Morry Gash/AP Photo
President Joe Biden delivers remarks on his economic agenda at a training center run by the Laborers' International Union of North America, February 8, 2023, in Deforest, Wisconsin.
In the opening paragraphs of Tuesday night’s State of the Union address, President Biden declared, “I ran for president to fundamentally change things, to make sure the economy works for everyone so we can all feel pride in what we do. To build an economy from the bottom up and the middle out, not from the top down. Because when the middle class does well, the poor have a ladder up and the wealthy still do very well. We all do well.”
President Biden is attempting to do something that no president has done since Ronald Reagan: fundamentally transform how Americans understand the economy and the role of government in creating economic growth and broad-based prosperity. The agenda Biden is advancing is much more than a collection of policies. His accomplishments represent a reimagining of how America conceives of and executes economic policy.
This is far from the first time that the president has planted the flag for middle-out economics. In his 2021 speech to a joint session of Congress, Biden proclaimed, “Trickle-down economics has never worked. It’s time to grow the economy from the bottom up and the middle out.”
He’s delivered on that vision, as he made clear in the first 45 minutes of the State of the Union address. Biden signed historic legislation to invest in infrastructure and high-tech manufacturing, fight climate change, increase Americans’ incomes, and lower their costs. Through executive orders and appointments, his administration is reining in the power of corporate monopolies in order to drive innovation, raise wages, and make people’s lives more affordable.
Biden has accomplished more to support working and middle-class Americans in his first two years in office than the last six presidents combined. And as he also made clear, there’s much more on his list.
Biden’s policies are not just important because of their specific worth; they add up to a new way of looking at economics. As the president said, “And by the way, when we do all of these things, we increase productivity. We increase economic growth.”
Few Americans yet appreciate how significant this reversal in approach to economic policy will be, nor how big a positive difference these changes will make in their lives.
THE PHRASE “BUILDING THE ECONOMY from the bottom up and middle out” has been a mantra of Biden’s presidency. In January alone, President Biden used the phrase “middle out” 22 times in presidential remarks, official statements, and White House briefings.
But this middle-out language is more than just a slogan. This approach to growing the economy breaks with the last 40 years of policymaking, and asserts a new and different way for Americans to see and judge economic cause and effect. The essence of his argument is that a thriving middle class is the cause of economic growth, not its consequence.
The president understands that narrative precedes policy. President Lincoln spelled this out by saying that “public sentiment is everything … He who molds public sentiment, goes deeper than he who enacts statutes or pronounces decisions. He makes statutes and decisions possible or impossible to be executed.” Said in a more modern way, narrative explains why to do something. Policy describes what to do. Narrative is strategy. Policy is tactics.
The president understands that narrative precedes policy.
Democrats often shake their heads in amazement that, even though the American economy has performed much better under Democratic presidents than Republicans since World War II—including on job creation, GDP growth, stock market returns, personal income growth, and corporate profits—polling almost always shows that more people see Republicans as being better for the economy. The reason for this discrepancy isn’t a mystery: Narrative shapes how people see the world. And when it comes to politics, narrative can trump facts.
Republicans have excelled at consistently advancing an overall narrative about how the economy grows and how jobs are created. And they have been rewarded by the public, who score the party as better stewards of the economy. The public believes Republicans are better at running the economy even though their trickle-down claims that tax cuts for the rich create growth, that raising wages kills jobs, and that any form of regulation on large corporations destroys productivity have been repeatedly disproven. In fact, the historical record shows that the Republican policy agenda did nothing but enrich their big donors and increase budget deficits.
By contrast, Democrats have promoted a wide range of popular policies but provided no clear and consistent counternarrative of how those policies grow the economy and create prosperity. Too often, Democrats have even echoed the Republican trickle-down narrative or merely talked about fairness, which sends the message that there is a trade-off between growth and fairness. No wonder most people think Democrats don’t understand the economy.
