My plan would have 3 parts. I like a flat tax, I doubt it will ever happen, but if we could get one I would be happy. Cruz proposes that (at 10%). I am fine with his proposal to eliminate all deductions but mortgage interest and charity. I would definitely tweak that some – no more than $50,000 in mortgage interest deduction a year and the same for charity. Basically subsidizing it a bit for the non-rich is fine. Subsidizing these for the rich seems silly so I would cap the deductions in some way. I also wouldn’t mind an almost flat tax, say 12% up to $200,000 and 15% after that (or some such rates).

Cruz’s rate is far too low given the government he wants. The government budget is largely: Social Security, Medicare and Military. Then you also have debt payment which have to be paid. Those 4 things are over 80% of the spending. All the other things are just in the last 20%, you can cut some of that but realistically you can’t cut much (in percentage terms – you can cut hundreds of billions theoretically but it is unlikely and even if you did it isn’t a huge change).

We are piling on more debt than we should. Therefore we should increase revenue, not reduce it. But if we can’t increase it (for political reasons) we definitely should not reduce it until we have shown that we have cut spending below revenue for 2 full years. After that, great, then decrease rates.

The White House, Washington DC by John Hunter. See more of my photos of Washington DC.

The VAT tax on businesses replacing the corporate tax system is in Cruz’s plan and this is the best option for corporate taxes in my opinion. Another decent option is just to pass through all the earnings to the owners (I first heard this proposal from my Economics professor in College) and tax them on the earnings.

Increasing the giveaways to trust-fund baby as Cruz and Trump propose is the single worst tax policy change that can be made. I have explained previously how bad an idea this is: The estate tax is the most capitalist tax that exists. The trust-fund-baby favors should be reduced not increased. I would roll back to the Reagan Administration policy on estate tax rates.

I would raise the federal tax on gasoline by 50 cents a gallon. Use it to fund mass transit improvements and to cut the deficit and to reduce greenhouse gas emissions. I would want have the whole rest of the taxes revenue neutral (and use this as extra income) but if that wasn’t possible, then make the whole thing together revenue neutral.

Social Security taxes are nearly equal to other income taxes. They are highly regressive. I would eliminate the current elimination of the tax on high income earners. I would just have the tax due on all earned income (no cap). If that let me reduce the rate, great, if not fine it would just make the fund solvent for longer. I would not increase the benefits due for high earners beyond what it is now.

I would also prefer to raise the retirement age on which benefits are paid (this isn’t really something that seems likely but I would support it strongly if there was any interest). I would do this in a similar way to the last time this was done. Last time they only raised it by 2 years. I would aim for at least 3 more, but would take whatever we can get. Those increased ages would not take full affect until 20-30 years from now.

I would also strongly support Bernie Sander’s desire to increase all tax revenue and create a single payer health care system. The economic cost of the current USA health care system is an enormous burden we all suffer from every year. A single payer solution isn’t nirvana but the current system is horrible, a single payer system would be a huge improvement.

I would prefer to change unearned income taxes to be more favorable for long term investing (if such income didn’t get swept up into a flat tax). Including it in a flat tax would be my preference, I am just saying if we didn’t get that and had something more like our current system I would want a change in tax on unearned income. Dividends shouldn’t get special treatment. Capital gains should be indexed to inflation – so selling a stock 20 years later would be not calculated on just the purchase price and sales price. The post inflation gain or loss would be calculated and then I would give favorable treatment to long term investments (over 2 years).

So I would gladly take a VAT from Cruz but at a more reasonable rate (perhaps 15%) and the flat tax from Cruz but again at a more reasonable rate (perhaps 15%) and the other adjustments mentioned above. I have no idea but just based on my wild guess it seems like 15% for both might fund a single payer health care system. But if a better health care system wasn’t possible due to special interests then just set those percentages at whatever makes it revenue neutral with the other factors (reasonable estate taxes instead of trust fund baby subsidies, increase gas tax).

