Issue #29, Summer 2013

The Middle-Out Moment

At first blush, the claim that politicians need to take the needs of the middle class more seriously might seem like pushing on an open door. After all, every stump speech has lines about “saving the middle class” or “helping Main Street, not Wall Street.” But the actions of elected officials have seldom matched the rhetoric. Vice President Biden is fond of saying, “Show me your budget, and I’ll tell you what you value.” By those terms, not to mention the tax code, we have for decades valued corporations and the wealthy as the engines of growth, as job creators, and as most worthy of assistance. The results are familiar: moribund income growth for low- and middle-income Americans and soaring income inequality.

The point of this symposium is not merely to say that we need economic policies that help the middle class. That’s boring and obvious. The point is to make what we call “middle-out” economics the operating progressive theory of economic growth: That is, we must promote middle-out economics not just as a nice-sounding idea, but as the direct alternative to trickle-down economics. Where conservatives say investing in the top 1 percent drives growth, we say that investing in the broad middle does it. And then, having established the theory, we spell out some specific policies that put flesh on the bone.

The symposium opens with three pieces that provide the theoretical framework. First, Eric Liu and Nick Hanauer, co-authors of The Gardens of Democracy and The True Patriot, explain why trickle-down economics is still the average citizen’s idea of how the economy works, and they show how a new picture of an economy driven by a robust middle class should be presented. Neera Tanden, president and CEO of the Center for American Progress (CAP), lays out the data on trickle-down’s failure over the past 40 years. Eric Beinhocker, the executive director of the Institute for New Economic Thinking at the Oxford Martin School, argues that an economy that’s driven from the middle out represents a truer form of capitalism than one that relies on wealth trickling from the top down.

To start off the second half of the symposium, which focuses on specific policy prescriptions, Heather Boushey, the chief economist at CAP, argues that family and child care policy is central to the middle-out vision. Bruce Bartlett, former adviser to Ronald Reagan and a frequent contributor to The New York Times’s Economix blog, identifies the recent diversion of income from labor to capital as one cause of our economy’s troubles and identifies steps to reverse this trend. John Schmitt of the Center for Economic and Policy Research explains how a large minimum-wage increase would help not just the poor but also the middle class.

Mona Sutphen, former adviser to President Obama, sees middle-skill jobs as the key to a balanced economy. David Rolf of SEIU looks at what the ongoing transformation of labor and the workforce has done to the middle class, and what innovative worker organizations might look like. Ethan Pollack of the Economic Policy Institute calls for a renewed commitment to a clean economy as essential to a middle-out future. Finally, Third Way’s Ed Gerwin takes on trade policy, arguing that a combination of exports to China’s middle class plus more rigorous enforcement can yield benefits to America’s middle class.

Reversing more than three decades of top-down economic thinking won’t happen just by nominating the right candidate or winning the next election cycle. The false assumptions of trickle-down economics have burrowed too deeply into the collective consciousness for that quick a fix. But this process is absolutely necessary if America is going to return to stable, middle-out growth.

The Middle-Out Moment

The True Origins of Prosperity by Eric Liu & Nick Hanauer

Burying Supply-Side Once and for All by Neera Tanden

A Truer Form of Capitalism by Eric Beinhocker

Family Policy: The Foundation of a Middle-Out Agenda by Heather Boushey

National Income: Paying Work, Not Capital by Bruce Bartlett

Minimum Wage: Catching up to Productivity by John Schmitt

Job Training: Cultivating the Middle-Skill Workforce by Mona Sutphen

Labor: Building a New Future by David Rolf

Environment and Energy: Revitalizing the Green Jobs Agenda by Ethan Pollack

Trade: Boosting Exports to China by Ed Gerwin


Issue #29, Summer 2013
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richard goldwater:

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We believe we present the physical science updates that we need to banish supply-side as Creation Science Economics, and to show how employed consumers are the basis of any prosperity, whether employed by business or government.
Help us get the word -- the science-- into the world!

Jun 11, 2013, 4:49 PM
Tony B:

We need a progressive mantra that is equally as persuasive as the conservative scam of "small government, lower taxes".

The "Single Tax" (tax assets, NOT INCOME) is just that idea. It would divide conservatives for a decade. Imagine progressives calling for an end to the IRS and income taxes. That would bring a Democratic majority into Congress for a long.

It's easy to explain. Taxing income chases away business. Taxing the asset hoarders causes the asset holders to use their property or lose it through taxation.

If they build a factory on their land, they can enjoy tax free income. If they sit on their property, they will be taxed for ALL revenue needed to run government as there would be no other taxes, not income, nor school nor sales...just the single tax on assets OR the rental value thereof.

