WALTER WILLIAMS: The 'trickle-down theory' of economics is hokum

Published: Friday, October 12, 2012 at 10:07 AM.

Dr. Thomas Sowell’s short paper, “ ‘Trickle Down Theory’ and ‘Tax Cuts for the Rich,’ ” has just been published by the Hoover Institution. Having read it, the conclusion you must reach is that the term “trickle-down theory” is simply a tool of charlatans and political hustlers.

Sowell states that “no such theory has been found in even the most voluminous and learned histories of economic theories.” That’s from a scholar who has published extensively on the history of economic thought.

Several years ago, Sowell, in his syndicated column, challenged anyone to name an economist from any economic school of thought who had actually advocated a “trickle down” theory. To date, no one has quoted any economist who ever advocated such a theory. Trickle-down is a nonexistent theory. Those who use it simply argue against a caricature rather than confront an argument actually made.

President Obama recently criticized Mitt Romney and Paul Ryan for trying to sell a tax plan that he called “trickle-down snake oil.” Criticizing tax cuts as trickle-down is a way not to confront the argument; however, there is empirical evidence about the effects of tax cuts.

Sowell shows that during the Warren Harding administration, in 1921, Secretary of the Treasury Andrew Mellon advocated tax-rate cuts that Congress enacted into law. Afterward, output rose, unemployment plummeted and the resulting higher income produced greater federal tax revenues, even though the tax rate had been lowered.



In 1962, Democratic President John F. Kennedy pointed out that “it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.” Both Ronald Reagan and George W. Bush made similar arguments when they were president, and the tax-rate cuts had the effect of stimulating economic growth while increasing federal tax revenue and shifting a greater percentage of the tax burden on to wealthier individuals.

One very insightful part of Sowell’s paper is its discussion about what Mellon called the “gesture of taxing the rich” — namely, tax-exempt securities that he tried unsuccessfully to end.


You can bet that the White House has people reading every bit of the news, including this column and Dr. Sowell’s article. You can bet some people in the news media will read it as well. Despite the facts that Sowell has marshaled, they will continue to use trickle-down theory and “tax cuts for the rich” demagoguery, even though they now have hard evidence to the contrary, because they can count on widespread gullibility and inability to do critical thinking.




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