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Boom time for the global bourgeoisie

By Jim O'Neill, chief economist at Goldman Sachs

In the midst of the current widespread gloom and doom in the west, it is important not to lose sight of the true structural themes shaping our era.

Linked to the current mood, commentators often depict an embattled and shrinking middle class, with sharply rising financial inequality. However, globally, this is simply not true. One of the most startlingly positive phenomena for many generations continues to unfold around the world. We are in the middle of an explosion of the world's middle class.

As two of my colleagues, Dominic Wilson and Raluca Dragusanu, showed in a paper Goldman Sachs published last week (The Expanding Middle: The Exploding World Middle Class and Falling Global Inequality), about 70m people a year globally are entering this wealth group, as defined by those on incomes of between $6,000 and $30,000 (€3,800-€19,000, £3,900-£15,000), in purchasing power parity terms.

The phenomenon may continue for the next 20 years, with this global middle accelerating to 90m a year by 2030. If this happens, an astonishing 2bn people will have joined the ranks of the middle class. This demonstrates that, contrary to widespread opinion, global inequality is declining significantly, not increasing.

Behind this powerful development is, of course, the unfolding story of the Bric, as we dubbed Brazil, Russia, India and China back in 2001. In addition to the gloom surrounding cyclical challenges in the US and other developed economies, it is currently becoming fashionable to believe that the Bric story is about to be tipped over the edge by rising inflation, scarcity of resources and their own backlash against globalisation. Some slowing of rapid growth in these economies is bound to happen. Indeed, the sustainability of it might be helped by some softening.

But I believe this negative mood is overstated.



In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Jul 16th, 2008 at 11:45:21 AM EST
He's right, of course. Goldman Sachs will have a bright future advising these newly wealthy people how to invest. I'd suggest GM. If you invested 50 years ago your holding would now be worth about half of what you started with (ignoring dividends).

Explain to me again exactly how capitalism benefits everyone?

By the way did anyone ever mention "oil" to him?

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Wed Jul 16th, 2008 at 12:01:07 PM EST
[ Parent ]

By the way did anyone ever mention "oil" to him?

This is all the more ironic that it is one of his colleagues who has made the most spectacular predictions about oil prices going up (with talk about an "oil spike" to $105 a year or two ago, and more recently talk about $200 oil), and that Goldmans is generally seen with suspicion as one of those speculators pushing oil prices up.

But oil scarcity not beng part of the "narrative", they don't feel the need to fit the two together.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Jul 16th, 2008 at 12:32:57 PM EST
[ Parent ]
A guy representing finance execs who at the top have hundreds of millions squared away, and at the bottom are finally squaring away their first $10M, dares to comment on people who finally are earning $6K to $30K?

What exactly am i missing here?

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Wed Jul 16th, 2008 at 04:21:03 PM EST
[ Parent ]
Jerome a Paris:
and that Goldmans is generally seen with suspicion as one of those speculators pushing oil prices up

Not Goldman, I think, but the captive funds they operate and which their traders have as a backstop eg "Date Rape" and all that.

But their fighting talk re oil prices, and the current bubble/ spike, keeps the money flowing in to the funds all right.

As for O'Neill, he seems incapable of writing anything without dropping a "BRIC" reference, because of course, who was it who invented the acronym....

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Jul 16th, 2008 at 07:38:30 PM EST
[ Parent ]
... is people entering from the bottom in low-income nations, but its also bolstered by people entering from above in high-income nations.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Wed Jul 16th, 2008 at 12:50:31 PM EST
[ Parent ]
And he's using dollars as a reference point. While PPP$ might not be as affected by the dollar crash as exchange rate $, I'd guess that even PPP$ aren't exactly what they used to be...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jul 16th, 2008 at 02:07:41 PM EST
[ Parent ]
If a US$ doesn't buy the same bundle of goods and services as it used to, and another currency, say the &euro, better retains its ability to buy a bundle of goods and services, the € will rise in the €/US$-PPP.

The problem is rather the time lag ... market rates are available on an ongoing basis, and trade-weighted exchanged rates at reasonably high frequency, even if not daily ... but it'll be sometime in 2009 that we have the estimates for 2008 PPP exchange rates.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Jul 16th, 2008 at 04:14:14 PM EST
[ Parent ]
Yes, but that's precisely what I mean. If the dollar drops, everything else goes up in both exchange rate terms and PPP terms. Which means that all other things being equal, 1 PPP$ doesn't buy as much today as it did ten years ago, right? So measuring "middle class" by PPP$ rather than by a basket of goods makes more people richer in your statistics without making them able to buy more stuff, right?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jul 16th, 2008 at 04:57:30 PM EST
[ Parent ]
But the typical GDP_PPP numbers are real GDP, which is to say corrected for inflation.

Indeed, there's no reason not to correct for inflation, since all the problems are exactly the same problem as estimating purchasing power parity ... you don't take any substantial new problems on board moving from current dollar PPP to base year dollar PPP.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Jul 16th, 2008 at 05:33:39 PM EST
[ Parent ]
OK, that makes sense. Assuming that they use sensible numbers for inflation, of course...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jul 16th, 2008 at 05:39:54 PM EST
[ Parent ]
... goods for the inflation index ... but then, the PPP is screwed up for exactly the same reason, since its a cost-of-a-bundle-of-goods index across space instead of across time.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Wed Jul 16th, 2008 at 07:13:14 PM EST
[ Parent ]

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