The results are in: Trickle-down economics is a myth

With Donald Trump’s selection of JD Vance as his running mate, the Republican Party has cemented its turn toward American workers. Speaking at the Republican National Convention, Vance pledged a commitment to safeguarding jobs and wages, echoing the Democratic Party.

How is it that large swaths of Democrats and Republicans are finding common cause around the struggles of working-class Americans even as they remain bitterly at odds about seemingly everything else?

The answer is one I’ve been pounding the table about for years. It’s a problem so widespread and plainly evident that you have to be willfully blind to miss it. And yet policymakers have largely continued to ignore it but for a handful of politicos such as Sen. Bernie Sanders, I-Vt., and now Vance. In the simplest terms, the problem the U.S. faces is that an alarming percentage of full-time workers don’t earn enough to raise a family.

About two-thirds of full-time workers age 25 and older can’t cover the basic necessities for a family of four with one parent working, based on the latest wage data from the Bureau of Labor Statistics and living wage estimates from the Massachusetts Institute of Technology. A third fall short with both parents working. With 109 million full-time workers in that age range, we’re talking about tens of millions of people.

It’s a point of shame for one of the world’s wealthiest countries, and a failing that’s increasingly recognized for its political resonance on both sides of the aisle.

There’s no shortage of chatter around wages — most of it beside the point. The arguments about whether recent wage growth has outstripped inflation or whether salaries grew faster under President Joe Biden Trump are rounding errors.

The reality is that wages have been stagnant for so long that workers who fall short of a living wage would need a substantial pay raise to catch up — an average of 35% for a family of four with two adults working, and 85% for the same household with one working adult. Wages adjusted for inflation have grown by 6.7% since 2016, which is encouraging but only a modest start.

If a Republican pivot toward the struggles of American workers was rooted in policy rather than slogans, it would be a big change. Since at least the 1980s, the party has pursued trickle-down economics, which posits that a growing economy benefits everyone, and that the best path to growth is policymaking that supports corporations and the rich.

At this point it’s crazy to believe it can still work. The past four decades provided an ideal test case: Corporate, individual and capital gains tax rates have trended lower; interest rates fell to historic lows from record highs, handing bond investors a windfall and giving businesses an ever-cheaper source of capital; corporate profit margins tripled; and asset prices from stocks to homes shot higher. It’s hard to imagine a bigger bounty for corporations and the wealthy.

And yet, all that good fortune hasn’t boosted the economy, and it certainly didn’t trickle down. Economic growth has trended lower during the past four decades. Gross domestic product grew by 2.6% a year after inflation since 1980, down from 3.8% a year from the end of World War II through the 1970s. Meanwhile, real wages have grown by just 0.3% a year since 1980, a fraction of the economy’s already deflated growth rate.

That doesn’t mean trickle-down policies are to blame for slower growth and stagnant wages. But four decades is long enough to see that they haven’t helped, and with the rise of Sanders, Trump and Vance, working Americans seem to agree.

The question is whether it will make a difference. Trump talks a good game. But his policies were trickle down, notably the sweeping tax cuts in 2017 that mostly favored corporations and highly paid executives. Vance, on the other hand, has already backed more worker-friendly initiatives during his short time in the Senate, including seeking stronger safety regulation for railroad workers, clawing back pay from bank executives, supporting stronger antitrust enforcement and opposing free-trade deals.

But the proof will be in the paychecks. There are many policies either party could pursue that would help workers. Congress could give companies tax incentives to raise pay alongside profits. It could require companies to give workers a seat on their boards. It could establish a sovereign wealth fund that invests in American companies and shares the spoils with low-paid workers. And it could require public companies to disclose what they pay staff so policymakers can target their efforts where they’re most needed.

Whatever happens in November, workers have had enough. If politicians want to win over America’s vast working class, it’s actually pretty simple: Pursue policies that help full-time workers earn enough to raise a family.

Nir Kaissar is a columnist for Bloomberg Opinion.