Human beings use economic narrative to understand how the world works. It shapes how they see economic cause and effect.
The middle-out story that President Biden is telling is not just a narrative; it’s also grounded in empirical economic evidence gathered over decades. Biden and his advisers understand that the economic policies of the past 40 years were animated by a fundamental misunderstanding of how economic growth and widespread prosperity is created. Massive corporate concentration, reductions in worker power and wages, and lower taxes for the rich do not create economic growth and a thriving middle class. Instead, we have seen the real result: entrenching wealth and power among the few and creating historic levels of wealth and income inequality.
Trickle-down economics has its cause and effect backwards. The essence of the middle-out approach to policy is recognizing that the economy isn’t money—it’s people. And the better that everyday American families do, the more the middle class thrives, the stronger the economy.
This new approach is based on, as President Biden’s Council of Economic Advisers wrote in a 2021 issue brief, a growing body of “empirical evidence that a strong economy depends on a solid foundation of public investment, and that investments in workers, families, and communities can pay off for decades to come.”
Eric Beinhocker, executive director of the Institute for New Economic Thinking at the University of Oxford, further explains: “It is the broad middle of the population that does the bulk of the working, innovating, and spending in the economy. Shared growth doesn’t come from giving tax cuts to rich people or deregulating the powerful, it comes from investing in, supporting, and building a large, inclusive middle class.”
Economic inclusion—the full economic participation of as many people in the economy as possible—drives a virtuous circle between increasing innovation and demand for new and better products and services, as well as creating better, higher-paying jobs. When the economy grows in that way, the lives of most people get better, not just those at the top. Economic justice and economic growth always go hand in hand.
THREE CORE IMPERATIVES ARE ESSENTIAL to building the economy from the bottom up and the middle out: (1) raising incomes and lowering costs to enable all Americans to participate robustly in the economy; (2) increasing both human and material capabilities to ensure that people have both the individual capability and the material infrastructure to robustly participate in the economy; and (3) managing markets to maximize competition and innovation, encouraging economic activity that is aimed at solving the key problems society faces while discouraging cheating, exploitation, and parasitism.
These three imperatives are necessary to build a thriving middle class that is the source of economic growth and broad-based prosperity. All three of these imperatives underlie and unite the stunning range of policies that the Biden administration has enacted and continues to advance.
Biden has advanced the first imperative with new laws to raise wages by including language in the infrastructure law and other statutes that publicly financed projects should pay higher wages, and with “made in America, buy in America” provisions requiring infrastructure projects and federal agencies to purchase materials from U.S. companies. Both of these policies will give more Americans good-paying jobs. So will the huge investments in infrastructure and high-tech manufacturing, and the breakthrough steps on climate change in the Inflation Reduction Act, which lower the cost of renewable energy to consumers and create jobs in the U.S. in clean and renewable energy. The expanded Child Tax Credit, which tragically was not continued by Congress after 2021, raised the incomes of families with children and cut child poverty in half.
The Federal Trade Commission is ending the use by companies of noncompete clauses, which block employees from going to work for a competitor that’s willing to pay higher wages. This change alone is forecasted to deliver a stunning $300 billion in incremental wages to workers annually. The Department of Labor has issued a regulation making it harder for companies to avoid complying with wage and benefit standards by misclassifying people as independent contractors when they are really employees. We should look forward this year to DOL restoring overtime benefits to millions of working people who employers pretend are managers to skirt the rules (like an underpaid, overworked receptionist who is given the title of Manager of First Impressions!).
Other new laws put more money into people’s pockets by lowering the cost of, or helping families pay for, prescription drugs, health care coverage, broadband, school meals, and heating and cooling homes. Through regulatory action, Biden has forgiven and revamped student loan payments, which will lower costs for millions of Americans. The FTC finally issued a long-delayed regulation, required by Congress, to make hearing aids available over the counter, which will cut the cost of hearing aids by thousands of dollars. The Consumer Financial Protection Bureau is regulating exploitive junk fees charged by banks and other lenders.
