Trickle-Down Economics, a Failed Theory that Will Not Die

Arthur Betz Laffer (pictured) is a well-credentialed economist, boasting a Yale undergrad degree in economics and Stanford PhD. But somewhere along the line, he became part of a once growing conservative branch of political economic theory that if you reduce the tax rates for those with the highest incomes, these wealthy folks would have more money to “trickle down” to the lower economic strata to create jobs and generate massive capital investment. He found himself as part of the White House in Ronald Reagan’s Economic Policy Board, embracing that theory… but the rich didn’t get top that economic pinnacle by being stupid (ok, a few just inherited their wealth, and many of those frittered it away).

But the tax cuts didn’t result in massive new jobs. We began to witness the outsourcing of jobs overseas, where products could be manufactured much less expensively and services often provided for a fraction of the cost of those same services in the United States. Wealthy corporate owners invested heavily overseas. The rich didn’t even use their money to “buy American,” and Bentleys, Mercedes, BMWs, Ferraris, and Porsches joined with Chanel, Armani, Louis Vuitton, Manolo Blahnik and Brioni with a very large upswing in private jet aircraft became the badges of wealth. Unemployment numbers, better jobs, did not seem to be remotely linked to the reductions in the tax rates for America’s mega-rich.

But let’s face it, when you’re rich and living high on the hog, too many simply have no desire to see their wealth deployed for the benefit of others. So these bastions of beastly basking needed to continue to express theories to vast masses needed to win elections… and in turn keep nasty financial and environmental rules or higher taxes from eroding their very comfortable lifestyles. With “trickle down” (often referred to as “supply-side”) economics rapidly becoming a joke in the bona fide economic world, the rich – now able to buy media attention to their “cause” with virtually no restrictions (under Supreme Court rulings) – needed a cool new way to make their constituents vote for the next generation of trickle-down low tax rates. The secret? Use different words. Call these rich folks the “job creators,” and reap more of the same.

So when popular U.S. Senator Sam Brownback (obviously a Republican) decided to run for governor in what has been a decidedly red state, Kansas, he was a shoo in. With appropriately named Professor Laffer as his chief economic advisor, Brownback was now the state’s chief executive with an extreme conservative agenda, able to mount what he thought would be proof that uber-conservative policies were best for all. He mounted his “Red State Experiment.”

“After his election, Brownback, who was a U.S. senator for 14 years and a 2008 presidential candidate, quickly moved to consolidate conservative power in the state by successfully challenging more moderate Republicans. Advised by Arthur Laffer, the father of supply-side economics, and supported by special interest groups backed by conservative billionaire brothers Charles and David Koch, he pushed through legislation that cut taxes and spending, eliminated state jobs and denied far more applications for welfare assistance — not to mention that he tightened abortion regulations and loosened gun rules.

“Brownback promised that the efforts would drive economic growth, create jobs and stabilize the Kansas budget. But the state is now reporting a more than $300 million revenue shortfall. The poverty rate increased. The state’s economy expanded a total of 2.3 percent in inflation-adjusted terms over the past two years, half the rate of its four neighbors. And Kansas’s credit rating has been downgraded.

“In an interview on his way to Dodge City — where he would sign legislation creating a ‘National Day of the Cowboy’ — Brownback said he regretted referring to his plans as an experiment. But he defended his tenure, saying it represented a Ronald Reagan-style approach to governance that eventually would rebuild Kansas’s economy after a long slide.” Washington Post, July 30^th.

School budgets, slashed in the earlier years of the Great Recession, were kept low, and Kansas public schools were overcrowded and producing second rate students. Parents began to notice. The local environment for smaller businesses remained sluggish, and the job picture wasn’t that good. “It’s the economy stupid” has begun to resonate with an increasing number of constituents, but this time it is drawing support from an extremely unlikely source: people looking seriously at Democratic candidates. It still may be too much for many Kansas voters to switch parties, but the handwriting is on the wall.

“As he runs for reelection, Brownback is finding that what he once called a ‘real live experiment’ in red-state governance is struggling to produce the benefits he had promised, spurring an increasingly competitive gubernatorial race against state House Minority Leader Paul Davis (D). His troubles also provide a case study of what can happen when single-party control — now the norm in most states — combines with the sharp rightward shift of the Republican Party.” Washington Post.

In short, this conservative path, anchored by failed theories of supply-side economics, proved once again how wrong those theories are… and always have been. There is indeed a case for fiscal conservatism, to manage your spending to align with your ability to pay without excessive debt, but it’s time for “trickle-down” to trickle out of the conservative lexicon forever. And we really do need to learn the difference between just “spending” and “investing” in ourselves.

 I’m Peter Dekom, and Americans are so “solution by slogan” oriented that they are excited to deploy failed theories simply under a different slogan-sounding name!