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Liberal trickledown economics

from David Ruccio

Has the policy consensus on economics fundamentally changed in recent years?

To read Mike Konczal it has. I can’t say I’m convinced. While some of the details may have changed, I still think we’re talking about different—liberal and conservative—versions of the same old trickledown economics.

But first Konczal’s argument. He begins with a pretty good summary of the policy consensus before the crash of 2007-08:

Before the crash, complacent Democrats, whatever their disagreements with their Republican peers, tended to agree with them that the economy was largely self-correcting. The Federal Reserve possessed the tools to nudge the economy to full employment, they thought. What’s more, government programs, while sometimes a necessary evil, were likely to be an inefficient drag compared with the private market. Inequality was something to worry about, sure, but hardly a crisis, and policies were correspondingly timid and market-focused.

And it’s true: the debate about the conditions and consequences of the crash—after Occupy Wall Street, in the midst of the Second Great Depression—challenged that consensus, by focusing much more attention on inequality and disrupting the idea that the growing gap between rich and poor is somehow natural and necessary and by calling into question the idea that capitalist markets are self-stabilizing and full employment can be guaranteed by relying on markets. 

In all honesty, that’s the least that can be expected, especially on the liberal side of mainstream political and economic thinking in the United States.

But then, when Konczal outlines the policies that make up what he calls the “new liberal economics,” embodied in Hillary Clinton’s campaign and the current Democratic Party, the evidence is very thin. In terms of specific policies—like following the dual mandate for the Fed of stabilizing prices and maximizing employment and supporting paid family and medical leave—the new liberal economics looks a lot like the old liberal economics of the Great Society programs (and, for that matter, of the Nixon administration). And while the policies Democrats support are certainly different from those of current Republicans (which Konczal summarizes as a “mix of Kempism, austerity, and favorable taxes and regulations for businesses that characterizes Paul Ryan’s ideas” and “Trump’s agenda of mercantilism and a chauvinistic welfare state”), they aren’t evidence the existing policy consensus represents a radical change.

That’s because the consensus before the crash, and now seven years into the recovery, has been based on trickledown economics. On both sides of the political and economic aisle.

The overarching idea, shared by liberals and conservatives, is that the existing economic system—with the surplus being appropriated by a small group at the top, who then decide what to do with it—will eventually deliver benefits to everyone, including those at the bottom (through, e.g., more jobs and higher incomes).

There are differences, of course. While the conservative view of trickledown economics emphasizes individual decisions and private markets, the liberal view is based on the idea that individual decisions are constrained by larger institutions and structures and and government programs are necessary to achieve desirable social outcomes. But, in both cases, the benefits created by existing economic arrangements are supposed to start at the top and trickle down to the bottom.

The consensus before the crash was that the liberal and conservative approaches to trickledown economics represented the limits of the relevant debate about economic policy. And now, seven years into the recovery from the crash, the debate that takes place between those limits remains the policy consensus.*

So, to my mind, there’s nothing new about the “new liberal economics.” It’s just a different mix of policies that together make up the latest version of liberal trickledown economics.


*If the existing policy consensus has been disrupted, it’s only because Donald Trump has highlighted the fact that trickledown economics, in both its versions, represents an unfair hustle.

  1. September 26, 2016 at 2:18 am

    Yes David, and the dynamics of the Presidential debate, if that is not dignifying them too much, have veered away from serious consideration of economics; I don’t know if Trump has put enough non-contradictory elements together to sustain either rational policy or rational analysis. Even Sanders would not give us in depth insights into his thinking, how he still called himself a democratic socialist while eschewing any tampering with the means of production. And he never got to a universal “right to a job,” and the CCC type programs that would have to go with it. Not hard to do, the compelling logic is there: take a look at Bill Mckibben’s article in the New Republic magazine here:


    Isn’t this what the left always wanted: a cause to drive full employment, backed by sound science…the alternative to military Keynesianism…and there is a way the decentralized ecological left could be brought in…to go along with the factories McKibben says will be needed to build the solar panels…the outline seems so close…then you look at the coming debate and it shrinks to just a hazy blur on a heat distorted horizon…a chimera.

