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‘Middle-Out’ Economics

Here it is. Here is the wealth inequality narrative progressives have been searching for. Yesterday I wrote about rich wankers and a couple of helpful commenters contributed the following two articles on the subject of wealth inequality:

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

The Pitchforks Are Coming… For Us Plutocrats

Both articles are written and co-written by Nick Hanauer – a member of the 0.01% wealthiest people in the world thanks to his foresight in investing early in Amazon. Hanauer is arguing for a progressive narrative to replace the right’s reliance on ‘trickle down economics’. I would suggest reading both articles, as I really believe Hanauer is spot on. Hanuaer’s 2012 TED talk is also worth watching.

I am currently studying political narrative and framing and through this research, I have become interested in George Lakoff’s work in trying to convince the US Democrats to be smarter about the language they use to argue against Republican and Tea Party policies which widen the gap between rich and poor. Policies like tax breaks for the rich, using the incorrect excuse that the rich are job creators. And policies that aim to make the government smaller and more ineffective in stemming capitalist greed. Hanauer argues that there is no empirical evidence that tax breaks for the rich create jobs. He also argues that the best way to reduce the size of government is to reduce welfare payments by expanding the size of the middle class. Someone needs to show Joe Hockey this suggestion. People don’t want to be on welfare and would support a government who supports them to be trained and prepared for meaningful, well paid work. This is simple, yet powerful stuff.

The crux of Hanauer’s narrative is that middle class spending creates demand in the economy and in turn, creates jobs. As Hanauer explains, from his own experience as a member of the ultra-rich American community, he might earn 3,000 times more than the average worker, but there is no way he consumes, or buys, 3,000 times more than the average worker. His excess money goes into his own savings and investments, which help him to get even richer, widening the gap between his wealth and everyone else’s. Hardly any of Hanauer’s wealth influences the wealth of the middle-class in his community and contributes to job creation. As he simply says, if Walmart employees can’t afford to be Walmart consumers, who is going to ensure the long term sustainability of Walmart’s business model? His arguments are not social ones, although of course they do affect social policies. His arguments are economic. The loss of America’s middle class means the loss of their consumer base.

Here are Hanauer’s suggestions as to how ‘Middle-Out’ economics can become a thing as published in The Atlantic:

First, relentlessly frame the choice as a choice. It’s trickle-down and middle-out economics. Not “top-down.” Not “the old ways that got us into this mess.” Trickle-down vs. middle-out. If we don’t have the courage to name our alternative, and repeat it relentlessly, we haven’t given people a clear choice. We will never displace trickle-down ideas if we don’t provide a clear, concise, and compelling alternative. Neither term has inherent force; it’s only in the contrast that we win.

Second, propagate the one pivotal meme at the heart of this entire effort: that rich businesspeople don’t create jobs; middle-class customers do. To put it another way, the right’s claim that rich businesspeople are job creators is the critical vulnerability deep in the heart of the Death Star; if we can target our ammunition to obliterate that single claim, the entire Death Star of right-wing ideology will implode and disintegrate. Why? Because without that claim, there is no way for the trickle-down camp to justify the absurd preferential treatment in the tax code and the regulatory regime for the rich and for large corporations. Without that claim, trickle-down economics reduces nakedly to a rent-seeking, self-serving agenda by the very rich to extract wealth from the poor and middle class. In short, we need to pick a fight with the right about the origins of prosperity in a capitalist society. Middle-out economics will prevail.

Third, make every economic issue an example of middle-out economics. The Ryan budget fails not because it is unfair or heartless or draconian. It fails because it perpetuates trickle-down thinking and cripples the ability of the middle class to generate national prosperity. Entitlement reform is not about the virtue or vice of running deficits. It is about whether we create enough security for middle-class consumers and workers to participate in the economy. The Affordable Care Act is not about the byzantine bureaucracy of health-care delivery. It’s about whether the middle class can dedicate its purchasing power to productive economic activity instead. And so on with sequestration, fiscal stimulus, and tax reform.

Fourth, recommit to capitalism — in a truer and more effective form. Middle-out economic policies aren’t just good because they benefit the middle class or the poor in the near term. They are great for the United States as a whole in the long term because they drive prosperity for all, including the rich. Our agenda is to make capitalism be all it can be for all of us.

