After President Obama Calls For “Middle Out” Economic Growth ...

The New York Times: Obama Calls For “Middle Out” Approach To The American Economy. In a July 22 article, New York Times reporter Annie Lowrey detailed the “middle out” approach to economic growth that the White House highlighted the week of July 21:

President Obama says prosperity does not trickle down, and a rising tide does not necessarily lift all boats. The conservative policies predicated on those ideas, he maintains, amount to a you're-on-your-own economics, when the country really needs a we're-in-this-together approach: in short, prosperity needs to come from the “middle out” rather than the top down.

That is the catchphrase that the White House has settled on to signal both a diagnosis of the problems that have ailed the economy since long before the recession hit and the liberal policies that might act as an antidote.

Mr. Obama plans to elaborate on the middle-out theory in a series of speeches intended to move the national conversation from Washington's political dysfunction to the economic one on Main Street.

But the middle-out idea is also an intellectual counteroffensive against the supply-side economics that has dominated conservative thinking for decades -- and that were manifested in the tax and budget cuts that Mitt Romney put forward in his failed campaign last year.

The grand idea behind the rhetorical flourish -- which Mr. Obama has used for the past two years or so but which the White House put front and center this week -- is that the hollowing out of the American middle class is not just unfair or unfortunate, it has slowed growth and created a more fragile economy, too.

In that sense, the thinking goes, a thriving middle class is not just a worthy goal in itself, but a path to a stronger economy. [The New York Times, 7/22/13] 

... Right-Wing Media Figures Reject Economic Growth Built On Middle Class

Fox News' Brian Kilmeade: “How Are You Supposed To Build From The Middle Out?” On the July 25 edition of Fox & Friends, co-host Brian Kilmeade criticized Obama's “principles of building from the middle out,” saying they “don't make sense”:

KILMEADE: Listen, we know we're growing at 2 percent, we know that unemployment seems stuck at 7.6 percent. It's high traditionally for a recovery, but it's a lot better than close to over 10 percent where we are. The question is, if you talk to economists, if you talk to the people who do this for a living, the president's principles of building from the middle out don't make sense. He wants people to say, well, CEO's make too much. You don't make enough. Therefore, salaries are stuck. Blame the rich people. But how are you supposed to build from the middle out? Are you supposed to build plants, hire people? Are you supposed to get a whole bunch of people who make $50,000, make them buy a big restaurant and hire people? You've got to find some way to get the people to invest in these situations and then get people to work there. And you've got to do that by incentivizing people to start expanding and spending the money they have. [Fox News, Fox & Friends, 7/25/13]

Rush Limbaugh: “Economic Recovery Is Not Caused By The Middle Class.” On the July 23 edition of his radio show, Rush Limbaugh responded to the president's economic plan, saying that a “middle out” approach “has never succeeded,” and that “an economic recovery is not caused by the middle class”:

LIMBAUGH: In short, what Obama is gonna say in these speeches -- I want you to look at me, I want you to hear this so that you know what's coming, because when the press amplifies this and applauds it, you are going to become enraged. The president is going to say that prosperity comes from the middle out. “Prosperity needs to come from the 'middle out' rather than the top down.” Never mind that this has never, not once, worked. It has never succeeded, this formula of the middle class leading the economic rebound. It's not possible. The middle class benefits from it, but an economic recovery is not caused by the middle class. An economic expansion is not caused by the middle class. The middle class, by and large, are consumers.

In order for the middle class to consume to the level that economic growth takes place, they must be paid a lot of money. And in order for that to happen, the businesses where they work must grow. The places where they are employed must do well. They must be making more. They must have more customers they're servicing. Whatever the enterprise is, it has to grow so that people working there earn more, get raises, get more benefits, and so that new people get hired. This idea that the economy bubbles up from below is absurd.

That's what Obama's gonna sell, though. Obama is gonna sell “we've gotta take more money from the rich and we've gotta raise taxes on businesses and we gotta get that money to the middle class where it will cause the economy to grow.” That's not how this happens. You start taking money away -- just like the government takes from the private sector -- the private sector shrinks. You take money away from the rich and business owners and entrepreneurs, you get less of what they do, including employment. [Premiere Radio Networks, The Rush Limbaugh Show, 7/23/13]

Limbaugh: Detroit Bankruptcy Is “Exactly What Happens When You Build From The Middle [Class] Out.” On the July 24 edition of his radio show, Limbaugh doubled down on his claims from the day before, asserting that Detroit's bankruptcy is an example of “exactly what happens when you build from the middle out.” [Premiere Radio Networks, The Rush Limbaugh Show, 7/24/13]

RedState: “A 'Middle-Out' Approach to Growth Doesn't Really Mean Anything.” Red State blogger John Hayward denigrated the president's economic plan as "[t]he latest gaudy repackaging of Barack Obama's cobwebbed economic 'ideas,'" claiming that the middle out approach “would dissolve at the first touch of rational analysis”:

The latest gaudy repackaging of Barack Obama's cobwebbed economic “ideas” is to declare them a “middle-out” approach to growth. It doesn't really mean anything -- it's just the latest effort to make the Sainted Middle Class feel as if Democrats really, really, really care about them. Republicans use such language, too. The entire political class speaks always and only to the Sainted Middle Class. A great deal is done on behalf of the Noble Poor, but they are never directly addressed in national political speeches. Their votes are bought wholesale with social welfare dependency, and they are expected to believe that everything good for the middle class is good for them, too.  In modern America, the poor live like the middle class, while the middle class is taught to think of itself as poor and helpless.

