Skip to main content

Trickle-down Economics as Economic Theory in Reality


I watched an interview with Deirdre McCloskey on the Youtube channel of the Institute for New Economic Thinking. [1]

After doing so I contributed to a comment thread, recreated in full below, wherein a chappy who claimed to be an economist tried to convince me that trickle-down economics actually is a serious thing after all. This was in response to my posting a link to Thomas Sowell's article The Trickle-Down Lie, and I am so far unconvinced by the tale the economist in question spun for me.

He cited a paper from the 90's as his example, and I entreat you to have a gander at its abstract and compare that to trickle-down as described by David Stockman in his interview with William Greider on supply-side economics. [2][3][4]

Steve Horwitz isn't in love with the phrase, but offers a decent definition;
It’s hard to pin down exactly what that term means, but it seems to be something like the following: “those free market folks believe that if you give tax cuts or subsidies to rich people, the wealth they acquire will (somehow) ‘trickle down’ to the poor.”
No pro-market or anti-market economist believes that.



~ ~ ~



muoslopful
lol I thought this was new economic thinking. she's literally just advocating property rights and trickle down effect. what nonsense. the innovation has occurred Despite capitalism, not because of.

~~~

William Adair
+muoslopful
you obviously haven't read any of the books in this series. Your comment makes you sound like a typical, smug leftist who hates successful people like the bourgeoisie (and probably white men). There are reasons why classical liberalism has succeeded enormously and socialism/communism/fascism/progressivism has failed miserably and taken some 100 million people to their graves in the twentieth-century alone. McCloskey is trying to tell you why, but you're so full of yourself that you can't hear.

~~~

muoslopful
+William Adair
your comment is a mass of straw man argument fallacy and doesn't respond to anything. try again.

~~~

William Adair10 months ago
+muoslopful
Speaking of strawmen, McCloskey says nothing in her book series about anything that could possibly construed as "trickle down." Your use of "trickle down" gives me enough insight into your economic thinking to guess the rest. I've offered no strawman. I said "Your comment makes you sound like" which is not a strawman but an observation.

~~~

muoslopful
+William Adair
"makes you sound like".....then bases the majority of the comment on a load of assumptions that have been made up......seems pretty straw man to me. take that away and you're not left with much of a comment. she doesn't have to mention trickle down for it to be implied. if you had any kind of comprehension skills you'd see my comment said that she pretty much implies it. end.

~~~

William Adair
+muoslopful It's very interesting that you can imply but I can't. 'Smug' was correct.

~~~

muoslopful
+William Adair
My first comment alluded to the fact that in this entire interview she essentially paves the arguments for neo liberal ideology. I won't go into why i think that - its in the video. If you don't get that, i can't help you.

You then respond with 'you sound like' and then go on to call me all kinds of things all based off assumptions, all of which have nothing to do with my comment or anything that was said in the video, you just sound like someone who idolizes her = Straw man argument.

I then call this out and say its a straw man argument.

You deny this, and after going off on a tangent, to your credit you directly respond to my 2nd comment, and go 'nope wasn't a straw man' pointing to a technicality of how you worded it.

The difference is most of your comment is based around your opening gambit of 'your comment sounds like'........which i point out in my 3rd comment. The difference is, my implication is founded entirely on the things she says in her video - your implications are founded entirely on your own straw man argument.

I'm not going to now spell out why I think what she says in the video implies or alludes to neo liberal ideology or trickle down effect, if you cannot work that out, then that clearly shows how limited your own study in economics is. You've demonstrated that you're just another rambling internet baffoon with no ability to hold a coherent argument or discussion and directly relate it to what the other person is saying.

Good day.

~~~

William Adair
+muoslopful
Your claim that "[y]ou've demonstrated that you're just another rambling internet baffoon with no ability to hold a coherent argument or discussion and directly relate it to what the other person is saying" is ripe considering that you use a pejorative--"trickle down"--as if it were a real economic theory.

It's always amazed me that those who hate the free market (usually supporting instead central planning) accuse others of something like "trickle down". BTW, this is not a strawman because your accusation toward McCloskey criticized her support of a free market.

You are correct that I failed to make the best argument. The better argument would have been to demand that you justify your claims with quotes from the video. Which is something you cannot do.

~~~

Matthew John Hayden
Or find evidence for an actual theory of trickle-down economics; https://townhall.com/columnists/thomassowell/2014/01/07/the-trickledown-lie-n1772687

Maybe muoslopful has confused [ falling real-prices over time ] with [ money trickling down from rich to poor ]... cos what free-market advocates claim happens is the first one, not the second, as evidenced here; http://humanprogress.org/static/3202