Jun 19, 2013, 9:13 PM
Henry Bachofer:

I get the argument. But 'middle-out' doesn't even vaguely cut it as a 'brand'. And Republicans are expert at 'branding'. The phrase 'trickle-down' is not the phrase that Reagan's supports bought; they bought 'supply-side'. The beauty of 'supply-side' is that it means anything. As in 'anything is possible'. It connects with concepts that are familiar to the people who are the target of the campaign. The trouble with 'middle-out' is that it means nothing. Everyone wants to be a 'supplier', the 'go to' person, the person who signs the paychecks, the person who is the 'sponsor' of whatever athletic or cultural event you care about. 'Middle-out'? What's that? I'm not saying your argument is wrong in theory or empirically. Indeed, the empirical story of the Great Depression followed by World War followed by the 1950's (and ending with Vietnam and the Counter-Culture) is one whose 'lessons' we haven't yet learned ... and that the 'middle-out' thesis finally recognizes. But, please, names matter. Let's just call this 'middle-class economics'.

Jul 24, 2013, 9:59 PM

No one advocates "investing in the top 1%." Nice strawman there.

What conservatives and libertarians advocate is simple: go ahead and seize trillions of dollars from the productive and give it to the truly helpless, we can appreciated the morality of that. Just limit coercive redistribution to ways and extents that don't destroy the incentives to produce and make everyone poorer.

Remember the great lesson of the 20th. Communism wasn't a strawman, it was a genuine belief by billions of people that incentives didn't matter, that good intentions could triumph over human nature. Every progressive needs to take to heart the lessons of leftism's ultimate failure, only thus will the least be lifted up.

Incentives matter.

Jul 25, 2013, 10:57 AM
Mick Langan:

What do you even *mean* by middle-out? You talk about policies -- name three that don't involve simple wealth redistribution.

Trying to improve markers of achievement doesn't mean there is achievement behind it. For a long time, the theory was that if you made people homeowners, that would magically stabilize them and cause them to be better workers and citizens. The real-estate crash showed that simply is not the case. People who work to achieve home-ownership have done that as a result of their achievement -- not vice-versa.

So until you can describe what you mean by "middle out", with something that involves real engines of productivity and achievement, you'll simply be engaging populist demagoguery.

Jul 25, 2013, 12:29 PM
Mick Langan:

I see no clarification is forthcoming. Bash supply-side economics as you will, it has a rationale and a mechanism, and it is very efficient. "Middle out" is nothing but wealth redistribution, and that is an inefficient process as a considerable part of the pie always sticks to the redistributors fingers. In government's case, the bloated bureaucracy.

Jul 26, 2013, 9:00 AM
John Early:

If the lynch pin of supply side economics, low marginal tax rates, worked Bush would have had a stronger growth rate than Clinton. Coolidge and Hoover would have had a stronger growth record than FDR.

But supply side doesn't work. Bush's 8 years annualized 2.1% GDP vs 3.9% for Clinton. Coolidge had a 2.7% growth rate, Hoover a -5.7% rate. FDR's 12 years in office annualized 9.1%.

Heck Coolidge wasn't even as good as Carter who had a 3.3% growth rate. Carter could not have left things in too bad a shape because the only Republican President in the last 80 years with a better growth rate than Carter was the one who came after him.

Low marginal tax rates do not spur growth because the wealthy pull more equity out of their businesses as personal income. Sure the rich are paying too much tax and with the Bush tax cuts the amount they paid and the share they paid went up. But there was less money left in their businesses to grow the economy.

If you want prosperity you need a high enough marginal tax rate that the wealthy avoid paying taxes by building up equity in their businesses and growing the economy.

The top marginal tax rate functions as a tax on greed not on success. If you under tax greed you get something like the Great Depression or the great recession.

Aug 7, 2013, 2:01 AM
James Brink:

> What do you even *mean* by middle-out?

It means wealth creation from the "middle out" vs from the "top down", though I agree it is not immediately intuitive as a brand. If you think this is mainly about wealth redistribution, then you don't really get the proposal, which is focused on recalibrating the incentives and ground rules to recognize that wealth creation is primarily generated by middle-class employees working for fair wages, as these employees are also the consumers that drive economic growth.

The argument made in Nick Hanauer's recent article in Politico Magazine is that the race to the bottom, driven by deregulation and top-down economic policies, eventually costs us more as government expands to make up the difference in welfare, rent subsidies, food stamps, etc., etc., all of which cost us more in tax dollars while doing nothing to grow the economy.

Aug 13, 2014, 11:31 AM

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