The Top 1% is Stalling the Economy

[Michael Hardner]

What's the source for this quote? It's extremely unlikely that "China’s entire population is expected to be middle class by World Bank standards in 2030". There's still a large portion of poor people working subsistence or near-subsistence rural farming jobs, and yes many of those people will continue to move to the cities but certainly not all of them.

That's the same article as I linked to before.

I forgot about subsistence farming. This book from 2013 says it's ending but that's just one opinion.

http://books.google.ca/books?id=Y2E1Z3DhAfIC&pg=PA16&lpg=PA16&dq=%22subsistence+Farming++will%22+china&source=bl&ots=JonkWdT_ws&sig=Zy1Jh_adj_AeUspT_-r5U_yXcjA&hl=en&sa=X&ei=aFevUtiRHunW2gXzgIGYCQ&ved=0CDQQ6AEwAQ#v=onepage&q=%22subsistence%20Farming%20%20will%22%20china&f=false

What is defined as "World Bank standard" of middle-class?

http://lmgtfy.com/?q=world+bank+middle+class+definition

[cybercoma]

..and who employs the "middle class tax payers" and finances the debt ? The capitalists....hence the name.

China. It's China who is paying.

[bush_cheney2004]

China. It's China who is paying.

China is only buying part of the debt...just like a good capitalist. China does not employ the poor oppressed workers in the U.S.

[Moonlight Graham]

http://lmgtfy.com/?q=world+bank+middle+class+definition

Nothing stands out clearly to point to any definition by the WB, it's not as easy as a quick google search. Can you find anything?

China may have a strongly growing "middle-class" as you argue, but these articles don't tell us whether this "middle-class" has an income that's "middle" relative to the rest of China, or relative to what Westerners consider "middle-class" in terms of purchasing power. There's confusion between "relative" vs "absolute" comparisons:

...Most international comparisons tend to measure the middle class in terms of income or consumption, which is quantitatively easier to compare across countries.

Even within the narrow set of income measures, however, another important choice awaits any comparison: should relative or absolute income (or consumption) indicators be used? Both capture important, but very different, aspects of the middle class. A relative indicator summarizes how many people sit “in the middle” of the income distribution, with a typical indicator for international comparison being the proportion of the population with per capita income between 0.75 and 1.25 of the median per capita income. While such a measure can be very useful in assessing the extent to which a society is unequal or polarized, it fails in capturing anything related to the “absolute” welfare of the middle class.

http://www.americasquarterly.org/Latin-Americas-Middle-Class-in-Global-Perspective

You seem to be assuming that "middle-class" in these articles refers to absolute comparisons in income & purchasing power, while I'm questioning whether whether the comparisons are actually relative. I'll try to figure it out which it is later, but if you can help find out too in the meantime it would help our discussion.

Edited December 17, 2013 by Moonlight Graham

[Michael Hardner]

The 2nd link says it's $10 to $50 per day

[dre]

There's no country in the world that practices unrestricted capitalism. Every single economy is highly regulated. Every one.

Not somalia!

[dre]

By some measures, yes, this is true. I think that the changing playing field on economics needs to be negotiated, but first understood by the public.

.

I think negotiations are going to be tough this time. Industrialists and big investors a hundred years ago were a different breed of people.They understood the social contract that needed to be made, and at least to some degree believed their neighbors and employees had to be successful for them to be successful.

Todays financial elites are a little more like Iraqi forces setting fire to oil wells when they withdrew from Kuwait.. They dont believe that we are that important to their future, and they could care less if consumer markets and economies in the west eventually collapse as long as they can make the same or more in other emerging markets.

And who would they negotiate with? Half of our population believes that when we have tough economic times, its because these people should have even more control, and more money, and pay less taxes. And the government represents them more than they represent us anyways.

Within a generation, the middle class in China will be roughly four times the size of the American middle class population

Maybe, but the middle class and industrial sector has grown mainly because western governments and consumers have been willing to accumulate massive debt. So right now they are enjoying a massive export bubble. At some point that bubble is going to burst, like every other economic bubble, and China is going to be full of shuttered factories.

