Can anyone please explain me what the following sentence means? "Top down approach needed when bottom-up approach of markets leads to periods of high unemployment" I was trying to look up for the definition of top down and bottom up approach but nothing came up apart from top down investing. Thank you for your help!
closed as off-topic by John Bensin, Victor, Dheer, JoeTaxpayer♦ May 12 '14 at 21:44
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- "Questions on economics are off-topic unless they relate directly to personal finance." – John Bensin, Victor, Dheer, JoeTaxpayer
I think it's an argument for Keynesian economic policy, basically an abridged version of this paragraph from the Wikipedia article:
Keynesian economists often argue that private sector decisions sometimes lead to inefficient macroeconomic outcomes which require active policy responses by the public sector, in particular, monetary policy actions by the central bank and fiscal policy actions by the government, in order to stabilize output over the business cycle.
"private sector decisions" are bottom-up: millions of businesses and individuals make economic decisions and "the economy" is the sum of what they do. "monetary policy actions by the central bank and fiscal policy actions by the government" are top-down: central institutions implement measures that are intended to have a positive effect (such as reducing unemployment) on millions of individuals.
Top down approach needed when bottom-up approach of markets leads to periods of high unemployment
Imagine a chart that starts with one point at the top and breaks it down into the details by the time you get to the bottom. People can read this chart either from the top and go down or from the bottom and go up. Wikipedia does have articles on Top-down and bottom-up design if you want more detail than I give here.
Top down refers to the idea of starting at a high level and then working down to get into the details. For example, in planning a vacation, one could start with what continent to go, then which country, then which cities in that country and so forth. Thus, the idea here would be to start with macroeconomic trends and then create a strategy to fix this as the other way is what created the problem. The idea of taking a subject or system and breaking it down into individual pieces would be another way to state this.
Bottom up refers to the idea of starting with the details and then build up to get a general idea. To use the vacation example again, this is starting with the cities and then building up to build the overall itinerary. Within political circles you may here of "grassroots" efforts where citizens will form groups to gain influence. This would be an example of bottom up since it is starting with the people. The idea of taking individual components and putting them together to build up something would be another way to state this.
The statement is saying that a completely different style of approach will be necessary than the one that created the problem here.