If you’ve ever engaged in an economics debate with someone on the left side of the political spectrum you have probably become privy to the term “trickle-down economics.”
UCLA and Harvard Law graduate Ben Shapiro has revealed why the term — crafted by a Franklin Roosevelt speechwriter — is a misrepresentation of a detailed conservative perspective on the economy — a perspective that liberals distort when discussing economic theory.
During “The Ben Shapiro Show” podcast, Shapiro responded to a question about why it is difficult to find successful examples of “trickle-down economics” when using Google. As noted by Shapiro, those searching that term will only find negative economic outcomes because the phrase is a misrepresentation of the economic theory known as “supply-side economics.”
“If you Google ‘trickle-down economics’ you are only going to get the failures of trickle-down economics,” Shapiro said. “That’s because it’s a term that was not coined by the right, it was a term that was coined by the left.”
“The right calls it ‘supply-side economics,'” he added. “Look up supply-side economics on Google and you will come up with a myriad of examples in which supply-side economics has worked.”
Supply-side economics, a theory rooted in the principles of Say’s Law, theorizes “that producers and their willingness to create goods and services set the pace of economic growth,” according to Investopedia.
The theory was popularized during former President Ronald Reagan’s tenure in office after his implementation of supply-side “Reaganomics” played a significant role in ending the 1980 recession, according to The Balance.
Shapiro, like many conservatives, argues that supply-side economics progresses society forward by cutting taxes to encourage entrepreneurs and corporations to invest their finances into improving their goods and services, thus increasing the safety, quality and standard of their products. This stimulates demand in the marketplace because consumers will want to purchase quality products that improve their lives.
Citing the basic principle of Say’s Law, Shapiro stated: “Supply generates its own demand basically. So if you generate cheaper product — not crap nobody wants to buy — if you make product cheaper and better, people will want to buy it. If you invent new products that changes the way people live, everybody wants to buy it.”
He then used Apple’s iPhone as a prominent example of supply-side success.
“20 years ago nobody ever heard of an iPhone, now everyone has one — that’s because of supply-side,” he added. “Apple created a product, you wanted the product, you went out and bought the product.”
Shapiro’s example is in line with renowned classical economist David Ricardo, who once stated: “We all wish to add to our enjoyments or to our power. Consumption adds to our enjoyments — accumulation to our power, and they equally promote demand.”
Supply-side economics directly opposes liberal-backed Keynesian theory, sometimes known as demand-side economics.
The theory, proposed by John Maynard Keynes, argues that consumers’ demand for services and goods drives the economy.
According to Investopedia, demand-side economics argues that “The government can intervene to generate demand for goods and services.”
Essentially, greater taxation of the wealthy will put money in the pockets of middle and lower-class citizens who will then use that money to purchase products, stimulating economic growth.
However, as Shapiro points out, demand-side theory falls apart under basic logic.
“You have a million dollars. Do you give a million dollars to Bill Gates to invest in the building and invention of new product?” Shapiro asked. “Or do you give a million dollars — one dollar — to a bunch of people so they can go spend it on a burger?”
Shapiro stated that the economy would improve if “you give the million dollars to Bill Gates,” citing that “the reason is Bill Gates is then going to create a product that makes everybody’s life better. That will create a bunch of new jobs in a growing area where people are opting for the product.”
While the example is a crude representation of an extremely complex market, it does display the basic thought process that goes into the conservative ideal — a thought process that is grossly distorted by liberals who wrongly refer to the theory as “trickle-down economics.”
The term “trickle-down” comes from the misinterpretation — whether deliberate or accidental — that tax cuts on the rich will only fatten the pockets of executives who seek to only increase wages for those in the upper levels of a corporation, rather than use the excess finances to build and create better products for consumers.
This gloomy misrepresentation has been consistently recycled by many left-leaning media outlets.
“Proponents of trickle-down are either working people naive enough to think that the rich care about them, business owners stupid enough to not realize the lower classes are the consumers driving business growth, or wealthy capitalists selfish enough not to care,” HuffPost writer Steven Swyryt stated in April 2017.
However, leave it to Shapiro to put to rest misguided theories such as Swyryt’s.
In early 2017, Shapiro debated “The Young Turks” host Cenk Uygur at Politicon. During the debate, Uygur, a self-described liberal, argued on behalf of Keynesian economic principle of increased taxes on the wealthy, while Shapiro argued on behalf of supply-side theory found in the GOP tax reform bill designed to lower taxes on corporations and wealthy individuals.
“When the middle class has more money — disposable income — they spend it, why? Because they’re not living the life of luxury, they’re not saving it for their yacht,” Uygur claimed in his argument. “So they need to buy food for their family, they need food for their family, so they spend it and it goes back into the economy.
“If you just give it in supply-side economics to the rich and hope that it trickles-down on us eventually decades later what they wind up doing with it is something that is logical; they save it, but that means it does not recirculate in the economy,” he continued. “And that is why when you have lower taxes ironically the economy does worse.”
Shapiro wasn’t buying it.
“The problem with Keynesian economics is that it doesn’t even work in theory,” Shapiro replied, before dispelling the “myth” of trickle-down economics.
“It’s also worth noting that this myth that spending is inherently better for an economy than saving, that’s only true if you’re talking about somebody who’s actually taking the cash and just shoving it into their mattress,” he added. “Banks are in the business of lending … They actually lend the money back out to people to actually create new businesses and new products.”
Shapiro then used Uygur’s own show as an example of how supply-side economics is much more effective in practice than demand-side theory.
“You had an investor, right? When you started TYT you were given 4 million dollars by Buddy Roemer to start TYT. That’s great, that’s the way business should work, right?” he said. “But that money didn’t come from a bunch of poor people buying hamburgers, it came from a very, very wealthy guy who gave you money to create a business a lot of people want to patronize.”
The political commentator also made clear that “(t)rickle-down economics is not something that any conservative even proposed, it’s a leftist revision of what economics actually is.”
Shapiro’s closing statement highlighted the fundamental difference between conservative and liberal views on taxation and the economy.
“The idea that money has to be forcibly taken from you and handed to somebody at the bottom-end of the economic spectrum to somehow jog the economy — that may jog McDonald’s but (it) is not going to jog all of the creation of the products and services that make all of our lives much better today than they were 30 years ago in terms of the stuff we have access to,” he said.
Truth and Accuracy
We are committed to truth and accuracy in all of our journalism. Read our editorial standards.