Fifth, take this case to the people in the form of story. The argument we make here is a conceptual one. But the delivery device for that argument has to be narrative. Perhaps unfortunately, the last 30 years provide a very simple narrative arc — the tale we told at the very start of this article. That kind of storytelling must become second nature to progressives. Indeed, on all these fronts, progressives need dozens of complementary and simultaneous efforts to turn middle-out economics and the job-creator meme into products — media stories, policies, bumper stickers, viral videos, school curricula.

The fifth point is the one that most interests me and my study into political communication and narrative. The left need a new narrative. And ‘Middle-Out’ provides this narrative. As I have previously written, wealth inequality needs to be at the heart of the left’s new narrative. Hanauer’s suggestions provide the left with a way to make this happen.

John Oliver’s recent segment about wealth inequality was both hilarious and depressing. It revealed to me that President Obama knows that he needs a wealth inequality narrative, but so far hasn’t been able to find one. Oliver quotes from this article which explains that when Obama’s historian, Robert Dallek, asked the President during a round table discussion what his administration needed help with, Obama’s response was:

“What you could do for me is to help me find a way to discuss the issue of inequality in our society without being accused of class warfare.”

I believe Hanauer is offering a possible solution to Obama’s problem. Coupled with Senator Elizabeth Warren’s ‘You did not build this on your own’, the Hanauer ‘middle-out not trickle-down’ narrative adds another layer of concrete to this concept. The genius of Hanauer’s argument is that you can’t be accused of class warfare when the advice you are giving helps every class. Every class benefits from a strong, productive, wealthy-enough-to-consume middle class. ‘Middle Out’ economics is the narrative Obama, and all progressives, have been searching for. Is the Australian Labor Party listening?


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  1. Dan Rowden

    So, the solution to the world’s economic problems is a more expansive middle class, with increased overall growth and consumption? Um. Whilst is may indeed be a perfectly sound solution to the issue of wealth inequality, taken from a broader perspective, it is highly problematic. I’m not sure if I’m comfortable advocating anything that causes increased consumption. And it will, will it not?

  2. Kaye Lee

    I know I am running against the headlines, but I would prefer to see us raise Newstart payments by $50 a week. That money would, in the main, be spent on essentials so it would all be certain to recycle through the economy. The increase in consumption wouldn’t be huge but the social, health, and education benefits of raising people out of poverty would have enormous benefit.

    The consumption explosion seems inevitable as India and China expand their middle classes.

  3. Dan Rowden

    Kaye Lee,

    I agree about Newstart. An extra $50 is modest and doable in terms of Government costs but non-trivial for people on such a modest income.

  4. Matters Not

    From one of your links.

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

    Indeed! The ‘theory(s)’ you have will ‘determine’ the ‘methodology’ you employ and therefore the ‘facts’ you identify. Further, it’s these same common sense notions (theories) that will ‘determine’ also the ‘meanings’ that you will give to those identified ‘facts’. Unfortunately for most of the population, there is little or no understanding that they construct the world through a set of ideological blinkers.

    “The fish is the last to discover water”.

    While the linked articles are certainly useful in understanding what might be a new pathway, the works of Thomas Piketty are very helpful in understanding the extent of the ‘problem’.

    Piketty sets out in detail the power of the forces pushing us towards a society of entrenched and inherited inequality, and identifies the weakness of many of the policies – such as expansion of educational opportunities – traditionally presented as remedies.

    Quiggan provides a good summary.

