Not everyone has appreciated my efforts to promote economic liberty over the past 40 years.
- The most common attack is “you don’t care about the poor” even though I’m pushing for the only economic system that has a track record of successfully lifting people out of poverty.
- On a related note, some people assert “you don’t care about workers” even though free enterprises is the only approach that has ever created widely shared prosperity.
- Another silly claim is “you’re a tool of big business” even though I am constantly fighting against cronyism and supporting the system (creative destruction) that puts pressure on big companies.
Today, we’re going to focus on a different attack. I’ve lost count of how many times someone has launched the accusation that “your policies are trickle-down economics.”
I confess that I’m never sure how to respond to this attack.
Do I say “thank you” because investment is a key precondition for long-run growth? And do I then augment my answer by noting that even socialists and communists agree (though they are wrong in thinking governments should control investment)?
Or do I politely say “you’re an idiot” because the person making the attack almost surely is thinking like a Keynesian and focusing on how rich people spend their money rather than how they earn it (sort of like the difference between GDP and GDI).
Given my wonkiness, I’m always tempted to launch into a detailed explanation about entrepreneurs and how they use capital to help drive innovation and creative destruction.
Leading to higher productivity and thus higher wages.
Which is why, as illustrated by this old campaign poster for the British Liberal Party (classical liberals, of course), labor and capital should be allies rather than opponents.
Heck, there’s an entire cartoon strip making the same point.
But let’s see what some others have to say about “trickle down.”
In a column for the Wall Street Journal, Professor Steven Rhoads embraces the term (similar to my “thank you” approach). Here’s some of what he wrote.
President Biden in his State of the Union address encouraged Americans to imagine a future in which “the days of trickle-down economics are over”… Politicians may scorn the trickle-down effect, but it is responsible for Americans’ economic well-being. Even some prominent 20th-century liberal economists, including Paul Samuelson and Alfred Kahn,
agreed that the innovation and investment that lead to capital formation are crucial to economic growth. …When employees use better equipment and have better managers, they become more productive. This makes them more valuable to their companies and stirs competition in the labor market, causing their real incomes to rise. …Politicians and the press mislead voters and readers when they claim that tax cuts for the rich don’t benefit other economic classes. We all gain from new, improved products made possible by innovative startups funded by the wealthy. Excessive taxation…could deplete the funds that entrepreneurs use to start and sustain useful ventures.
Peter Earle, by contrast, does not like the term.
He is closer to my “you’re an idiot” approach. Here are some excerpts from his column for the American Institute for Economic Research.
…the perennial favorite “trickle-down”…is back in vogue. …no political party, economist, or economic textbook has ever referred to “trickle-down” anything as a policy tool or outcome. …Most important of all, the phrase fails to accurately describe any economic phenomenon or outcome.
…It suggests, of course, that a particular political initiative results in huge benefits bestowed upon the wealthy, with ancillary benefits––if any––dripping down in tiny rivulets to the poor, the working class, minorities, women, and so on. …as a class warfare dog whistle, it deeply (and not coincidentally) confounds the way that the economy works, insofar as capital and labor are concerned. Setting aside corporatist cases, entrepreneurs and other innovators are overwhelmingly paid second, after workers. Their compensation comes on the back-end, so to speak, in the form of revenue, dividends, and/or rising market valuations.
If this doesn’t exhaust your interest in the topic, I also wrote about “trickle down” in 2011, 2016, and 2021.
P.S. Perhaps the dumbest attack is from hard-core leftists who shriek “you’re a fascist” even though libertarianism is at a completely different point of the ideological triangle. My lefty critics don’t realize that fascism is a nationalist version of socialism (based on controlling private companies rather than nationalizing them).
I’m sure Dan doesn’t have time to explain all the errors in Devany’s comment, and I don’t either.
Free enterprise is a delusion with intellectual property monopolies and a tax system slanted by tax expenditures and unequal tax bases. The distribution of wealth has gotten so extreme that it increases the needs of the poor and government handouts during a typical work life.
Equal taxation of net wealth @ 2%, income @ 8%, and value added @ 4% (consumption, sales) would promote upward mobility, reduce individual need, and lower total taxes. Corporate income taxes and SS taxes would not be necessary since the average stock value would be taxed as wealth of shareholders.
Retirement investment and savings should be encouraged by a net wealth tax exemption of perhaps $500,000 per person ($2,000,000 for a family of four). There would be no need to tax withdrawals as income. Mortgages and student loans would offset the computation of net wealth assets.
Government handouts of all types would consider both wealth and income to determine need.
Nonprofits would be required to provide some transitional jobs and training to avoid taxation.
Dan, you would never make it as a fascist. You laugh at your own jokes and don’t have the flashy dictator wardrobe.
Capitalism – “Give a man a fish and he’ll eat for a day, teach a man to fish and he’ll eat for life”
Fascism – “Give a man a fish and he’ll eat for a day, teach a man to fish and you lose your leverage.”
Keep up the good work.
The old saying “Give a man a fish and he’ll eat for a day, teach a man to fish and he’ll eat for life” applies here. Those that claim you “don’t care about the poor” fail to realize that the very welfare programs they tout trap people into poverty. That is why the poverty rate hasn’t decreased since Johnson finished implementing his so-called Great Society programs, even though it had been rapidly decreasing from the end of WWII until he became president. The best way to “help the poor” is to lift them out of poverty, not by trapping them there with government handouts.
The best way to help workers is through innovations that make labor more valuable, something that the federal government has never done. One worker using a backhoe is far more valuable than a worker with a shovel and a wheelbarrow, therefore the worker using the backhoe can be paid far more money while the company that employs him can make a better profit too. Some people don’t understand the concept of a win-win situation, as they believe that someone can only do better at the expense of somebody else.
Dan, the response to the accusation that “your policies are trickle-down economics,” should not be what you propose. You will always lose. Instead, try Peter Boghassian’s method of asking the person questions. Start with asking what the person understands “trickle-down” to mean.
Shucks, you say, you came to a different conclusion and must have missed something. Since you have an open mind, ask if the accuser will explain what you missed. Then, from the answer given, work backward in his thought process until you reach the premises the accuser uses to reach the conclusion. The Socratic method. As Ayn Rand always said, check your premises.
This way, the person does not look at you as an adversary but as a student.
It takes a little time, but the rewards are worth it.