JD Vance’s Rise Debunks the Myth of Trickle-Down Economics

by Nir Kaissar

With Donald Trump’s selection of J.D. Vance as his vice presidential candidate, the Republican Party has solidified its pivot to American workers. Speaking at the Republican National Convention, Vance pledged to protect jobs and wages, echoing a Democratic Party that has lurched leftward in recent years.

How is it possible for so many Democratic and Republican groups to find common ground on issues related to the problems of the American working class, even as they appear to be in bitter disagreement on every other issue?

The answer is one I’ve been banging on about for years. It’s a problem so pervasive and obvious that you’d have to be willfully blind to miss it. And yet, policymakers have largely continued to ignore it, with the exception of a handful of politicians like Vermont Sen. Bernie Sanders and now Vance. Simply put, the problem facing the United States is that an alarming percentage of wage workers in the U.S. don’t earn enough to support a family.

About two-thirds of full-time workers ages 25 and older can’t meet the basic needs of a family of four where one parent works, based on the latest wage data from the Bureau of Labor Statistics and minimum wage estimates from the Massachusetts Institute of Technology. Another third can’t when both parents work. With 109 million full-time workers in that age range, we’re talking about tens of millions of people.

This is a source of shame for one of the richest countries in the world and a weakness that is increasingly being recognized for its political resonance on both sides of the barricade.

There’s no shortage of wage rumors — most of them irrelevant. Arguments about whether recent wage growth has outpaced inflation or whether wages grew faster under President Joe Biden or former President Donald Trump are rounding errors.

The reality is that wages have been stagnant for so long that workers who fall short of the minimum wage would need a significant raise in today’s dollars to catch up — an average of 35% for a family of four with two working adults and 85% for the same household with one working adult. Inflation-adjusted wages have risen a total of 6.7% since 2016, which is encouraging, but it’s only a modest start.

If the Republican turn to the struggles of American workers were based on policy rather than slogans, it would be a big change. Since at least the 1980s, the party has pursued what is popularly and sometimes derisively called trickle-down economics. In short, the theory that a growing economy benefits everyone, and that the best path to growth is through policies that support corporations and wealthy Americans.

It’s not a crazy idea, but it’s crazy at this point to believe it still works. The past four decades have provided the perfect test case: Corporate, personal, and capital gains tax rates have all trended down; interest rates have fallen to historic lows from record highs, giving bond investors a windfall and giving companies an increasingly cheap source of capital; corporate profit margins have tripled; and asset prices, from stocks to houses, have soared. It’s hard to imagine greater abundance for corporations and the wealthy.

Yet all this good fortune does not seem to have stimulated the economy, and it certainly has not trickled down. Economic growth has been declining over the past four decades. Gross domestic product has risen by 2.6 percent a year after inflation since 1980, down from 3.8 percent a year from the end of World War II until the 1970s. Real wages, meanwhile, have risen by just 0.3 percent a year since 1980, a fraction of the already depressed rate of economic growth.

Not only has economic growth slowed, but almost none of that slowdown has passed on to workers.

That’s not to say 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 is a good talker. But his policies have been trickle-down, especially the sweeping tax cuts in 2017 that largely favored corporations and highly paid executives. If Republicans win the White House in November, Vance may shift his policies in a more worker-friendly direction. He has already supported such initiatives during his short time in the Senate, including pushing for stronger safety regulations for railroad workers, clawing back bank executive pay, supporting stronger antitrust enforcement and opposing free trade agreements.

But the proof will be in the paychecks. There are a number of policies that either party could pursue that would help workers. Congress could give companies tax incentives to raise wages along with profits. It could require companies to give workers a seat on their boards. It could create a national wealth fund that would invest in American companies and share the spoils with low-wage workers. And it could require public companies to disclose how much they pay workers, so policymakers can direct their efforts where they are needed most.

Whatever happens in November, workers have had enough. Trump certainly sees that. He gave Sean O’Brien, the leader of the big union, the International Brotherhood of Teamsters, a valuable speaking spot this week at the Republican National Convention. 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 support a family.

Nir Kaissar is a Bloomberg Opinion columnist who covers markets. He is the founder of Unison Advisors, an asset manager.