I would be much more willing to cut spending than either the Democrats or Republicans. There are only 3 places to cut real money and neither party wants to cut Social Security or Medicare. I don’t want to cut Medicare. I don’t want to cut Social Security benefits but I would move back the age (cutting benefits for people retiring 20+ years from now) I would also be fine cutting payments to the rich, but this is not politically feasible so I am fine not doing it.

Many Republicans want to increase military spending, few are willing to cut it; a few Democrats are willing to cut it but not many. I would be willing to cut military spending to the tune of hundreds of billions a year. We just shouldn’t try to do as much as we do militarily. It is too costly. We need to spend less. Again this isn’t so likely but unless you do this thinking you can cut taxes is foolish. If you want to cut taxes you have to cut spending. I would be willing to cut military spending to cut taxes but it is unlikely there is political will do that in the USA.

Related: Taxes per Person by Country (2010) – USA State Governments Have $1,000,000,000,000 in Unfunded Retirement Obligations (2010) – USA Federal Debt Now $516,348 Per Household (2007) – Lavishing Tax Cuts on Ourselves That Our Grandkids Have to Pay For is Bad Policy (2013)

While this remains bad news the rate at which heath care is increasingly costing those in the USA has been slower the last 5 years than it has been in past years. Basically the system is getting worse at a slower rate than we used to be, so while that isn’t great, it beats getting worse as quickly as we used to be. For the last 5 years the rate of increase has been between 3.6% and 4.1%.

GDP has increased more than inflation. As the GDP grows the economy has more production for society to split. The split between the extremely wealthy and the rest of society has become much more weighted to the extremely wealthy (they have taken most of the gains to the overall economy in the last 20 years). Health care has a similar track record of devouring the gains made by the economy. This has resulted in health care spending soaring over the decades in an absolute basis and as a percentage of GDP.

The slow down in how badly the health care system has performed in the USA has resulted in the share of GDP taken by the health care system finally stabilizing. Health care spending has remained near 17.4% since 2009. While hardly great news, this is much better news than we have had in the last 30 years from the USA health care system. The percentage of GDP taken by the USA health care system is double what other rich countries spend with no better health results.

It is similar to if a team started as a championship team and then got worse every year and now they have finally stopped getting even worse. Granted they have become the worst team in the league but if, say, their record has now been 5-55 for 3 years in a row, they at least are not winning fewer game in each subsequent year anymore. But you can hardly think you are doing a great job when you are clearly the worst team each and every year.

Obviously there is a need for much much more improvement in the USA health care system. Still stopping the growth in spending, as a percent of GDP, is a positive step toward drastically decreasing it to reach a level more in live with all other rich countries. Even this goal is only to have the USA reach a level of mediocrity. If you actually believe the USA can to better than mediocre that would imply a combination of drastic declines in spending (close to 50%) and drastic gains in outcomes. Decreasing spending by 50% would put the USA at essentially the definition of mediocre – middling result with average spending.

