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Trickle Down

Entry 1323, on 2011-08-19 at 20:59:59 (Rating 3, Comments)

A common justification for the current enthusiasm for neo-liberal economic theory is the way the benefits allegedly trickle down from the "top" of the economic pyramid to the masses at the bottom. It's interesting to note that the idea isn't widely supported in economic theory and the term "trickle down" was first used in a pejorative sense to describe the idea.

So what is the trickle down effect? The idea is that if the government encourages the rich and powerful by giving them tax breaks, subsidies for greater investment, and other benefits, then the (allegedly) inevitable increase in business activity will result in greater employment, more national income, and generally better economic conditions for everyone else as well.

Allegedly (you may notice that I use that word a lot) the benefits to those at the bottom are greater than they would be if the tax breaks and other benefits were given directly to them.

Critics of this economic philosophy (including myself) strongly disagree, of course. I'm sure there are occasional cases where a large company receives these favours from the government, does increase production and/or employment, and this does provide some benefit to the country as a whole, but there are significant questions which should be asked: are these benefits worth the price paid, and are there better ways to increase the overall advantage to the majority?

There are many examples where we have been told that we should see great benefits from the trickle down phenomenon and several of these are prominent right now in New Zealand.

First I would mention dairy farming. Dairy farmers are effectively heavily subsidised by tax payers because they receive significant tax benefits and are not currently being forced to pay for the serious amount of pollution their industry causes. Many are just examples of a business which is the recipient of corporate welfare. And that is ironic since the farming sector have a reputation of being against welfare for others.

New Zealand's dairy industry is enjoying a period of great profitability at the moment and you would expect the country as a whole should benefit. But is it? It doesn't seem that way to me. Milk prices here in new Zealand are so high that many people can't afford it any more. The price of farms has forced many small, traditional farmers out and they have been replaced with bigger, more automated operations which actually employ less people. And the main beneficiaries of the farmers' extra income are foreign banks and equipment manufacturers. So this famous trickle down is happening where exactly?

I've already ranted about the travesty of sport which is the Rugby World Cup. The Rugby Union, foreign corporate sponsors, and the rich and famous are again being encouraged through tax breaks and other government sponsorship. We are told the benefits will trickle down to the rest of the country. But I don't think that will happen, at least not in a big way.

Most New Zealanders can't afford to go to the games yet they still must endure the inconvenience of how everything is being re-arranged for the benefit of the competition. They must endure the tedium of the advertising (including the embarrassing and pathetic Telecom "abstain" campaign), and they (as tax and rate payers) are the ones who are paying for a lot of it. So where's the trickle down here? There is none. Again the rich are simply parasites off the rest of us, and to make things even worse, we're supposed to thank them for it!

The Reserve Bank (which has really become a bit of a joke and is suspected by many to be just a propaganda source for the government) has estimated huge benefits from the RWC but an academic today said those claims are "wildly exaggerated". So, just like the dairy industry, it seems likely that the average person will be worse off after the RWC.

Many people are taken in by the overwhelming pro-Cup propaganda which is everywhere but I just can't wait to get it over with. Then the corporate parasites (including the Rugby Union) can go back to where they came from and we can get on with life... until the next case of parasitism arrives.

Trickle down theory, just like all neo-liberal economic theory, just doesn't work. It never has worked, and it never will work. It didn't work in Greece (whose problems are largely due to foreign corporations who pay no tax) or in the US (where tax cuts for the rich have been maintained leading to shortfalls in funding), or in Ireland (where favourable conditions for corporations were exploited) and it hasn't worked here either (where rabid neo-liberalism was unleashed on the unsuspecting public in 1984).

People need to wake up and look at the facts. Neo-liberalism looks great in theory but it just doesn't work in the real world.

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