Throughout recent election campaigns, from the articles, speeches, broadcasts and lectures of North America’s chattering class, the public has been hearing a lot of condescending reference to something the liberal left likes to call “trickle down” economics.
Progressive humourists, entertainers, politicians and academics generally use the term to disparage the merits of free-market capitalism. More specifically, they are referring to “supply side economics” which shaped the policies of the Thatcher and Reagan revolutions of the early 1980’s. It is something they say we should never return to.
At least since the Great Depression of the 1930s, North America’s liberal elites have treated “laissez-faire capitalism” with strong suspicion. For example, John Kenneth Galbraith, author and leading icon of 20th century American liberalism once noted that “trickle down” economics had been tried and found wanting in the United States during the 1890’s. He compared it to what had been known as “the horse and sparrow theory” which held that if you fed the horse enough oats some would drop to the road for the sparrows. In other words, the bottom half of a capitalist economy can expect nothing more than crumbs from the tables of the rich.
New era of post-modern life
In the 1960s men like Galbraith and the entire progressive movement spoke to us in the language of change, human equality and “social justice.” But by the late 1970’s things had changed and not for the better. The seventies ushered in a new era of post-modern life along with “Great Society” style government taxation, regulation and spending. The economy became weak. The stock market was a disaster. The west was on its heels facing an expanding Soviet Empire. In America, easy money policies of the American central bank led to inflation. Public service unions demanded hefty pay raises and generally got them. On the other hand, the private sector faced the worst recession since the Great Depression and some four years later the second worst recession since the Great Depression.
Dynamics of a capitalist economy
Early in the 1980s, however, proponents of state-directed economies received considerable push back. A neoconservative movement began to advocate lifting the dead hand of government from free market western economies. Economists like Thomas Sowell and others challenged the honesty of characterizations like “trickle down” to describe the dynamics of a capitalist economy. Sowell noted that money risked in new business ventures is actually first paid out to employees, suppliers, contractors, advertisers and promoters. Only some time later, after considerable amounts of capital have been “poured down” into a workforce does money return to the business owner in the form of profit. Productive businesses, therefor, must give before they get and the destruction of the profit motive by overly high marginal tax rates generally causes wealth producing economic activity to wither and die.
Throughout the 1980s and 1990s popular exegetes of free-market economics such as George Gilder and Art Laffer criticized the historical outcomes of socialism and celebrated the productive results of the entrepreneurial spirit. In the North Atlantic triangle the successes of Margaret Thatcher, Ronald Reagan and Brian Mulroney began to dispel the idea that democratic capitalism is an unfair, “trickle down” system. A renewed confidence in free market solutions led to one of the longest periods of expansion and stability in the history of the United States. Despite short recessions in 1987, 1991 and 2001, the reduction of volatility in the business cycle starting in the mid-eighties and continuing to the subprime mortgage crisis of 2007 was described by mainstream economists as “The Great Moderation.” In a pivotal 1996 State of the Union Address even Democratic President Bill Clinton declared that the era of Big Government was over.
President Obama’s choice
In 2008 President Barack Obama was elected in the wake of one of the worst stock market setbacks in recent memory. The new President had to make a choice. He could have chosen to mitigate the worst effects of the recession by augmenting temporary safety-net measures. At the same time, he could have lowered taxes, rolled back excessive regulations and given American entrepreneurs a chance to renew the economy as they had in the mid-eighties. Instead, he chose to broaden the scope of government agencies, create an unsustainable health care insurance scheme, raise corporate taxes to uncompetitive levels and put the brakes on American energy development. The result has been eight years of slow economic growth and an additional 10 trillion in debt. The President’s choices led to what the Washington Post’s Charles Krauthammer has called “the most anaemic recovery since World War II.”
More of the same
Hillary Clinton promises more of the same. In fact, the Democratic Party appears to have rejected the idea of a return to American capitalism or what they still cynically call “trickle down” economics. Instead, Democrats propose a more socialist mixture or what might be called “trickle up” economics. In this system a lion’s share of wages and investment earnings flows upward to the state where politicians and government apparatchiks redistribute it in support of partisan priorities and reliable voting blocks. Governments must take before they can give.
Voters deeply conflicted
Independent American voters are deeply conflicted over this year’s choices for President. Both candidate are polling high disapproval ratings. A vote for Trump could mean putting an undignified President in the White House. A vote for Clinton could mean electing a dishonest Commander in Chief. Both dignity and honesty are important elements for political leadership.
But the most important issue to be decided on November 8th is the future direction of the American economy. Will it be “trickle down” or “trickle up?” It’s anybody’s guess and the world will be watching.