Policymakers Should Come Out Of The Flawed ‘Trickle-Down’ Economic Thinking

The elite in India remain conspicuously quiet about the huge largesse in the form of tax cuts to the rich and powerful and that too every year

As a student I often used to wonder why was it that the rich become richer, and the poor are driven to the wall. All through my student life, I did not get the answer. But my question continued to unsettle me. In fact, it took me quite some time to realise that the rich are doing nothing extraordinary but are beneficiaries of a ‘trickle-down’ economic thinking.

Some economists have argued that ‘trickle-down’ economics, whereby the rich get additional financial support to spur their all-round growth and development, leading to creation of more wealth. In a way, this has been the foundation for the kind of market reforms that former US president Ronald Reagan and former British PM Margaret Thatcher unleashed. Beginning from 1980s, a cluster of countries have been busy cutting taxes for the rich.

More recently, US President Donald Trump gave $1.5 trillion worth of tax cuts during his first term, wrongly claiming that these tax concessions were a key factor behind the country’s economic growth.

Interestingly, a detailed study by the London School of Economics (LSE), which analysed 50 years of growth, income and employment data for 18 of the richest countries that are part of the richest trading block – the Organisation for Economic Cooperation and Development (OECD) – ending 2015, negated the popular thinking by contending tax cuts for the rich “do not have any significant effect on economic growth and unemployment,” and in reality “lead to higher income inequality”.

This should have shaken up the international leadership but sadly it didn’t happen. Such has been the colonization of the mind that even an average citizen does not understand how the tax cuts have failed to prop up his income and growth. They go by what corporate tell them.

Former US Labour secretary Robert Reich spells it out: “Around 100 billionaire families spent $2.6 billion in the 2024 election and 70% of these donations went to Republicans. Now, the Republicans in Congress are gearing up to slash essential programs to pay for another round of tax cuts for the rich. This is what oligarchy looks like.”

In India too, tax cuts of Rs. 1.45 lakh crore were doled out in September 2019, but it hasn’t spurred the kind of expectations that were raised. While the elite in India compliment the government for releasing a direct income support of Rs. 6,000 per year to farmers applauding the benevolence of the government towards poor farmers, they remain conspicuously quiet about the huge largesse in the form of tax cuts to the rich and powerful and that too every year.

No wonder, the rich continue to get richer, and the poor somehow survive on the margins. This brings me to another glaring example of designed inequality closer home.

When I say designed, I mean how inequality is woven in the economic design. In fact, the reality is that the rich are not engaged in any innovation but get rich because we offer them wealth on a platter. At the risk of reiterating, let me share that in December 2023, the National Company Law Tribunal (NCLT) approved a resolution of bankrupt Reliance Communications Infrastructure Ltd (RCIL), which walked away with a ‘haircut’ of 99 per cent of the claimed debt. They ended up paying a modest Rs. 455.92 crore against the admitted claim of Rs. 47,251.34 crore! Now compare this with how a poor farmer is treated. A 51-year-old Banwari Lal, a small farmer in Rajasthan, couldn’t pay back a loan instalment that he owed to the bank against a tractor loan he had taken, and the bank kept mounting pressure to recover the paltry amount even threatening ‘to seize his tractor’. Unable to bear the humiliation, the farmer committed suicide. This happened a fortnight back.

Take another example. The Parliament was recently informed that the public sector telecom giant BSNIL had failed to bill another private telecom for ten years (yes, I said ten years) and the loss to the government comes to a whopping Rs. 1,700 crore. This is a privilege reserved only for the rich and mighty. Imagine if you had faltered on just one EMI. Such stories of prevailing inequalities in the system dispel the myth of equal opportunities. It tells you also clearly how the rich are a pampered lot, and how the poor are looked down upon.

And that makes me wonder as to where the leaders who stand for justice and equity are?

At the international level, the former US President Joe Biden was the first leader who publicly denounced ‘trickle down’ theory and promised to shift the focus to the bottom and the middle. In India, the class of leaders who swore in the name of ordinary people and thereby ushering in true freedom for all has been on a continuous decline. In fact, many of them have switched sides knowing very well which side of the bread is buttered. With neo-liberalism becoming a new religion, the demise of the tall leaders who were in the forefront of the national movement has been the greatest loss.

It is no longer fashionable to even talk of justice, equality and a decent employment for all. Despite the LSE telling the world how wrong was the design of granting huge tax concessions to the rich, which sadly the world continues to ignore and for obvious reasons, we now enter the Trump 2.0 era where he publicly is using tyranny of tariffs to help his billionaire friends. This is oligarchy for you.

Nevertheless, whether in India or in America or anywhere else, the yearning for social justice is gaining strength.

Take for instance the iconic farmers 2020-21 protest in New Delhi. It was also a part of the new awakening, which compelled farmers to raise their voice against the continued apathy and neglect that had kept them at the bottom of the pyramid. This may be a turning point in the history of farmer movements but more than that it also brought the focus on how the society has risen to stand for its rights.

The demand for a legal right for Minimum Support Price (MSP) that Indian farmers raised had been what those from their ilk across the globe has also been standing for. In America, it is called income parity meaning a guaranteed price. In Europe, the demand for assured farm prices is also gaining strength. In the early half of 2024, farmers across 24 European countries had gone in for massive protests seeking among other things a guaranteed price.

Just to illustrate how farmers have been deliberately kept impoverished in quest of economic reforms is another example from Great Britain.

A report from Food, Farming and Countryside Commission in UK has shown that farm incomes have almost remained static since 1970s. It shows how the inherent bias against the farming community is part of the intricate economic design the world have woven to lead to growth and development. While it may take some time for the world to rise from the ashes, it certainly will. For this, the flawed ‘trickle down’ economic thinking will have to first go.

(The author is a noted food policy analyst and an expert on issues related to the agriculture sector. He writes on food, agriculture and hunger)