Also Chinas economic advanced have been fueled in part by currency manipulation. The government prints massive ammounts of nmimbis every day, and uses them to buy treasury instruments from the countries they export too, so that the yuan stays artificial low, and dollars in the west stay artificially high. Its unclear what will happen once this house of cards comes crumbling down. If they had not been doing this for the last few decades their export sector would have already been decimated by exchange rates.

Edited December 17, 2013 by dre

[Moonlight Graham]

The 2nd link says it's $10 to $50 per day

I don't understand.

[Michael Hardner]

I think negotiations are going to be tough this time. Industrialists and big investors a hundred years ago were a different breed of people.They understood the social contract that needed to be made, and at least to some degree believed their neighbors and employees had to be successful for them to be successful.

I don't think you have the full picture of the labour strife that happened at that time. Strikers were killed by private security teams, beaten and killed by police and there was little public sympathy.

Todays financial elites are a little more like Iraqi forces setting fire to oil wells when they withdrew from Kuwait.. They dont believe that we are that important to their future, and they could care less if consumer markets and economies in the west eventually collapse as long as they can make the same or more in other emerging markets.

Maybe then, like the Iraqi forces, they will not expect to incur real casualties in battle.

And who would they negotiate with? Half of our population believes that when we have tough economic times, its because these people should have even more control, and more money, and pay less taxes. And the government represents them more than they represent us anyways.

And not even a hundred years ago, the public response to such situations would be to tax the rich. I'm not saying that this is the answer, but I'm saying that things change. Anybody can look around and state the obvious about how people feel today - but it's interesting to talk about the unexpected paths we may take in the future.

Maybe, but the middle class and industrial sector has grown mainly because western governments and consumers have been willing to accumulate massive debt. So right now they are enjoying a massive export bubble. At some point that bubble is going to burst, like every other economic bubble, and China is going to be full of shuttered factories.

How ? There will still be consumption, so there will still be production. Won't those who hold debt simply have to write off their losses ?

[Michael Hardner]

I don't understand.

That was a measure used in a WB report - $10 to $50 per day as middle class.

[Moonlight Graham]

That was a measure used in a WB report - $10 to $50 per day as middle class.

A measure for what? Making $10 to $50 a day is middle-class? You just threw out a number with no context & no link or quote.

We need to know if "middle-class" is being defined in absolute terms or in relative terms (relative to the rest of China, or the rest of the developing world)? I just want to know how the economic purchasing power of a"middle-class" Chinese person compares to that of US or Canadian "middle-class" individual.

Here's the closest comparison I can find, but bear in mind that Italy and especially Brazil don't have near the economy per-capita (adjusted for PPP) as the US or Canada:

By 2022, our research suggests, more than 75 percent of China’s urban consumers will earn 60,000 to 229,000 renminbi ($9,000 to $34,000) a year.¹ In purchasing-power-parity terms, that range is between the average income of Brazil and Italy. Just 4 percent of urban Chinese households were within it in 2000—but 68 percent were in 2012.²

http://www.mckinsey.com/insights/consumer_and_retail/mapping_chinas_middle_class

Maybe better is what the above article defines as "middle-class" (at least in China, but maybe more generally too?). Click on the tiny "2" footnote number in the above article located at the end of what I just quoted above:

Households in this income range, which we define as middle class, spend less than 50 percent of their income on necessities and display distinctive consumer behavior.

I just found an excellent article that explains exactly what we're talking about & the competing definitions of "middle-class", including in China's context, and shows why we're both (understandably) confused. A must-read: http://www.economist.com/node/13063338

Given that explanation, given the income numbers for the middle-class we see in China, & given that China's PPP range for "middle-class" is between Brazil and Italy, I think it's probably fairly accurate to assume that China indeed has a thriving middle-class that is spending "less than 50 percent of their income on necessities and displays distinctive consumer behavior" and is therefore buying up significant goods from US/Canadian corporations and lessening or even possibly negating corporate profit loss from the shrinking US/Canadian/European middle-class (and their shrinking consumption). However, the standard of living is also much higher in US/Canada than in China, and what is considered "middle-class" is likely quite different in both regions, so the consumption and economic impact of a middle-class Canadian household is likely significantly greater than that of a middle-class Chinese household.

