Economic Stupidity: Wake Up and Smell the Inequality

reagan cowboy hat

Stupid is as Stupid Does

Some things in life are stupid. There are stupid people, stupid disasters and stupid karma that’s never plays out the way that one would hope. It’s frustrating. Some things in life are hard to let go, even when they don’t work or cause harm, like with addiction. That often happens because a concept or idea attracts ardent supporters who romanticize it. It gets really stupid and really frustrating when followers of a debunked idea refuse to let it go. The frustration becomes terminal when the deceived persist in spreading their idiocy.

Ronald Reagan championed a stupid economic policy in the form of trickle-down economics (TDE). Virtually every American is familiar with this concept. Why? Perhaps, because it is so easy to grasp. The idea is that massive tax breaks to the richest Americans will spur spending at the top, which will cause wealth to trickle down to the poorest citizens. TDE is a classic example of a simple strategy to a complex problem. Reagan was called a great communicator, but a fourth-grader could articulate this idea to the American public.

Side Note: Trump has shown that fluffy promises without substance or results does resonate with people. On the iconic show Mad Men, advertising genius Don Draper said “advertising is about boiling down communication to its essentials.” Perhaps the new litmus test for policies will be whether or not a fourth-grader could explain it.

TDE makes intuitive sense only until someone takes an introductory undergraduate economics course. While the intent of the strategy was to increase wealth for all (I’ll give Reagan the benefit of the doubt, which is admittedly naive), the policy is deeply corrosive to the poor and middle-class, and ultimately toxic to economic growth.  I am saddened that this idea is still alive and well. Educated men and women and esteemed business executives subscribe to it, not just those without an economic background or undergraduate education. The income gap in America is widening quickly, which is bad news for the vast majority of citizens. Policies like TDE are fueling the divide. It’s time to wake up.

What does the evidence show?

TDE is not a mainstream academic, economic policy. It is not taught in college economics courses. Calling TDE a sound economic policy is like calling bloodletting a sound medical practice. However, it is so ingrained in the conservative political and social psyche that new facts are ignored in favor of siding with tribal mentality. Conservative media outlets continue to propagate TDE and spout out absurd defenses of large corporations, which they revere as “job creators.” This benevolent characterization of the most powerful and richest Americans trick the poor and middle-class into voting for candidates and policies that are not in their best interests. A friend of mine recently tried to explain how Donald Trump’s massive corporate tax breaks would yield economic growth. His explanation: “He’ll cut corporate taxes, which will create a ton of jobs. It’s that simple.” His argument can be summarized below:

Premise 1: Donald Trump will cut corporate taxes.

Premise 2: Cutting corporate taxes will create a ton of jobs.

Conclusion: Donald Trump will create a ton of jobs.

I take great issue with Premise 2. The International Monetary Fund conducted a study in 2015 that surveyed more than 150 countries. It is important to note that the IMF is an unbiased international organization that does not cater to the political agendas of the American right or left. The study concluded that when the wealthiest elite in a country is given access to more wealth, economic growth slows down. Conversely, when the poor are given access to more wealth, instead of the rich elite, economic growth speeds up. The IMF published these findings in their research paper Causes and Consequences of Income Inequality. This of course debunks TDE.

Many mega-wealthy entrepreneurs have been preaching this for some time. Billionaire venture capitalist and Amazon entrepreneur Nick Hanauer called TDE “nonsense” and said that a strong middle-class is the lifeblood of a healthy capitalist economy, which is what the IMF study concluded. A strong middle-class requires upward mobility from the lower class. He also denounced those at the top that advocate for TDE policies. Famed billionaire Warren Buffet also condemned TDE, stating that the policy has “left many people hopelessly behind” and that it favors the richest at the top at the expense of everyone else. 

In Causes and Consequences, the IMF provided several reasons for TDE’s failure. At this point in history, TDE has been scientifically proven to breed inequality, which is debilitating to the poor and ultimately to economic growth. When wealth is concentrated in a small cluster of elites with great political clout, government benefits tend to diminish, which affects the poor the most. Inequality results in sub-optimal educational investment, which negates upward mobility and traps people in poverty. Poor children go to poor schools, which lessens the likelihood of a college education. When multitudes of American citizens don’t have a chance at an education, the productivity of the nation is jeopardized. Arguably, the most concerning effect of TDE that the IMF noted was destabilization. Inequality repels investment because it causes economic, political and financial uncertainty. Furthermore, the IMF blamed the global financial crisis of 2008 on massive income inequality and concentrated clusters of wealth, which bear the ugly fingerprints of TDE.

Domestic Failures of TDE

There are numerous examples of TDE failure, domestically speaking. The Republican Governor of Kansas Sam Brownback used TDE as his central platform when he ran for office in 2010. Similar to what Donald Trump has done on a federal level, Brownpack enacted massive tax breaks for wealthy citizens. His policies came into effect a couple years later and as a result, the next several years were not been kind to Kansas. Job creation became stagnant and revenues are spiraled downward. In 2011, Brownback created a Council of Economic Advisors, with the aim of producing reports and metrics to measure the success of his administration’s policies. The Council began producing quarterly reports as soon as Brownback’s policies became operational. The results of the reports became so catastrophic and indicative of the policy’s flaws that Brownback ordered the Council to not publish the reports online in 2014. In 2016, Brownback ordered the Council to discontinue producing the reports altogether. The Executive Director for Kansas Economic Growth declared Brownback’s TDE policy a failure and acknowledged that state business leaders have implored Brownback to rethink his economic policy

A Plea to Christian Conservatives

Once again, the case that I am making is entirely dependent on the willingness of middle and lower-class TDE advocates to examine the facts and entertain the possibly of breaking from their tribe on this particular issue. Unfortunately, I don’t believe that facts will sway TDE supporters. Nor will elaborate demonstrations of research studies or lists of objective facts. Stupid ideas stay alive, not because people are stupid. They stay alive because the stupid idea is a critical piece of their identity. TDE and conservatism are like mashed potatoes and gravy. They’re a packaged deal. I can’t appeal to their heads with facts, so I need to appeal to their hearts. I need to appeal to their Christian identity.

I’d like to make a Biblical plea to Christians who continue to endorse this weapon of the ultra-wealthy. The evidence is clear that TDE is bad for economic growth. The reality is that TDE policies stifle the upward mobility of lower-class citizens. It enslaves them in poverty and robs them of the opportunities promised by the American dream. Working hard and playing by the rules isn’t enough to succeed in a society where the majority of the power is concentrated within a tiny fraction of the population. The American dream that conservatives love to reference is dead for many people.

But, I know that you don’t care about the intellectual arguments. I know that you don’t like the left’s penchant for complexity and nuisance. But I do know that you care about Jesus.

Jesus mentioned caring for the poor over four hundred times in the Gospels. Disregarding the well-being of the underprivileged is a stance that is contrary to the teachings of Jesus. Jesus was not ambiguous about his feelings on the pursuit of wealth or the responsibility of the fortunate towards the poor. If a Christian examines the evidence, they then face a moral imperative to reexamine their position. Is this why so many of you bury your heads in the sand? What happened to “if you did it unto the least of these, you did it unto me…”? You need to wake up and recognize the widening income gap and truly analyze why it’s happening.

There is a storm coming and if we don’t make the necessary changes to protect ourselves, we’re going to be destroyed.

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