tag:theconversation.com,2011:/au/topics/trickle-down-economics-31472/articlesTrickle down economics – The Conversation2024-01-15T00:01:48Ztag:theconversation.com,2011:article/2208762024-01-15T00:01:48Z2024-01-15T00:01:48ZAs the billionaires gather at Davos, it’s worth examining what’s become of their dreams<p>Gathering for their annual World Economic Forum at <a href="https://www.weforum.org/agenda/2023/12/davos-2024-what-to-expect-and-whos-coming/">Davos</a> in Switzerland this week, the world’s business and political elite will be digesting some unpleasant reading courtesy of the aid agency <a href="https://www.oxfam.org/en/research/inequality-inc">Oxfam International</a>. </p>
<p>Oxfam’s annual report on global inequality released this morning shows the wealth of the world’s five richest billionaires has <a href="https://oi-files-d8-prod.s3.eu-west-2.amazonaws.com/s3fs-public/2024-01/Davos%202024%20Report-%20English.pdf">more than doubled</a> since the start of the decade, while 60% of humanity has grown poorer.</p>
<p>Among the findings of the report entitled <a href="https://oi-files-d8-prod.s3.eu-west-2.amazonaws.com/s3fs-public/2024-01/Davos%202024%20Report-%20English.pdf">Inequality Inc</a> are that</p>
<ul>
<li><p>billionaires own US$3 trillion more than they did three years ago, meaning their wealth has grown at three times the rate of inflation</p></li>
<li><p>even in Australia, the wealth of billionaires has climbed 70%</p></li>
<li><p>five billion other people can’t afford what they could three years ago.</p></li>
</ul>
<p>Progress in Africa, which seemed promising for much of this century, has stalled since COVID. </p>
<p>And large parts of the populations in wealthy countries, feeling left behind, have been lured by the appeal of rightwing populism – ironically, largely promoted by billionaires and their advocates.</p>
<h2>Dreams of Davos past</h2>
<p>This isn’t how things were supposed to turn out.</p>
<p>In its glory days in the 1990s, the Davos forum was the driving force promoting the idea of <a href="https://www.weforum.org/agenda/2021/01/klaus-schwab-on-what-is-stakeholder-capitalism-history-relevance/">stakeholder capitalism</a> in which corporations controlled by shareholders were supposed to advance the interests of everyone who had a stake in their activities: workers, consumers, communities and the environment.</p>
<p>The Forum still <a href="https://www.weforum.org/about/world-economic-forum/">promotes the idea</a> on its website.</p>
<p>Back then, as communism collapsed, everything seemed possible. </p>
<p>Pundits like Thomas Friedman spoke of a <a href="http://www.herinst.org/BusinessManagedDemocracy/government/international/straitjacket.html">golden straitjacket</a> in which universal prosperity could be achieved if only the world embraced liberal capitalism, overseen by an <a href="https://www.thomaslfriedman.com/the-lexus-and-the-olive-tree/">electronic herd</a> of fund managers making investment decisions.</p>
<p>With appropriately-constrained policies, governments could ensure a rising economic tide lifted all boats. </p>
<p>In the UK and the US the so-called <a href="https://www.britannica.com/topic/third-way">Third Way</a> policies of Tony Blair and Bill Clinton were seen as delivering <a href="https://www.jstor.org/stable/jcorpciti.28.113">capitalism with a human face</a>.</p>
<p>Three decades on, that vision is looking increasingly threadbare.</p>
<p>From the left, there is increasing pressure for radical alternatives; from the right, there is increasing pushback against the Forum’s brand of “<a href="https://www.theguardian.com/commentisfree/2022/jan/30/woke-capitalism-new-villain-of-the-right-only-way-forward">woke capitalism</a>”.</p>
<p>Financial managers remain as powerful as ever, but in the aftermath of the global financial crisis and multiple exposures of <a href="https://www.reuters.com/world/us/wall-street-criminal-enforcer-urges-whistleblowers-come-forward-2024-01-10/">criminal</a> <a href="https://www.economist.com/finance-and-economics/2020/10/03/jpmorgan-chase-faces-a-fine-of-920m-for-market-manipulation">wrongdoing</a> by their firms, there is less and less faith in their beneficence and collective wisdom.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/brian-schmidt-my-five-days-in-davos-22154">Brian Schmidt: my five days in Davos </a>
</strong>
</em>
</p>
<hr>
<h2>Billionaires are becoming the problem</h2>
<p>Billionaires were not important enough to be seen as a major problem back in the early 1990s. In 1991, as communism collapsed, Forbes Magazine assessed the total wealth of the world’s five richest people at less than <a href="https://www.washingtonpost.com/archive/lifestyle/1991/07/08/2-japanese-top-forbess-rich-list/88637f38-1b78-4525-ac1b-f6cd24906c58/">$US70 billion</a>.</p>
<p>And the most prominent billionaires at the time were relatively appealing figures like <a href="https://www.gatesnotes.com/Bio">Bill Gates</a> and <a href="https://www.britannica.com/biography/Warren-Edward-Buffett">Warren Buffett</a>.</p>
<p>But since then, while US prices have doubled, the wealth of the top five has climbed tenfold. And they have become less interested in the idea that others should benefit from the system that has benefited them. </p>
<p>A case in point is <a href="https://www.forbes.com/billionaires/">Jeff Bezos</a> who is number three on the rich list with net wealth of US$114 billion and runs Amazon whose brutal working conditions and anti-union stance are detailed in the Oxfam report.</p>
<p>Another is <a href="https://www.forbes.com/billionaires/">Elon Musk</a>, number two on the rich list with US$180 billion, who could once have been seen as merely eccentric, but his recent embrace of neo-Nazis goes further.</p>
<p>And, appropriately for what Oxfam calls the <a href="https://oi-files-d8-prod.s3.eu-west-2.amazonaws.com/s3fs-public/2024-01/Davos%202024%20Report-%20English.pdf">gilded age of division</a>, another is the very richest man in the world, <a href="https://www.forbes.com/billionaires/">Bernard Arnault</a>, whose family owns luxury goods brands including Louis Vuitton and Sephora. </p>
<p>Arnault embodies the resurgence of what Thomas Piketty has called <a href="https://insidestory.org.au/the-coming-boom-in-inherited-wealth/">patrimonial society</a>. </p>
<p>He took over the management of his father’s business and intends to pass his business on to his sons.</p>
<p>All have benefited from what is sometimes called neoliberalism: the mix of ideas including privatisation, financial deregulation and tax cuts that was meant to deliver stakeholder capitalism.</p>
<p>What neoliberalism has given us instead is greater division – something the billionaires gathered at Davos ought to consider this week as they reminisce about forums past.</p>
<p>A reasonable set of fresh ideas would be that put forward by Oxfam: direct government intervention to reduce inequality including but not limited to reasserting the roles of governments as regulators and service providers abdicated on the advice of gatherings such as the one in Davos.</p><img src="https://counter.theconversation.com/content/220876/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Quiggin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The World Economic Forum was once about spreading wealth. But in the past three years, the wealth of the world’s top five billionaires has more than doubled while 60% of humanity has grown poorer.John Quiggin, Professor, School of Economics, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1451672020-10-01T05:38:20Z2020-10-01T05:38:20Z‘You wake up with lab-engineered coffee’: how our imaginations can help decide Earth’s future<figure><img src="https://images.theconversation.com/files/360987/original/file-20201001-20-pbmwzm.jpeg?ixlib=rb-1.1.0&rect=26%2C0%2C5964%2C3988&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>There’s no shortage of scientific studies projecting a bleak future for the planet and her people, but none have led to real change. It’s clear we need better ways to <a href="https://www.sciencedirect.com/science/article/pii/S0959378015300546">envisage the futures</a> we want.</p>
