RebelCapitalist: Financial Information for the Rest of Us

They are Fooling Nobody

Apr 29, 2011 | By: Mr_Blue | Tags: fiscal policy, budget deficit, trickle down economics

Bad ideas/theories that benefit the plutocracy don’t die easily. Case in point: ‘trickle down’ economics. It doesn’t work but both political parties, to some extent, keep practicing it. However, we are not fooled.

Catherine Rampell, on the New York Times website, wrote about a recent Gallup poll that showed that rich people think the economy is ‘growing’ while poor people believe the economy is in a ‘depression’. These results are not very surprising. We largely have two economies - one in recovery because of bailouts, stock market and commodity prices and another in depression because of unemployment, stagnant wages, foreclosures and high gas and food prices. Two very different economies indeed.

The reason for these two economies or this uneven recovery is largely due to how government policy reacted to the global financial crisis. First, there was the massive bailout of Wall Street that did nothing to help the rest of the economy. Second, the 2009 economic stimulus that weighted more toward tax relief and tax gimmicks than investments in infrastructure or even a direct jobs programs (such as a Job Guarantee). Both political parties were part of these very short-sighted policy decisions.

When it comes to fiscal policy (how government spends/invests and taxes) who benefits really matters. Consider the last ten years - fiscal policy, mostly in the form of huge tax cuts for the rich and huge subsidies to corporations (including big drug companies through Medicare part D), has favored the rich and increased the budget deficit. The deficit soared but job growth wasn’t very impressive even before the Great Recession, income inequality grew, and then of course the global financial crisis. No trickle down effects to be seen.

This is what “trickle up” fiscal policy would look like (very rough outline):

1) Short—term - full payroll tax holiday for workers and extension of unemployment benefits long-term unemployed (99ers);

2) Job guarantee program;

3) Significant investments in infrastructure;

4) Huge reduction in defense spending;

5) Taxes: a) Raise top tax rates; or b) implement a ‘hut tax’ - tax based on cubic feet of home(s) and c) tax cut for middle and lower brackets;

6) Elimination of all corporate subsidies.

You get the idea. If we want to experience a strong recovery for most people then it’s necessary to have fiscal policy that favors those who need and would use the benefits in a way that will help the economy. Yes, that means poor and working class families. We tried (and continue) benefiting the rich and corporations but it’s just doesn’t work.

Bottom line: when it comes to fiscal policy income distribution and who benefits really matters.

Good luck.