Why Trickle-Down Economics Doesn’t Work

Two weeks ago we looked at how it is mathematically impossible to spend the same money on superfluities (i.e. unnecessary stuff) and aid to the poor, and from that we concluded that statements like “You need to be rich in order to give money to the poor” or “It’s good to give money to the poor, but there’s nothing wrong with being rich” either cannot refer to the possession or consumption of superfluities, or they are simply self-contradictory.

In this blog post I want to address another argument rich people use when defending their wealth, namely that all consumption is good for the economy and in the end also beneficial for the poor; there is really no need to point out consumption of superfluities as something bad, since the money one pays eventually trickles down to the poor.

This argument is obviously rooted in secular, neoclassical economic theory and commonly defended by people on the right of the political spectrum, but often adapted and argued for by Christians. Sometimes they try to fit these ideas into the Bible, such as Paul Segerstom who has argued that the Scriptures support laissez fair capitalism, something I criticised on my own blog back in the day.

Even if we would assume that some percent of the price I pay for a Lamborghini will go to the poor – perhaps the man who printed the car plate or the women producing its electronics in Chinese sweatshops – this is still less than what the poor would have get if we invested the same money into development aid.

Are Lamborghinis helping the poor?
Are Lamborghinis helping the poor?

See, development aid is an investment just as regular consumption is – most aid money going to poor countries and areas circulate there, and even if the aid project would fail, it wouldn’t be a greater waste than the Lamborghini. Since many aid projects are genuinely beneficial though, buying a Lamborghini is simply bad aid! It’s pretty obvious that spending that money on a school project in Kenya will be more beneficial for the poor.

Jesus said to a rich young man: “Go, sell everything you have and give to the poor, and you will have treasure in heaven. Then come, follow me.” (Mark 10:21) Would the rich man also have got his heavenly treasure if he instead of giving his money directly to the poor had bought a golden horse that may pay wages to a couple of poor people digging that gold (even though the gold horse maker and gold horse shop owner probably take the larger part of the sum)? Well, the very reason Jesus wants him to firstly sell his stuff is in order to promote economic equality, as I’ve talked about in my God vs Wealth series.

The rich man owns a lot of stuff that Jesus wants him to sell, since they’re obviously not doing the poor any good. Spending a certain amount of money on a Lamborghini will make the economy spin a little while give a rich person a Lamborghini; spending the same amount of money on food to the poor will make the economy spin a little (since the food producers, suppliers etc. will spend their income on other things) while giving food to the poor. It’s easy to see what is best.

Finally, the trickle-down theory has very little empirical support. Development economists like Paul Collier talk about the bottom billion, the aproximately one billion people who are cut off from the global economy and live in extreme poverty and harsh life conditions. Buying Lamborghinis won’t help them one bit – and they are in most need of investments. What we call aid is such an investment, and it should not be opposed to such; as mentioned above, money spent on aid will not simply vanish but circulate in one part of the global economy that Lamborghinis are not a part of. As I’ve written before, we really shouldn’t view “the economy” as one single thing, but rather there are several different economies that could be categorized into an economy of greed and economy of need.

Thus, superfluities do not help the poor more than aid does, and therefore it is better to spend one’s money on aid than on superfluities. Next up, we will look at how people use Bill Gates to defend economic inequality.

Micael Grenholm is editor-in-chief for PCPJ.

ska%cc%88rmavbild-2017-01-06-kl-21-17-02Pentecostals & Charismatics for Peace & Justice is a multicultural, gender inclusive, and ecumenical organization that promotes peace, justice, and reconciliation work among Pentecostal and Charismatic Christians around the world. If you like what we do, please become a member!

One thought on “Why Trickle-Down Economics Doesn’t Work”

  1. Yes but surely if we put double V.A.T. On expensive items the tax goes to poorer people or not? Sweden itself is an example of this or not?


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