Bookblogging: the reanimation of trickle down

by John Quiggin on March 5, 2010

The deadline for the manuscript of Zombie Economics (last complete draft here) is only a few weeks away, and the zombies are popping up faster than I can knock them down. I’m adding a section on reanimated zombies to each chapter. Over the fold is the social mobility defense of trickle down economics, as animated by Thomas Sowell. There’s still time for me to benefit from your comments.

A good zombie movie needs a sequel, and so, it is almost inevitable that some zombies will survive to carry on the tradition. The best candidate for zombie immortality is probably the trickle-down hypothesis. As we’ve seen it can be traced back, under that name, at least to the early 20th century. But as long as there have been rich and poor people, or powerful and powerless people, there has been a market for advocates to explain that it’s better for everyone if things stay that way.

The hymn ‘All things bright and beautiful’, one of the favorites in the hymnbook of my youth is, for the most part a paean to the beauties of creation. But, the real message comes in the verse ‘The rich man in his castle, the poor man at his gate, God made them high and lowly, and ordered their estate’. And the same message is contained in Aesop’s fable, about the tail of the snake that foolishly rebelled against its natural master, the head, with dire consequences.

With such a long pedigree, trickle down economics is unlikely to be killed. Still, given the overwhelming evidence that social mobility in the US is both low by the standards of developed countries and decreasing steadily, the task of reanimating this zombie idea looks like a difficult one. But Thomas Sowell of the Hoover Institute is up to the job.

In his latest book, Intellectuals and Society, Sowell excoriates liberals for their misunderstanding of economics and sweeps aside concerns about declining social mobility with the assertion that, ‘neighborhoods may remain the home of poor people for generations, no matter how many people from the neighborhoods move out to a better life as they move up from one income bracket to another.’ He immediately contradicts himself with the observation that Harlem was formerly a middle-class Jewish community, and appears unaware of the recent (re)gentrification process in which blacks have again become a minority group in greater Harlem. http://www.nytimes.com/2010/01/06/nyregion/06harlem.html

This insouciant attitude to evidence is unsurprising. In earlier writing on the topic, Sowell made the observation that ‘ If mobility is defined as being free to move, then we can all have the same mobility, even if some end up moving faster than others and some of the others do not move at all. ’

In fact, on Sowell’s account, the US would remain the world’s most socially mobile society even if everyone ended up in the exact same social position as their parents.

As Sowell astutely observes ‘A car capable of going 100 miles an hour can sit in a garage all year long without moving. But that does not mean that it has no mobility.’ If the poor don’t succeed, he says, its because they are not willing to make the necessary efforts and sacrificies

Translating to the real world question, if we observe one set of children born into a wealthy family, with parents willing and able to provide high-quality schooling and ‘legacy’ admission to the Ivy League universities they attended, and another whose parents struggled to put food on the table, we should not be concerned that members of the first group almost invariably do better. After all, some people from very disadvantaged backgrounds achieve success. and there was no law preventing the rest from doing so.

Clearly, an idea so appealing to people who can afford to reward its promulgators is unlikely to be killed by mere evidence of its falsehood. Perhaps if the political left is willing to return to class politics (something the rightwing advocates of trickle down have never abandoned) it might, at least find a way to drive this zombie idea out of the assumed knowledge of political debate.

{ 25 comments }

1

JulesLt 03.05.10 at 8:37 am

The interesting thing I always find with Right wing intellectuals, is their use of the term ‘intellectual’ as a pejorative, and the implication that they are on the side of ‘us’ against an intellectual elite.

It’s not exclusively a right wing thing, as Pol Pot, Stalin and Hitler all demonstrated – but it’s amazing that the public always fall for it. Look at the intellectual Jewish conspiracy, not at the people with land and power.

2

Kenny Easwaran 03.05.10 at 8:42 am

Is this discussion really about trickle-down? It sounds to me more like it’s about social mobility. I had thought that trickle-down was claimed to be a good independent of social mobility – if the rich have more money, then they’ll be able to provide better jobs and wages for the poor, so that the lives of the poor will be improved, even if they remain in the lowest quintile of income.

3

ah 03.05.10 at 9:01 am

i’m confused by the jump from ‘all things bright & beautiful’ to social mobility. It seems that the hymn is advocating the opposite of social mobility, the idea that everyone should stay in their place.

