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Willisms

« Flashpoint: Lebanon | WILLisms.com | A Time For War And A Time For Peace »

Attaining Class Mobility Through Economic Growth

The greatest component of attaining class mobility and redistribution of wealth in a society is growth. It seems that folks that have money tend to keep it, so if not for growth, the redistribution of wealth is impossible without Government Intervention or Violent Revolution. But through growth of an economy, there are opportunities for new players to accumulate wealth.

To total output of a society should constantly be increasing as it not only provides opportunity, but signals new efficiencies. New efficiencies are created by innovation and new companies that innovate come along and take market share from existing companies (and by extension their stockholders) by making a better product for cheaper. The old guard slowly watches their market share and wealth erode if not invested in new companies or new innovations, which triggers further growth through capital investment. Stagnant economies provide the rich an opportunity to sit on their money and remain rich while there are fewer opportunities for the poor to achieve wealth.

Think about this for a moment—IBM in the 1980’s was THE leading PC computer maker in the world. That was just 20 years ago. Now IBM does not even make PC’s anymore (ever heard of Lenovo?). PC’s used to cost $2000 or more for an entry level PC. Now Dell and others offer PC’s for $300-400. As a result, IBM’s shareholders watched as Michael Dell and his shareholders suddenly became wealthy. Microsoft and Walmart have similar stories. Sam Walton, Michael Dell, and Bill Gates were not wealthy to begin with. Sears, IBM, and well, IBM, were the major players and their shareholders were [getting] rich. Innovation led to growth in these industries and the newcomers made the world more efficient and took market share and wealth from the previous companies and their investors. The old guard watched their relative wealth invested in old companies erode while new wealth was created for new innovators as well as those investors that put their capital in the new companies. Ultimately the consumer benefited with lower prices and better products.

So which would you prefer? A stagnant economy with little economic opportunity or a vibrant and growing economy?

BRUSSELS (AFX) - EU statistics office Eurostat confirmed that euro zone growth was 0.6 pct in the first quarter compared with the fourth quarter of 2005, but the EU Commission unexpectedly lowered its forecasts for growth in the second and third quarters. The commission trimmed its euro zone GDP growth forecast for the second quarter to 0.4-0.8 pct from a previous range of 0.5-0.9 pct.

Economists had been expecting a further acceleration in growth in the second quarter following recent strong survey data. The commission also cut its forecast for third quarter growth to 0.3-0.7 pct from 0.5-0.9 pct. It revised its forecast for fourth quarter growth only marginally, to 0.5-1.0 pct from 0.4-1.0 pct. The 0.6 pct first quarter growth figure was unchanged from Eurostat's previous estimate, published on June 1.

Eurostat revised down its figure for first quarter year-on-year growth marginally to 1.9 pct from 2.0 pct previously.

First, let’s compare apples to apples. A 0.6% quarter over quarter growth rate equates to approximately 2.5% annual growth rate. Let’s compare this to the US:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 5.6 percent in the first quarter of 2006, according to final estimates released by the Bureau of Economic Analysis.

These are real world numbers that you feel in your pocketbook over time. This only tells half of the story though. These numbers are for the entire EU. France and Germany are growing even slower than that at .4% approximately which equates to 1.6-1.7% per year. The rest of Europe and mostly the old Soviet Block countries are growing rapidly or things would look far worse for the EU.

Growth is the best way to achieve economic equality. It provides opportunities. In Europe, especially France and Germany, a Muslim and youth underclass is growing and their discontent is evident from the December riots. There is no opportunity for the youth and Muslims youth are particularly affected as unemployment rates hover around 20% for those under 30 and almost 50% for Muslim youth. The economy is stagnant and union labor and big government discourage growth.

Opportunity versus Stagnation. Policies Matter. Leadership Matters.

Posted by Justin B. · 21 July 2006 01:09 PM

Comments

and yet you are all for going to war all over the world. We have to PAY for these wars. either through raised taxes or going further in debt to the red chinese. We'd have alot more growth if we had a lot smaller government. end the wlfare/ warfare state!

Posted by: lester at July 21, 2006 04:28 PM

And France, Germany, and Japan as well as South Korea would have a lot less growth if not for our warmongering.

