Home > The Economics Profession, upward income redistribution > Trickle-down economics — total horseshit

Trickle-down economics — total horseshit

from Lars Syll


In a blog post up earlier this year, Paul Krugman noticed that there “doesn’t seem to be much trickle-down going on” in the USA.

Unfortunately we can see the same pattern developing in many other countries. Take for example Sweden. Look at the figure below, which shows how the distribution of mean income and wealth (expressed in year 2009 prices) for the top 0.1% and the bottom 90% has changed in Sweden for the last 30 years:


Source: The World Top Incomes Database

What does this increasing economic inequality do to our societies? Let’s listen to what Nobel laureate Joseph Stiglitz has to say:


Some people look at income inequality and shrug their shoulders. So what if this person gains and that person loses? What matters, they argue, is not how the pie is divided but the size of the pie. That argument is fundamentally wrong. An economy in which most citizens are doing worse year after year—an economy like America’s—is not likely to do well over the long haul … Perhaps most important, a modern economy requires “collective action”—it needs government to invest in infrastructure, education, and technology … The more divided a society becomes in terms of wealth, the more reluctant the wealthy become to spend money on common needs … America’s inequality distorts our society in every conceivable way. There is, for one thing, a well-documented lifestyle effect—people outside the top 1 percent increasingly live beyond their means. Trickle-down economics may be a chimera, but trickle-down behaviorism is very real … Of all the costs imposed on our society by the top 1 percent, perhaps the greatest is this: the erosion of our sense of identity, in which fair play, equality of opportunity, and a sense of community are so important.

  1. paul davidson
    November 4, 2013 at 10:42 pm

    we don’t have to listen to Joe Stiglitz.

    J. M. Keynes in his General Theory [p. 372] wrote that the two main faults of the economic system in which we live is (1) it failure to provide full employment and (2) its arbitrary and inequitable distribution of income and wealth. Only Old Keynesians, New Keynesians and classical mainstream economists in general shrug their shoulders about the inequitable distribution of income and wealth since their theories say that the distribution is market determined and labor receives its value productivity,.

    Since my PH. D. dissertation thesis was on theories of income distribution I have bee worrying about inequitable distribution since earning my Ph D in the 1950s.

  2. BC
    November 5, 2013 at 3:58 am

    Wise words, Paul.

    Bernanke, political cover man for the owners of the Fed and TBTE banks, justifies the Fed’s expansion of bank reserves of $3 trillion since ’08 and deficit spending of more than $6 trillion over the same period in terms of the dubious “wealth effect”, which is supposed to encourage an acceleration in bank lending, private investment, employment, wages, and purchasing power.

    However, the correlation for stock prices to real final sales is a laughably contemptuous r^2 of 0.213 (and even then any effect is during the early stage of a cyclical bull market when stock prices are at least 10% below the level two years before), whereas production and wages have r^2 values of 0.63 and 0.71, 3 to 3 1/2 times that of stock prices. Even Fed economists have published papers indicating the dubious nature of the so-called “wealth effect”.

    The “production and wage effect” are far more important that the non-existent “wealth effect” from asset price inflation.

    But even the “production and wage effect” will become less likely to be manipulated or “managed” by monetary and fiscal policy hereafter as paid employment is increasingly eliminated at scale by accelerating automation and “humachine” productivity. In this context, Keynesian full employment schemes via deficit spending will no longer work as imagined and thus must be replaced by a basic income guarantee/citizen dividend to ensure a socially acceptable, sustainable level of material consumption and durable well-being per capita for everyone who requires it.

    Consider that private health care, total local, state, and federal gov’t spending, including elder transfers and public health care spending, and household debt service costs now total an equivalent of more than 50% of GDP and growing, and more than all public and private wages and salaries. There is no way real GDP per capita can grow with health care, gov’t spending, and debt service requiring a majority share of, or more than, GDP and wages.

    A redesign is desperately required for the role of gov’t and system of income creation and distribution of purchasing power for the bottom 90%. The rentier top 0.01-0.1% to 1% are utterly disengaged from the economy upon which the bottom 90-99% rely. They have no incentive to engage in transformational innovation to benefit the bottom 90-99%.

    To date, nothing can reach them to shake their money trees and the foundations of their rentier fortresses. That wealth is so concentrated to the top 0.1-1% to 10% of households, nothing will change until their mindset and world view changes in such a way that they perceive the rest of us as worthy of the benefits of techno-scientific progress and financial, social, and political innovation. Their ramparts are so far impervious to persuasion, reason, and appeals to their more universalist humanist nature, assuming it exists.

