I recently found myself thinking about the whole idea of “trickle down” economics. Aside from the discussion about whether or not it works, I wondered how the American public ever bought into the idea that we would be satisfied with the crumbs that drop from the table. Of course, when the term was coined, we were in a time of general economic well-being. In other words, we were all living the good life, so it was easy to convince us the theory worked.
But it doesn’t work. It hasn’t worked in the past and it won’t work in the future. According to Wikipedia, this theory, (also referred to as supply-side economics to make it more palatable to the masses), was referred to in the 1890s by economist John Kenneth Galbraith as the “horse and sparrow” theory. This name came from the idea that “if you fed the horse enough oats, some would pass through to the road for the sparrows.” In other words, forget the crumbs from the table, the masses will only get what’s leftover after processing, and it doesn’t smell good.
Politico Magazine recently published an article by Nick Hanauer called “the Pitchforks Are Coming… For Us Plutocrats. Mr. Hanauer is one of those very wealthy one percenters who calls himself a proud and unapologetic capitalist. He credits much of his success to “a tolerance for risk and an intuition about what will happen in the future.” That intuition served him well when he invested very early on with Jeff Bezos, the founder of Amazon.com. The crux of his article is that rich people don’t have any “divine” right to all the spoils and that if they don’t recognize that severe wealth inequity is bad for all, revolution may be inevitable.
Hanauer makes the point that today, the wealthiest are “thriving beyond the dreams of any plutocrats in history” and the “divide between the haves and have-nots is getting worse really, really fast. Since 1950, CEO-to-worker pay ratio has increased 1,000 percent with CEOs earning 500 times the median wage as opposed to 30 times back then. Robert Reich’s movie Inequality for All points out that since 1978, 1 percenters’ earnings have gone from eight times that of the average male U.S. Worker to 33 times more. Reich also points out that the “wealthiest 400 people in the country today have more money than the bottom 150 million Americans combined.”
Hanauer goes on to say that “these idiotic trickle-down policies are destroying [his] customer base and that the model for “rich guys” like him should be Henry Ford who figured that if he raised the wages for his employees, they’d be able to afford to buy his Model Ts. Yes, employees are also customers, what a concept! The CEO of COSTCO realizes this and that’s why he pays his employees a living wage as opposed to Wal-Mart who expects the rest of us to pick up the tab for their employees who don’t make enough to live without government assistance. When Hanauer wrote an article called “The Capitalist’s Case for a $15 Minimum Wage in June 2013, Forbes called it a “near insane proposal.” Now though, an analysis at the Center for Economic and Policy Research reports that states that raised their minimum wages are experiencing faster job growth. Business people may “love our customers rich and our employees poor” as Hanauer quips, but a growing economy loves more people with money to spend.
Instead of the failed trickle-down theory, Hanauer advocates “middle-out” economics which refers to the “much more accurate idea of an economy as a complex ecosystem made up of real people who are dependent on one another.” Rich business people aren’t the true job creators he says, but rather, middle-class consumers. Unfortunately, trickle-down economics has shrunk the middle-class so much now that there just isn’t enough purchasing power out there to move our economy forward at a reasonable pace. Rich people just can’t buy enough clothes, cars, houses, etc. to make up for the lack of purchasing power in a robust middle-class.
Honing in on what’s been going on in Arizona over the last several years, it is obvious our political leaders are advocates of trickle-down. The GOP has been in control of the legislature for the past 40 years and their approach has resulted in regressive tax policy or what I’ll refer to as trickle-down budgeting. Yes, instead of the “riches” trickling down to the little people, our legislature has worked hard to ensure the bills do. This is what happens when the state relies heavily on sales tax. This is what happens when the state underfunds public education so that locally controlled funding and contributions must try to make up the difference. This is also what happens when the state sweeps Highway User Revenue funds (HURF) to give corporations tax breaks instead of fixing roads. In the case of bad roads, we pay a double tax. We first pay a tax to maintain the roads and when the money is siphoned-off to be used for other reasons, we pay to get our cars fixed.
AZ Daily Star recently reported that Aruna Murthy, director of economic analysis for the state Department of Administration, called the state’s projected job growth “stagnant, slow, and subpar.” Yet, the 51st Legislature bragged about balancing the budget. Maybe so, but at what cost? What they really did, was rob Peter to pay Paul, such as when “they took $53 million from other accounts, like gasoline taxes and vehicle registration fees normally earmarked for road construction and maintenance, to help fill the gap. That money will be gone by the end of the coming fiscal year, but the looming budget hole did not stop lawmakers from cutting taxes in the name of economic development.
This, at a time when Arizonans are earning less than they were prior to the recession. Yet, under Governor Brewer, lawmakers voted to cut corporate income tax rates by 30 percent. The full impact of those cuts won’t even hit until 2018, when, according to budget analysts, the net loss to the state will be $270 million a year. Economist Dennis Hoffman, of the W.P. Carey School of Business at Arizona State University, said “if tax cuts were the key to prosperity, we would be swimming in a pool of prosperity right now. We have clearly maximized on the tax-cut train.” Someone please relay that message to the current pool of AZ GOP governor candidates who are vowing to do away with state income tax if elected.
Albert Einstein once said that “Insanity is doing the same thing over and over again and expecting different results.” It is way beyond time for us to demand better than the tired old ideas that don’t work. Two candidates for the Arizona Legislature in LD 11, Jo Holt for the Senate and Holly Lyon for the House, understand we need a new direction. They believe we must begin to invest in Arizona’s long-term health in areas such as public education and infrastructure. These are critical investments that will pay off over the long-term for both Arizona’s citizens as well as quality companies who would consider bringing good paying jobs to our state.
In my experience, if it seems to good to be true, it probably is. Arizona simply cannot continue to cut its way to prosperity. In its 2013 Kids Count Databook, the Annie E. Casey Foundation ranked Arizona 47th in the nation for our children’s welfare which included factors such as economic well-being, education, health and family and community. Not only is it obvious that going down the “trickle-down” rabbit hole is keeping our economy from recovering, but is also ensuring our next generation is handicapped from the get-go.
This November, we’ll get the chance to once again weigh in on what direction Arizona heads. Let’s make informed decisions with the long-term health of our state in mind. You owe it to yourself and to all future generations of Arizonans.