President Barack Obama mentioned the middle class six times in a December 2011 speech that echoed the progressive themes of President Teddy Roosevelt. He outdid himself with 20 references to the middle class in a speech Wednesday that the White House billed as a major economic address. This time, Obama also used the phrase “middle out”—as in, he’ll fight for “an economy that grows from the middle out.”
The argument that strengthening the middle class is the best way to make the economy grow is Obama’s attempt to go over the heads of Republicans in Congress and win public support for his imperiled second-term economic agenda. His goal is not to persuade GOP leaders, but to make them fear the consequences at the polls if they continue to block his job-creation initiatives and slash social spending.
Democratic strategists are worried that Democrats are incorrectly perceived as bleeding hearts who don’t care about economic growth. Their answer is to say that “middle out” policies work better than “trickle down” ones. In an article in the summer issue of the liberal journal Democracy, writer Eric Liu and entrepreneur Nick Hanauer say Democrats must “propagate the one pivotal meme at the heart of this entire effort: that rich businesspeople don’t create jobs; middle-class customers do.” They write: “If we can target our ammunition to obliterate that single claim, the entire Death Star of right-wing ideology will implode and disintegrate.”
Going all in on the “middle out” meme is a risky strategy for Democrats. It leans on the Keynesian theory that the economy can suffer from shortfalls of consumption spending by the public, notes Luigi Zingales, a finance professor at the University of Chicago Booth School of Business. But even Keynes said that consumption isn’t always the problem; economies also need entrepreneurs with animal spirits.
What’s more, some inequality is good for growth because it gives the poor and middle class something to strive for, Princeton University economist Angus Deaton argues in a forthcoming book, The Great Escape: Health, Wealth and the Origins of Inequality. Daron Acemoglu of Massachusetts Institute of Technology and two co-authors wrote last year that “it may be precisely the more cutthroat American society that makes possible the more cuddly Scandinavian societies.”
On the other hand, Democrats are right that too much inequality can inhibit growth. International Monetary Fund economists Andrew Berg and Jonathan Ostry concluded in a 2011 research note (PDF) that countries with less inequality experience longer “growth spells,” which “is critical to achieving income gains over the long term.” MIT’s Acemoglu writes in an email that “a more unequal society creates inequality of opportunity,” which saps growth because the poor can’t achieve their economic potential. And Chicago’s Zingales says that when voters lose faith in equality of opportunity, they turn against free markets.
In Wednesday’s speech, Obama advocated for bolstering manufacturing, investing in infrastructure, and bringing down the cost of higher education. For him, “middle out” is a way to repackage such proposals in a more persuasive way. Douglas Holtz-Eakin, a former economic adviser to President George W. Bush, calls it “sloganeering trumping policy.” But with congressional Republicans blocking Obama at every turn, slogans may be one of the few weapons the president has left.
