There were some interesting exchanges on economics yesterday.
President Biden said in a tweet that he did not think trickle-down economics works.
At the same time, Truss was in New York promoting the idea that it does.
Who is right? The IMF put it like this in the abstract to a 2015 paper:
This paper analyzes the extent of income inequality from a global perspective, its drivers, and what to do about it. The drivers of inequality vary widely amongst countries, with some common drivers being the skill premium associated with technical change and globalization, weakening protection for labor, and lack of financial inclusion in developing countries.
We find that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth—that is, when the rich get richer, benefits do not trickle down. This suggests that policies need to be country specific but should focus on raising the income share of the poor, and ensuring there is no hollowing out of the middle class. To tackle inequality, financial inclusion is imperative in emerging and developing countries while in advanced economies, policies should focus on raising human capital and skills and making tax systems more progressive.
I am not sure that the second paragraph could be clearer.
Truss is aiming to increase inequality at cost to growth, and everyone but the wealthy in the UK economy. To achieve that she says she is 'willing to be unpopular. I should think her backbenchers will be extremely worried, already.
This is Trussonomics.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Anybody who remembers the last forty years of Tory policies will have noted that they all follow a similar pattern.
1 They are based on precisely no evidence that they have ever worked.
2 They don’t work and cause mayhem.
3 Despite 1 and 2 above at the end of the process the Tories are notably richer and more powerful.
4 Our very right-wing media ensures that the Tories are never held to account for their stupidity, incompetence and greed.
It has worked for everything from Freidman-ite Monetarism to the blatant lies of Austerity and Brexit so why wouldn’t Truss expect it to work again?
Paul, Sadly, I have to agree with your conclusion.
Wholeheartedly agree with your assessment of why trickle-down economics doesn’t work nor has ever worked. Unfortunately, until politicians recognise this and also recognise that, for example, GDP growth is an extremely flawed metric and have the courage to present an economic plan that reduces the ever-widening wealth gap and takes-on the right-wing media and the oligarchy, I suspect we will just keep repeating the same mistakes. With a coterie of dunces in government it is only going to be exacerbated with increased interest payments to the banks, cuts in stamp duty, free zones, reduced taxes (despite evidence that illustrates lower taxes don’t drive growth in economies), etc. In a nutshell, Trussonomics is going to be even more damaging than Thatcherism and, unfortunately, I don’t see a resurgent, compelling opposition…and we need some sort of proportional representation if we are to positively change the face of politics for the future.
The principle of Trickle down economics is questionable. BUT the document you post is not a paper by the IMF it’s a document to promote discussion . Did you not read the disclaimer and the title ? Highly disingenuous reporting by you…
Disclaimer: This Staff Discussion Note represents
the views of the authors and does not necessarily
represent IMF views or IMF policy. The views
expressed herein should be attributed to the
authors and not to the IMF, its Executive Board, or
its management. Staff Discussion Notes are
published to elicit comments and to further
debate.
I know how the IMF works
You clearly don’t
They di not publish papers they do not approve of
“I know how the IMF works…You clearly don’t”
If it was the formal view of the IMF they would have said so. Your conjecture is disingenuous. You always tell others to stick to the facts why don’t you??
Respectfully, do you really think they’d publish a staff paper they didn’t agree with?
Maybe you need a bit of real world experience.
On Friday the Chancellor is probably going to spend somewhere near to £200 billion. Tax cuts are really just disguised spending, so the effect is really the same. What will UK Plc have to show for it? The answer to that is some very rich owners, mostly foreign, of oil gas and electricity companies, and some already rich people being considerably richer. In terms of any investment in productive capacity and additional services such as health, then there will be zero. No new hospital beds, no potholes fixed, no new factories, no carbon reduction, etc.
Economics looks, or should look, at opportunity costs. In this case then we could have around 1,500,000 additional council houses. Yes that is 1.5 million complete homes (at a bit over £100,000 each to build). We could pay for over two years of Richard’s Green New Deal to decarbonise the economy (£90bn pa). We could fully nationalise the energy sector and have lots of cash left over (since much of it would be bankrupt and thus worthless without the state paying the energy bills). We could electrify every single railway that isn’t already (at £5m per mile) (say £25 billion). We could have 10 state owned Hinkley Points for base load electricity (though I don’t think nuclear is the way to go).
But no, we are going to follow ideology to achieve not a single thing built, repaired or otherwise improved.
The IMF is just repeating something that we all know.
That money is increasingly badly distributed throughout society.
At lower levels of economic status, there is not enough to spend.
At higher levels of economic status, although the rich will spend, their excess money is just being stored or hidden and taken out of circulation.
Growth depends on people using money – not just saving or hoarding it. And the more the merrier – even better if we are getting them to spend on things that are sustainable.
It’s very simple really but beyond your simple faculties Simon – obviously.
I understand that there have been a few studies that have shown that trickle down economics is a myth such as this one https://www.businessinsider.com/how-bad-is-inequality-trickle-down-economics-thomas-piketty-economists-2021-12?r=US&IR=T.
Common sense also says it does not work. I just wish our so-called journalists would properly challenge Liz Truss on this.
Even President Biden slammed “trickle-down economics”. See https://twitter.com/POTUS/status/1572218921347866624
MMT emphasize a “bottom-up,” demand-led approach to policymaking instead of trickle-down, supply-side economics.
Biden must be reliable, he’s not been hit with a fraud lawsuit.