Recognizing the Obvious After 50 Years

Tax cuts for the rich do not boost the economy. 

That money goes into speculative and parasitic activities:

You don’t have to be a scholar to understand why it’s absurd to suggest that reducing the tax burden for rich people isn’t likely to be a particularly effective strategy when it comes to juicing economic activity.

………

Let’s be honest: Very few rational people believe in trickle-down economics. That’s not to say no rational people promote it. It’s just to say that the rational people who do, almost always have ulterior motives, usually involving the preservation of their own wealth.

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There’s little utility in rehashing this further. I’m preaching to the choir. But I bring it up Friday because I’m running through the “checklist” of stories I keep on a yellow legal pad next to my second monitor. I try to get through that checklist each week. Sometimes, Friday is a “catch up” day. One of the stories I wanted to highlight this week, but didn’t get around to mentioning, is a new working paper by David Hope, of the London School of Economics, and Julian Limberg, of King’s College London, both PhDs.

The paper “utilizes data from 18 OECD countries over the last five decades to estimate the causal effect of major tax cuts for the rich on income inequality, economic growth, and unemployment.”

You’ll never guess what Hope and Limberg found.

I’m just kidding. Their findings are entirely predictable. Here are the main points:

• The results suggest that tax reforms do not lead to higher economic growth. The effect size of major tax cuts for the rich on real GDP per capita is close to zero and statistically insignificant. The findings are very similar when matching upon pre-treatment covariate trajectories. Major tax cuts for the rich do not lead to higher growth in either the short or medium run.
• Although the results show very slight indications of a flash in the pan effect of tax cuts for the rich on unemployment, these findings are neither statistically significant nor robust.
• The results show that major tax cuts lead to a significant increase in inequality and that this effect becomes stronger with time. Three years after the reform, the top 1% income share increases by almost 0.6 percentage points in countries with a major tax cut. Over five years, tax reforms increase the top 1% share of pre-tax national income by more than 0.8 percentage points. This effect is highly statistically significant, with P<0.0001.

So not surprised. 

Trickle down has never been about improving the public welfare, it's been about the powerful preserving their power.

At least, that's what the Bolsheviks at the London School of Economics say.