Symposium | The Middle-Out Moment Is Here

A New Economics Takes Hold

By Nick Hanauer David Goldstein

Tagged Biden AdministrationMiddle Out Economics

Eleven years ago, Democracy journal boldly declared a “Middle-Out Moment” in which the time had come, wrote co-author Hanauer and Eric P. Liu, to “kill the myth of trickle-down economics—and to replace it with the true story of middle-out economics.” We should have known better. Economics is the mythical story we tell ourselves about who gets what and why, and as the still-familiar gods of the Greeks, Romans, and Norse can tell you, long-told mythologies die hard, particularly when they benefit the rich and powerful.

Firmly in the grasp of the trickle-down myth that had dominated the public debate for more than 40 years, our politicians, policymakers, pundits, and academics (not to mention popular imagination) proved predictably resistant to an alternative story of economic growth. “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist,” John Maynard Keynes astutely observed, and however well-grounded our middle-out narrative was in theory or in fact, it persuaded few of the “practical” men and women who had the power to enact real change. If there was a middle-out moment back then, one might be forgiven for thinking that it quickly passed. Trickle-down economics appeared secure.

But a lot has changed since 2013, a decade over which both our economy and our understanding of it have relentlessly evolved. The long, slow recovery from the Great Recession continued at its glacial pace, its anemic wage growth and skyrocketing inequality undermining faith in the American Dream, in market capitalism, and, for some, in democracy itself. The “Fight for $15” and its string of nearly universal minimum wage victories in blue and red states alike reset expectations of the politically possible while teaching both advocates and voters a new way of talking about economic cause and effect. The sudden fragility of the COVID economy and the essential role of an activist government in preventing tens of millions of Americans from once again falling into the immiserating depths of another Great Recession or another decade-long crawl to recovery dispelled, at least temporarily, the Reagan-era myth that “government is the problem” and never the solution. The surprising victory of Donald Trump’s populist campaign, his chaotic reign, and his despotic efforts to overturn the 2020 election exposed the real and present danger of the path from economic disillusion to democratic dissolution.

Of equal importance, a series of natural experiments helped call into question not just trickle-down’s economic policy narrative, but many of the orthodox neoclassical economic theories on which it relies.

Neoclassical economics models the market as a self-regulating equilibrium system in which there is always a “Big Tradeoff” between economic fairness and economic growth—a system in which if you raise the cost of labor, for example, employers will rationally and predictably purchase less of it. Yet the remarkably successful Fight for $15 did not, as orthodox economists widely predicted, “kill jobs.” Rather, those cities and states that raised their local minimum wage saw both employment and wages rise faster than those that did not—and the bigger the minimum wage increase, the bigger the gains.

Neoclassical economics assumes that when taxes go down, private investment inevitably goes up. Yet the Trump tax cuts (largely on corporations and the wealthy) did not, as the orthodox models of its promoters predicted, spur economic growth, let alone give the “typical American household” the “$4,000 pay raise” that Trump and the Republican Congress promised. In fact, multiple studies have found that tax revenues, business investments, job creation, and median incomes all grew slower as a result of the tax cuts, as federal budget deficits soared.

Neoclassical economics assumes that inflation is largely the consequence of a “wage-price spiral” in which rising wages cause producers to raise prices, spurring workers to demand yet higher raises in a self-reinforcing doom loop. And yet most recently, the American economy did not, as former Treasury Secretary Larry Summers and other orthodox “experts” austerely warned, require two years of misery-inducing 7.5 percent unemployment to get higher prices back under control. Once the supply chain bottlenecks inherent in restarting the post-COVID global economy worked their way through the system, inflation quickly fell toward Federal Reserve targets without a significant bump in the unemployment rate—which has remained below 4 percent for 25 straight months, a 50-plus year record. Some have given credit to the Federal Reserve for managing this “soft landing” through its regime of painful interest rate hikes. But it’s important to note that the Fed’s proximate goal was to undermine the power of workers to demand higher wages by triggering a spike in unemployment—a goal at which the Fed’s policies utterly failed. That the orthodox economic models could neither predict nor explain either the sudden spike in prices or their equally sudden fall is a testament to how impotent these orthodox models truly are—and how ripe they are to be replaced.

Most encouraging, this replacement is already underway. For perhaps the biggest change since 2013 is that for the first time in more than half a century, we have a President in the White House who doesn’t just reject the trickle-down narrative but enthusiastically and relentlessly champions the middle-out alternative. The best way to grow the economy is “from the bottom up and the middle out,” President Biden is fond of repeating. “When the middle class does well, everybody does well”—a simple and persuasive middle-out theory of economic growth internalized by and realized through the President’s “Bidenomics” agenda.

In the years since a middle-out moment was previously declared, the science that informs middle-out economics has greatly advanced, the empirical data that support its policy prescriptions have accumulated, the narrative that can drive its widespread adoption has matured, the circumstances that make its paradigm shift possible have accelerated, and the political leadership necessary to replace an old economic story with the new has been asserted by a President committed to using the powers of his office to help rebuild the American middle class.