Edited December 18, 2013 by Moonlight Graham

[Michael Hardner]

A measure for what? Making $10 to $50 a day is middle-class? You just threw out a number with no context & no link or quote.

Yes - I said it's the 2nd link on the Google page I gave you.

We need to know if "middle-class" is being defined in absolute terms or in relative terms (relative to the rest of China, or the rest of the developing world)? I just want to know how the economic purchasing power of a"middle-class" Chinese person compares to that of US or Canadian "middle-class" individual.

Good question. I'm also curious about that.

A must-read: http://www.economist.com/node/13063338

I will read that.

[Moonlight Graham]

Yes - I said it's the 2nd link on the Google page I gave you.

Oh thanks, I thought you meant the 2nd link you sent me on your page 3 reply to me.

I will read that.

Cool. It's a very short article.

[TimG]

Here is an excellent chart that places income inequality in perspective:

The article is referenced here:

http://rogerpielkejr.blogspot.ca/2013/12/income-inequality-in-global-perspective.html

It raises some interesting points:

There are rich countries that have accumulated lots of wealth, and transmit that wealth, along with many other advantages, to the next generations of their citizens. This is why, for example, the poorest Americans are relatively well-off by world standards. They are lucky to have been born in the country that is rich (or has become rich; the case was different with the poorest Americans in the 17th century). And there are also people from poor countries who do not have wealth, and advantages and opportunities it confers. [but—and this is in stark difference to the within-country case —this is considered unobjectionable, or rather it is not questioned whether one may keep on benefiting from something that the previous generations have created, and she has simply inherited by virtue of birth. In one case, we frown upon the transmission of family-acquired wealth to offsprings if two different individuals belong to the same nation. In the other case, we take it as normal that there is a transmission of collectively acquired wealth over generations within the same nation, and if two individuals belong to two different nations, we do not even think, much less question, such acquired differences in wealth, income and global social position.

[bush_cheney2004]

....It raises some interesting points:

That's why we have "climate change" scams to move wealth from rich nations to poor. Brilliant !

[cybercoma]

Tim, the problem of inequality is one between OECD nations. Early in their progress, a rising GDP is far more important than internal equality. This is because those states don't have the necessary infrastructure in place to be healthy. At a certain level of GDP, the level of inequality of a state is associated with a large number of social and health problems. The greater the GINI index, the greater the problems. This relationship even exists internally between States in the US. The States with greater income inequality have greater social and health problems. Having said that, the idea here isn't that there needs to be absolute equality because that would pose other problems. Consequently, there needs to be a balance struck. In any case, you can't look at developing nations and say, "look at how irrelevant income inequality is," because it's a different situation entirely. This doesn't explain away the detrimental association between inequality and problems in the OECD.

[TimG]

Having said that, the idea here isn't that there needs to be absolute equality because that would pose other problems. Consequently, there needs to be a balance struck.

Agreed. A balance is required - but that is ultimately my point: that inequality will always exist and it will go up or down over time. The GINI might tell you that something is wrong or it might not. It is basically an irrelevant statistic and improving it could easily make things worse depending on how it was "improved". That is why it is a waste of time to discuss the GINI as an objective of policy actions. If there are specific problems that need addressing (e.g. access to quality education) then those are the things that we should be discussing. Edited December 25, 2013 by TimG

[GostHacked]

That was a measure used in a WB report - $10 to $50 per day as middle class.

Relative to what? None of us could survive on $50 a day.

[Bonam]

Relative to what? None of us could survive on $50 a day.

Of course we could. $50 a day is plenty to "survive". Again, use math, the ever-hated tool of actually understanding things. $50/day = $18,250/year. That's what I lived on as a student, and it's also around what a minimum wage earner makes per year. There are tens of millions of people surviving on exactly that, and many on less, right here in North America. Living on minimum wage is certainly not luxurious, but it's plenty enough not only to survive but to live fairly comfortably. As a student living on $50/day, I had my own apartment, a car, food including eating out a few times a week, internet & mobile phone, and enough money for my hobbies of skiing and mountaineering, not to mention the cost of school fees and textbooks. And that is here in North America, in some of the cities with the highest costs of living in the world. In less developed nations, the cost of living is far lower, and $50/day indeed affords a middle class lifestyle, even an upper-middle class lifestyle (that's why $50/day is the top of the range).

