Now that the plutocrats have bought enough politicians to get their tax bill passed, it’s worth pondering for a moment whether it’s all going to be worth it. There are definitely good things in there, reductions in the mortgage and state and local tax deductions, plus a doubling of the standard deduction.
That’s not, though, what people are generally whining about. Rather, the complaints are that we’re being subjected to trickle-down economics, something that doesn’t work.
The problem is, trickle-down economics does work, will work, and always has done so. Hal Varian, of Google, has it exactly right here:
A simple way to forecast the future is to look at what rich people have today; middle-income people will have something equivalent in 10 years, and poor people will have it in an additional decade.
That is trickle-down economics, and it works. I’m old enough that the first mobile phone call in my native England took place while I was an adult. The phone cost more than many of the used cars I’ve had over the years, and airtime was $2 a minute. We can all now have some landfill Android machine that will surf the net as well as make calls for what, $20 a month these days? We even say this is such a part of modern life that we provide them for free to welfare recipients. Yup, that’s trickle-down economics.
My larger point is that this happens with all technologies. Something starts out as playthings for the rich, economic competition piles in, and they become cheaper and cheaper — until a middle-class existence is defined as being impossible without one, and in the fullness of time we say that you’re impoverished if you don’t have one. My grandparents didn’t start married life with a refrigerator, but we’d all scream blue bloody murder if we thought that those on welfare couldn’t have one today on cost grounds.
This oddity of mixing up capitalism with markets really does make this sort of trickle-down work. It’s the only economic system humans have ever tried that moves technologies along that conveyor belt from spurious luxury to basic living standard as it does. Nothing else has ever done that.
Fair enough, that’s not the sort of “trickle-down” being screamed about over to our left. But Kevin Hassett has this right. That shouting is just that trickle down is the name given to tax cuts you don’t like. Hmm, the people who didn’t get elected to power are complaining about what those who did are doing. That is, at least as far as I recall it, the point of democracy. That we the people get to decide who has the power. Presumably basing our decision upon what we think they’re going to do with it.
However, let’s just take that complaint seriously. We’ll leave all the money with the rich people, and that will have what effect? The claim is that the trickle-down doesn’t happen. And yet, and yet, all of the economic conversation about it (you know, economists, the people who study these things?) is about how much it will happen, not whether.
No, really, even Paul Krugman’s back of the envelope calculations end up showing that the effect will be there, just not very large. Maybe not enough to justify it all, but it’s there.
That is, the argument isn’t that trickle-down economics doesn’t work — even when we use the definition designed as an insult — it’s "how well does it work?" because we all agree it does. On the sensible grounds that, well, it does work.
Tim Worstall (@worstall) is a contributor to the Washington Examiner's Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute.
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