“Trickle Down” Has Failed; Wealth and Income Have “Trickled Up” to the Top .5%

Over the past 20 years, central banks have run a gigantic real-world experiment called “trickle-down.” The basic idea is Keynesian (i.e. the mystical and comically wrong-headed cargo-cult that has entranced the economics profession for decades): monetary stimulus (lowering interest rates to zero, juicing liquidity, quantitative easing, buying bonds and other assets– otherwise known as free money for financiers) will “trickle down” from banks, financiers and corporations who are getting the nearly free money in whatever quantities they desire to wage earners and the bottom 90% of households.

The results of the experiment are now conclusive: “trickle-down” has failed, miserably, totally, completely.

It turns out (duh!) that corporations didn’t use the central bank’s free money for financiers to increase wages; they used it to fund stock buy-backs that enriched corporate managers and major shareholders.

The central bank’s primary assumption was that inflating asset bubbles in stocks, bonds and housing would “lift all boats”–but this assumption was faulty. It turns out most of the financial wealth of the nation is held by the top 5%.

As for housing–yes, a relative few (those who happened to own modest bungalows in San Francisco, Seattle, Portland, Toronto, Vancouver, Brooklyn, etc.) on the left and right coasts have registered spectacular gains in home appreciation as the housing bubbles in these cities now dwarf the 2006-07 real estate bubble. But on average, the gains in home appreciation have barely offset the declines in real (adjusted for inflation) household income.

These charts illustrate the abject failure of the “trickle-down” economic theory.The majority of the assets that have soared in value are owned by the top 5%:

Wages as a share of GDP (gross domestic product, i.e. the nation’s total economic activity) has been declining for decades:

The only segment of households who have registered gain in real income over the past 20 years is the top 5%:

Even excluding capital gains–the source of much of the wealthiest class’s income–wealth disparity has reached astonishing asymmetries: most of the gains are flowing to the top 0.5%:

The Clinton, Bush and Obama presidencies shared one commonality: the wealth of the bottom 90% cratered in their presidencies while the wealth of the top .1% skyrocketed.

Central bank policies have generated a truly unprecedented “trickle-up” of wealth and income to the top .5%. Evidence supporting “trickle down” is nowhere to be found, at least in the real world.

Recent podcasts/video programs:

Keiser Report: Jon Corzine’s Big, Bad Bond Bet (25:43 min., 2nd half)

Self-Employment & Financial Bubbles (1:26 hrs)

Charles Hugh Smith On Inequalities And The Distortions Caused By Central Bank Policies (30 min.)

Rogue Money (56:59 min.)

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

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  • No More Neos

    Keynesian?? Neoliberalism was Hayek’s baby… and yes, it should be thrown out with the bath water! Keynes sought to euthanize the rentier, but it looks as though the rentiers have euthanized the economy.

    Michael Hudson: Hayek turned classical economics on its head. Adam Smith, John Stuart Mill and the other classical economists who are supposed to be icons of the free market meant a market free from land rent, monopoly rent and financial interest. But for Hayek, a free market meant one free for these rentiers. Free for landlords, bankers and monopolists. That’s why his group, the Von Misians in Austria, spent their time fighting against public spending and the “threat” of socialism. He said that socialism leads to fascism. But actually it’s his Chicago school that does this. It’s the “free market” Chicago Boys who led to fascism in Chile by overthrowing the government.

    So Hayek called freedom fascism, and he called fascism freedom. The first thing that the Chicago boys did in Chile was to close every economics department. Because they realized that you can’t have a Hayek-style free market unless you’re willing to kill everybody who disagrees with you. They had to kill labor leaders and tens of thousands of intellectuals. They closed every economics department in the country except for the Catholic University where they taught. There was mass murder. If you’re not wiling to kill everybody who has a different idea than yourself, you cannot have Frederick Hayek’s free market. You cannot have Alan Greenspan or the Chicago School, you cannot have the economic freedom that is freedom for the rentiers and the FIRE sector to reduce the rest of the economy to serfdom.

    Hayek’s saying that the way to create serfdom is to make people think that freedom is serfdom. So we’re back with Orwell: Freedom is slavery, war is peace. That is the Orwellian economics now taught by mainstream orthodoxy. You no longer have the history of economic thought being taught, as it was 50 years ago when I was getting my PhD. It’s been stripped out of the curriculum. If people really read what Adam Smith said after he traveled to France and met with the Physiocrats – and was convinced that there should be a land tax and that economies shouldn’t have free riders – you realize that what he said is the exact opposite of today’s ostensible free-market ideology. John Stuart Mill defined rent as what landlords make “in their sleep,” without working. These classical economists were on the road to socialism. Only half-way there, but on the road to it.

    So the history of economic thought has been replaced by mathematics, to mathematize a fictitious parallel universe model. The result is what computer operators call Garbage In: Garbage Out (GIGO). You’re mathematizing something fictitious. If you look at the introductions to Paul Samuelson’s or Bill Vickery’s textbooks, they won the Nobel economics prize for writings that came right out and said that economics is not about reality. It’s about the internal consistency of assumptions. It’s to build a beautiful system that, if it really worked, would be so appealing that students will be willing to suspend disbelief. That is what a good science fiction writer would do. The trick is to make readers willing to accept the assumptions that they’re given at the outset. Free-market tunnel vision is simply about logical consistency of unrealistic assumptions.

    These people appear as entries in my dictionary as “idiot savants.” They’re very smart in an abstract, autistic way, but they don’t know what to be smart about. They’re willing to use their smartness to be deceptive, to become financial lobbyists. Their work is then turned over to focus groups to find out what kind of rhetoric is best going to trick people into thinking that poverty is wealth. The aim is to convince people that they can get rich from going into debt to buy a house and become part of the middle class economic treadmill, and to believe what Ralph Nader made fun of: “Only the rich can save us.” If you can get people to believe that, you’ve won their hearts and minds.

    https://dandelionsalad.wordpress.com/2017/03/28/how-bankers-became-the-top-exploiters-of-the-economy-by-michael-hudson/

    • Nexusfast123

      Excellent comment. Political Economy is rarely taught as the ‘political’ has been dropped. My first degree was Political Economy in the mid 80’s in the UK and it quickly exposed the deceitful nature of economic thought as articulated above. Therein lies the reason why political economy is not taught and why also went after people like Henry George.

      • No More Neos

        Michael Hudson is a national treasure as a political and economic historian. I look forward to buying his new book, J is for Junk Economics…. and it is.

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