Trickle-down economics is the greatest broken promise of our lifetime | Guardian

..

The richest 85 people in the world have as much wealth as the poorest 3.5 billion – or half the world’s entire population – put together. This is the stark headline of a report from Oxfam ahead of the World Economic Forum at Davos. Is there a reason why the world’s powerful, gathering at the exclusive resort to sip cognac and eat blinis, should care? Well, yes.

If one subscribes to the charitable view that neoliberal philosophy was simply naive or misguided in thinking that “trickle down” would work infinitely, then evidence that it doesn’t, should be cause for concern. It is a fundamental building block of supply-side economic theory – the tool of choice these past few decades for those in charge to make adjustments. The realisation that governments have been pulling at economic levers which, for some time, have been attached to nothing, should be a wake-up call to the deepest sleepers.

Even if one subscribes to the cynical view that the elite knew what they were doing all along, observing that the “rising tide” is lifting fewer and fewer boats and leaving more and more to rot in the sediment – both at a personal and national level – must make most wonder “am I in the right boat and is it big enough?” Concentration is rampant. Credit Suisse estimates that the world will have 11 trillionaires within two generations.

It is not so much that the supply-side principle “if you build it, they will come” is no longer true. It is more that we appear to have passed a tipping point, where so much wealth has been concentrated at the top, they no longer need bother to “build” anything. In short, it has become more economically efficient to buy countries’ economic policy than to create value in order to sell it on. If one can control government to favour the richest, while raising barriers for new entrants, thus increasing their share of the pie exponentially, what is the incentive to grow the pie?

This applies to both companies and individuals. Small business gets clobbered by taxes and business rates, while big business turns around and says to the state: “This is how much tax I fancy paying this year, take it or leave it”. The rich no longer create jobs, through a process of consolidation, takeover and merger, they actually destroy them. Zero-hours contracts are the way of the future; in a society that is hungry, desperate and devoid of political engagement or unionism, why would anyone offer terms and conditions that give individual workers any standing?

And yet, the realisation must dawn soon – one hopes – that this model is unsustainable because its effects are uncontrollable. The more unequal we become as a society, the faster the top’s earnings diverge from the bottom’s. “When so much of the purchasing power, so much of the economic gain, goes to the very top,” Bill Clinton’s former labour secretary Robert Reich explains in the film Inequality For All. “There’s simply not enough purchasing power in the rest of the economy.” At the same time, there is far too much loose cash sloshing around at the top, leading to unwise risks and toxic investments. Wealth inequality in the US was at its highest levels, historically, in 1928 and 2007, one year before its two biggest financial crises, notes Reich. The base of the pyramid atrophies and begins to crumble.

Then why are most governments continuing to fiddle with supply-side levers in order to revive the economy, when it is abundantly clear it does not work? The simple answer is in two parts. First part: habit. The second was perfectly expressed by the creator of The Wire, David Simon: “That may be the ultimate tragedy of capitalism in our time, that it has achieved its dominance without regard to a social compact, without being connected to any other metric for human progress.”

We have come to measure, to an increasing extent, individuals’ success by their wealth, spending power and other assorted trappings. We do the same with the economic success of governments; measure it by an aggregated data set that fails to take into account wealth distribution, educational achievement, innovation, or even the welfare and health of the population they claim to represent. We must shift this perspective. It will be the hardest, simplest thing we have ever had to do as a species.

reblogged@http://www.theguardian.com/commentisfree/2014/jan/20/trickle-down-economics-broken-promise-richest-85