Five Ways To Jumpstart The Middle Class — And The Economy

The Center for American Progress unveiled a sweeping economic agenda on Thursday, in a report titled “300 Million Engines of Growth: A Middle-Out Plan for Jobs, Business, and a Growing Economy.” The agenda is premised on the notion that income inequality and the erosion of the middle class hamper economic growth, and that American policy has focused too much on finance at the expense of the human development, demand, innovation, and good governance that are also required for sustainable economic growth.

Here are five of the report’s suggestions for policy innovation to target middle-class growth:

1. Implement high-quality preschool for every three- and four-year-old in America, K-12 funding reforms, and funding for innovation in local school districts. America’s education system is failing students: Just a third of eighth graders are attaining proficiency in key areas. The U.S. ranks 22nd in high school graduation rates among 27 industrial nations. Because of these failures, millions of American adults are “waiters who could be chefs, teacher’s aides who could be teachers, computer techs who could be techfirm CEOs, and prisoners who could be doctors,” the report says. These failures can be addressed not just through increased funding for pre-K and K-12 education, but reforming how that money gets allocated.

2. Wipe the slate clean on housing and replace Fannie and Freddie. When the housing bubble evaporated, it took $7 trillion in wealth with it. Five years later, nearly 10 million homeowners remain underwater by a combined $700 billion, and private capital has almost entirely ceded the business of housing finance to the government. The report would commit the government to sweeping principal reduction and refinancing initiatives for underwater homeowners to help the market once again be a buoy rather than a drag on the middle class and the larger economy. That proposal would also require outright forgiveness of the underwater portion of loans in instances where such forgiveness would be worth more to investors than foreclosure. It further proposes to replace Fannie Mae and Freddie Mac “with government-chartered, privately funded entities” along lines laid out in a 2011 report.

3. Restore and revive federal and private funding for scientific research and development. For every dollar of economic growth America has produced since World War II, roughly 50 cents traces back to scientific and technological advances. Yet the U.S. government and private sector currently invest less as a percentage of the economy in research and development than do Japan or South Korea. CAP would double funding for three federal research agencies, revamp research tax credits, and set aside $100 million in annual “Frontier Prizes” for innovations that solve specific research problems connected to economic growth.

4. Create automatic mechanisms to protect middle-class jobs from trade manipulation by other countries. The U.S. is the world’s largest exporter (good) and the world’s largest importer (bad). In 2012, the balance of trade came to a deficit of more than half a trillion dollars, which endangers the nearly 10 million jobs supported by U.S. export activity. Our increasing trade deficits are driven in large part by currency manipulation by trading partners, which is hard to combat without sparking harmful trade wars. CAP proposes “a currency misalignment trigger” that would automatically initiate a 90-day countdown to imposing trade tariffs against countries that manipulate their currencies to the detriment of U.S. exporters and in violation of trade agreements.

5. Consolidate the various federal business agencies into a Department of Competitiveness to streamline business’ access to government services. The government already does a great deal of work to support and occasionally intervene in American business with an eye toward fostering growth. But the complex web of agencies and the ad-hoc approach to market interventions represents wasted opportunities for efficiency, analysis, and innovation. CAP suggests restructuring the 300 plus “assistance programs for businesses, startups, and entrepreneurs” into a single federal department with a common application system for entrepreneurs and businesses. That department would also partner directly with firms to support emerging business sectors that will aid sustainable job growth.

These are just some of the report’s many proposals for long-term sustainable growth from the middle out. Read the full report here.