Dear Editor,
Reference is made to your editorial “A horse and sparrow economy” (Sep 18) that essentially critiques “trickle down economic theory” (supposedly being used as an instrument to revive Guyana’s ailing economy) but did not do justice in explaining the concept to those who have not studied economics or understand how it is supposed to work. I never thought trickle-down economics would be used as a development model in Guyana in this period of time as it is hardly talked about in developing countries or taught in school in the last couple decades. It was widely discredited as an economic model. Aside from the US, and to some extent in the UK under PM Maggie Thatcher, it was really not utilized in developed or European countries because it largely lacks a human face.
In short, the theory states that tax breaks and corporate welfare benefits for big businesses and the wealthy class will eventually trickle down to those below. Benefits to large businesses, investors, and entrepreneurs will cause them to invest that will create jobs, stimulate growth, increase tax revenues and create a bigger pie to share out. In theory, everyone will benefit in the process with rising income. The reality was the opposite. Trickle-down economics theory became popular in the mid-1980s; it was the subject of discussion in almost every economics course because of Reagonomics. And the concept was included in text books and became a mandatory topic when I taught economics in the 1990s. There is probably no modern economic theory more thoroughly discredited than trickle-down economics. It is a discredited theory in application especially in developing countries (or Third World) post-independence. Globally, it went out of fashion in recent decades, forgotten until your editorial. Is the government really applying trickle-down economics as a model for development to lift the poor or is it something else? Some would argue that the government is on course towards a welfare state with various reliefs and handouts. In light of the pandemic, where unemployment is probably over 40%, isn’t such a welfare state justified? How else can the poor eat when jobs are scarce?
I do not know if trickle down economic theory would work in Guyana. The mining sector is doing well but other sectors are lagging or anemic and in need of support. Trickle-down economics is more a political policy rather than an economic theory because it has not been successful anywhere. It makes the wealthy class richer with minimal benefits to the working class. Perhaps a study should be commissioned to project on the effects of trickle-down economics. I would recommend Prof. Tarron Khemraj who writes regularly on economics in SN and Prof Ganga Ramdass as well as UNDP economist Dr. Ramesh Gampat, one of the most brilliant socio-economic analyst I have read in studies on developing countries as well as on Guyana’s economy.
Sincerely,
Dr. Vishnu Bisram