<p>Take, for example, the current <a href="https://epbcactreview.environment.gov.au/">review</a> of Australia’s federal environment law. Among its recommendations <a href="https://epbcactreview.environment.gov.au/resources/interim-report/executive-summary">are that</a> developers consider the effect of their project on “specified climate change scenarios” — essentially computer-generated models of the future. These models are important. But achieving a radically different tomorrow will require more than a purely technocratic approach.</p>
<p>As we argue in our <a href="https://www.nature.com/articles/s41893-020-0587-5">recent paper</a>, our imaginations allow us to engage with emotions that motivate action, such as hope, <a href="https://www.elementascience.org/article/10.1525/elementa.374/">fear and grief</a>. Can we imagine a future with no koalas or orange-bellied parrots or wollemi pines? Or of bushfires that destroy the natural wonders of our childhoods?</p>
<p>Storytelling can help in this task. In the following vignettes, we’ve imagined three possible futures for Australia. They involve different challenges, trade-offs and worldviews. We hope these stories stimulate new ways to consider the consequences of our current decisions and actions. So now, imagine you are in the year 2050 …</p>
<figure class="align-center ">
<img alt="Boy takes photo of burned landscape" src="https://images.theconversation.com/files/360974/original/file-20201001-20-p6xbjq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/360974/original/file-20201001-20-p6xbjq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/360974/original/file-20201001-20-p6xbjq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/360974/original/file-20201001-20-p6xbjq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/360974/original/file-20201001-20-p6xbjq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/360974/original/file-20201001-20-p6xbjq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/360974/original/file-20201001-20-p6xbjq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Can we imagine a future of childhood wonders lost?</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>1. Basic needs</h2>
<p>You sit in a communal kitchen as you sip your low-food-mile oat latte. You watch the news through a holographic vid-cast floating beside you.</p>
<p>Governments and societies have prioritised equality and social welfare over consumerism and industrialisation. The myth of <a href="https://www.weforum.org/agenda/2016/07/it-s-time-to-demolish-the-myth-of-trickle-down-economics/">trickle-down economics</a> has been exposed. Countries have turned to localised food production. Reduced consumption, trade and travel have caused carbon emissions to flatline, but it may be too little too late. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-morrison-government-wants-to-suck-co-out-of-the-atmosphere-here-are-7-ways-to-do-it-144941">The Morrison government wants to suck CO₂ out of the atmosphere. Here are 7 ways to do it</a>
</strong>
</em>
</p>
<hr>
<p>Your vid-cast tells of winter bushfires in Tasmania and water shortages in all Australian capital cities. You wonder if more spending on technological innovation might have averted these crises. </p>
<p>Nature considered “useful” is doing well. Brisbane’s restored mangroves are flourishing; the city no longer floods, even with sea-level rise. But there is little funding to protect wildlife, and iconic species such as mountain pygmy possums are extinct. </p>
<figure class="align-center ">
<img alt="Firefighter battles bushfire" src="https://images.theconversation.com/files/360988/original/file-20201001-16-1ox0uty.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/360988/original/file-20201001-16-1ox0uty.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=363&fit=crop&dpr=1 600w, https://images.theconversation.com/files/360988/original/file-20201001-16-1ox0uty.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=363&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/360988/original/file-20201001-16-1ox0uty.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=363&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/360988/original/file-20201001-16-1ox0uty.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=457&fit=crop&dpr=1 754w, https://images.theconversation.com/files/360988/original/file-20201001-16-1ox0uty.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=457&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/360988/original/file-20201001-16-1ox0uty.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=457&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Would better technology have averted catastrophic bushfires?</span>
<span class="attribution"><span class="source">Warren Frey/Tasmanian Fire Service</span></span>
</figcaption>
</figure>
<h2>2. Wildlife rules</h2>
<p>You wake up with lab-engineered coffee, then eat breakfast cereal grown at an indoor climate-controlled farm. </p>
<p>You log onto the annual Australasian Conservation Summit. A virtual reality tour takes you to the Great Western Sydney Reserve. There, koalas shipped from Kangaroo Island brought local populations back from the brink. Data from their geo-location tags confirm they now occur across their historic range. </p>
<p>You welcome preservation of this iconic species. But the region’s traditional Dharug clans were not consulted in setting up the reserve. You wonder why they continue to be excluded from walking the Country of their ancestors.</p>
<p>Australia has a significant wildlife-conservation sector, supported by the military, which has created many “green” jobs. But society as a whole is disconnected from nature: most people now experience it via zoos and tree museums.</p>
<p>Some wildlife species may be thriving, but the Great Barrier Reef is not. Global heating is worsening and the burning of fossil fuels continues. Successive years of extreme bleaching has left the reef all but decimated. </p>
<figure class="align-center ">
<img alt="A bleached reef" src="https://images.theconversation.com/files/360990/original/file-20201001-14-ln8pu4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/360990/original/file-20201001-14-ln8pu4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/360990/original/file-20201001-14-ln8pu4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/360990/original/file-20201001-14-ln8pu4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/360990/original/file-20201001-14-ln8pu4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/360990/original/file-20201001-14-ln8pu4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/360990/original/file-20201001-14-ln8pu4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Under one scenario, the Great Barrier Reef has been decimated.</span>
</figcaption>
</figure>
<h2>3. Climate first</h2>
<p>You munch breakfast from locally farmed oats. As you inject your carbon-neutral caffeine hit into an arm vein, you feel a wave of nostalgia for a good ‘ol long black in a mug. </p>
<p>Thanks to radical technological solutions, the most catastrophic climate impacts have been averted. Global governance is now dominated by the ideologies of the Radical Climate Action Alliance. In 2021, environmental and human rights treaties were revoked in favour of the Climate First Charter.</p>
<figure class="align-right ">
<img alt="Swift parrot in a tree hollow" src="https://images.theconversation.com/files/360992/original/file-20201001-20-3d6suw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/360992/original/file-20201001-20-3d6suw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=755&fit=crop&dpr=1 600w, https://images.theconversation.com/files/360992/original/file-20201001-20-3d6suw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=755&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/360992/original/file-20201001-20-3d6suw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=755&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/360992/original/file-20201001-20-3d6suw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=949&fit=crop&dpr=1 754w, https://images.theconversation.com/files/360992/original/file-20201001-20-3d6suw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=949&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/360992/original/file-20201001-20-3d6suw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=949&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">In one imagined version of the future, wind farms decimate swift parrot numbers.</span>
