Trickle up in pictures

How trickle down led to trickle up is probably a familiar story to most readers of Progressive Pulse but still it is worth seeing the evidence in the data. This data is for the US and comes from the work of Piketty, Saez and Zucman. (The UK is slightly less extreme but has been following the same path since 1980.)

Back in the 1980s the graph of income-growth versus income-percentile sloped downwards (the example shown below is for 1983). This is what you would expect. Imagine someone with an income of $10,000 per year gets a pay rise of $1,000, their income growth is 10%. If someone on $100,000 gets $1,000 their income growth is 1%. So a uniform pay rise means a steeply downward sloping curve. Contrast this with a flat curve where everyone gets 1%. The person on $10,000 get $100 and their colleague on $100,000 gets $1,000. So even a flat curve means rising inequality. Only a downward slope means stable or falling inequality.

Now we jump forward to 2014 (If you go to this New York Times article and scroll down you can watch how things changed year-by-year.)


What trickle down did was much worse than make the curve flat. It inverted the slope and – even more extreme – pushed all the gains to upper percentile – the 1%. The top of the distribution now gets the largest percentage gains and given that they already earn the most, the difference is extreme. By 2010, the person on $10,000 gets nothing and the person on $1,000,000 gets an extra $50,000. No trickle down there!

Trickle down was always flawed. If you leave it to the market, capital flows upwards to the top. The equilibrium state – so beloved by neoclassical economists – is the one where the elite take all the rewards while the workers work harder for no gain. The unregulated market without progressive taxation is fundamentally unstable and the end game is economic or political crisis. We are seeing crises coming fast and furious now. Time to restabilise the distribution.

Comments

  1. Sean Danaher -

    Hi Charles
    a little niggle. There are two graphs on the New York Times article and the static one showing 1980 and 2014 I think much clearer. As I may have mentioned before I was in the US in 1980 (doing my PhD at the Harvard Smithsonian) and dreading the prospect of Regan getting elected as president. I had a gut feeling at the time that the likelihood of “trickle down economics” working was close to zero.

    It feels however that we may be at the verge of another paradigm shift – my crystal ball is particularly cloudy at present!

    1. Charles Adams -

      Thanks, I have added a curve for 1983 now. Change is coming but I think it may be a few years yet.

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