E Trickle Down Didn't Work For Trump, Bush And Hoover. Here's Why

In the end, it is all about End Demand, or aggregate demand, or more explicitly, effective demand. It is clear that Donald Trump, with his ill-fated tax cuts for the wealthy, has not kindled end demand. Four great charts below will prove the obvious, that money is not getting into the hands of those who could benefit the most and productivity is withering in the USA and has been since 2004/2005. In this endeavor, capitalism is stumbling. Withering productivity destroys the concept of trickle down, or supply side economics, and it will be shown why below.

Chart 1

While other charts not listed in this article show a relentless upward slope to total personal consumption, when compared to GDP, consumers are just bumping along, and have lost ground, percentage wise, to total GDP. Certainly the relentless upward slope is nowhere to be found, but we have reached instead a plateau and even a decline YOY from 4th quarter 2017 to 4th quarter 2018. Chart 1 above shows this plateau.

One would have expected greater wealth to filter down from the Trump tax cuts, but it looks like business and wealthy individuals are holding on to those tax cuts. 

And wealthy persons, owners of stock, as well as tourists and foreign consumer purchases from outside our nation, as well as easy credit at home, have kept spending in the above chart at close to 70 percent of GDP. We know it isn't domestic wages that is causing this increase in consumer expenditures, as the following chart 2 shows through 2017:

Chart 2

The media push to console the working class by showing that consumers share a huge portion of our nation's GDP through consumption never seems to fit comfortably with the relentless decline in wages compared to GDP growth. The consumer seems to be powerful but much of the nation lives paycheck to paycheck.

While a second income kept the wolf from breaking down the doors of many households in the last century, there really was little choice available to working people after 2000. And yet, even now, with multigenerational households and two or more wage earners, wages continued to decline in the aggregate as a percentage of GDP, in almost a relentless fashion.

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Disclosure: I have no financial interest in any companies or industries mentioned. I am not an investment counselor nor am I an attorney so my views are not to be considered investment ...

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Gary Anderson 3 months ago Author's comment

Update 1: It is amazing to me that many Americans want to break off relations and trade with China. China and India make up the bulk of GDP growth, and therefore, productivity growth, in the entire world! The US on the other hand, has very poor productivity growth and Trump is failing, as Obama failed before him. The customers are in China and India.

Harry Goldstein 3 months ago Member's comment

Those who don't learn from history are doomed to repeat it.

Norman Mogil 3 months ago Contributor's comment

I am slowly come to the view that helicopter money is the only way out of this Keynesian liquidity trap. Negative real rates have not worked and QE has not worked. Milton Friedman was laughed at when I was in graduate school but he foresaw this problem

and the need for helicopter money,

Gary Anderson 3 months ago Author's comment

He was a thoughtful man, Prof. It appears as though the politicians make promises from the right or left having no clue about investment and its catalyst, demand. Thanks for your comment.