<span class="attribution"><span class="source">Markets for Change</span></span>
</figcaption>
</figure>
<p>Your Unity BCI (Brain Computer Implant) receives drone footage from the alliance. It shows Australia’s red centre covered in solar farms, agricultural lands swamped by biofuel crops and South Australia’s Flinders Ranges dotted with nuclear reactors. </p>
<p>The clip closes with images of carbon-capturing radiata pines dominating vast landscapes of the Adani and Rocky Hill carbon sanctuaries. You wonder what it’s like inside — carbon sanctuaries are closed to all except the Carbon Rangers. Even Traditional Owners are excluded from the Country they sustained for millennia. Meanwhile, corporations benefit from green energy ventures while social inequality rises. </p>
<p>The Great Barrier Reef no longer suffers from summer bleaching events. But indiscriminately placed wind farms have brought the swift parrot and grey-headed flying fox almost to extinction. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/renewable-energy-can-save-the-natural-world-but-if-were-not-careful-it-will-also-hurt-it-145166">Renewable energy can save the natural world – but if we're not careful, it will also hurt it</a>
</strong>
</em>
</p>
<hr>
<h2>Imagination is key</h2>
<p>None of these futures are inevitable. But exploring the logical conclusions of present-day attitudes and decisions can prompt us to ask: what futures do we want?</p>
<p>Together, the three scenarios raise questions such as whether:</p>
<ul>
<li><p>revolutionary economic interventions should be used to address social inequality</p></li>
<li><p>local biodiversity should be valued only to the extent that it is useful to humans</p></li>
<li><p>iconic species and landscapes should be protected through fortress-style conservation, at the expense of local and Indigenous communities and direct climate change action</p></li>
<li><p>governments should prioritise climate action above all else, particularly via technological solutions</p></li>
<li><p>biodiversity matters only to the extent it can mitigate climate impacts.</p></li>
</ul>
<figure class="align-center ">
<img alt="Woman sits in cafe with laptop" src="https://images.theconversation.com/files/360973/original/file-20201001-14-6913ip.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C7360%2C4912&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/360973/original/file-20201001-14-6913ip.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/360973/original/file-20201001-14-6913ip.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/360973/original/file-20201001-14-6913ip.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/360973/original/file-20201001-14-6913ip.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/360973/original/file-20201001-14-6913ip.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/360973/original/file-20201001-14-6913ip.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Using our imaginations can help us decide the futures we want.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>All this matters. Research shows projections of the future <a href="https://www.sciencedirect.com/science/article/abs/pii/S187734351730074X?via%3Dihub">shape</a> how problems are <a href="https://press.uchicago.edu/ucp/books/book/chicago/D/bo20836025.html">understood</a> and communicated, and which strategies are developed to address them. </p>
<p>So how might this apply to the review of Australia’s environment laws? Further reform should involve a <a href="https://besjournals.onlinelibrary.wiley.com/doi/full/10.1002/pan3.10146">range of groups</a> coming together to discuss questions such as: what do we value? What do we want to change? What trade-offs are we willing to make? By collectively deploying our imaginations, we may create better futures for all.</p><img src="https://counter.theconversation.com/content/145167/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Achieving a radically different tomorrow will require more than a purely technocratic approach. So now, imagine you are in the year 2050 …Michelle Lim, Senior Lecturer, Macquarie Law School, Macquarie UniversityCarina Wyborn, Fellow, Australian National UniversityFederico Davila, Research Principal (Food Systems), University of Technology SydneyLaura Pereira, Researcher/Lecturer at the Centre for Complex Systems in Transition, Stellenbosch UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1119452019-04-02T10:40:38Z2019-04-02T10:40:38ZSo you want to tax the rich – here’s which candidate’s plan makes the most sense<figure><img src="https://images.theconversation.com/files/266901/original/file-20190401-177199-1v86w3i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">More Americans agree with plans to raise taxes on the wealthy.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/washington-march-15-protester-holds-sign-621518240">Rena Schild/Shutterstock.com</a></span></figcaption></figure><p>Several Democratic lawmakers and presidential candidates <a href="https://www.cnbc.com/2019/02/05/warren-sanders-ocasio-cortez-propose-taxes-on-the-rich-ahead-of-2020-election.html">are proposing taxes on the richest Americans</a> as a way to reduce income and wealth inequality. </p>
<p>But while they agree that the wealthiest need to contribute more to the government’s coffers, they disagree over the best way to get the job done. </p>
<p>New York Rep. Alexandria Ocasio-Cortez <a href="https://www.vox.com/policy-and-politics/2019/1/4/18168431/alexandria-ocasio-cortez-70-percent">wants to tax millionaires’ wages</a> at a higher rate. Massachusetts Sen. Elizabeth Warren <a href="https://www.vox.com/policy-and-politics/2019/1/24/18196275/elizabeth-warren-wealth-tax">argues for a new tax on wealth</a>. Vermont Sen. Bernie Sanders <a href="https://www.cnbc.com/2019/01/31/bernie-sanders-proposes-big-estate-tax-hike-including-77percent-rate-for-billionaires.html">suggests expanding the gift and estate tax</a>. </p>
<p>What’s the difference and which is the best way to reduce income and wealth inequality? As an <a href="https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=56687">expert on tax policy</a>, I decided to take a closer look. </p>
<p><iframe id="mzV2j" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/mzV2j/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>Income and wealth inequality</h2>
<p>Americans <a href="https://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality">enjoyed substantial economic growth</a> and broadly shared prosperity from the end of World War II into the 1970s.</p>
<p>But in the 1980s, <a href="https://www.brookings.edu/blog/up-front/2017/12/08/what-we-learned-from-reagans-tax-cuts/">President Ronald Reagan dramatically slashed taxes on the wealthy</a> twice, cutting the top rate on wages from 70 percent to 28 percent.</p>
<p>Studies have shown that the drop in tax rates, combined with other “trickle down” policies such as deregulation, <a href="https://www.thebalance.com/trickle-down-economics-theory-effect-does-it-work-3305572">led to steadily rising income and wealth inequality</a>. </p>
<p>The top 1 percent <a href="https://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality">controlled 39 percent</a> of all wealth in 2016, up from less than 30 percent in 1989. At the same time, the bottom 90 percent held less than a quarter of our nation’s wealth, compared with more than a third in 1989. </p>
<p>Each of the Democrats’ proposals aims to change that. </p>
<h2>Ocasio-Cortez’s income proposal</h2>
<p>Currently, the federal government <a href="https://www.nerdwallet.com/blog/taxes/federal-income-tax-brackets/">taxes all income above US$500,000</a> at 37 percent with <a href="https://www.thebalance.com/net-investment-income-tax-3192936">an additional 3.8 percent investment tax</a> on incomes over $250,000.</p>
<p>Ocasio-Cortez <a href="https://www.cnn.com/2019/01/04/politics/alexandria-ocasio-cortez-tax-climate-change-plan/index.html?utm_term=image&utm_source=twbusiness&utm_content=2019-01-04T15%3A05%3A06&utm_medium=social">wants to create</a> a new “60 to 70 percent” tax bracket for labor incomes over $10 million. She <a href="https://www.washingtonpost.com/business/2019/01/05/ocasio-cortez-wants-higher-taxes-very-rich-americans-heres-how-much-money-could-that-raise/?utm_term=.462f85a3c9f7">estimates that her plan would catch about 4,000 people</a> and raise $720 billion over 10 years. </p>
