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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Emmanuel Macron's French election victory may change less than most expect

The centrist is not the first to succeed from outside the traditional parties in the Fifth Republic.

Emmanuel Macron has won the first round of the French presidential election, and will face Marine Le Pen in the run-off.

The numbers that matter: Emmanuel Macron 24 per cent, Le Pen 21 per cent, François Fillon 19.9 per cent, Jean Luc Mélenchon 19.9 per cent and Benoît Hamon 6.3 per cent.

According to the polls - which came within 0.9 per cent of the correct result in the first round - Macron will easily defeat Marine Le Pen in the second round.

The single transferable take that compares Macron to Hillary Clinton and Le Pen to Trump ignores a few things. Not least his programme, the different electoral system and the fact that Macron is popular - the most popular politician in France, in fact. Jean Luc Mélenchon declined to back a candidate in the second round and will poll his supporters on who his leftist bloc should back. But it's not comparable to the feud between Bernie Sanders and Clinton - which, in any case, was overwritten. Most Sanders supporters backed Clinton in November. The big story of that election was that the American mainstream right backed Donald Trump despite his manifold faults.

The French mainstream right is a very different beast. Fillon has already thrown his weight behind Macron, warning against the "violence" and "intolerance" of the National Front and the "economic chaos" its programme would inflict. And to the extent that it matters, Hamon has also endorsed his former party colleague, saying that there is a difference between a "political adversary and an enemy of the Republic."

So, if he wins, has everything changed, changed utterly? That's the line in most of the papers this morning, but I'm not so sure. French politics has always been more fissiparous than elsewhere, with parties conjured up to facilitate runs for the Presidency, such as the Democratic Movement of perennial candidate, now Macron backer François Bayrou, and Mélenchon's own Left Party.

I'm dubious, too, about the idea that Macron is the first to succeed from outside the traditional centre-right and centre-left blocs in the history of the Fifth Republic. That honour surely goes to Valéry Giscard d'Estaing, a popular finance minister in a Gaullist administration, who ran on a independent centrist platform in 1974 - and won the presidency.

Giscard d'Estaing had no majority in the National Assembly and had to "cohabit" with his former colleagues on the Gaullist right. In the long run, far from upending the left-right pattern of French politics, he continued it. (Indeed, d'Estaing is now a member of the centre-right Republican Party.)

You don't have to look hard to see the parallels with Macron, a popular finance minister in a Socialist administration, running on an independent centrist platform and very likely to win, too.

France's underreported and under-polled legislative elections in June will give us an idea of the scale of the change and how lasting it may be. If, freed from the taint of Fillon's scandals, the French Republicans can win the legislative elections then talk of the "death of the traditional centre-right" is going to look very silly indeed.

Equally, while Hamon won the presidential nomination, the Socialist Party's legislative candidates are largely drawn from the party's right. If En Marche!, Macron's new party, can go from no seats at all to the largest group but are short of a majority their natural allies in getting through Macron's programme will be from the remains of the Socialists. Far from irrevocably changing the pattern of French politics, Macron's remarkable success may simply mark a period of transition in the life of the French Left.

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.

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