New Economics Says Prosperity Doesn’t Trickle Down. It Comes from the Middle-Out

Properly understood, the middle class is the source of all growth and prosperity in a modern technological economy.

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By Nick Hanauer and David Rolf

The American middle class is facing an existential crisis. For more than three decades, declining wages, fraying benefits, and the rising costs of education, housing, and other essentials have stressed and squeezed middle-class Americans. But by far the biggest threat to middle-class workers—and to our economy as a whole—comes from the changing nature of employment itself.

Gone is the era of the lifetime career, let alone the lifelong job and the economic security that came with it, having been replaced by a new economy intent on recasting full-time employees into contractors, vendors, and temporary workers. It is an economic transformation that promises new efficiencies and greater flexibility for “employers” and “employees” alike, but which threatens to undermine the very foundation upon which middle-class America was built. And if the American middle class crumbles, so will an American economy that relies on consumer spending for 70 percent of its activity, and on a diverse and inclusive workforce for 100 percent of the innovation that drives all future prosperity.

This crisis is not unfolding in a vacuum. For more than 30 years, the Democratic Party has suffered from a crisis of identity, leadership, and vision on issues of political economy that has left it unable to either articulate or defend the true interests of the middle class. Democrats might tinker around the edges, arguing for more economic justice and fairness, but for the most part they have largely accepted, or at least failed to counter, the fictitious trickle-down explanation of what growth is (higher profits) and where it comes from (lower taxes and less regulation). And so, through Republican and Democratic administrations alike, corporate America has seen less regulation, lower taxes, and higher profits, while middle-class America has gotten the shaft.

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This acquiescence to the conservative economic narrative has proven to be a political disaster as well. Progressives proudly back economic justice, but economic justice arguments alone are not enough to sway a majority of voters, many of whom value the promise of growth and employment over economic fairness. That is why progressives must reframe the economic debate by replacing the dominant trickle-down narrative with a new and better middle-out explanation of where growth and prosperity really come from—one based on economic inclusion.

In the technological economy of the twenty-first century, growth and prosperity are the consequences of a virtuous cycle between innovation and demand. Innovation is how we solve problems and raise living standards, while consumer demand is how markets distribute and incentivize innovation. It is social, civic, and economic inclusion—the full, robust participation of as many people as possible—that drives both innovation and demand. And inclusion requires policies that secure a thriving middle class.

The trickle-down theory—the one that lionizes the rich as “job creators”—insists that the American middle class is a consequence of growth, and that only if and when we have growth can we afford to include more people in our economy. But trickle-down has it exactly backwards: Properly understood, the middle class is the source of all growth and prosperity in a modern technological economy, and economic security is the essential feature of what it means to be included in the middle class.

Economic security is what frees us from the fear that one job loss, one illness—one economic downturn amidst a business cycle guaranteed to produce economic downturns—could cost us our home, our car, our family, and our social status. It’s what grants us permission to invest in ourselves and in our children, and to purchase the non-subsistence goods and experiences that make our lives healthier, happier, and more fulfilling. It gives us the confidence to live our lives with the realistic expectation of a more prosperous and stable economic future, and to take the entrepreneurial risks that are the lifeblood of a vibrant market economy. A secure middle class is the cause of growth, not its effect; in fact, our economy cannot reach its full potential without it. And a middle class that lives in constant fear of falling out of the middle class isn’t truly middle class at all.

From 1950 through 1980, during the heyday of the Great American Middle Class, a combination of New Deal programs, a corporate culture of civic responsibility, and a powerful labor movement provided a majority of American workers with health insurance, unemployment insurance, workers’ compensation insurance, pensions, job security, rising wages, overtime pay, paid vacation, paid sick days, a 40-hour workweek, and access to affordable, high-quality education. These are the benefits that provide the economic security of a decent and dignified life that defines what it means to be middle class, and that led to an unprecedented increase in living standards and economic growth. And under the old economy, they were, and still are, largely provided by one’s employer.

But in transforming the traditional relationship between employer and employee, the new economy is quickly stripping away these benefits. That is why it is essential that we imagine and adopt new policies that guarantee all workers the basic level of economic security necessary to sustain and grow the American middle class, and with it, the economy as a whole. We must acknowledge the radically different needs of a new generation of Americans—many of whom already have more employers in a week than their parents had in a lifetime—by adopting a new “Shared Security System” designed to fit the flexible employment relationships of the “sharing economy.”

Life in the Sharing Economy

Take, for example, an American worker whose story is increasingly typical of this new age. We’ll call her “Zoe.” Zoe is a woman in her late 20s who works part time at a hotel outside Denver. She’s worked at the front desk for five years, and her supervisor says he’s happy with her performance—but he never schedules her for more than 29 hours in a single week, so she does not qualify for health insurance or other benefits that full-time workers enjoy. Her annual raises amount to a fraction of a percent increase to her weekly pay, hardly enough to keep up with inflation.

