That's one hell of a strong argument
@Emgee. If you look at the statistics, it looks pretty good. It's also part of the reason why Trump would continue with the 'keep the economy going'' policy, regardless of what this can do to the spread of COVID-19. This is trickle economics at its finest, but you can also look at the story behind the statistics, which will paint a different picture about what's good for Wall Street and Main Street and which I will elaborate in just a moment. First I will write about what I think made the financial crisis of 2007-2008 possible (in just a short summary, as it is actually a complex story), and then I will move on to the fiscal conservatism (no deficit state. debt/strict fiscal policy) vs. Keynesian economics (increase demand to support growth economics).
Why did the Obama administration implement the Franklin -Dodd act in the first place? We need to go back to were it all began: the Glass - Steagall act. You might have heard that in 1933 the Glass-Steagall act was put into effect to separate commercial (so called main street banking) and investment banking (so called Wall Street banking). as a response to the stock market crash of 1929. By separating the two, commercial banks were prohibited from using people's savings for risky investments. Thus, Glass-Steagall was designed to act as a firebreak between Wall Street and its appetite for risk and Main Street and its demand for safety. The 1987 stock-market crash, before Glass-Steagall was gutted, is a perfect example of how a crisis on Wall Street was isolated from Main Street (
https://ritholtz.com/2017/04/new-glass-steagall-repeal-replace-dodd-frank/).
However, in 1999, this act was repealed by the Gramm–Leach–Bliley Act, an act that was supported by most Democrats and Republicans in congress, as they believed that the Glass-Steagall act was too restrictive for businesses and banks and they believed that the market is capable of strong self regulation. However, the 2007-2008 financial crisis proved otherwise. (
https://ritholtz.com/2017/04/new-glass-steagall-repeal-replace-dodd-frank/).
After its repeal, banks merged into more complex and more leveraged institutions. They bought brokers and trading firms, created internal hedge funds and engaged in all manner of financial engineering that wouldn't have been allowable before repeal. It can be said that its repeal made the financial crisis far worse than had it been otherwise. Thus, low regulation and high reliance on large banks may have been the cause of the financial crisis
https://ritholtz.com/2017/04/new-gl...wikipedia.org/wiki/Glass–Steagall_legislation).
One of the main goals of the Dodd-Frank Act was to subject banks to more stringent regulation. The Act created the Financial Stability Oversight Council (FSOC) to address persistent issues affecting the financial industry and prevent another recession (e.g. works with regulators in large banks & provides access to consumers to truthful about mortgages and credit scores)n(
https://searchcompliance.techtarget.com/definition/Dodd-Frank-Act). For some, like progressive politician Bernie Sanders & Elisabeth Warren, this does not go far as the structure of merged investment and commercial banks is still in place and most banks can still be too big to fail and therefore taxpayers will still pay the price if another financial crash happens. They propose to reinstate Glass-steagal Act, breaking banks that are too big to fail, tax on Wall Street speculation, etc (
https://feelthebern.org/bernie-sanders-on-financial-regulation/).
About the economic boom prior to COVID-19: trickle down economics works... mostly for business and the well to do. Sure, more people can get a job if you lower taxes for businesses. That would expand their budget, and thus allows them to hire more people, which expands their purchasing power, which is beneficial for companies, and so the cycle continues. So yeah, it can increase more jobs, but does it also entail high quality and higher wage jobs for the common people? In my opinion, trickle down economics a pure theoretical assumption and seldom aligned with reality, as it is mentioned in a study of Tax Justice Network (2012) that wealth of the super-rich does not often trickle down to improve the economy, but it mostly instead tends to be amassed and sheltered in tax havens with a negative effect on the tax bases of the home economy (
https://www.taxjustice.net/2014/03/13/2012-inequality-edition/).
Moreover, a study in the Journal of Political Economy has found that, contrary to the trickle down theory, that ''the positive relationship between tax cuts and employment growth is largely driven by tax cuts for lower-income groups and that the effect of tax cuts for the top 10 percent on employment growth is small'' (
https://journalistsresource.org/stu...0-of-earners-spurs-job-growth-research-finds/).
And lastly, trickle down economics is also the belief in a self-regulated free market, but in practice, we see that business not always invest in job training, in higher wages (7.25 dollars is the norm in most states, but it should have been way higher (around 19-21 dollars) if it was linked to labour productivity growth), high job dependancy due to health care coverage via employer (which weakens employee's position in negotiating wages, job switch, etc.). This all brings a lot of people in the state of precarity: some people need to have two jobs to make ends meet, some live most of their lives in the gig economy without any way of moving up the social ladder, some have to stay at their mediocre job, as they want to retain their health coverage (
https://www.theguardian.com/comment...-still-pretending-trickle-down-economics-work).
About your point about fiscal conservatism (reduced government spending & minimal government debt): I have trouble with with laissez-faire economics as a way to handle certain crises, as. America is now slowly getting into an economic one. We have seen in the aftermath of the financial crash of 1929 that Republican president Hoover did the same thing. When the stock market crash happened, president Hoover thought it would be short lived. He believed laissez-faire, rugged individualism, voluntarism and balancing the budget would soon return the economy to prosperity. His measures did very little as. there was an increase in inequality , mass decrease employment, wages fell below poverty level, crumbling infrastructure, poor public and social services, etc. This also entailed lower tax revenue, thus also contributed to a higher national debt (
https://www.bbc.co.uk/bitesize/guides/zxy3k2p/revision/8). After Franklin Delano Roosevelt came to power in 1933, he had the intention to reduce national debt long term via increased tax revenue, which could be achieved by Keynesian economics (New Deal programme), which means investing in infrastructure, education, a public works & relief programme (
https://www.bbc.co.uk/bitesize/guides/zxy3k2p/revision/8). The national debt increased, but only slightly (from 2.7 billion in 1932 to 2.9 billion in 1940) due to increase in tax revenue, which is an outcome of higher economic productivity output (from 1.9 billion in 1932 to 6.5. billion in 1940) (
https://www.cato.org/sites/cato.org/files/pubs/pdf/tbb-0303-14.pdf). Thus, from a historical perspective, fiscal conservatism might work if the economy is stable, but in times of crisis, it is not always the best alternative.
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