The second imperative is building human and material capacities, which Biden celebrated in his State of the Union address. The administration’s vast variety of investments in infrastructure and clean, renewable energy are creating structural foundations for prosperity that will grow for decades to come. The CHIPS and Science Act invests in fundamentally important technologies like semiconductors and puts billions of dollars into R&D. And of course, R&D requires great human capacity—people who will create and develop the innovations that drive a vibrant economy and make a better world.
The president made a stunning commitment to the third imperative—managing markets for innovation, competition, and dynamism—when in July 2021 he issued an executive order outlining 72 actions, by 17 agencies, to foster competition in a U.S. economy that has become dominated by corporate monopolies and oligopolies. Competition policy, Biden said in announcing the sweeping order, “is how we ensure that our economy isn’t about people working for capitalism; it’s about capitalism working for people.”
Aggressively attacking monopoly and monopsony power is fundamental to middle-out economics. Innovation declines when corporate behemoths squelch out or gobble up every new or smaller competitor. Breaking up concentration not only reduces consumer prices (hearing aids, meat, beer!), but also tackles wage suppression (the proposed ban on noncompete clauses; stopping a merger of two publishing houses that would have harmed authors by killing competition). Last year, the FTC blocked a merger of two major aerospace contractors, which would have hiked costs to our government.
And with regard to government spending, the big tax changes in the Inflation Reduction Act reject trickle-down tax policy. Instead, funding for many of the IRA’s climate investments will come from a 15 percent minimum tax on corporate profits, taxes on stock buybacks, and new IRS funding to go after wealthy tax cheats (which will ultimately bring back more government revenue).
Meanwhile, trickle-down runs deep in the Republican Party. They will continue to champion more tax cuts for the wealthy and slash the tools government uses to make our economy more competitive. Just two days after Kevin McCarthy finally got the Speaker’s gavel, Republicans in the House voted to reverse the new IRS enforcement of tax evasion by the wealthy. The usually conservative Congressional Budget Office calculates that eliminating this support will increase the deficit by over $100 billion.
Republicans are also threatening to default on the national debt if Biden and Democrats in Congress don’t agree to slash Social Security and Medicare; or at least they were until Biden cleverly boxed them in during his address. They are almost certain to propose other deep cuts in federal government. Sen. Rick Scott (R-FL) is proposing that in order to balance the budget we should cut taxes for the rich again. Never mind decades of empirical evidence that the only thing those tax cuts grow are deficits.
Over the next two years, these trickle-down Republican measures will create an opportunity for President Biden and Democrats more broadly to expand the public’s understanding of the differences between trickle-down and middle-out economics. Telling the story of how and why middle-out economics grows the economy in ways that directly benefit all Americans is essential if Democrats are to lock in their accomplishments to date and pave the way for more in the future.
As Biden loves to say, “here’s the deal”: He can’t do it alone. The president can’t tell the middle-out story by himself, no matter how big his platform. Democratic elected officials, leaders of progressive organizations and economic think tanks, liberal pundits, and social media influencers all need to get on board.
First, they must embrace the label of “middle out.” Don’t argue whether it’s the best name! If the president is using it almost every day, you shouldn’t waste time squabbling. Just echo the biggest megaphone in the world. And second, they must explain the simple theory behind the idea: A thriving middle class is what grows the economy. Remind people of this when you are talking about economic policies every single time, whether you are excoriating Republican proposals or advancing progressive proposals, whether you are writing memos or firing off tweets.
The economy isn’t money, or GDP, or the stock market. It’s people. And the more people we include in the economy, the better it will do. A thriving middle class is the source of economic growth and prosperity, not its consequence. That’s the essence of middle-out economics. An economy of the people, by the people, and for the people. We need to build the economy from the bottom up and the middle out. It’s just that simple. Preach it!