    Reimagine, r-evolve, redesign, and reboot.

    • November 6, 2013 at 3:13 am

      Wise words, Paul
      We must thank Milton Friedman to eradicated the Keynes’ ideas. He convinced all economists in the 70s and 80s that we were interested Monetarism. But Friedman’s ideas have a shorter life than those of Keynes and did not require armies of economists to eradicate: fell by the weight of their fallacies.
      But these ideas of Friedman propagated inequality and Shock Doctrine. I am a Chilean economist and this was the first country where Friedman’s ideas were tested. Failure
      Excuse my English

  3. Lyonwiss
    November 5, 2013 at 5:43 am

    Much of the inequity (not inequality) is a direct consequence of US government policies on deregulation (OTC derivatives), housing (subprime mortgage crisis), education (student loan bubble), health (medical profession grift), banking (taxpayer funded bailouts) etc.

    The inequity is a direct result of “trickle up” policies over decades or blatant socialization of private losses recently, of US governments captured by vested interests. In other words, US governments collaborating with the financial system actually caused the inequity. Keynesian faith in the government’s role in equitable wealth distribution is evidently perverse.

    Without a theory on economically optimal and socially equitable distribution of wealth, governments can only be pushed around by self-serving political and business interests. Keynes appeared to have been largely silent on what and how equity is to be achieved.

    Even Marx had no prescription on equity, only predicting revolutions arising from inequity. Subsequent interpretations of Marxist equity by Lenin, Stalin, Mao etc. were all disasters. Deng Xaioping’s introduction of market reforms proved beneficial to the Chinese economic ascendancy.

    We need a moral interaction of market and government. To do this we need to define equity, design social institutions to achieve it and then reboot the system, as BC suggests above.

    • Vilhelmo
      November 7, 2013 at 6:51 pm

      It brings to mind the book by Dean Baker “The Conservative Nanny State”.
      It outlines many of the “Nanny State” policies of regulation, protectionism & state intervention that redistribute wealth to the top.

  4. davetaylor1
    November 5, 2013 at 9:25 am

    I’m with BC here, but I can’t understand why Paul wants to dismiss Joe Stiglitz’s moral concern and leaves neo-classical economists out of his list of those who shrug their shoulders at inequity: “Old Keynesians, New Keynesians and classical mainstream economists”. Lyonwiss, for perverse reasons of his own, lumps all so-called Keynesians together and persists in claiming that a non-existent “[true] Keynesian faith in the government’s role in equitable wealth distribution is evidently perverse”. How on earth can he claim “Keynes appeared to have been largely silent on what and how equity is to be achieved” when that is exactly what the General Theory was directed towards? Is he just throwing mud in the hope that some will stick or muddy the waters of our discussion? In any case, actions speak louder than words: Keynes has been the only economist in a couple of hundred years who DID achieve an improvement in equity. Which is not to say (with Keynes’s advice subverted and sidelined, post-war goodwill evaporated and the situation changed by developments in global communication and automation) that we don’t need to start again. But we needed to start again with BC’s “re-imagine” and “re-evolve”, not simply with “redesign” on the basis of the same old lie-fed misconceptions; and those who lack imagination need to listen to those who have.

  5. Lyonwiss
    November 5, 2013 at 12:11 pm

    Keynes was concerned with the macroeconomics of growth through full employment, which he considers essential to maintain consumption, as a demand driven view of economic growth, rather than a supply driven or capital/investment driven view of economic growth.

    As far as I know, Keynes was never explicitly interested in equity nor did he discuss in detail on a moral concept of fairness. His interest in wealth redistribution was based on its impact on overall consumption to stimulate growth (GT, 373), “that measures for the redistribution of income in a way likely to raise the propensity to consume may prove positively favourable to the growth of capital”.

    In other words, Keynes’ reservation about wealth disparity is that it might hinder economic growth through reduced consumption. What if greater inequity leads to higher economic growth? Would Keynes object then? Keynesians have not been able to argue against government policy of aiming for economic growth even at the expense of equity, since Keynes’ ultimate objective is economic growth and not equity. Unfortunately, the US government’s fiscal and monetary stimuli have failed to produce desired economic growth, making the inequity even less tolerable.

    If equity (however defined) is an important goal in its own right, then there may need to be a trade-off between equity and economic growth. As economic growth is coming up against environmental constraints, its dominance in the economic agenda may wane, leaving room for other concerns such as equity, if we can define we wish to achieve.

