Singapore’s rise to wealthy nation

Ever since reading The Great Stagnation, I’ve been wondering where to invest.  If the US, Europe, and Japan are possibly headed toward decades of zero to low growth, the emerging markets would seem a better bet.

That inspired me to pick up the memoirs of Lee Kuan Yew, the founder of the modern state of Singapore who ruled through its transition from poor nation to one of the world’s wealthiest.

This was no accident, it was the result of a closely planned economy and very long planning horizons.  Even now that they’ve become a rich nation, they are planning for the future in a way that would be unimaginable in the US.

“Sustained growth ensures stability, which encourages investments that create wealth. Because we made the difficult decisions early, we have aestablished a virtuous cycle – low expenditure, high savings; low welfeare, high investments. We have accumulated assets during the last 30 years of strong growth with a relatively youthful workforce.

In the next 20 years, our economic growth will slow down as our population ages. Private savings rates will decline, and health care costs will rise sharply with more old people, just when taxpayers as a percentage of the population will decrease. We can partly meet this problem by taking steps early to ensure the old will have larger Medisave savings; the better answer is to attract educated and skilled immigrants to enlarge our talent pool and increase both GDP and revenue. The government must give increased financial and administrative support to more community welfare projects, as many as there are social volunteers to drive and supervise them.”

From Third World to First by Lee Kuan Yew (p. 107)

The US Economy at a Permanent Plateau?

If you want some insights into what's ahead for the economy, you should check out Tyler Cowan's new book, The Great Stagnation.  It's a $4 ebook (no doubt the price itself is an economic experiment).

His genius is that he describes the economy in terms we all can understand.  For those of us in our 40s or younger, what major technological innovations have occurred since our childhood?  That is, besides bigger refrigerators that produce different kinds of ice.  The answer is there have been practically none of significance, except the Internet, and the book describes why the Internet has had little impact on the economy.  Case in point, Twitter currently employs about 300 people and Facebook had to reach 500 million users before it had real revenues.

The book backs this up with many economic studies of real wages, GDP, and other factors.  I've long wondered why the growth of the financial industry in the last decade is attributed with helping the economy, and Tyler is the first economist I've seen who explains why it hasn't.  Similarly, healthcare and education have become larger chunks of the US economy while contributing relatively little to growth.

The message is that we should get ready for a flat economy.  And maybe that's not such a bad thing, so long as we can keep our society relatively equitable.

His blog is also a fascinating read.  I don't know how one person manages to post so much.