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How trickle-down/supply-side economics fails to fulfill its (housing) promises
Trickle-down economics, also known as supply-side economics, was a product of the early 1980s, most prominently promoted by economist Arthur Laffer (the "Laffer Curve," which should have been named the “Laugher Curve” because that’s what the rich did all the way to the bank when it was implemented). It was embraced with great fanfare by the Reagan Administration. Its advocates argued that by cutting taxes on the wealthy and reducing government regulations on big businesses, wealth will "trickle-down" to the rest of society, ultimately benefiting everyone.
Unfortunately, “trickle-down” has resulted in the opposite effect, with wealth “surging up” to the top while doing little to improve the financial well-being of the average American family and even less for the bottom 50%.
Trickle-down "economics" has turned out to be more like trickle-down "crumbs" for the masses.
The fundamental con of trickle-down economics is assumption that the wealthy, flush with cash from tax cuts, will invest their tax cuts into businesses, leading to job creation and economic growth. But in practice, the wealthy just prioritized maximizing their own wealth. Like it or not, that's just human nature, particularly for individuals who measure themselves and others only by how much wealth they amass.
One flaw in trickle-down and supply-side economics is that is neglects the importance of consumer demand (aka, wealth) in driving economic growth. Businesses ultimately rely on the consumers to succeed. When middle and lower income groups have less disposable income due to stagnant wages and rising costs of living, consumer demand weakens, leading to slower economic growth and decreased profits and capital investment.
Trickle-down economics also fails to acknowledge systemic, socioeconomic issues that perpetuate inequality and hinder upward mobility: factors such as unequal access to quality education, jobs, healthcare, healthful food, clean air and water, social justice, and tax equality that create barriers for lower-income individuals and families to improve their lives. Cutting taxes for the wealthy only exacerbates these disparities by reducing tax revenues for programs that attempt to remedy these issues and for essential public services that benefit the most vulnerable among us.
Additionally, supply-side economics goes hand-in-hand with broad-based deregulation, which promotes monopolies, price-gouging, unchecked corporate power, predatory lending, environmental degradation, and employee exploitation, all of which contribute to economic instability instead of robust economic growth.
Why it won’t solve California’s affordable housing problems
Trickle-down economics is presently the theory de jure among progressive university professors, YIMBY acolytes, government housing agencies, and pandering politicians across the country. But, as H.L. Mencken once said,
"For every complex problem, there's a solution that is simple, neat, and wrong."
Trickle-down and supply-side economics form the foundation of YIMBY housing doctrine. But it is a flawed theory. In The Case Against Yimbyism, by Michael Friedrich in the New Republic, the author writes,
“So the YIMBY story goes: What’s good for the industry is good for the tenant. In recent years, this viewpoint has become enormously influential. Some adherents are unsurprising, like the Koch-backed Mercatus Center and industry titans like Airbnb.”
“The policy that unites YIMBYs—from orthodox free-marketeers to grassroots social housing boosters—is “upzoning,” in which cities reform local land-use policy to allow for more, and bigger, development. This change, YIMBYs argue, drives developers to fill cities with “abundant housing,” spurring competition and putting “downward pressure” on prices. The appeal is obvious: a “one weird trick” to solve the housing crisis—without upsetting the market.
“If only it worked.”
History over the past 40 years has decidedly demonstrated that trickle-down economics simply does not work. In fact, it has produced the exact opposite of what it purported to fix. By exacerbating income inequality it has directly contributed to housing un-affordability.
And here's what trickle-down has done for the housing supply side (see chart, below).
Since 2008, when the first trickle-down/supply-side housing law, SB 375, was passed, California housing development has had the weakest housing recovery since the Great Depression, significantly lagging the country averages.
Since 2008, national housing starts have recovered to 1980 levels
Since 2008, California housing starts have lagged national housing starts
Since 2008, California housing laws have had no positive impact on new housing construction. In fact, they appear to have had a negative impact.
Trickle-down/supply-side economics simply does not work
With supply-side deregulation of local housing laws, wealth becomes more concentrated at the top and the wealth gap widens and housing prices are simultaneously driven up by demand from affluent individuals and Wall Street-backed investors who snatch up housing as a "store of value" and a source of predictable financial returns.
This is correlated with housing developers concentrating on serving the high-end market. And since trickle-down economics prioritizes financial capital over human capital, the interests of the wealthy over everyone else, and promotes broad deregulation of housing planning, zoning, and development rules, it does nothing to address the housing needs of low and moderate-income families unless bigger and bigger incentives and bonuses (which are ultimately paid for by local taxpayers) are provided to developers by government agencies and so-called, "progressive" housing legislation.
One way or another, this inevitably leads to gentrification, displacement, and the loss of existing, more affordable housing units (particularly in low-income neighborhoods) as older buildings are demolished to make way for new, predominantly upscale developments. This explains why the greatest opposition to California’s state housing laws has come from the bottom, in communities like South Central Los Angeles and Marin City in Marin County.
Relying on trickle-down economics (to create affordable housing) undermines our long-term economic prosperity, our faith in the fairness of our democratic institutions, and the social cohesion that defines our communities, which is essential for individuals and families to thrive and which provides a foundation for our shared socioeconomic security, health, and well-being.
For more discussion of our shared affordability challenges, please attend the upcoming Marin Coalition presentation, Paradigm Shift: Rethinking Housing Affordability, April 10th at the McGinnis Golf Course Restaurant.
Bob Silvestri is a long-time Mill Valley resident, the Editor of the Marin Post, and the founder and president of Community Venture Partners, a 501(c)(3) nonprofit community organization funded by individuals and nonprofit donors. Please consider donating now to support our work.