‘Top-Down’ vs. ‘Bottom-Up’

What does ‘top-down economics’ really mean? “We can’t afford more top-down economics. What we need are policies that will grow and strengthen the middle class.” — Barack Obama “Top-down economics” is a hijacked phrase. Objectively, it should be the label assigned to rule-of-czar capitalism steered by government officials. Instead, campaign rhetoric has been assigning it to rule-of-law capitalism driven by consumers and entrepreneurs—supposedly a system steered by the already-rich, in which money gradually trickles down to the middle class. As vivid as that image may be, it is a false depiction of what really happens in a properly functioning private sector. But once the false image captures the attention of enough voters, it’s a simpler step for political entrepreneurs to sell themselves as the better alternative—simpler, that is, than having to compete against the way a vibrant private sector actually works. Entrepreneurs cause money to gush outward, not to ‘trickle down’ There is little disagreement that today’s economy needs more private-sector jobs, and there should be little disagreement that private-sector entrepreneurs are more effective creators of new jobs than politicians are. But entrepreneurial success requires three ingredients: New ideas, sufficient drive, and adequate funding. With all three, entrepreneurs can develop new products and bring them to market, creating lasting new jobs when that process succeeds. Unfortunately, it’s the rule rather than the exception that the typical entrepreneur lacks the third necessary ingredient: Adequate funding. He or she may possess the idea and the initiative, but the necessary funding must come from an outside source. Should the government use higher taxation to forcibly extract additional money from the already-prosperous, then somehow allocate it back into the private sector as the bureaus and agencies see fit? At the macro level, solving the problem of creating millions of new private-sector jobs requires matching thousands of potentially successful entrepreneurs with the funding they need. When this match is made, the typical entrepreneur—far from starting out rich and then deciding to let money “trickle down”— starts by deciding to take on a big risk, then obtains the funding, and then dishes out a gusher of other people’s money to new suppliers and new employees. If unsuccessful, the entrepreneur is the first one to go broke; if successful, he or she is the last one to benefit. In short, the money gushes outward long before success or failure for the risk-taker becomes evident, and therefore long before the entrepreneur can be judged “rich” or “poor.” Via: The American Continue Reading...