Witnessing both sights – what appeared to be an institutionalized genuflection at the Republican National Convention, and then what has seemed a frenzied fascination with who would head the Democratic ticket brings to mind what I see as an obvious but always ignored basic truth about governing. While the current Trump-o-mania and the surrounding adulation with which he personally reshaped his party’s tone and face may be an exception which proves the rule, we do not elect just a single person. We do not even elect a team. When we elect, we choose a set of policies, practices, and laws, we choose between whole world views, different visions which will inform and determine virtually everything that comes with it, once we have chosen the individual with whom we have either fallen in love, or fallen in line.
The personality of Donald Trump is compelling and charismatic, and especially “lionized”, as it was with that incredibly compelling photo of him bloodied with a clenched fist raised can be intoxicating, even to his opponents. We need to stay cognizant, however, that we are not electing an image or even a person, no matter how charismatic and compelling.
We are electing a belief system and the policies which will put those beliefs into practice.
Although sporting a slightly altered hat and duds, one central tenet of Trump’s republicanism is not so hard to recognize. It is not Trump’s. It was not really Reagan’s, although it was his to champion, and his name was attached to it. Reaganomics, called “supply side economics” by its proponents, and “trickle -down economics” by its detractors, is a concept whereby those with wealth and the means to create it justify policies which go to create the conditions by which those who’ve got will always get more.
If, we are told, we can just arrange the system, the theory holds, so that more resources flow to the top, those resources, like the gentle rain will “trickle down” and hydrate all growing plants below. Cut taxes, it is argued, and those who create wealth will have more funds with which to create more jobs. Cut regulations, which, it is complained, constrain the wealth creators, and they can just make more for everyone. It is thus argued that freeing up money for the wealthy allows them to hire more workers, pay them more, and invest more. Money directed to the top will extend to all below. As Reagan liked to say, “A rising tide raises all boats”.
One has to confess it is an attractive idea, and this attractive idea makes a kind of naive common sense.
There is a problem though. Not only does the idea not really work as advertised, but really the idea shouldn’t really work. It shouldn’t work for the same reason that Socialism doesn’t really work, at least so we are always taught. Socialism, and ‘trickle – down economics’, both go against human nature.
Think about it. If you are making the money you need to take care of your basic needs, that is what you do. When you start to make a bit more, that is, your discretionary income starts to rise, you can start to get a few more and better toys and treats. Yes, it is true, that at a certain point, you will start to employ, say, a housekeeper, who then benefits from your employment. If the tax structure rewards you for it, and perhaps even if not, you may give some to charity. But for the most part, those funds will accrue more and more to yourself, and more and more to be centralized within your own world. And that is natural. We would expect it to be so. Unless one is remarkably more a saint than I, the windfalls of profits and of tax cuts do not really flow downhill to the society and economy at large.
But don’t rely on me. I am not an economist. Let’s see what economists say.
When you go to Google and ask “Do trickle down economics work” the first answer that comes up is an “AI OVERVIEW” which says as its first line that trickle -down economics has not been shown to work. Let’s ignore AI – I am personally trying to pretend it doesn’t exist. “Then why are you using Google” one might ask, but skipping that to an actual article by an actual person, an economist, we find:
One London School of Economics study found that when British Tory Prime Ministers had announced tax cuts for top earners to boost the economy, it created economic turmoil. If it was known to be such a good idea – why? Because it spooked the markets, the economists tell us, as it was based on the “discredited theory” of ‘trickle down’ economics. The article cites Margaret Thatcher, Ronald Reagan and Donald Trump as politicians elected on its premises.
The paper seeks to give not just opinion. The article cites a 2020 study by the London School of Economics and Kings College of the effects of major tax cuts for the rich in 18 wealthy nations over five decades. Their conclusion was that “the rich got richer but there was no meaningful effect on employment or economic growth”.
In explaining why cutting taxes for the rich did not really affect an increased distribution of money to those lower in the economic food chain, it was argued that senior executives unbridled by taxes tend to argue more aggressively to increase their own compensation (and, I would speculate the value of wealthy stock owners) “at the direct expense of workers lower down the income distribution”.
The LSE researches found no evidence across 18 advanced economies spanning 5 decades that tax cuts directed at the wealthy serve to bring about economic expansion, that the funds they don’t pay in taxes do indeed make the richer but do not benefit the economy as a whole.
Let’s look more directly at this type of economy, not in a study of 18 countries, but where it was tried most relevant to the US voter. Our own. Ronald Reagan based his campaign, as is Donald Trump doing now, on the ‘trickle -down’ concept. He was so connected with the theory that it was called “Reaganomics”. I know that the former president Trump wants to claim this idea as his own, but it is not new.
It was embarrassing for the Reagan administration for their own budget director David Stockman to point out in an interview with the Atlantic saying that:
“It’s kind of hard to sell ‘trickle down,’ so the supply-side formula was the only way to get a tax policy that was really ‘trickle down.’ Supply-side is ‘trickle-down’ theory.
— David Stockman, The Atlantic“
Embarrassing articles aside, we can ask whether what was then called “Reaganomics” succeeded or failed. As with most complexities we get some mixed answers. It has been shown that inflation and unemployment did , in fact, fall in the Reagan years, and most people who were thinking about such things forty years ago can remember the 1980s as a time of economic expansion, at least until the major setback in 1987.