Between rent, automobile expenses, and buying her own health insurance (now federally subsidized, thanks to Obamacare), Zoe has needed to find additional sources of income. She’s always liked gardening, so she started auctioning her services as a landscaper on the popular work-outsourcing site TaskRabbit. The work was fairly easy and enjoyable—mostly lawn mowing and hedge trimming for elderly homeowners in her neighborhood—so she quickly abandoned the middleman and began contracting her services directly to clients. The work takes about ten hours a week, and she earns an additional $100 or so a week at it, depending on the season.

But those two jobs combined don’t pay enough to keep Zoe in the black. On Friday and Saturday nights, she’ll usually pick up a “shift” working as a driver for the peer-to-peer ride-sharing service UberX. Zoe ferries young people to and from bars across town, responding to calls on the app for four or five hours a night, amounting to another $150 or so a week. Occasionally, on the rare weekday off, she’ll go live on UberX to drive people to and from the airport.

That’s not all. During tourist season, Zoe will pick up a little spending money by renting out her apartment on Airbnb, living in her parents’ house for days or weeks at a time. And when her schedule at the hotel allows it, she’ll pick up a temp job or two, usually doing light office work at a local hospital; but her work schedule changes from week to week, and temp work is unreliable, so she can’t often coordinate jobs. Zoe would like to go back to college to finish her degree, but can’t seem to piece together either the time or the money. Besides, she has friends and co-workers with college degrees, living similar lives, only with the added burden of tens of thousands of dollars in student debt.

If you think all her hard work amounts to a stable lifestyle, you’re wrong. Zoe doesn’t have enough money in the bank to sustain a savings account, let alone to contribute to retirement. She’s never late with her rent, but the idea of owning a house is far out of reach. Sometimes, when she catches a bad cold, or inclement weather conspires against her part-time piecemeal work, she’s forced to put groceries, the electricity bill, or gas on her credit card. It can take months to pay that balance back down.

But the cost is more than just financial. Zoe can’t remember a time when she wasn’t tired. She’s never taken a vacation in her adult life. (The right and ability to take a vacation are integral parts of what it means to be middle class, yet a Google Consumer Survey found that 42 percent of all American adults failed to take a single day of vacation in 2014.) She can’t imagine ever being able to retire. She barely has time for dating, let alone settling down and starting a family of her own. She dreads the day when her car just stops running, because she knows that would destroy her financially. Zoe doesn’t have any idea what the process of bankruptcy is like, but that doesn’t keep her from having nightmares about it. Sometimes when she listens to the radio while driving between jobs, Zoe hears that America is finally pulling out of the Great Recession, that prosperity is on the rise again. She doesn’t know what to make of that, but she knows she’s not feeling particularly prosperous. In fact, she feels a little bit poorer with each passing year.

Zoe’s parents help her and her siblings out as best they can, but they must carefully marshal their own savings. Zoe’s father, Joe, worked most of his adult life at a local brewery, working his way up from the loading dock to delivery driver to local sales rep, until a series of mergers and the Great Recession forced him into early retirement. Zoe’s mother, Liz, works as the office manager at a small law firm, but plans to join her husband in retirement in a few years. Thirty-plus years at the brewery earned Joe a modest pension, and once the kids were out of the house, he and Liz were able to squirrel away additional retirement savings. Social Security will supplement their nest egg, while Medicare will provide for their health care. They paid off their mortgage years ago, so their housing expenses will remain minimal. They’ve budgeted their retirement years to the last penny; it won’t be lavish—a little travel, a lot of golf—but it will be secure.

The contrast between the experience of Zoe’s generation and that of her parents is stark. Zoe’s parents entered the workforce with the expectation that hard work would be rewarded with decent pay, improving prospects, and a comfortable retirement; it was an era in which the benefits that define a middle-class lifestyle were largely provided through one’s job, and an era in which employers generally accepted that they had a responsibility to safeguard the welfare of their workers. Of equal significance, it was an era in which most Americans could reasonably expect to work for only a handful of companies over the course of their career, and certainly no more than one employer at a time. This was the social contract of the 1950s, ’60s, and ’70s, and it was a contract that fostered the economic security and stability that enabled the middle class to thrive, and the American economy and businesses to prosper.

But for Zoe’s generation, this contract no longer exists. The hotel that employs her views her paycheck as just another operating expense to manage and to trim, while the clients she services via UberX and TaskRabbit and Airbnb do not view her as an employee at all. Zoe works longer hours than her parents ever did, but she earns no time-and-a-half overtime pay, accrues no sick days or vacation days, and accumulates no pension or 401(k). And in the “sharing economy” that is frequently proclaimed to be the future of work—an economy of work, but not “jobs”—Zoe and her cohort are even denied the unemployment and workers’ compensation insurance that have composed the barest threads of our social safety net for the last hundred years.

The lesson we can take from Zoe’s experience is that our traditional job-based benefit system no longer makes sense in an economy in which fewer and fewer workers will hold traditional jobs. For while the sharing economy promises many exciting new opportunities, without a new labor-ownership framework, it simply cannot provide the economic benefits, stability, and security necessary for a robust and thriving middle class.