<p>There are two problems with a tax that goes after income instead of wealth. </p>
<p>First, <a href="https://www.moneytips.com/how-the-mega-rich-avoid-paying-taxes">people who earn very high incomes usually control</a> when they receive their income and how much they receive. The reason is straightforward: <a href="https://smallbiztrends.com/2011/12/top-one-percent-own-businesses.html">They own the companies that pay them</a>. This control allows the rich to <a href="https://www.fool.com/taxes/2018/01/27/4-tax-breaks-for-high-income-households.aspx">nimbly take advantage of whatever brings a lower tax</a>. </p>
<p>When rates on ordinary income go up, the wealthy can defer that income until the rates go back down. Or, they can turn salary into a capital gain and watch the value of their stock rise instead of harvesting profits. Or, they can take advantage of retirement savings. Even death is a <a href="https://www.cnbc.com/2019/03/25/bond-market-says-a-recession-is-coming-and-the-fed-will-cut-rates.html">tax avoidance device for the wealthy</a>.</p>
<p>Second, the income tax targets two types of income: ordinary income from labor and capital gains from property. Mostly, the rich <a href="https://www.forbes.com/sites/omaseddiq/2018/03/10/how-the-worlds-billionaires-got-so-rich/#125b82df124c">earn their money from capital gains</a> and capital gains get a <a href="https://www.bankrate.com/investing/long-term-capital-gains-tax/">much lower tax rate</a> than wages. </p>
<p>That is why the richest Americans <a href="https://money.cnn.com/2013/03/04/news/economy/buffett-secretary-taxes/index.html">are effectively paying lower tax rates than the middle class</a>. </p>
<h2>Warren’s wealth tax</h2>
<p>That brings us to the wealth tax. </p>
<p>Sen. Warren <a href="https://www.nytimes.com/2019/02/18/upshot/warren-wealth-tax.html">proposes applying a 2 percent tax</a> on assets worth $50 million to $1 billion and 3 percent on everything above that. She claims that her wealth tax would affect 75,000 households and <a href="https://www.washingtonpost.com/business/2019/01/24/elizabeth-warren-propose-new-wealth-tax-very-rich-americans-economist-says/?noredirect=on&utm_term=.9f41b1d167b1">raise about $2.75 trillion</a> over a decade. </p>
<p>Unlike an income tax, a wealth tax <a href="https://theweek.com/articles/717294/wealth-inequality-even-worse-than-income-inequality">reaches the root</a> of both wealth and income inequality.</p>
<p>There’s only one snag: There are <a href="https://taxfoundation.org/warren-wealth-tax-constitutionality/">strong</a> <a href="http://nymag.com/intelligencer/2019/02/constitutional-concerns-are-a-major-risk-for-a-wealth-tax.html">arguments</a> that a federal wealth tax is <a href="https://theconversation.com/how-slaverys-lingering-stain-on-the-us-constitution-spoils-elizabeth-warrens-wealth-tax-proposal-for-now-110964">unconstitutional</a>. Wealth taxes violate Article I, Section 2, Clause 3, of the U.S. Constitution, which forbids the federal government from laying “direct taxes” that aren’t <a href="https://constitutingamerica.org/february-24-2011-%E2%80%93-article-1-section-2-clause-3-of-the-united-states-constitution-%E2%80%93-guest-essayist-w-b-allen-havre-de-grace-md-2/">apportioned equally among the states</a>. </p>
<p>A direct tax <a href="https://www.salon.com/2019/02/22/how-slaverys-lingering-stain-on-the-us-constitution-spoils-elizabeth-warrens-wealth-tax-proposal_partner/">is a tax on a thing</a>, like property or income. An indirect tax is a tax on a transaction, like when a sale or a gift. </p>
<p>The income tax is a direct tax and constitutional <a href="https://www.law.cornell.edu/constitution/amendmentxvi">because of the 16th Amendment</a>, which specifically allows income taxes without apportionment. As for property, you may notice that <a href="https://www.financialsamurai.com/property-taxes-by-state/">only states levy real estate taxes</a>. In almost every case, the federal government cannot tax real estate or any other form of wealth absent a transaction. </p>
<p>Warren <a href="https://www.bloomberg.com/opinion/articles/2019-01-30/elizabeth-warren-s-wealth-tax-is-probably-constitutional">cites a small group</a> of law professors who back her claim that a wealth tax passes constitutional muster. But the argument against constitutionality is strong enough that a lawsuit before the Supreme Court <a href="https://www.boston.com/news/politics/2019/01/29/elizabeth-warren-wealth-tax-constitution">is sure to follow any attempt to enact a wealth tax</a>. </p>
<p>Barring a victory before a conservative Supreme Court or <a href="https://www.archives.gov/federal-register/constitution">an arduous amendment to the Constitution</a>, the federal government is shut out of taxing wealth.</p>
<h2>Sanders targets wealth transfers</h2>
<p>Sen. Sanders also wants to go after wealth; but unlike Sen. Warren, he wants to focus on when wealth changes hands by reforming the gift and estate tax.</p>
<p>Sanders wants to lower the threshold for when the estate tax applies from $11 million – which <a href="https://www.taxpolicycenter.org/briefing-book/how-many-people-pay-estate-tax">touches just 1,000 estates a year</a> – to $3.5 million, where the threshold stood in 2009. He would also levy a new 77 percent rate on estates over $1 billion. Sanders estimates that his plan <a href="https://www.washingtonpost.com/us-policy/2019/01/31/bernie-sanders-propose-dramatic-expansion-estate-tax-richest-americans-including-percent-rate-billionaires/?utm_term=.9c31e5590447">would raise $315 billion</a> over 10 years. </p>
<p>Although this amounts to significantly less than his colleagues’ proposals, it is far superior because it both addresses the root of the problem – wealth disparities – and can be implemented immediately. </p>
<h2>A rising tide</h2>
<p>I agree with Sen. Warren, Sen. Sanders and Rep. Ocasio-Cortez that the United States should return to economic policies that <a href="https://www.economist.com/free-exchange/2014/03/04/does-raising-all-boats-lift-the-tide">seek to lift all boats</a>. </p>
<p>Although American wealth and productivity has surged in the last 40 years, most Americans <a href="https://www.latimes.com/business/lazarus/la-fi-lazarus-economy-stagnant-wages-20180831-story.html">have not fared nearly as well</a> as the richest <a href="https://inequality.org/facts/wealth-inequality/">among us</a>.</p>
<p>Our tax system is at least partly responsible for these gaps. Changing it can be part of the solution.</p><img src="https://counter.theconversation.com/content/111945/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Beverly Moran does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Democratic lawmakers have offered a number of ways to reverse decades of widening economic inequality. A tax expert gives them a closer look.Beverly Moran, Professor of Law and Sociology, Vanderbilt UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/945032018-04-05T06:26:09Z2018-04-05T06:26:09ZPolitics podcast: Michael Keating on a Fair Share<figure><img src="https://images.theconversation.com/files/256534/original/file-20190131-103164-16wdzm1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The economic credentials and plans of the two major parties are shaping up as a big election battleground.</span> <span class="attribution"><span class="source"> www.gotcredit.com</span>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>With the debate about equality heating up ahead of the federal election, Dr Michael Keating, the former head of three federal government departments, warns that while past economic reforms have served Australia well, there’s a risk some people may be left behind if we don’t “change the debate”.</p>
<p>A new book co-authored by University of Queensland Political Economy Professor Stephen Bell and Keating called <em>Fair Share</em> identifies lagging wages, low taxation and technological change as causes of inequality, and outlines comprehensive policy solutions for addressing these.</p>