Governments exist to provide for the protection of life, liberty, and property. It happens that our government was founded by declaring war on the British and many people said the exact same thing about going to war having a disruptive effect on the economy in 1776. That was a war over taxes and tyranny.

If not for the intervention of the French into our foreign affairs in the 1770's, we would not be a country and would not enjoy the freedoms we do. That is the problem with being a free society, namely that we cannot enjoy economic and social freedom and not incur the responsibility to promote freedom wherever people are under tyranny. Just as we did in the 1940's, the 1950's, the 1960's in Europe, Korea, and Vietnam.

We have a long and proud history of defending freedom. While we have at times acted contrary to our ideals, we have spent far more on the Cold War and defending Germany, Korea, and Japan over the last 60 years than the War in Iraq is costing. And ultimately we are reaping the rewards by having these countries as our trading partners and allies. The world is better as are we. Bush's attempts to reform the Middle East will pay the same dividends and is the only way to defeat the ideology of Radical Islam and terror.

Posted by: Justin B at July 21, 2006 06:07 PM

Wiat, are you claiming that our growth would be say 6% if not at war? Maybe 7%?

And France and Germany are not at war, yet theirs is 1.5%. So our economic model is so superior that despite being in a massive war in both Iraq and Afghanistan, we are growing at almost three times the pace of France and Germany.

That should say something about Socialism. Am I reading your comments correctly?

Posted by: Justin B at July 22, 2006 10:53 AM

You don't compare apples with apples. The US measures the GDP in a differetn way to the rest of the world. You use hedonic prices, which exaggerate economic growth. If the EU apply it, its growth would be .75% higher, meaning around 3.25%--almost same as the US.

And, if you wantr to see underclass, visit the Northeast or the Southeast of Washington DC. Muslims in Europe live much better than blacks in the US.

Posted by: PP at July 22, 2006 11:53 AM

I am all for free markets and maximizing economic growth. A rising tide lifts all boats. But I am not sure that rapid growth reduces inequality in the distribution of incomes. Higher income people and the rich rake in the money when the economy booms. Nothing wrong with that, but that does not tend to bring about more equality.

I suppose inequality does reduce in one sense. As more people become middle class, people are more equal in the sense that fewer people live in impoverished conditions.

Posted by: Dan Morgan at July 22, 2006 01:58 PM

war is the health of the state. You can't be for less government and more war.

Posted by: lester at July 22, 2006 04:08 PM

And, if you wantr to see underclass, visit the Northeast or the Southeast of Washington DC. Muslims in Europe live much better than blacks in the US.

You mean with their 25% unemployment?

meaning around 3.25%--almost same as the US.

Last I checked our growth consistently has averaged 4% over the last year. Now you are going to tell me that Europe does not measure unemployment or budget deficits as a percentage of GDP the same way either. If Europe measures GDP differently, then surely this does not affect GDP growth rates. No matter how you measure your GDP, you take this this years GDP and Divide by last years and this produces the growth rate. Maybe we measure GDP differently, but wouldn't growth simply be the change in GDP divided by the total GDP?

Posted by: Justin B at July 23, 2006 01:34 PM

But I am not sure that rapid growth reduces inequality in the distribution of incomes. Higher income people and the rich rake in the money when the economy booms. Nothing wrong with that, but that does not tend to bring about more equality.

These are the choices we have for attaining class mobility--Force by way of revolution, force by way of taxes and redistribution, economic stagnation, or economic growth. We have seen that forceful redistribution (Communism, Socialism) do not lead to class mobility.

I don't advocate equality. Simply class mobility, which allows for opportunity. Mexico is a prime example of a country that lacks class mobility. The poor remain poor while the rich remain rich. Hence why the poor come here. Opportunity. Class mobility is what is important because it creates a meritocracy, albeit one where the playing field starts favoring the already wealthy.

I cannot say that income redistribution and equality are the goal, but rather opportunities to innovate and advance in the social and economic structure. This is not free and not a right. Rather, it is simply an opportunity.

And to PP, I would argue that blacks have more opportunity to improve their situation in the US than Muslims in France or Germany. I cannot say that blacks in the ghetto do not have difficulties, but jobs, homeownership, and wealth are attainable. In France, most companies will not even interview candidates with Muslim sounding names. It is commonplace, hence the massive unemployment of Muslim youth.

Posted by: Justin B at July 23, 2006 01:41 PM