Saturday, August 09, 2014

Is "Trickle Up" Back?

On Thursday, Paul Krugman wrote that evidence is mounting to support the notion that inequality can sabotage a market economy. There will always be some inequality in market economies. But gross inequality is a drag on economic growth:

It’s true that market economies need a certain amount of inequality to function. But American inequality has become so extreme that it’s inflicting a lot of economic damage. And this, in turn, implies that redistribution — that is, taxing the rich and helping the poor — may well raise, not lower, the economy’s growth rate.

Neo-Conservatives, of course, believe redistribution is immoral. However:

Earlier this week, the new view about inequality and growth got a boost from Standard & Poor’s, the rating agency, which put out a report supporting the view that high inequality is a drag on growth. The agency was summarizing other people’s work, not doing research of its own, and you don’t need to take its judgment as gospel (remember its ludicrous downgrade of United States debt). What S.& P.’s imprimatur shows, however, is just how mainstream the new view of inequality has become. There is, at this point, no reason to believe that comforting the comfortable and afflicting the afflicted is good for growth, and good reason to believe the opposite.

And the IMF has reached the same conclusion:

Specifically, if you look systematically at the international evidence on inequality, redistribution, and growth — which is what researchers at the I.M.F. did — you find that lower levels of inequality are associated with faster, not slower, growth. Furthermore, income redistribution at the levels typical of advanced countries (with the United States doing much less than average) is “robustly associated with higher and more durable growth.” That is, there’s no evidence that making the rich richer enriches the nation as a whole, but there’s strong evidence of benefits from making the poor less poor.

Krugman cites Food Stamps -- the bugbear of conservatives -- as an example of redistribution that works:

Consider, for example, what we know about food stamps, perennially targeted by conservatives who claim that they reduce the incentive to work. The historical evidence does indeed suggest that making food stamps available somewhat reduces work effort, especially by single mothers. But it also suggests that Americans who had access to food stamps when they were children grew up to be healthier and more productive than those who didn’t, which means that they made a bigger economic contribution. The purpose of the food stamp program was to reduce misery, but it’s a good guess that the program was also good for American economic growth.

And, if Krugman seeks more evidence that inequality is a drag on the economy, he need look no further than Canada. Since Stephen Harper gained a majority of seats in the House of Commons in 2011, he has taken a knife to government spending. This week, Canadian employment numbers were released. In the month of July, the Canadian economy produced 200 jobs -- that's not a misprint, those are two zeroes.

Perhaps "trickle up" is making a come back.

This entry is cross posted at The Moderate Voice.


Anonymous said...

As we have seen? The mine Barons. Harper's oil and gas Barons couldn't care less, if people have enough to live on. Harper has deregulated safety standards, environmental standards and staffing requirements.

Food stamps take away the incentive to work? At what jobs? Jason Kenny is bringing over foreign labor as fast as he can. Kenny out and out blatantly lied regarding, his TFW program. A HR person said, she had over 4,000 applications, for just that one job. That's a shortage of labor? Convince me?

Harper of course has no price freeze. An item I used to buy from the supermarket was $12,000. Yesterday, that item was $21,75. A roast of beef was, $67,00. My parents didn't get that much, for an entire cow.

Harper permits price gouging, on absolutely everything. Harper is rabid to be a big shot, on the international scene. All Harper looks, is stupid and the joke of the world.

There is a re-call petition, out on Christy Clark. Is it possible to have a re-call on Harper?

Owen Gray said...

The recall is next year, Anon.

Anonymous said...

When Reagan introduced his so-called trickle-down economic strategy, I knew it was pure unadulterated nonsense. I considered it to a mushrooming-up approach,where those at the top of the food chain grab everything they could get their hands on and keep it. The only trickle-down that occurs is when they can't quite hang onto all this largess and a little bit slips through their fingers.

By the way, thanks for your efforts! I appreciate your timely topics and your devotion to them.

Owen Gray said...

John Kenneth Galbraith -- who was at heart a farm boy from Ontario -- used to say that the etymology of the term "trickle down" came from what comes out of the rear end of a cow, Anon.

Lulymay said...

Actually, the only thing I see that can be considered trickle-down is public debt and that is loaded onto you and me.

Its pretty obvious that I simply cannot afford to hire a multi-millionaire tax lawyer from Toronto to hide my savings account from the tax man.

Owen Gray said...

The last thirty-five years has been all about socializing debt, Luly, and privatizing profit.

The Mound of Sound said...

Back when I was a bright-eyed law student we had a lecture given by legendary tax expert, Arthur Driedger. I recall him saying that anyone who made $250,000 a year and had a skilled tax lawyer needn't pay a penny in income tax. At the time I wondered what the fellows I once worked with at Chrysler's would have made of that.

Owen Gray said...

As Will Rogers said, Mound, the money will eventually wind up in the bank accounts of the wealthy. But it's better for everyone if it passes through the hands of the poor first.

mogs moglio said...

Tickle down or trickle down?

They must be laughing at our expense...

Owen Gray said...

Or perhaps it's all beginning to boomerang on them, Mogs.