Now and again, intelligent people, politicians and columnists attack ‘trickle-down economics’ in the mistaken belief that it exists. Or that it ever existed. In his classic book, Basic Economics, Thomas Sowell gives a brief history. Here’s the excerpt:
There have been many economic theories over the centuries, accompanied by controversies among different schools of economists. But one of the most politically prominent economic theories today is one that has never existed among economists – the ‘trickle down’ theory. Yet this non-existent theory has been attacked from the New York Times to a writer in India. Franklin D. Roosevelt’s speechwriter Samuel Rosenman referred to ‘the philosophy that had prevailed in Washington since 1921, that the object of government was to provide prosperity for those who lived and worked at the top of the economic pyramid, in the belief that prosperity would trickle down to the bottom of the heap and benefit all.’
The same theme was repeated in the election campaign of 2008, when candidate Barack Obama attacked what he called ‘the economic philosophy’ which ‘says we should give more and more to those with the most and hope that prosperity tickles down to everyone else.’
Whether in the United States or in India, and whether in the past or in the present, ‘trickle down’ has been a characterisation and rejection of what somebody else supposedly believed. Moreover, it has been considered unnecessary to cite any given person who had actually advocated any such thing.
The phrase ‘trickle down’ often comes up in discussions of tax policies. Tax revenues have in a number of instances gone up when tax rates have been reduced. But any proposal by economists or others to cut tax rates, including reducing the tax rates on higher incomes or on capital gains, can lead to accusations that those making such proposals must believe that benefits should be given to the wealthy in general or to business in particular, in order that these benefits will eventually ‘trickle down’ to the masses of ordinary people.