Trickle Down vs. Keynesian: Which Economic Policy Is Right For Us?
By Robert Wilkes, Senior Correspondent at Divided We Fall, and Allan and Sheri Rivlin, CEO and President of Zen Political Research
Trickle Down Works and Will Fix the Economy
By Robert Wilkes – Senior Correspondent at Divided We Fall
“Trickle-down economics,” or supply-side economics, works for the American people. Not forgetting those who need a safety net—there will always be such people, and Republicans agree—supply-side economics creates more opportunity, freedom, innovation, new business formation, lower inflation, and just about every other economic and social good you can name. It raises all boats.
Keynesians, progressives, and socialists have a different perspective when it comes to economic policy. They begin immediately by lowering the bigger boats—the most productive ones that create the most jobs—with higher taxes in the name of raising the other, less productive boats. I’m not against a social safety net, but there are millions of people on the margin deciding whether to work or not. Government control takes their labor out of circulation, thus lowering productivity and raising inflation.
Government Spending Is Government Wasting
I supported spending on Covid relief to keep businesses open or at least keep people employed as the Covid lockdown went into effect. I thought the program was humane and necessary. But in the Biden administration’s haste to fix the American economy, we are now adding nearly $5 trillion to the deficit—money the government doesn’t have and must borrow. We must get things in order before we can tune the economic engine to run on supply-side economics.
The Biden administration has mishandled the economy. For the last two years, bills have passed with hardly any thought to cost. They have impeded the energy industry, creating an energy shortage, and resulted in inflation. Misinformation about climate change and the science behind it abounds. Instead of focusing on the very real solutions that we have to combat this problem, politicians focus on scare-mongering tactics and muddying the waters in the hope of keeping some semblance of relevance and political power. There has been more regulation and government interference than anything seen before. This has stunted businesses’ ability to plan and grow, caused layoffs, and limited capital investment. During Trump’s administration, growth was healthy and inflation was low. But, bipartisan Federal Reserve policy lowered interested rates to near zero, which was a mistake, as money for nothing is misallocated. Now we must apply high-interest rates to fix the problem and the working class is carrying the burden. In this case, the fault falls on both administrations.
The answer to our current dilemma is supply-side economics. It supports new jobs created by a pro-business, pro-growth, pro-freedom government that encourages capital investment, business expansion, and growth. If we wish to have a healthy, booming economy, then we must support those that help create that economy. This will raise all boats.
Leaders Must Put Aside Differences to Act on National Debt
By Allan and Sheri Rivlin – CEO and President of Zen Political Research
Let’s start with where we agree with Mr. Wilkes. The national debt is historically high and on an unsustainable path that contributes to inflation. A disastrous feedback loop of rising debt and interest rates could eventually end in a credit crisis. Both Democrats and Republicans are responsible for the debt. The massive Covid relief spending bills were mostly bipartisan and necessary for the nation and the economy to survive the pandemic, but the spending was not efficiently targeted to get help to those who needed it most.
We disagree with many of Mr. Wilkes’s efforts to put the blame for the deficit, debt, and rising inflation on Democrats’ spending and his assertion that “trickle-down” supply-side economic policies are effective or preferable to Keynesianism (which is distinct from socialism). We will engage in this debate because we can (and must) solve problems even when we disagree on their cause or even basic political and economic philosophy.
The National Debt Did Not Come From Nowhere
The debt and deficit are excellent examples of major problems where potential bipartisan solutions are well understood. In the period from 1994 to 2000, both parties professed support for deficit reduction, but with different proposals. After trying confrontation, budget standoffs, government shutdowns, and threats of a national debt default, Newt Gingrich’s Republicans worked cooperatively with Bill Clinton and the Democrats on budgets that slowed the growth of spending and raised additional revenue, allowing the nation to replace deficit spending with four years of government surpluses in a row.
In the period from 2010 to 2016, John Boehner, Paul Ryan, and the Tea Party Republicans again played hardball with budget standoffs, government shutdowns, and threats of a debt default, trying to force Democrats to make unpopular budget cuts. The Republicans rejected any revenue increases while never proposing specific budget cuts that came close to their spending targets. Two bipartisan debt reduction commissions, Simpson-Bowles and Domenici-Rivlin, were formed to present options. Both commissions produced plans to put the national debt on a downward path without drastic cuts to needed programs or increases to individual tax rates. The bipartisan budget experts proved the problem could be solved but divided partisan politics blocked the solution. No “grand bargain” was passed by Congress. The standoffs continued and the future deficit projections soared without a plan to address the retirement of baby boomers, which is now happening.
Long-Term Problems Need Long-Term Solutions
We do not agree with many of Mr. Wilkes’ assertions. Supply-side economics, even with a social safety net, has not been proven to create opportunity, lower inflation, and raise all boats. The supply-side myth that tax cuts “pay for themselves” has been proven false. If trickle-down economics worked, we would have no problems today, because there are more American billionaires and millionaires now than ever. Economic inequality has been increasing for decades. The wealthy have the economic and political power to ensure they are protected from economic downturns, pandemics, and inflation. Millions of American workers are sinking out of the middle class as their paychecks have not been keeping up with their productivity gains.
