The research for this project began with a series of interviews and a national conference with leading U.S. economists to learn their views about the mechanisms through which income inequality and the strength of the middle class affect economic growth and economic stability. This paper summarizes what we have learned from these conversations, alongside our analysis of the economic research in the academic arena. We have identified four areas where literature points to ways that the strength of the middle class and the level of inequality affect economic growth and stability:
- A strong middle class promotes the development of human capital and a well-educated population.
- A strong middle class creates a stable source of demand for goods and services.
- A strong middle class incubates the next generation of entrepreneurs.
- A strong middle class supports inclusive political and economic institutions, which underpin economic growth.
We detail the evidence for these four points in the main pages of our paper, but briefly we encapsulate the economic research here. As we will demonstrate, the ways in which a strong middle class is important for economic growth are both interrelated and mutually reinforcing.