Trickle Down Economics and Income Inequality: Part 1

***This is the first in a 2 part blog concerning the Holy Father's statements about income inequality***

Let’s start with a quiz for my readers:

Which pioneer of free market capitalism developed the theory for “trickle-down” economics?

             a)     Adam Smith

             b)    John Locke

             c)     David Ricardo

             d)    None of the Above

In which work did Milton Freedmen advocate “trickle-down” economics?

a)     Capitalism and Freedom

b)    Free to Choose

c)     A Theory of Consumption

d)    None of the Above

In response to Keynesianism, which Austrian School author and associated work advocated “trickle-down” economics as a means of addressing income inequality?

a)     Hayek – Road to Serfdom

b)    Menger-Principles of Economics

c)     Rothbard-Man, Economy, and the State

d)    None of the Above

If you answered ‘d)’ to all of these questions, you are correct.  So my follow up question is this:  When did “trickle-down” economics become synonymous with free market capitalism?  That is the inherent assumption adopted by Rush Limbaugh in his segment “It’s Sad How WrongPope Francis Is”, where he takes issue with the Pope’s statements in Evangelii Gaudium.  Some highlight’s of Limbaugh’s statements:

   “This is just pure Marxism coming out of the mouth of the Pope.”

    “It's sad because this pope makes it very clear he doesn't know what he's talking about when it comes to capitalism and socialism and so forth”

And what were the Holy Father’s offending words?  “Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world.  This opinion, which has never been confirmed by the facts, expresses a crude and naive trust in the goodness of those wielding economic power and in the sacra­lized workings of the prevailing economic system.  Meanwhile, the excluded are still waiting.”

Limbaugh isn't alone in his sentiment.  FOX New’s Stuart Varney offered very strong words against the Pope in defense of capitalism.  So somehow, it has been ingrained in the political lexicon of America that “trickle-down” economics = free market capitalism. 

I would like to make the argument that “trickle-down” economics is not proposed, espoused, or championed by Classical, Neo-classical, or Austrian School economic models or theories.  Rather, at its origin, it was used in a negative light and in political terms. 

Its beginning in modern day usage is often attributed to David Stockman (Reagan’s budget director) when he stated supply-side economics was an attempt to sell “trickle-down” economics to the public, and until recently, its most common usage has been as a pejorative.  Liberal economist John Kennith Galbraith said trickle-down theory is “what an older and less elegant generation called the horse-and-sparrow theory: 'If you feed the horse enough oats, some will pass through to the road for the sparrows.’”  And endless satirists have described “trickle-down” economics as the rich pissing on the pour.

Yet somewhere between today and Stockman needing to disguise “trickle-down” economics under another name, the Left using it as a pejorative against the Right, Republican Senator Hank Brown vehemently denying the GOP’s use of the theory and lamenting its attribution to the Republican party; “trickle-down” economics has become something to be defended by right wing political commentators, because to defend that, is to defend capitalism.    

The Pope wasn't attacking capitalism, and we certainly don’t need to defend it.  So maybe instead of getting defensive against the Pope's remarks, we should view this as an invitation to reexamine how capitalism is being applied in our current political and economic climate and examine if it’s consistent with our Christian principles and Catholic Social Teaching.