Middle Out Economics: The Trickle Down Killer

Great Debates
1

For a long time I and other progressives have been advocating the idea that the economic growth and well being of the middle class is the key to general economic prosperity. This seemingly simple and obvious notion has been fought tooth and nail by conservatives, who insist that it is the “job creators” whose wealth “trickles down” to the rest of us that makes the economy grow.

But it’s been kinda difficult to make the argument because there was no organized economic theory behind it, just the obvious fact that when the middle class has money, they spend it, enriching the economy and promoting job growth. (The curious thing is that middle out economics makes the rich richer, too, cause their companies enjoy the profits of economic growth.)

The theory is coming together, though, it’s got a name and everything: Middle Out economics, as described inthis article in the Atlantic and in this video from The Young Turks.

I think it’s about time progressives started wielding Middle Out economics like it was a club, beating down the conservatives who have been using trickle down like a club for so long. Trickle down has been pretty much disproven by history and never made any sense anyway (on of the defining characteristics of rich people is that when you give them money, they keep it, they don’t spend it). This is a call to arms, Middle Out economics could save our economy and make us all … I mean, the people on this board here whom I believe to be mostly middle class … a lot richer. It’ll get the poor people on this board richer too, because when the middle class grows it tends to suck people from the lower classes into the middle class, which I ALSO very much approve of.

It will also make the wealthy people on this board a lot wealthier, and I’m OK with that, I don’t mind a rising tide that actually floats ALL boats.

Now I just have one caveat here, but it’s not a minor one. I suspect that the upper middle class liberals will try to co-opt Middle Out economics into the same tired economic programs they’ve been flogging all along. In the case of the Atlantic article, infrastructure improvements and education. These are both fine things, but they are misguided.

For example, when you put money into infrastructure improvements, you are just putting money into a different sector of the moneyed elite: guys who own lots of paving and construction machinery, and who DO hire construction workers, but as few as possible of course.

And I know this is gonna hurt, but we DO pay a lot of money for education, and we’ve got a pretty good system overall, not a top performer, but not bad.

No, Middle Out economics has to focus on jobs, jobs that pay well, that create middle class consumers with money and time to spend it.

I would advocate social, economic and tax policies which directly encourage the growth and enrichment of the middle class, such as:

  1. Discourage offshoring, encourage inshoring
  2. Grow the minimum wage into a living wage … maybe beyond that
  3. Instead of encouraging the purchase of new machinery, encourage the hiring of new workers
  4. Move to universal single payer national health insurance and stop making employers bear that burden, in terms of cost and regulation
  5. Limit CEO compensation (not just salary, stock options too, lets be real here) to some reasonable multiple of the pay of the company’s lowest paid employee. (I can think of no surer way to encourage higher pay for entry-level workers).
  6. Discourage the exploitation of temporary workers (i.e., hiring them for long periods of time, essentially using them as full time employees without giving them commensurate pay and benefits

Obviously, we gonna have a fight on our hands over the particulars, but just having the term Middle Out Economics will help a lot in the battle with conservatives and libertarians, who will reflexively oppose it. Fortunately, as most everyone knows nowadays, for economic theories, they got nothin’ that works.

2

Trickle down economics is a myth, no one believes in it, and so no one can use it like a club. I am not sure how one can use a economic theory like a club, but that is not the point.
The point of conservative economics is that good jobs come from businesses trying to make money. You can not be anti-business and pro-job any more than you can be pro-apple and anti-apple tree.
You seem to have no idea why people are hired and jobs performed. Jobs are created to add value to a business. The amount of wages is due to the value of the work performed and the availibility of workers able to perform the work.
Thus to create good jobs with good pay you have to improve the economy so that workers are in demand and improve things around the job so that workers are more productive in the job. Capital investments in things like machinery make people more productive and thus increase wages. None of the things you want to happen will make jobs easier to get or workers more productive. Middle Out economics is a campain slogan designed to appeal to voters who know nothing about economics it is not a serious plan or a serious theory.

3

Would that it were so. There are plenty of Republicans spouting the current incarnation of trickle-down, “job creators.” I.e., you can’t tax job creators or they won’t create jobs and stuff. The money not collected in taxes will trickle down to the economy in the form of jobs.

It kind of is my point, so I’ll explain. Prior to the existence of “Middle Out” having a name, if I wanted to explain my ideas along those lines, I had to give a detailed description of what I meant. I’ve done it several times on the Dope, generally involving several paragraphs. It works well on the Dope and other online fora, where nuanced ideas can be examined, taken apart, argued about , etc. But elsewhere? Not so much! On TV or in other mass media nuanced explanations get ignored. TLDR, yknow. Or if someone is on a TV talk show and they start in on a long explanation they get cut off pretty quick.