<p>Keating told The Conversation that taxation revenue will need to rise by another 3 percentage points of GDP in the next three decades.</p>
<p><strong>Lead image credit</strong>
<a href="https://www.flickr.com/photos/gotcredit/46057548354/in/photolist-2daWYvh-6dZGPM-f3LBY-6afEWA-oHTBBa-SR16qf-24GtHH8-nJ694-4ZAzcq-5TYtBo-vgFXFm-3EWhA3-mS4cXB-cNycsh-dztt48-gJiCjT-bkhfCY-dbMuGc-kDEPgr-5zRx9E-dd8mwC-fMpTA8-2Vwx8p-5Vru4C-ppfmHw-dWcMYe-qcDYwk-aNERPT-oMpQUg-7zaYBS-dyfadJ-2bhuE7k-cehuvW-6eyJBq-9ZRBxK-9hoXkV-ajwu6D-ajwtFT-QJs1C-pphW8q-nhLG-bBFR2x-2yZrtH-DsD6D-oJTNEM-oVMNEp-ppfmGu-dg3WxM-ppfmQ5-5nNZAq">Economy</a>, Stock photo <a href="http://www.gotcredit.com/">www.gotcredit.com </a></p><img src="https://counter.theconversation.com/content/94503/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Keating told The Conversation that taxation revenue will need to rise by another 3 percentage points of GDP in the next three decades.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/859422017-11-01T13:19:51Z2017-11-01T13:19:51ZWhy the private sector’s hype about the African middle class isn’t helpful<figure><img src="https://images.theconversation.com/files/192424/original/file-20171030-18683-10ovx28.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Oluwole Urban Market near Marina in Lagos. Being middle class is more than just being a consumer.</span> <span class="attribution"><span class="source">Reuters/Akintunde Akinleye</span></span></figcaption></figure><p>The African middle class is of huge interest to business. This was confirmed again recently by well attended seminars in South Africa’s big cities to discuss
<a href="http://www.uctunileverinstitute.co.za/">“African Lions: groundbreaking study on the middle class in sub-Saharan Africa”</a>. </p>
<p>The study was motivated by the African Development Bank’s <a href="http://www.uctunileverinstitute.co.za/research/africa/">diagnosis</a> that </p>
<blockquote>
<p>(the African middle class) has grown by over 240% in just over a decade, and the bank defines 15 million households as now being middle class.</p>
</blockquote>
<p>The narrow focus of the study is guided by a particular interest and echoes a poorly informed narrative about the structure of societies in Africa. It is void of any class related analysis and offers little bearing on reality. People are seen only as consumers with no political relevance. </p>
<p>The study was done by the University of Cape Town’s Unilever Institute of Strategic Marketing and the global market research company <a href="https://www.ipsos.com/en">IPSOS</a> over 18 months in ten cities – Abidjan, Accra, Addis Ababa, Douala, Dar es Salaam, Kano, Lagos, Nairobi, Luanda and Lusaka. </p>
<p><a href="http://www.prnewswire.com/news-releases/english-releases/sub-saharan-middle-class-worth-over-400-million-per-day-300467335.html">It defines</a> as middle class someone who has a daily income of between USD$4 and USD$70. He or she also has a disposable income; is employed or is running a business or studying at college; and has some secondary school education. According to this criteria, a whopping 60% of the urban population surveyed fall into this definition of middle class. </p>
<p>The researchers conclude that those who qualify as middle class have an average income of USD$12 a day and an average household income of USD$17 a day. Of these, a third had a full time job, while many ran mainly informal businesses.</p>
<p>According to the study, an estimated 100 million people outside South Africa have an aggregated spending power of more than USD$400 million a day. </p>
<p>It’s clear that the research is motivated by economic interests, targeting the so-called middle class as the object of desire for retailers. As the head of the institute <a href="http://www.engineeringnews.co.za/print-version/sub-saharan-africa-middle-class-represents-r13tr-a-month-market-2017-05-19">explained</a>, the core of the interest in the estimated ZAR1.3 trillion-a-month market was</p>
<blockquote>
<p>a better understanding of the consumer landscape on the continent, (by exploring) aspirations, media consumption, buying patterns, brand relationships and much more (of such middle class).</p>
</blockquote>
<p>Similar interests by the private sector exist in business circles beyond the continent. Large companies paid US$1160 and small ones US$510 to gain insights into the investment opportunities at a recent <a href="http://marketing.business-sweden.se/acton/media/28818/mea-summit-september-2017">“Middle East and Africa Summit”</a> in Stockholm. The second day was devoted to sub-Saharan Africa, which was described as having</p>
<blockquote>
<p>a bulging middle class hungry for inclusion and more sophisticated consumer demands.</p>
</blockquote>
<p>Such approaches perpetuate the original hype over the discovery of the emerging middle classes in the global South, defined in terms of higher living standards. They are measured on consumption and lifestyle related to Western products and status symbols. But no insights are offered into how being middle class could be understood in a social context. This would include status and awareness as well as the political choices people make. </p>
<p>This would require a different, analytically much more ambitious grasp of the economic and political realities in African cities and indeed wider societies.</p>
<h2>The fight back</h2>
<p>In the meantime, scholars in a variety of academic disciplines have started to critically explore the middle class notion. They properly investigate its meaning and definition. This is important because a <a href="http://www.tandfonline.com/doi/abs/10.1080/03056244.2016.1245183">middle class debate</a> reduced purely to the exploration of consumer habits can only be used for self-serving purposes. </p>
<p>In contrast, the new scholarly efforts put an African middle class debate into more meaningful perspectives. They offer a deeper analysis of cultural factors and identities, consciousness, social positioning and relations to other groups as well as institutions and the state. They are on their way to a proper class analysis and the policy options and implications by the social group or groups in formation. </p>
<p>The challenge is to look beyond the superficial number crunching that defines a middle class in purely income and expenditure figures, void of any further analysis of other <a href="http://witspress.co.za/catalogue/the-rise-of-africas-middle-class/">relevant factors</a>.</p>
<p>Such apolitical perspectives tend to put an ideological smokescreen around socio-economic processes. These rest on the assumption that relatively high economic growth rates suggest “progress” and “development”. Meanwhile, little changes in the daily lives of most people. Crumbs from the table of the haves don’t lift them out of a fragile socio-economic habitat bordering on poverty. Many urban and rural people continue to exist in utter destitution.</p>
<h2>Social change</h2>
<p>Engaging with such challenges, exploring how being middle class could be understood and mobilised for social change, would require a different analytical grasp of the socio-economic and political realities in African societies.</p>
<p>Presumably, such different research findings would most likely not be of interest to the business. But, the more socio-politically motivated analyses might contribute towards raising awareness of the class structures perpetuated. These are not fundamentally changed by a growing number of consumers, who are able to buy goods in the shopping malls and enjoy a “Western” lifestyle.</p>
