Europe is most likely in the "Late Phase" of their recession...QE will pull up growth some....here's a macro view of the EU I did on my blog a couple of weeks back...would love any feedback.
www.theeconomicmachine.tumblr.com/post/108174705732
www.theeconomicmachine.tumblr.com/post/108174705732
It seems to me that the best thing these stagnating developed countries can do is band together and really push to open and develop Africa, the rest of Asia, India, etc. Adding a couple billion to the middle class is their only hope to sell more goods and services; their own birth rates are never coming back nor is immigration the answer as we've seen.
But you're absolutely right, developed countries need to grow the middle class, and helping Africa, Asia and India get there will create billions of new customers. We've seen a run up in EM in the last decade, and a pull back recently. But the future is there, in Africa, Asia and India. That is where the majority of growth in the global economy is going to come from in the next 20-30 years.
Why do developed countries need to grow the middle class, specifically?
This is not directed at you personally, by the way. It's something that you hear a lot, but that just sounds like hollow polit-speak.
Does it mean making the middle class more well-off? If so, why not actually do something for the lower class? And if the intended meaning is to lift people from the lower class to the middle class, then are people aware that this messages is self-defeating? (Somebody is always at the low end of the income or wealth scale...)
"Grow the middle class" definitely implies that people are moving from the lower class to the middle class, which IS doing something for the people in the lower class.
My understanding of the situation (and to be honest, I am in no way an authority on this, and am most likely totally wrong), but population growth in developed countries is slowing, which is another way of saying that we are not producing more and more customers like we used to.
Companies need more and more people to buy their stuff so that they can grow and grow. So, if developed nations are not producing ever-larger numbers of consumers, companies have to look elsewhere.
Hence, enter emerging markets. However, and this may be totally biased or completely wrong, but from what I've read and seen, a large portion of the populations in those emerging economies do not have much disposable income and thus do not make very good consumers.
But if the economies in those countries improve, that will create better paying jobs, low income earners will rise and become middle-class earners, and become better consumers. And you will see overall economic growth, as new businesses are started, tax revenues increase, governments are able to spend more, credit levels are increased, etc.
At least, that's why I think need to grow the middle class in EM.
For source, see http://piketty.pse.ens.fr/files/capital21c/en/pdf/T2.5.pdf
Here's one to play with http://www.measuringworth.com/ppoweruk/
I don't need it though. I have something in my hand right now that I could have sold for literally a million times as much only 60 years ago.
I can buy enough food for a year on a single weeks wages. Compare and contrast to an indentured peasant who worries if he's going to starve this year.
I can travel to the other side of the planet and come back. This is something I can purchase on about a week's wages. The cost to someone three hundred years ago to doing this was so much higher, and given that I can get there and back in less than 48 hours, it doesn't even begin to compare. My purchasing power (i.e. the things I can buy), compared to someone like me three hundred years ago, is so, so, so much more than a measly 400 times theirs.
The transition to the lower rate of growth is a lot covered by Tyler Cowen under the rubric " The Great Stagnation".
We're roughly 2096 ( exp(1.04,195) ) times wealthier on aggregate than in 1820. This happens very slowly. Since 1960, the ratio is 8.6:1 - you and I are 8.6 times as wealthy as the people most like us from 1960.
Megan McArdle talks about the "Little House On The Prairie" Ingalls family not being able to afford a modest tin cup for the third daughter for a long time - apparently something noted in the books. Yet they were "middle class" by the standards of the times.
Most of it is just design. A big portion is software.
Let's take an example.
Say, if the public transportation could be improved not with brute force, but with more elegance, comfort and intelligence, then massive savings could be realized.
My country doesn't manufacture appreciable amounts of automobiles. It also doesn't produce oil. Few developed countries produce oil.
So using cars for transportation leaks out large amounts of capital.
We have trams in my city, but the network of tracks is so old and unsophisticated that the trams must drive extremely slowly in many places, to avoid slamming intersections or curves. Some foreign tram models break constantly.
This doesn't only have the effect of making you sit in the tram longer from A to B, it also means that for a fixed amount of trams and drivers, they will pass the stops less frequently, meaning you have to wait longer before you can even get on board, and the throughput capacity of the lines is less too.
And the ride is quite noisy, bumpy and can feel stressful. But the views are beautiful, and it doesn't generate exhaust. It feels like a natural part of the city. If a tram rolls by, it doesn't make an aggressive sound like a thundering bus, it rolls with a gentle rumble, sometimes ringing bells.
So you could improve the functionality of the city by fixing a lot of these problems.
Some other parts of infrastructure have even regressed. Siemens was supposed to automate the subway system. They managed to just make the arrival time displays at the stations unreliable (that had been working just fine, probably since the metro started around 1982) and waste millions before the city board finally mustered enough courage to fire them.
So we have a huge amount of medium and even very low level technological advancement ahead of us, with large payoffs. Rankine documented spiral curves for tracks in 1862.
And don't get me started on healthcare IT.
Without intelligent oversight, all economies - capitalist, communist, socialist, democratic, fascist, you name it - tend towards status production and social differentiation as a primary product.
Sometimes useful stuff falls out in the way of invention and innovation, but more often it doesn't. Even when it looks useful it's likely to be driven by fetishised status display as a primary goal, and not by high-velocity deep innovation.
Status economies are fundamentally wasteful and non-productive in any practical sense, because most resources are hoarded by a tiny minority of high-status individuals.
You only get real growth when resources - including innovation and intelligence - are dispersed and farmed strategically.
This has happened occasionally in the past, and I'd like to think it could happen again.
But it's not happening now, and any path from the current system to a productive one is going to be difficult and messy.
In a status economy, basic needs are rationed to maintain and expand status differentials. So public infrastructure takes a beating, because 'the public' - by definition - are not high status, and must always be denied easy access to quality resources.
The parent's thesis was that technology gains in productivity are small.
I work in logistics and there adding some intelligence to a supply chain saves millions relatively quickly. It happens to be ecological as well, as spoilage is reduced.
So clearly there were a lot of gains to be had. In my opinion we operate on quite rudimentary levels in many areas of life and business. We're not limited by currently known physics. We're struck down by organizational inefficiencies and lack of brain resources.
At some point the inter-city council allowed getting into the busiest bus line not just from the front door but through any door. Great, we got a free speedup! It took years to drive that through the councils, maybe because it was a new idea (new idea here).
Now, the distribution of those savings made is another matter. And some changes are perhaps more politically charged than others, true.
If advanced economies were to increase science and space tech research, they would practically have a limitless "market" from where to obtain wealth and productivity, no?
It's a serious question. Wouldn't this help stagnated economies start the engines again? I mean, if nowadays a lot of people are trying to catch the next startup lottery, betting on things that would seem a bit superficial compared to, say, building a moon base or even a mars one, why wouldn't these same people that control vast amounts of wealth, put it to work on something that will most likely return something of value, and probably something more than just a startup lottery winner would (in the long term)?.
What am I not seeing/considering here? is human greed that badly focused/directed that they won't see this opportunity? I know rocket science is literally... rocket science, so very very hard. But it seems like companies in this area are moving forward by leaps and bounds with comparatively little money (vs say the amount of money being traded in forex every day, or similar).
What is the nature of this blind spot?
What is your reasoning for the US going back into recession?
That is just the nature of the beast....things go up and then they come right back down. Its bound to happen sooner or later, and I think maybe in 2016-2017.
But I'm most likely 100% wrong...most economic forecasts are...what do you think?