David Brin on trickle-down economics

[mirrorshard]

And the best explanation yet of why they don't work, abstracted from http://davidbrin.blogspot.com/2005/08/hypocrisy-dump-toxic-landfill-of.html

Which brings up those tax cuts. Yes, it is a tired old mantra that they primarily benefitted the top 1% aristocracy while shivving the rest of us. That aspect was conceded from the start. (Will it EVER be relevant that the wealth difference ratios keep rising at an accelerating pace?) Only it was explained and excused by the latest version of that old Reaganite "trickle-down" notion, re-invented as "economic stimulation through supply side investment."

In other words, if we increase the deficit today (through massive unfinanced tax cuts for the rich), this won't ultimately affect America's fiscal health, because the wealthy will invest all of their added gains in new research, development, capitalization and products, resulting in so much accelerated economic activity that the debt will be erased, even at lower tax rates.

I always doubted this theory, because history shows that Adam Smith was right. Many aristocrats prefer safe rather than risky investments. They would rather manipulate politics in order to get preferential treatment for passive dividends and rents - which involve no personal creativity or work - than perform hands-on entrepreneurship or company building that generate actual products and services. It is the job of market fine-tuning to ensure that risky/creative investing has a preference over passive/advantage-reinforcing investment.

Comments

[shuripentu.livejournal.com]

I get the feeling that the theory falls apart when it assumes that rich people will invest their newfound money in things that will benefit the rest of the population.

As far as I can tell, the reality is that they buy property in the tropics and invest in megacorporations that generally use this money to build more factories in developing nations and pay a pittance to the workers there, thereby keeping people in both countries in poverty.

[mirrorshard.livejournal.com]

Nobody wants their money to trickle away from them, down or otherwise.