<p>Rather, the advocacy and promotion of social justice and equality based on truly transformative social policies with deeper redistributive effects, could in the long run create a much larger and more sustainable market.</p><img src="https://counter.theconversation.com/content/85942/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Henning Melber is the editor of The Rise of Africa’s Middle Class: <a href="http://witspress.co.za/catalogue/the-rise-of-africas-middle-class/">http://witspress.co.za/catalogue/the-rise-of-africas-middle-class/</a></span></em></p>Scholars have started to investigate what it really means to be middle class in Africa.Henning Melber, Extraordinary Professor, Department of Political Sciences, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/730622017-02-20T05:06:21Z2017-02-20T05:06:21ZExplainer: trickle-down economics<figure><img src="https://images.theconversation.com/files/157450/original/image-20170220-15914-1h8qxqu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">In trickle-down economics , accommodating for big business creates flow on effects for other smaller parts of the economy.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>To anyone who lived through the years of Ronald Reagan’s US presidency, the term “trickle-down economics” should already be familiar. While Reagan <a href="http://www.presidency.ucsb.edu/ws/index.php?pid=15166&st=trickle+down&st1=">wasn’t the first politician to say “trickle down” with a straight face</a>, the economic story signalled by the term was frequently invoked during the Reagan years, most famously to justify <a href="https://www.britannica.com/topic/Economic-Recovery-Tax-Act">massive tax breaks</a> that disproportionately favoured the rich.</p>
<p>The origins of trickle-down can be traced back to William Jennings Bryan, but his <a href="https://www.loc.gov/programs/static/national-recording-preservation-board/documents/WilliamJenningsBryan.pdf">phrasing - “leak through”</a> - didn’t really catch on. Through the years the same basic idea has also been known variously as “supply-side economics” and “Reaganomics”.</p>
<p>Critics of trickle-down policies haven’t overlooked the fact that giving the rich a helping hand may yield political benefits for the politicians offering that help. Since Reagan’s time, trickle-down economics has been derided by other politicians as “<a href="https://www.youtube.com/watch?v=o8hnM6xNjeU">voodoo economics</a>” and as “<a href="https://twitter.com/nzlabour/status/129815717402001408">the rich pissing on the poor</a>.”</p>
<p>The broad idea of trickle-down economics is that giving economic help to companies or people at the top of society should, through one of various possible mechanisms, generate benefits for those in layers further down. Let’s look at the various mechanisms through which this is theorised to work.</p>
<h2>Mechanism 1: Corporations who get tax cuts increase investments in the country that gives them</h2>
<p>In theory, some companies might be drawn to expand operations in Australia because of lower company tax rates. If those expansions created jobs for previously unemployed people, or equal or better jobs for Australian workers compared to what those workers previously could get, then the benefits would be spread to workers. Plus, these companies could add to the demand for Australian-made intermediate goods. </p>
<p>If the expanding companies were more productive than other companies, due to using more efficient production processes, then this could also raise overall Australian productivity. In theory this would allow all of us to get more out from putting less in.</p>
<p>Yet many companies are more likely to look to other margins when making the decision about whether to enter or expand in Australia. These might include the cost of labour, the degree of red tape, qualities of relevant markets, and Australia’s geographical location. </p>
<p>This is partly because the tax breaks usually floated by politicians are modest, and also because the corporate tax rate differences between Australia and many of its peers are <a href="https://theconversation.com/factcheck-is-australias-corporate-tax-rate-not-competitive-with-the-rest-of-the-region-37226">comparatively small anyway</a>. There is also a lemmings-over-a-cliff concern here: if our peer nations start taxing companies at rates below what is required to finance effective government, should we follow them?</p>
<p>More subtly, the incentive effects we’d predict from a company tax break are complicated by the fact that no company operates like a person. Though we attribute human traits to companies routinely, in reality the decisions companies take are myriad and in many different areas. </p>
<p>Each is taken by some individual person in a particular department with particular, constrained, information and decision-making authority. It’s not guaranteed that each such decision maker in a company will know about a bit of extra cash due to a tax break and be spurred because of it to take a particular decision in their realm that dovetails with decisions taken by other company workers. </p>
<p>To the extent that the company does not act as a unit, the hoped-for labour demand and productivity effects may not materialise. The same is true if that tax-break money is used for other purposes, like funding dividends to shareholders or lining the pockets of the top brass.</p>
<h2>Mechanism 2: Rich people who get tax cuts will use the extra money in a way that helps the country as a whole</h2>
<p>The main idea here, as with Mechanism 1, is that more investment will create more jobs and potentially increase productivity (which results from those jobs). Some rich people might indeed invest the extra dollar directly into the stock of an Australian business. In fact, since rich people have a <a href="https://en.wikipedia.org/wiki/Marginal_propensity_to_consume">lower marginal propensity to consume</a> than poorer people, they’re more likely to spend an extra dollar on investment than on stuff.</p>
<p>Nonetheless, a rich person might choose to buy Australian-made products with that money, which should act as a stimulus to Australian businesses. Of course that person could instead shop online for an overseas product or take an overseas trip, in which case that extra dollar would flee the country.</p>
<p>A rich person might instead lend the bank that extra dollar by depositing it into a bank account. If the bank then promptly loaned that money out to domestic borrowers, then we might see a positive economic effect, if the main borrowers who benefit from this looser cash were businesses that went on to use the money for a productive purpose. </p>
<p>If the extra dollar ended up going to less productive businesses, we might see a temporary uptick in employment and intermediate goods sales that then melted away when the business was out-competed. If home buyers got the money instead, it might mainly fuel increased house prices.</p>
<h2>Mechanism 3: Aggregate tax revenue will rise when taxes are cut</h2>
<p>Perhaps the most radical notion in supply-side economics is that cutting taxes might, counter-intuitively, raise tax revenue. </p>
<p>Suppose a company were making $100 in profits and faced a company tax rate of 30% (creating $30 in tax liability), but then the tax rate dropped to 28%. The extra $2 of “found money” might be invested in the business in a way that generates a rise in profits, say to $110. This would then create a tax liability of $30.80, or $0.80 more than the government collected under the higher tax rate.</p>
<p>Notice how large the return on the investment of the “found money” had to be, in order to create even a tiny increase in corporate tax revenue, from this 2-percentage-point tax break.</p>
<p>More taxes could also be raised if the employees of that company, as it expanded, shared in its increased productivity in terms of their taxable take-home pay. An increase in government tax revenue could then in theory be allocated to welfare, infrastructure, and other progressive budget line items, benefiting more people indirectly.</p>
<p>Naturally, this is not necessarily how things will play out. The “found money” from the tax break might be used by a company in ways that do not yield an increase in productivity and profits of the required amount to create a tax revenue hike for the government; and any revenue hike may not be directed to progressive expenditures.</p>
