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Trickle-down economics doesn't work but build-up does – is Biden listening?

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20.12.2020

How should the huge financial costs of the pandemic be paid for, as well as the other deferred needs of society after this annus horribilis?

Politicians rarely want to raise taxes on the rich. Joe Biden promised to do so but a closely divided Congress is already balking.

That’s because they’ve bought into one of the most dangerous of all economic ideas: that economic growth requires the rich to become even richer. Rubbish.

Economist John Kenneth Galbraith once dubbed it the “horse and sparrow” theory: “If you feed the horse enough oats, some will pass through to the road for the sparrows.”

We know it as trickle-down economics.

In a new study, David Hope of the London School of Economics and Julian Limberg of King’s College London lay waste to the theory. They reviewed data over the last half-century in advanced economies and found that tax cuts for the rich widened inequality without having any significant effect on jobs or growth. Nothing trickled down.

Meanwhile, the rich have become far richer. Since the start of the pandemic, just 651 American billionaires have gained $1tn of wealth. With this windfall they could send a $3,000 check to every person in America and still be as rich as they were before the pandemic. Don’t hold your breath.

Stock markets have been hitting record highs. More initial public stock offerings have been launched this year than in over two decades. A wave of hi-tech IPOs has delivered gushers of money to........

© The Guardian


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