Why do some politicians claim trickle-down economics works when there is no empirical evidence that supports this claim?

The more I learn about economics and research this topic, it seems that this concept is predominantly supported in the political sphere as opposed to the economic research sphere. In fact, most of what I found from any studies that have actually been implemented suggests that trickle-down economics does the opposite of what it's intended to do. Also, after watching what has happened each time politicians implement this at some level, it never ends up working the way that they claim that it would. It seems that the wealth that is saved at the top via tax cuts to those with extremely high incomes simply stays at the top via hoarding of the money, investment in hedge funds, stock buybacks, or offshore bank accounts. There is no "trickling down" as suggested would happen. My uncle worked in hedge funds and he would see this daily. So, whether it be the lack of empirical evidence from studies, the lack of a sufficient number of studies themselves, or the analysis through real-life scenarios that have actually occurred and that we can check on throughout history, why do people still support this concept when it just seems like a theory with no basis in empirical fact?

  Topic Politics Subtopic Policies Tags economics trickle-down supply-side economics political theories
3 Years 1 Answer 2.0k views

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  1. J Starr 4425 Community Answer

    Likely faith in 'trickle down" economics is because it encompasses ideals which are given unthinking allegiance, to whit:  Business should be as unfettered as possible to increase wealth production at all levels.  They believe in a form of capitalism which is best described as supply-side economics, and is based upon the mythical Laffer Curve, another illustration of how it is all supposed to work.

    But it doesn't.

    "The Laffer curve embodies a postulate of supply-side economics: that tax rates and tax revenues are distinct, with government tax revenues the same at a 100% tax rate as they are at a 0% tax rate and maximum revenue somewhere in between these two values. Supply-siders argued that in a high tax rate environment lowering tax rates would result in either increased revenues or smaller revenue losses than one would expect relying on only static estimates of the previous tax base.[15][16]

    This led supply-siders to advocate large reductions in marginal income and capital gains tax rates to encourage greater investment, which would produce more supply. Jude Wanniski and many others advocate a zero capital gains rate.[17][18] The increased aggregate supply should result in increased aggregate demand, hence the term "supply-side economics"." (1)


    However, what we find using actual objective, empirical evidence is the opposite works to increase wealth at all levels: Demand- or Consumption- side economics creates wealth on all levels.

    The latest example of this is the shut downs and enhanced unemployment payments provided to a couple tens of millions of people: While our economy was hit hard, overall, it did not totally collapse as in the Great Depression, and that is because people were provided not only some money to choose between the rent and the car payment, but extra money (actually, about $15/hr for a 40/hr week) so they had money to spend or save. 

    An economy is not based on how much or little money it has in it, but how well the money moves around.  During the CARES Act time, money moved around quite well as people bought another pair of glasses, some shoes, groceries, a new lawn mower, another television or computer, a new car-  anyone who had been making less than $15/hr had money to burn- and so they did just that.

    And the economy did not collapse.


    But supply-siders place all their faith in business, none in people- especially poor people-  and that's why no matter how often their attempts to make trickle down work fail, and how often they are shown their error, they have to keep trying again, harder this time.  Their allegiance isn't based on evidence, for them, but on faith.

    And faith is, in the end, belief without evidence. 

    UTC 2020-11-05 07:20 PM 0 Comments

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