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

(This is a current page, from the Patterns of Power Edition 3 book contents.  An archived copy of this page is held at http://www.patternsofpower.org/edition03/3564.htm)

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.[1]

There is a popular fallacy that paying more to top people would result in increased economic growth, which would ‘trickle down’ to everyone else,[2] but there was lower growth during that period – so this argument is now discredited.[3]  Collectivist politicians have started to pick this up, as in what Bloomberg reported as Obama’s ‘Middle Out’ Argument Against Trickle-Down Economics in the President’s Galesburg speech of 24 July 2013.

Instead of investing more in wealth-creation, as described below (3.5.6.5), much of their extra wealth was used for speculation – creating repeated ‘boom-bust’ situations.[4]  An IMF study that was published in February 2014, entitled Redistribution, Inequality, and Growth,  concluded that “narrowing of inequality helped support faster and more durable growth, apart from ethical, political, or broader social considerations”.

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[1] In summer 2013 Democracy Journal published an article by Eric Liu and Nick Hanauer, entitled The True Origins of Prosperity, which was available in March 2018 at http://www.democracyjournal.org/29/the-true-origins-of-prosperity.php?page=all.

[2] 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 March 2018 at http://www.cfr.org/business-and-foreign-policy/rising-tide-economics/p14230.

[3] In Hah-Joon Chang’s book quoted earlier, 23 Things You Didn’t Know about Capitalism, in Thing 13: Making rich people richer doesn’t make the rest of us richer, he pointed out that the empirical data show that economic growth in America slowed down during the period when inequality was rising so rapidly.

[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 March 2018 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.