  5. Graeme Henchel

    The concept of Middle out economics is very compelling. However the issue is far wider than merely reducing inequality. The ecological limits of the economic system which are impacted by consumption per head and the number of heads must be included in any discussion of economic reform. It is addiction to a continuous growth paradigm which pervades the excessive greed of the super rich and which is also used by them as justification for their dirty deeds. So Hockey says “We need to do these things so we can GROW the economy” thus the god of growth is used to justify income inequality with the myths “that a rising tide lifts all boats” or “grow the cake rather than redistribute the cake” Well the world is already past it’s ecological capacity and this is becoming more evident everyday. There is however a long history of thinkers who have raised this going back to Mathus and the seminal Limits to Growth written in the 1980’s.
    A recent book by economists, Rob Dietz and Dan O’Neill called “Enough is Enough” provides a glimpse of what that new paradigm might look like. The sub-title “Building a sustainable economy in a world of finite resources” describes what the book is about. Deitz and O’Neill first describe the predicament we are in, then spend the majority of the book suggesting a way forward. Their chapters include, “Limiting resource use and waste production”, “Stabilising population”, “Distributing income and wealth (more equitably)”, “Reforming monetary and financial systems”, “Changing the way we measure progress”, “Securing meaningful jobs”and “Rethinking commerce”. However they acknowledge that the world is not ready to question the “growth is good” mantra. The world is addicted to an economic system based on growth in per capita consumption whilst simultaneously increasing the population. Some people believe we have already exceeded the earth’s ecological capacity. The “sustainable economy” conversation needs to become mainstream.

  6. John.R.

    Every country on this planet has some form of natural resources.What do we do.We have Governments that hand them over to vested interests to exploit of their own free will so long as the ruling Political party gets a donation at election time.When they are finished ripping them out of the ground and patting themselves on the back for being for such great Businessmen they walk away and leave a polluted mess and a gaping hole in the ground for the local community to live with.
    In other aspects of the business community manipulated interest rates allow corporations to survive.If they had to return 8-10% on their share price they would not compete. See the Austrian School of Economics
    There are 50,000 abandoned mines in this country.As soon as the mine is no longer viable they wind up the company and leave town.As there no longer is a company then nobody is liable
    The only investment these people make is in people and equipment to locate,extract,maybe process,then transport the material to a customer.
    Anything left after accounting for these expenses plus a return on the money invested to do it should go into the coffers of the country from which it is extracted but not under the current system involving party politics.
    The political system would have to be changed where it is run from a community level and those at what we currently call the “top????” would be no more then administrators acting upon the directions of the populace. Anyone involved in the system would have to lay everything on the table and show where all their money comes from and leave it open for everyone to see
    There can no longer be any secret Government Business as it is our money and they are not there to rule over us
    The current breed of politicians and right leaning media would not have a bar of it and would work day and night to convince you of the flaws in such a system as openness and honesty are not a part of their character.
    If you wish to see equality then something along these lines is what will have to emerge from the great leveler which is about to arrive.

  7. John Lord

    Excellent article.

  8. James Ellis

    When you are rewarded for hard work in the lowly paid retail industry with a 3% increase in your enterprise bargaining agreement while the CPI is running at 3% you realise that you are not meant to share in your employers profits. “Trickle down” only works while employers are not greedy, government are not trying to enslave the bulk of the population and unions have pulled their fingers out. In other words it’s not working.

  9. Rob

    Flourishing economies run on disposable cash.

  10. Evan

    Dan, you have to think of consumption as meaning different things to different levels of people. For those struggling to exist increasing their consumption may be to have two meals a day instead of one or perhaps buying a new pair of jeans instead of going to the op shop and buying used clothing. For the likes of Clive Palmer it may be whether to buy another Rolls Royce.

    The message of this article to me is that we need to empower the workers of the community, the so called Aussie Battler by taking from the rich to support the poorer members of the community. This is the real meaning of a community to recognise that everyone has a part to play and provide support to those that need it.

    Not like yesterdays sunday paper front page splash “War on Bludgers” where the government is waging a war on behalf of the rich against the poor. This is “class warfare” and a pretty one sided war at that and yet as pointed out in the article any moves to reduce inequality are shouted down as class warfare as if the rich can’t defend themselves against it.

    Perhaps we need a revolution “Liberty, equality, fraternity”.

  11. Graeme Henchel

    Liberty, equality, fraternity and sustainability

  12. BJWard

    @ Dan Rowden, while I appreciate your point about increased consumption, that’s a viewpoint that undoubtedly isn’t shared by the majority of what used to be the middle class in America. Nor would it find much sympathy with the growing group of homeless people that a contributor in another forum described, who are living under an old rail bridge in inner Sydney – while house prices in that city have soared over $800k.