  6. Jorge Buzaglo
    November 5, 2013 at 3:17 pm

    Keynes (General Theory, p. 164): “I expect to see the State, which is in a position to calculate the marginal efficiency of capital-goods on long views and on the basis of the general social advantage, taking an ever greater responsibility for directly organising investment…”

    • Lyonwiss
      November 5, 2013 at 6:41 pm

      Great quote. It comes from the concluding paragraph of the famous chapter on “long-term expectation”, which is about irrational markets. The opening sentence of that para is just as important and relevant for our current situation:

      “For my own part I am now somewhat sceptical of the success of a MERELY monetary policy directed towards influencing the rate of interest.” (emphasis added)

      In other words, zero official interest rate policy and quantitative easing (aka operation twist forcing long-term interest rate lower) may not be sufficient. Then “taking greater responsibility for directly organising investment” can only mean one thing today: market manipulation.

      There is substantial evidence that the US government (through the Fed) is not only manipulating commercial interest rates (e.g. LIBOR), but also the stock markets for the “wealth effect” and the commodities markets to control inflation expectations.

      The trouble with market manipulation is: there is no rational basis for the government to determine what is the “right price” for everything. So the apparent official strategy is: the manipulation will stop when the economy improves sufficiently according to some economic criteria (e.g. level of unemployment).

      The danger is: the economy may not improve sufficiently before a “black swan” event pops the asset bubbles which have been created by government’s “open market operations” through its primary dealers. Because everyone sees the artificially created distortions, they are fearful and hold a lot of cash, exactly the liquidity preference which Keynes sought to avoid. This is the situation which I would call the Keynesian perversion of financial markets.

  7. Jorge Buzaglo
    November 5, 2013 at 7:02 pm

    “Long views,” … “general social advantage,”…”directly organising investment”… I think Keynes had economic planning in mind, not market manipulation. But today, as you said, it is perhaps only manipulation that is left.

  8. Deniz Kellecioglu
    November 5, 2013 at 9:23 pm

    Let’s not forget, even if it did trickle down, it’s crap. Why would people settle on the trickling drops of wealth? The whole narrative of trickle-down is based on an elitist view on humanity (neoliberal governance/governmentality). The crumbs they were ready to share, were just a way to enlarge their own bread and butter.

  9. Lyonwiss
    November 6, 2013 at 2:12 am

    Jorge, That chapter 12 is about financial markets, though Keynes would call them capital markets like most people today. (I would use “capital” only in the narrow sense of Marx, to distinguish from money.) Keynes assumed all the trading in financial markets are related to capital development in saying (p.159):

    “When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”

    He continued, “The measure of success attained by Wall Street, regarded as an institution of which proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of laissez-faire capitalism – which is not surprising, if Iam right in thinking that the best brains of Wall Street have been in fact directed towards a different object.”

    So if Wall Street cannot do a good job for “proper social purpose”, then government can do better, which is surely the assumption and the justification for market manipulation. Market manipulation has been going on for decades, only now it is more blatant and comprehensive.

    Market manipulation favors the rich and Wall Street, because the government has to operate through Wall Street, which is increasingly making its own laws for the purpose of manipulation. For example, the Dodd-Frank Act is being watered-down:


    The Keynesian irony is: if Wall Street does a bad job for “proper social purpose”, then the government intervenes to get Wall Street to do a worse job. Keynes was absolutely right in saying “the best brains of Wall Street have been in fact directed towards a different object.” That object is for the richest 1 percent to hold more wealth (currently 46 percent) than the rest of the world combined.

  10. davetaylor1
    November 7, 2013 at 10:22 am

    Lyonwiss (et al), in view of the way you addressed the issues at #6 and (after Jorge’s great comments) #8 and #ll, I am inclined to withdraw my remark at #5 about your having “perverse reasons of your own”. You may simply be unaware that you are seeing and addressing what Keynes wrote and so-called “Keynesians” claim he wrote, rather than trying to see the world and its history and its people and their situations through intuitive Keynesian eyes. I’ve tried to grasp what moved him, and the tactics he used to persuade the majority of economists more like yourself: i.e. sensory rather than intuitive types, with a word-oriented rather than situation-oriented rationality. (That is not to say the 76% percent of us who are sensory types are irrational: it is just to remind you that index-words can only tell you where to look, not what to see). Looking at the 1930’s world through Keynesian eyes: if the only thing those with power are interested in is money-making, then the only way likely to change their views for the better is to show them a less damaging way of making money.

