The Theory of Middle-Out Economics

by Public Works on July 28, 2015 in Economy

theory of middle-out economics

Which comes first—economic growth or economic inclusion? The prominent trickle-down theory of economics says growth, fueled by the investments of the rich, creates inclusion (i.e., more jobs, better pay, and a bigger middle class). But Nick Hanauer, a Seattle entrepreneur, and David Rolf, a venture capitalist, say that’s all wrong. In their article for Democracy Journal, they argue for the “middle-out” explanation of growth:

In the technological economy of the twenty-first century, growth and prosperity are the consequences of a virtuous cycle between innovation and demand. Innovation is how we solve problems and raise living standards, while consumer demand is how markets distribute and incentivize innovation. It is social, civic, and economic inclusion—the full, robust participation of as many people as possible—that drives both innovation and demand. And inclusion requires policies that secure a thriving middle class.

The trickle-down theory—the one that lionizes the rich as “job creators”—insists that the American middle class is a consequence of growth, and that only if and when we have growth can we afford to include more people in our economy. But trickle-down has it exactly backwards: Properly understood, the middle class is the source of all growth and prosperity in a modern technological economy, and economic security is the essential feature of what it means to be included in the middle class.

Economic security is what frees us from the fear that one job loss, one illness—one economic downturn amidst a business cycle guaranteed to produce economic downturns—could cost us our home, our car, our family, and our social status. It’s what grants us permission to invest in ourselves and in our children, and to purchase the non-subsistence goods and experiences that make our lives healthier, happier, and more fulfilling. It gives us the confidence to live our lives with the realistic expectation of a more prosperous and stable economic future, and to take the entrepreneurial risks that are the lifeblood of a vibrant market economy. A secure middle class is the cause of growth, not its effect; in fact, our economy cannot reach its full potential without it. And a middle class that lives in constant fear of falling out of the middle class isn’t truly middle class at all.

Hanauer and Rolf call for a new social contract for today’s society. It would include the proration of employment benefits for part-time workers, the portability of those benefits from one job to the next, and a universal set of benefit and labor standards. They also advocate for paid leave, a livable minimum wage, overtime pay, pay equity, and fair scheduling.

Public Sector Job Cuts and the Black Middle Class

by Public Works on June 16, 2015 in Economy

Budget cuts at the federal, state and local levels have resulted in fewer public sector jobs, undermining the nation’s economic recovery and fueling continuing unemployment. This trend is especially hurting African-American families. According to this article in the New York … Continue reading

Fresh Take on Growing Inequality

by Public Works on May 31, 2013 in Economy

This piece by George Packer published in the New Yorker is a thoughtful reflection on the consequences of and solutions to America’s growing inequality. Packer writes: But when the results are distributed as unequally as they are at this moment, … Continue reading

Tackling Inequality Requires Support for Government

by Public Works on April 30, 2013 in April 2013 eNewsletter

It’s a modern American paradox. Inequality continues to worsen and Americans’ concern about it is growing, and yet public support for solutions just hasn’t kept pace. A new study finds a reason why – Americans doubt government’s ability to address … Continue reading

Income Gap a Concern for Americans

by Public Works on March 21, 2013 in Economy

The Post-election American Values Survey sponsored by the Public Religion Research Institute found, among other things, that most Americans believe the government should do more do reduce the gap between the rich and the poor (see pages 16-18 of the … Continue reading

Fiscal cliff triggers discussions of government’s role in inequality

by Public Works on January 10, 2013 in Economy

The recent fiscal cliff negotiations sparked some interesting conversations about inequality and, in some cases, government’s role in addressing inequality. A particularly thoughtful piece in the New York Times explains the domestic and global trends contributing to inequality and steps … Continue reading

Public and private economies coexist

by Public Works on October 30, 2012 in Economy

At Public Works we get frustrated with the constant assumption that somehow the private and public sectors are competing entities and when you take from one you give an equal amount to the other. Nothing could be further from the … Continue reading