The Middle Class and Economic Growth project is an initiative of the Economic Policy team at the Center for American Progress that combines original analysis, public policy proposals, live events, and multimedia presentations to demonstrate that a strong and stable middle class is the key driver of American economic growth. The goal of the project is to offer policymakers and the public an academically sound and politically resonant alternative to the failed dogma of supply-side economics. Supply-side, or “trickle-down,” economics is a competing theory that, in its practical application, holds that economic growth is unleashed primarily by the investment activities of the wealthy—which should therefore be incentivized by low taxes and minimal regulation.
Why did CAP launch a middle-class-focused economic policy project?
The true legacy of trickle-down economics since the late 1970s has been rising inequality, slower growth, a weakened and smaller middle class, and a citizenry increasingly suspicious that government only caters to powerful elites. And yet, despite a nearly four-decade track record of failure, the supply-side theory remains the dominant lens through which Washington policymakers approach economic policy.
We clearly need an alternative approach—one that recognizes that it was an industrious and inventive middle class, not a few privileged elites, who propelled the United States from a loose band of colonies into the greatest economic force in world history. To reverse the damage of trickle-down economics, we need middle-class economics that better harnesses the 300 million-strong engines of growth that are the American people through policies that bolster and stabilize the middle class.
What is the connection between the middle class and economic growth?
The middle class is the heartbeat of the American economy. That is the fundamental thesis of this project. Middle-class Americans are the indispensable workforce and the all-important consumer. The great American entrepreneurs and inventors have come from the middle class. The education and skills of the middle class are responsible for the rise in productivity that underpins our prosperity. And a stable and large middle class keeps the United States largely free from internal political turmoil while demanding vital investments in education, roads, and other economically important infrastructure. The American ascent to the richest nation on the planet is fundamentally a middle-class achievement.
What is the evidence?
The growing economic literature summarized in our recent paper, “The American Middle Class, Income Inequality, and the Strength of Our Economy: New Evidence in Economics,” offers evidence of the centrality of the middle class to economic growth. The evidence:
- A stronger middle class that consumes more of its income than do the rich increases business certainty about demands for goods and services. This makes investment more attractive to large and small businesses alike, and boosts entrepreneur confidence.
- A stronger middle class increases social mobility, which means people are better able to match their talents to jobs, boosting growth in general.
- A strong middle class demands good governance, property rights, infrastructure, education, and the trustworthy legal structures necessary for a thriving, stable economy
- A weakened middle class has to borrow more during times of need, destabilizing the consumer base and hurting long-term growth
- People raised in strong middle-class families are more likely to the have the education and training needed to boost broad economic productivity and start a business. The greater macroeconomic stability associated with a strong middle class also gives entrepreneurs greater confidence about taking risks based on informed investment decisions.
Where can I read more about the papers and events in this series?
Click here for a complete listing of all reports and events associated with this series.
Whom should I contact for more information?
Gadi Dechter is Managing Director of Economic Policy at the Center for American Progress.