Free Market Advocacy and the Myth of “Trickle-Down Economics”
There’s a pervasive myth floating around the progressive left that pro-market advocacy necessarily means pro-business advocacy (and, by extension, anti-poor people advocacy). That is, as I said, categorically a myth, but that doesn’t mean people don’t believe it — they do. Kudos are due many times over to the Washington Examiner’s Tim Carney for doing yeoman’s work to try to dispel these myths, like this thorough and merciless rebuttal to Anna Palmer’s joke of a POLITICO piece on a supposed resurgence of corporate lobbyist influence in the White House if Mitt Romney wins the election, as if there’s nothing to see in the Barack Obama White House:
You mean after he kicks out the lobbyists in Obama’s White House like Patton Boggs lobbyist Emmett Beliveau (7), O’Melveny & Myers lobbyist Derek Douglas (8), and Pfizer’s, AT&T’s lobbyist at Akin Gump Dana Singiser (9)?
By that point in the column, Carney had already identified six registered lobbyists working in the administration; by the end of the thrashing, he identifies a total fifty-five registered lobbyists working in the White House.
Today comes another great installment in this type of mythbusting, but from Kristian Niemietz at the Institute for Economic Affairs (UK):
But what exactly is trickle-down economics? According to its critics, it is the idea that making the rich richer is good economic policy. Why? Because as the rich buy goods and services, save, invest, and perhaps make philanthropic donations, their wealth will radiate off to the rest of society.
Over the last ten years, I have met all sorts of economists believing all sorts of weird things, but I have yet to meet a trickle-down economist. Where are these people, about whom so much is written, and whom so many are busy debunking? Could it be that they are a fantasy product, made up by people who combine an intuitive disgust for free-market ideas with an unwillingness to understand them?
Whatever trickle-down economics is, it has nothing whatsoever to do with free-market economics. According to the way his critics describe him, the hypothetical trickle-down economist seems completely indifferent to how the rich have made their riches. If an actual trickle-down economist could be conjured up, he would presumably defend the fortunes of Sicily’s mafia, Colombia’s drug barons, and Putin’s oligarchs. Their wealth trickles down, he might argue, as they hire people to polish their Ferraris and fish the leaves out of their swimming pools.
Let’s contrast this to three people who have amassed great fortunes by means of market exchanges: Ingvar Kamprad (IKEA), Karl Albrecht (Aldi), and Michael O’Leary (Ryanair). What these three have in common is that they found ways of stripping a product to its bare bones, and then cut the cost of providing it to a fraction of what it previously was. And while it was not their intention, they have also spurred competitors to cut their costs to comparable levels. As a result, low-income earners in contemporary Europe find groceries, functional furniture and the occasional flight more affordable than middle-income earners a generation ago.
It would be absurd to argue that nobody has benefited from these three gentlemen’s economic activities except themselves. But it would be even more absurd to claim that their wealth had somehow trickled down to the poor, because it was exactly the other way round: our three entrepreneurs have found ways of making life easier for the least-well-off, which is why millions chose to buy from them. Only then, and then only gradually, did wealth ‘trickle up’ to them.
Free-market economists defend the right to get obscenely rich by making the poor better off. They couldn’t care less about how rich the rich are, but they care a lot about how they got rich in the first place.
In other words, it’s precisely because we free market advocates care about poor people that we advocate for free markets. Be sure to read the whole thing.
Part of the problem, as Niemietz notes, is fundamental economic ignorance and a disinterest in/unwillingness to learn. In fairness, the fundamentals of our politics really enable this economic ignorance. One of the functions of our political parties is to reduce information costs. It costs a lot of money to become sophisticated and knowledgeable about public choice theory, or about the morality of intrusions by the state into private life! Political parties raise that money and spend it ostensibly on our behalf, developing easily-to-access/understand platforms and positions that attempt to match likely voter preferences. The relationship between the simplicity/accessibility of the message can sometimes be inversely proportional to the coherence/accuracy of it, so it’s no surprise that the left has warped the term “trickle-down economics,” borne out of the Reagan era, when supply-side economics were being worked out on the editorial page of the Wall Street Journal, into meaning “stealing from the poor and giving to the rich.” Supply-side economics deal with the stimulative effects of lowering marginal tax rates on individuals (and corporations) on productive activity.
There’s absolutely nothing inconsistent between advocating free markets and low taxes and wanting to enrich the lives of people living in poverty. In fact, the former are a path to the latter. As Nobel laureate Milton Friedman once repudiated Phil Donahue’s missive on greed, “The record of history is absolutely crystal clear … there is no alternative way, so far discovered, of improving the lot of ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.” This isn’t to say that there won’t be poor people in a free enterprise system — there will be. But I’d be willing to bet that the poor people in Hong Kong are better off than people in the U.S., regardless of how high the Gini coefficient is, simply by virtue on how low barriers to domestic and international commerce are in Hong Kong.
We here at United Liberty also want do do our part to dispel these myths, but we all have day jobs and can’t catch everything. So if you see a news story, blog post, or economic study that you think helps tell the “pro-market isn’t necessarily pro-business” story, drop it in the comments below, or contact us. We’ll highlight the best ones!