Health Spending by Type of Service or Product

• Hospital Care: Hospital spending increased 4.3% to $936.9 billion in 2013 compared to 5.7% growth in 2012. The lower growth in 2013 was influenced by growth in both prices and non-price factors (which include the use and intensity of services).
• Physician and Clinical Services: Spending on physician and clinical services increased 3.8% in 2013 to $586.7 billion, from 4.5% growth in 2012. Slower price growth in 2013 was the main cause of the slowdown, as prices grew less than 0.1%, due in part to the sequester and a zero-percent payment update.
• Other Professional Services: Spending for other professional services reached $80.2 billion in 2013, and increased 4.5%, slower than the 5.0% growth in 2012. Spending in this category includes establishments of independent health practitioners (except physicians and dentists) that primarily provide services such as physical therapy, optometry, podiatry, or chiropractic medicine.
• Dental Services: Spending for dental services increased 0.9% in 2013 to $111.0 billion, compared to 2012 when growth was 2.2%. Out-of-pocket spending for dental services accounted for 42% of all dental spending while private health insurance accounted for 47% (I am not sure how the remaining 11% was paid – medicare? VA? all government health care?)
• Other Health, Residential, and Personal Care Services spending grew 5.8% in 2013 to $148.2 billion, the same rate of growth as
  in 2012. This category includes expenditures for medical services that are generally delivered by providers in non-traditional settings such as schools, community centers, and the workplace; as well as by ambulance providers and residential mental health and substance abuse facilities.
• Home Health Care: Spending growth for freestanding home health care agencies decelerated in 2013, increasing 3.4% to $79.8 billion following growth of 4.5% in 2012. Medicare and Medicaid spending accounted for approximately 80 percent of total home health care spending in 2013.
• Nursing Care Facilities and Continuing Care Retirement Communities: Spending for freestanding nursing care facilities and continuing care retirement communities increased 2.4% in 2013 to $155.8 billion, up from growth of 2.0% in 2012. The faster growth in 2013 was primarily due to an increase in Medicare spending after a one-time downward rate adjustment for skilled nursing facilities in 2012.
• Prescription Drugs: Retail prescription drug spending grew 2.5% to $271.1 billion, compared to 0.5% growth in 2012. Faster growth in 2013 resulted from price increases for brand-name and specialty drugs, increased spending on new medicines, and increased utilization. I believe this is classified as retail to exclude all the costs for prescription drugs used in hospitals, nursing homes, etc. that is counted elsewhere.
• Durable Medical Equipment: Retail spending for durable medical equipment reached $43 billion in 2013, and increased 4.2%, slower than the 5.6% growth in 2012. Spending in this category includes items such as contact lenses, eyeglasses and hearing aids.
• Other Non-durable Medical Products: Retail spending for other non-durable medical products, such as over-the-counter medicines, medical instruments, and surgical dressings, grew 4.0% to $55.9 billion in 2013. This was a faster rate of growth than in 2012, when spending grew 1.8%.

Health Spending by Major Sources of Funds:

• Medicare: Medicare spending, which represented 20% of national health spending in 2013, grew 3.4% to $585.7 billion, a slowdown from growth of 4.0% in 2012. This slowdown was attributed largely to slower enrollment growth and impacts of the Affordable Care Act (ACA) and sequestration.
• Medicaid: Total Medicaid spending (15% of national health spending) grew 6.1% in 2013 to $449.4 billion, an acceleration from 4.0 percent growth in 2012. Federal Medicaid expenditures increased 6.2% in 2013, while state and local Medicaid expenditures grew 5.9%.
• Private Health Insurance: Overall, premiums reached $961.7 billion in 2013 (representing a 33% share of national health spending), and increased 2.8%, compared to 4.0% in 2012. The net cost ratio for private health insurance—the difference between premiums and benefits as a share of premiums—was 12.0% in 2013, the same as in 2012. Private health insurance enrollment increased 0.7% to 189.3 million in 2013, but was still 8.2 million lower than in 2007.
• Out-of-Pocket spending, which accounted for 12% of national health spending, grew 3.2% in 2013 to $339.4 billion, a deceleration from growth of 3.6% in 2012.

I am not sure what the other 20% is. I believe non-profit foundations are a portion, maybe the whole 20% (though I doubt it). Maybe government health care, VA, active duty military health care spending?

Health Spending by Type of Sponsor*

• In 2013, households accounted for the largest share of spending (28%), followed by the federal government (26%), private businesses (21%), and state and local governments (17%). My guess is charities and foundations make up the remaining 8% (though I may be wrong).
• Household health spending grew 2.8% in 2013—a slower rate of growth than the 4.8% rate in 2012—due in part to the low rate of increase in employee contributions to private health insurance premiums. Despite the slower growth in 2013, the household share of health spending has remained steady at 28% since 2010.
• Federal government spending for health care increased 3.5% in 2013 after declining 0.2% in 2012. Faster growth was influenced in part by an increase in Medicaid payments to primary care physicians mandated by the ACA. The Federal government share of health spending has decreased in recent years, from 27% in 2011 to 26% in both 2012 and 2013, primarily due to the expiration in June 2011 of enhanced federal matching rates for Medicaid mandated by the American Recovery and Reinvestment Act of 2009.
• State and local government spending increased 3.2% in 2013. This increase followed strong growth of 6.3% in 2012 and 9.3% in 2011 that was also due largely to the expiration of enhanced federal Medicaid matching rates for states. During the period 2010 – 2013, the share of health spending financed by state and local governments increased from 16% to 17%.
• Health care spending financed by private businesses increased 4.0% in 2013, much higher than the average increase of 0.7% during 2008–10 caused by recession-related job losses and declines in private health insurance enrollment during and just after the recession. The private business share of overall health spending has remained fairly steady since 2009, at about 21%.

