Dickson Igwe. Photo: VINO

The following story is part of a series of articles assessing economic matters in the Virgin Islands. The economics of TRICKLEDOWN excites austerity enthusiasts. But is it the panacea for true prosperity as some would believe? 

The proceeding narrative assesses the validity of trickledown as a viable economic model. 

One aspect of Austerity Economics states that policies that benefit the rich such as low taxation, and minimal financial and commercial regulation, aid the national good. Austerity asserts that government support of the agenda of the wealthy is the panacea for a great economy. 

There is an abundance of evidence that under the Milton Friedman School of Economics, in its laboratory of austerity, the theories created, and then expounded by its leading academics, and applied by Western Politicians, inordinately benefitted the wealthy. According to many pundits, this has been to the detriment of the western middle class. 

Austerity, especially the earlier 1980s model, stated that economic policy that led to a certain level of unemployment and job insecurity, so that the rich had a readily available and cheap pool of workers to choose from to man their enterprises was the way to go. Then add smaller government, minimal taxation, support for financial speculation, tax avoidance, commercial deregulation, and so on.   

The cult of the cowboy was worshipped under the austerity model of 25-30 years past. Its critics called austerity the economics of the Wild West, with an injection of Las Vegas and Old Havana. 

The austere environment of the time was fostered and governed by an economics of the casino. This was a phenomenon driven by arcane, esoteric, and mysterious financial products. A new economics that sat on a foundation of calculus and even physics, and understood only by the math whizz, cone headed scientist and scholar in Chinese Philosophy. But the chips in this casino environment were weighed inordinately in favour of the rich and powerful. 

Austerity was also known as trickledown economics.  It was a formula that stated that wealth would trickle down to the benefit of the middle and lower classes as the rich got richer. The rich were the driver of the Western Economy under the model. Trickledown economics was an idea that saw its heyday during the Ronald Reagan Presidency, and Margaret Thatcher’s Grocery Store Economy. Gordon Gecko of Wall Street fame was its Poster Boy.  Donald Trump appears to be one of the great survivors of that austere yesteryear. 

OK, the question is asked. Is it the case that when the rich in a society are taken care of first, through a regime that supports their interests, over and above the interests of the rest of the population, that the middle classes and poor benefit at the other end of the scale? 

As the rich get richer, is it really true that the poor get to share in some of that loot? Or is it the case of the cliché: ‘’that the rich get richer while the poor get poorer?’’ 

By middle classes, one may state wage earners of between 35,000 and 75,000 USD per annum, based on an annual income per capita in the Virgin Islands of 39,000 USD. The rich could be considered those who earn 100,000 USD and above, and whose net worth after liabilities exceed 1 million USD. 

Now, Henry Oliner writing in AMERICAN THINKER on November 8, 2013, a story titled, ‘’ understanding supply side economics,’’ asserted that, when an economy overheated, a policy of austerity was best applied. Austerity would lead to higher unemployment. Higher unemployment in turn would lead to lower inflation by reducing demand. Austerity also meant cutting public services and public jobs. 

Austerity once meant higher taxation, in addition to cuts in public spending. Austerity viewed annual deficits and public debt as a bad thing. 

That is no longer the case it would appear. In the US, the ‘’US Chamber of Vested Interests’’ also known as Congress: a veritable millionaires club has made higher taxation all but impossible, especially higher taxation of the rich. However, the Right in the USA still demands severe cuts in public spending and public services: all of which overwhelmingly benefit the poor and middle class. Is this a case of crush the poor but leave the rich alone? Why? Because the rich make things happen? 

Now, Austerity also stated that lower inflation would enable dangerously inflationary economies to self correct, to self regulate so to speak. This would happen through a period of recession. At the end of a recession, an economy would turn around once more, to start the cycle once again. This was the idea of using austerity to manage effectively the ups and downs, and even boom and bust cycles, that have been a feature of modern western economics. 

What is indeed ‘mind boggling’ is using austerity during periods of recession. How can giving a sick patient more of what is making him ill, the right thing to do? That is what austerity appears to mean these days, especially in Southern Europe and the Caribbean economic models. 

Another thing: Oliner’s remedies fit in with the concept of monetarism. Monetarism uses the supply of money to regulate the economy. Monetarists advocate increasing interest rates and reducing the money supply in times of economic overheating, and vice versa when a boost to the economy is needed. In that sense, quantitative easing- printing money to increase its supply by the Feds- is a form of monetarism. 

Bear in mind that the value of the US Dollar depends on international demand for the currency, and global confidence in the US economy and the American geopolitical environment. As long as these three variables holdup it appears the US Fed can print money at will. 

Paradoxically, quantitative easing is a form of economic stimulus too. However, monetarism is a tool of the economics of austerity: thinkers on monetarism come out of the Chicago School of Economic Thought. They are disciples of Milton Friedman. 

Now, Oliner stated that decreasing taxes led to greater tax revenues. Lower taxes kept wealth in the hands of the wealthy. Lower taxes helped the wealthy to generate more income. This allowed some of that wealth to eventually TRICKLE DOWN the totem pole to the poorer folk. 

Oliner is clearly an AUSTERITY ENTHUSIAST.  The idea of trickledown is this one: when the rich get richer they spend more money and invest. This in turn goes into the economy in the form of jobs and income for the middle class and poor. The money also circulates in the economy. 

However as later stories in this series will reveal, that may not be the case. The rich are great savers. Growing wealth inequality in the US today shows that policy that benefits the rich simply boosts inequality by giving more to the wealthy at the expense of the rest. 

This growing inequality has been to the detriment of the vast majority of the country’s population, according to some economists. It is also at the root of the great political divide between Right and Left in Western Society. 

To be continued 

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