Trickle-Down Economics Remains an Unsuccessful Approach

Trickle-down economics continues to get a lot of airplay in conservatively led states such as NC, which is unfortunate, as it has been proven to be an unsuccessful approach to economic growth. In a recent speech at the Center for American Progress, Maryland Gov. Martin O’Malley took aim at trickle-down economics — the conservative theory that fiscal policies benefiting upper earners will improve the whole economy and therefore also benefit the middle and lower classes. “Trickle-down economics has been an abject failure for 99% of Americans,” O’Malley said, according to prepared remarks. “If we want to deliver better results — if we want to strengthen our middle class and expand middle class opportunity — then we have to be willing to make better choices.”

As governor, O’Malley has a strong base of success to speak from. Yet, he does not stand alone in this opinion. The Congressional Research Service, the nonpartisan think tank for Congress, prepared a report on their analysis of the veracity of trickle-down economics and was to release it last fall. The report agrees with the assertion made by O’Malley above. The reason it did not get much airplay is Senator Mitch McConnell had the report buried before the election according to the New York Times.

Yet, a better source may be David Stockman who was budget director to President Reagan. Stockman claimed that trickle-down economics was a favored economic tradition, believing it would benefit the entire country over time. Of course, he did not say that everyone would benefit equally or adequately. Over time, many felt they had been left out of the promised glory. Today, Stockman has a different view from the one he had then. He is on record saying trickle down economics did not work and I have seen him say it.

Even going in Stockman should have read more history.The idea that trickle-down economics is good for the country was ridiculed by economist John Kenneth Galbraith and even FDR. They said that it had been tried in the past and failed. According to Galbraith, it was known as the “horse and sparrow theory.” He said that “If you feed the horse enough oats, some will pass through to the road for the sparrows” and  believed that this idea lead to an economic crisis referred to as the “Panic of 1896.”

Let’s not take Stockman and Galbraith’s retrospective insight by themselves. This belief is also echoed by Nobel Award winning economist Paul Krugman. And, you may want to check out Mehrun Etebari’s article published on June 17, 2003 entitled: “Trickle Down Economics: Four Reasons Why It Just Doesn’t Work.” His thesis is by any of four major measures – GDP growth, Income growth, Wage growth or Improvement in un-employment, trickle-down economics fails to deliver. Here is a link to the article: http://www.faireconomy.org/research/TrickleDown.html.

Two closing thoughts. First, the best comment about trickle-down economics actually comes from one George H.W. Bush (which he borrowed from journalist Paul Harvey) when he was running against Ronald Reagan and before he became his Vice President. Bush referred to it as “Voodoo Economics.” Harvey and Bush were correct.

Second, if people are looking for an economic theory that does promote growth, look to Keynesian economics. People refer to stimulating the economy through government investment as strictly Keynesian economics. The Obama Stimulus was Keynesian economics and unlike what has been drummed into an electorate by the GOP last year, the “Failed Stimulus” actually worked. Who says so? Six economic organizations do – Macroeconomics Advisors, Moody’s Economy.com, IHS Global Insight, JP Morgan Chase, Goldman Sachs and the Congressional Budget Office. They said it improved the economy and would have been even more successful if it was larger.

So, let’s sum up. The GOP is touting an economic approach – trickle-down economics that has been proven not to work.The only people who will benefit from reducing taxes on the rich are the rich. Keynesian economics has been proven to work including the Obama Stimulus plan, which the GOP was able to convince others it did not, even with evidence to the contrary. I think the Democrats need a better press agent.