Uncertainty and the Middle Class

If sustained economic growth requires policies that sustain the middle class—policies designed to include more and more people in the economy as both innovators and consumers—then what exactly does it mean to be middle class? For the purposes of our discussion, “middle class” is less of an income distinction and more of a social one. Typically, middle-class Americans purchase homes, they educate themselves and their children, they participate in their community, they spend money on leisure and other discretionary purchases, and they save for retirement. Over the course of their lives, middle-class Americans build personal wealth, however modestly, and sometimes they start businesses. And they can do all these things because they have the confidence and the wherewithal—the economic security—to plan for the future. Or, to use a word our nation’s business leaders would surely understand, a functional middle class enjoys certainty.

Since the onset of the Great Recession, corporate leaders and their surrogates in Congress have demanded certainty from government—usually in the form of lower taxes, smaller deficits, and less regulation. Indeed, it is a talking point that has been repeated so often that it has assumed the status of conventional wisdom. “All businesses are coming to Congress,” House Budget Chair Paul Ryan told NPR back in September 2011. “They want certainty . . . certainty on regulations, certainty on taxes, on energy costs. And so we need to go back and go at the fundamental foundations of economic growth, get those fundamentals right.” On his campaign website, 2012 Republican presidential nominee Mitt Romney blamed “uncertainty” for our nation’s then-anemic post-recession job growth, arguing that government must “provide businesses with the certainty and stability they need to make those investments.” And more recently, Bank of America CEO Brian Moynihan called on President Obama to create a “certainty premium” to coax corporate profits back into the market. “If we can just allow people to keep their confidence up by getting some of these [tax reform] issues off the table,” Moynihan was quoted in a December 2012 Politico piece as saying, “you would see the economy grow and momentum continue to build, and unemployment continue to ease down, and housing starts [go] up and housing prices [go] up. All that will continue to build on itself.”

Of course, business does require a degree of certainty to operate—you’re not likely to see American corporations invest in Somalia right now, for example, because they can’t be sure the Somali government will enforce the rule of law. Without the protection of laws, assets could be seized, workers could be imperiled, and profits could disappear. But the demand for this heightened certainty is somewhat odd—it seems to fly in the face of the hypercompetitive laws of capitalism that the modern market was built upon and the risk-taking that is theoretically the source of reward for investors. It is at least ironic to hear CEOs who fancy themselves “risk takers” when defending their own astronomical pay demand certainty as a prerequisite for making new business investments. But that is apparently the new contract they want between government and business. What few business leaders seem willing to concede is that 99 percent of the certainty they seek comes from a confident and thriving customer base and rising consumer demand. It’s not a lack of profits or capital that is holding back our recovery, but a lack of demand. And middle-class consumers will resume their discretionary spending only when they once again feel certain of their economic future.

If our captains of industry are so certain that certainty is necessary for industry, then it surely must be true that their customer base, the American middle class, needs some of that certainty as well. For without the certainty that they will remain in the middle class, middle-class Americans simply cannot fulfill their crucial economic role.

The middle-class uncertainty that started creeping up on us in the 1980s came to a head as the bottom fell out of the housing bubble in 2008. Consumer demand collapsed and, seven years later, it has yet to return to pre-recession levels. Much of our crisis of weak demand stems from four decades of stagnant incomes—a 6-percent-of-GDP, trillion-dollar-a-year transfer of wealth from wages to corporate profits that has sapped American consumers of their prior strength. But much of it also comes from the way the changing nature of employment is stripping away the labor standards and benefits that are prerequisites for sustaining an economically secure middle class.

The labor standards that created the middle class are being balkanized by a mishmash of federal and local laws, deteriorating union protections, and convoluted new business and ownership models that often are intentionally designed to disempower workers. The truth is that Zoe doesn’t work for a hotel; she works for the local subsidiary of a national company that manages front desks at hundreds of hotels nationwide. The rest of the hotel is staffed by an equally complex ecosystem of contractors and subcontractors: Housekeeping is farmed out to one contractor, the restaurant to another contractor, and security to yet another. One company owns the land and the building, while a hotel management firm leases it. The only thing that’s “Hilton” or “Marriott” or “Sheraton” about a hotel might be the franchised brand—the sign hanging above the front door and the logo on the towels.

There is nothing inherently wrong with this arrangement. Our highly complex economy requires and rewards heightened specialization. But each of those contractors has likely won a cutthroat bidding war to earn its contract, in which it has offered the most services in exchange for the least amount of money—and the least empowered workers, like Zoe, are the ones who end up paying the highest price. Even if Zoe and her co-workers wanted to organize, against whom would they strike? And if the front-desk management company were to raise prices in order to give Zoe full-time work and the benefits that go with it, the hotel management company could always just switch to a cheaper contractor.

This is the new “you’re on your own,” benefit-free, race-to-the-bottom reality for millions of American workers. And as more new innovative businesses and business models are invented, this process will only accelerate. As the sharing economy kicks into high gear, more and more Americans will become independent contractors activated at the touch of a button on an app, working for a fleet of employers. According to a 2015 Bureau of Labor Statistics report, Americans born in the late Baby Boom have held around 12 jobs in adulthood. It’s possible that 30 years from now, the average American might well work for four or five or even more different employers in a single week. This hyper-nimble form of employment means the economy will likely be even more efficient in years to come, as workers are hired for very specific tasks of a highly limited duration. But a nation of independent contractors is a nation of workers without any of the benefits that defined the decent and dignified life that gave one reason to be optimistic about the future—a gross violation of the social contract that helped create the greatest economic expansion, the most dramatic increase in living standards, and the largest, most prosperous, most productive, and most secure middle class in human history.

