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

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Leave.EU is backing a racist President - why aren't more Brexiteers condemning it?

Our own homegrown Trump trumpeters. 

The braver Republican politicians are condemning Donald Trump after he backtracked on his condemnation of far-right protestors in Charlottesville. “You had a group on one side and group on the other,” said the US president of a night in which an anti-fascist protestor was run over. Given the far-right protestors included neo-Nazis, it seems we’re heading for a revisionist history of the Second World War as well. 

John McCain, he of the healthcare bill heroics, was one of the first Republicans to speak out, declaring there was “no moral equivalency between racists and Americans standing up to defy hate and bigotry”. Jeb Bush, another former presidential hopeful, added: “This is a time for moral clarity, not ambivalence.”

In the UK, however, Leave.EU, the campaign funded by Ukip donor Arron Banks, fronted by Nigel Farage, tweeted: “President Trump, an outstanding unifying force for a country divided by a shamefully blinkered liberal elite.” A further insight into why Leave.EU has come over so chirpy may be gleaned by Banks’s own Twitter feed. “It was just a punch up with nutters on all sides,” is his take on Charlottesville. 

Farage’s support for Trump – aka Mr Brexit – is well-known. But Leave.EU is not restricted to the antics of the White House. As Martin Plaut recently documented in The New Statesman, Leave.EU has produced a video lauding the efforts of Defend Europe, a boat organised by the European far-right to disrupt humanitarian rescues of asylum seekers crossing the dangerous Mediterranean Sea. There are also videos devoted to politicians from “patriotic" if authoritarian Hungary – intriguing for a campaign which claims to be concerned with democratic rights.

Mainstream Brexiteers can scoff and say they don’t support Leave.EU, just as mainstream Republicans scoffed at Trump until he won the party’s presidential nomination. But the fact remains that while the official Brexit campaign, Vote Leave, has more or less retired, Leave.EU has more than 840,000 Facebook followers and pumps out messages on a daily basis not too out of sync with Trump’s own. 

When it comes to the cause of Brexit, many politicians chose to share a platform with Leave.EU campaigners, including Labour’s Kate Hoey and Brexit secretary David Davis. Some, like Jacob Rees-Mogg, get cheered on a regular basis by Leave.EU’s Facebook page. Such politicians should choose this moment to definitively reject Leave.EU's advances. If not, then when? 

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.