The data in this post is provided by the US Department of Health and Human Services. I provide a direct link to the data, in my experience USA government sites break direct links fairly quickly unfortunately, in the last few years they have often just made the links to the current data, which is better than it used to be, but still is lame. They should provide permanent urls …/[year]/[report]/[specific_details] for example… if, as in this case they have maybe 10 separate document on this one report.

* Type of sponsor is defined as the entity that is ultimately responsible for financing the health care bill, such as private businesses, households, and governments. These sponsors pay health insurance premiums and out-of-pocket costs, or finance health care through dedicated taxes and/or general revenues.

The USA health care system was deemed a deadly disease by W. Edwards Deming decades ago and it has only been doing increasing damage the USA economy and society. We need to take much more effective steps to improve the system. The problems are very challenging especially because the system problems are largely created by bought and paid for political parties who have for decades allowed the health care system to damage the economy and society.

We have been making improvements in many areas within the system, but huge systemic problems have existed for decades and are being supported by those we continue to allow to serve as our elected officials. We can likely improve to being somewhat less than mediocre without fixing that problem.

We are unlikely to even be able to reach mediocre without the political parties changing their support for the entrenched interests that have retained such a poor system for so long (or us getting new political parties which doesn’t seem so likely and even if we did they would then have to also take a better approach on health care, which seems like, but isn’t necessarily certain). Since it is impossible to find a rich country with a health care system that has noticeably worse results and it isn’t possible to find any rich country that spends more than 35% less than we do, it is hard to imagine anyone supporting a worse health care system than the current one in the USA, but I suppose it is possible.

The direct accounting costs of the USA system are horrible, and those are just the direct accounting costs – it ignores the costs of millions without preventative health care, sleepness nights worrying about caring for sick children without health coverage, millions of hours spent on completing forms to try and comply with the requirements of the health care system’s endless demand for paperwork, lives crippled by health care bankruptcies…

To some extent the “Affordable Care Act” addresses some of the issues with tying health care to the employer (as the USA has done) and issues with pre-existing conditions. Those are both tremendous improvements. But the ACA leaves completely (essentially) unaddressed the systemic failure that result in the USA paying twice what other rich countries do for no better results. The ACA has some minor tweaks to try and reduce how costly the USA health care system is, but those are incredibly minor and don’t amount to even 5% of the change needed in that area just to get the USA to extremely costly compared to other rich countries (say lowering our expenses so we are only 50% more expensive than all the other rich countries instead of 100%).

And even just the relatively minor improvements the ACA made have, and continue to, drawn huge response from those who have successfully blocked improvement of the USA health care system for the last few decades. I don’t object at all, in fact I encourage, debate to improve how we implement improvement to the broken USA health care system. Continuing the last few decades of obstructionism however is not something I support, in fact it is something I find incredibly objectionable.

There are very challenging issues address to have a great health care system. Given how poorly we have done in the USA for decades there are some not that challenging improvements to make. We have given those supporting the current system decades to just do a poor job compared to every other rich country and they have failed. They don’t even have very stiff competition. Singapore is doing some good stuff, but people can object that they are small (Japan also does some good things, so do a few countries in Europe). Still it seems like we could learn a great deal from them. But overall rich countries don’t do very well, and yet compared to these poor performances the USA stands out as extremely poor in comparison to them (how you spend twice as much and still do no better is amazing). And that this goes on for decades and the special interests have prevent reform is incredible.

Sure investment bankers have done well turning the government into serving their interests at the expense of the country but it is hard to say they have done nearly as much as the health care system. Given that we are pretty easily spending $1 trillion a year (maybe $1.5 trillion) due to how bad our health care system is (compared to other rich countries) means we are willing to continue to support a system costing us in excess of $1 trillion a year. I don’t think investment banks are able to siphon that much out of the economy through their directing Fed, SEC and Treasury department policy.