That’s why TV debates and debates on other fora go more for a club approach, no subtlety at all, you just name your position and glower. “Job creators, RAWRRRRRR!!!” You have not explained your position in details, but most people have a general understanding of it. The problem has been, there has been no simple, identifiable label for the idea that the middle class is the bellwether of economic health for a society. So the much inferior Job Creators meme won out not because people believed it but because there was no counter to it.

Now there is: Middle out, RAWRRRRRRR!" It can be used like a club as easily as Job Creators and it has two major advantage: it has not been thoroughly discredited like Trickle Down/Job Creators, and most Americans identify as middle class, even upper class and poor Americans. RAWRRRR!

I suspect Middle Out will roll over Job Creators like Hitlers panzers rolled over Poland, despite being a horrible name (Middle Strong would be so much better). Trickle Down (also horribly named)/Job Creators is past due for a beating, even it’s supporters don’t really believe in it.

I need to address your other points as well, but don’t have the time at the moment.

4

I agree with your entire OP except for this. If somebody else can do a job cheaper and/or better than us, it is better for everyone that they do it.

We need to work on becoming competitive in the market versus other countries, not on discouraging competition. There are things Americans can do better and cheaper. Let’s do those and stop yearning for the glory days of American sweatshops.

Also, you mention UHC, but I think we need free or highly subsidized education as well (both vocational and university) to promote freedom of movement among the workforce. If people could quit the job they hate, and either train for a new job or start their own business, without worrying about starving or going bankrupt from an injury or illness in the mean time, our workforce would be vastly better off, both economically and in terms of liberty. We’d be more productive and competitive to boot.

ETA: I prefer the term “demand side economics”.

5

But there is no reason federal tax law should contribute to making foreign jobs more competitive than domestic jobs. Create tax incentives that favor domestic jobs, and suddenly the foreign worker is not so attractive. I think that is what is being advocated here.

6

Post snipped::

Small correction, Rich People (All evil of course)TM do not keep money. They *invest *it. At least in normal economic times.

That is how most of them get rich.

Slee

7

And how would you propose to do this? It’s a great sound bite, but let’s see some meat.

So, you want to pay the low end, unskilled labor even more than the market will support for their work, and you expect this to do, what? Bring even more people back to work? The result of this (depending on how you mean to do number 1) would be more automation, more outsourcing and offshoring, more unemployment at the low end, etc. Assuming you decided to legislate by fiat the wages and force US and other companies located with plants in the US to have to use this high cost labor, the result will also be higher prices and more automation, but still not the cornucopia of new high paying (for low or unskilled labor) jobs.

:stuck_out_tongue: Sorry, this is just ridiculous. What are you, a neo-Luddite or something?

Ok, I’m cool with this, though the devil would be in the details, and I think the transition would be seriously ugly.

And how would you determine this? Sacrifice a goat and read it’s entrails? Some other completely arbitrary measurement pulled out of some liberals ass in an effort at some sort of ‘fairness’ thingy?

Same answer basically as number 2 in it’s actual, real world effect. You’d be further killing the US labor market that you are so obviously trying so hard to protect and nurture.

8

I think he was paraphrasing a theory about competitive advantage, which basically says that for the system as a whole, it’s in everyone’s economic interest to have everyone do what they’re best at, because it produces more at a cheaper price.

So if Brazil has lots of sun, rain and cheap labor year-round, it makes sense for them to grow sugarcane, and not to have people in Florida and South Texas grow it- less sun, rain and considerably more expensive labor than in Brazil, and the people in Florida could go do whatever it is that they do best.

The point in the context of this thread is that with current US labor rates, it’s really, really hard to compete with offshore competitors on labor-intensive production. And, raising the minimum wage is only going to widen that gap. This is absolutely a case of not being able to have your cake and eat it too.

I am however, all for #6. This temporary/part-time/contract labor business has its place, but ideally it should be for contingency type situations- you need someone to fulfill a specific role for a specific time period, or you need someone to pick up a few shifts. It should most emphatically not be used as a dodge by companies to not pay benefits, or to easily manipulate payrolls, which is exactly what it’s used for these days.

9

But there is no such organic reason to conclude that Chinese workers are better at making iPhones than American workers. The only reason Apple makes them in China is because it is cheaper. If we incentivize domestic labor over foreign labor, we balance that equation, and more manufacturers will conclude it makes economic sense to make products here rather than overseas.

10

Incentive? How? If you use tax breaks then doesn’t that give money to “job creators” so they can hire people to work? Then Evil Captcha comes along with his Middle Out club and hits you with it.
Seriously, they are going to need to be some seriously huge incentives to make up for the price differential on labor. The only way to make american labor cost competitive with third world labor is to make american labor much more productive, which means investing in capital. And since investing is what evil rich people do to destroy the economy that is a non starter.

