Trickle-down economics

​The idea behind trickle-down economics is that wealth gradually percolates down through the various layers of society and eventually everyone is better off. This theory does not tend to commend itself to those concerned with inequality. First, trickles are by nature far too slow and inadequate for anyone in search of quick solutions. Since inequality is viewed as an 'urgent' problem, solutions that require time to become entrenched are by definition unsatisfactory. Second, trickles of wealth are unpredictable and uncertain - it is difficult to get a clear picture of how matters will unfold and you can't really target the gains in any particular direction.

According to trickle-down economics, entrepreneurs create thousands of new jobs – the wage earned by a shop-floor worker is the end result of the capitalist’s enterprise. That’s supposed to be good news, and in fact the worker is likely to be quite pleased with his wage, but the inequality discourse focuses not on jobs and wages but more on comparisons. As soon as the worker is informed by the inequality artists that the entrepreneur who created his job is earning 150 times as much, a new problem emerges. Suddenly the paltry wages don’t look so good any more.  So that’s another problem with trickle-down economics: it doesn’t result in a world where everybody earns the same wage. 

The next problem with the trickle-down effect, already adverted to above, is the need for urgency. Who has time to wait for all that wealth to slowly reach the masses over the course of many years or even many generations?

Progressive taxes

Taxes are the main mechanism for getting around the perceived problems of naturally-occurring progress. Inheritance taxes speed up the spread of wealth by seizing it from the capitalist the very moment he pops his clogs, and immediately making all that nice free money available for redistribution so that poor people don’t have to wait for many generations before they finally acquire wealth in their families. 

​This explains why progressive taxes are viewed as a superior mechanism for achieving the goals of equality and fairness much faster and more effectively than the trickle-down processes of the market.

Market redistribution

To illustrate this, consider the redistributive effect of the market compared to the redistributive effect of taxes. With the market, you have to rely on people getting up onto their feet, propelling themselves along powered by their own energy, going out there, and entering into market transactions such as exchanging stuff, selling stuff, buying stuff, producing stuff – all manner of tiring activities that are just so much effort and hard work. Eventually, after quite a long time of hard slog, it starts to pay off. Some people make lots of money which they stash in the bank, and others make less money and have to approach the bank for a bit of a leg up. Now finally we see a bit of redistribution going on:

One man’s saving merely shifts consumption to someone else. Deposits in the bank are immediately lent to someone who needs the money to buy a car or pay college tuition…When Paris Hilton [editor: she’s crazy rich] puts her money in a bank account, her fortune is redistributed to people who need that money for all manner of purchases, or a business start-up…

The ability to borrow and spend the money that Paris Hilton does not spend on private jets and clothes, along with the millions she will inherit, can become the seed of the future Microsofts.

John Tamny, Popular Economics, 45.
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