The cost to continue to support such a costly and poorly run USA health care system is becoming an increasingly dire issue as we have the population in the USA age. Health care spending for those over 50 increases drastically. And the economic benefit people provide decreases drastically after retirement (for most people 60 to 70 years of age). We face a huge problem if we don’t at least improve for spending 100% more than other rich countries to spending say 60% more. Even that will be a huge drain on our economy but the USA has so much wealth we likely could support that much waste (likely that cost will be over $1 trillion a year, if we don’t make those modest improvement costs will likely be over $2 trillion a year). Those costs just mean we have $1 or $2 trillion less to spend on other areas (education, new cars, police, smart watches, coffee, air travel, military…). As you can imagine it takes quite a lot of reduction in those areas to get to $1 trillion, getting to $2 trillion is very hard to imagine.

Related: USA Health Expenditures Reached $2.8 trillion in 2012: $8,915 per person and 17.2% of GDP – USA Spent a Record $2.7 Trillion, $8,680 per person, 17.9% of GDP on Health Care in 2011 – USA Spent $2.2 Trillion, 16.2% of GDP, on Health Care in 2007 – USA Spent $7,960 Compared to $3,800 for Other Rich Countries on Health Care in 2009 with No Better Health Results – USA Health Care Costs reach 15.3% of GDP – the highest percentage ever (2003)

I also close out the interview with some tips I have shared on this blog over the years

I think those that find this blog worthwhile will also enjoy the interview so I hope you read the full interview.

Related: more interviews with John Hunter – Investment Options Are Much Less Comforting Than Normal These Days – How to Protect Your Financial Health

Within the market there is tons of variation those things of course are not nearly that simple, but the idea I think holds. Well if you look back at historical data the returns will include the adjustment of going from a PE of 11 to a PE of 14. Now maybe the new few decades would adjust from PE of 14 to PE of 17 but maybe not. At some point that fundamental re-adjustment will stop.

And therefore future returns would be expected to be lower than historically due to this one factor. Now maybe other factors will increase returns to compensate but if not the historical returns may well provide an overly optimistic view.

And if there is a short term bubble that lets say pushes the PR to 16 while the “fair” long term value is 14, then there will be a negative impact on the returns going forward bringing the PE from 16 to 14. That isn’t necessarily a drop (though it could be) in stock prices, it could just be very slow increases as earning growth slowly pushes PE back to 14.

Monument to the People’s Heroes with the Shanghai skyline in the background. See more photos by John Hunter

Another thing to consider is another long term macro-economic factor may also be giving long term historical returns an extra boost. The type of economic growth from the end of World War I to 1973 (just to pick a specific time, there was a big economic slowdown after OPEC drastically increased the price of oil). While that period includes the great depression and World War II, which massively distorts figures, from the end of WW I through the 1960s Europe and the USA went through an amazing amount of economic growth.

During that period the boom in communications, electricity, industrialization, air conditioning, modern farming practices (which continues booming significantly after 1973) indoor plumbing… increased the economy dramatically. We have had a subsequent period of massive boom related to computerization and software advances and health care drugs and technology. And Japan was a bit offset booming from 1950 to about 1990. And China has been booming from about 1990 to now.

While we may see similar boom, perhaps from robotics and continuing with health care technologies and perhaps India, Africa and South America could boom in massive globally macro-economicly significant ways. But it also is possible these huge macro-economic booms are not repeated. If so, it is natural that the historical stock market return would be reduced.

To a lessor extent financial engineering that was wise and useful, as apposed to just reckless gambling has boosted stock returns significantly. It is likely that won’t be repeated.

I like the idea of paying attention to long term historical data. And that has value for stock investors. But when you look at long term data you have to consider whether that data is not just providing measurements of what stock market performance can be expected to be (as say you would from testing scientific facts such as the boiling point of water). The historical stock data was true for a period of time and informs us about that period. But the next 40 years will be much different and to what extent the past data is relevant is open for debate.