4

Robert 03.05.10 at 9:18 am

Is John Q’s economics compatible with a politics of mobilization based on class?

5

JoB 03.05.10 at 9:22 am

I think your beef is indee more with the ‘percolating up’- zombieism aka the American Dream – but that’s a very worthwhile stupidity to add to your book. Much more dangerous than trickle down as it allows to convince poor people to vote for rich people that have every intention of making the poor people poorer.

6

ajay 03.05.10 at 10:48 am

I agree with 2. These are two separate arguments: you could have total social mobility and still have no trickle-down effect, and vice versa. Though both beliefs seem to be held by similar people and used as reasons why you shouldn’t attempt to help the poor: either because helping the rich will eventually help the poor, or because the poor can help themselves, and so any who are still poor deserve to be.

7

Stuart 03.05.10 at 10:48 am

i’m confused by the jump from ‘all things bright & beautiful’ to social mobility. It seems that the hymn is advocating the opposite of social mobility, the idea that everyone should stay in their place.

That is the point being made – in that hymn you are being told that if you are poor, God made you that way, with the implication that you shouldn’t try to mess with it’s plan. Trickle down is more subtle and less binding – it suggests poor people as a whole have to stay poor, if they had relatively more money (as a percentage of the economy, for example) then everyone would be poorer overall with the implication that this effect is so strong that it would mean they have less absolute wealth. While this doesn’t bar social mobility explicitly, it means that policies/initiatives that help poorer people as a whole can’t be supported unless they have effects similar to a lottery (i.e. make everyone a bit poorer to make a few people rich) – things like better access to education tend to close the gap between rich and poor as a whole, and thus make everyone poorer (according to the theory).

8

bert 03.05.10 at 12:22 pm

The Aesop story about the snake also appears in Plutarch.
I know you’re on a deadline, but I think you might enjoy the story of the Spartan king Agis at this link. It’s Dryden’s translation.
Here’s the snake:

For it may happen to the commonwealth, as to the serpent in the fable, whose tail, rising in rebellion against the head, complained, as of a great grievance, that it was always forced to follow, and required that it should be permitted by turns to lead the way. And taking the command accordingly, it soon inflicted, by its senseless courses, mischiefs in abundance upon itself, while the head was torn and lacerated with following, contrary to nature, a guide that was deaf and blind. And such we see to have been the lot of many, who, submitting to be guided by the inclinations of an uninformed and unreasoning multitude, could neither stop, nor recover themselves out of the confusion.

Now, you rightly observe how antidemocratic that is. But it’s part of a longer passage about how difficult it is to curtail the damaging tendency of the rich to abuse their power in their own financial self-interest. Against the rich, King Agis:

being desirous also to raise the people, and to restore the noble and just form of government, now long fallen into disuse, incurred the hatred of the rich and powerful, who could not endure to be deprived of the selfish enjoyment to which they were accustomed.

How had things got so skewed in favour of the rich?

one Epitadeus happening to be ephor, a man of great influence … proposed a decree, that all men should have liberty to dispose of their land by gift in their lifetime, or by their last will and testament. This being promoted by him to satisfy a passion of revenge, and through covetousness consented to by others, and thus enacted for a law, was the ruin of the best state of the commonwealth. For the rich men without scruple drew the estate into their own hands, excluding the rightful heirs from their succession; and all the wealth being centered upon the few, the generality were poor and miserable.

Agis, proposing “that every one should be free from their debts; all the lands to be divided into equal portions”, was opposed by Leonidas

Leonidas, though of himself sufficiently inclined to oppose Agis, durst not openly, for fear of the people, who were manifestly desirous of this change; but underhand he did all he could to discredit and thwart the project, and to prejudice the chief magistrates against him, and on all occasions craftily insinuated that it was at the price of letting him usurp arbitrary power that Agis thus proposed to divide the property of the rich among the poor, and that the object of these measures for cancelling debts and dividing the lands, was not to furnish Sparta with citizens, but purchase him a tyrant’s body guard.

