A Second Factor In Economic Growth Is Education

Category: Finance, Financial Planning.

Alan Greenspan writes extensively about the global economy in The Age of Turbulence. One is a cultural desire for growth, which includes government integrity, the acceptance of a certain amount of income inequality, incentives to take risk and the willingness to let market forces determine supply and demand.

He believes there are common dominators to economic success. Markets are the antithesis of government decision making. The socialism of Western Europe and the populism of Latin America are lesser forms of substituting the wisdom of government for the marketplace. The fall of Russian communism showed the fallacy of central planning. Western Europe( India and elsewhere) suffers from bureaucracies with extensive approval processes which slowdown change and bureaucrats who substitute their judgment for the market. A second factor in economic growth is education. Restrictive work rules imposed on employers drive up costs and reduce the incentive to take risk, resulting in lower growth and, higher unemployment, perversely.

It speaks for itself. Workers who save money( accumulate capital) and contribute to their heath and retirement plans aid economic growth. A third is a young, population, or growing. Non- workers, who consume these, such as retirees services, which have been promised to them by their government but have not been funded, place a strain on economic growth. The last determinate of economic prosperity is a strong rule of law, defined as a protection of property rights( and, individual rights, by extension) . As the ratio of workers to retirees shifts, due to the aging of the baby boomers and increases in longevity, the burden of these transfer payments on an economy/ society increases. This is a major theme of Mr.

Property rights include real estate, goods and, intellectual property, broadly, commercial transactions. Greenspan s. A strong rule of law is not a dictatorship, in fact, it s just the opposite. As a corollary, risk premiums will be lower in this environment, meaning the cost of capital will be lower, promoting growth. Individuals/ companies will take risk, and invest for the future, if they can see a clear and consistent set of rules. We can extrapolate from Mr.

So let s go for an around the world tour. Greenspan s thinking as to the best international areas for investment. Western Europe has a strong rule of law but their bureaucracies, restrictive immigration which, aging population could otherwise offset an aging population, and expensive social services means their economic growth will be limited. It s overcoming its Communist legacy and production costs are low. Eastern Europe is on its way to a well developed rule of law and does not suffer from the problems of Western Europe( yet) . Russia has inconsistently applied laws which vary with the whim of its rulers. A currency inflated by the high price of oil and gas exports is another limiting factor.

It also has the Western European population demographics. However, an entrepreneurial spirit, abundant natural resources, and burgeoning consumer market are positives. Japan has greater population problems than Western Europe in terms of age and immigration and a bureaucracy structured to prevent companies from failing, and preventing foreign, limiting imports companies from operating in Japan. Russia has great potential but equally great obstacles to overcome. Yes, it has a strong rule of law but it is very Japan- centric. Mr.

Is it any wonder that the Japanese economy has been stagnant for the last 15 years? Greenspan says that it will no longer be the world s second largest economy by 203 China is the global wildcard. But a Western- style rule of law and the personal freedom which it, brings are in, and economic growth conflict with a ruling autocratic party. Its growth has been impressive and it has moved towards a comprehensive rule of law. One or the other will have to give way at some point. Greenspan believes that China s growth will continue, and although he doesn t come out and say it, China will surpass Japan in GDP by 203 India has a strong rule of law but a bureaucracy which makes Western Europe s look like a Ferrari.

Mr. Its growth has been impressive but it hasn t kept up with China due to severe infrastructure problems and cultural crosscurrents preventing its markets from freely functioning. Severe income inequality, education and rule of law( government instability and corruption) problems abound. Latin America is cursed with populism( take a look at Venezuela) , Brazil being the possible exception. Emerging economies, Mr. Of course, they carry great risk.

Greenspan cites Vietnam, are where the biggest money will be made. Nonetheless it will be exciting to see new economic hotspots emerge as the world looks for low cost production areas and certain counties seize the opportunity. Mr. Lastly, the United States looks pretty good by comparison to the rest of the world, despite our problems. Greenspan predicts we ll still be the biggest and the best in 2030, although a smaller part of a bigger global pie. Stick with Mr. How do you invest globally?

Greenspan and go with a strong rule of law. Constantly look for changes in law, or a shift in attitude towards a change, and watch for emerging gems. Invest in Europe, East over West and, if you can take more risk, invest in China and India.

Read more...

Their Attorney Was A Generalist - Tara Mayne about Finance and Financial Planning:

Ned almost lost the farm that had been in his family for 8 generations! Make sure you don t make the same mistake Ned did.

The Policy Has A Large Loan - Shawna Feinstein's Finance and Financial Planning blog:

Most people do not know they can sell an insurance policy. Even term insurance, which has no cash value, is a candidate for purchase.

Educator Expenses - Finance and Financial Planning Articles:

How many times have you done your taxes, and a week or a month later realized you forgot a deduction? In my experience, these are the top 5 missed deductions.