“Trickle-down,” Again

The Saturday Satire

Few ideas haunt economic debate as relentlessly as the “trickle-down” theory. Perhaps it’s the appeal of attacking something that no one has ever argued.

The theory supposedly claims that making the rich richer benefits everyone as wealth “trickles down.” It sounds plausible and feels unfair – making it the perfect villain.

There’s just one problem. No economist ever proposed this theory. No Minister of Finance ever modelled it. The term was coined in 1932 by American humourist Will Rogers to mock Herbert Hoover’s policies during the Great Depression. It was satire, not scholarship.

Yet somehow, the joke gained a life of its own.

The latest in a long line to wrestle this phantom is Dr Neal Curtis, writing in Newsroom. An academic in critical theory rather than economics, he joins the chorus claiming New Zealand has been enslaved by the trickle-down idea since the economic reforms of the 1980s.

Treasury officials must be confused: all those years managing budgets and analysing trade-offs when, apparently, they were just opening taps and waiting for the wealth to cascade.

In reality, the critics have things backwards. Wealth doesn’t trickle down. It gets pulled up.

Businesses prosper by convincing customers that their products are worth buying. Every dollar a company earns is a dollar someone chooses to spend. The rich don’t get money from the sky. They get it from us. Voluntarily.

Workers prosper the same way – selling their labour to those who value it. Not trickling, but trading.

Markets aren’t plumbing, where wealth flows downwards. They’re networks where money flows toward whatever people value most.

These same critics also attack a more recent phantom: the Regulatory Standards Bill. This proposed law requires ministers to “please explain” when proposed reforms depart from basic principles like property rights and the rule of law.

These principles aren’t new – they already exist in Parliament’s Legislation Guidelines. The Bill merely asks ministers to stop ignoring them. Yet critics fear this somehow threatens democracy.

Meanwhile, New Zealand has plummeted from 2nd to 20th in OECD regulatory quality rankings since 1998. We’ve made accountability optional. But when someone proposes fixing that, it’s apparently authoritarian. Like trickle-down, critics have created a threat from thin air.

How do these phantom theories come to life? Perhaps because some people are happier blaming imaginary monsters for economic problems than bothering to understand them.

Phantoms are useful. Complex problems demand complex analysis. Blaming imaginary theories requires only imagination. When inequality rises, blame trickle-down. When wages stagnate, trickle-down again. It’s shadow-boxing at its finest.

Trickle-down economics deserves recognition – as economics’ most successful bogeyman. Forever attacked, never defended, because there’s nobody home.

It lives only in the minds of its critics, eternally irrigating grievances.

Forever trickling. Forever false.

A shorter version of this column was first published in The New Zealand Initiative’s weekly Insights newsletter, and is accessible on the Initiative’s website, here.