<p>In sum, careful listeners might sometimes hear a gentle trickle in our economy, but many parts of the waterwheel would need to be positioned just right in order to generate a steady flow.</p><img src="https://counter.theconversation.com/content/73062/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gigi Foster receives funding from the Australian Research Council.</span></em></p>The basic idea of trickle-down economics is that giving economic help to companies or people at the top of society should generate benefits for those in layers further down.Gigi Foster, Associate Professor, School of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/657052016-09-23T03:41:42Z2016-09-23T03:41:42ZPublic universities are under threat – not just by outside reformers<figure><img src="https://images.theconversation.com/files/138829/original/image-20160922-22518-641nq7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">What are threats facing America's public universities?</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/brownfields/5420465063/in/photolist-9fZiqc-bXR59o-bXQSfy-4Qw69f-uJJtD-82QsWH-4QrTht-bXR6Ys-bXQK8L-4Qw1QY-bXQP6J-9Kbt4c-bXRfUo-4QrMwV-M3tDB-bXQq45-bXQn49-4Qw6VQ-4QvZ5o-4QrTWr-4QwbbE-bXQwGm-5M6Nmj-9Swku7-bXR1Cs-4QrRUk-fS7yJ-M3muh-bTAa7e-bXScFm-4QrTda-sG5ssW-bXQg5h-4Qw5Mh-82TBXo-8j3YnV-uJJHa-bTA9Et-bXQmiw-bTAab2-bXQ3US-9Kbt3p-GNDM8L-bXSb9y-4QrPBe-dcKn6Q-4QrR1g-bXPMWo-dcKop7-dcKnof">Matthew Ephraim</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>A new documentary, <a href="http://www.starvingthebeast.net">“Starving the Beast,”</a> recently examined the state of public higher education. Directed by <a href="http://www.stevemimsfilms.com/Site/home.html">Austin-based award-winning documentarian Steve Mims</a>, the film argues that a network of right-wing think tanks and educational reformers <a href="https://www.insidehighered.com/news/2016/03/22/starving-beast-examines-ideological-shifts-funding-higher-education">are undermining public universities</a>. It suggests that America’s great public universities may die from a thousand cuts unless policymakers change course.</p>
<p>My experience as a higher education policy researcher leads me to share many of Mims’ concerns. There are <a href="https://theconversation.com/what-berkeleys-budget-cuts-tell-us-about-americas-public-universities-54997">many</a> <a href="https://theconversation.com/what-berkeleys-budget-cuts-tell-us-about-americas-public-universities-54997">serious challenges</a> facing public universities. </p>
<p>However, my research also shows more than a right wing conspiracy is to blame for the condition of public higher education today.</p>
<h2>Let’s first look at what the film tells us</h2>
<p>This film’s story has many villains and few heroes. It describes how conservative politicians, think tank wonks, education reformers and wealthy political donors work together to transform public universities. According to Mims, they have two goals. The first is to run public universities like businesses. The second is to stop universities from teaching and research that contradict conservative values.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/138842/original/image-20160922-22502-rdvrgc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/138842/original/image-20160922-22502-rdvrgc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=398&fit=crop&dpr=1 600w, https://images.theconversation.com/files/138842/original/image-20160922-22502-rdvrgc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=398&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/138842/original/image-20160922-22502-rdvrgc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=398&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/138842/original/image-20160922-22502-rdvrgc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/138842/original/image-20160922-22502-rdvrgc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/138842/original/image-20160922-22502-rdvrgc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Have universities really been idyllic bastions of academic freedom?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/kimberlykv/4495912134/in/photolist-7RhJ3s-dZJXWz-E2rWyT-rx2xeE-52vwjo-9XxaYL-fhdrpK-6xBuui-9Xxjzs-9XutnB-EkJ9gn-7LSZ6M-9XtuXX-f5Ra6H-pfehms-9XuqP6-bQ9C7X-9XudmB-jVfCNy-jVeYji-8BJPE4-6uC6Y6-bQWfKK-dZfuWf-4qrTiZ-9yd2ZL-9Xup2p-81Tbtd-b3Kxhp-bzhos1-6q7KEo-9XxdtL-9XtwZz-fhsEoS-oDYrUj-KpYfv-b3KwGZ-9Xx1h1-6uFqmf-jwsppL-7fsMEh-aBiHXQ-bzhp1L-9Xx5Js-eSR8Yn-bC2vhd-9Xu7G6-hetdL6-AuCXw-ffDzmi">Kimberly Vardeman</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>The film shows how many recent reforms are ideologically motivated. For example, one idea that motivates reform today is economist <a href="http://www.laffercenter.com/the-laffer-center-2/">Arthur Laffer’s</a> “trickle-down economics.” Laffer theorizes that all government spending slows economic growth and innovation. </p>
<p>Laffer’s ideas lead reformers to believe reducing state support for higher education will boost the economy and prompt universities to become more efficient. </p>
<p>The other concept that has gained much traction is <a href="http://www.hbs.edu/faculty/Pages/profile.aspx?facId=6437">Harvard Business School professor Clayton Christensen’s</a> idea of <a href="http://www.claytonchristensen.com/key-concepts/">“disruptive innovation,”</a> which holds that established organizations innovate only when upstart competitors upend their business model. For the reformers this means promoting for-profit colleges to compete with public universities. </p>
<p>Anti-tax lobby groups like <a href="http://www.atr.org">Americans for Tax Reform (ATR)</a> are also implicated in the film. Since 1986 many elected Republicans have pledged to ATR never to raise taxes, making it hard to adequately fund higher education. </p>
<p>The results of all of this, according to Mims, are devastating budget cuts, program closures, and the erosion of academic freedom.</p>
<p>But here’s the problem: In focusing on contemporary developments, the film implies that public universities were, until recently, well-supported, idyllic bastions of intellectual freedom.</p>
<p>In creating this impression, Mims indulges in what <a href="http://www.tandfonline.com/doi/pdf/10.1080/01425692.2012.746260?needAccess=true">I describe</a> as higher education critics’ tendency “to reject the present by pointing to a more perfect past.” Idealizing the past may tell a good story but it ignores the <a href="http://thenewpress.com/books/lost-soul-of-higher-education">long history of political struggle</a> that has led to the present crisis.</p>
<h2>Why there’s another side to the story</h2>
<p>Let’s consider the recent history of some of the challenges facing public universities.</p>
<p>Declining funding for higher education has been a serious problem in recent years. After the Great Recession in 2008 public universities in most states <a href="http://www.nea.org/assets/img/PubAlmanac/Zumeta_2010.pdf">experienced dramatic funding cuts</a>. But these cuts followed decades of decline. </p>
<p>A 2015 report of the <a href="https://www.amacad.org/multimedia/pdfs/publications/researchpapersmonographs/PublicResearchUniv_ChangesInStateFunding.pdf">American Academies of Arts and Sciences (AAAS)</a> shows that in 1990 14.6 percent of state budgets went to higher education, but by 2014, this share had dropped to 9.4 percent.</p>
<p>I share the assessment that the <a href="https://theconversation.com/college-is-worth-it-who-should-pay-for-it-57085">states invest too little</a> in higher education. Decline in state funding has led to <a href="http://fivethirtyeight.com/features/fancy-dorms-arent-the-main-reason-tuition-is-skyrocketing/">increased tuition</a>. But, as the AAAS report shows, other demands on state budgets, including increased health care spending, partly explain declines in higher education funding.</p>
<p>Research does show that Republican governors and Republican-controlled legislatures fund higher education <a href="https://muse.jhu.edu/article/364700/summary">less generously</a> than Democratic governments. Nevertheless, some of the policies that weaken public universities have enjoyed bipartisan support. For example, policies allowing more public funding to go to for-profit colleges have had backing <a href="https://jhupbooks.press.jhu.edu/content/degrees-inequality">from both Democrats and Republicans in Congress</a>.</p>
<h2>Let’s look within</h2>
<p>Another claim made in the film is that reforms are designed to undermine academic freedom. </p>
<p>I disagree that threats to academic freedom come only from outside forces. This portrayal is too generous to universities, which often make decisions for nonacademic reasons. </p>
<p>Mims shows that intellectual activities that disagree with conservative ideology sometimes attract the ire of conservative politicians. One troubling example from the film is the <a href="https://www.aaup.org/article/closure-poverty-center-north-carolina#.V9cGg2U0r9o">closure of a poverty research center</a> in North Carolina. </p>
