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decrease inequality, increase demand

I read Eric Liu and Nick Hanauer’s Atlantic article “’Middle-Out’ Economics: Why the Right’s Supply-Side Dogma Is Wrong” which originally appeared in an Atlantic partner publication Democracy: A Journal of Ideas. Both Liu and Hanauer are from Seattle and both have TED Talks.

ted talk eric liu ted talk nick hanauer

Liu runs an organization called Citizen University that seeks to make “civics sexy” and make citizens active in the power dynamics of their communities. And Hanauer is rides the top of the heap as a 0.1%er, who is convinced that his fellow plutocrats ought to go Henry Ford’s route and pay wages that allow workers to buy what they produce, because if Mr. Ford is the only one who can buy an automobile, no one’s going to be very well off. He takes the view that it is the consumer and not the entrepreneur who makes the entrepreneur rich.

Liu and Hanauer argue that strong capitalist economies pursue middle class economic growth and not trickle-down economic growth. The most prevalent economic issue facing our country currently is that entrepreneurs take too much wealth for themselves and don’t leave enough for the vast majority of people to take advantage of the goods and services they produce. Those goods and services are meant to meet a demand; without demand they have no purpose. You cannot sell without demand.

Monetary policy is ineffectual, because it is a short-run solution that disproportionately affects investments in the supply-side. And there’s plenty out there for us to buy; Hanauer gives the example that he has two pairs of “manager pants” and even though he makes 1000x the median wage he is not going to buy 2000 pairs of pants. The feedback loop of demand meets supply is skewed, has been for a while and is worsening. Hanauer sends a message to his fellow plutocrats to wake up and realize that their good times will end in fire and pitchforks like rentier France if changes are not made in favor of the middle and lower class. He calls for higher wages, a higher minimum wage, less inequality, because “we know in our gut that we’re all better off when we’re all better off.”


  1. Is it entrepreneurs, or the wealthy as a whole through their ability to avoid paying taxes? I don’t intend to spend time on the issue this term, but Thomas Piketty has work on this issue, positing that we (the US and Europe) are heading back into an era of “robber barons” and a plutocracy where wealth will become more concentrated. That certainly is not good for consumption, because the rich save, the poor consume.

    But “middle class”? Can we define that term in a useful manner? If we want to look at the marginal propensity to consume out of income, then we want to ask whether a significant segment of our population is cash flow constrained (little or no wealth, little or no ability to borrow). The answer is that perhaps 40% of the population is — which surely extends well into any “middle.”

  2. HeeJu HeeJu

    Merely increasing consumer demand alone will fix the problem of contracting middle class in the U.S. The demand for labor in middle skill/wage occupations have significantly decreased over time due to automation, offshoring, and international trades. When ‘middle class’ is losing source of income itself, I think it is virtually impossible to increase demand solely on setting the wages higher.

    • To what extent are/were middle class jobs in sectors subject to import competition? My sense is, not much…

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