Jared Berstein: Inequality, the Middle Class, and Growth

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Inequality, the Middle Class, and Growth

(The following puts together a bunch of stuff I've been posting about here at OTE over the past few months...it's time to start thinking about these ideas in terms of new models to replace the old, worn out ones...)

The trickle-down, deregulatory agenda—what I have called YOYO, or “you’re on your own” economics—presumes that the growth chain starts at the top of the wealth scale and “trickles down” to those at the middle and the bottom of that scale. Problem is, that’s not worked.

Here’s a better model. In the midst of the 1990s boom, which lifted the earnings and incomes of middle and low-wage workers much more so than the 1980s or 2000s cycles, Larry Mishel and I started talking about “wage-led demand growth.” We meant that a much better way to generate robust, lasting, and broadly shared growth is through an economically strengthened middle class.

At the most basic level, this growth model is a function of customers interacting with employers, business owners, and producers. A recent article by successful venture capitalist Nick Hanauer very compellingly describes this interaction:

I’ve never been a “job creator.” I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.

That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be.

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The above points emphasize an economic rationale for a growth model more favorable to the middle class. More broadly shared growth would not only score higher on a fairness criterion; it would provide a more reliable and durable structure for overall growth itself. It is no accident, in this regard, that the era of heightened inequality coincides with the arrival and persistence of what I’ve called “the shampoo economy:” bubble, bust, repeat.

But our emphasis on growth should not crowd out that of fairness...Putting some of these themes together, I have hypothesized that there are causal linkages between inequality and immobility...Here, I’m thinking about everything from access to quality education, starting with pre-school (such early educational interventions have been shown to have lasting positive impacts), to public services, like decent libraries and parks, to health care, housing, and even the physical environment. The new research linking mobility and inequality may well find that as society grows ever more unequal, those falling behind are losing access to the ladders that used to help them climb over the mobility barriers they faced.

http://jaredbernsteinblog.com/inequality-the-middle-class-and-growth/

Nick Hanauer's op-ed is excellent.

I'm really enjoying Jared Berstein's writings: http://sync.democraticunderground.com/1002241861

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1. Kick!

It's not about flag burning, but it's interesting.