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The Senior Lecturer doesn’t even understand trickle down

Trickle down has to be one of the most discredited of all neoliberal ideas. The claim is simple. It is that if the rich get richer then their spending will pull everyone along behind them as their wealth trickles down via their spending.

No, it ain’t. It’s that greater investment by the richer among us (this being the flip side of the obviously true greater marginal propensity to spend of the poor) creates a wealthier society over time.

22 thoughts on “The Senior Lecturer doesn’t even understand trickle down”

  1. Also “trickle down” is a phrase invented and only ever used by those seeking a greater role for the state – IIRC that was the phrase Bush Snr was talking about when he used the phrase “voodoo economics”

  2. So Much For Subtlety

    Isn’t it the Keynesians who claim that more spending (usually by the State) will make us all richer?

  3. “Trickle down has to be one of the most discredited of all neoliberal ideas.”

    Even if Murphy’s definition is right, how has this not happened? How are our living standards not hugely better than they were 100 or 50 years ago?

  4. Well, the proof, after 40 years of neoliberalism, is certainly on his side this time.

    We’re all much poorer now, and reduced to burying our despair under massive quantities of consumer goods and by over-eating.

    If dangerous, Gaia-threatening levels of consumption aren’t a sign of widespread poverty, I don’t know what is.

  5. Do you spend your wealth on grand balls and events etc. that employ some people and require servants and entertainers. Or do you invest in fabric and clothing factories making cheap clothes for the masses and thereby enable profit and further investment?

  6. I have to agree that Tim’s version of “Trickle Down” sounds more correct and I belief it does lead to a richer society through investment (i.e. like the one we’re living in now).

    The problem is that the version as it is often described is The Sage of Ely’s version which is both very different and is essentially based upon consumption by the rich rather than their investment (i.e. Tim’s)

  7. This paper develops a model of growth and income inequalities in the presence of imperfect capital markets, and it analyses the trickle-down effect of capital accumulation. Moral hazard with limited wealth constraints on the part of the borrowers is the source of both capital market imperfections and the emergence of persistent income inequalities. Three main conclusions are obtained from this model.

    Truly there is no beginning to his knowledge.

  8. As I think a number of legends on this blog have said:

    ‘If manufacture of straw me were an Olympic sport, Murphy would be a shoo in for Gold’

    I for one am grateful that Mcdonnell has such vindictive qualities as even under Murphy’s long dreamed of Curajus state (which seems inevitable now) as long as Mcdonnell holds ‘the keys to the kingdom’ Murphy will remain in the wilderness.

  9. Technology definitely trickles down. Cars, Planes, computers, washing machines, inside toilets, the list of things that started being only affordable by the very rich but are now commonplace is endless. The average person today has a standard of living higher than Lord Gratham, and doesn’t need to pay 100’s of servants to do so.

  10. “Wanted: an informed electorate” Murphy

    “Wanted: a professor of economics informed about the subject” the economics students at City

  11. I get it. To be a modern, economics-literate, informed citizen, one must believe:

    1) Trickle-down definitely does not work in the private sector.

    2) Trickle down definitely does work in the public sector.

  12. Steven Horvitz argues the term “trickle-down” is just a made-up attack term anyway:

    Critics of liberalism and the market economy have made a long-standing habit of inventing terms we would never use to describe ourselves. The most common of these is “neo-liberal” or “neo-liberalism,” which appears to mean whatever the critics wish it to mean to describe ideas they don’t like. To the extent the terms have clear definitions, they certainly don’t align with the actual views of defenders of markets and liberal society.

    Another related term is “trickle-down economics.” People who argue for tax cuts, less government spending, and more freedom for people to produce and trade what they think is valuable are often accused of supporting something called “trickle-down economics.” It’s hard to pin down exactly what that term means, but it seems to be something like the following: “those free market folks believe that if you give tax cuts or subsidies to rich people, the wealth they acquire will (somehow) ‘trickle down’ to the poor.”

    The problem with this term is that, as far as I know, no economist has ever used that term to describe their own views. Critics of the market should take up the challenge of finding an economist who argues something like “giving things to group A is a good idea because they will then trickle down to group B.” I submit they will fail in finding one because such a person does not exist. Plus, as Thomas Sowell has pointed out, the whole argument is silly: why not just give whatever the things are to group B directly and eliminate the middleman?

    Though he goes on to make Tim’s argument about capital accumulation. (Hovitz doesn’t mention this, but according to Wikipedia the “trickle-down” phrase itself seems to have originated in the 1930s with the humorist Will Rogers, as a criticism of policies that favoured the wealthy.)

    As a counterpoint, this IMF report into “Causes and Consequences of Global Inequality” is empirically critical of the trickle-down idea:

    First, we show why policymakers need to focus on the poor and the middle class. Earlier IMF work has shown that income inequality matters for growth and its sustainability. Our analysis suggests that the income distribution itself matters for growth as well. Specifically, if the income share of the top 20 percent (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20 percent (the poor) is associated with higher GDP growth. The poor and the middle class matter the most for growth via a number of interrelated economic, social, and political channels.

  13. John Galt–even if the rich consume gold-plated ice cream–it exists- they are still transferring their money to the less rich but productive.

    Saving is generally better than excessive spending because investment helps prosper others and you still have money left yourself but either way useful, productive people are helped. And their efforts help and bring prosperity for the rest of us.

  14. Andy in Japan, not just cars, planes and computers. Many modern technological devices and materials were developed by NASA during the various space programs.

    Stuff like the spring-back foam used in airplane seats, cochlear implants, scratch-resistant lenses for glasses and other optical instruments, the insulin pump, Lifeshears (the cutting equipment used by search and rescue teams), microbial check valves for water filters. Even the modern athletic shoe owes much to the rubber-soled boots that were developed for astronauts.

  15. “Wanted: a professor of economics informed about the subject” the economics students at City

    Despite his continuous pontification about “somat what he knows nowt about” (for economics is but the beginning of his ignorance), The Sage of Ely is, if I recall correctly employed in his role at Islington Technical College as “Professor of Practice in International Political Economy”.

    Quite what the fuck that actually means is beyond my ken.

  16. I thought the policy the phrase was used to criticise was based on tax incidence theory. The burden of taxes is spread across the economy in proportion to the inverse elasticities of supply and demand.

    The perceived problem was that progressive taxes taking from the rich to give to the poor were having the effect of sucking too much money out of the economy, and totally failing to redress the inequalities because the burden of high taxes for the rich fell mainly on the poor. By stopping the extreme taxing of the rich, it would therefore benefit the poor. However, it wouldn’t change inequality, which is due to people having different skills and experience, some of them in more demand than others.

    Progressive taxation is like taking fish out of the deep part of the lake, and then putting some of them back (minus quite a lot of wastage) into the shallow end. All it does is reduce the net number of fish in the lake, (which is rather more of a problem at the shallow end than the deep end). Especially as deep water is where the fish breed more fish.

    “Trickle down” is basically describing the general wealth-spreading effect that tax incidence is a principle example of. The alternative has a pejorative name for it as well – the “flypaper theory” of tax incidence.

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