The middle-out moment has finally arrived. And not a moment too soon. Because our prosperity, our democracy, and our climate all hang in the balance of a 2024 election that will ultimately be a referendum on President Biden’s middle-out economic agenda.

Bidenomics is a policy agenda that rests atop a middle-out story of growth, but the middle-out narrative is no mere myth or hopeful theory scribbled on a dinner napkin. Quite the contrary: Middle-out economics is informed by an emerging new consensus that rejects much of neoclassical economic orthodoxy and replaces it with models and assumptions consistent with the latest science on human behavior, on social systems, and on the nature of prosperity itself.

As Hanauer explained recently in Time magazine, middle-out economics is, at its core, largely a story about economic cause and effect. Middle-out argues that a large and thriving middle class is the primary cause of economic growth, not a consequence, and that the more people we fully include in the economy, the faster and more prosperous will be its growth. This is the core proposition of middle-out economics: that prosperity grows from the middle out.

Trickle-down economics, by contrast, argues that wealthy “job creators” are the primary cause of economic growth, and that it is this growth that makes a middle class possible. “If we want job growth,” former House Speaker John Boehner once succinctly explained, “we need to recognize who really creates jobs in America…that private sector job creators are the heart of our economy.” This is the core proposition of trickle-down economics: that prosperity grows from the top down.

This argument between middle-out and trickle-down reflects a series of fundamental disagreements over how market economies work, with enormous implications for how we craft economic policy. Trickle-down argues that it is the availability of concentrated capital (that is, the money of the wealthy) that is the primary constraint on growth, and so it advances policies that focus on the needs of investors while trusting in the “invisible hand” of the market to fairly and efficiently distribute the benefits of any resulting growth.

But middle-out understands that the only way to grow the economy is to fully include more people in it—as entrepreneurs, as innovators, as well-paid workers, and as robust consumers. It advances policies that intentionally focus on building the capabilities and serving the needs of people, not money, while trusting in the dynamism of markets to innovate new solutions in response to any costs or other burdens these policies might impose.

The orthodox economic theories that inform trickle-down further insist that the market functions primarily as a self-organizing tool for efficiently allocating capital, and that if capital efficiency can be maximized through market concentration or automation or offshoring (or union busting), then so be it. By contrast, middle-out is grounded in modern economic theory that recognizes that, while markets are incredibly effective at evolving new solutions to human problems, they are often remarkably inefficient, and that what capital efficiencies they do create can sometimes come with unacceptable amounts of economic and societal harm. For example, the capital efficiencies that arguably came from relying on “just in time” deliveries of masks, gowns, gloves, and other basic medical supplies offshored to low-cost Chinese manufacturers surely cost American lives during the early months of the COVID-19 pandemic, while the subsequent shortage of semiconductors, mostly designed in America but “efficiently” manufactured overseas, brought our automobile industry to a standstill for want of a domestic supply at any price.

Middle-out flatly rejects the assumption that our economic policies should maximize capital efficiency above all else, and recent events are helping to build a new consensus around this previously unorthodox view. As U.S. Trade Representative Katherine Tai declared in a speech at the National Press Club in June, “Today, labor leaders, CEOs, foreign leaders, and the President’s National Security Advisor all agree: Our global supply chains, which have been created to maximize short-term efficiency and minimize costs, need to be redesigned for resilience.” This break from our decades-long infatuation with so-called “economic efficiency” is not merely a break with trickle-down. It is a break with neoclassical economics itself.

It is impossible to overstate how consequential these disagreements are. The middle-out assertion that a thriving middle class is the cause of growth, not an effect, is a 180-degree reversal from the trickle-down consensus that has dominated our politics and policy since the “Reagan Revolution” of the early 1980s. The long-term impact of the nascent “Biden Revolution” could be a generational shift in how we talk about, think about, and manage the economy. The immediate impact is an economic agenda that, for the first time in decades, is focused on directly growing, supporting, and enriching the American middle class rather than vainly waiting for prosperity to trickle down to it from above.

One can see Biden’s embrace of middle-out economics both in his words and in his policy agenda. The White House website describes Bidenomics as “centered around three key pillars”—making public investments, empowering workers, and promoting competition. They are pillars that stand both in sharp contrast to the trickle-down regime of tax cuts, wage suppression, and deregulation, and on a far stronger middle-out foundation.

For example, trickle-down argues that public investment inevitably “crowds out” the private investment that it sees as “the heart of our economy.” Yet “a core tenet of Bidenomics,” explains the White House, “is that targeted public investment can attract more private sector investment, rather than crowd it out.” This is a remarkably unorthodox assertion that implies an active role for public investment not just in addressing market failures but in helping markets work better to serve the needs of the American people. And it is an assertion that has quickly proven true. By August 2023, just one year from its passage, the CHIPS and Science Act had already crowded in $231 billion of private investment in domestic semiconductor manufacturing before a penny of the $39 billion it allocates for subsidies and incentives had even been spent. In the third quarter of 2023, real investment in U.S. factories hit an all-time high.

