Trickle Down Or Trickle Up Economics

In this article Badr Jafar argues that trickle down economics does not work. Those who believe in trickle-down economics argue that rising incomes at the top end of the spectrum would lead to more jobs, less poverty and higher incomes at the lower end. As long as an economy is growing, the benefits will eventually make their way down through the system. This theory has led to a mistaken focus on GDP as the most reliable measure of economic success.

In fact, an IMF study shows that the theory of trickle-down economics does not work and that an unequal rise in incomes can actually slow the rate of economic growth altogether. According to the report, a 1% rise in income for the wealthiest 20% of a society alone is likely to shrink annual growth by 0.1% within five years. By contrast trickle up economics, raising the income of the poorest 20% by a single percentage point increases annual growth by 0.4% over the same time frame.

There are important lessons for eliminating poverty here in that increasing incomes in unequal societies has very little impact on poverty whereas increasing incomes in more equal societies is much more effective. So creating more equal societies are the key to poverty reduction.

This could mark the end of trickle down economics and the adoption of what the Organisation for Economic Cooperation and Development (OECD) call inclusive growth. Inclusive growth is #147a new approach to economic growth that aims to improve living standards and share the benefits of increased prosperity more evenly across social groups”.