"Trickle Down Economics"

by raidersfan102

"Trickle down economics" is generally now considered a failed economic strategy. But did it work in a short term outlook? What to spur the policy trickle down economics and why do people consider it so evil and failed a practice?

SirGuyGrand

Here's the thing, we cannot say for certain whether or not 'Trickle Down Economics' (TDE) works. Certainly its popularity among voters seems to reflect the economic outlook at the time. During the reasonably, but not outstandingly, prosperous Reagan/Bush senior administrations (1980-1992) and the latter Bush junior (2000-2008) the ideas traditionally associated with TDE such as Flat Tax rates were hugely popular. During his 2008 presidential campaign Obama ran on a platform to raise tax rates for the wealthy, which was hugely popular given the recently emerging Global Financial Crisis.

But, none of this really answers your questions, does it?

But did it work in a short term outlook?

Many proponents of TDE would say it is a long term policy, the effects of which are only felt years later.

Famously, many people point to the economic successes of many former Soviet-Bloc countries, Lithuania, for example, has had a flat tax rate of 33% for over 20 years, Estonia has had a flat tax of 26% since 1994, and Latvia 25% since 1995. The three countries have been collectively known as the Baltic Tiger due to their economic success. Between 2000 and 2007 the Baltic Tiger had the highest growth rates on Europe, they also had one of the deepest recessions during 2007-2011, but growth has returned to levels similar to pre-2007 levels making the Baltic recovery one of the most successful in Europe

In the US the argument usually revolves around the events and policies leading up to the huge boom of the 1990's. Beginning in 1994, and, as many claim, despite the tax hikes of the Clinton administration, in 1994 the US and subsequently, other global economies went through a huge boom, but no one is really sure why. The economy had lagged during the late 80's and early 90's, employment was down, and the Gulf War wrought havoc on oil prices, which didn't help either. In response the Federal Reserve lowered interest rates to 5% to encourage growth, but it had no tangible immediate effect, at least not enough to guarantee Bush Senior a second term.

When Clinton came in the economy saw an almost immediate upturn, usually put down to Clinton signing into law the North American Free Trade Agreement or NAFTA which was classic TDE policy, tied with tax credits for low earners, the polar opposite of classic TDE policy.

The Boom started slowly, and almost stopped in 1995, but took off again in 1996 in time to coincide with more of Clinton's huge welfare reforms, such as a 20% minimum wage increase, more tax credits, and huge increases in food stamp and housing assistance funding.

But, was this boom down to the Clinton administration? Or had the low interest rates under Bush Senior spurred the initial growth? Or was is something even older, that had been bubbling away under the surface since the days of Ronald Reagan? In truth, we really cannot tell.

Stepping out of my neutral shoes, I personally would say in the case of the US it's the Clinton administration that can take credit for the boom of the 1990's, but as to the huge success of the Baltic Tiger, I really am undecided.

EDIT: Sorry, forgot to answer the second half or your question.

why do people consider it so evil and failed a practice?

Again, I would put it down to timing. As I said earlier, the popularity of TDE is pegged to economic success. When times are tough and more people are living in a less financially stable position they want to see that their government is going to take care of them. Giving tax cuts to the rich and focussing on growing businesses does not look like that to the average voter. When times are good, more people have a little more disposable income and feel a little more secure they want to see that the government isn't going to stand in their way of creating more wealth.

Looking at it now, more people are insecure about their financial position, prospects, although improving everyday, are still bleaker than people would like. People become more aware of how difficult life can be for low income families and so their attitudes to TDE reflects that.

[deleted]

trickle-down economics by definition is and is not a failed economic strategy. It is because the term itself connotes "bad" policy. (wikipedia should suffice to prove this point given its not controversial: http://en.wikipedia.org/wiki/Trickle-down_economics#Context)

and it isn't because trickle down doesn't really mean anything for the same reason. You need to get rid of the term and get to specific policies since right now your almost asking a tautology "why do people consider it [something who is defined as bad policy] so evil and failed practice?" Trickle -down isn't a analytic term it's a term used in political framing.

you're probably better off asking about supply side economics and/or policies of specific people