Saturday, January 9, 2016

Is "Trickle Down" Dead Yet?

The credibility of trickle down always gets my goat.  Trickle down is the theory that cutting taxes on the rich will benefit everyone because the rich will create jobs.  Economic theory a la Milton Friedman is often cited as supporting the theory because taxes are always inefficient.

Finally, some economists at the IMF have published a report that clearly describes why trickle down economics does not work.

Higher inequality lowers growth by depriving the ability of lower-income households to stay healthy and accumulate physical and human capital (Galor and Moav 2004; Aghion, Caroli, and Garcia-Penalosa 1999). 


Inequality dampens investment, and hence growth, by fueling economic, financial, and
political instability.

Jared Keller at the Pacific Standard further notes that the term "trickle down" itself was coined to lampoon President Hoover's policies during the Great Depression.