Check out at that second link how prices in real terms have pretty much only gone down over the last several decades, much as they have been doing continually since a few decades into the Industrial Revolution.

~~~

schumiisking
"or find evidence" - Links to an opinion piece written by Sowell, a well known free market ideologue - Yeh, sure, if you call that evidence. Brilliant.

Try again. I'm not even going to bother reading it unless its in a journal and has been at least peer reviewed - even though that's dodgy ground in economics because economic journals themselves have biases, at the very least they have been researched.

Many many other prominent economists, people like Joe Stiglitz, use the term 'trickle down'. IF you know anything about standard neoclassical economic theory, it makes total sense. By liberalizing capital movements and under a theory of perfect competition, capital markets would make 'all boats rise' as the capitalists would maximise efficient use of that capital. You're the one that's confused - if you bother to study actual neoclassical economics i.e. whats in the textbook in a post-grad econ class i.e. Mas Collell, this is what is advocated.

schumiisking (again)
+Matthew John Hayden
here's an extract from Journal of Policy modeling, Vollmer (2013) - Aghion and Bolton (1997) have developed a model of economic growth and inequality, which includes a trickle-down effect of capital accumulation in the presence of imperfect capital markets. 

They focus on borrowing and lending in the capital market as the mechanism through which wealth may trickle down from the rich to the poor. More accumulated capital in the economy also means more funds available to the poor for investment purposes. That's the theoretical foundation for it in economics, which is what i paraphrased above. You're welcome. See, unlike you, i am literally doing my masters in economics right now - and have access to the journal databases.

So I can actually back up what I'm saying with real papers, not tabloid nonsense. It's part of the neoliberal literature which came out in the 80's, and implemented by institutions like the World Bank, IMF, as well as western governments especially US and UK.

This is an extract from the Aghion and Bolton paper referenced above: "It is widely believed that the accumulation of wealth by the rich is good for the poor since some of the increased wealth of the rich trickles down to the poor. This paper formalizes an important mechanism through which wealth may trickle down from the rich to the poor. The mechanism we focus on is borrowing and lending in the capital market: as more capital is accumulated in the economy more funds may be available to the poor for investment purposes. This in turn enables them to grow richer."

They then go on to say: "The main economic insight which comes out of our analysis in this paper is that, even though wealth does trickle-down from the rich to the poor and leads to a unique steady-state distribution of wealth under sufficiently high rates of capital accumulation, there is still room for wealth redistribution policies to improve the long-run efficiency of the economy. In other words, the trickle down mechanism is not sufficient to eventually reach an efficient distribution of resources, even in the best possible scenario. The reason why redistribution improves production efficiency is that with redistribution the poor need to borrow less to invest and therefore their incentives to maximize profits are distorted less. Thus, redistribution improves the efficiency of the economy because it brings about greater equality of opportunity and because it accelerates the trickle-down process." And then they go on to make a model to show this, but the point here is - 'trickle down' is founded in economic theory. Do you now accept this? I won't waste any more time here - good day.

~~~

Matthew John Hayden
You're not describing a movement of money from rich to poor, are you? Are Aghion and Bolton doing such a thing? Trickle-down as discussed by lay-people means money trickling down, not the generic [ "rising tide lifts all boats" per abundant empirical evidence ] argument.

Are you referring to [ falling real prices over time ] as trickle-down? If so, that's fine. I can accept that, but that's not what Sowell was attacking in his piece above, or in the search that preceded the piece above, or any other econ watering hole I've frequented; http://www.economistsdoitwithmodels.com/2010/07/30/stop-trying-to-make-trickle-down-economics-an-economic-thingplease/

That [ "rising tide lifts all boats" ] or [ falling real prices over time ] definition I do accept, but then again I already accepted it in my comment above, and provided a link to contemporary price data supporting it.

I have to confess that I do not possess a copy of Mas Collell - I rely upon Mankiw, Hall & Lieberman, and Pindyck & Rubinfeld.



~ ~ ~



Trickle-down according to non-economists - starting with David Stockman - is the process of naturally occurring redistribution whereby money trickles down from the rich to everybody else. Since this process does not occur in reality this claim can be used to attack mainstream economics.

It does not mean the trivially obvious - and correct - observation that real costs fall as a result of successive waves of capitalistic production.



 ~ ~ ~



[1] The Discreet Charm of the Bourgeoisie? Youtube video by New Economic Thinking;
https://www.youtube.com/watch?v=eLn0pAzYs0A

[2] Result of search term "trickle" in The Review of Economic Studies;
https://academic.oup.com/restud/search-results?page=1&q=trickle&SearchSourceType=1

[3] A Theory of Trickle-Down Growth and Development by Philippe Aghion, Patrick Bolton;
https://academic.oup.com/restud/article-abstract/64/2/151/1580865/A-Theory-of-Trickle-Down-Growth-and-Development?redirectedFrom=fulltext

[4] The same paper at JSTOR;
https://www.jstor.org/stable/2971707?seq=1#page_scan_tab_contents

Popular posts from this blog

Will Automation Make All of the Jobs Disappear?

... No.

There is no reason to suggest that automation will dramatically increase unemployment in the short term, or at all in the long term.

Seriously, it will not.

Do read the links in the order in which they appear please. Finding the right comments in the third link might be quite interesting. They are all by a user called BestTrousers and start with "RI" meaning R1.

The main argument used by HealthcareEconomist3 is to give a survey of several works, while BestTrousers goes for comparative advantage.

Why I Am Not a Historical Materialist

Hopefully you good folks can indulge me by forgiving this post. It is an unfinished mess because I wanted it out there as the anchor for a hyperlink from a Reddit thread.
At the momebt everything below is a jumble of notes, but I will be reworking it bit by bit starting today.
Hopefully this post will be sorted out and typed in full before the end of April 2017.


~~~


Historical materialism is the idea that history progresses in stages - slavery, then feudalism, then capitalism, then socialism, then communism - driven by changes in the technologies or techniques of production, and that any human civilisation will exemplify this process.

This makes historical materialism an exercise in both historicism and materialism.

Historicism is the idea that studying the past can reveal history's in-built course or narrative, and so show you the future.

Materialism is the idea that ideas ( and institutions) ultimately* don't matter in determining our destinies, and that therefore only material…

Capital & Labor in the Race to Exploit the Other

The idea that labor exploits capital is equally as plausible, sans assumptions*, as the idea that capital exploits labor. This is only intended as a response to the formal concept, descriptive or normative, of exploitation in Marx's schema from Capital Volume I.

* Assumptions include the power relation whereby capital is just assumed to be above labor hierarchically.

~
~ Capital exploits labor because... ... Capital earns income from production done by labor that capital didn't perform
&
~ Labor exploits Capital because... ... Labor earns income from capital that labor didn't buy
~
Basically in good old formal logic fashion both of those cases above, being factual descriptions, are true at once or are false at once.