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The trickle down ‘fallacy’

Dickson Igwe

Dickson Igwe

By Dickson Igwe, Contributor

The rise of populism and global instability states that trickledown economics is a ‘sham’.

Trickledown economics has become a type of global pyramid scheme.

Trickledown has led to widespread disillusionment, and an increasingly dangerous New World. The doomsday clock has moved ever closer to midnight as a result.

Politics and economics are joined at the hip. When economics gets things wrong, it has negative political impact, and vice versa.

A healthy and prosperous middle class is the sole route to a strong economy, and social stability.

A recent paper from Davos, Switzerland, an annual forum of global, social and economic elites, and billionaires, determined that 7 men owned more wealth than half the population of the entire planet: Bill Gates, Carlos Slim and Warren Buffet topped the list, with newcomer and Facebook Entrepreneur, Mark Zuckerberg, making the list, and worth a staggering $35 billion.

In Latin America, the most economically unequal region of the world, 1% of the population will shortly own 99% of the wealth.

The world’s major continents all possess rising wealth inequality metrics that point to social unrest and political volatility in the future.

The rise of intolerance, and the return of blatant racism, point to a negative trend driven by wealth inequality.

Wynnie Byanyima, Executive Director of Oxfam International recently opined that “the rich can no longer pretend their wealth benefits the rest of us. Their wealth actually does harm to the rest of us. The only thing that is trickling down is inequality and powerlessness’’.

In fact, before the Great Financial Recession of 2007, the 25 year stagnation in the wages of the western middle classes was disguised by their access to credit.

Wages began to stagnate after the post war Keynesian model gave way to the supply sided austere economic culture. This was after the Oil Shock of 1973.

The advent of supply sided economics was the beginning of the rise of the billionaire class: the 1%.

It was debt that enabled Jack and Jill Average to keep up with the proverbial Mr. and Mrs. Jones.

However, when that debt became unsustainable, it exposed the middle class to financial embarrassment. A culture of boom and bust eventually led to the financial meltdown of 2007.

Meanwhile the 1% that owned the banks, and the financial capital, simply grew richer, as houses were repossessed, and companies that went bankrupt were picked up for next to nothing, stripped of valuable assets, and disposed of by ‘financial sharks’.

The main losers were the employees, especially the workers on the lower rungs. America’s private debt at the time of the 2007 crisis was greater than its GDP.

On the other hand, the bankers who fueled the crisis, were bailed out by the taxpayer in ‘too big to fail’.

Now, the nature of present day inequality has been placed at the feet of capital inequality, not income inequality.

Thomas Piketty a celebrated economist based in Paris France has stated that it is the ownership of capital that determines higher income. It is not the other way around.

It is the ownership of companies and businesses, small and large, and the earnings and profits derived from financial and commercial capital, that builds real wealth, not income from salaries and wages.

Trickledown Economics was characterized by an austere culture, budget and spending cuts, and the rule of bankers and lawyers over engineers and innovators.

Supply Sided Economics, another name for Trickle Down, allowed for the rise and consolidation of the super wealthy: the billionaire class.

This was a class that controlled the political systems in nations, and therefore power.

The Financialization or the rule of financial organizations, over the western economy, went ‘hand in hand’ with the export of manufacturing, mainly to China and Asia.

The result was the decline of working class communities throughout the developed west.

In life there is cause and effect. The world is a cycle. The rubber band is pulled in one direction to bursting point, when it is released it goes with equal force in the opposite. This has been the story of history and politics.

The pundits expected the effect of unsustainable wealth inequality to be a great movement to the Left. Inequality would lead to socialist governments.

A new culture of the left would tax the 1% to the hilt, nationalize major industries, and return bargaining power back to unions led by working class types.

El Dorado would spell the return to high taxes and a massive splurge on welfare, and programmes for the poor and working classes: free education, free healthcare, social housing, massive infrastructure investments in public transportation and social type infrastructure.

Instead, the move was to the right. However it was not the right of Ronald Reagan and Margaret Thatcher.

Thatcher and Reagan were supply sided economic believers. The thinkers who drove the ideology of the Thatcher Reagan era established austerity, and control of the money supply, as core tools of economic management.

Both leaders were free traders and forerunners of present day globalization. Neo Liberalism, the culture of globalization, is a child of Thatcherism and Reaganomics.

Thatcher especially, saw the demise of British manufacturing. The First Woman British Prime Minister ushered in a service oriented economy that saw the City of London become the world’s financial center together with Wall Street.

The city was the meeting place of the pin stripe suited investment banker and the ostentatious stock and commodity trader.

The present move to the right today is protectionist, xenophobic, and anti globalist.

Instead of feeding the left, inequality today, is feeding the right. This is the paradox with the rise in present day populism.

There is a clear picture of winner and loser in the inequality story. The winner is the new global middle class made up mainly of Chinese and Asian peoples.

The second winner is the owner of the western corporation that has used the cheap labour and lower production costs in the developing world, especially Asia, to enhance corporate profits that end up in the massive pockets of the 1%.

The loser has been the western working man, especially those on middle to low wages who depend on access to a sustainable wage to live.

Under globalization those jobs have migrated to Asia and elsewhere leaving the working man in the doldrums.

Then, anemic growth from 2007 is blamed on wealth inequality and a suffering middle class.

A strong working and middle class is the driver of the type of consumer demand that generates strong economic growth.

Workers who earn sustainable wages drive internal and external growth. They are the basis of strong western societies.

Globalization has been good for Asian Growth because it has built Asia’s middle class. Globalization has been antithetical to western economic growth because it has pummeled the western worker.

It is noteworthy that the strongest western economy, Germany, is a manufacturing based economy, with a healthy middle class.

America’s economic growth has historically been driven by large corporations that make things: Boeing, Lockheed Martin, Caterpillar, General Electric, General Motors, IBM, Westinghouse, Exxon, Hoover, Procter and Gamble, and so on and so forth.

These were companies that employed American workers, and provided them with a solid middle class lifestyle. The loss of manufacturing jobs in the west has plunged these workers into insecurity, unemployment, and poverty.

Inequality has brought a backlash against globalization, with a new leader in the White House who is xenophobic and protectionist, and determined to reverse the present globalist world order.

Will he succeed? That is the question!

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