  2. September 26, 2016 at 5:02 am

    ” calling into question the idea that capitalist markets are self-stabilizing and full employment can be guaranteed by relying on markets.”

    More important than the assumption that market forces will lead to full employment is the assumption that full employment means we live on the production possibilities frontier. In fact, even in full employment we live well inside the production possibilities frontier and the more right-wing our policies, the further inside it we live.

  3. September 26, 2016 at 5:49 am

    For trickle down (conservative or liberal) to work there has to be a top from which the trickle comes and a lower (down to bottom) where it trickles to. So my question is a simple one. Why is there a top and a lower? If we do away with the division we’ll have to come up with some other form and justification for the distribution of income and property. And I conjecture if this is changed the number and types of businesses operating, the level of unemployment, and the collection and distribution of taxes will change. We’re in this fix I think due to a lack of imagination and courage by so called smart policy makers, particularly economists.

  4. Paul davidson
    September 26, 2016 at 4:59 pm

    if you want liberal policy agenda then read my new book POST KEYNESIAN THEORY AND POLICY

  5. originalsandwichman
    September 26, 2016 at 5:59 pm

    Trickle down is another name for equilibrium.

  6. September 28, 2016 at 6:07 am

    Paul, I’ve read your book. Wonderful and from what I see accurate diagnoses of our problems. But no real solutions. My conjecture is the book offers no real solutions because such solutions would involve reorganizations of life in western societies that many of the centers of power in the west would find unacceptable. In other words economics and economists would be drawn into a shooting war if they proffered the kinds of changes that need to happen to create more equal and more participatory societies. The size of the war would depend on how great the more is.

    Trickle down is another word for theft. Everyone I know believes this, even those who claim to be and are conservative, in a traditional sense.

  7. Paul davidson
    September 28, 2016 at 9:36 pm

    Ken: the problem of whether my policy solutions suggested in my book POST KEYNESIAN THEORY AND POLICY are viable is really question of political acceptability. Political acceptability requires economists to educate the public and politicians to the economic truth about economic relationships for a money using economic system where money contracts are used to organized ALL market transactions!

    What Post Keynesian theory explains is that in an entrepreneurial market oriented, money using economy, there must be sufficient market demand to encourage entrepreneurs that they can profitably employ all who want to work. That is the role of government to assure sufficient market demand!!

    • October 2, 2016 at 1:11 pm

      Paul, let’s get to the basics. What in view is an “entrepreneurial market oriented, money using economy?” How do you make that determination. In other words, what and/or who do you observe to reach that conclusion. After all, others, not you alone created the economy. Do you consider this phrase a summary of their work? What case studies can you cite? Even Keynes performed no case studies. Unless you consider, “How to Pay for the War” a case study. Theories are a necessary evil. Not the way to learn about economics or economies. Theories follow observation, not the reverse.

      • Calgacus
        October 2, 2016 at 5:15 pm

        Theories are a necessary evil. Not the way to learn about economics or economies. Theories follow observation, not the reverse.

        Nope, it’s the other way around. Theories are not a necessary evil, but a goal and a good that everyone strives for. All men, by their nature, seek to know. Nobody has ever made or can make an observation without a theory about what is being observed. Nobody has ever seen anything without an eye and a nervous system structuring visual inputs. Early 20th century logical positivism / empiricism is long dead.

        The real problem with economics is that everyone understands correct theories superlatively well. They are so familiar and so close that they are as completely ignored and misunderstood when people think they are speaking theoretically, scientifically as they are completely understood and applied when people act practically in their daily lives.

        One might as well use this universal practical understanding to note that there is not the slightest practical problem in identifying a “entrepreneurial market oriented, money using economy” like that of the USA and other “advanced” nations today, and noting that this is a major trend everywhere. There are other sorts of societies, but they are more and more things of the past. Of course there are other trends, like that of the growth of government and quasi-government, but money, markets and entrepreneurs – in one word, capitalism – is an object worthy of serious study everywhere.