When your boat is sinking you don’t need a safety net; you need an investment in wood, steel, epoxy, and labor to make your boat seaworthy. Families falling out of the middle class need investments in better roads, schools, factories, broadband connections, energy grids, and job skills training to get the jobs of today and tomorrow.
Despite differences in political philosophy, we need both parties to work together to craft budgets that restrain spending, increase revenue, pay off the Covid War debt, and invest in American productivity for long-term and broadly shared prosperity.
I’m a Keynesian too, When I Need to Be
By Robert Wilkes – Senior Correspondent at Divided We Fall
Thank you, Mr. and Ms. Rivlin, for your graciously written response. We should define Keynes’s general theory for abating economic cycles. To my knowledge, and correct me if I’m wrong, Keynes recommended drawing money out of the economy (paying down deficits, higher taxes) when things were good, and hiding the money in a piggy bank somehow. Then, when things were not good, using that money to spur the economy through fiscal and monetary stimulus.
I agree in theory, but no one has been able to make it work. When the government takes in money in excess of needs, all those congressmen and women who went to congress to allegedly eliminate misery in any form just spend it. As a result, there is never money in the piggy bank for stimulus when needed. Instead, we stimulate the economy with borrowed money and the deficit goes to astronomical levels.
At times I am a Keynesian when that is the best approach. Now is not one of those times. It would have saved untold misery in the Great Depression if Hoover and Roosevelt were Keynesians because there wasn’t enough money in circulation. Keynesianism did not get us out of the depression, however, World War II did. Today, we are throwing wood on the campfire when the forest is burning. We have to slay inflation before we can apply supply-side (my choice) or any other economic theory.
I disagree that climate change has caused billions of dollars in damage to the world economies. Rather, quixotic windmill-tilting against some scientifically unsubstantiated dreaded fear has caused the energy supply to dwindle. That, not the rising temperatures, has caused trillions in damage to the world economy. Germany just woke up; they took down a wind farm that was over a coal mine. They are going to mine the coal. Perhaps someone in Germany did a cost-benefit analysis. No one in this government has.
Finding Common Ground
Two points of agreement. I would like to see proposals in which a billion dollars—or five or ten or 20—is enough wealth for an individual. The proposal should still let them make more money so they will innovate and create jobs. But we tax them at a rate that puts a substantial amount of that money back in circulation for the public good. The other point of agreement is that the Republicans went for a bridge too far when they refused to reach a “grand bargain” over the deficit.
My greatest concern is that no Democrat is even talking about a balanced budget, or anything about restraining government spending. It’s spend all the time and they seem to have no care about the cost. This will change. The election will change the zeitgeist about the role of government in our economy.
Tackling the Deficit and National Debt Will Require Leadership
By Allan and Sheri Rivlin – CEO and President of Zen Political Research
We are pleased Mr. Wilkes’ response leaves us within easy reach of common ground. We generally agree with most of your economic and historical analysis. It is sound economic policy to pay down deficits by controlling spending and raising tax revenue during the boom phase of the economic business cycle. The economists’ term “fiscal space” has essentially the same meaning as what many cities and states call “rainy day funds” or Mr. Wilkes’ term “piggy bank”. However, his historical telling of the politicians’ response to economic boom times leaves out the role of tax cuts in squandering budget surpluses.
Government spending, whether by Democrats, Republicans, or bipartisan spending, increases inflationary pressure if it adds to the deficit. But the same is true of tax cuts if they add to the deficit or add to future deficits by reducing fiscal space. Tax cuts are as inflationary as spending increases because both add to deficits.
Historically, it has taken bipartisan leadership to get beyond this impasse of reciprocal blame and make meaningful progress on national debt and deficit reduction as with Ronald Reagan and Tip O’Neil’s deal to save Social Security. The Simpson-Bowles Commission proved we can dramatically reduce spending and raise more revenue without cutting benefits for vulnerable groups and without crushing the economy. Divided government with the new Republican House majority makes this possible, but it will take leadership in both parties to see this happen.
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Robert Wilkes
Robert Wilkes, Senior Correspondent at Divided We Fall, is the former president/creative director of Wilkes Creative, a national branding and marketing company. Robert flew 100 combat missions in Vietnam as a Navy attack pilot. He spent ten years in engineering and marketing at Boeing, where his writing skills were called upon for technical papers, marketing assignments, and speeches for Boeing executives. As an activist in pro-Israel politics, he lobbied with AIPAC for 15 years where he met many congressmen and senators from both parties. Robert loves history, enjoys the craft of writing, and has a passion for civil debate. He resides in Bellevue, Washington.
Allan and Sheri Rivlin
Allan Rivlin and Sheri Rivlin are the CEO and president, respectively, of Zen Political Research, a public opinion, marketing research, and communications strategy consulting firm founded in 2015. They are the son and daughter-in-law of Alice M. Rivlin, and since she passed away in 2019, they have been working to complete her final manuscript, “Divided We Fall, Why Consensus Matters” was published in October 2022 by Brookings Press.
