We’ve sensed it intuitively, but new studies confirm it. Trickle-down economics doesn't work, and it has systematically crippled the American middle class for almost five decades.
There’s a huge amount of anger and frustration in the United States. It’s been growing for years. People are worried about their jobs, they’re worried about their wages. They feel like they don’t have a voice in deciding anything that pertains to them… politically or economically. And that was all before the pandemic.
Right now America is the richest country in the world, and it's richer than it's ever been. As a nation, we're doing great. And certain people in this country are doing better than anybody’s ever done in the history of the world.
The Pandemic Magnified
Stock markets are hitting record highs. More initial public stock offerings have been launched this year than the last two decades. A wave of IPOs dumped windfalls of cash into the laps of Silicon Valley investors, founders and employees. Oh, and tax rates are historically low.
Since the start of the pandemic, America's 651 billionaires have gained a total of $1 trillion of wealth. With this windfall, the billionaire’s club could theoretically send a $3,000 check to every person in America and still be as rich as they were before the pandemic.
Meanwhile, more than 20 million Americans are jobless, eight million have fallen into poverty, 19 million are at risk of eviction, and 26 million are going hungry. Mainstream economists are describing an ominous "K-shaped" recovery — where the well-off ride the wealth train straight up one slope, while the bottom half slide into a dark economic descent.
You don’t need a doctorate in ethics or economics to realize that something’s really not right.
A Closer Look At This Troubling Trend
Your suspicions and intuition were confirmed when the London School of Economics released a new study explaining that trickle-down economics makes inequality worse. It makes the rich richer, but adds no value to the overall economy.
America was once heralded as “The Land of Opportunity,” with a booming middle class that the world envied, and unprecedented upward mobility that animated "The American Dream."
But just as we would round the corner into the 1970's, we allowed corporate dollars to infiltrate our politics, and turn our government into a mutant institution. It began to rot, from the inside out. Dollars bought access to power, and power had influence over policy. And those policies would have systemic and detrimental affects on the nations for the next fifty years.
Then to add gasoline to orange juice, the 1980s chauffeured in Reagonomics. This economic plan touted lower (corporate) tax rates, economic deregulation, and reduction in government spending. The theory of "Trickle Down Economics" became the centerpiece of this economic scheme.
But critics warned that trickle-down economics does not work, because cutting taxes for the wealthy does not translate to increased rates of employment, higher employment wages, increased consumer spending, or increased government revenue. And the critics were right.
Economist Thomas Sowell warned that trickle-down economics has never been advocated or endorsed by any economist. That reinforces the idea that this was simply a political move, rather than policy based in sound principles of economics. President George H. W. Bush also criticized it as "voodoo economics." Tom and George were also right.
A 2015 economic report explains the profound failings of increasing economic gains of the rich without commensurate participation by the working and middle classes. This was a direct and measurable result of the problematic policies of Reagan-style economics, which was perfectly poised to pad financial-sector pockets. The fat cats got fatter, while the rest of the country became emaciated, wages stagnated, prices inflated, and politicians placated.
In 2020, corporate profits (before taxes) reached their highest share of the total economy in at least 90 years. Meanwhile, the percentage of the economy going to people’s wages has dropped dramatically.
Economic Study Confirms What We Knew
David Hope, of the London School of Economics, and Julian Limberg of King’s College London, definitely lay waste to the theory. They reviewed the data from advanced economies over the last half century and found that tax cuts for the rich widened inequality without having any significant effect on either jobs or growth. Nothing trickled down.
The word “hoax” has been thrown around lavishly these last four years. And it's worth taking a closer look at this trending idea. A hoax is a ‘humorous or malicious deception.” And since the notion that taking from the poor and giving to the rich will make the poor richer is both hilarious and mean, it's safe to say that this economic policy trickles right into the parameters of that damning definition.
Trickle-Down Economics in the name of “job creation” is a political wink and a nod to the 1%. While the disenfranchised masses justify the policy by parroting one liners like 'they're the job creators', politicians give a wink and a nod to the one percent who don't intend on creating jobs. There is no mandate or "regulation" within this policy to ensure that those tax breaks actually go to "job creation," and so therefore, they don’t.
Feeding a fat baby right in front of a starving one seems a little twisted. But politicians continue to hold the choo-choo spoons and playfully shovel the messy excess into billion dollar bellies, as they lock eyes with the hollow-sockets of withered life-forms with psychopathic indifference.
And you can see the cumulative effect of all this over time. Wealth creates political power, which creates changes in the rules that enhance wealth. It's a vicious, destructive cycle. It's not sustainable. And it’s getting worse.
So What's the Solution?
Taxing the rich is politically unpopular. And while the president elect intends to do so, a narrowly sliced Congress is already balking. But maybe we should be more ambitious and attempt to change economic thinking altogether.
Trickle-down economics doesn’t work. But middle-out economics does. Because every place on earth where you see prosperity, you'll find massive investments in the middle class and the poor. Because at the end of the day, they are the true "job creators." And according to Amazon investor Nick Hanauer,"the most pro-business thing you can do is help middle class people thrive."
Robert Reich continues to fight the good fight for policy reform, which he has done faithfully for over 50 years. And we do need to be more active citizens. Because admittedly, we have had a minimalist approach to citizenship. And our responsibility and rights extend far beyond voting, taxes, and jury duty. But social entrepreneurship is an act of citizenship that can help us close the wealth gap.
How Individuals Can Close the Wealth Gap
Because what made Amazon one of the greatest economic achievements of our time, and something certainly worthwhile for its investors, was its ability to utilize the internet, and an online platform, to scale its products and services to an international audience. Its use of technology and automation allows it to make extraordinary profits with minimal labor.
But those same tools that made Amazon possible are available to all of us. So if we can equip more of the middle class with the tools, sustainable strategies, and sound principles, it can create profitable enterprises that create both economic and social impact. We would not need to wait for obdurate institutions to change. Americans can take a pro-active approach, building the economy from the middle out, ‘redistributing’ the Amazon pie by working with the market forces that politicians are so reluctant to reform.
The pandemic has taught us that virtually any business can be translated into an online platform. Social entrepreneurship, using scalable business models, will equip more of the middle class with the tools that access a global market, increase the earning potential of each person, generate revenue, and close the wealth gap by lifting up the middle. And as they create wealth, they can invest their time and talents in creating solutions that serve the causes and communities they care about.