Supply-Side Economics: A Theory That Never Worked In Reality

Quick Summary:

• Supply-side economics, since its inception in 1981, has failed to meet its promises of economic growth through tax cuts and deregulation.
• The widening gap between executive and worker pay is a clear sign of the rising economic inequality spurred on by supply-side economics.
• The growing economic inequality is eroding democracy, a change observable from 1981 up to the present day.
• The brunt of the negative impacts of supply-side economics is borne by the average Americans.
• Discrepancies in wealth are mirrored in the life spans of Americans, with the more affluent living longer than the less wealthy.
• The ‘deaths of despair’ – deaths from alcohol, drugs, and suicide linked to economic distress and hopelessness – are increasingly prevalent among Americans.
• Geographic disparities such as those evident in differing life expectancies across zip codes further illustrate the depth of economic inequality in the U.S.
• Supply-side economics, since its introduction in 1981, has not bolstered the general health of the economy as promised.
• Rather than stimulating economic growth, tax cuts for the rich have contributed to growing income inequality, with the rich getting significantly richer.
• Policies like the tax cuts under the Trump administration, which were supposed to invigorate the economy, have instead led to a concentration of wealth among the already wealthy.

Supply-Side Economics

Supply-side economics, a theory championed since the Reagan administration, asserts that cutting taxes and reducing regulations stimulates economic growth. However, historical data since 1981 presents a narrative of underperformance and unfulfilled promises.

The Reagan administration, during the 1980s, drastically reduced the top marginal tax rate from 70% to 28%, in the belief that it would spark investment and job creation. However, according to the Washington Post, the share of total pre-tax income for the top 1% of earners in the U.S. increased from 10% in 1981 to 15.5% in 1989. This change wasn’t mirrored in the middle and lower-income groups, indicating a concentration of wealth among the rich, a stark contrast to the predicted trickle-down effect.

Subsequent administrations have continued this trend. The tax cuts implemented under George W. Bush in 2001 and 2003, aimed at stimulating growth, seemed instead to favor the affluent. The Trump administration’s Tax Cuts and Jobs Act of 2017 also reflected similar patterns. As reported by The Guardian, the tax rates for the wealthiest 400 families in the U.S. were lower than any other income group following the implementation of these cuts. Thus, these policies intended to invigorate the economy ended up perpetuating wealth concentration among the already rich.

The Intensification of Economic Inequality

The implementation of supply-side economics is intimately tied to an escalation in economic inequality. Over the years, since 1981, wealth and income disparities in the U.S. have become glaring societal issues.

A striking example of this inequality is the disproportionate increase in executive pay compared to worker wages. As reported by the Economic Policy Institute, since 1978, CEO compensation has grown 940% while typical worker compensation has only seen a 12% rise. This divergent growth pattern, exacerbated by supply-side policies, highlights the stark inequities in income distribution, favoring the rich at the expense of the average workers.

The Erosion of Democracy by Economic Inequality

Economic inequality, fueled by supply-side economics, can erode the foundation of democracy. The accumulation of wealth in the hands of a few provides them with disproportionate influence over political decisions, threatening the democratic principle of equal representation.

The Scientific American suggests that increasing economic inequality can lead to political instability and social fragmentation, which can destabilize democratic norms and institutions. As wealth disparities rise, social mobility decreases, fostering disillusionment among disadvantaged groups and leading to lower levels of civic participation.

This economic stratification hinders democratic participation, as the economically disadvantaged individuals may feel their political efficacy is minimized in the face of wealth-based power. Thus, the economic inequality propagated by supply-side economics can serve as kryptonite to a healthy, functioning democracy.

Inequality and American Lifespan

In the face of the towering promises of supply-side economics, regular Americans have borne the brunt of its failures. The numbers speak loudly: not only are income and wealth disparities on the rise, but these discrepancies also reflect starkly in the life spans of Americans, with the wealthier living significantly longer than the less affluent.

According to a study by the Brookings Institution, a baby born in 1980 to parents in the lowest income quintile had a life expectancy 30% shorter than a child born to parents in the highest quintile. This gap has only widened since then, with research showing that higher income is associated with longer life, and lower income with shorter life.

Further highlighting the depth of inequality are ‘deaths of despair’ – a term coined by economists to describe deaths resulting from alcohol, drugs, and suicide. These are often driven by the economic distress and hopelessness faced by many individuals. According to a report by the Brookings Institution, deaths of despair in the United States have been on the rise since 2000. These deaths are often concentrated in areas that have faced long-term economic decline or stagnation.

In a report by TIME magazine, the shocking influence of zip codes on health outcomes was brought to light. A child born in 2001 in New Orleans’s wealthy Audubon neighborhood could expect to live till 80, while just a few miles away in the disadvantaged Iberville/Tremé, the life expectancy dropped to 55. The rising economic inequality and despair are leaving an indelible mark on the health and lifespans of regular Americans.

Supply-Side Economics Has Failed To Make Its Case

Despite the fervor with which it has been promoted, supply-side economics has consistently shown that it falls short of its promises. Since its implementation in 1981, instead of bolstering the overall health of the economy, it has fostered an environment that encourages the upward redistribution of wealth.

An analysis by the London School of Economics showed that cutting taxes for the rich has failed to stimulate economic growth over the past 50 years. Instead, such policies have largely contributed to growing income inequality, with the rich getting richer while the poor and the middle class continue to struggle.

In a similar vein, The Guardian reported that the tax cuts initiated by the Trump administration favored the wealthy, with the richest 400 families in the U.S. paying lower tax rates than any other income group. This has not led to the promised economic revitalization, but rather to a further concentration of wealth among the rich.

In essence, supply-side economics, as evidenced by the decades since its introduction, has failed to fulfill its economic case. The lack of promised growth and the growing income and wealth disparities clearly highlight the necessity to rethink and reevaluate these economic policies. It’s apparent that a policy that prioritizes the rich and leaves behind the majority of Americans cannot be the path towards a healthy, vibrant economy.

For Additional Reading:

• London School of Economics: Tax cuts for the rich
• CBS News: Tax cuts for the rich, 50 years with no trickle down
• The Conversation: Explainer: Trickle-down economics
• The Guardian: Trump tax cuts helped billionaires pay less
• Washington Post: Tax cuts for the rich
• Bloomberg Tax: How four decades of tax cuts fueled inequality
• American Progress: Tax cuts are primarily responsible for the increasing debt ratio
• ProPublica: National debt under Trump
• Washington Post: Income inequality is destabilizing
• Financial Times: How inequality threatens civil society
• Scientific American: How inequality threatens civil society
• Brookings: The growing life expectancy gap between rich and poor
• Vox: Life expectancy and income inequality in the U.S.
• Time: Zip code health
• Brookings: America’s crisis of despair