A 40 year disaster. Trickle Down does not work!

Today you will be hard pressed to find a single economist who gives any credence to trickle down economics. It has been an experiment in disaster. It was Ronald Reagan who put it into motion when he implemented his supply side reforms starting in 1980.

Trickle-down economics is the theory that tax cuts for the wealthy and corporations will spur investment, create jobs, and broadly benefit the working class. It fails in practice because capital tends to accumulate at the top rather than being reinvested into the broader economy. Empirical evidence shows that these policies have primarily widened income inequality and contributed to stagnant wages and economic vulnerabilities. 

How the Theory Fails in Practice

• The Consumption Gap: Lower-income and middle-class individuals typically spend a large portion of their earnings on everyday goods, which directly drives consumer demand and economic growth. Wealthy individuals, conversely, have a higher propensity to save or invest their capital. Tax breaks given to the top tiers often result in stock buybacks or asset accumulation rather than wage increases for workers. 

• Disconnect Between Wealth and Jobs: Jobs are created based on consumer demand and profitability, not simply because a corporation or wealthy individual has more cash on hand. Research, including a study from the London School of Economics, found that tax cuts for the rich increased income concentration at the top but had no meaningful effect on employment or overall economic growth. 

• Capital Mobility: Wealthy individuals and multinational corporations can easily move untaxed capital into offshore accounts or foreign investments, circumventing the domestic economy entirely.

Stagnant Real Incomes

Historically, corporate growth and worker productivity went hand-in-hand, leading to rising wages. However, over the past several decades, this relationship has broken down. While overall GDP has continued to grow, median household incomes have remained largely stagnant, with the vast majority of income and wealth gains going to the top 10% of earners. This detachment is largely driven by:

• Eroding Bargaining Power: Policy choices such as the decline of labor unions and stagnant minimum wages have shifted economic leverage away from the working class. 

• Globalization and Technology: Automation and globalized labor markets have driven down wages in certain sectors, forcing lower-income workers to compete for fewer high-paying jobs.

Other Maladies and Distortions

• Severe Wealth Disparity: Concentrating wealth at the very top causes a shift in political power, enabling policies that continue to favor capital owners over wage earners. 

• Reduced Government Revenue: Slashing tax rates on corporations and high earners diminishes the public revenue needed to fund essential infrastructure, education, and social programs, which are proven catalysts for long-term economic mobility. 

• Increased Public Debt: Tax cuts for the wealthy are frequently not offset by the promised surge in economic activity, leading to growing budget deficits and reliance on public borrowing.