‘Middle-Out’ versus ‘Trickle-Down’ Economics

 (This is a current extract from the Patterns of Power Repository.  An archived copy of this page is held at http://www.patternsofpower.org/edition02/3564.htm)

Some changes in economic governance would require political intervention.  The increasing income inequality is creating political pressures, as exemplified in the Wall Street protests in 2011,[1] so the politicians may be incentivised to act (  The emerging narrative of ‘middle-out’ economics puts forward compelling reasons why changes are necessary: giving more money to middle-income people would increase the consumer demand that is necessary for the economy to grow.[2]  

It was a mistake to assume that as rich people got richer that wealth would ‘trickle down’ to everyone else.[3]  Instead of investing more in wealth-creation, much of their extra wealth was used for speculation – creating repeated ‘boom-bust’ situations.[4]

© PatternsofPower.org, 2014

[1] On 1 October 2011 the BBC, for example, published an article entitled Occupy Wall Street protests grow amid Radiohead rumour on its web site; it was available in April 2014 at http://www.bbc.co.uk/news/world-us-canada-15134806.

[2] In summer 2013 Democracy Journal published an article by Eric Liu and Nick Hanauer, entitled The True Origins of Prosperity, which was available in April 2014 at http://www.democracyjournal.org/29/the-true-origins-of-prosperity.php?page=all.

[3] President Obama's director of the National Economic Council, Gene Sperling, wrote an article entitled Rising-Tide Economics which was published by Democracy Journal in autumn 2007.  The title of the article referred to John F. Kennedy’s observation that “a rising tide lifts all boats” which encapsulated the argument that, as the rich get richer, their wealth would trickle down to the rest of the economy.  The article goes on to criticise this "trickle-down" theory.  It was available in April 2014 at http://www.democracyjournal.org/6/6547.php?page=all.

[4] Stuart Lansley, in his book The Cost of Inequality, described how the super-rich contributed to economic instability.  Reviews of his book were available in April 2014 at http://brusselslabour.eu/2011/12/20/book-review-the-cost-of-inequality/ and http://www.redpepper.org.uk/the-cost-of-inequality/ and http://blogs.lse.ac.uk/politicsandpolicy/archives/25803.