    I liked Evan’s analogy about increased consumption meaning to some people, the chance of being able to afford two meals a day instead of one.

    “If Walmart employees can’t afford to be Walmart consumers, who is going to ensure the long-term sustainability of Walmart’s business model?” I reckon Hanauer’s interests are well expressed here. Hanauer is a bit more economically literate than most of the 1 percenters seem to be – he’s worried about the USA consumer market collapsing because no-one will be able to afford more than food and shelter in the relatively near future. I’m not yet sure whether he’s merely interested in his own economic outlook, or whether he’s more concerned about American society’s future.

  13. BJWard

    I just read Hanauer’s article “The pitchforks are coming” and I’ve changed my mind about Nick Hanauer’s point of view. He gets it. I think this is why:

    “So forget all that rhetoric about how America is great because of people like you and me and Steve Jobs. You know the truth even if you won’t admit it: If any of us had been born in Somalia or the Congo, all we’d be is some guy standing barefoot next to a dirt road selling fruit. It’s not that Somalia and Congo don’t have good entrepreneurs. It’s just that the best ones are selling their wares off crates by the side of the road because that’s all their customers can afford.”

    Trouble with Australia is none of the 1 percenters here, nor any of our politicos, have woken up to that yet. They’re still in the fuedal phase.

  14. darrel nay

    Free humanity,

    Many of the super-rich love socialist wealth redistribution because they control the governments and their corporations are always exempt from the taxes we pay. The rockerfellers funded Stalin, Mao and Hitler because they knew if they controlled the government they could eliminate the middle-class by wealth redistribution. Wealth redistribution has always meant dictatorship. I am sure the author of this article knows that it would be morally weak to steal from a wealthy neighbour – why then is it OK to promote that the government should steal the same money (via taxes)?

    If Australians, such as the author, want redistribution then let us be more sharing as individuals and not ask the government to do our bidding.


  15. driftwood12

    The well off came out of a boom and right leaning spying regime, and heavily corporate, wanting more and demanding blood. People in Aust have never had so much money or power. Hockey’s laid back cigar smoking pic sums it. All done too, under a planned and forced monopoly of rental and destruction of social housing. This is not trickle down or free markets. It is rat cunning greedy psychotics of selfishness and dislocation from the populace whole. At present , we suffer human nature in our governance and more than likely no shortage of top percent corporates putting pressure on the foreign labour markets to bend to will at our populace expense. We are paying for pigs advancements. Figures are not lying.
    We are running under a hyped war pace while the cigars are out upstairs.
    Wealth distribution and the blatant facts of life around us are evident enough aside from Pickety, Russel or Hanauer. The top percenters are feeling the heat of the booms downturn, overempowered by the strength of the clandestine spying regime, that is a joke watching heights trying to juggle the good for all to come out of it into public acceptance.
    We are paying heavily for a minorities ilk and classes adventures into global money. It cant be painted up anything than it is unless we under oppression.

  16. Roger

    Whilst I found the articles to be quite enlightening, the comments have somewhat depressed me. I think it’s because I’ve interpreted much of what’s been said as defeatist. The logic used in the argument by the author seems intuitive; some may argue too simplistic, but I would say that simplicity is something we should be looking for. I believe the system we have at present is far more complex than it needs to be. Much of the complexity is brought about by people manipulating the system to their own ends. Whilst I am not that naïve to expect ALL people will do what’s best for the community (be that local or global), I believe we should be working towards a system that manages to care for the whole community (and that means it should also cater for those who have entrepreneurial ability, as without them, the capitalist system will not function).
    What heartens me is when people refer to our current system as either “trickle-down”, “Reaganomics” or “Thatcherism”. This points to it being a reasonably recent phenomena. If it can be created it can be changed! Sure, the system was favourably endorsed by big business and promoted by the msm, but with the msm finding it harder to survive on their current model, it means that those promoting a new approach can take advantage of newer communication technologies in promoting an alternative approach. Sure, there will be an enormous push to ridicule/destroy any such model by the current vested interests, but I see it imperative that we promote a new system IMMEDIATELY as there is no time to waste. What that is – I’m open to suggestions.

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