And even if trickle-down’s low-tax, low-regulation, benefit-free policies could grow GDP as fast or faster than “middle out”—and they can’t—why would Americans choose that? Why would we choose an America in which just 10 percent of Americans enjoy 100 percent of the rewards of economic growth (as they have since 1980), while the vast majority of middle-class families struggle to remain middle class? For a nation full of Zoes is a nation full of people who simply do not have the time or energy to help their children with their homework, to be good neighbors, or to participate in the civic life of their communities. And a nation full of Zoes simply cannot provide the massive input of innovation and consumer demand that our economy requires of the middle class.

It is important to state that this is not an argument against innovation. We welcome the efficiencies and flexibility that companies like TaskRabbit and Uber bring to the market. But innovation also brings with it disruption, and if we want to preserve the economic security of the American middle class, then we need to respond with an equally innovative set of labor policies.

A Twenty-First-Century Social Contract

An economy based on micro-employment requires the accrual of micro-benefits, and a twenty-first-century sharing economy requires a twenty-first-century social contract that assures shared economic security and broad prosperity.

We propose a new Shared Security System that endows every American worker with, first, a “Shared Security Account” in which to accrue the basic employment benefits necessary for a thriving middle class, and second, a new set of “Shared Security Standards” that complement and reinforce that account.

One can think of the Shared Security Account as analogous to Social Security, but encompassing all of the employment benefits traditionally provided by a full-time salaried job. Shared Security benefits would be earned and accrued via automatic payroll deductions, regardless of the employment relationship, and, like Social Security, these benefits would be fully prorated, portable, and universal.

Proration. The obvious solution to the explosion of part-time work—voluntary or otherwise—is to prorate the accrual of benefits on an hourly or equivalent basis. For example, if Zoe works 30 hours a week at the hotel, she should earn three-quarters of the benefits offered by a full-time 40-hour-a-week job; if she works 20 hours a week, she should earn half the benefits. There is no doubt that many employers push their employees into part-time work in order to avoid the added cost of paying any benefits at all. Proration would eliminate this perverse incentive and the economic distortions and inefficiencies that come with it.

To be clear, proration is not a radical idea. Social Security and Medicare have always been prorated: Zoe’s employer pays half of her 15.3 percent combined Social Security and Medicare tax, regardless of how many hours she works. But all mandatory benefits that normally accrue to full-time employees on a daily basis—sick days, vacation days, health insurance, unemployment insurance, workers’ compensation insurance, retirement matching, Social Security, and Medicare—should also accrue to part-time employees (hourly, salaried, or contract) and sharing-economy providers on a prorated hourly or equivalent basis.

Portability. Job-based benefits no longer make sense in an economy where fewer and fewer workers hold traditional jobs. This is why these accrued benefits must be fully portable, following the worker from job to job, or contract to contract. For example, paid vacation days that Zoe accrues at one employer could be carried over to her next, although the cost of paying for these days would come from funds banked in her Shared Security Account. Because benefits from multiple employers are pooled into the same account, portability and proration work together to provide workers with the full panoply of benefits, even within the flexible micro-employment environment of the sharing economy.

Universality. In the new economy, a basic set of benefits and labor standards must be universal across all employers and all forms of employment, with few exceptions or exemptions. While there is much to recommend the innovations introduced by companies like Uber and TaskRabbit, they are currently exploiting gigantic loopholes in our social contract by transforming jobholders into independent contractors, thus stripping them of essential benefits. A robust set of mandatory universal benefits would put all employees and employers alike on an equal footing, while providing the economic security and certainty necessary for the middle class to thrive.

Within the context of the Shared Security Account, there would be essentially two types of benefits: those that are accrued over time, retaining a specific dollar value, and those that provide insurance against life events, foreseen or otherwise. And the two types of benefits would be accounted for differently.

Mandatory accrued benefits should include a minimum of five days a year of paid sick leave, 15 days a year of paid vacation leave, a matching 401(k) contribution, and the same health insurance premium contribution as currently required under the Affordable Care Act (ideally, health care would fall into the insurance benefit category, but that is a larger battle). Employers—that is to say, whatever entity is paying the worker—would be required to contribute to the worker’s Shared Security Account with each paycheck, with the contributions prorated based on a standard eight-hour day, 40-hour week, and 2,080-hour year. For example, 20 days a year of combined vacation and sick leave is equivalent to a contribution of $0.0769 for every dollar of wages paid, and that is the rate at which companies like TaskRabbit and Uber would contribute for non-hourly piecework (of course, there will always be under-the-table employment that circumvents these requirements, but that is true already). There would be restrictions on how and when the worker could withdraw the funds.

