Top Down solutions, and other such myths

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Imagine you just moved into a New Place to live — and after a week or so you realize that the place is very drafty and cold.  Brrrr!

What do you do?

If you’re of the school of thought that “Top Down” Investments are the Laissez faire way to fix things

— you do nothing except crank up the Thermostat and starting paying the higher Utility Bills  (ie. just keep throwing more money at it.)

If you’re of the school of thought that “Bottom Up” Investments are the best way to “permanently” solve most any problem

— you weather strip your windows, you insulate your attic etc.  (ie. you invest in things that actually address the problem and help it to be minimized, AND its continual costs.)

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PS. “Bottom Up” Investments actually Help to put other People to work too … instead of just throwing that Cash —  “Out the the Window” !

If you’ve ever had the opportunity to take an Economics course — sooner or later they get around to talking about The Multiplier Effect  ….  Zzzzzz!

Despite its tedium, The Multiplier Effect is VERY important in any Healthy Economy — it works like Magic.

kind of like yeast, … or the Rain Cycle and crops  —

by its Multiplying actions, You Get MORE than you Started Out with — like Magic.

Well of course it’s not really Magic, even if it might seem like it.  

It’s just physics — the more a Dollar gets Circulated — the more it’s worth, to more people!  (ie. everyone who “touches” that Dollar, gets some benefit from it.)

Or to put it more dryly, as economists are want to do:

For example: a company spends $1 million to build a factory. The money does not disappear, but rather becomes wages to builders, revenue to suppliers etc. The builders will have higher disposable income as a result, consumption rises as well, and hence aggregate demand will also rise. Suppose further that recipients of the new spending by the builder in turn spend their new income, this will raise consumption and demand further, and so on.

The increase in the gross domestic product is the sum of the increases in net income of everyone affected. If the builder receives $1 million and pays out $800,000 to sub contractors, he has a net income of $200,000 and a corresponding increase in disposable income (the amount remaining after taxes).

Fiscal Multiplier wikipedia

And So on … until all the subs of the subs, and all their suppliers and workers, and store clerks, are all paid …

That initial Million Dollars “GETS effectively Multiplied” in its Economic Impact (to be much more than a Million), when it is spent in this Bottom Up way — to Build Up the Local Economy.

SOOOO,  How Much does that “Average Dollar” the Govt spends — How much Does it get Multiplied?

Well …  not all dollars are “invested equally” …

“Not all budgetary dollars are created equal,” said Alan Blinder, professor and co-director of Princeton University’s Center for Economic Policy Studies, in a conference Wednesday morning.

“Some have a lot of bang for the buck, and some have very little.

The GDP increase per dollar of budgetary cost is in the range of $1.60, $1.70 for things like food stamps and unemployment benefits,

and in the range of $0.35 for extending the Bush tax cuts.

We could get some substantial job creation by simply reprogramming the $75 billion that would be saved over the next two years by not extending the upper-bracket Bush tax cuts and spending it instead on unemployment benefits, food stamps, and the like.”

Extending Bush Tax Cuts WON’T Create Jobs, Says Leading Economist  by Laura Bassett, HuffPost — 07-28-2010

So there you go.

Bottom UP Investment:  Unemployment benefits, food stamps, hiring people  (SMART!  extra $1.70 return on each Dollar Invested.)

Top DOWN Investment:  on Extending Bush Tax Cut for the Wealthy  (DUMB!  Only $0.35  Economic return on each Dollar Invested.)

Not to mention the NUMBER of actual people effected by each strategy —

were talking Millions of folks, versus a few thousand pathetic whiners.

Should be a No-Brainer!

But that Dragon of Govt Spending has long ago consumed all the brains and the courage, of the desperate villagers … and too many of their rudderless leaders …

http://www.thedailyshow.com/wa…

CNBC guest states that “Bottom Up” funding would have been better — The Daily Show Forum

Dragons Be Gone!  

Maybe, Jon Stewart is right,  we just need to start singing some children songs, at them …?

Could THAT effect be Multiplied?

multiplied, invested, into real change, into real help,

into real jobs, to fix real Drafts, and oh so many Broken, Desperate Lives?

IF only … we were smart about it …

about Fixing OUR own collective Future … Dang it’s Cold in here … Brrr!

somebody should DO something about that.