President Joe Biden often talks about building the economy from the “middle-out.” I thought that was just an advertising slogan, but it is actually a branch of macroeconomic theory. Middle-out economics is rooted in economic science that economies are complex, adaptive, and ecosystemic; that is, there is a feedback loop found in ecosystems. It is centered around consumer spending as a key ingredient in job and economic growth. It maintains that a thriving middle class is essential to economic growth and not the consequence of it. This theory is in opposition to Reaganomics, or trickle-down (also called supply-side) economics. There are multiple academic peer-reviewed studies supporting middle-out economics as opposed to trickle-down economics. There are also real-world experiences that demonstrate the failure of trickle-down economics and the positive effects of middle-out economics. The most prominent real-world experiment demonstrating the failure of trickle-down economics was the Kansas experiment.
In 2012, Governor Sam Brownback of Kansas signed legislation, supported by Arthur Laffer, a key architect of President Reagan’s tax policy, cutting the state taxes, which he described as “a real live experiment” in supply-side economics, and it would be a “shot of adrenaline into the heart of the Kansas economy.” However, the tax cuts did not produce job growth. Private sector job growth was lower than its neighboring states. Moody’s Investors Service and Standard and Poor’s Rating downgraded the state’s credit rating, making borrowing more expensive. Education took the biggest hit with increased class size, eliminating art programs, laid-off janitors and librarians, and rising fees for kindergarten. The Kansas Department of Transportation announced they were “indefinitely delaying” road projects while roads deteriorated because the state took funds from the highway department to balance the state general budget. The Kansas experiment was deemed a failure.
Despite the economic failure of supply-side economics, Republicans remain committed to it. For example, in Mr. Trump’s first term in office, the Republicans’ signature legislation was the Tax Cut and Jobs Act (TCJA), which was supposed to stimulate the economy, create job growth, and increase federal revenues. According to the non-partisan Committee for a Responsible Federal Budget (CRFB), the tax cuts were largely responsible for increasing the national debt by $8.4 trillion. (In contrast, Mr. Biden’s legislation, including the American Rescue Plan, Infrastructure legislation, the Chips and Science Act, the Pact Act, and the Inflation Reduction Act, added only $4.3 trillion). While the economy remained resilient during most of Mr. Trump’s first administration, the Bureau of Labor Statistics reported that America lost nearly 200,000 manufacturing jobs under Mr. Trump’s administration BEFORE the COVID-19 pandemic. Under Mr. Biden’s administration, more than 700,000 new manufacturing jobs have been created.
Job creation does not occur when there are abundant profits but when there is an abundance of customer demand. Thanks to President Biden, his economic agenda created a strong economy, as evidenced by strong consumer spending this past holiday season.