When the proposal is defeated by one vote, Agis gets some Rahm Emanuel advice:

through the sordid weakness of one man, these promising beginnings were blasted, and a most noble and truly Spartan purpose overthrown and ruined by the love of money. Agesilaus, as we said, was much in debt, though in possession of one of the largest and best estates in land; and while he gladly joined in this design to be quit of his debts, he was not at all willing to part with his land. Therefore he persuaded Agis, that if both these things should be put in execution at the same time, so great and so sudden an alteration might cause some dangerous commotion; but if debts were in the first place cancelled, the rich men would afterwards more easily be prevailed with to part with their land.

The parallels with today continue … the complications arising from the division of powers, the distractions of wars, etc.

The passage ends with the victory of Leonidas and the execution of Agis.
Leonidas is now best known (in Europe anyway) as the name of a luxury brand of Belgian chocolates.

9

roger 03.05.10 at 3:39 pm

Sowell strikes me as not a hard target, or an important one. I’d rather see you concentrate on Larry Summers – for instance, in the NYer profile where he defends the U.S.’s program of socializing the losses of the wealthy in terms of jobs, jobs, jobs for the rest of us, but – when asked about an industrial policy that would favor U.S. manufacturing – suddenly becomes all scientific and wants to know about the data.
Here’s the profile: http://www.newyorker.com/reporting/2009/10/12/091012fa_fact_lizza

I think that profile is an excellent guide to how the U.S. voted for change and got the continuation of the Bush policies of the 00S instead. And it also shows that the zombie creators of the Great Moderation cannot imagine any policy or parameter outside of those justified over the last 30 years.

10

Glen Tomkins 03.05.10 at 4:54 pm

The stronger argument

Trying to refute trickle-down based on results, on continuing or worsening income disparities, seems to me the unnecessarily hard approach to the matter. This “theory” was designed as a rationalization, as a defense of the result of unequal income distribution, not because empiric observation led people to induce it as an explanation for observed facts.

Charging at it directly is like going through the barbed wire, across the minefields, and directly into the carefully prepared kill zones laid out by the intellectual defensive tacticians of the Malefactors of Great Wealth. Of course we still have income disparity after applying trickle down, but that’s a good thing! If the Lazy aren’t punished, how will we ever promote Industry in the working classes? Are lower incomes in tghis group widespread, seeming to hit all of the working class, and not just the occasional skyver? Well, then, that just proves that the whole of the working class are lazy, which we knew already, or they would have succeeded at clawing their way into Malefactor of Great Wealth status. Do the children of the wealthy do inordinately well? That certainly isn’t because trickle down in any way unfairly advantages unearned wealth. What we have here is the simple, if un-PC, reality that sloth breeds sloth, the working sort pass on bad habits to their children, while the virtuous rich raise their children to be achievers like themselves.

They could go on like this forever. No, none of these rationalizations is convincing to people who didn’t start out believing the whole package, but it’s not as if forcing these people to go into what we see as contortions in order to defend the theory, in any way weakens the hold the theory has on people who don’t see appealing to the inbred sloth of the non-wealthy as in any way a stretch. You just confirm the theory for them if you show that it leads to such comfortable conclusions.

If you want to reach the only people who believe this stuff anyway, you have to go round the flanks of their extensive defensive works. Ask what happens to wealth we leave in the hands of the wealthy when we make taxation less progressive, when we decide to leave more money in the hands of the wealthy, and meet public needs by leaning more on taxing people with less money. This theory tells us that we need to do this, we need to leave the wealthy free to allocate more money by letting the govt take less from them for the govt to alocate. If we do this, the wealthy, in contrast to those less well-off, will disproportionally allocate money to the capitalization of projects that benefit the whole economy, projects of a magnitude such that they can be capitalized no other way. However wisely or foolishly the less well-off would spend money they are left with by shifting the tax burden more to the wealthy, the less well-off don’t have enough capital to throw around to start new businesses. We need to leave the wealthy alone to do their thing with their money, according to trickle down, because the thing they will do with their money, that no one else can, will be to create jobs. Thus the trickle down.

Well, you look at what actual wealthy people do with their money, and it seems to me that we shouldn’t talk about ultimate results, which the defenders can always dodge, we should talk about whether it makes any sense, at all, to say that they are at all likely to spend money in capitalizing anything, in creating any jobs at all. You could classify “investments” on a spectrum of how far they are removed from actually capitalizing anything, from creating even one non-croupier job, from going towards setting up or running any activity that produces a good or a service (and the reason for the scare quotes around the word, is that I thought that this is part of what we meant by “investment”, that distinguishes it from mere speculation or rent-seeking), and I think the sexier the RoI promised, the more likely it is to be the sort of “investment” that, precisely because it capitalizes nothing, the wealthy will have moved on to it and away from boring, low-RoI, stuff, stuff that might actually capitalize something.

