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Trickle-down economics doesn’t serve the public

Trickle-down economics doesn’t serve the public

Trickle-down economics doesn’t serve the public
November 17
12:00 2022

In modern politics, it’s rare to see politicians crash and burn as quickly as British Prime Minister Mary Elizabeth “Liz” Truss”. Her predecessor, Boris Johnson, was able to weather controversy and criticism for over three years before he resigned. Truss lasted just 44 days.

While similar rapid falls from grace can be explained by sex scandals, demonstrations of bigotry or other detestable personal behavior, Truss’ downfall was due solely to her policies. More specifically, a single proposal — the September mini-budget — triggered such an extreme backlash that even abandoning the proposal couldn’t save Truss’ premiership.

To understand why this happened, it’s worth looking at the philosophy behind the mini-budget: trickle-down economics. The concept is nothing new, rising to prominence under Margaret Thatcher and Ronald Reagan in the 1980s and being promoted since by their respective parties. Despite its continued relevance, trickle-down economics overpromises and underdelivers, fueling wealth inequality, budget deficits and higher inflation.

The philosophy’s basic idea is to pass policies such as tax cuts that disproportionately benefit corporations and the wealthy, with the expectation those savings will be invested into the economy and result in growth benefitting everyone. Under Truss, this took the form of £45 billion in cuts, most of which are aimed at the rich. Similar measures include Reagan’s 1981 tax cuts, Thatcher’s income tax reductions, George W. Bush’s elimination of the estate tax

Because of the term’s negative connotations, trickle-down policies are often sold as broader tax breaks for rich and poor alike. Trump’s cuts are a prime example, with the former president stating his focus was “on helping the folks who work in the mailrooms and the machine shops of America.”

However, these efforts were deceitful: while there were some mild savings across the board, the overwhelming majority of TCJA’s benefits — as with Truss’ mini-budget — were directed toward the wealthy. The devil is in the details: if a proposal primarily concerns financially helping the top income brackets, it’s a trickle-down proposal regardless of what its sponsors say. 

With this philosophy now decades old, it’s become clear that its guiding principle is a fantasy. Various studies suggest these policies have increased the share of wealth held by the rich, fueling inequality, with negligible impacts on gross domestic product and unemployment. The International Monetary Fund’s research summarized the academic consensus best: “when the rich get richer, benefits do not trickle down.”

The income and wealth inequality created by trickle-down policies is a substantial issue in its own right. Higher crime rates, decreased public health and societal instability have all been linked to financial inequality. However, perhaps the most ironic effect is economic.

Since people need money to participate in the economy, high levels of income inequality depress GDP growth. Therefore, measures meant to boost growth instead achieve the exact opposite. 

These policies also substantially raise national debts. Proponents of trickle-down economics argue that, since the economy grows as a result of tax cuts, government revenues also grow, making up for budget shortfalls. Trump’s Treasury Secretary Steven Mnuchin used this rhetoric when defending TCJA, declaring “the deal will pay for itself.”

However, when growth inevitably doesn’t come, governments are left with massive deficits. For example, TCJA helped raise the United States deficit by $300 billion after two years, and forecasts of Truss’ mini-budget showed a substantial long-term increase in the U.K.’s borrowing. Truss’ proposals in particular also emphasize a final downside of trickle-down policies: they increase inflation. This stems from basic economics: tax cuts give people more money to spend, causing the amount of currency in circulation to increase while its value decreases.

Since a low inflation rate can be beneficial, this hasn’t been a major issue in the past, but with the current state of inflation, trickle-down policies have become especially reckless and damaging. This became immediately apparent in the U.K. after the mini-budget was announced.

The British economy was already struggling, and the potential for even higher inflation prompted a mass sell-off of British assets. As a result, the Pound’s value plummeted and Britain’s prior difficulties erupted into a full-scale crisis

However, there’s a silver lining to the chaos Truss unleashed. While large majorities in the U.S. and U.K. oppose trickle-down economics, it’s proven difficult to punish elected officials that endorse the philosophy. Therefore, Truss’ downfall shows that movements against these policies are gaining ground, especially considering the role her own party played in forcing her out.

Meanwhile, in the U.S., trickle-down opposition is no longer a solely liberal issue, with Republican figures like Tucker Carlson railing against our “grotesquely unfair” tax code. Granted, the British and American conservative parties still have a long way to go, but these conversations show that opposition to this continued lunacy has reached new heights.

Going forward, we must hold our politicians accountable to a simple truth: trickle-down economics doesn’t work. For any who refuse to realize this, the fate of Truss will serve as an example of what awaits them.

Featured Illustration by Erika Sevilla

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Ian Cropper

Ian Cropper

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