What is trickle-down economics?

The members of the Liberty Discussion Group sat down at Gaia Restaurant and Coffee Shop, Thamel on the 30th of September to discuss the article ‘There is No Such Thing as Trickle-Down Economics’ by Steven Horwitz.

The author claims that, the Libertarians or the people who support tax cuts, less government spending and more economic freedom are often accused for supporting ‘trickle-down economics’, meaning, tax cuts and subsidies to rich, helps them to acquire more wealth which eventually trickle-down to the poor, however the author asserts that economists have never used this term to describe their views. Additionally, the author states that, by tax cuts, they don’t mean the reduction of taxes to the rich only, but for everyone, so that everyone can enjoy the more of what they have produced or created. Therefore, it is not about favoring the higher income group and expecting a share of what they have created to trickle down to the poor. However, the author does believe that the accumulation of capital by some can help to increase the productivity of labour.

The discussion started with finding the meaning of ‘trickle-down economics’ and its evolution. The discussants were not able to find a clear definition and the source from where the term was coined. Some participants thought that money could be trickled down to the poor by taxing rich. Hence, Progressive tax system is the proper tax system. Others believed that tax is the price paid to the government for the goods and services they provide, and therefore a mechanism should be build such that the tax rated depends upon the services used.

On the point where write claims that the accumulation of wealth by some contributes to enrichment of others as capital makes workers’ labour more productive, few participants agreed as they claimed that capital helps them to work more efficiently, however, some other participants by giving the example of financial assets/capital, refuted this view and pointed that the accumulation of the stocks and bonds in no way, helps to increase the labour productivity; in this case, merely possessing capital ensures flow of income.

Most of the participants agreed the author’s view regarding economic freedom. The writer proclaims that by maximizing the economic freedom, the poor can create wealth and generate income for themselves. Two of the important aspects of economic freedom is ensuring free entry and exit in the market and property rights. However, regarding the intellectual property, it was very much confusing. If intellectual property rights,for example patents are ensured, it may create barriers to enter.

As, time was limited, members could not discuss more on these issues even though they desired to. But as always, members can always continue their discussion on the facebook group. To follow the discussions on this issue and more, click here to send a request to join the group.