Oh, I know, I know, those secondary markets, the stock exchanges, contribute to capitalization by providing actual capitalizers liquidity, and CDSs provide insurance, and securitized mortgages provide liquidity for more capital to to be available to build homes, etc, etc. But really, isn’t this all rationalization, intellectual laundering for markets and instruments that, whatever their putative, and perhaps at one time, real, purpose, have actually devolved into instruments of either speculation or rent-seeking? I will buy that, back when the NYSE held court under an oak tree, maybe at that point it often provided needed liquidity, though even then it was beset with speculative waves. But can anybody, with a straight face, say that the amount of money that gets thrown at the current NYSE is even within an order of magnitude of what we would need to provide liquidity to the original venture capitalists who, may, in some cases, have started the companies listed on it? Are you going to claim that we really needed the reported $70 trillion that we had in real estate CDSs, written on only $6 trillion in home value, because somebody actually needed that much insurance?

Short of venture capitalism (and how much of the investment activity of the wealthy fits that description, as opposed to throwing their money at “investments” they don’t have to oversee, at all), is there anything you can do with your money, that doesn’t involve actual oversight of how it’s used, other than the simple boring old savings account deposit, that will create jobs? Well, you have to be careful to give your money to a real bank, and not one that’s allowed to be an “investment” bank, and it isn’t called an investment, because you’re letting the bank do the work of overseeing which enterprises it capitalizes. But at least some agent somewhere in the picture is using money with oversight of an actual goods or service generating activity.

Do this thought experiment. Put in a top tax bracket of about 99.9%, and make it cover all sorts of income, everything that a Malefactor of Great Wealth takes away from, rather than leaving in whatever business he may own, capitalizing its growth. Yes, you’ll need a Fraud Squad to cull out fake, tax-shelter, enterprises. What sort of job-creating enterprises, existing or potential, suffer, can’t create as many jobs, because of that confiscation of their wealth? Does the govt spending that we are able to indulge because of this confiscation create more, or fewer, jobs? Or if we use the extra money we so confiscate to lower taxes on the non-wealthy, will their spending or investment, in humble bank savings accounts, create more jobs than the wealthy would have throwing the money at the latest and greatest financial instrument of economic mass destruction?

11

Jim Harrison 03.05.10 at 6:45 pm

Many middling people are tolerant of great disparities of wealth because they can readily identify with the rich who, after all, only differ from the others because of their possession of money. There are, after all, plenty of lumpen billionaires in our society; and everybody is one lottery ticket away from a mansion. By contrast, intellectual elites are hated because one cannot identify with them so easily. You can’t win cultural capital on a game show. Hence the universal complaint “they think they are better than us.” Of course the presumption of merit is understandably offensive to people, but what really offends our vanity is merit itself.

12

Current 03.06.10 at 2:02 pm

Exactly where in this thread has the idea of “trickle down” been demolished?

The quotes from Plutarch are lovely, but they aren’t economics.

13

Kevin Donoghue 03.06.10 at 2:23 pm

Current, this thread isn’t about the failure of trickle-down, but its reanimation.

14

djr 03.06.10 at 2:39 pm

He immediately contradicts himself with the observation that Harlem was formerly a middle-class Jewish community, and appears unaware of the recent (re)gentrification process in which blacks have again become a minority group in greater Harlem.

The observation that some areas change from middle-class to poor isn’t really a contradiction of the idea that some areas remain poor. You might also want to consider rephrasing the second half of the sentence, to avoid the obvious racist misinterpretation.

15

Current 03.06.10 at 3:49 pm

Ah, a link.

I may argue about this when the book comes out.

16

bianca steele 03.06.10 at 9:29 pm

John Q.:
Your 3rd paragraph: Taking the final sentence first: I thought biological metaphors of society as an organism had been discredited long ago. And the hymn–”All Things Bright and Beautiful”–says the bright and beautiful can be found in every “estate,” not only with the lord in the castle, but also with the very poorest of the poor who must beg at his gate in order to keep body and soul together. The hymn does not say that bright and beautiful things are being gathered up into the castle keep because the poor are not godly and can only have stolen them.

