Embarrassment of riches

The first decade of the 21st century was the most prosperous, according to conventional measurements, in our lifetime. The global nominal gross domestic product nearly doubled to $62 trillion in the first decade of the 21st century. But the prosperity on paper isn’t reflected in the moods of peoples around the world. In fact, most people around the world say that they are dissatisfied with their economic plight. Envy isn’t the main reason. Most people just aren’t becoming better off as time goes on.

The poor growth quality is reflected in (1) inflation of economic necessities, (2) rising debt levels for the support of living standards in the developed world, (3) rising property prices that puts housing out of reach for the "middle class" in the developing world, and (4) skyrocketing economic inequality that makes the economy dependent on the demand of a small, wealthy minority.

Grain and energy are the most basic inputs in the global economy. Global grain output has increased by one-tenth in the decade - , about the same pace as in the previous decades and energy by one-third but since forty percent of the energy output growth came from China increasing coal production so therefore excluding China’s coal production, the world energy production was sluggish . As energy and grain affect low-income people most, and the overwhelming majority of the global population falls into this category, their sluggish growth suggests that life hasn’t been improving as quickly as the economic prosperity on paper suggests.

As global GDP doubled in dollar terms, thus far outstripping the output growth of grain or energy, nevertheless their prices have surged. The FAO global food-price index rose by 138% in the decade, and the Brent crude price rose to about $100 per barrel now from an average of $20 in the 1990s. Even if the average income rose by 90% in dollar terms as the economic data suggest, the outsized price increase in food and energy could have offset that for a big chunk of the global population. A sizable portion of the global population may be worse off today than 10 years ago. When the prices of food and energy rise rapidly, no amount of decline in the price of mobile phones or PCs can offset its negative impact on the well-being of most people

While the inflation of necessities keeps most people down, statistics point to rapidly rising income and wealth for a minority. The top 1% of the U.S. population is getting one-fourth of the national income and nearly half of the national wealth, twice as much as two decades ago. In China, the ratio of property prices to income more than doubled in the decade, indicating that inequality more than doubled too. While the trend may be sharpest in China and the U.S., rising inequality is a global phenomenon. Inflation is squeezing low- and middle-income families that didn’t benefit from or lost out in the past asset bubbles. As living standards fall for a large number of households, social discontent is intensifying.

Extracted from this article