The Fall of 'Trickle-Down' and the Rise of 'Middle-Out' Economics

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Call it the Osawatomie Doctrine: President Obama's election victory one month ago today began with a speech he made one year ago today

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Obama speaking in Osawatomie High School, Kansas, December 6, 2011; Reuters

A year ago, President Obama gave a speech in Osawatomie, Kansas where he laid out a vision of how the economy grows. This vision proved a successful way to connect with voters during the campaign. Now, as Congress debates whether to push the U.S. economy over the so-called fiscal cliff and policymakers consider far-reaching changes to our nation's tax code and entitlement, this is the time to effect on the economic reality behind Obama's middle-out economics.

On December 6th, 2011, President Obama made the argument that the economy grows from the middle out. This argument was a direct refutation of the supply-side argument that claims that economic growth comes from lowering costs for businesses, most especially keeping taxes low and enacting limited regulations.

In Osawatomie, President Obama said, "I am here to say the [the supply siders] are wrong. I'm here in Kansas to reaffirm my deep conviction that we're greater together than we are on our own. I believe that this country succeeds when everyone gets a fair shot, when everyone does their fair share, when everyone plays by the same rules".

This economic message was honed during the campaign. President Obama emphasized this theme in the second debate and spoke regularly about it this fall. "I believe you grow the economy from the middle out," he said in a key October ad.

Polling data showed that this message was compelling to voters. While pollsters often ask which candidate would do better on creating jobs, a Bloomberg poll done in September asked a deeper question: "Whom do you think has laid out a better vision for a successful economic future for the U.S.: Barack Obama or Mitt Romney?" On this question, Obama beat Romney by 10 percentage points.

In October, the Democratic polling firm Penn Schoen Berland tested twelve economic messages from the candidate's convention addresses and stump speeches and found that the top scoring messages were Obama's vision that the economy grows from the middle-out, rather than through trickle-down.

As the President pushes policymakers towards this new vision of the economy, he and the Congress should know that there is a growing chorus of economists who back up the idea of middle-out economics.

Just over a year ago, the Center for American Progress held a meeting with 40 economists, including two Nobel Laureates, asking them what evidence they saw for the idea that inequality may hinder or destabilize economic growth and, conversely, a strong middle class would support sustainable growth.

Like any meeting of top-flight economists, they all had much to say. But, what was surprising was that the general consensus was that there is empirical evidence supporting what the President calls middle out economics.

Economists have found that countries with less inequality are more likely to keep growing. They have found that a stronger middle class supports the kind of investments in education and infrastructure that are vital to creating a highly productive workforce (the key element of any growth theory) and a platform for widespread innovation and entrepreneurship.

Since the financial crisis, economists have also been digging into whether the outsized incomes of those in the financial sector are helping or hurting growth. What they have found is that these higher profits have often been used to lobby for the kinds of deregulation that support more profits for finance, but have both been destabilizing and crowded out investments in more productive sectors.

But, it's not enough to say that the economy grows from the middle out, President Obama must now lay out an economic agenda that is true to these words. His first test is the debate over the fiscal cliff, but the real proof of the durability of a middle-out economics is whether the framing extends beyond the notion that we need a more progressive income tax.

Investing in high-quality public education, that is accessible to all, is obviously the first tenant of a middle-out economics. But, growing from the middle out also means recognizing the challenges that middle class families face, such as how to sort out caring for the young, the aged, and the infirm in an era when every adult has to have a job just to make ends meet. We need to figure out how to support families in ways that foster their labor force participation and make sure that the next generation is well cared for (and ready to learn when they arrive in the classroom).

Another clear middle-out policy agenda would be to do more to update our nation's aging infrastructure. We could, for example, start an infrastructure bank to boost public-private partnerships. No one individual or firm can make sure that every U.S. household has access to high-speed Internet, or a functioning, 21st century electricity grid, or bridges that don't fall. But, each of these is good for businesses, small and large. Infrastructure investments make our economy more efficient in all sorts of ways, often creating greater access to hubs of activity--in cities or on the Internet--that creates opportunities for innovation and entrepreneurship.

Candidate Obama argued, "We believe in an economic that grows from the middle out." Jumping into the fiscal cliff, starving our economic of needed investments and pulling the rug out from under an already-struggling middle class will not grow our economy. But, it remains to be seen if President Obama can work with Congress to implement his middle-out economic agenda.

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Heather Boushey is the executive director and chief economist at the Washington Center for Equitable Growth.

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