Related: Global Stock Market Capitalization from 2000 to 2012 – Misuse of Statistics, Mania in Financial Markets – Are Stocks Still Overpriced? (2008) – Data Can’t Lie, But People Can Be Mislead – Investing Return Guesses While Planning for Retirement – S&P 500 Dividend Yield Tops Bond Yield: First Time Since 1958 (2008)

Of course, not every student will earn that, some will earn more and some less.

The Value of a College Degree

So a college education is a great investment for most people. This can create a problem however, when people then assume that all they need to do is go to college and they will do well no matter what. The same thing happens in other markets. Real estate has proven to be a great investment. that doesn’t mean every real estate investment is good. It doesn’t mean you can ignore the costs and risks of a particular investment. The same goes for stocks.

In education there is a sensible case to made that the more people getting degrees the more risky it is. If very qualified people get degrees and that is limited to 10% of the population it isn’t hard to imagine those people will do well. Partially if they are selected somewhat effectively based on merit and potential (lets just say that it works out to 50% of the top 20% of the population for capability and potential) they would do well even if all you did was select them for college and nothing else (they never went to college).

Now if you start getting to the people with the 50th to 60th percentile capability and potential there is a reasonable case that these people are less likely to thrive economically. So if the costs of college for them are just as high as those in the top tenth percentile it is reasonable to expect they may take longer to pay it back or fail to do so.

I believe this is more a thought experiment than something to definitively measure. I think you can classify people to some degree by merit and capability but it is a measure prone to much error. Over large population however I think it is possible.

Another point is while I can imagine the payoff for college would be lower for people below the 50th percentile of this made up merit and capability measure it may be this expectation is just wrong. Maybe those people would benefit economically just as much or maybe even more. Some data could be collected on this (and I imagine is). I imagine it is not studied too much as there would be lots of political incorrect baggage about data showing people on some measures have less potential to earn back the costs of higher education.

I question for example the benefit of many of these for-profit “education” organization that seem much less focused on education and much more focused on their profit. Frankly I am very disappointed with the lack of education focus at those schools we think of as the best of the best. These schools often seem to lose themselves in vanity ego projects, hiding intellectual advances behind pay-walls and other bad practices.

But taking all the failures of these schools into account I am much more worried about others taking advantage of students to encourage unrealistic expectations about taking on debt for students that are less capable or even interested in academic pursuits.

Still for those with reasonable capability and interest the Fed study shows the payoff of education is still strong. It is sad that the costs have risen so much (again due in large part to the actions of educational institutions focusing on playing to the leaders egos instead of focusing on education for students at a reasonable cost). But even with the poor management by education leaders making the burden on students higher taking on that burden is wise for most students.

A second post by the Fed looks at that question: College May Not Pay Off for Everyone

I made the last sentence bold.

Related: The Value of Various College Degrees –
Engineering Graduates Earned a Return on Their Investment In Education of 21% (annual rate of return) – The Global Workplace and Your Career

Update, study finds: “The marginal admission yields earnings gains of 22% between 8 and 14 years after high school completion. These gains outstrip the costs of college attendance, and they are largest for male students and free-lunch recipients.”

Also credit card providers should let me generate credit card numbers as I wish for use online (that are unique and can be stopped at any time I wish). If I get some customer hostile business that makes canceling a huge pain I should just be able to turn off that credit card “number.”

Laws should be adjusted to allow this consumer controlled spending and require that any subscription service must take the turning off of the payments as cancellation.

For some plan where the consumer agrees up front to say 12 months of payments then special timed numbers should be created where the potentially convoluted process used now remain for the first 12 months.

Also users should be able to interact with there credit reports and do things like turn on extra barriers to granting credit (things like they have to be delayed for 14 days after a text, email [to as many addresses and the consumer wants to enter] and postal notification are sent to the user. Variations on how these work is fine (for example, setting criteria for acceptance of the new credit early at the consumers option if certain conditions are met (signing into the web site and confirming information…).

Better security on the cards themselves are also needed in the USA. The costs of improvement are not just the expenses credit card and retailers face but the huge burden to consumers from abuse of the insecure system in place for more than a decade. It is well past time the USA caught up with the rest of the world for on-card security.

