'Middle-Out' Economics: Why the Right's Supply-Side Dogma Is Wrong

As President Obama embarks on a new economic-policy push, that will be his mantra. Here's what he means.
President Obama speaks about the economy in Osawatomie, Kansas, in December 2011. (Kevin Lamarque/Reuters)

Once upon a time, in the middle of the last century, America had a thriving economy in which the middle class was at the center and everyone -- poor and rich alike -- did better. But then, starting in the late 1970s, a group of self-serving rich people began to sell a promise that if we took better care of them, their wealth would trickle down, and that would help everyone else prosper. The country bought that line. And for three decades both parties yielded to it. The results were great for the very rich -- and disastrous for everyone else. Wages stagnated. Inequality became extreme. Mobility slowed. By 2008, things were so upside down and we had so lost our way that the economy collapsed. Out of that ruin, many began to remember the old ways: the truth that lasting growth and shared prosperity come from the middle out and not the top down. Now we are joined in a battle of ideas to see whether middle-out economics can dethrone trickle-down.

This is the contest we are engaged in today. When President Obama frames the issue in this way, as he did down the homestretch of the 2012 campaign, progressives advance and his popularity soars. When he drifts from this narrative, as he has in the sequestration and debt debates of 2013, he gives ground unnecessarily. But make no mistake: The central debate in this country will continue to be about this choice and the true origins of prosperity.

In Democracy's symposium on the "Middle-Out Moment," others propose important policy ideas for this economic debate. We do not add to that good work. We offer instead a way to reset foundational assumptions about how the economy works and what prosperity is. And we assert that only by resetting these assumptions can progressives prevail in the coming debate. It is time to kill the myth of trickle-down economics -- and to replace it with the true story of middle-out economics.

Middle-out economics argues that national prosperity does not trickle down from wealthy businesspeople or corporations; rather, it flows in a virtuous cycle that starts with a thriving middle class. Middle-out economics demands a systemic policy focus on the skills, capacities, and income of the middle class.

Economic policy choices may seem complex but they boil down to a simple question: whether what's best for a capitalist economy is an ever-increasing concentration of wealth at the top or a thriving and growing middle class. That's why arguments about the debt, sequestration, trade policy, tax reform, and fiscal stimulus must all be reframed relentlessly as arguments about whether and how best to grow from the middle out. To take each of those issues on its own technical terms is to ignore, and even concede defeat on, this larger frame. An argument over whether to have deficits is hard for our side to win. An argument over whether the middle class is the true origin of prosperity in a capitalist economy is hard to lose.

Why the Picture in Your Head Matters
The picture you have in your head about how the world works absolutely determines what you think is possible or beneficial.

For example, people equally committed to getting from Earth to Mars will have paralyzing differences about how to get there if one group believes the sun and Mars orbit the Earth while the other group believes that the Earth and Mars orbit the sun. People are entitled to differences of opinion. But only one cosmology gets you to Mars. And crucially, splitting the difference won't get you there either.

Progressives are litigating the issues of the day as if Americans disagreed on where to go. It's not true. All Americans want a prosperous and fair country and a better future for their children. The question is, what policies will get us there? That answer is different depending on the economic "cosmology" you accept.

Conservatives have a clear and simple explanatory cosmology called "trickle-down economics" in which the economy revolves around a small number of wealthy people who create jobs and are owed deference in tax and fiscal policy. It holds that if the rich get richer and businesses make more money, America will by definition prosper. That trickle-down cosmology dominates our politics and culture. The problem is that it is as mistaken as holding that the sun orbits the Earth. And it has been leading us as far astray as an astronomy based on this belief once did.

For decades, intellectuals on the left have contested trickle-down economics. Unfortunately, their ideas have not gained political purchase. That's because almost all progressives of the political class have accepted and even internalized the right's economic explanation. We have not contested its basic premises or even the core assertion that it works. We sometimes criticize the right's explanation intensely, even stridently, but we fail repeatedly to provide a clear and compelling alternative picture of how America can prosper. We merely tout other soft priorities that never quite win the day. And then we are surprised when the right's weak cosmology keeps winning hearts and minds.

In today's economic debate, conservatives make practical-sounding arguments about promoting prosperity, while progressives answer with social-justice claims. They say the rich are job creators who should pay lower taxes than the middle class. We say that would be unfair. They say social programs destroy the economy. We call them "safety nets." They want to promote business. We want to help the poor.

Voters do care about fairness. Many are compassionate too. But if the economic cosmology most Americans accept holds that fairness and prosperity are in zero-sum conflict, then progressive polices are intuitively and inherently unfriendly to economic growth. When they say prosperity and we say fairness, we are arguing from a position of weakness.

To be sure, progressives can take intellectual comfort that there is not a shred of factual evidence for the proposition that a program of enriching the wealthy and deregulating the economy ever brings general prosperity. But facts are secondary to intuitions -- to the picture in people's heads. And we are losing the intuition game.

It is impossible to effectively contest trickle-down economics and the tax policies it implies while simultaneously accepting its foundational premise -- that rich businesspeople are the sole job creators in a capitalist economy. This is because if they are the job creators, then trickle-down economics is necessarily true. But if middle-class consumption is what creates jobs, then trickle-down economics is necessarily false.

What Progressives Need to Push
In order to go from defense to offense, we must offer a new explanation of where prosperity comes from called middle-out economics. A twenty-first century understanding of economics leads to the conclusion that prosperity in capitalist societies is a consequence of a "circle of life"-like feedback loop between consumers and businesses. Middle-out economics aims to supercharge this feedback loop by creating conditions that allow both middle-class consumers and the businesses that depend on them to thrive in a virtuous cycle of increasing prosperity for all.

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Presented by

Eric Liu & Nick Hanauer

Eric Liu is creator of the Citizen University, a conference on creative citizenship. He was a speechwriter and deputy domestic policy adviser for President Bill Clinton. Nick Hanauer is an entrepreneur, venture capitalist, and writer. They are the authors of The Gardens of Democracy: A New American Story of Citizenship, the Economy, and the Role of Government.

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