Free The Gardens of Democracy: A New American Story of Citizenship, the Economy, and the Role of Government by Eric Liu, Nick Hanauer Page A

that the economic crises of 2007–08 and 1929 were caused by the same phenomenon: radical income inequality.
    In their paper, Kumhof and Rancière demonstrated that inequality and financial leverage create an unholy and fatal feedback loop. As the wealthy accumulate ever more money they generate price bubbles in real estate and other assets, which force all other participants in the economy to borrow more just to keep up. As the wealthy accumulate capital, their need to find return for these assets grows. The rich come to financialize their assets in the form of loans to—whom else?—the poor and middle class. Easy credit is the natural result of enormous pools of money seeking returns. As the poor and middle class borrow more in order to maintain lifestyles increasingly beyond their means, unsustainable leverage follows. In both 1929 and 2008, collapse was the inevitable consequence.
    This crisis of income and wealth concentration is the most serious threat America faces today. The problem, to be clear, isn’t inherently that the wealthiest among us make so much more than the poorest: inequality (of talent, effort, outcome) will always exist, and a wide spread from top to bottom is not necessarily malignant so long as there is a robust middle.
    The problem is concentration and the hollowing out of the middle. Since 1980 an overwhelming proportion of the nation’s wealth has concentrated at the very top. Today, the top 1 percent account for more wealth than the bottom 90 percent. That is not American. The middle has shrunk, the ranks of the poor have grown, and the United States now has the wealth distribution of a Third World nation. And whereas wages used to track productivity, they no longer do: American workers are ever more productive, but the wealthy are capturing those gains. Our aggregate national GDP may be higher today than it was in 1980, but when most of the additional wealth is in the hands of a few, most of us cannot be robust participants in the economy.
    This is not just unfair; it’s unhealthy. The researchers Richard Wilkinson and Kate Pickett, in their much-discussed book The Spirit Level , reveal that across the fifty states and then across nations as well, a pattern of correlation emerges so strongly as to assert causation: the higher the level of inequality, the higher the level of social pathology. This is true of obesity, depression, violent crime, infant mortality, incarceration, pollution, and on and on. Concentration of wealth makes the entire society sick, and America is Exhibit A of this phenomenon.
    This situation did not arise by accident. It is not something beyond our control, like today’s weather. It is the direct and wholly predictable result of a 30-year experiment in trickle-down economics and market-fundamentalist politics—an experiment concocted by Republicans but never dismantled and often sustained by Democrats.
    In this section, we identify the intellectual and political components of the right-wing economic theory of action, and aim to replace them with a new approach we call “middle-out economics.”

Trickle-down Economics
     
    Traditional economics, if taken literally, not only implies but necessitates market fundamentalism. If you believe the economy is a self-regulating machine, then you must believe that government intervention in the market is inherently bad.
    The right’s theory of action is thus to “limit” government. In management of the state, this translates into deregulation of business activity so that corporations, once unfettered, can lower costs, make more money, and (theoretically) create more jobs. In management of the economy, it means using tax policy to put more wealth in the hands of the wealthiest so that they can invest it in job-creating businesses. The Reaganites who pushed this agenda called it “supply-side economics,” but it came to be known more enduringly as “trickle-down economics”—the idea being that money will trickle its