      • Paul davidson
        October 2, 2016 at 5:27 pm

        It is very simple Ken. We are trying to describe an economy where the private sector enterprises hires workers to produce goods to sell in the market. We want to describe an economy where manager decision makers make decisions regarding production to be sold in the market.

        Thu we want to know how the managers of these enterprises [ entrepreneurs] make decisions on how many workers to hire, produce goods and services that.creates jobs and incomes. and sells products to buyers in the market.

        Since production takes time, workers must be hired by the enterprise before the product is ready for delivery to buyers.

        We observe in the economy in which we live , ALL market transactions are organized by the use of money contracts between buyers and sellers– such contracts as employment contracts, purchase of materials, rental contracts, debt contracts, etc. These contracts can call for immediate payment and delivery [ spot contracts] or forward dated payments and delivery.

        Do you deny that every market transaction you engage in immediately involves a money contract –either verbally or written?? And all legal money contracts are enforceable by the State if one party or the other attempts to avoid his/her money contractual obligation.

        Thus I am trying to discuss an economy that exists in our world– not a figment of some economic theorist’s imagination. I do not have to cite some case study by some economist to observe how I engage in market transactions– and how all the enterprise [ both in academia and when I worked for private enterprises such as a major oil company and a department store I have worked for]
        What better case study than what one sees with one’s own eyes do you want???

      • October 2, 2016 at 7:52 pm

        Calgacus, your response sits at the center of what’s wrong with economics, in my view. Yes, humans in interaction with other humans and nonhumans create collective life. That work includes explanations and meaning, i.e., theories. Yet economists and some other social scientists ignore these creations in favor of “professional” explanations and meanings the professionals lay on top of and often use to distort and bury the meanings and explanations the actors involved actually create. And which the professionals claim gives the “real” explanation and meaning of the actions and actors observed. I prefer the horse’s mouth for explanations of the how things work. This is one of the differences between the social and physical sciences. Suns and planets, rocks and volcanoes don’t explain themselves. Human collective life actors do. So my first objection to your statement is simple. Why invent new explanations and meanings while ignoring those that can be observed and written about?

        I have much the same concern about your and many economists’’ approach to “entrepreneurial market oriented, money using economy.” Every week in the US there are dozens of business conferences explaining entrepreneurialism and the meaning and use of money. They do not agree on many aspects of what an entrepreneur is or what money is or how it should be used. These are part of the subject matter of economics, or ought to be. Yet, economists use their definitions of entrepreneur and money, ignoring others in common use. For example, Viviana A. Zelize in her book, “The Social Meaning of Money: Pin Money, Paychecks, Poor Relief, and Other Currencies” describes multiple monies, tracking their histories and contents. Money it seems is not as cut and dried as economists believe it to be. And then there is the notion of markets. The form and functioning of markets (or even applying this single term to multiple types of actions) depends on rules. The origins of the rules are often found outside actual market activities. Economists investigating any of this?

        If economists want to define their profession as the investigation and descriptions of economist’s economies, I’m okay with that. So long as the economists don’t then claim they’re doing something else and want to stick the rest of use with living our lives in that something else.

      • October 2, 2016 at 7:53 pm

        Paul, see my just posted response to Calgacus. Much there also applies here. I’m okay with the intention you cite of economists seeking to describe an economy where the private sector enterprises hire workers to produce goods to sell in the market; where manager decision makers make decisions regarding production to be sold in the market and employees to hire. But this is not what many people consider the economy. There are voluntary contributions of work and exchange, e.g., work-in-kind charities. There are also barter exchanges, e.g., parents and their children. And duty/sacrifice transactions, e.g., military. And the “unpaid” work that Feminist economists have written about for the last 30 years. All of these can be at least in part considered economic actions. You say, “We observe in the economy in which we live …” The market economic actions you mention are certainly one form of economics and one kind of market. But not the only form and not the only kind. Again, I’m okay if you want to limit the study of economists this way. But I object to its description as the total economy. I agree with your goal “to discuss an economy that exists in our world– not a figment of some economic theorist’s imagination.” But you’re not doing that so long you limit the work as you describe. Many of the actions not being studied don’t fit well within popular economic theories. Some don’t fit at all. In the words of Hamlet, “There are more things in heaven and earth, Horatio, Than are dreamt of in your philosophy.” Consider expanding the dream of economists. As for eyes and observing, scientists figured out a long time ago that eyes can often be mistaken. That’s why scientists constantly invent and use new observational methods and tools, and check one another observations.

