Trickle Down Economics

Joseph Stiglitz: October, 2002, interview

Q: I'd like to move to topics related to globalization because I read your book, Globalization and its Discontents, and, like many other people, found it fascinating. What has happened to the idealism that was supposed to make institutions such as the World Bank and IMF serve the inclusive interests of everyone in what was then called the Third World? You make the point that these have become institutions that serve the interests of wealthy nations almost to the detriment of poorer ones.

JES: The problem is that they believe that by helping the rich you help the poor.

Q: The old "trickle down" theory?

JES: Yes, "trickle down."

Q: But that's been fairly discredited, hasn't it?

JES: Yes, it has. But as a general phenomenon, nobody likes to think badly of themselves. They always end up in arguments about why it's in the "General Good." But, on the other hand, I think that self-interest is a very strong force. That's what Adam Smith said, and I see it all the time. ... read the entire interview

Peter Barnes: Capitalism 3.0 — Chapter 2: A Short History of Capitalism (pages 15-32)

Why did this happen? There are many explanations. One is that welfare kept the poor poor; this was argued by Charles Murray in his 1984 book Losing Ground. Welfare, he contended, encouraged single mothers to remain unmarried, increased the incidence of out-of-wedlock births, and created a parasitic underclass. In other words, Murray (and others) blamed victims or particular policies for perpetuating poverty, but paid scant attention to why poverty exists in the first place.

There are, of course, many roots, but my own hypothesis is this: much of what we label private wealth is taken from, or coproduced with, the commons. However, these takings from the commons are far from equal. To put it bluntly, the rich are rich because (through corporations) they get the lion’s share of common wealth; the poor are poor because they get very little.

Another way to say this is that, just as water flows downhill to the sea, so money flows uphill to property. Capitalism by its very design maximizes returns to existing wealth owners. It benefits, in particular, those who own stock when a successful company is young; they can receive hundreds, even thousands of times their initial investments when the company matures. Moreover, once such stockholders accumulate wealth, they can increase it through reinvestment, pass it on to their heirs, and use their inevitable influence over politicians to gain extra advantages — witness the steady lowering of taxes on capital gains, dividends, and inheritances. On top of this, in the last few decades, has been the phenomenon called globalization. The whole point of globalization is to increase the return to capital by enabling its owners to find the lowest costs on the planet. Hence the stagnation at the bottom alongside the surging wealth at the top. ... read the whole chapter