<p>But as public policy expert from University of California, Berkeley <a href="https://gspp.berkeley.edu/directories/faculty/david-kirp">David Kirp</a> demonstrates in his book, <a href="http://www.hup.harvard.edu/catalog.php?isbn=9780674016347&content=bios">“Shakespeare, Einstein, and the Bottom Line,”</a> financial interests often trump academics at America’s universities. <a href="https://muse.jhu.edu/article/609049#b5">Although painful for those involved</a>, many program closures are motivated by <a href="https://muse.jhu.edu/article/180178/summary">cost and efficiency concerns</a> rather than political ideology. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/138843/original/image-20160922-22533-1sac9iw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/138843/original/image-20160922-22533-1sac9iw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/138843/original/image-20160922-22533-1sac9iw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/138843/original/image-20160922-22533-1sac9iw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/138843/original/image-20160922-22533-1sac9iw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/138843/original/image-20160922-22533-1sac9iw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/138843/original/image-20160922-22533-1sac9iw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A large number of faculty are now hired on a part-time or contingent basis.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/24736216@N07/4661675641/in/photolist-86WiKX-nJv14m-bFe1kG-nN82HJ-6wthZv-bThSyP-Naw4b-eiXUYS-c3Dk8Y-sSEeRG-8xvJQE-do9X1q-nh9omw-9J9RJu-nVFJ13-bV4oMs-nTJDTd-bFdZEo-nJFKCP-nscnxJ-6qxSQD-nscoHE-dBHsUP-bU8K7K-dA8wQ5-bFe1TL-nscegT-nJoNyD-6wxtew-bU8JRP-bFe2em-bU8KA8-nvNguJ-ePtH3G-bU8EZ6-bThTPn-bFe1bU-nNeLDd-bFe1EW-dA33S8-bFe2cf-eiifB8-8wbV1w-bFe25y-ePtGcS-c4cYXS-bFe1HN-nMZBra-nvNGme-4PsbAZ">Roger W</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>“Starving the Beast” also identifies anti-tenure policies as a major threat to academic freedom. Sure enough, recent developments, such as <a href="http://www.politico.com/story/2015/07/scott-walker-college-professor-tenure-120009">policies in Wisconsin</a> <a href="http://www.huffingtonpost.com/2011/04/07/college-professor-salary-texas_n_845667.html">and Texas,</a> weaken tenure and academic freedom. These are threats that come from outside of higher education. And, indeed, these policies concern me. </p>
<p>But <a href="https://www.aaup.org/issues/contingency/background-facts">more than one-half of all faculty</a> are now “contingent” – that is, they teach on a semester-to-semester basis. This <a href="http://www.newfacultymajority.info">“new faculty majority”</a> has little protection for academic freedom. In my assessment, widespread use of contingent faculty by colleges and universes poses the greatest threat to the academic profession.</p>
<h2>Who is responsible?</h2>
<p>Mims suggests that most people don’t know what is happening to public universities. That may be true. But in my assessment, social values might also contribute to the problem. </p>
<p>Results of a study by University of Michigan <a href="http://www-personal.umich.edu/%7Ekstange/JacobMcCallStangeConsValue2013.pdf">economists Brian Jacob, Brian McCall and Kevin Stange</a> indicate that most students make enrollment decisions based on campus amenities such as state-of-the-art gyms rather than academics. Campus officials seem to be responding to what students want: Campus amenities are among the <a href="http://www.ingentaconnect.com/content/aea/jep/2012/00000026/00000001/art00009">fastest-growing categories</a> of expenditures at public universities.</p>
<p>It’s also the case that many students go to college for job training rather than the intrinsic value of learning. A study by the Higher Education Research Institute at UCLA shows that 70 percent of college freshman believe earning a college degree is “very important” in order “to be able to <a href="http://www.heri.ucla.edu/monographs/TheAmericanFreshman2015.pdf">make more money.”</a></p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/138846/original/image-20160922-22527-61r3ix.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/138846/original/image-20160922-22527-61r3ix.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=379&fit=crop&dpr=1 600w, https://images.theconversation.com/files/138846/original/image-20160922-22527-61r3ix.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=379&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/138846/original/image-20160922-22527-61r3ix.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=379&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/138846/original/image-20160922-22527-61r3ix.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=476&fit=crop&dpr=1 754w, https://images.theconversation.com/files/138846/original/image-20160922-22527-61r3ix.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=476&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/138846/original/image-20160922-22527-61r3ix.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=476&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Often student enrollment decisions are based on campus amenities.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/pennstatelive/22346816132/in/photolist-A3HgTj-epdXP4-eavLiA-pBQBto-8xfzpL-eavY3U-bweYAx-bEo933-e51qKf-b41LxV-eW42a8-ar98Tk-aDdY5N-pf1Mvt-668vua-eavWQC-8xarL5-eavZVS-rgTjhN-ehrpz9-51rBdW-eaqbEk-dMjBVv-faNTRc-9EhSiX-8xfzry-eUKMxw-aQZoFV-srXepo-egpFep-8xfzom-fCc8qR-o2SJHt-abncPw-brfcKe-9vTHtf-8rpLbD-8xbT8A-8x5Pjz-nMqSt1-pBRqkP-drdwjS-drdw8j-8x9TkR-dzkuy3-cPNj2b-bDrL6Y-edUNX3-b2nX4z-5VF8BN">Penn State</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>What is more, policies and politics destructive to public universities appear to be popular. Tax increases would be necessary to <a href="http://www.bloomberg.com/news/articles/2016-08-01/majority-of-americans-want-college-to-be-free">maintain high-quality education</a> at low costs. Yet a majority of Americans believe <a href="http://www.gallup.com/poll/1714/taxes.aspx">their taxes are too high</a>. </p>
<p>And several of the politicians featured in “Starving the Beast” as being harmful to universities, including Scott Walker of Wisconsin and Bobby Jindal of Louisiana, were elected to two terms by the people of their states. </p>
<h2>Asking some tough questions</h2>
<p>What does this all mean?</p>
<p>If, like me, you are anxious about the condition of public universities, “Starving the Beast” will only heighten your concerns. The film is a compelling account of how special interests collude to weaken public universities. </p>
<p>However, it tells only part of the story.</p>
<p>In addition to holding educational reformers and ideologues to account, it is my view as an educational researcher that we should also ask tough questions of ourselves, our neighbors and to university officials: </p>
<p>Are we willing to pay higher taxes for better higher education? How do we make educational choices for ourselves and for our families? Should university leaders rely on contingent professors while investing in football stadiums and gyms?</p>
<p>By asking these questions, I am not providing excuses for policies that Mims correctly identifies as harmful to public universities. I agree that state policies have been harmful to public universities. But what I am suggesting is that those concerned with the condition of public higher education consider the problem in a broader context with research-based evidence. </p>
<p>Excellent, accessible and affordable public universities are not possible without a broad public support.</p><img src="https://counter.theconversation.com/content/65705/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Brendan Cantwell does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A provocative new documentary, ‘Starving the Beast,’ blames the condition of higher ed on right-wing policies. A scholar argues that the film ignores a long history that has led to current crisis.Brendan Cantwell, Assistant Professor of Higher, Adult, and Lifelong Education, Michigan State UniversityLicensed as Creative Commons – attribution, no derivatives.