Supply Side Economics, aka Trickle Down, was officially introduced to America when economist Arthur Laffer drew the Laffer Curve on a napkin for Ford Administration officials. Even though some trace the original concept to the 14th century, Laffer popularized it.
It was first put into to practice by Ronald Reagan as he dropped the tax rates on the highest earners from 80 percent to an eventual 28 percent. And is now considered gospel by conservative think tanks and politicians.
Here is the reality:
In the 35 years of supply side economics a lot of data has been created and used in studies that discredit its intended effects. Repeated studies have shown zero correlation between tax cuts for the wealthy and economic growth.
Thomas Pikkity's book, Capital in the 21st Century, argues that such policies slow financial velocity and damage the economy. This is supported by a recent IMF study that shows that every 1% of wealth that moves to the top rungs of the economic ladder slows 5 year GDP growth by .88 percent. Inversely, 1% moving to the bottom rungs of the ladder grows 5 year GDP growth by .38%.
The rich can't consume much more toilet paper than the poor (unless they have a bowel issue) and the wealthy don't create jobs, consumers do.
So what of Reaganomics and the 3.4% growth during the eighties? It is shown that the major cause of that growth was actually from , head of the Federal Reserve at that time, raising interest rates to ease inflation and then as rate declines came about money rushed back into marketplaces. The supply side economics of Reagan were more closely correlated with deficit growth than any economic gains.
Finally, both Louisiana and Kansas have recently used supply side economics under Governors Jinhdal and Brownback in order to increase growth. The results: no growth and a $2.2 billion deficit in Kansas and a $1.6 billion deficit in Louisiana. Both states are now massively cutting infrastructure and education spending as well as raising tax rates on the poor to stop the gap. The new Governor of Louisiana has called an emergency session of the State Legislature to address the issue.
If you want a healthy economy and social mobility, which I surely do, continued use of this bad economic theory won’t bring it about. Enabling social mobility and growth at the bottom rungs of the ladder will.
Lina Martinez is a contributor to zenruption and frequently writes about social issues, politics and money. Lina likes top shelf vodka martinis, but like the rest of us, can't afford them. We are currently establishing a Kettle One fund for her.