Economists point out, however, that the changes in growth which were seen during the Reagan years were explained more by business cycles, and monetary policy than by the tax cuts directed at the wealthy.
What is abundantly clear is that budget deficits sky-rocketed during the Reagan years.
This was in large measure due to an increase in defense spending
It has been argued that by decreasing top tax rates, revenue was paradoxically increased, which is what would have been hoped by the supply siders – namely that the increased productivity spurred by the tax cuts would offset the decreased tax percentage and increase revenue, and the graph shows that it did.
What should be noticed is that revenues increased about $100 per person over the years of the Reagan administration, for a total of about 15% over the eight years following the tax law change.
This did not compensate for the increases in spending
a point made even by conservative journalists.
What is even more noticeable is that the tax rates that President Reagan cut started at a whopping 70% as the top bracket, went down to 28% at the end of his term, and for the majority of the 1980s, an era which we remember as prosperous, the top bracket tax was 50%. Far greater than the 21% Trump seems to think it necessary to increase.
The national debt was 907.7 billion a month before Reagan was elected, and it was 2.6 Trillion the month before his presidency ended. It more than doubled.
And it increased steadily also as a percentage of GDP.
Supply side, then, ‘trickle -down’ economics does not improve the economic outlook for the nation as a whole. It makes the rich richer.
So if trickle – down economics, as Reagan promoted and which now Trump is also claiming as if the idea were his own, does not help the overall economy, and any increase in production is more than compensated by an increase in debt, who then exactly does it help?
Income inequality is measured in a number of ways
“The Gini Index is a summary measure of income inequality. The Gini coefficient incorporates the detailed shared data into a single statistic, which summarizes the dispersion of income across the entire income distribution. The Gini coefficient ranges from 0, indicating perfect equality (where everyone receives an equal share), to 1, perfect inequality (where only one recipient or group of recipients receives all the income).
Leaving aside that our nation is, save Singapore, at the absolute top of the world’s income inequality,
we can look at how our own income inequality faired under different administrations.
The following graph shows the evolution of the Gini index, in other words, of measured income inequality, over the last century.
It is clear that the measure had steadily risen in the years before the Great Depression, and that it had been steadily falling through the recovery, and through the second world war, and then continuing through the booming post – war years of the 50s and even through the tumultuous 70s, when it started to tick up. Then came along Reagan and his institution of ‘supply side/trickle- down economics’ and income inequality spiked, reversing decades and shoots straight up. This major measure of inequality increased by 15% in the Reagan – Bush years before moderating to almost steady during the Clinton presidency and a more moderate rise under George W Bush.
Here is another graph of the Gini index under the last 30 years which then includes the Trump years.
Take a look at the lower panel which shows the percentage change in this index of inequality. Notice that income inequality remains essentially flat from 1993 through 2016, as we referred to above. A jump up or down a percentage lasting a year or two perhaps.
Now notice from 2016 the steady climb through from the time the Trump tax cuts went into effect in January 2018. A steady rise. Our nations became far more unequal in those years. The super- rich got richer. The others, well, not so much. But then, that was what the policy was designed to accompish.
Another way to look at income inequality is by what economists call “quintiles”. You divide the nation as a whole into fifths, top fifth, next to top fifth, etc., to bottom fifth, and look at the income of each as a function of time.
The graph shows median household income separated by quintiles over several decades. The top quintile continues to garner more and more income, as the middle classes, the second, third, fourth, and fifth quintiles stay static. For the top 5% the effect is even more marked.
How about the proportion of the nation’s wealth?
The following graph shows the percentage of household wealth held by groups over the last 35 years.
The top 0.1% of the nation’s population hold almost 14% of its wealth.
The top 1 % of the population hold over 30% of its wealth.
The top 10 % of the population hold over 2/3 of its wealth.
The bottom half of the country, that is HALF OF THE COUNTRY hold LESS THAN 3% of the nation’s wealth.
And this effect has clearly gotten more stark over the years of the Trump tax cuts (which, by the way, are still in effect).
Under ‘Supply Side economics’, national debt increases, income inequality increases, wealth disparity increases, and the promised general prosperity for all is just not seen. As the London economists cited above found, the rich get richer, they gain a steadily larger share of the nation’s wealth, the middle class has its increases comparatively stagnant, their share of the nation’s wealth becomes smaller and the nation goes into debt.
Now why on earth would the majority of a nation’s citizens, who remain almost by definition somewhere in the middle class, continue to vote for that? I will leave that for a later argument, but we can start by wondering whether the very wealthiest in our nation, those who give large sums to the Republican party, are so concerned that their jobs may be taken away by illegal immigrants.
When we look at that genuinely compelling photograph, and look at the American Lion Roaring, it might be helpful to remember that what we are electing is not his clenched fist or even his roar, but what he is roaring about – his beliefs about our nation and the policies he would bring about. What he roared was voiced clearly and plainly at the Republican Convention. It is a call to return to an economic policy which brings wealth to the richest, little to the rest, which has been shown to worsen the debt, and which, in a study at a major economic institution, a study of many nations over many years, just does not do what it is supposed to do.
If we are really electing a plan and a vision rather than a photo, a personality, and a caption, perhaps we need to understand better what that plan and what that vision is.