The providers have done a lousy job of reducing the enormous burden of fraud on consumers. As well as failing to deal adequately with customer hostile business practices (such as making canceling very cumbersome and continuing to debit the consumer’s credit card account).

Related: Protect Yourself from Credit Card Fraud – Personal Finance Tips on the Proper use of Credit Cards – Continued Credit Card Company Customer Dis-Service – Banks Hoping they Paid Politicians Enough to Protect Billions in Excessive Fees

I think sites like oDesk provide a potentially great way for people to lead productive and rewarding lives. They allow people far from rich countries to tap into the market demand in rich counties. They also allow people to have flexible work arrangements (if someone wants a part time job or to work from home that is fine).

These benefits are also true in the USA and other rich countries (even geography – there are many parts of the USA without great job markets, especially many rural areas). The biggest problem with rich country residents succeeding on something like oDesk is they need quite a bit more money than people from other countries to get by (especially in the USA with health care being so messed up). There are a great deal of very successful technology people on oDesk (and even just freelancing in other ways), but it is still a small group that is capable and lucky enough to pull in large paychecks (it isn’t only technology but that is the majority of high paying jobs I think on oDesk).

But in poor countries with still easily 2 billion and probably much more there is a huge supply of good workers. There is a demand for work to be done. oDesk does a decent job of matching these two but that process could use a great deal of improvement.

I think if I became mega rich one of the projects I would have would be to create an organization to help facilitate those interested in internet based jobs in poor countries to make a living. It takes hard work. Very good communication is one big key to success (I have repeatedly had problems with capable people just not really able to do what was expected in communications). I think a support structure to help with that and with project management would be very good. Also to help with building skills.

If I were in a different place financially (and I were good at marketing which I am not) I would think about creating a company to do this profitably. The hard part for someone in a rich country to do this is that either they have to take very little (basically do it as charity) or they have to take so much cash off the top that I think it makes it hard to build the business.

But building successful organizations that can grow and provide good jobs to those without many opportunities but who are willing to work is something I value. I did since I was a kid living in Nigeria (for a year). I didn’t see this solution then but the idea of economic well being and good jobs and a strong economy being the key driver to better lives has always been my vision.

This contrast to many that see giving cash and good to those in need as good charity. I realize sometimes that is what is needed – especially in emergencies. But the real powerful change comes from strong economy providing people the opportunity to have a great job.

I share Dr. Deming’s personal aim was to advance commerce, prosperity and peace.

Related: Commerce Takes More People Out of Poverty Than Aid – Investing in the Poorest of the Poor – I am a big fan of helping improve the economic lives of those in the world by harnessing appropriate technology and capitalism – A nonprofit in Queens taught people to write iPhone apps — and their incomes jumped from $15k to $72k

I realize some people see risk in what sites like oDesk make possible to create a market that means people can’t earn a decent living. I do actually see that risk and think it is real. I don’t think trying to block commerce because of this risk is an effective strategy. I do think many millions of people can be helped (and some will be hurt). I think we are better off trying to help those that want to work in such a way to do so.

I do worry that we may well not have decent work for people that are not interested in highly valuable skills and/or are not willing to work (just expect to be given the rich life many of those in places like the USA got to have the last 70 years without much effort). As long as we have corrupt politicians selling out the country to those giving them cash the richest 20% in the USA will have huge trust funds to live off, so they will be rich. Those that aren’t living off trust funds or inheriting huge windfalls will have risks to survive.

They are still economically super lucky to have been born in the USA so I don’t really feel very sorry for them. But yes, there are real risks to the easy riches that we have had (and even so many in the USA struggled even while we have the richest middle class the world has ever seen in the richest country the world ever saw). But it is going to be harder going forward (at least comparatively to the rest of the world contemporaneously) – compared to the struggles people had 100 years ago I am not at all sure it will be more difficult for the average kid born in 2010 than it was for the average kid born in 1910 (especially if average doesn’t mean white boy but everyone and both boys and girls).

It is important to keep in mind the data is in current USA dollars, so big swings in exchange rates can have a big impact (and can cause swings to be exacerbated when they move in tandem with stock market movements – if for example the market declines by 15% and the currency declines by 10% against the US dollar those factors combine to move the result down).