Mandatory insurance benefits should include unemployment, workers’ compensation, and paid maternity, paternity, family, and medical leave. These would not be cash benefits that the employee could accrue and cash out, but rather pooled insurance to which both the employer and employee would contribute small premiums as a percentage of pay, based on actuarial tables.

As for who collects and holds these contributions, there are several potential options. It could be the state or federal government, as with existing payroll deductions. It could be one or more not-for-profit institutions analogous to the old Blue Cross and Blue Shield. It could be a public/private institution created expressly for this purpose. It might even be the bank or credit union with which you’ve already set up direct deposit (it is quite likely that the value of holding these funds would more than cover the cost of administration, leading to competition for your business). As little as a decade ago, such a system might have been considered a costly logistical and accounting burden, but the electronic debits and credits of one’s Shared Security Account are nothing compared to the transactional complexity of the fast-growing sharing economy.

The universal, portable, and prorated features of the Shared Security Account would assure that all workers accrued basic job benefits regardless of the changing nature of employment. But that alone is not enough to provide the economic security necessary for the middle class to grow and thrive. The new economy also requires the adoption of a complementary set of minimal Shared Security Standards to level the playing field among employers while giving all Americans the opportunity to fully participate in our economy.

Paid leave. Employers would be legally obligated to grant you time off to use the leave benefits accrued in your Shared Security Account, without intimidation or retaliation.

Livable minimum wage. The federal minimum wage should be raised to $15 an hour, indexed to inflation, and adjusted up or down geographically to account for substantial disparities in local cost of living.

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Overtime pay. The federal overtime threshold—the amount you must earn less than to qualify for mandatory overtime—should be raised from $23,660 to $69,000, and readjusted annually to a level sufficient to cover the same 65 percent of salaried workers who were covered back in 1975.

Pay equity. At the bare minimum, protections like those in the Paycheck Fairness Act must ensure wage parity between women and men.

Fair scheduling. Middle-class security is impossible without a reasonable and stable work schedule. Employers must be required to give fair notice to workers on scheduling.

Together, the Shared Security Account and the Shared Security Standards—along with critical family support programs like affordable child care, high-quality universal preschool, debt-free college education, and immigration reform—would comprise a new social contract designed to fit the flexible employment relationships of the new economy. By condensing these benefits into one holistic, self-reinforcing, and portable package of standards we call the “Shared Security System,” we streamline the employment process, making it easier for the sharing economy to absorb new employees, and freeing employers from the burden of tracking employee benefits.

These are not outrageous demands. Most Americans already enjoy many of these benefits—our challenge is to retain them in the face of the changing nature of employment. And the benefits for the economy would come in the form of more than the intangible (but crucial) metric of worker happiness. The new system would subtract the inefficiency of negotiation from the hiring process. It would encourage employers to provide additional benefits in order to attract the best workers on the job market. It would increase productivity. And it would level the playing field between the large number of employers who believe in providing benefits for their workforce and that small subset of rapacious employers who sacrifice worker happiness for the sake of profits, lowering the bar for everyone else.

What Middle-Class America Could Look Like

Consider Zoe’s improved situation under the Shared Security System’s suite of benefits and labor standards. Not only would Zoe earn prorated benefits at her hotel job, she would also accrue additional benefits in her side landscaping business, as an UberX driver, and as a temp at the hospital. Since benefit proration would eliminate employers’ financial incentive to keep workers under the 30-hour-a-week “full-time” employment threshold, the hotel might finally offer Zoe the stability of a regular full-time job. And if on occasion she worked more than 40 hours a week at the hotel, she would earn time-and-a-half overtime for her troubles.

If Zoe got sick, she would no longer be forced to choose between her health and her job. Paid sick days earned at all of her jobs would be aggregated in Zoe’s Shared Security Account, and the hotel would be legally obligated to allow her to take up to five sick days a year without the threat of retaliation: The hotel would grant the time off, and Zoe’s Shared Security Account would pay out the benefit. The same would hold true for accumulated vacation days.

For the first time in her life, Zoe would be saving money for her retirement, as each of her employers would match 401(k) contributions per hours worked. The few cents she contributes to her retirement fund for every hour worked gardening on TaskRabbit might not seem like a lot of money, but when all the contributions are totaled for every hour of work Zoe puts in every week, she’ll begin to notice a healthy sum stashed away in her monthly statements. The security of knowing that she’s building toward her retirement would likely encourage Zoe to do more to increase her standard of living in the here and now, and to invest in a future that no longer seems like a tightrope walk over a chasm.

Thanks to the minimum wage increase mandated under the Shared Security Standards—up from Colorado’s current minimum wage of $8.23 to about $15 an hour—Zoe would enjoy a tremendous increase in quality of life. With the additional disposable income, she could not only spend more freely within her own community, thereby increasing the profits of local businesses, but she could also plan to take the first vacation of her adult life. Her expenditures on plane tickets, hotels, and goods and services might not amount to much in total, but the ability of millions of people just like her to finally enjoy the security and freedom to spend money on vacations, small luxuries, and hobbies would invigorate the economy in a way it hasn’t enjoyed in decades. Further, if she decided to have a child, her entire world wouldn’t come crashing down around her; maternity benefits, affordable child care, and universal preschool would ensure that she’d be able to give her new family the time it deserves.