      • January 9, 2018 at 10:20 pm

        Just happened across this old thread while looking for another one to give a somewhat less belated reply to.

        Ken Zimmerman:Why invent new explanations and meanings while ignoring those that can be observed and written about?

        It is clear that you misunderstood me, for I wouldn’t disagree with much that you wrote, except the idea that it contradicted anything I actually said. Indeed, the word “repeated” comes to mind. (And I dare suggest a second look at what Paul Davidson actually said too.) For instance I said that the problem is that the economists “new explanations and meanings” [your phrase] ignores “universal practical knowledge” [mine].

      • January 11, 2018 at 9:05 am

        Calgacus, thanks for the comments. I love observation. For me, it’s the basis of science. But I do not deny the importance of theory-complex or simple. But theory is always subordinate to observation. Nevertheless observation is not simple. An aphorism often talked about in philosophy 101 is the statue. An observer sees a woman across a room. Is it a living woman, a painting, a puppet, a statute, or just an illusion? To make that determination the observer needs to walk around, observe from above and below, touch with hands, measure with a ruler, measure with a spectrograph, etc. Most times the observer with arrive at an answer that’s acceptable but revisable with further observation. That may involve developing theories or changing paradigms. The points are these: this is how humans learn, including scientists, and the process never ends. Scientists extend these steps to the extreme. Always inventing new approaches and tools for observation. Institutionally, that’s the core of western science. And, to a slightly lesser extent, Chinese, Persian, and Islamic science. If for no other reasons, economists are not scientists because they assume the approaches and tools they use “to do” economics are faultless and cannot be improved upon. This denotes an ideologue, not a scientist.

        Historically speaking, there is no “universal practical knowledge.” And much of what could fit into that basket is just culturally defined prejudices (e.g., Hammurabi’s code, slavery, human females as property, etc.).

  8. Paul davidson
    October 3, 2016 at 8:52 pm

    I am interested in the economy that provides jobs for hire to people who want money income sdo they can enter into money contracts to purchase goods and services in the market. What Keynes called the “Monetary Theory of Production”

    You are bringing up some foolish things such as barter transactions and people doing things without pay such as a housewife cooking dinner for the family while the husband throws out the left-overs as garbage!!

    Feminist economics often feels housewives do not get their “economic” respect. Suppose a bachelor hires a women as a housekeeper to cook his meals, tidy up the house etc. For these services he pays her a salary which is included in GDP.

    But then suppose the bachelor and the housekeeper fall in love and marry. Now she cooks his meals and keeps house but does not get paid and GDP goes down!! So what??

    • October 4, 2016 at 6:22 am

      Paul. you sound frustrated. That you want to study the things you describe is okay with me, as if you needed my approval to do this work. But I object to your use of the term “foolish” to describe transactions that don’t fit your and Keynes picture of the economy. Pretending these transactions don’t exist doesn’t make them go away. And your examples are really lame. If just one form of unpaid work, housework were monetized estimates of GDP increase go as high as 26 percent. That’s significant for “monetary” or any other form of economics study. But I am a mathematician so I do understand sub-specialties within academic disciplines. Sub-specialties that often don’t even talk with one another. Enjoy!

      • Paul davidson
        October 4, 2016 at 3:17 pm

        the problem is you take the arithmetric measure of GDP too seriously. This GDP does not measure some absolute sum — despite what the media often implies. After all one of the biggest [fictions] items is the value the rent of owners occupied homes.

        GDP significance, if any, is in its rate of change in the number from accounting period to accounting period.

      • October 4, 2016 at 7:21 pm

        I agree with you about GDP. I was attempting to put my thoughts into more conventional terms for your better understanding. My point remains the same. The study of economics you describe omits much that is counted as economic my one or more groups within the US. Again, your choice to focus on a subset of these is okay by me. But it is a choice.

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