The Sham of Trickle-Down Economics   

January 22, 2021 – 12:45 pm ET
By Rich Weissman, Palm Springs, California (www.richweissman.com)

Let's look at this objectively. Trickle-down economics has failed. We've learned that when tax breaks are given to the wealthiest Americans and to the large corporations, those dollars do not quickly move back into the economy. No, they are hoarded. Sure some are invested in the market, but that has not produced a growth in wages, employment or consumer spending. Corporations often keep those windfalls and boost up their equity, and don't increase jobs and wages as a result. 

After all, we are a consumer based economy. Economic growth occurs when we have a stable and growing working and middle class that engages in purchasing of consumer goods and services, so that money quickly flows through the system. The rate of that flow broadens our economy.

When average consumers have more money, they spend it on new washing machines, cars, services, travel, homes, clothing, furnishings, restaurants, etc. And they do it on a significant scale. This creates jobs, wage increases and small business and corporate profits; it results in a robust economy. But when only the wealthy have more money, this cycle of growth doesn't occur. How many more washing machines, cars, etc. does the top 1% purchase? Not many, and consumer spending, the lynchpin of economy, stagnates. These windfalls do not move money back into the economy, and they money is hoarded in investments and corporate equity that typically do not trickle down. They don't result in job growth, wage increases, and other indices of economic growth. 

And, the stock market is not a measure of overall economic prosperity; it's an indication of what the market believes the future earnings will be among the listed companies on the various exchanges. And corporate earnings are very different than employment, wage, consumer confidence, housing starts and prices, etc. that are far more important measures of a nation's economic health. And when the super rich and large corporates don't pay taxes, the rest of the nation has to foot the bill, taking more away from the average consumer to spend. 

That's why the tax restructuring under the last administration added incredible wealth to the top 1%, but not to anyone else. With Janet Yellin at Treasury, and with the new Biden/Harris administration, let's hope that we relegate the trickle-down concept to the flat earth and blood-letting ideas of the past, and get busy on restructuring the current tax code to encourage growth among the working and middle class. Economies that are robust are dependent upon a robust working and middle class, with good wages, low unemployment, and low inflation, where the working and middle class pay disproportionally less in taxes than those at the top (and no taxes for the poor). Let's turn this around and get our economy on track to become a healthy and vibrant one. It's good for the average consumer and it's actually good for small business and the large corporations. In this new era of "truth." let's start talking truthfully about how to grow our economy.