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This is a very clear-headed essay on trickle-down economics and tax cuts for the rich. Here, Sowell points out that there is a rampant misconception amongst the Left regarding why many fiscal conservatives favour tax cuts for the rich. The argument is emphatically not to give the rich (or, euphemistically put, the job creators and entrepreneurs) more prosperity so that the prosperity will somehow trickle down to the less well-off. Sowell sums up the disconnect between the two sides thusly (p. 6):Repeatedly, over the years, the arguments of the proponents and opponents of tax rate reductions have been arguments about two fundamentally different things. Proponents of tax rate cuts base their arguments on anticipated changes in behaviour by investors in resposne to reduced income tax rates. Opponents of tax cuts attribute to the proponents a desire to see higher income taxpayers have more after-tax income, so that their prosperity will somehow trickle down to others, which opponents of tax cuts deny will happen.As Sowell argues, the reason why increasing tax rates for those in a higher income bracket is that it incentivises them to park their money in tax-exempt shelters - if this was a problem present during the 1920s (when Secretary of Treasury Andrew Mellon first advocated cuts in taxes for the rich), it is even more an issue now since a globalised economy makes overseas investment a readily available alternative to buying tax-exempt bonds domestically. By lowering tax rates, we get two primary outcomes: (1) government revenue increases, since overly high tax rates paradoxically reduces the tax revenue received by the government due to people parking their money in tax-exempt institutions, which consequently shifts the tax burden disproportionately onto the less well-off (cf. Laffer Curve), (2) economic growth gets a boost, since now those in upper income brackets are more likely to invest their money in valuable undertakings as opposed to diverting their money in less productive activit[ies] [...] [which] inhibit our growth and efficiency, allowing for a more prosperous, expanding economy. (Note: these were the words of JF Kennedy).Sowells point is very well-taken, and I like that this essay was short and concise, because theres no need (unlike what another reviewer suggested) to create a 600 page tome in order to make this simple (albeit sophisticated) point, and highlight how the Right and the Left are talking past each other (in particular, how rampant misconceptions are on the Left regarding the justification for tax cuts for the rich). Also, somewhat tangential point, Sowell makes me appreciate the value of economic knowledge in a way that I havent done before - when designing policies and trying to convince the public that these are the correct policies for the nation, it is easy to design policies that appeal to emotions and have strong populist appeal. Economics (or good economics) asks: Okay, but what are the facts? And what are the assumptions are we working with?This book is certainly an incredibly helpful instrument when using to parse the arguments made by the Left against tax cuts for the rich. For instance, Rachel Maddow debunked trickle-down economics in this video:http://www.dailymotion.com/video/x2xsxkqFundamentally, Sowells book makes it clear to us that Maddow is relying on a strawman and she doesnt seem to realise (or perhaps she does, because why else just have a 1-second snippet of a politician saying the words trickle-down) that shes falsely attributing trickle down economics as the primary justification for cutting taxes on the rich. However, putting that aside, shes still employing some statistics to make her point and they are well worth considering. For one, she gives us the modest increase in median family income in the middle-income bracket as compared to the high-income bracket, which suggests that the economic trickle-down hasnt really happened under Reaganomics. A couple of points. First, Ive read elsewhere that Sowell doesnt think median family income is the best gauge for economic progress since median family size has fallen, so perhaps average individual income is a better gauge. Second, this statistics neglects to acknowledge the fact that (according to the Cato Institute):on 8 of the 10 key economic variables examined, the American economy performed better during the Reagan years than during the pre- and post-Reagan years. Real median family income grew by $4,000 during the Reagan period after experiencing no growth in the pre-Reagan years; it experienced a loss of almost $1,500 in the post-Reagan years. But she raises another statistic that Im troubled by, namely the fact that government debt increased dramatically under Reagans rule. Im not sure if thats due to Reaganomics per se or whether its due to the Star Wars programme that Reagen launched as a foreign policy initiative against the Soviet Union. But Ive a feeling this probably isnt a complete explanation, and Id like to have more information from Sowell on this, especially since Reaganomics has been turned into this punching bag by the Left. In any case, Ive docked a star from Sowells book because I felt that there was a little too much emphasis on Andrew Mellon (which I concede is absolutely important, because this is how the whole messy debate started) and not enough analysis on Reaganomics. The most he says is that Reagan wished to cut taxes for the rich in anticipation of the changes in behaviour by the rich, i.e. Reagan did not subscribe to the trickle down theory nor did he use it to justify tax cuts for the rich. More information of Reaganomics, on how it was conceived, on how well it performed according to certain agreed-upon economic metrics and how the Left attacked its achievements would be very much welcome. Also, Sowell doesnt touch on the troubling implications for income inequality that cutting taxes for the rich might have - certainly this is a favourite statistics used to discredit Reaganomics, so this merited some discussion I believe.Theres a lot of populist rhetoric flying around in the current Presidential race - on the Left, its a question of who has the backs of the bottom 99% and the minorities, on the Right, its appealing to anti-foreigner sentiments and other residual socially conservative values that have felt unrepresented since the turn of the millennium. While Im not saying I completely agree with Sowell on everything going forward (Im definitely planning to read more of his stuff), hes a very sensible man and he gives you valuable analytical tools to begin re-examining Leftist assumptions (just be sure you take the time to examine Republican/Right-wing assumptions as well, beyond just painting everything with the broad brush of bigotry).If only I could find this mans email, so I could begin corresponding with him!
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