You might ask, “hey, Zach, what should those economics reporters have focused on all summer long, rather than spending their word counts expounding about the potential ramification of always-impending recessions, along with vague economic vibes, and trying to convince us that good economics news is actually bad news?”
I’m so glad you asked. This year was a banner year in the field of economicsand the mainstream media barely even noticed. We saw the publication of some compelling data that proved the trickle-down economic theory that has dominated the thinking of leaders of both parties for the last forty years is not just wrong—it’s entirely backwards.
The idea that funneling money up to the wealthy few and corporations at the very top of the economy is a bad economic practice—it doesn’t actually create wealth, as leaders from Reagan on have repeatedly promised us. Instead, working Americans are the source of economic growth and prosperity, and the more we invest in the middle class, the stronger the economy will grow for everyone.
In May, a groundbreaking study from researchers Justin Wiltshire, Carl McPherson, and Michael Reich looked at 47 counties where the minimum wage was raised to (or above) $15 per hour between 2009 and March 2022. There’s already a huge body of research proving that raising the minimum wage is good for workers by raising their pay, and proving that none of the job losses that trickle-downers predicted actually occurred in the real world. So it’s already more or less a given among most economists that raising the minimum wage doesn’t kill jobs—even the New York Timesadmitted this year that the Fight for $15 is basically settled, and the workers won.
But what this study showed is that raising the wage actually creates jobs. Wiltshire explained on Twitter that when the study drills down on the less wealthy counties in the study, “we estimate *large* and significant positive employment effects.” In fact, he wrote, “These large minimum wage increases led to gains in both earnings *and* employment!”
It’s just common sense that raising the minimum wage will give more workers more money to spend, and that they’ll spend those paychecks in their local communities, creating jobs with their consumer demand. Mainstream economists spent 40 years combating minimum-wage increases through faulty trickle-down economic thinking, but people finally understand that raising the wage is good for everyone. Still, it is vitally important to create a compelling body of evidence that analyzes the data and proves this economic truth. This study is a breakthrough in that field, and it should have been front-page news when it was released earlier this year.
And a few months after that big new study confirmed the power of middle-out economics, more data has helped us to understand the negative effects that trickle-down cost-cutting has on the whole economy. Paul Krugman investigated the austerity approach that the federal government took after the Great Recession.
Led by a wave of hardline Tea Party Republicans in 2010, Congress responded to the widespread economic misery of the Great Recession by making it harder for ordinary Americans to access unemployment benefits, child care, food stamps, and other investments. Studies have already shown that in many important respects, including paycheck growth and savings, American workers hadn’t even fully economically recovered from the Great Recession when the pandemic began in 2020.
Most people understand that the economic recovery from the Great Recession really only helped the wealthy few and corporations. But Krugman had an important revelation—he decided to put a dollar amount on the economic misery that American workers went through during the Great Recession and its aftermath.
“I’ve argued that we could and should have returned to full employment by the middle of 2011. If we sum up the gap between actual and potential G.D.P. between then and the end of 2019, it comes to $3.5 trillion in 2012 dollars, or $4.5 trillion in today’s prices,” Krugman writes. “That’s an immense waste of human and economic potential — but it happened quietly, so that hardly anyone noticed.”
Imagine what the economy would look like today had the working class been able to see, and participate in, $4.5 trillion in additional economic activity—how much bigger paychecks would be, how many small businesses would have been launched, how many families would have been able to invest in their futures.
Krugman’s theory is supported by America’s economic response to the pandemic, which invested deeply in working Americans through enhanced unemployment benefits, increased child care options, a Child Tax Credit that put money directly into people’s pockets, and many more programs. As a result, America bounced back from pandemic-era lockdowns faster and higher than virtually any nation on earth.
I mentioned above that there will definitely be some kind of an economic calamity at some point in the future. This research provides a roadmap for how we can survive and thrive in the face of that adversity. Budget cuts and other austerity measures are never the answer when we’re confronted with economic hardship; investing deeply in the American people is the only appropriate response.