Why Civility Failed - What is trickle-down economics?

The following is an excerpt from my 2022 book, Why Civility Failed:

Another reason that people don’t get along is that they have no idea what each others’ true positions are. They hear terms like “trickle-down economics” or “spiritual warfare” and get all angry without knowing what those terms actually mean. When they encounter someone who proudly supports such things, the conversation is much more often a yelling match than a learning experience.

It doesn’t help that there are a lot of lies floating around out there. I’ve been told that pro-life people believe in the authority of men over women and the church over the state, but every prolife person I’ve ever talked to has never said anything like that. For them, it’s all about protecting the lives of the unborn. I’ve also been told that those who endorse the old legal definition of marriage simply hate homosexuals, most likely because of religion, but I know that at least some of them make nuanced legal arguments reflecting legitimate concerns.

One of the things I tried to do on my old blog was to educate people as to what the issues actually are about. I have adapted some of my old posts to fill out this chapter. The more you know, the better arguments you can make.

What is Trickle-Down Economics?

Some people hate trickle-down economics. They speak of its “failure,” its “victims,” and they claim that it “doesn’t work.” On the other hand, some people like it – but what is it?

My first exposure to the term came from reading those who endorse it. They define it as the phenomenon that occurs when those of high productivity are able to keep more of their earnings, passing on the benefits to those with less productivity. In other words, when “the boss” has more money to dispose, (36) everybody gets a raise (especially when the boss’s competitors are giving out raises and he/she wants to retain employees). Benefits may not always take the form of higher wages, of course; they may also come in the form of lowered prices, increased hiring, or greater spending by “the boss” that ends up putting money in some other boss’s pocket, spreading the wealth around, eventually helping everyone.

Some rightly point out that “the boss” makes his money from the consumption of others, and so stimulating consumption (or removing anything that might be holding consumption back) also stimulates the economy and should result in increased wages, lower prices, or both. However, there are at least two problems with doing it this way. One is that increased consumption means increased demand, which will tend to raise prices, partly negating the effects. The other problem is that this indirect route is less efficient. Not all consumers are created equal. Some people are better at spending their money than others – at least in ways that will stimulate the economy as a whole. Some people are more productive than others, and since the value of one’s goods or services can be defined no other way than by the amount someone is willing to pay for them, productivity is equal to income. One who makes a lot of money must have generated something of value for so many to pay them so much for it (unless of course there is fraud or force involved), so those with money must be producing something of value to people.

Of course, when “the boss” has “more money” is relative. More money than when? Since it is always possible for there to be more of a drain on the economy than there is, all economics is trickle-down economics. It is a redundant term. No matter how much of a drain there is on the economy, as long as some economic activity remains, and as long as somebody is receiving wages from someone else, there is trickle-down occurring. All economics is naturally trickle-down, because left alone, the (37) markets reward those with the greatest productivity the most, and they can then reward everyone else. No matter how much a society might deviate from this ideal by using forced redistribution of wealth, some economic activity will remain. All economics is free-market capitalism; it’s only a matter of how much there is. Even communistic, command-economies with much central planning experience some trade, whether it happens informally when the state isn’t looking, or whether it happens through the commands of the state. Government spending is still spending – but rarely by those who know best. It isn’t that government doesn’t work at all; it’s that the free market works better, and history seems to suggest that socialist economies grow slower.

This is why I was at first confused when I heard the claim that trickle-down economics hasn’t worked. That’s ridiculous; it’s the only thing that has ever worked. Where did all the wealth we have come from if not from trade? I eventually realized we were speaking different languages. What they mean by trickle-down is any large deviation towards freedom from our current capitalist/socialist compromise economy. I agree that extreme inequalities in wealth are concerning, for reasons I won’t get into now, and I like safety nets of some kind, though not necessarily the ones we have, so I empathize with those scared of pure capitalism. I just wish they would understand what trickle-down means before rejecting it.