{"id":46563,"date":"2020-12-21T12:28:31","date_gmt":"2020-12-21T02:28:31","guid":{"rendered":"https:\/\/billmitchell.org\/blog\/?p=46563"},"modified":"2020-12-21T12:28:31","modified_gmt":"2020-12-21T02:28:31","slug":"more-evidence-against-the-trickle-down-orthodoxy-in-macroeconomics","status":"publish","type":"post","link":"https:\/\/billmitchell.org\/blog\/?p=46563","title":{"rendered":"More evidence against the ‘trickle down’ orthodoxy in macroeconomics"},"content":{"rendered":"

\t\t\t\tOn December 10, 2014, I wrote this blog post – Trickle down economics – the evidence is damning<\/a>. The discussion was about how inequality undermines growth and that redistribution of national income towards higher income groups does not stimulate income growth for lower income groups. It provided evidence that destroys the basic tenets of mainstream economics and supports a wider social and economic involvement of government in the provision of public services and infrastructure, particularly to low income groups. The ‘trickle down’ fiction was propagated in the late 1970s and early 1980s by the likes of Margaret Thatcher and Ronald Reagan and dovetailed with the emerging dominance of supply-side thinking. Behind ‘trickle-down’ was a nasty neo-liberal plot to undermine state activity and rewind the gains made by the workers under the welfare states and unionism over the course of the C20th. Now a new report from researchers at the London School of Economics – The Economic Consequences of Major Tax Cuts for the Rich<\/a> – repeats the evidence, and, perhaps because we are further down the road in realising how deficient mainstream macroeconomics is, new evidence of something that we have known since the ideas first came out of the sewers, might push the paradigm shift a little further.
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The ‘trickle down’ idea was the opposite of the previous consensus in macroeconomics that demand (spending) had to be managed to ensure economies maintained full employment and income growth.<\/p>\n

That, of course, required governments to play a major role to counter (stabilise) fluctuations in non-government spending, which were characteristic of capitalist monetary systems.<\/p>\n

It was understood that market systems were prone to crises where economic activity could become stuck at levels that realised high levels of unemployment and that no intrinsic dynamics existed to disturb that malaise.<\/p>\n

Marx knew that in the C19th when he attacked the ideas of – Jean-Baptiste Say<\/a>.<\/p>\n

Say is known for – Say’s Law<\/a> – which effectively denied that there could be mass unemployment arising from a failure of spending to match the level required to support production commensurate with full employment because “supply creates its own demand”.<\/p>\n

According to this view, even if consumers stop spending and increase saving, investment spending will rise (using the increased saving) to fill the gap.<\/p>\n

I discussed Marx’s insights into this problem in this blog post – We need to read Karl Marx<\/a> (August 30, 2011).<\/p>\n

Keynes took up the debate during the Great Depression in his attacks on the Classical thinking.<\/p>\n

I dealt with that debate in some detail:<\/p>\n