Trickle-down economics?

Reader question:

Please explain the term “trickle-down economy”.

My comments:

Or rather trickle-down economics, a pro-capital, pro-rich and pro-elite economic theory.

First, trickle down. Observe a brook or any small stream of water in the mountains. As water runs downhill, the stream may get thinner. If there is no water from other sources joining in, this thin stream will eventually reduce itself to a trickle, a very thin and slow stream indeed before completely disappearing as it dries up altogether.

Or when we cry, we talk of our tears trickle down our cheeks. Trickle, in short, is small in amount and significance.

Trickle-down economics, on the other hand, is the economic theory that if you help people at the top, their investment into new businesses eventually will benefit people on the bottom ladders of the economy. If you give tax breaks to the wealthy, for example, they'll have more money on their hands than they know what to do with. Eventually, they'll spend that money through various investments, and that, eventually, benefits the poor by providing them with new jobs. In theory, that should work the same way as adding water to a stream up the hills. Eventually, if you add enough water to the stream that is, the water will trickle all the way down the hills and, hopefully, reach the flatlands.

The proverbial flatlands of the economy will be the place where all the poor people, including the so-called middle class, congregate.

Anyways, the trickle down theory is pro-capital, pro-invest and pro-elite and is criticized, often correctly, as the culprit for the growing income gap between rich and poor.

This income gap is no small matter, of course, as inequality is root of many social evils, leading to, say, the current refugee crisis of Europe and, at worst, revolutions in the past.

Anyway, that is that and now let me use media examples to further drive the point home:

1. Helping to clinch his eventual victory, Barack Obama declared in a 2008 presidential campaign ad, “The old trickle-down theory has failed us”[source: Yo­uTube]. This statement and Obama's victory resound like a death knell to an economic mentality that some say served to line the pockets of the rich. However, the trickle-down theory to which he refers remains a highly controversial topic. That Obama seeks to end trickle-down policy is certain, but what the theory really suggests and whether it has succeeded have been less clear.

To understand trickle-down theory, we have to iterate some economic basics. First off, all capitalistic economies undergo natural ups and downs. In times of prosperity, economic activity is high, and jobs are easy to find. In times of recession, a country's economy produces less, and people have trouble finding jobs. Government steps in to try to help smooth out these fluctuations and dull the pain of sharp economic downturns.

Adjusting the tax policy is one way to affect the economy, and the U.S. government has been using tax policy this way almost since the inception of the national income tax in 1913. Although economists agree that changing how a government taxes its citizens can have some dramatic effects on an economy, they disagree on which policy is best.

Trickle-down theory represents one such idea that can supposedly spur economic growth.

In a nutshell, trickle-down theory is based on the premise that within an economy, giving tax breaks to the top earners makes them more likely to earn more. Top earners invest that extra money in productive economic activities or spend more of their time at the high-paying trade they do best (whether that be creating inventions or performing heart surgeries). Either way, these activities will be productive, reinvigorate economic growth and, in the end, generate more tax revenue from these earners and the people they've helped. According to the theory, this boost in growth will ultimately help those in lower income brackets as well.

Although trickle-down economics is often associated with the policies of Ronald Reagan in the 1980s, the theory dates back to the 1920s. The name also has roots in the '20s, when humorist Will Rogers coined the term, saying, “The money was all appropriated for the top in the hopes it would trickle down to the needy” [source: Shafritz].

- How Trickle-down Economics Works, HowStuffWorks.com, undated.

2. This is the same Mitt Romney who doesn't worry that Wall Street financiers — including his own Bain Capital — have put so much pressure on companies for short-term profits that they're still laying off workers and reluctant to take on any more.

And the same Mitt who doesn't want government to spend money repairing our crumbling infrastructure, rebuilding our schools, or rehiring police and firefighters and teachers.

Romney says he feels their pain but his policy prescriptions would create more pain.

Mitt Romney's real compassion is for people like himself, whom he believes are America's “job creators.” He aims to cut taxes on the rich, in the belief that the rich create jobs — and the benefits of such a tax cut trickle down to everyone else.

Trickle-down economics is the core of Romney's economics, and it's bunk. George W. Bush cut taxes — mostly for the wealthy — and we ended up with fewer jobs, lower wages, and an economy that fell off a cliff in 2008.

- Mitt's no compassionate conservative, Salon.com, September 27, 2017.

3. Pope Francis on Tuesday harshly criticized “trickle-down” economics and an unfettered free market, saying a socioeconomic system that leaves the poor with no means to support themselves is a grave sin.

His remarks on economics — part of a longer missive — could place him at odds with many free-market Republicans, The Hill reported.

“Some people continue to defend trickle-down theories, which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world,” he wrote.

“This opinion, which has never been confirmed by the facts, expresses a crude and naive trust in the goodness of those wielding economic power . . . Meanwhile, the excluded are still waiting.”

- Pope Francis Rips ‘Trickle-Down' Economics, NewsMax.com, November 26, 2013.

About the author:

Zhang Xin is Trainer at chinadaily.com.cn. He has been with China Daily since 1988, when he graduated from Beijing Foreign Studies University. Write him at: zhangxin@chinadaily.com.cn, or raise a question for potential use in a future column.