Friday, July 25, 2008

Top-down vs. bottom-up economics

I've written before on my admiration of Robert Reich (here, for example, or here). This former Clinton Secretary of Labor, current economics professor seems to get what's really going on in our economy far better than most Washingtonians or ivory-tower residents. (I'm not a blind acolyte; I did find a few things in Reich's book Supercapitalism that I didn't care for, in particular his weak defense of CEO salaries.)

His Tuesday post about the difference between what he terms top-down economics as opposed to bottom-up is quite valuable. Essentially, as you might expect, top-down is the belief that our system works best when the powerful players are given as much support as possible and set free to create economic magic. Tax breaks for the rich and for corporations will lead to more jobs and economic growth, carte blanche for oil companies to drill whenever and wherever will bring down oil prices, and bailing out investment banks will open up credit markets to the average American. Reich punctures those ideas, as globalized markets make it highly unlikely that whatever gains that come from these practices will accrue to real people.

Bottom-up economics focuses on those real people, providing the infrastructure (physical and conceptual, like education and health) that will improve productivity for millions in the work force, subsidizing basic research in alternative fuels, and enhancing their financial security.

I certainly harbor doubts as to how likely we are to move from our current assumption that top-down is the way to go (I don't think most people realize just how in thrall we are to the concept that the "smart people" have all the answers, and how we accept that they should get whatever they need - if we just give Bill Gates more money, eventually he'll get around to fixing our problems too). It is good that there are people of some influence who understand that our economic engine is driven by the people who buy and drive cars, not the people who move the manufacture of them overseas and take a big cut of the savings. But I doubt there are enough of them, not yet.

The only other objection I have to Professor Reich's post is his equating top-down with McCain, bottom-up with Obama. I hope that's true, especially as I believe Obama will end up winning, but I'm not totally sure. Once Obama starts attending Renaissance Weekends and other events where he'll rub elbows with the "big-idea" people, I wonder if he (like Clinton before him) will start buying into the idea that the business leaders and corporate attorneys have the answers, and all we have to do is step back and watch them work (oh, yes, we have to provide them the proper incentives, like tax breaks and TIF districts and innovation seed money and on and on...).


Unknown said...

In my opinion, the top-down model broke about 20-years ago when US manufacturing started going overseas. This time frame lines up with the use of the Internet as a common communication tool. Global communication led to the global economy we have now, or at least that’s the way I see it. US manufacturing is being outsourced to places with cheaper labor. The US still has a substantial manufacturing sector, but it’s slowly being chipped away and shipped out. It won’t be long before the US innovation creates mostly virtual products like insurance policies and incomprehensible financial instruments that don’t physically exist.

It is difficult for me to see how the top-down model works anymore when the world is our collective economic playground instead of just our own back yard. With more and more manufacturing leaving the US, how is it that so many people still believe in the top-down model? This doesn’t make sense to me. I say we get rid of the lobbyists in Washington that pour big business $$$ into deceiving the public. Get rid of lobbyists, educate the people, and this problem goes away.

~ Dave ~

txtmblweed said...

Actually, Government spending is now the 'Top' with unlimited power to tax and spend without regard to budget (we haven't had one passed by Congress for three years!), or regard to doing the people's business.

Anonymous said...

I have worked in the nonprofit sector for 35 years and I have been told I have the "heart" of a Social Worker by a person who teaches Social Workers. So I am all about the people! One thing that is crystal clear to me is that true wealth and jobs are created in the private sector. Government funds (taxes) and nonprofit funds ( government grants and charitable giving) are downstream beneficiaries of a healthy private sector. Call it down stream or top down or trickle down or whatever you like, it is simple truth. The founder of our nonprofit said over 100 years ago, the best social program ever created is a job,! Employment is driven by a healthy private sector. When people have private sector jobs they can contribute to the tax base, provide for their families and consume goods and services that create more jobs. And the key for people to increase their earnings is to increase their job skills. If you invest your time and talent into increing your skills you can find people who will help you pay these costs.

Anonymous said...

Very well written "Anonymous".

I think most of the bloggers here have given very good constructive opinions without attacking any one person or party, and that's nice to see in today's politics. I personally believe that Top-Down is the ONLY way to ensure to individual & collective prosperity. But as "Dave" stated, once the jobs started to be out sourced, the "TD" model started to fail. Then our so called "Great Minds" in the political arena claim that we now need to shift to a bottom-up model. They couldn't be more wrong. Once again politicians look at changing a system to accommodate the problem, rather than correct the problem. IMO, we as a nation need to focus on the out sourcing problem. Until we deal with THE BROKEN TAX SYSTEM, UNFAIR TRADE REGULATIONS, etc etc then this problem will never get corrected. This can only be done it our representatives in congress start acting like adults and not carrier (IE: corrupt) politicians.

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