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Friday, April 08, 2016

The Stagnant World Economy: What It Represents

The following via Aftershock Publishing has useful information for understanding the world economy now.  Embedded within the text is an astounding statement, to wit, the fact that middle class income has essentially gone nowhere for twenty years.  We basically all know this, but think about how many years this represents;  how many children have grown up and gotten married, how many parents have passed on, how many have graduated from college, taken a new job, moved to a new city, and retired.  When you think of it this way, it is absolutely appalling that incomes have stagnated for twenty years.  Isn't it time that people got the kind of just economy they deserve?   



Economist Richard D. Wolff recently stated that the drop in U.S. middle class income was a significant contribution to the drop in China's economic growth. His point that middle class incomes in the US have dropped in purchasing power seems supported by other sources. How much credence do you give to this theory?

It's definitely true that incomes have been languishing for middle class Americans. But that's more a reflection of the fact that we've had asset growth and debt growth rather than fundamental growth. Growth in middle class incomes has been slow for the last couple decades. However, China has grown substantially.
The recent drop in China's growth is due to the fact that Chinese government stimulus hasn't been increasing as much as it had been earlier, and is also less effective now that it's been used so much. Also, the world economy is slowing down—not just in the U.S., but everywhere. So if anything, we'd say this economist has it backward. China was the growth engine coming out of the financial crisis due to its stimulus, but it's not working so well anymore.

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