Recently, a number of policymakers, including President Obama, have embraced the term “middle-out economics,” arguing that economic policy should aim first and foremost to boost middle-class living standards. Taking ‘Middle-out Economics’ Seriously in this Fall’s Fiscal Debates, from the Economic Policy Institute’s Research and Policy Director Josh Bivens and Senior Research Assistant Hilary Wething, explores what a “middle-out” approach to fiscal policy would look like, and concludes that today’s debates over fiscal policy do not focus on what would actually raise middle-class living standards.

In the short term, fiscal policy should address the most pressing economic challenge facing the middle class by supporting job growth to finally insure a full recovery from the Great Recession. Bivens and Wething note that cancelling the automatic spending cuts known as the “sequester” would lead to nearly one million addition jobs by the end of 2014. Further, if public spending were simply in line with historical precedent for post-war recoveries, it would be roughly 15 percent higher today, and the U.S. economy would have roughly 5 million more jobs.

“Middle-out economics is good messaging, and a policy agenda that grows the middle class and creates the jobs we need to get to a healthy economy would certainly be welcome,” said Bivens. “But the fact is, current fiscal policy, including this fall’s debates over the funding the government and raising the debt ceiling, are so far wholly divorced from what the middle class must have to survive.”

Bivens and Wething argue that curbing the growth in income inequality should be the most important goal of long-run fiscal policy, and offer policy solutions, including:

• Preserve the economic institutions that boost middle-class incomes, including Social Security, Medicare, and Medicaid, which have accounted for half of total income growth for the broad middle-class between 1979 and 2007.

• Raise top tax rates, which would raise revenue and take steps towards blunting the growth in income inequality.
• Invest in infrastructure and provide aid to still-austere state and local governments to lower unemployment and ensure the tight labor markets needed to boost wages.

• Shift the primary strategy for addressing middle-class living standards away from tax cuts, which is not a pressing need for middle-class households