Praise for Hollowed Out “ When will we learn that an economy that works just for the wealthy just doesn’t work? David Madland, one of the nation’s wisest young scholars, explains with clarity and eloquence why trickle-down economics can’t keep its promise of rapid growth—and why a more just economy will provide better results for everyone. This is a truly important book that should shape our debate for many years to come.” — E. J. Dionne Jr., Senior Fellow, Brookings Institution, Professor, McCourt School of Public Policy, Georgetown University, and author of Our Divided Political Heart: The Battle for the American Idea in an Age of Discontent “ David Madland marshals reams of data, economic analysis, and social science to make a deeply persuasive case for middle-class economics— not only as a means of achieving sustainable, equitable economic growth, but as the absolutely crucial foundation of American society. Hollowed Out patiently walks us through the factors leading to the recent decline in middle-class income and stability and, crucially, shows how to get the economy back on the right track.” — John Podesta, former Counselor to President Barack Obama and former Chief of Staff to President Bill Clinton MMaaddllaanndd -- 99778800552200228811664466..iinndddd aa 2277//0033//1155 33::0000 PPMM “ Trickle-down economics is the biggest economic lie ever told, and David Madland expertly and authoritatively shows us why. Meticulously researched and thoughtfully argued, Hollowed Out explains in plain language why growth and prosperity are always built from the middle out, not the top down. This should be required reading for economic policymakers.” — Nick Hanauer, Seattle-based entrepreneur who has helped launch more than twenty companies, including aQuantive Inc. and Amazon.com “ The dose is the diff erence between medicine and poison in economics as in healthcare. Hollowed Out makes the case that US inequality has gone beyond supply-siders’ medicine for growth to poisoning our economy via loss of trust, political polarization, debt-driven consumer demand, and self-perpetuating aristocracy of wealth. Every member of Congress should read this before voting on the next tax cut for the wealthy.” —Richard Freeman, Professor of Economics, Harvard University “ Ideas are a powerful force in politics, and David Madland develops a very big and important one. Madland shows that the hollowing out of the American middle class has deeply damaged our economy, and in order to get back on track we need to make the economy work for everyone, not just the rich. Hollowed Out provides an important road map for anyone who wants to understand what is wrong with our economy and what needs to be done to fi x it.” —Neera Tanden, President, Center for American Progress MMaaddllaanndd -- 99778800552200228811664466..iinndddd bb 2277//0033//1155 33::0000 PPMM Hollowed Out MMaaddllaanndd -- 99778800552200228811664466..iinndddd ii 2277//0033//1155 33::0000 PPMM The publisher gratefully acknowledges the generous support of the Anne G. Lipow Endowment Fund for Social Justice and Human Rights of the University of California Press Foundation, which was established by Stephen M. Silberstein. MMaaddllaanndd -- 99778800552200228811664466..iinndddd iiii 2277//0033//1155 33::0000 PPMM Hollowed Out Why the Economy Doesn’t Work without a Strong Middle Class David Madland university of california press MMaaddllaanndd -- 99778800552200228811664466..iinndddd iiiiii 2277//0033//1155 33::0000 PPMM University of California Press, one of the most distin- guished university presses in the United States, enriches lives around the world by advancing scholarship in the humanities, social sciences, and natural sciences. Its activities are supported by the UC Press Foundation and by philanthropic contributions from individuals and institutions. For more information, visit www.ucpress.edu. University of California Press Oakland, California © 2015 by The Regents of the University of California Library of Congress Cataloging-in-Publication Data Madland, David, author. Hollowed out : why the economy doesn’t work without a strong middle class / David Madland. p. cm. Includes bibliographical references and index. isbn 978-0-520-28164-6 (cloth : alk. paper) isbn 978-0-520-28652-8 (pbk. : alk. paper) isbn 978-0-520-96170-8 (ebook) 1. Middle class—United States—Economic conditions—21st century. 2. Middle class—United States—Economic policy—21st century. 3. Consumption (Economics)—United States—21st century. 4. United States—Economic policy—21st century. 5. United States—Economic conditions—21st century. I. Title. II. Title: Why the economy doesn’t work without a strong middle class. HT690.U6M33 2015 305.5′50973—dc23 2014040833 Manufactured in the United States of America 24 23 22 21 20 19 18 17 16 15 10 9 8 7 6 5 4 3 2 1 In keeping with a commitment to support environmen- tally responsible and sustainable printing practices, UC Press has printed this book on Natures Natural, a fi ber that contains 30% post-consumer waste and meets the minimum requirements of ansi/niso z39.48–1992 (r 1997) (Permanence of Paper). MMaaddllaanndd -- 99778800552200228811664466..iinndddd iivv 2277//0033//1155 33::0000 PPMM To Karin, Charlie, and Jasper MMaaddllaanndd -- 99778800552200228811664466..iinndddd vv 2277//0033//1155 33::0000 PPMM This page intentionally left blank contents List of Illustrations ix 1. Middle Out vs. Trickle Down 1 2. Trust 28 3. Good Governance 56 4. Stable Consumer Demand 110 5. Human Capital 127 6. Creating a Middle-Class Society 155 MMaaddllaanndd -- 99778800552200228811664466..iinndddd vviiii 2277//0033//1155 33::0000 PPMM