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Economic Sense

RSS By: Matt Bogard,

Matt's primary interest is in the biotech industry and ag policy.

Trickle Down Economics

Dec 12, 2010

By Matt Bogard

Many people are very upset that after looking at the evidence, (which I have discussed here before) our nation's leaders have embraced the idea of extending marginal tax cuts for the wealthiest Americans.

"I don’t believe in trickle-down economics... I don’t believe it will promote growth, and I need to know the consequences to the deficit and the debt." -Sen. Barbara Mikulski (D-Md.)( Still Work to Do on Tax Deal (Politico)Tuesday, December 7, 2010)

The term 'trickle-down' economics, also referred to 'voodoo' economics bewilders me. It's kind of like the terms 'factory farm' or 'industrial agriculture.' These terms are all used like profanity, to be disparaging, and are tools for cutting off debate without having to really talk about facts or evidence.

The idea of trickle down economics as implied by the people using the term goes like this:

Socitey is stratified into a small block of very wealthy and priviledged people and then there is everyone else with the poorest at the bottom.  If we cut taxes for the rich, their spending and investing will eventually 'trickle down' to benefit even the poorest like voodoo. How silly is it that cutting taxes by a few thousand dollars for a billionaire will make the poor smuck flipping burgers better off. This is voodoo economics designed for and by the wealthiest of Americans.

This is very much an oversimplification of very complex processes and interactions and the coordinaton of decisions made by millions of people based on knowledge spread across the entire economy. This is a spontaneous order, and nothing about it is 'trickle down.'  It is not 'voodoo', but a complex process that government, nor a committee of bureaucrats or experts, or pollsters can even begin to grasp fully. We can look at the evidence on tax cuts (as I linked to above) and see that, yes, cutting marginal taxes for the wealthiest Americans has led to increased revenues and reductions in the deficit.

If we were to dismiss every complex process as 'voodoo' or 'trickle down' how logical would that be?  How silly is it that a plant can take in tiny invisible CO2 molecules and turn them into carbohydrates (and food crops like corn, soybeans, wheat etc?) Would we say: photosynthesis is voodoo, and anyone that believes that is practicing 'trickle down' agriculture?

Those using the term 'trickle down' to describe economic policies, like tax cuts, either aren't being intellectually honest or simply don't understand the underlying processes and don't care to debate the evidence.



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