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Originally published November 29, 2012 at 4:30 PM | Page modified November 29, 2012 at 4:29 PM

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Op-ed: Cupcake economics to avoid a ‘Sno Ball’ cliff

To create a strong economy, healthy businesses, we need political leaders, business owners and bakers alike to follow a “middle-out” recipe, not a “top-down” one, writes guest columnist Jody Hall.

Special to the Times

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IN the cupcake business, fancy icing is not going to make many mouths water if the underlying cake is dry, crumbly and past its expiration date. The cake is the foundation. The rest is, well, icing on the cake.

As I’ve been reading the latest headlines — topics ranging from iconic brand Hostess’ liquidation, to the state of our economy, to the debate in Congress on the so-called “fiscal cliff” — it occurs to me that too often we fail to apply this simple lesson to our economic and political decisions.

To create a strong economy, healthy businesses and tasty cupcakes, we need political leaders, business owners and bakers alike to follow a “middle-out” recipe, not a “top-down” one.

Since I opened the first Cupcake Royale in 2003, our business has expanded to six locations and nearly 100 employees. But I’m not the real job creator. The real job creator is the demand of our customers that drives our ability to grow.

Making investments in our most valuable asset — our employees — through health-care coverage, paid sick days and higher wages provides them with economic security and increases the economic vitality of our community.

That, in turn, contributes back to my business’ success. My employee is my neighboring small-business owner’s customer — and vice versa.

The fates of small businesses and our community are inexorably linked. “We’re all in this together” trumps “you’re on your own” as both a moral and an economic philosophy, as Bill Clinton said at the Democratic National Convention.

What does this have to do with Hostess?

About a decade ago, before Hostess Brands made national news that left American consumers scrambling to buy their last Ding Dongs, Sno Balls and Ho-Hos, Wall Street investors had purchased the company and loaded it with debt.

While the new Wall Street leadership demanded major concessions from workers (wage and benefit cuts of up to 32 percent), top executives rewarded themselves with pay increases, with the chief executive engineering a 300 percent increase in his own compensation.

Economist Dean Baker writes that the Hostess management team has shown “little competence and is rapidly stuffing its pockets at the company’s expense.”

It’s classic Bain-style Wall Street vulture capitalism: make top executives richer by squeezing the average worker like the cream filling of a Twinkie. It’s also a real-time example of the failure of top-down economics.

On Nov. 6, by a margin of more than 3 million votes, American voters rejected this approach.

But that hasn’t stopped Wall Street CEOs from trying to railroad a year-end fiscal deal through Congress based on the same failed economic philosophy. Their latest slick PR campaign, “Fix the Debt,” is little more than a thinly veiled effort to further squeeze the middle class with cuts to Medicaid, Medicare and Social Security while pushing tax “reforms” that benefit multinational corporations.

Once again, the rich get the icing. The middle class gets iced.

Here’s a sweet idea: Instead of listening to Wall Street, Congress should take its advice from Main Street during this year-end fiscal showdown.

Congress can support small businesses, and our middle-class customer base, by taking three steps:

• End the Bush tax giveaways for the richest 2 percent, continuing middle-class tax cuts for 98 percent of Americans and 97 percent of small-business owners;

• Reject cuts to middle-class programs — Social Security, Medicaid, Medicare — that support a healthy customer base for small businesses; and

• Crack down on corporate tax dodging and make the big guys pay their fair share of taxes.

Sen. Patty Murray, D-Wash., is showing clear resolve, signaling readiness to call Republicans’ bluff on their insistence about protecting tax giveaways for the rich. She should be applauded for her leadership. No deal is better than a raw deal.

Investing in the middle-out, not the top-down, is the only way to return to prosperity.

Jody Hall is the owner of Cupcake Royale and serves on the steering committee of the Main Street Alliance of Washington, a coalition of more than 2,000 small businesses.


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