Janine Jackson interviewed CEPR’s Dean Baker about trickle-down economics for the December 25, 2020, episode of CounterSpin. This is a lightly edited transcript.
Janine Jackson: A recent rash of headlines announced, à la CBS News, “Fifty Years of Tax Cuts for the Rich Failed to Trickle Down, Economic Study Says.” There is, in fact, a new paper, from folks from the London School of Economics and King’s College, showing that countries that cut taxes for the rich did not show notable increases in jobs or growth; what they showed was increases in the wealth of the wealthy.
Advocates of greater economic equality are meant to use such moments to advance the effort, but this case raises the question: Just how much are we supposed to pretend we didn’t already know? What does this faux naivete get us, exactly? It’s doubtful that this story about how trickle-down doesn’t work for its stated aims will be the last time we see the notion seriously entertained or assumed, so maybe what we need is a conversation about why it’s been entertained for so long.
We’re joined now by Dean Baker, co-founder and a senior economist at the Center for Economic and Policy Research, where he writes the blog Beat the Press. He joins us by phone from Utah. Welcome back to CounterSpin, Dean Baker.
Dean Baker: Thanks a lot for having me on.
JJ: Research doesn’t have to be groundbreaking to be meaningful, certainly; it’s not as though you only need one study on any proposition. And, of course, I intend no disrespect to the researchers behind this study. I wonder if you, as an economist, would situate these findings, that tax cuts on the wealthy don’t trickle down in ways benefiting the working or middle class, in the body of economic understanding? How new is this?
Dean Baker: Well, I have to say it’s not particularly new at all. The central issue here is how much can we expect to boost investment. Because that is the story. I mean, people often wave their hands a lot, and say this and that, but the story, if I want to say that cutting taxes on the rich will boost economic growth, will help everyone, it really is through investment.
And this is a very heavily researched topic at this point, and there’s very, very little evidence that you could have any substantial—I’m not going to say zero, but any substantial—increase in investment with lower tax rates. All the evidence is just that companies are not very responsive to tax rates. Not to say that the companies involved, or their rich shareholders, don’t want more money; of course they do. But are they going to invest a lot because they get a lower tax rate? All the evidence says no. So one more study, in effect, giving us the same result? Well, that’s good, but it’s not at all news.
JJ: Folks are tracing the trickle-down idea to Ronald Reagan. And didn’t Ronald Reagan’s own budget director, David Stockman, kind of famously renounce, or at least qualify, his own promotion of this idea?
DB: Yeah, David Stockman backed away from that. He had been budget director, and they put down what he acknowledged were just crazy numbers so that they could say, “Oh, we’re going to cut taxes, but we’ll still end up with more money because we’ll have so much additional growth.” And he acknowledged they put down bogus numbers; they had no basis for them, in other words. So this is back in ’82, ’83, I forget when he owned up to it, but in any case, it was quite some time ago.
And we continue to have this; of course, most recently with the Trump tax cut, back in 2017. They were saying, “Oh, we’re going to generate so much additional growth, that it actually ends up costing us nothing.” And, it was quite clear, I mean, even pre-pandemic, that was not happening, there was no noticeable uptick in growth. There was a little bit into 2018, as people spent the tax cut; not that they invested it, because you couldn’t find any increase in investment, but they did spend it, and that gave some very modest boost to growth. But we lost that by 2019. So we hear this again and again and again, and I’m sure we’ll keep hearing it.
JJ: Yeah. What confuses and galls, on one level, is that media report as though there is kind of a neutral body of economic knowledge floating out there somewhere, and informing our economic policy, when we understand that it’s contested terrain, not because people have such wildly different understandings of how things work, but because they have different goals of how they want things to work. And media suck the dynamism, the debate, out of economics, and make it sound like it’s…the weather.
DB: Yeah, it is really annoying, because they treat it like, “Oh, these are two competing arguments.” And what they’ll often say—this is just bad reporting—they’ll often say, “Republicans believe….” In other words, that Trump wanted to have this tax cut because he thought it would lead to huge economic growth.
Now, I have no idea what’s in Trump’s head, and I’d probably rather not think about that, but the point is, they’re the ones who are attributing beliefs, and that’s just totally irresponsible. “They say…” Fine, they say things, they say all sorts of things that aren’t true. But don’t tell us that they believe it, because that gives it a level of credibility which it certainly doesn’t deserve.
And again, I have no idea what they believe; they may well believe it, I don’t know. But the fact is, when a reporter says that a politician believes X, they’re making it up, because they don’t know what the politician believes.
JJ: Yeah. And as a reporter, when a source lies to you, you’re meant to look askance at them the next time. When a theory coming from a sector, or from a think tank or group of them, turns out to be disproved, shouldn’t it affect your reliance on those theories from that sector going forward? And yet, I have to wonder what, if any, would be the lasting impact of this little intervention.
Bloomberg, in writing it up, essentially says, people are saying you can’t possibly tax the wealthy without hurting the economy. Well, this report shows that to be untrue, and Bloomberg says that that could add to the case for the wealthy to bear more of the cost of the coronavirus and the pandemic in that case. In other words, this information that seems to get right to the root of a particular argument, “Well, maybe it could add something to the way we think about thinking about that in the future.”
