Trickle-down theory

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The term trickle-down theory ( English trickle ' trickle '; also English horse and sparrow economics 'horse and sparrow economy', in the German-speaking area horse dropping theory ) describes the belief that economic growth and general prosperity of the rich gradually through whose consumption and investments would trickle down into the lower classes of society ( trickle-down effect ). The term trickle down comes from a joke by the American comedian Will Rogers .

History of origin

Approaches to the idea of trickle-down theory are already found in the work The Wealth of Nations by Adam Smith from 1776:

"It is the great increase in production in all possible sectors as a result of the division of labor that causes that universal wealth in a well-governed society that spreads down to the lowest levels of the population."

- Adam Smith : The Wealth of Nations , Book 1, Chapter 1, page 22, paragraph 10

According to this interpretation, state control is replaced by the well-governed society with markets as a means of resource allocation . Smith strongly criticized the king and other state officials as economic agents who used their power to advance their own special interests as part of what he called the mercantile system .

This notion was promoted under various other names for many decades, particularly in the United States in the 1920s when it seemed that laissez-faire for entrepreneurship would bring an endless boom of investment and growth to the economy. The idea that the top of the economic structure produced growth and income, which would then be passed on downwards in the form of higher wages, was spread among others by Henry Ford and was based on the interpretation of Say's theorem at the time . Political opponents of this notion deride it as "Toryism" - in the words of Franklin Delano Roosevelt . Quite a few economic historians make the relevant policy jointly responsible for the global economic crisis that began in 1929 .

John Kenneth Galbraith pointed out that in his youth the trickle-down theory was referred to as horse and sparrow theory : "If you give a horse enough oats, something will come out on the street to feed the sparrows," where from in German also the term horse droppings theory stirs. Since around 1980 it has found many supporters, especially among neoliberals , and has shaped the tax policy of heads of government and heads of state such as Ronald Reagan , Margaret Thatcher and, most recently, Donald J. Trump .

Reaganomics and the trickle-down theory

The phrase trickle-down theory was coined after a speech by David Stockman, Ronald Reagan's chief economic advisor. He saw supply-side economic policy as part of a long tradition in the economy , according to which laissez-faire not only helps those who are well placed in the market, but everyone, including the poorest. In his words, " Trickle-down would have been difficult in some ways , so the supply-side formula was the only way to get a tax policy that was actually trickle-down ." Offer orientation is trickle-down . "

The trickle-down economy was a highly political object of the Reagan administration. The use of the term declined since the late 1980s, although the program to lower marginal tax rates , sell state shares and deregulate was and is a central program of the US Republican Party.

criticism

Well-known economists dispute the validity of the theory. Paul Krugman said in 2008: "We have been waiting for this trickle-down effect for 30 years now - in vain." Similarly, Joseph Stiglitz doubted in 2012 that "[...] there is even an ounce of truth in the so-called trickle-down theory [...]." " would.

On November 1, 2012, the New York Times reported that an independent Congressional Research Service report on the relationship between taxes and the economy was withdrawn under pressure from the Republican Party . The report fundamentally challenged the premise that lowering the top tax rate would stimulate economic growth and job creation . Republican Party senators have expressed concerns about the methodology, findings, formulations and other alleged shortcomings of the report. The Democratic Senator Charles Schumer was quoted as saying, “It's something of a banana republic . They didn't like one report, but instead of disproving it, they got them to withdraw it. ”Advisors to Congress and outside economists said they were unaware that such an effort had ever been made before, a study by the scientific service to discredit through political intervention.

In 2013, Pope Francis stated in an apostolic letter that the trickle-down theory “expresses an undifferentiated, naive trust in the goodness of those who hold economic power in their hands, as well as in the sacred mechanisms of the ruling economic system. "(Evangelii Gaudium, No. 54)

The journalist Mark Schieritz criticized that the money won would not be spent by the rich, "but deposited in the bank account or invested in the stock exchange". The trickle-down theory glorifies the accumulation of wealth by individuals as a good deed and thus provides the moral security for greed in the financial markets.

Representatives of the Center for American Progress assume a counterproductive effect of the political measures based on the trickle-down theory. Accordingly, the financial resources that are freed up by tax cuts for the rich are not used by them for consumption or invested in means of production. Rather, they would be saved, used for capital investments or transferred to tax havens. This leads to higher inequality in a society and a lack of financial resources in middle and lower income groups. This financial shortage lowers demand and ultimately economic growth.

Empirical Findings

When massive portions of a nation's income are concentrated in the hands of a few, overall economic growth suffers . A 2015 study by the International Monetary Fund found that "as the income share of the top 20% (the rich) increases, GDP growth actually declines in the medium term, suggesting that profits are not trickling down," while "an increase of the income share of the bottom 20% (the poor) is associated with higher GDP growth. "

Individual evidence

  1. ↑ Hans-Ernst Schiller: "Justice is equality". In: Christine Brinkmann, Reinhold Knopp (ed.): "Justice - on the trail of social participation: considerations from different specialist disciplines". Volume 10 of Transfer from the Social and Cultural Sciences, Frank & Timme GmbH, 2009, ISBN 3865962238 , p. 50.
  2. ↑ a b The wealth that failed to trickle down: The rich do get richer while poor stay poor, report suggests. In: independent.co.uk. The Independent , January 19, 2015, accessed January 3, 2018 .
  3. ^ Adam Smith: Wealth of Nations. 1776, accessed December 21, 2016 (paragraph 10).
  4. ↑ "If you feed the horses enough oats, some will pass through to the road for the sparrows", quoted from Richard S. Gilbert: How much do we deserve ?: an inquiry into distributive justice. Volume 2, Unitarian Universalist Association of Congregations, 2001, ISBN 1558964169 , p. 167.
  5. ↑ "It's kind of hard to sell 'trickle down,' so the supply-side formula was the only way to get a tax policy that was really 'trickle down.' Supply-side is 'trickle-down' theory. " "The Education of David Stockman" by William Greider
  6. ↑ The USA is not a role model , Interview with Paul Krugman, Manager-Magazin, May 26, 2008.
  7. ↑ The price of inequality sheets for German and international politics 8/2012, pages 31–32
  8. ^ Thomas L. Hungerford: Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945. (PDF) Congressional Research Service , September 14, 2012, accessed February 27, 2016 .
  9. ↑ Jonathan Weisman: Nonpartisan Tax Report Withdrawn After GOP Protest. The New York Times , November 1, 2012, accessed February 27, 2016 .
  10. ↑ http://www.vatican.va/holy_father/francesco/apost_exhortations/documents/papa-francesco_esortazione-ap_20131124_evangelii-gaudium_ge.html
  11. ↑ Capitalism should be nicer. Retrieved July 14, 2020 .
  12. ↑ Era Dabla-Norris, Kalpana Kochhar, Nujin Suphaphiphat, Frantisek Ricka, Evridiki Tsounta: Causes and Consequences of Income Inequality: A Global Perspective . Ed .: International Monetary Fund. June 2015 ( imf.org [PDF]): "if the income share of the top 20% (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down" [while] " an increase in the income share of the bottom 20% (the poor) is associated with higher GDP growth. "
  13. ↑ Larry Elliott Economics editor: Pay low-income families more to boost economic growth, says IMF . In: The Guardian . June 15, 2015, ISSN  0261-3077 ( theguardian.com [accessed May 27, 2020]).
  14. ↑ Tobias Kaiser: Income distribution: IMF warns of inequality and poverty . In: THE WORLD . June 15, 2015 ( welt.de [accessed May 27, 2020]).