The left's "Trickle Down" fabrication

I see that Sir Keir Starmer, one of the candidates to take over as leader of the Labour party, has been repeating a very old fabrication - the idea that supporters of free-market economics believe in something called "trickle down" theory.

He tweeted that the free market model has failed and that "trickle down didn't happen."

This is misleading nonsense - "Trickle Down" theory is a straw man fabrication which left-wingers put up in order to knock it down, and bears very little resemblance to what supporters of the free-market actually think. The term was originally coined by American humorist William Rogers as a joke in 1932 and was initially used by Democrats in the USA to describe the policies which they claimed that US Republicans supported - a claim vehemently refuted by those same Republicans  - and it has now started to be used by left-wing politicians in Britain in the same misleading way. I have never heard of a case where a serious economist has argued in favour of "trickle down" theory or a government which has said it was following such a policy.

The "Trickle Down" myth misrepresents the case for the free market in at least two serious respects

1) It implies that free marketeers only believe in tax cuts for the rich, the impact of which will supposedly then "trickle down" to the poor (an idea which it is extremely easy to disprove.)

Actually most free-market supporters believe in tax cuts for people at every level of income, including those on low incomes.

For example, far and away the largest tax cuts made by the coalition and Conservative governments in the UK since 2010, for instance, has been the increase in income tax thresholds which have meant that millions of low paid workers no longer have to pay income tax at all.

People on the centre right don't imagine that you can magically help the low paid by cutting tax on the rich, we want to directly reduce - and in some cases eliminate - the tax paid by the low paid as well, so that they too will gain a higher share of the reward for extra work that they do and will  benefit from better incentives.

2) It ignores the distinction between tax rates and total tax revenue.

When tax rates reach punitive levels, they provide a strong disincentive to effort and investment. Above certain rates, there is plenty of evidence that extremely high tax rates bring in less revenue in the long run by distorting the economy and cutting savings and investment.

When Mrs Thatcher's government cut the top rates of tax in the UK, which had been 98 pence in the pound or 83 pence in the pound depending on the type of income, to 60% (and later to 40%) the amount of tax and the share of tax paid by the people subject to those rates didn't go down.   In fact they paid more - more money in absolute terms and more as a proportion of total tax revenue.

Removing punitive tax rates isn't necessarily about giving money to the rich - it can be about getting more money out of them in the long term.

I include clips by two economists on the subject. First, here is one by Thomas Sowell, who challenged the left to provide a single example of a serious economist who supported "trickle down" theory. Nobody has produced a convincing example.



And here Steven Horwitz, Charles A. Dana Professor of Economics at St. Lawrence University, makes a similar point.



It's a shame that people on the left can't engage with and debate with what people on the centre-right actually think instead of creating myths like "trickle down" economics to knock down.

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