Brahmason's Blog

For an economy to be balanced and free from bubbles that will drive it out of control , the equilibrium demand vs offer has to be safeguarded .

No matter the apparent complexity of modern economies the equilibrium between offer and demand can be guaranteed if following aspects of an economy are kept under control .

Consumption which is the most important parameter of modern economies is directly proportional to :

– The percentage of middle class as regards the total population .

– The average income of middle class .

-The GINI indicator of distribution of income or reachness .

-The capacity of indebtment of middle class . ( solvency on a continuous basis ) .

A rough indicator based on statistics would inevitably show that if the percentage of consumption is 70 % of GDP , the middle class should be around 75 % of total and the recommended GINI indicator should be around 0.26 ( the range goes from «0» to «1» and it is 0.22 in Norway , 0.25 in Netherlands , 0.29 in Germany , 0.33 in GB , 0.475 in US and 0.48 in Venezuela …) .

As the percentage of middle class reduces and the average income goes down and GINI indicator mounts over 0.30 , the equilibrium offer vs demand will get out of control unless consumption is strongly limited and replaced by investments and exports .

The main reasons for the rupture of the equilibrium between offer and demand are either speculation or loss of competitiveness , or both .

Trying to maintain the level of consumption by an increase of credit to compensate for the reduction of purchase capacity resulting from middle class and average income reduction or strong distorsion of the GINI indicator is simply a suicide that will drive economy into a succession of bubbles and increase of sovereign debt up to levels of non-return .

To prevent that or recover from it , an adequate tax and credit policy should be applied as per circumstances wich will include a proper analysis of world global economy . The worst enemy of a real effective economy policy is that any of the old ideas whether liberal or conservative will be the right answer . Global economy with uneven growths and imbalances as well as the extraordinary capacity introduced in speculation moves by modern technologies , demand a much more dynamic approach and control of economy with the right equilibrium to stimulate investments in the areas bound to promote very big added value productions and services .

Leading economists as well as public opinion should be aware of the importance of middle class in a modern economy .

It is impossible to keep running the big production companies making cars , appliances and other mass production items , unless a sufficient middle class with an adequate average income exists . Services such as tourism , transport etc are also depending on the existence of a healthy middle class which in the so called developed economies has been lost not so much for relocation reasons as for the absence of enough investments in high added value areas of those economies .

Brahmason

Brahmason@gmail.com