11

There is investment and investment. There is investment that is productive, and then there were people who created a massive demand for high yield mortgage bonds which in turn created a demand for crappier and crappier mortgages to be written.
If there is little demand, then there are few productive investment opportunities and money gets parked in cash or other not very useful places.

12

You’d have to make American labor two or even three times more productive than it currently is - which is a huge whopping change and quite probably impossible over any reasonable length of time. Maybe more, but there’s some advantage to having your supply nearby.

It would also quite possibly not be practical even if it is possible. The OP basically wants a massive manufacturing restrucuring, and it’s not clear that we could handle that along with our current economy even if we were more productive.

Of couse, that’s just the beginning of the problems with the OP. Evil Captor is asking for a perpetual motion machine and his prescriptions delve into complete fantasy. The short version is that if his want-list actually worked that way, we could basically generate arbitrary amounts of wealth. What it actually is, is a recipe for inflation and economic stagnation or even collapse, but that’s a moral for another day.

13

We’re never going to bring all jobs back. Ain’t gonna happen. But there are plenty of cases where jobs moved overseas as part of a fad and based on rosy projections. Perhaps some slight incentives to bring those jobs back would be good.

14

No, that is not what incentivize means. Tax breaks don’t give money to employers to hire workers. Tax breaks reduce the taxes paid when employers hire Americans instead of foreigners. If you cannot see the difference, you need to brush up on economics.

You could not have made a more categorically false statement. Productivity is only one aspect of competition, and capital is only one aspect of productivity.

Rich people invest, but frequently it is in overseas banks and equities. That investment is a drain on our economy.

15

For the Bush decade worker productivity rose, but worker wages did not. The value of work performed may or may not have a big impact on wages, depending on the power of unions versus management. Rapidly increasing profits which take most of the benefits of productivity tied to stagnant wages are a recipe for the disaster we just lived through.
If businesses who indeed are trying to make money see no demand for their products as a result of stagnant wages, why would giving tax incentives to the “job creators” help? They are not dumb - they sit on the cash instead of investing in unneeded production. I think there was a great hope that China and India would be the source of demand, but because of poverty, piracy and protectionism it hasn’t happened to the level expected.
I don’t know the best way of getting money to the real job creators - consumers - but dumping it on the rich sure hasn’t worked well, has it. Unless you are rich, that is, and even they didn’t do too great in 2008.

16

[ol]
[li]Write down your economic theory in some huge 1000 page tome. Hardbound naturally.[/li]
[li]Nail tome to a stick.[/li]
[li]Whap people in the head with your economic theory.[/li][/ol]

17

All well and good to define an economic theory, but wont adherents to this one, as well as the “trickle down” model, simply retrench into their own “facts”? I think what may work in getting the word out, in addition to creating **Der Trihs’ **economic theory club, is to have a stong spokeman who knows what they are talking about, and can devolve complex jargon into simple sound bytes, like Reagan did. Remember, we are talking about the American voter here - if it takes any reading or thinking at all, the message will not be received. It needs to be pre-chewed or else it will be lost.

Many of the OP’s economic reforms may have the opposite effect by raising prices of goods and limiting consumer choices, straining middle class pocketbooks, causing people to spend less, which will reduce demand, which will reduce the need for more workers, and around we go.

18

I am a little unclear on the details of the proposals in the OP. Apparently we shouldn’t give tax breaks to “job creators” to encourage them to create jobs. Instead, we should use tax breaks to incentivize job creation. Or something.

How does that work? How, specifically, do we structure the tax system to encourage job creation and be sure that no rich person takes advantage of it?

Regards,
Shodan

19

You see, here is the problem. The economic boom in the '50s did not come from being inefficient. Why would we encourage construction companies to hire more people than needed? As a user of infrastructure, I’d much rather have the government fund more projects that will get me to work faster than fewer, less efficient, projects. If a company has enough equipment, and hires the optimal number of workers to make use of it, that is good. If we can do enough projects so that construction companies have to buy more equipment, that is doubly good since it builds jobs in the equipment industry and the new equipment is probably more efficient than the old equipment.

The way we can do the in-shoring you want is to have workers who are both well paid but so much more productive than foreign workers that it makes economic sense to manufacture here.

20

Okay, so you’re going to… well, give money to rich people to hire Americans. It’s the same thing either way. Imagine if I were to propose tax cuts for the rich and said “well, hey, I’m not giving them money!”

I find it amazing that people wanting to improve the lot of the working class keep going back to protectionism. Of all the hundreds of things you could do, “Don’t buy stuff from the damn foreigners” just keeps coming up again and again, despite it being such a stupid idea. Really, it’s time to get off that dead horse. It doesn’t work.