In fact, that large swathes of the population in the developing world are starting to make $10-$50/day is great news for everyone, because it means wages in the developing world only need to increase by another factor of 2 or so before outsourcing dies out, and wage growth resumes in the developed world, ending its ~3 decades of stagnation. $18,250/year means $8.77/hour for a typical full time work year (2080 hours). "Lower middle class" in NA is about double that. Once wages for typically outsourced jobs in the developing world start to reach ~$10/hour, considering the extra costs of outsourcing, it will become more profitable to keep these jobs in the nation where the product/service is required and pay $15/hour or so, and once that happens, wages will start to grow in the West along with the rest of the world. An increase of a factor of 2 or so in wages for skilled jobs in the developing world should take no time at all, as average wages for these jobs in the developing world have already risen by orders of magnitude in a few decades.

Edited December 25, 2013 by Bonam

[GostHacked]

Surviving, trying to get by day to day is not living. As a single person I might be able to survive on 50$ a day, but what if I want to support a family? Can I do that on 50$ a day?

[Bonam]

Surviving, trying to get by day to day is not living. As a single person I might be able to survive on 50$ a day,

As I already said, $50/day, for a single person, is enough not just to survive but to live fairly comfortably. And that's here in NA, in the developing world, where the example of $10-50/day being middle class was referring to, the living costs are far lower. You are aware of this, yes? You do know it doesn't cost $1 million to buy a modest house in Bangladesh like it does in Vancouver, right?

but what if I want to support a family? Can I do that on 50$ a day?

Yes, in developing nations, you most certainly can.

[cybercoma]

Agreed. A balance is required - but that is ultimately my point: that inequality will always exist and it will go up or down over time. The GINI might tell you that something is wrong or it might not. It is basically an irrelevant statistic and improving it could easily make things worse depending on how it was "improved". That is why it is a waste of time to discuss the GINI as an objective of policy actions. If there are specific problems that need addressing (e.g. access to quality education) then those are the things that we should be discussing.

The GINI is almost certainly not irrelevant. Its clearly associated with social ills. Greater problems across all income levels exists when inequality is greater. When inequality is lesser, those problems are also lesser. This holds true between countries, as well as within the US between states. So there is no maybe or maybe not. They are connected.

[bush_cheney2004]

When inequality is lesser, those problems are also lesser. This holds true between countries, as well as within the US between states.....

Yes....we can prove this theory by looking at North Korea...or Somalia....or Haiti. No "GINI" index problem in those and other very poor countries, and that's why so many people emigrate there, right ?

[cybercoma]

Yes....we can prove this theory by looking at North Korea...or Somalia....or Haiti. No "GINI" index problem in those and other very poor countries, and that's why so many people emigrate there, right ?

Maybe if you read the thread, you would see that I already explained this. Let me recap for you.

GINI matters in OECD nations because they have the requisite infrastructure to function efficiently. Nations like North Korea, Somalia, Haiti and other developing countries have other more significant concerns than inequality. GDP growth is far more important, regardless of inequality.

But hey, if you think it's reasonable to compare social and health indicators in nations like the US, UK, Canada, Germany, France, etc. to North Korea, Somalia, and Haiti, then I don't think you're really ready to be discussing these things.

[TimG]

The GINI is almost certainly not irrelevant. Its clearly associated with social ills. Greater problems across all income levels exists when inequality is greater. When inequality is lesser, those problems are also lesser. This holds true between countries, as well as within the US between states. So there is no maybe or maybe not. They are connected.

But this contradicts your earlier statement that complete equality is not desirable. IOW - if too much equality is bad AND too much inequality is bad then how do we determine the optimum level of inequality? If there is an optimum level is it reasonable to assume it will be constant over time? Even then changes to the GINI could occur for different reasons - a dropping GINI is a bad thing if everyone is getting poorer due to a financial collapse.

The GINI does not provide any information that would allow us to answer those questions because a dropping GINI could be good or bad depending on where society is compared to the optimum. Finding the optimum requires that one look at other metrics - metrics which do not require the GINI figure which means the GINI is irrelevant. It is just a talking point used by social activists to rationalize increased taxation.

Edited December 26, 2013 by TimG