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A lesson in trickledown economics

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The benefits of trickledown are Peanuts to ordinary people (Image via @theapplepieblog)

Trickledown economics is sometimes summarised as "A rising tide lifts all boats" — an attractive but quite false piece of economic chicanery, writes Frank O'Shea.

Okay class, pay attention. A chance to use some of the mathematics you study so diligently with Miss Browne.

Here is the story.

A business in a town with a population of 5,000 decides to thank the citizens by making a donation of $1 million dollars to the town. The CEO decides that the money should be distributed in a way that is deemed most likely to generate economic activity that will benefit the whole town. She seeks advice on how this would best be done.

The local political leader strongly recommends that she divide the money among the 50 richest and most successful local people. All right, Jones, how much would each get? Yes, $20,000 each. The politician is very clear that these rich people, all with life stories indicating a high level of financial success, would make the best use of the gift that each would receive and this would redound to the advantage of the whole community.

The local vicar offers a different perspective. He counsels that that the money should be distributed among the 500 poorest people in the town, each to get – correct, Jones, glad you are paying attention – $2 000. He argues that these monies would generate far more economic activity locally than the other option. His advice is that by giving the surplus $1 million dollars to the people struggling at the bottom of the economic ladder, the CEO could be sure that most of the money would be spent quickly and with nearly all the advantages going to local businesses.

How do we compare the two approaches? The first is called trickledown economics and the second, which could be called common sense, is the  kind of thing that would have shock jocks ranting into their cornflakes.

However, class, this is not just a theoretical exercise. It is really serious and is actually going on today in this country. Our government is determined to give tax breaks worth billions of dollars to those at the top of the economic ladder, people who will probably spend much of this largesse on their grandiose lifestyle.

There is an Irish poem from the 18th Century that says where such money may be spent:

On the dice and the cards and the race course, aye, and oft times in deeper disgrace
That no tongue could relate without bringing a blush to an honest man's face.

There is no shortage of examples to indicate that things are not much different now.

A little more recently than that, about a 100 years ago, the English writer Rudyard Kipling, angry at the way that a primitive and very mild form of socialism seemed to be gaining traction in his country, complained about 'robbing selected Peter to pay for collective Paul'. 

Today, in Australia, those two Apostles are asked to change sides and the government is determined to 'rob collective Peter to pay selected Paul'.

Trickledown economics is sometimes summarised in the expression: "A rising tide lifts all boats" — an attractive but quite false piece of economic chicanery. The theory is that the businesses will use this government largesse – this handout of tax which we pay in good faith – to hire more staff or give a salary increase to their workers, but there is scant evidence that this actually happens.

How the goods of society, the wealth of the community, are distributed ought to be a moral rather than an economic question, which is why we are discussing it in this class. Despite the huge growth in productivity and wealth over the last two decades, due mainly to improved technology, the living standards of many workers have declined. You have a comment, Jones? Yes, you are correct — inflation is now higher than the average wage increases in the economy, so that workers are going backwards. And those are official figures.

I realise that this is a public school, but we can still quote someone like Pope Francis who has not been afraid to put in his tuppence on this topic.

He wrote when assuming the papacy: 

'Some people continue to defend the trickle-down theory. This opinion, which has never been confirmed by the facts, expresses a crude and naive trust in the goodness of those wielding economic power.'

That lesson on basic Christian morality is rarely heard from Australia's political leaders, a disproportionate number of whom claim to look to Francis for moral guidance. Sadly, it is also too rarely heard from the pulpits of local churches, irrespective of denomination.

Somewhere along the way, we have lost our sense of outrage and anger.

As the poet William Wordsworth put it:

'We have given our hearts away, a sordid boon.'

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