If Zoe eventually moved to another job, her accrued benefits would move with her. Or maybe, with her Shared Security Account boosting her confidence, and the opportunity for a debt-free education, Zoe would choose to go back to college for her horticulture degree, in hopes of becoming a landscape architect. No matter what path she chooses, she now has options, like her parents did, for becoming a fully functioning and contributing member of the Great American Middle Class.

Middle-Out Economics and the Progressive Agenda

There are those who blame the decline of the American middle class on structural changes in the underlying economy—on globalization, new technologies, and other disruptive innovations. But that explanation is disingenuous. For in reality, the erosion of the middle class is a direct result of the economic and social policies we have chosen to implement in Washington, D.C., and in state capitals throughout the nation.

We have chosen to cut taxes on billionaires and to deregulate the financial industry. We have chosen to starve our schools and to saddle our children with more than $1.2 trillion worth of student debt. We have chosen to erode the minimum wage and the overtime threshold and the bargaining power of labor. None of this was an accident. The existential crisis facing America’s middle class is the consequence of deliberate policy choices based on trickle-down’s fundamentally flawed theory of economic growth. At times, progressives have been complicit; at other times, merely compliant. But by failing to articulate an alternative economic theory, they have consistently failed to offer voters a better choice.

We believe that seeing growth as a consequence of including more people in a secure middle class not only accurately describes the real economy; it can unite progressives in a new and important way. Across the broader progressive agenda—on immigration, on education, on civil rights, voting rights, marriage equality, health care, pay equity, the minimum wage, and on many other issues—the one thing that our policies all have in common is that they are fundamentally inclusive. For decades, we have promoted this agenda largely as a matter of fairness, but middle-out economics explains why our policies are also inherently pro-growth. It is through this theory of economic inclusion, this message that growth and fairness go hand in hand, that the various elements of the broad progressive coalition—social justice and labor, along with Silicon Valley and business interests—can unite behind a single, coherent, pro-growth economic narrative that puts us squarely on the side of the middle class. And crucially, this narrative will appeal to voters beyond the progressive coalition—independent and swing voters, many of whom value the promise of growth and employment over the ideal of economic fairness.

We must do more than just offer voters a new economic theory—we must draw a sharp contrast with conservatives by proposing bold new policies predicated on the economic primacy of the middle class. The Shared Security System is one such proposal. But more than just demonstrating an innovative solution to providing economic security that is adapted to the sharing economy, a bold new proposal like the Shared Security System would demonstrate progressives’ unwavering and unequivocal commitment to the middle class—to the proposition that growth and prosperity come not from tax cuts for the rich, but from inclusive policies focused on creating a secure middle class. By establishing our twenty-first-century Shared Security System, we will usher in a new era of middle-class economic security, and by so doing also provide American businesses with the economic stability and certainty that they demand.

Originally published at the Democracy Journal.

2017 March 10

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  • John Bass

    I like this new system, but I wish the article would also explain how
    they would restructure the money world of the current holders of
    America’s wealth, the 1%. I am all for a redistribution of wealth, but
    how do we do it?)

    • Bruno Marques

      and not stop growth as byproduct of redistribution….

  • Dick Burkhart

    I’ve been thinking along these lines (universal, portable, and prorated benefits) for many years. Bravo!

    The big thing you haven’t tackled, though, is limits to growth. A strrong and growing middle class would normally propel demand, certainly. But will the economy be able to deliver, as our the fossil fuel era maxes out and declines? It’s all built on cheap energy, and a host of natural resources and ecosystems, many of which are already overtaxed.

    Though many believe in technological miracles, as technologist myself, I am skeptical. What I see looks more like optimization, incremental improvements, and often diminishinig returns. Not the kind of revolutionary breakthroughs we’d need to keep a planet of 7 to 10 billion people going, let alone transform into a middle class of democracy and justice.

    Already global economic stagnation and escalating inequality is leading to chaotic wars and political rebellion (think ISIS and Trump). The global elites, reveling in their new found luxuries, seem inceasingly clueless, so I predict that much worse is to come.

    • Rory Short

      We need to recognise that we are the product of evolution. This is a natural process and since Charles Darwin uncovered it we have been steadily developing our collective understanding of it. Now we need to apply this understanding to how we
      a) live our lives and
      b) seek solutions to our existential problems.

      Besides the Evolution Institute [] there is also The Biomimicry Institute [] that are really worth investigating.

      • Agreed Rory, but how many people actually understand the evolutionary role of cooperation in the emergence of complex systems?

        We, as a species, are far more cooperative than we are competitive, and we can all do either if the context requires it of us.

        A modern understanding of evolution makes it clear that the greatest probability of security and freedom comes from fundamentally cooperative systems, and all cooperative systems are vulnerable to invasion by cheating strategies, and require attendant strategies to achieve stability (basic games theory).

        Learning how to identify cheating strategies is a big part of survival.

        • Rory Short

          “Learning how to identify cheating strategies is a big part of survival.”

