Argument: “Trickle Down Doesn’t Work.”

Response: Ahh, but it does.

The video explains. Please watch. (Many thanks to web forum user Quantum Windbag for making the connection.)

“Trickle down doesn’t work.”

…or so goes the common incantation that statists recite to dispel free-market demons. It’s blurted in the same way that superstitious people blurt “God bless you,” after someone sneezes nearby. If one is caught in a fit of defending rich people’s wealth, the reflexive reaction that she is likely to receive is the utterance of those magic words, “Trickle down doesn’t work.” I received this reaction last night after explaining to a friend that rich people don’t actually hoard all their wealth. Rather, they invest it, where other people build businesses with it. My friend responded that although that money may swirl around the money markets, most of it stays up among the fat-cats. Most Americans never see that money, because trickle down doesn’t work.

What does it mean for trickle down to “work”, anyway? Allowing people to keep more of their own money is an end in itself. Those who argue that we should lower taxes on rich people because it serves some other end, such as the creation of more jobs, have already conceded more than they should have. Where wealth is the product of some productive enterprise involving voluntary exchange, it should not be confiscated. This does not satisfy some people. Some people will not let a man keep the fruits of his efforts unless this somehow benefits others. Enter “trickle down economics”.

I find that most people have dismissed “trickle down” economics because they have looked for evidence of its benefits in BLS statistics and couldn’t find it. If they couldn’t find their noses, they’d probably look in BLS statistics for those, too. And you know what? They wouldn’t find them in there, either. In reality, wealth is trickling down all around us, right in front of our faces.

The video above offers as a case study Gordon Gekko’s cell phone from the 1987 film Wall Street. In the 1980s, cell phones were as big as a brick and cost $4000. Only the rich had them. Many are now free with the purchase of an affordable monthly plan. Higher-end models cost a few hundred dollars. Almost everyone has them now. When I was in high school, a decent portable CD player cost at least $120. Today, I can get one at Kmart for under $15. BLS statistics may not reflect a correlation between tax rates on the wealthy and rate of wage growth, but those inflation-adjusted wages can buy so much more now than they could a few short decades ago.

The video focuses mainly on modern technological luxury items, but the same holds true for necessities like food commodities. It’s hard see with food because constant inflation of the dollar causes food prices to increase in spite of increases in technology and increases in productivity. Art Carden explains the centuries-long trend:

So the difference between rich and poor, historically, was the difference between who lived and who died. The difference between rich and poor today, … in a country like the United States is the difference between those who get to drink the really really really expensive wine, and those who drink the proverbial “cheap stuff”. … If you go to Golden Corral or something like that, you see these amazing smorgasbords of probably relatively low quality food, but this is what sort of the great kings of yesteryear would have killed for. If you look at sort of the banquet of a very, very rich person in the 19th century, or royalty in the 15th century, 16th century, 17th century, you’ve got meat of questionable quality, bread, seasonal fruits and vegetables, ice cream if you are really lucky, wine, a handful of other things. You know, today, … by some people it is considered a strike against capitalism that you can go to bust-your-gut buffet and bust your gut, and then go and pull a little handle and make yourself a dish of soft-serve ice cream, which you can then sort of load up with busted up M&M’s or something like that, or whatever happens to float your boat. The world has changed, and the world has changed a lot.

The trend continues today. As a rule, when adjusted for inflation, food commodities have generally been falling in price. The National Inflation Association provides a page of informative price charts:

Corn is currently trading about 50% lower than its all time inflation adjusted high set in the 1970s. Wheat is currently trading about 76% lower than its all time inflation adjusted high set in the 1970s. Sugar is currently trading about 72% lower than its all time inflation adjusted high set in the 1970s. Cattle is currently trading about 57% lower than its all time inflation adjusted high set in the 1970s. Cotton is currently trading about 62% lower than its all time inflation adjusted high set in the 1970s. Coffee is currently trading about 78% lower than its all time inflation adjusted high set in the 1970s. Cocoa is currently trading about 81% lower than its all time inflation adjusted high set in the 1970s.

The numbers above are exaggerated because there were huge spikes in prices across the board in the 1970s–but even if there were no spike in the 1970s, the graphs all show a clear downward trend. These commodities are getting cheaper, day by day.

In fairness, when I’ve discussed this before, it had been suggested that I compare the prices of processed foods that a consumer would by directly, rather than food ingredients such as wheat by the bushel. My interlocutor examined the price of Kellogg’s Corn Flakes as reported by The Food Timeline. He found that although corn fell in price using inflation adjusted dollars, the price of Corn Flakes increased over the same period. Fair enough, but the prices of other foods, such as McDonald’s Hamburgers, fell over the same period, according to the same source. The prices of processed foods will fluctuate depending on the individual decisions of distinct food processors. I stand by the trend. If it is not clear that real prices of food have fallen over the past 40 years, then take a look at what has happened over the past 400 years. The world has changed, and the world has changed a lot.

Those who have their noses stuck in BLS statistics do not see reality. In the beginning of the 21st century, more people than ever before are eating like kings and blabbing like Gordon Gekko. Businessmen may not stuff their investment money into the paychecks of their employees, but there are other ways to invest in capital. Businessmen might buy better machines. They might put the same money into research and development. They might keep that money, or spend that money, or re-invest that money in the financial markets. And what’s wrong with that? As long as they are encouraged to produce higher quality products at lower prices, the rest of the public will continue to get richer.

In some ways, maybe we’re all millionaires and billionaires if we have something that’s worth that much to us. Something that lets us do so much. So think about it. How much is all of that worth to you? You might just be richer than you realize.

Over the past several centuries, wealth has trickled down from productive businessmen to the public at large. The question, therefore, is not, “Should we try trickle down economics by lowering taxes on the rich”. Rather, the question is, “Can we kill trickle down economics by overtaxing the rich?” That free markets have proven to be remarkably resilient to the most nefarious of government interventions should not be construed as an invitation to interfere further.

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2 Responses to Argument: “Trickle Down Doesn’t Work.”

  1. SparroHawc says:

    You kinda invalidated your arguments there by using technology as an example. A CD player can be purchased for $15 because it is OLD technology. A smartphone is more middling ground, but integrated CPUs and cell technology are so well-established that they’re dirt cheap. If you want to purchase something that doesn’t have a large, pre-existing infrastructure for though, prepare to pay through the nose. Blu-Ray players, when they first came out, cost something over $500. Currently a good MP3 player with lots of storage costs the same $120 as that high-school portable CD player. Technology is constantly shifting; don’t use it as an example of how much more your dollar can get you.

    • autofyrsto says:

      The constant shifting in technology is exactly what makes it a great example of how much more a dollar can get you. Technology generally shifts from lame to awesome. Technology generally shifts from expensive to cheap. In the past, fewer people could afford cool stuff. Now many people can afford cool stuff. That’s the whole point.

      You said yourself: “Currently a good MP3 player with lots of storage costs the same $120 as that high-school portable CD player.” The good MP3 player, with its impressive storage capacity, is ostensibly preferable to the clunky portable CD players of bygone days. People are now getting more for their $120 than they used to. I’m afraid I don’t understand how that invalidates my argument. To the contrary, it is a perfect example of my argument in action.

      I predicted that many people would object to the technology example as cherry-picked to best support my case, as it does. That is why I also included a discussion of food commodities to support my case further.

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