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'Trumped up, trickle down' and prosperity

Populistic or presidential? James Humpish gets to the bottom of Trump's economic mantra

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Trump Hotel, Las Vegas, NV. Image: Moyan Brenn
Trump Hotel, Las Vegas, NV. Image: Moyan Brenn

There's a great degree of anxiety surrounding the 2016 U.S. Presidential Election between immigration, foreign and social policy, but in the first of the presidential debates, the key differences between Hillary Clinton and Donald Trump was their disagreement in economic policies: Trump is an advocate of trickle-down economics.

Trickle-down economics has never lent itself to a formal economic theory but the principle is clear. It posits that by creating conditions for the wealthy to thrive, their increased wealth will be passed on to the middle and working classes as there is greater demand for labour and more aggregate capital for investment. Trump is a clear advocate for this, proposing to reduce corporation tax from 35 per cent to 15 per cent for big businesses as a means to convince them to remain in the United States and not look to base their businesses elsewhere.

There's an appeal to the theory that panders to Trump's populist campaigning tactics. If effective, the result is that no one is made worse off and nearly everyone is made better off - at least in the country. Companies are persuaded to produce in the United States, thereby increasing product and employment, with it even being possible that the business' greater presence could actually increase the tax revenues as well as stimulate private investment in the place of public investment.

Image: Michael Vadon
Image: Michael Vadon

The flipside of the theory is that it's unlikely that the increased number of corporations paying out could hope to meet the revenues generated through a tax reduction. It's also a recipe for propelling inequality by making the rich many times better off compared to the extent by which the poorer could hope to be made better off. That's without considering the more detached view that other countries make a loss from the businesses being lured back toward America.

Whether the presidential candidates would succeed in improving the country's economy and employment probably depends on a clearer understanding of who the candidates are trying to improve the economy for. Trump proposes a cut in corporation tax in an echo of 1980s President Reagan, which would favour the wealthy and possibly extend favours to the citizen base as a long as it was in the interests of said wealthy. Secretary Clinton, on the other hand, has invested in closing off corporate loopholes, and a focus on the rich paying their share so that the economy can be focused on supporting the middle class and on growth, notably pointing out that all-spend and no tax has the capacity to produce a troubling degree of debt.

Having listened to the debate twice, what seemed absent from either of the candidates' arguments were mentions of the working class. The Economist notes that four fifths of white men without higher education qualifications are in support of Trump at the moment. This is typically for reasons external to economic policy but it was a noteworthy omission when each of the candidates articulated their means of generating American prosperity.

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