          Absolutely. I am a Quaker, a community which is in essence cooperative in nature but we always have to be on guard against inadvertently creating opportunities for free-riding.

  • Gifford Pinchot III

    Clearly you are on the right track. The lack of a stable middle class if forcing us to rely on deficit spending of all kinds to keep the economy humming. This cannot end well. Your solution, particularly when you throw in free education through college and the like will make a big difference.

    I am a bit puzzed by how overtime can work when you have five jobs. Who pays the time and a half when you take extra jobs at the end of the week. Overtime is for when your employer forces you to work more than 40 hours, but who is doing the forcing here. By taking on more work at the end of the week is everyone you worked for earlier in the week suddenly sent a bill for their share of the time and a half? Or are you forced to charge that last job $22.50 whether you want to or not? Best to let this idea go, and if necessary raise the minimum wage.

  • Gifford Pinchot III

    Great article. Thank you. I’d add in portable medical records.

    I believe that automation is going to make full employment for everyone unlikely. Self driving cars and trucks, automatic check out, 3D printing, machine learning, etc. We may need an even more radical solution than you propose, though much of what you propose makes sense. One suggestion, in addition to portable benefits we need a negative income tax, $30,000 per year given to everyone for being an adult citizen, with all income other than that taxed at 50%. That plus universal health care and education may be what it takes to provide a decent life to all.

    As Milton Friedman pointed out, such a system would eliminate the need for many other ways of biasing the system toward fairness. Everyone could earn extra money, and the size of the negative income tax should be low enough to encourage work, but everyone would be secure. Entrepreneurship would flourish, even for those whow were less well off as the penalty of failure and the investment needed for startup would be so much less.

  • oleg_tumarkin

    A hard to administer system that would quickly fall prey to automation and foreign competition. A much better approach would be to create a government initiative that would hire anyone willing to work at $15 an hour in a wide variety of work, including conservancy, cleaning, beautification, education, targeted innovation and entrepreneurship, solving myriads of social, ecological and other problems. This would not only tremendously improve quality of life and allow young people to develop employable skills, but would put a significant upward pressure on wages without having to have a minimum wage requirement at all. This, coupled with single payer healthcare system and monetization of benefits (where a certain amount of earnings every month would be tax free for the employees and employers) would enable a much cleaner solution to the downward economic pressure that freelance economy is creating and create the safety net that would give people a very comfortable ground to negotiate with their employers from. Since this would dismantle may current social programs it may actually not be that costly, but if needed a tax on luxury spending or accumulated wealth (beyond let’s say $100 million per household) would easily supplement the government expense.

    • jothwu

      Along with the ideas presented in this Hanauer/Rolf article, a guaranteed job would solve a lot of problems.

    • The may still not be enough work, what with automation and increasing efficiency. What about we pay people just for being AVAILABLE for working, and calling them only when necessary for bigger pay than the “on call” state?

  • patrick wilson

    Does the working class no longer exists? Zoe sounds like a working class girl to me. The term middle class implies there is a class below. Who are they ?

    • TheOneLaw

      Currently, (this could someday change given appropriate effort )
      Societies are comprised of Three classes:

      abandoned class (= the great unwanted: elderly, unemployed, unemployable, homeless )
      working class ( = middle class)
      manipulator class ( = irresponsibly unburdened: endowed or empowered by birth-right)

  • Rory Short

    A world where people work independent of any specific employer is a world where people are quite clearly working for the community as a whole. Therefore it seems completely logical to me that the many different entities that employ a person during their lives should make a pro-rata contribution to that person’s social safety net which should be held by the State [community]. The social safety net being things like leave, health care etc. etc., that were in the past supplied by a single employer.

  • Hannes Radke

    Still “Zoe’s” life seems incredibly precarious and stressful to me, even with the new system (5 days sick leave a year? That’s like a slap in the face, sorry). Not even close to anything like a middle-class, even working class standard. As a way to prop up demand, it won’t cut it either, since you don’t get freely available income, but closed in insurance schemes.

    Something like a Negative Income Tax up to 20k $ is not only far less complicated, but takes weight away from businesses too and it guarantees a minimum income, unlike a minimum wage for jobs which might just not be there for you.

    NIT financed by a machine-, financial transaction-, or environmental degradation taxes is the necessary minimum, if not a Universal Basic Income.

    • cstahnke

      Indeed–messing with the system as the author is doing gets you tangled up in Congress and even if Congress agrees in principle to such reforms the complexity will invite lobbyists to destroy it as they do all progressive legislation. There is simple no way, barring a violent revolution, for Congress to do anything but cater to their clients, i.e., big corporations. End of story at this time–once, many decades ago such policies could have been implemented but today this structurally impossible. A simple scheme of negative and positive taxes is the only reasonable way to go. This would keep the actual issues clear and uncomplicated and allow people to trot out the best argument for a minimum income that goes back to Buckminster Fuller. Lack of anxiety over income would free up creativity no block it and we need that today more than at any time in our history.

  • Ed Chainey

    Excellent article. One salient issue that needs to be addressed immediately is the tax preferences given to unearned income over the payroll or earned income of “workers” – and a examination of effectives vs.statutory tax rates (especially corporate taxes.).

