Miliband, Obama & "middle-out economics"

The Labour leader follows the President in growing the economy from the middle classes.

Yesterday, Ed Miliband laid out his cards on his economic vision. He argued that to get to the kind of strong and steady economic growth that will lower unemployment and support deficit reduction: “the starting point is that the recovery will be made by the many not just by a few at the top,” he said.

One reading of this speech is that he is talking about economic growth only to cover for a concern over fairness. Thus, the mansion tax can be interpreted as a way to make sure that the rich pay their fair share, but this really may have nothing to do with growth. But, another reading of the speech is that he — like President Obama — is pushing for a debate about economics that is based on facts, not fiction. Middle out economics or an economics that begins with the many, not the few may sound like good old-fashioned political pandering, but, in fact, there is solid economic evidence for this perspective.

Both Miliband and Obama are pushing against a story of what makes the economy grow that goes like this: Cut taxes or reduce “red tape” or regulation on those who are the “job creators” and they will invest more and hire more employees and the economy will grow. For decades, this trickle-down logic has been an unvarying constant in the political discourse in both the US and the UK. Yet, this model has failed both nations repeatedly and most colossally over the past few years of deep recession and sputtering recovery.

It’s not just that the trickle-down model isn’t fair and that progressive leaders don’t like the idea of giving tax cuts to millionaires while too many struggle to make ends meet, although that may be true. The deeper problem is that this model isn’t consistent with the evidence on what makes an economy grow.

If you ask any group of economists - left, right, center - what drives economic growth, they will give you a list of ideas that will fall into a few categories: the level of demand for goods and services, the skills and educational level of the potential workforce, the quality of the infrastructure, the potential for innovators to bring ideas to market, the quality of governance in both public and private institutions, and access to financial capital, including access to debt and savings.

That’s a long and complex list. The trickle-down story certainly plays a role in how much individuals can save — higher taxes means less savings. But, that’s clearly only one small piece of the puzzle. And, it’s a piece that may stand in opposition to the others: cutting taxes for millionaires may give them each a little more money to invest, but that means less money for schools to educate the next generation of employees, less investments in updated infrastructure that will improve the productivity of private investment, or less funding to support innovation.

The fact is that it is the business owners job to always focus on the bottom line. It’s their job to boost their productivity or sales to add profits to their bottom line. A tax cut helps them do that in the short-run. But, even the best businesses cannot on their own address the gaps in educational attainment, make sure that high finance doesn’t become too big to fail, or address climate change.

Focusing on growing the economy from the middle out is a better reflection of what economists know about what makes an economy grow and thrive. Over the past couple of years, my colleagues and I have been sifting through economics papers and talking to leading economists around the world about this question. We have found that there is a growing body of research pointing to the conclusion that high inequality hinders economic growth and stability through a variety of mechanisms. While there isn’t one perfect, econometrically unimpeachable paper that proves that the economy grows from the middle out, there’s a lot out of research out there - from top tier institutions - pointing to the conclusion that the strength and size of the middle has a strong effect on the all the key factors that propel the economy forward.

For both Britain and the US, the best bet for the economy is on the middle. Both nations have won before on building an economy from the middle out and by developing and investing in the skills and infrastructure necessary to support broad-based growth. That's the winning hand.

Photograph: Getty Images

Heather Boushey is a Visiting Fellow at IPPR and senior economist at the Centre for American Progress in Washington DC

Photo: Getty
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Which CLPs are nominating who in the 2016 Labour leadership contest?

Who is getting the most CLP nominations in the race to be Labour leader?

Jeremy Corbyn, the sitting Labour leader, has been challenged by Owen Smith, the MP for Pontypridd. Now that both are on the ballot, constituency Labour parties (CLPs) can give supporting nominations. Although they have no direct consequence on the race, they provide an early indication of how the candidates are doing in the country at large. While CLP meetings are suspended for the duration of the contest, they can meet to plan campaign sessions, prepare for by-elections, and to issue supporting nominations. 

