The Rise of Mexico’s Middle Class

[Chris]

So what policies are conducive to a rising middle class?

The Rise of Mexico’s Middle Class (http://www.economicfreedom.org/2012/03/27/in-the-news-the-rise-of-mexicos-middle-class/)
A middle class has arisen in Mexico thanks to increased price stability and free trade according to Mary Anastasia O’Grady in her recent article in the Wall Street Journal. Due to monetary policies that have provided a more stable money supply and increased freedom of trade which has given Mexicans access to better products at competitive prices, the majority of Mexico’s population has arisen to middle class standing.
This little-noticed development is thanks not to government welfare or foreign aid but mainly to the opening of markets and to the end of the central bank’s practice of financing the government. Growth in the last decade has been nothing to brag about and key reforms are still needed if Mexico is to become a developed country. But as Banco de Mexico Governor Agustin Carstens told me over breakfast at the central bank here last month, institutional changes on the fiscal, financial and monetary fronts since the 1995 peso crisis have all contributed to increased price stability, a key factor in wealth accumulation.

The O'Grady piece is available here if you subscribe: The Rise of Mexico's Middle Class (http://online.wsj.com/article/SB10001424052970203986604577257341514055760.html).


Mainecoons, what can you tell us about what's going on down there?

[Conley]

I would love to hear it. My impression of Mexico doesn't go much beyond a land destroyed by the cartels and the insatiable American appetite for drugs.

If true, it's interesting that Mexico would be seeing an emergence of a middle class at the same time the American middle class is shrinking rapidly.

[Mainecoons]

Mexico is being helped by several things. First, the demographics are strong, a lot of young people entering their most productive years. Just as demographics is working against the U.S. and Europe, it is working for Mexico and much of Latin America.

Second, Mexico is one of the most fiscally sound countries in the world. The government doesn't print money and it doesn't suck so much out of the economy that it cripples it, like in the U.S. and Europe.

Third, because of transportation costs and rapidly rising costs overseas, factories that used to go to China are going to Latin America now. I have a manufacturing exec staying with me right now and he stated that his firm, that makes auto parts, has concluded there is no advantage to further expansion there unless it serves the markets there. Production in their Chinese and Taiwanese factories is being diverted to serve those markets and they are building new plants in Mexico.


Government in Mexico is weak. This is a good thing because they aren't constantly in your face and pocket and dragging the economy down. However, it is not a good thing in that they don't have the muscle to deal with the American and Canadian caused drug and gun problems. The current president over-estimated the government's ability to control the cartels and he got sucked into the stupid American drug policy. Before then, the cartels operated below the radar and left the locals alone. It is widely expected here that the PRI, the party who formerly ran things in this manner, will will the next election and will opt out of the U.S. drug war in return for agreement from the cartels to return to the previous arrangements.

As a practical matter, most of the parts of Mexico where most people live are not that affected by the current struggle between the cartels and the government. The heartland of Mexico, which is a fertile and relatively prosperous area where 70 percent of the population live, are just not that affected day to day. Almost all of the problems are concentrated in a few states where the drugs are made or moved into the U.S.

The moral decay of the U.S. has resulted in it being the world's largest per capita drug market. That drives the whole thing. And BTW, several studies show that liberals are far more likely to be drug users, which should surprise no one. Just another reason that they are the enemy within.

[MMC]

Mexico is being helped by several things. First, the demographics are strong, a lot of young people entering their most productive years. Just as demographics is working against the U.S. and Europe, it is working for Mexico and much of Latin America.

Second, Mexico is one of the most fiscally sound countries in the world. The government doesn't print money and it doesn't suck so much out of the economy that it cripples it, like in the U.S. and Europe.

Third, because of transportation costs and rapidly rising costs overseas, factories that used to go to China are going to Latin America now. I have a manufacturing exec staying with me right now and he stated that his firm, that makes auto parts, has concluded there is no advantage to further expansion there unless it serves the markets there. Production in their Chinese and Taiwanese factories is being diverted to serve those markets and they are building new plants in Mexico.


Government in Mexico is weak. This is a good thing because they aren't constantly in your face and pocket and dragging the economy down. However, it is not a good thing in that they don't have the muscle to deal with the American and Canadian caused drug and gun problems. The current president over-estimated the government's ability to control the cartels and he got sucked into the stupid American drug policy. Before then, the cartels operated below the radar and left the locals alone. It is widely expected here that the PRI, the party who formerly ran things in this manner, will will the next election and will opt out of the U.S. drug war in return for agreement from the cartels to return to the previous arrangements.

