the day one realizes that it is only the American people who can determine their destiny. It is just a pity things will not get better unless the American people badly want a change by intelligent voting


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