    Just for example, then, at the end of #11, the irony you have labelled “Keynesian” has, to my mind, nothing to do with Keynes. It is, however, a lear indicator of your seeing (as Jorge implies) only the present US government and not the 1930’s British pursuit of more socially responsible government – in a war-ravaged Britain outraged by seeing the elite’s promise of “homes fit for heroes” reduced to Gold Standard indebtedness, starvation wages and involuntary mass unemployment. (What that meant was recorded in popular literature of the time, e.g. Priestley’s English and Muir’s Scottish Journeys and Orwell’s “Road to Wigan Pier”). Not that pre-WWII Fabian Socialists were a safe bet, for a left-brained Left is just as likely to be unimaginative and insensitive to other people’s needs as a “left-brained Right”. Keynes was exceptional even among the “right-brained Right”: a uniquely but widely experienced observer, logician and creative participant rather than a “spoiled child” still ruled by the childish form of “animal spirits” or a scholar of the type which “takes in each others’ washing”. For that reason, I think you wrong to assume (at the beginning of #11), that “Keynes ASSUMED all the trading in financial markets are related to capital development”. As I read him, he CONCLUDES the opposite.

    But have another look. Your excellent quotations from GT p.159 are well worth another look, and reading on, it is very interesting to see what Keynes is saying about differences of national character as between Americans and the British – and proposing the equivalent of a “Tobin Tax” long before Tobin:

    “The introduction of a substantial Government transaction tax on all transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States”.

    So the Tobin Tax would have been on currency transactions, but stocks and share trading amounts to currency transactions between localised forms of property entitlement.

    Good, then: we all agree that what trickles down in the present type of economy is horse-shit. But where does that get us?

    Until young economists start to grasp the significance of twentieth century discoveries (post GT pp.161-3) – that languages merely index meaning, and that logic is determined by the constraints of electrical hardware circuits rather than the books of rules and conventions which describe their behaviour, and that human communication and personality involve the interplay of four different types or levels of logic – I can’t see us getting anywhere. But let Lars Syll have the last word on this (from his “Quote of the Day 1” of Nov 5th):

    “I wish economics would pay attention – or more attention – to people like Coen who explore real human capacities, and real human decision making. If it did, the absurdly naive and unreal pseudo psychology upon which it constructs its theories of exchange and other economic behavior would be tossed aside in an instant”.

    • Lyonwiss
      November 7, 2013 at 11:42 am

      Of course, what I meant was “Keynes assumed all the trading in financial markets are related SUPPOSEDLY to capital development” (word and emphasis added), because this was/is widely understood by economists to be the function of financial markets. My meaning was clear when I immediately cited Keynes’ opposite view that “the job is likely to be ill-done”. Sorry it was not clear enough for you.

      My main purpose was to indicate that Keynes has been used, rightly or wrongly, as justification for many of grotesque policies (zero interest rates, operation twist, euthanasia of savers, market manipulation etc.) currently applied to global destruction by Bernanke, Yellen, Krugman etc. All I’m asking is for other die-hard Keynesians to repudiate these policies, if they could. (Paul Davidson’s remark on bigger belt to get fat has been noted.)

  11. As Thick As Three Short Planks
    November 20, 2013 at 4:01 pm

    I am an idiot, and not an economist..

    If you give a million people £1 or $1 dollar are large portion will spend it.
    If you give a million $ or £ to one person, they will probably invest it.

    Reduce corruption, and profiteering, fairness of wealth.

    So a millionaire to have the basic essential to live would last x years, compared to the standard wage.

    These should all be seen as part of the Economic model.

    Can you Economist figures something out, as we just don’t have a model yet

    I think the problem is that you need a model, that has participants..

    Average Wage Earner

    There needs to be a model economic model were it is mathematical vectors.. can be applied.

    At the moment you are taking “Philosophy” badly.

    Winning noble peace prizes for some derivatives on the stock market?

    Is that it for economics, really?

    We need a model is that the triangle of lines of vectors,


    Then you could create other triangle of vectors that intersect this to see how the model interfaces with:

    Wealth Distribution
    Government Effectiveness

    So from observers point of view or vectors of the economy.

    I am an idiot, but you economists, really need to start creating something rather than tapping the pencil. We need economic models that WORK!

    Can you Economist figures something out, as we just don’t have good economic models yet.

    If I had to say it in one word, please give people. “Dignity”

    Right or wrong this idiots needs you step up and debunk many “Myths”

    Prove something that can do something for an economy, rather than tapping or writing with a pencil

    People are living, and dying because no-one knows any better, because the economists have not shown or lead the way to give everyone someone dignity.

    HURRY UP!!!!!

    Idiot me: I just dropped my pencil, dam.


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