    Lower capital gains rates are just one of the reasons for the need for a “Buffett Rule” – because the really truly wealthy in America pay a much lower effective tax rate than working people do – and the oligarchs want to lower their share of the tax burden even more! (With a few notable exceptions like Hanauer, Buffett and others)

  • Bruno Marques

    This is a pile of ignorant junk! By 1950 the huge growth had already happened. Read Deirdre McCloskey, then talk or criticize if you can…

  • No. No, no, no, no, no. This state of affairs is untenable and should be unthinkable. It must not be accepted that “they” have all the power and we color within their lines.

    The only real progressive economic agenda involves our taking over the economy as the majority we are and making it clear that these old pirates do not fairly own everything they’ve managed to swipe by exploiting the people and resources of the world, making our lives a misery from constant stress over survival and even murdering us as convenient via deprivation and pollution.

    This crap has to stop and we’re just the ones to stop it. Then, for the abiding benefit of humanity, we must recover their criminally acquired loot and throw them in jail.

  • RonaldR_Australia

    The best web site for learning
    about true Economics /Physical Economics and how to fix the Financial mess and
    Give Full employment (not just shit low paying casual jobs) is found at

  • M A J Jeyaseelan

    What people like Nick Hanauer and David Rolf do not understand is that there cannot be any political solutions for economic problems. It is one of those very gross mistakes committed by most social scientists. Kingdoms, empires and civilisations had attempted do this for ages but, without any success. We keep repeating the same mistakes in the 21st century also.

    What everyone who is disturbed by the growing inequalities must understand is that the root cause of all these is bad economics. There is no point in blaming the politicians as they would be always bought over by the moneybags and made to do what the rich would like.

    I do not think we should ever bother about anyone getting richer by the virtue of talent and hardwork. Taking away even a part of the reward earned by those who are more innovative and productive is always counterproductive as it would kill the human motivation that is so vital for encouraging people to give out their best.

    We should instead focus on unfair exchanges that create inequalities. How can there be inequality without an underlying unfair exchange mechanism? The biggest blunder of governments and their crony economists is their failure to differentiate incomes and savings derived from fair exchange processes from incomes and wealth siphoned away through unfair means. And the funniest part of the story is that most economic theories in fact, extol and glorify the very instruments that legitimise and abet such unfair exchange of economic values. Some of these economists receive Nobel prizes too.

    The worst offender is the theory of opportunity costs which legitimises the seller charging a price far higher than legitimate cost of production, which includes a fair return on the capital invested and the risks assumed or the technologies introduced. What most economists and politicians do not understand is that any price that is higher than the fair cost of production of the product or service concerned would reduce the effective demand available for other goods.

    The solution that contemporary economists have devised for the above problem is even more hideous. What do they recommend for overcoming the problem of reduced effective demand? They want the central banks to print currency and other banks to create credit to make good the loss of effective demand. But, what legitimate right do banks have to create credit over and above the savings deposited with them? How can they charge an interest on it even when the borrowers do not make use of the money to create additional economic values?. What right do the central banks have to print currency and create additional economic claims without creating commensurate real economic values.

    Who benefits from such creation of credit or currency printing is the question that everyone ignores conveniently. It is the rich who benefit because, the banks would only lend to those with credit worthiness. This is the process that enables the rich to siphon away resources illegitimately.

    The speculative markets are indeed another big mechanism that enables illegitimate transfer of economic values on a large scale. Speculative markets create no real economic values and yet have the capacity siphon away the real savings of the middle class.

    Therefore, proposals such as shared security and universal minimum incomes cannot solve the root problem. These can play a useful role if and only if there are no economic mechanisms that facilitate illegitimate siphoning away of real economic values.

    If you really want to understand the root causes of the problem and are interested in durable solutions do read my article hyper linked below.

  • Bob Viney

    You seem to be offering the millions of middle class voters an alternate economic theory to tricks down on the badid of assertions without solid facts. What is needed is to “disprove” existing thinking with facts and history. Such as:

    1. 70% of economic growth, GDP, is not tax rates, profits or regulatory burden. It is middle class spending which can’t grow if middle class incomes are declining, as they have for the past 18 years.

    2. If you believe lower taxes and higher profits would lead to higher economic growth, why aren’t we seeing record growth now? Tax rates are at lowest level in 65 years, profits are at record highs 5 years in a row. But because middle class incomes are down, so is growth. Tax cut policies won’t change that.

    3. Tax cuts raise deficits. We had low annual deficits through 1970s, then they started rising every year after Regan tax cuts. Then we raised taxes and cut spending in 1998, and balanced the budget in 1999-2000
    But then we cut taxes and raised spending, didn’t fund the Middle East War. And while still dealing with major deficits, we are planning massive tax cuts in 2018. Should call it the massive deficit increase plan.

    4. The way to raise middle class incomes is by incenting companies to share record profits with ALL employees. That would increase incomes without a new government program, wouldn’t impact company profits, would increase productivity toward shared outcomes, and grow the economy for all.

    Be interested in your thoughts on these ideas.