WWeeks after taking office, Britain’s new prime minister, Liz Truss, and her chancellor, Kwasi Kwarteng, proposed a radical new package of economic measures that mirrored the trickle-down policies of Margaret Thatcher and Ronald Reagan – heavily influenced by tax cuts for the wealthy and deregulation.
Last Monday, after a backlash from investors, economists and members of his own party, Mr. Kwarteng reversed one of the proposals and opted against removing the 45% tax rate for the highest earners. But proposals for other tax cuts worth tens of billions of pounds remain intact as the Government insists it is on the right track.
The bizarre thing about this latest episode of trickle-down economics — the political right’s enduring belief that tax cuts and deregulation are good for an economy — is that this gonzo economic theory lives on despite its repeated failures.
Since Reagan and Thatcher first tried them, trickle-down policies have exploded budget deficits and widened inequality. At best, they have temporarily increased consumer demand (the opposite of what is needed during the high inflation that Britain and much of the world is experiencing).
Reagan’s tax cuts and deregulation in the early 1980s were not responsible for America’s rapid growth through the late 1980s. His exorbitant spending (mainly on national defence) fueled a temporary boom that ended in a severe recession. Donald Trump’s White House tax cut never dropped.
But the US never restored top marginal tax rates before Reagan, and deregulation – particularly of financial markets – is an enduring legacy.
The result? From 1989 to 2019, this is what typical working-class families in the United States looked like negligible increases in their real (inflation-adjusted) income and wealth.
During the same period, the richest 1% were Americans $29 trillion richer. The national debt exploded. And Wall Street’s takeover of the economy continued.
Meanwhile, and largely as a result, America is even more bitterly divided along class and educational cleavages. Trump didn’t cause that. He took advantage of it.
The situation in the UK after Thatcher was not dramatically different.
Even during the last decade of economic growth, social progress on many fronts – from education and healthcare to rights and tolerance – has declined in Britain. According to that social progress index, The UK is one of only four countries to have fallen behind since 2011 (the others are Syria, Venezuela and Libya).
So why is trickle-down economics still with us? What explains the fatal attraction of this repeatedly failed economic theory?
The simplest answer is that it satisfies politically powerful stakeholders who want to rake in even more. Armies of lobbyists in Washington, London and Brussels are constantly demanding tax cuts and “regulatory relaxation” for their wealthy patrons.
But why has the public always been willing to go along with trickle-down economics when nothing trickles down? What constitutes collective amnesia?
The answer is that the wealthy interests have also invested some of their profits in an intellectual infrastructure of economists and experts who continue to promote this failed doctrine – along with institutions that house them, such as in the US the Heritage Foundation, Cato Institute and club for growth.
Consider Stephen Moore, founder and former president of the Club for Growth and a senior economist at the Heritage Foundation, whose columns appear regularly in the Wall Street Journal and are a frequent contributor to Fox News.
Moore helped draft and promote Trump’s trickle-down tax. In the past few weeks he has praised Ms Truss for her willingness to “challenge the ruling orthodoxy by slashing taxes to boost growth” and called her package “a bold and sound policy decision” that will “bring jobs, capital and businesses back to the UK.” “.
Moore and others like him tend to ignore the evidence and history of Trickle-Down’s abject failures. They are simply repeating the same promises made decades ago when Reagan and Thatcher tried to convince the public that trickle-down would work brilliantly.
The audience has so much else on their minds and so confused by the cacophony that they don’t remember it until immediately after the next trickle-down error.