The Administration’s focus on empowering workers is an equally radical departure from an economic orthodoxy whose theories disingenuously ignore the role of power in determining economic outcomes—and an underappreciated aspect of presidential power is the ability to lead by example. After Ronald Reagan infamously broke the air traffic controllers’ union in 1981, corporate America enthusiastically followed his anti-worker lead. By contrast, when Biden broke with tradition to join striking autoworkers on the picket lines in September 2023, he sent a clear message to corporate boardrooms that the balance of power was shifting. A few weeks later, Ford agreed to a contract that delivers autoworkers wage increases of at least 25 percent. Stellantis, General Motors, and even non-unionized automakers quickly followed.

But of the three pillars, perhaps the most dramatic departure from the old consensus has come in the Administration’s historic Executive Order on Promoting Competition, which “commits the federal government to full and aggressive enforcement of our antitrust laws” for the first time in more than 40 years. On antitrust as on most economic issues, trickle-down simply asks us to place our faith in the infinite wisdom of the market. If the winners from market competition use their dominance to establish an uncompetitive market, trickle-down is okay with that as a fair and efficient outcome of market forces at work. But in recognizing that uncompetitive markets can never nurture a middle-out economy, Bidenomics has reembraced promoting competition as the defining mission of its antitrust regime. Promoting competitive markets for goods and services enables more businesses, particularly smaller ones, to thrive—expanding consumer choice, lowering prices, and increasing innovation. Promoting competitive labor markets empowers workers to negotiate higher wages, more benefits, safer workplaces, and more humane hours.

The three pillars of Bidenomics—making public investments, empowering workers, and promoting competition—are more than just embodiments of middle-out principles. They are a paradigm shift in the making. And in turning theory into practice, they have become indispensable to telling the middle-out story itself.

In the coming pages, you will hear from a number of experts from across multiple disciplines discussing various dimensions of this new middle-out paradigm—from the economic theories that inform it to the narrative that drives its adoption to the heuristics necessary to transform sound middle-out theory into sound policy. We will also, importantly, delve into the politics of middle-out, for it is only through effective politics that a middle-out policy agenda can fully and firmly take hold.

It is, after all, on its policies that middle-out will ultimately be judged and through which its story will be told, and to that end our policy agenda must be laser-focused on raising the wages, lowering the living costs, and ensuring the security of middle-class Americans. Even policies that appear to have little hope of passing a divided Congress ought to be championed—policies like a substantial hike in the federal minimum wage (Democrats should open the bidding at, say, $25 an hour for all large corporations, instead of their usual tactic of meekly negotiating against themselves), a return to a historically proportionate $90,000 a year overtime threshold (instead of the $55,000 level the Biden Administration has proposed), an ambitious national program to build millions of units of affordable housing, and a comprehensive plan that not only rebalances the tax code by raising taxes on the wealthy and cutting taxes on everyone else, but that fortifies the Social Security trust fund for generations to come.

Despite record-low unemployment, rising real wages, strong GDP growth, and a rapid fall in the inflation rate to below both global and historical averages, only 36 percent of Americans say they approve of Biden’s handling of the economy. That the President has thus far failed to get the credit he deserves should come as no surprise. Sadly, many of the benefits of his remarkable legislative and regulatory achievements won’t be felt by most Americans for years to come. But more to the point, Democrats aren’t receiving credit for their economic accomplishments because they’ve never before put forth an alternative theory of economic growth. Rather, for the past 40 years, they too have perpetuated the myth of the Big Tradeoff, leaving voters conditioned to assume that if Democratic policies lead to more economic fairness, then Republican policies must logically lead to more growth. And for an increasingly precarious middle class, a choice between fairness and growth isn’t really a choice at all.

But Biden is finally offering a compelling alternative. “When the middle class does well, everybody does well”—the President’s now-constant refrain—is part of a middle-out narrative that correctly argues that economic fairness and economic growth have always gone hand in hand.

The 2024 election will turn on the economy, and the key to winning the economic debate is to relentlessly frame economics as a choice. Give voters a real choice between growing the economy from the middle out or from the top down, and they will choose the middle out. Give voters a choice between a narrative that celebrates the middle class as the primary source of growth and prosperity and one that lionizes the rich as “job creators,” and most middle-class Americans will choose the narrative that places them back at the center of the American economy.

Take growth away from the trickle-downers and they have nothing. But given what’s at stake in this election, allow 2024 to become a zero-sum choice between fairness and growth, and this middle-out moment may be as momentary as the last.

Portions of this essay appeared in Hanauer’s article “Bidenomics Is Real Economics,” Time, December 8, 2023.

From the Symposium

The Middle-Out Moment Is Here


Industrial Policy's Triumphant Return

By Felicia Wong


See All

Read more about Biden AdministrationMiddle Out Economics

Nick Hanauer is an entrepreneur, a venture capitalist, the founder of the public-policy incubator Civic Ventures, and (with Joan Walsh and Donald Cohen) an author of the new book Corporate Bullsh*t: Exposing the Lies and Half-Truths That Protect Profit, Power, and Wealth in America.

Also by this author

Welcome to the Winning Middle-Out Era

David Goldstein is a senior fellow at Civic Ventures and the co-host of the podcast "Pitchfork Economics with Nick Hanauer."

Also by this author

What Really Wrecked Boeing

Click to

View Comments

blog comments powered by Disqus