If this “middle-out” concept were taken seriously, it would dissolve at the first touch of rational analysis. Government policies should not divide people up into “classes” and select deserving groups to receive the gift of prosperity. Showering the masses with “stimulus” benefits and expecting jobs to blossom as they eagerly spend their loot is stupid, as years of Obama's moribund economy have demonstrated. If handing people money to spend brought jobs and sustainable economic growth, Detroit would be a boom town. [RedState, 7/23/13] 

Economic Analysis Supports The President's “Middle Out” Approach

Economist Joseph Stiglitz: “Our Middle Class Is Too Weak To Support The Consumer Spending That Has Historically Driven Our Economic Growth.” In a January opinion piece for The New York Times, Nobel Prize winning economist Joseph Stiglitz attributed the economy's poor recovery to rising inequality and subsequent weak middle class consumer spending:

There are four major reasons inequality is squelching our recovery. The most immediate is that our middle class is too weak to support the consumer spending that has historically driven our economic growth. While the top 1 percent of income earners took home 93 percent of the growth in incomes in 2010, the households in the middle -- who are most likely to spend their incomes rather than save them and who are, in a sense, the true job creators -- have lower household incomes, adjusted for inflation, than they did in 1996. The growth in the decade before the crisis was unsustainable -- it was reliant on the bottom 80 percent consuming about 110 percent of their income.

Second, the hollowing out of the middle class since the 1970s, a phenomenon interrupted only briefly in the 1990s, means that they are unable to invest in their future, by educating themselves and their children and by starting or improving businesses. [The New York Times, 1/19/13]

Center For American Progress' David Madland: “The Middle Class Is The Source Of Economic Growth.” In an essay published in Democracy: A Journal of Ideas, Director of the Center for American Progress' American Worker Project David Madland outlined a middle out approach as an effective alternative to trickle-down economics:

To challenge trickle-down effectively, progressives should counter with their own story about economic growth. In that story, it isn't the rich that lead the way to growth and prosperity. Instead, it is a thriving and vibrant middle class that shows us the path. It may not seem intuitive that the concept of “the middle class” is the opposite of trickle-down and an effective counterargument against it. But it is. To understand why, we must first grasp that current thinking and rhetoric about the middle class is backwards. Politicians typically see the middle class as something to create with the gains of economic growth. But in fact, the opposite is the case: The middle class is the source of economic growth. A strong middle class provides a stable consumer base that drives productive investment. Beyond that, a strong middle class is a key factor in encouraging other national and societal conditions that lead to growth. It is a prerequisite for robust entrepreneurship and innovation, a source of trust that greases social interactions and reduces transaction costs, a bastion of civic engagement that produces better governance, and a promoter of education and other long-term investments. [Democracy: A Journal of Ideas, Spring 2011]

Entrepreneur Rick Hanauer: “Prosperity Is Built From The Middle Out.” In June 5 testimony before the Senate Banking Committee, entrepreneur and venture capitalist Nick Hanauer explained that “the middle class, not rich business people like me are the center of America's economy”:

In the same way that it's a fact that the sun, not earth is the center of the solar system, it's also a fact that the middle class, not rich business people like me are the center of America's economy. I'll argue here that prosperity in capitalist economies never trickles down from the top. Prosperity is built from the middle out.

As an entrepreneur and investor, I have started or helped start, dozens of businesses and initially hired lots of people. But if no one could have afforded to buy what we had to sell, my businesses would all would have failed and all those jobs would have evaporated. [Testimony of Nick Hanauer, 6/5/13]

Economist Jared Bernstein: “An Economically Strengthened Middle Class” Is “A Much Better Way” To Generate Economic Growth. In a January 2012 article, Jared Bernstein, Senior Fellow at the Center on Budget and Policy Priorities, argues that a “trickle-down, deregulatory agenda” has “not worked,” and should be replaced with a “wage-led demand growth” model:

The trickle-down, deregulatory agenda -- what I have called YOYO, or “you're on your own” economics -- presumes that the growth chain starts at the top of the wealth scale and “trickles down” to those at the middle and the bottom of that scale.  Problem is, that's not worked.

Here's a better model.  In the midst of the 1990s boom, which lifted the earnings and incomes of middle and low-wage workers much more so than the 1980s or 2000s cycles, Larry Mishel and I started talking about “wage-led demand growth.”  We meant that a much better way to generate robust, lasting, and broadly shared growth is through an economically strengthened middle class. [On The Economy, 1/30/12]

Economics Professor: “The Reason We Are Stuck” Is That “The Middle Class Lacks Jobs And Incomes.” Forbes contributor and Texas Christian University Professor of Economics John T. Harvey rejected Mitt Romney's June 2012 claim that relief from taxes and regulations on business would produce economic growth, saying that “the reason we are stuck where we are is because the middle class lacks jobs and incomes”:

Ask yourself this question: what do you really think caused firms to lay off so many workers that unemployment jumped from 4.4% in May 2007 to 10% in October 2009 (remaining at 8.2% today), a sudden spike in business regulations and taxes, or a collapse in demand? It is impossible to imagine that anyone truly believes the former to be the case. In reality, the reason we are stuck where we are is because the middle class lacks jobs and incomes -- something that will get markedly worse if we continue to try to cut government spending and balance the budget (many of my other blog posts cover this issue so I'll say no more here).

In conclusion, let me add my voice to the chorus of those who actually understand what's happening in our economy: WE DEMAND AGGREGATE DEMAND! [Forbes, 6/17/12]