As a practical matter, most of the parts of Mexico where most people live are not that affected by the current struggle between the cartels and the government. The heartland of Mexico, which is a fertile and relatively prosperous area where 70 percent of the population live, are just not that affected day to day. Almost all of the problems are concentrated in a few states where the drugs are made or moved into the U.S.

The moral decay of the U.S. has resulted in it being the world's largest per capita drug market. That drives the whole thing. And BTW, several studies show that liberals are far more likely to be drug users, which should surprise no one. Just another reason that they are the enemy within.

Excellent surmise on Mexico MC.....You are absolutely Correct with the Mexican States and the Cartels. I have always thought the Mexican government to be weak. But I did not think of it in the way as you are decribing. With them being out of or infringing on their peoples rights or interfering within their lives. I would have to agree with that ideology. Not so much emphasis placed on Conservatism wouldn't you say?

So the majority of their population is like experiencing what we were in the 50's.

[Peter1469]

It is widely expected here that the PRI, the party who formerly ran things in this manner, will will the next election and will opt out of the U.S. drug war in return for agreement from the cartels to return to the previous arrangements.

I hope that the US would not use this as an excuse for overt military action south of the boarder.

[Chris]

Thanks, mainecoons!! Great synopsis.


Question, to any, could the rise of the middle class in Mexico become a natural solution to US immigration-related problems?

[Peter1469]

It will certainly help. Especially if that larger middle class needs more unskilled labor to service their new needs.

[Conley]

Thanks, mainecoons!! Great synopsis.


Question, to any, could the rise of the middle class in Mexico become a natural solution to US immigration-related problems?

It definitely could. We've seen illegal immigration numbers go down in this country, at least partially as a result of the economic downturn here. Not as much money for them to send home.

[MMC]

I think it could help with our immigration issue as well. Especially if their economy gains with an economic boom. Do you think they will rise with manufacturing and technology?

[Peter1469]

I think that Mexico is forecast to rise to the 7th largest economy over the next few years. Can't recall where I read that.

[Conley]

As oil and transportation costs rise, I can see them becoming a more significant manufacturing power. I doubt they have much in terms of unions either.

[Chris]

I think that Mexico is forecast to rise to the 7th largest economy over the next few years. Can't recall where I read that.

They're 11th now, and Top 10 largest economies in 2020 (http://blog.euromonitor.com/2010/07/special-report-top-10-largest-economies-in-2020.html) says they'll surpass Italy.

http://i.snag.gy/oPPJN.jpg

[Chris]

As oil and transportation costs rise, I can see them becoming a more significant manufacturing power. I doubt they have much in terms of unions either.

This is a bit old but interesting with respect to oil:

Mexico Oil Exports Could End Within Decade, Report Warns (http://green.blogs.nytimes.com/2011/04/29/mexico-oil-exports-could-end-within-decade-report-warns/)
Mexico, the third-largest supplier of foreign oil to the United States, could lose the capacity to export crude altogether within a decade without major new investments in exploration and production, warns a research group report released on Friday.

The country’s shift from exporter to importer would deal a severe blow to Mexico’s federal government, which depends on oil sales for roughly a third of its budget, said the report, a two-year investigation by researchers with the James A. Baker III Institute for Public Policy at Rice University in Houston....

[Peter1469]

This is a bit old but interesting with respect to oil:

Mexico Oil Exports Could End Within Decade, Report Warns (http://green.blogs.nytimes.com/2011/04/29/mexico-oil-exports-could-end-within-decade-report-warns/)

As their middle class grows and their economy grows they will have a higher demand for oil.

[MMC]

I am surpised they are not moving in the direction Brazil did. I thought California was the 8th largest Economy in the World??? If thats not true where were they getting that statistic from. What can Mexico do about the immigration issue with the US? With dealing whoever we have in office?

[Chris]

I don't think Mexico need do anything about the immigration issue here, a rising middle class and our recession will keep more Mexicans there.

[Conley]

We still need to secure our borders in light of terrorist threats. I've felt that way all along and hopefully others do as well, regardless of whether illegal immigration goes up or down.

[Peter1469]

That is certainly true. All those American soldiers and Marines in Afghanistan would better serve US geopolitical interests if they were on our southern boarder than in Afghanistan.