Scottish local parties are organised around Holyrood constituencies, not Westminster constituencies. Some Westminster parties are amalgamated - where they have nominated as a bloc, we have counted them as their separate constituencies, with the exception of Northern Ireland, where Labour does not stand candidates. To avoid confusion, constitutencies with dual language names are listed in square [] brackets. If the constituency party nominated in last year's leadership race, that preference is indicated in italics.  In addition, we have listed the endorsements of trade unions and other affliates alongside the candidates' names.

Jeremy Corbyn (46)

Bournemouth East (did not nominate in 2015)

Bournemouth West (nominated Jeremy Corbyn in 2015)

Brent Central (nominated Jeremy Corbn in 2015)

Bristol East (nominated Andy Burnham in 2015)

Cheltenham (did not nominate in 2015)

Chesterfield (did not nominate in 2015)

Chippenham (nominated Yvette Cooper in 2015)

Colchester (nominated Yvette Cooper in 2015)

Crewe and Nantwich (nominated Jeremy Corbyn in 2015)

Croydon Central (nominated Jeremy Corbyn in 2015)

Clwyd West (did not nominate in 2015)

Devizes (nominated Jeremy Corbyn in 2015)

East Devon (nominated Jeremy Corbyn in 2015)

East Surrey (nominated Andy Burnham in 2015)

Erith and Thamesmead (nominated Jeremy Corbyn in 2015)

Folkestone & Hythe (nominated Andy Burnham in 2015)

Grantham and Stamford (nominated Jeremy Corbyn in 2015)

Hampstead and Kilburn (nominated Yvette Cooper in 2015)

Harrow East (nominated Jeremy Corbyn in 2015)

Hastings & Rye (did not nominate in 2015)

Herefore and South Herefordshire (did not nominate in 2015)

Kensington & Chelsea (nominated Jeremy Corbyn in 2015)

Lancaster & Fleetwood (nominated Andy Burnham in 2015)

Liverpool West Derby (nominated Andy Burnham in 2015)

Leeds North West (nominated Jeremy Corbyn in 2015)

Morecambe and Lunesdale (nominated Andy Burnham in 2015)

Milton Keynes North (did not nominate in 2015)

Milton Keynes South (did not nominate in 2015)

Old Bexley and Sidcup (nominated Yvette Cooper in 2015)

Newton Abbott (nominated Liz Kendall in 2015)

Newark (did not nominate in 2015)

North Somerset (nominated Jeremy Corbyn in 2015)

Pudsey (nominated Andy Bunrnham in 2015)

Reading West (did not nominate in 2015)

Reigate (nominated Yvette Cooper in 2015)

Romford (nominated Andy Burnham in 2015)

Salisbury (did not nominate in 2015)

Southampton Test (nominated Jeremy Corbyn in 2015)

South Cambridgeshire  (did not nominate in 2015)

South Thanet (did not nominate in 2015)

South West Bedfordshire (did not nominate in 2015)

Sutton & Cheam (nominated Jeremy Corbyn in 2015)

Sutton Coldfield (did not nominate in 2015)

Swansea West (nominated Jeremy Corbyn in 2015)

Tewkesbury (nominated Jeremy Corbyn in 2015)

Westmoreland and Lunesdale (nominated Jeremy Corbyn in 2015)

Wokingham (nominated Jeremy Corbyn in 2015)

Owen Smith (12)

Altrincham and Sale West (nominated Yvette Cooper in 2015)

Battersea (nominated Yvette Cooper in 2015)

Blaneau Gwent (nominated Jeremy Corbyn in 2015)

Bow and Bethnal Green (nominated Jeremy Corbyn in 2015)

Reading East (did not nominate in 2015)

Richmond Park (nominated Jeremy Corbyn in 2015)

Runnymede and Weybridge (nominated Yvette Cooper in 2015)

Streatham (nominated Liz Kendall in 2015)

Vauxhall (nominated Liz Kendall in 2015)

West Ham (nominated Jeremy Corbyn in 2015)

Westminster North (nominated Yvette Coooper in 2015)

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