The False Death of Trickle-Down Economics, Part II

Last October, this column addressed the notion of trickle-down economics. The aforementioned concept has to do with the basic belief that the economic gains made by the rich accrue to those not rich.

Economic thinkers from Paul Krugman to Jared Bernstein to Jonathan Chait (Chait refers to thinking here as the “Big Con”) have dismissed the idea that the above is real, but as the referenced column showed, trickle-down economics quite simply is. Indeed, all it took to prove this point was to collect media accounts showing how economic uncertainty for the well-to-do in our midst had greatly impacted those not as well-to-do. This revealed itself everywhere from the retail sector to tips given at restaurants to charity.

Sadly, news accounts since October have yet again shown that when the rich are hurting, the poor hurt even more. The logic underpinning trickle-down economics is difficult to refute, and if the news since the fall is any kind of indicator, the concept’s reversal amid our economic decline continues to harm the poor and middle class.

To begin, we can reference a December article by Miriam Jordan in the Wall Street Journal. Titled “When the Going Gets Tough, Some People Lay Off the Nanny”, Jordan among others profiled Dolores Jacobo, nanny for three-month old twins in an “affluent Malibu, Calif., household.” According to Jordan, Jacobo had “earned her place as an integral member” of the family, but with the family hit hard by this nation’s economic decline, Jacobo was recently informed that her $1,000-a-week position was being eliminated.

Jacobo is not alone in this regard. Jordan observed that “on a recent morning, it was standing room only in the waiting room at DDL Domestic Agency in Los Angeles.” Applicants for new caregiver positions included Alba Monterrosa, a 31-year old single mother of two who had previously earned $600/week caring for the 3 and 5-year old children of Suzanne Sirof. But thanks to the economic downturn, Sirof can no longer afford Monterrosa.

Moving to houses of worship, another Wall Street Journal article from last month titled “In Hard Times, Houses of God Turn To Chapter 11 in Book of Bankruptcy”, showed how churches are similarly taking the enervated economy on the chin. As the article noted, during “this holiday season of tough times, not even houses of God have been spared.” According to various accounts, church giving is down as much as 15 percent, and as a result, some have been forced to file for bankruptcy.

When it comes to charities, a November article from the Journal chronicled “Big Players” that have scaled back on charitable donations. Due to losses in the stock market combined with a recessionary outlook, the “pipeline from corporate America to the nation’s charities is starting to dry up.” Formerly big givers such as Bear Stearns, Lehman Brothers and Merrill Lynch have either collapsed or been bought, not to mention the fact that billionaires – including Bill Gates – have said they’ll be scaling back the dollar amount of their grants.

Other billionaires joining Gates when it comes to less giving include renowned philanthropist David Koch, who says he’s “not making new commitments.” Former AIG chief Hank Greenberg’s foundation is heavily weighted in AIG stock, but with the insurer’s shares well down, Greenberg says “You can’t give what you haven’t got.” Las Vegas casino mogul Sheldon Adelson has watched his Sands’ holdings decline by $30 billion, which means the traditional recipients of his largesse will see a decline in the funds they receive, assuming they receive anything at all.

Residents of Palm Beach, the legendary playground of the rich, were in particular hit hard given how many had exposure to the allegedly fraudulent dealings of Bernard Madoff. According to the Wall Street Journal’s Paulo Prada, if the worst materializes, “Gardeners and dog walkers are likely to lose jobs, along with accountants and lawyers.”

For the business owners whose shops and restaurants line Palm Beach’s Worth Avenue, they worry that the “alleged fraud will exacerbate what already has been an unusually quite season.” That being the case, it’s fair to assume that the waiters and waitresses heavily reliant on tips will experience for the first time in a while what it’s like to serve relatively impoverished customers.

As for Jewish charities, some have already folded altogether, and some face disastrous shortfalls. According to the Wall Street Journal’s Eleanor Laise and Dennis Berman, programs “for bone-marrow transplants, death-row inmates and human rights campaigns” have already been threatened “as dozens of philanthropies took stock of their exposure” to Madoff.

Moving to our institutions of higher learning, a Los Angeles Times article from Christmas day pointed to donation shortfalls at Syracuse University that if not corrected, would force 400 students to drop out. Thanks to California’s budget crisis, student fees at schools in the UC system will rise 10 percent next year, while the Cal State system will reduce its enrollment by 10,000 students.

Citing losses in its $17.2 billion endowment, Stanford plans to reduce financial aid. President-elect Barack Obama’s former college, Occidental, plans to freeze non-faculty hiring, and the University of Southern California plans the same.

And with retail sales down, Liz Claiborne CEO William McComb now catches various subways and trains to New York City airports in order to shield his shareholders from costs related to cabs and livery drivers. Last month, this writer made a speech in Pittsburgh, and was taken in a cab from downtown to the Pittsburgh airport by cabdriver Jim Marosz. Marosz said the downturn has taken his fares down 30 percent. In the words of Marosz, “our fares go up and down with the economy.”

So while elite economic thinkers turn their noses up to the notion of trickle-down economics, all it takes to confirm the latter’s truth is to pick up any major newspaper on any given day. With the U.S. economy struggling, the rich are very much hurting. Sadly, it remains the case that those not rich will feel their pain most acutely.

All of the above will hopefully be remembered the next time a politician posits that economic bliss will result from hurting the rich. Indeed, while the rich surely pay the most in taxes and experience the greatest losses of wealth during tough economic times, it’s invariably the poor who truly feel their pain.