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The Case for the Middle Class The Case for the Middle Class

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The Case for the Middle Class

May 18, 2012
The Center for American Progress is a liberal think tank in Washington, but its latest economic opus draws from compelling research across the political spectrum to make a powerful case: that the strength of the U.S. economy depends on the health of the middle class.

I quote the paper, by economists Heather Boushey and Adam Hersh, in my Restoration Calls piece on Nick Hanauer and his fight to convince the innovative class that its fate is tied to the middle class. The report is worth a read in its entirety; notice how much of the research it relies upon comes from the University of Chicago Booth School of Business, among other high-powered institutions that are not roundly considered bastion of liberalism. The bulk of Boushey and Hersh's sources aren't partisan in any way - just detailed, data-driven analysis from top economists. 

Here's how Boushey and Hersh summarize their argument:

The economy grows when technological improvements or investments in human or physical capital boost productivity, when the labor force increases, or when investment in physical capital adds to the economy's productive stock--and thus total output expands.

But this begs the question: What boosts productivity or creates incentives to invest? Economists differ in their specific answers to these questions, but the different theories point to five primary factors: 

• The level of human capital and whether talent is encouraged to boost the economy's productivity

• Cost of and access to financial capital, which allow firms and entrepreneurs to make real investments that create technological progress to use in the economy

• Strong and stable demand, which creates the market for goods and services and allows investors to plan for the future

• The quality of political and economic institutions, including the quality of corporate governance as well as political institutions and a legal structure that enforces contracts

• Investment in public goods, education, health, and infrastructure, which lays the foundation for private-sector investment

Strong empirical evidence in economics and other social sciences suggests that the strength of the middle class and the level of income inequality have an important role to play for each of these five factors boosting productivity and spurring investment.

Read the report for yourself, then come back here to the Roundtable on May 22, at noon, to chat about how to save the middle class with Boushey and Kevin Hassett, an economist at the conservative American Enterprise Institute. We'll take your questions and see if we can't find some common ground on how to end America's middle-class slide.
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