Daniel Hannan MEP on David Cunliffe & Trickle Down Myth

Daniel Hannan, a Conservative Member of the European Parliament, has written an article for CapX on the myth of “trickle down economics”. He quotes former Labour Party leader David Cunliffe and seeks to dispel the myth surrounding free market economics.

In the run-up to the recent New Zealand election, for example, the Labour leader, David Cunliffe, asserted: “The rich are getting much richer, the middle is struggling and the poor are going backwards. It’s the human face of ‘trickle-down economics’, the idea that if we give more to those at the top, eventually things will get better for the rest of us.”

Cunliffe (who went on to lose badly, Kiwi voters evidently not sharing his analysis) was in distinguished company. When he was standing for the presidency in 2008, Barack Obama had similarly excoriated “the economic philosophy [which] says we should give more and more to those with the most and hope that prosperity trickles down to everyone else.”

It’s a wide-spread meme.

The case against trickle-down, then, is pretty clear. But who exactly is making the casefor it? Where are the economists, the politicians, the commentators, arguing that we should give more to the rich? Who avers that the best way to stimulate the economy is for plutocrats to have more to spend on their Lamborghinis and swimming pools?

Well, here’s an odd thing: I can’t find anyone. Which is, when you think about it, pretty astonishing. One of the consequences of the Internet has been to ensure that even the most eccentric points of view generally turn out to have some advocates. But my online searches, while turning up hundreds of people debunking trickle-down, have not discovered a single person defending it. Could it be that the whole thing is a socialist fantasy, a false creation proceeding from the heat-oppressed brain of Left-wing polemicists? 

If nobody can be found to promote this theory, why is it that there are so many politicians who are quick to rally against it? And what does it actually mean?

Hannan explains:

Coolidge, surely the most underrated of all American presidents, had applied the logic of the Laffer Curve avant la lettre. He could see that the punitive tax-rates levied under the Wilson administration were pushing wealthy people into removing their assets from the productive economy, and believed that, by cutting tax rates, he would boost tax revenues – as well as stimulating the economy in general. 

He was absolutely right. In 1921, when Americans earning over $100,000 were expected to pay an eye-watering 73 per cent in federal income tax, they accounted for 30 per cent of a total tax yield of $700 million. By 1929, when the top rate had been cut to 24 percent, the federal government collected more than a billion dollars in income taxes, of which 65 percent came from those earning over $100,000.

So “trickle-down economics” as characterised by Mr Cunliffe and others appears to be the rallying cry of certain politicians that want to tax people higher amounts and in doing so reduce the amount of tax raised by the government.

Mr Hannan’s full article is well worth a read. It can be found here.