[pdecker]

That's the question, right, how do we find growth?? And my thinking is that economic growth doesn't come from a rise in production, as most economists think. It comes from a rise in credit...basically people/governments wanting to buy what they really can't afford. This pushes up demand and prices and eventually production, and the economy grows. Until the debt service payments become unsustainable, you have defaults and the whole thing comes crashing down. That is why we have cycles.

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.

[nhaehnle]

I think we're largely in agreement about the economic analysis here. However, I do have to ask:

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...)

[pekk]

Why do developed countries need to grow the middle class? I think the idea is that we want them to grow the middle class so that there are more people with disposable income and expensive appetites to sell to. Because we can't really compete with developing countries for price on most consumer goods.

"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.

[pdecker]

sorry, what I meant to say is that developed countries need to help grow/establish the middle class in emerging market countries.

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.