4th: So what? Kudzu (rabbits) hasn’t been killed but it hasn’t taken over either.

17

aaron 03.07.10 at 6:12 pm

“What you’ve just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.”

18

John Quiggin 03.07.10 at 10:51 pm

Thanks for all these comments, and to ‘libertarian’ for a bit of innocent diversion. I’m paying attention and will make some changes when I get a free moment.

19

Alex 03.08.10 at 12:16 am

So let me get this straight. Sowell thinks that the reason social mobility is low is because the American poor “are not willing to make the necessary efforts and sacrifices” (as you describe his views). Well this is interesting. Because I doubt Sowell would deny that social mobility is higher in other countries, this means the poor in those countries are “willing to make the necessary efforts and sacrifices”. Isn’t that cultural relativism? Do they allow that at the Hoover Institute?

20

roac 03.08.10 at 12:32 am

A footnote regarding “All Things Bright and Beautiful”: the verse quoted (no. 3) has been excised from the current hymnal of every mainline denominati0n. The words are by Cecil F. Alexander, who was married to an Anglican bishop. She also wrote “Once in Royal David’s City,” a piece of Victorian sludge preserved from obsolescence by its use in the King’s College Lessons and Carols. The third verse of that one is:

And through all His wondrous childhood
He would honour and obey,
Love and watch the lowly Maiden,
In whose gentle arms He lay:
Christian children all must be
Mild, obedient, good as He.

21

Jamey 03.08.10 at 3:00 am

I’m not really sure that this is something you can use, but semi-related to trickle down theory is a misuse of the phrase that “A rising tide lifts all boats”. I actually agree with this is in the sense that social mobility is actually good for the wealthy, as well as for those who are increasing their acquisition in material wealth. The word “redistributionist” gets routinely misused by conservatives as if liberals were saying “take from this guy, and give to this guy”. Actually, policies that allow for poor people to increase their productive capacity, are both good for poor people, and good for the investing class , in that the increase in consumer demand (I would throw in the environmental caveat, and this isn’t a minor issue, that when it comes to scare resources, the “rising tide lifts all boats” arguments founders. In such a scenario, there are winners and losers and there is no conceivable benefit to being a loser.)

But take the example of tax credits to help poor people to afford insulating their homes. Well, maybe the phrase should be, a rising tide helps to lift all boats that deserve to be lifted. Not all boats will be lifted. The energy industry’s boats will not be lifted. But it will increase the wealth of poor people and it will increase the purchasing power for them to buy other things. But helping poor people to not waste energy will benefit society as a whole, in the rising tide lifts all boats sense, even if it doesn’t benefit particular companies.

But my point being, amateur linguist that I am, “rising tide lifting all boats” should not automatically mean trickle down. Though in conventional usuage, it gets translated that way.

http://en.wikipedia.org/wiki/A_rising_tide_lifts_all_boats

22

Jamey 03.08.10 at 3:33 am

At Jim Harrison:

“plenty of lumpen billionaires in our society”

That’s hyperbole. We have plenty of lumpen millionaires, I’m not so sure about lumpen billionaires–maybe I still retain a little residual faith in captitalism–I believe that it’s possible for idiots to get rich, just not spectacularly rich, and not without recognizing that they occupy a peculiar space in our society, and by exercising political power all the while denying that they exercise political power . And by denying they have political power, I mean verbally denying it, not in some sort of Freudian denial sense.

Apparently, lumpen bourgeouisie is a term in current use. Thanks for the verbal coupling. It’s put me on a new train of thought. Not sure if it’ll lead to anywhere.

23

John Quiggin 03.08.10 at 3:46 am

@Jamey, I discuss “rising tide lifts all boats” earlier in the chapter. As you note, it’s not quite the same as trickle down.

24

AaLD 03.09.10 at 12:27 am

Isn’t that cultural relativism? Do they allow that at the Hoover Institute?

Sure, they do. In fact, Sowell wrote a whole book about it.

25

Dean 03.09.10 at 12:54 am

The best example is 28 days later!!!

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