DB: Yeah, I think there’s some hope. I don’t want to be too much of an optimist, but there’s some hope that reporters will be a little, I will say, balanced when they report on this issue, and have the reporting reflect the actual evidence. And, again, I have no problem with them saying that McConnell or whatever conservative, and there could well be some Democrats in that boat, say, “Oh, we can’t raise taxes, because that’ll hurt the economy. You can’t raise taxes on the rich.” That’s fine, but just don’t report that as saying they believe that. And also point out: There’s a vast amount of evidence at this point showing that that’s not true. Just as, if they’re going to—and they’ve been reasonably good on this—when they report Trump saying that he won the election, generally, the news stories will point out there’s actually no evidence to support that.
JJ: Yeah, to me, it sort of feels like when you’re talking about something like inequality, and you have folks saying, “Well, you know, we couldn’t help it possibly by taking more from the rich,” and elite media pretend to scratch their heads over that. To me, that is just salting the wound, of things that we know we could do if our goal really was to alleviate poverty or to reduce inequality; to sort of present it as this denatured battle of ideologies, I think, is materially harmful, yeah?
DB: Yeah, and I’ll even go a step further, because a lot of my writing has been to point out that our policies have actually been to create inequality. In other words, we structure the market in ways that lead to inequality. And that view is almost completely absent from reporting, I mean, like, literally does not exist.
So the argument is, how much do we want policy, presumably tax and transfer policy, to counter the inequality created by the market? But you’ll almost never see the argument—which, again, I make in much of my writing, and I’m not the only one who makes it—that we structure the market to create inequality, and we could structure the market differently. So it’s not a question of interfering with the market; it’s a question of how we structure it. There is no way not to interfere with the market.
JJ: I was reminded just now of another piece of research from the Center for Public Integrity, that talked about how companies that got some nearly $2 billion in aid to save jobs then turned around and laid off nearly 100,000 workers anyway. But when we come around again to the question of whether we should give companies aid, we’re going to be babies newborn again, and, you know, “maybe this will work,”; we’re going to be ready to be surprised again. And to say you suspect bad faith kind of takes you outside of the “grownup people economic debate,” in a way.
DB: Yeah, and what’s funny is it is asymmetric, so that no one doubts when a labor union, a union president, a spokesperson, gets out there and says, “Oh, we want X,” everyone understands that their saying “We want X,” is because they’re trying to help their members, it’s the autoworkers, it’s the steelworkers. They understand, I mean, not a surprise.
But when a corporation goes, “Oh, we want X, and it’s going to be good for the economy,” somehow the claim “It’s going to be good for the economy” is treated seriously, and that’s their real motivation. I mean, it could incidentally be good for the economy, but when the president of ExxonMobil says, “Oh, we have to help out the oil industry,” well, the president is saying that because that president wants to increase ExxonMobil’s profits, and if that ends up being good for the economy, well, that’s incidental; that’s not why the president of ExxonMobil is saying that.
JJ: Finally, I know you wrote recently about the opportunity lost by the United States’ choice not to cooperate internationally on a vaccine or treatments for the coronavirus. Folks are going to look back on what happened, but you’re saying it’s important to see what were decisions, what were choices. The same might be said, mightn’t it, for this country’s handling of the inevitable economic fallout from Covid-19? It isn’t hard to imagine different choices that could have been made in that regard as well. It’s not outlandish to think that we could have acted differently and be in a different situation economically now.
DB: Yeah, it really is painful for me to see—well, it’s painful for me to see it; it’s more painful for the people experiencing it—but the hardship that people have suffered through this pandemic has been largely by choice. Now, obviously, we couldn’t keep everyone from getting the disease, couldn’t keep everyone from dying; we could have done much better in that respect.
But in terms of the economic hardship, OK, closing down restaurants, that’s kind of common sense, that’s a way you keep it from spreading. But the fact that the workers had to suffer, the fact that small business owners had to, in many cases, lose their business that they’d built up for years, that was an economic choice. And we did a reasonably good job in the first three months, with the CARES Act, of addressing that, we did have generous unemployment benefits; we had the Paycheck Protection Program which, far from perfect, but it basically did what you wanted something like that to do, and we could have expanded those, continued those.
Instead, those were allowed to end, and now we finally have come through with some additional aid, grossly inadequate, but it does somewhat address the problem. But nonetheless, we have millions of people out of work; many of them have been out of work since back in March when the shutdowns began, and many will likely be out of work for several months more, even in a best-case scenario.
And we know from a lot of research, long-term unemployment—just as we know that trickle-down, giving money to the rich, doesn’t help—we know long-term unemployment hurts. A lot of the people that are unemployed six, eight, ten months, they may never work again. Those that have families, it often is associated with divorce. Kids have problems in school, so that could affect them through their lifetime. So that aspect of the pandemic was a preventable disaster that we chose not to prevent.
JJ: We’ve been speaking with Dean Baker of the Center for Economic and Policy Research. You can find their work, including Dean’s Beat the Press commentary online at CEPR.net. Dean Baker, thank you very much for joining us this week on CounterSpin.
DB: Thanks a lot for having me on, and happy holidays.