The chart shows the top four countries based on stock market capitalization, with data from 200 to 2012. The chart created by Curious Cat Investing and Economics Blog may be used with attribution. Data from the World Bank.

As with so much recent economic data China’s performance here is remarkable. China grew from 1.8% of world capitalization in 2000 to 6.9% in 2012. And Hong Kong’s data is reported separately, as it normally is with global data sets. Adding Hong Kong to China’s totals would give 3.7% in 2000 with growth to to 8.9% in 2012 (Hong Kong stayed very stable – 1.9% in 2000, 2% in 2012). China alone (without HK) is very slightly ahead of Japan.

The first chart shows the largest 4 market capitalizations (2012: USA $18.6 trillion, China and Japan at $3.7 trillion and UK at $3 trillion). Obviously the dominance of the USA in this metric is quite impressive the next 7 countries added together don’t quite reach the USA’s stock market capitalization. I also including the data showing the global stock market capitalization divided by 3 (I just divide it by three to have the chart be more usable – it lets us see the overall global fluctuations but doesn’t cram all the other data in the lower third of the chart).

Canada is the 5th country by market capitalization (shown on the next chart) with $2 trillion. From 2000 to 2012 China’s market capitalization increased by $3.1 trillion. The USA increased by $3.6 trillion from a much larger starting point. China increased by 536% while the USA was up 23.5%. The world stock market capitalization increased 65% from 2000 to 2012.

Related: Stock Market Capitalization by Country from 1990 to 2010 – Government Debt as Percent of GDP 1998-2010 – Manufacturing Output by Country 1999-2011: China, USA, Japan, Germany

USA, China, Japan and UK represented 47% of world stock market capitalization in 2000 and 55% in 2012. In the second chart I include countries with stock market capitalizations making them 5th through 12th in the rankings.

The chart shows the 5th through 12th countries based on stock market capitalization, with data from 200 to 2012. The chart created by Curious Cat Investing and Economics Blog may be used with attribution. Data from the World Bank.

This second group of countries accounted for 16% of global stock market value in 2000 and 21% in 2012. So they took 500 basis points of the 800 basis points the top 4 lost, meaning all the other countries picked up 300 basis points. India was the biggest gainer, up 753%, (though that has declined quite a bit this year) then South Korea up 590%, China was up 536%, Brazil up 444%, no other market over $1 trillion in value in 2012 was up over 250%.

As the chart shows this second grouping is pretty tightly packed together, with Canada ($2 trillion in 2012) and France ($1.8 trillion) with a bit of separation at the top. Germany had $1.5 trillion and the rest all were over $1.1 trillion.

Apple’s stock market capitalization soared over $600 billion in 2012 (Apple’s stock market capitalization today is $444 billion). Following Apple in stock market capitalization today are: Exxon is $384 billion, Google $295 billion, Berkshire Hathaway $284 billion, Microsoft $270, Industrial and Commercial Bank of China $256 billion, GE $248 billion, Walmart $247 billion, Chevron $241 billion, China Mobile $228 billion, Nestlé $222 billion.

The data is from the world bank and based on the listed domestic companies are the domestically incorporated companies listed on the country’s stock exchanges at the end of the year. I think that means that for example, Toyota stock (TM) is all counted in Japan (even though you can buy ADRs in the USA on the NYSE). And also Apple (AAPL) is all counted in the USA, even though both of those companies make a large portion of their money in other countries and produce much of there product in factories in other countries.

I would not be surprise to see a collection of the lower stock market capitalization countries increase in the next 20 years at rates higher than the largest (so countries like Brazil, South Africa, Thailand, Mexico, Malaysia, Ghana, Indonesia, Philippines…). I would be surprised if some of the smaller countries don’t do poorly but some will likely do fantastically well and over-shadow the poor performers (from a global investors perspective). I believe China will likely do very well (though being volatile).

The USA also has a chance to do very well – largely due to the international performance of many of the companies based there. I do expect to see a growing number of the top 100 market capitalization companies to be non-USA based companies over the next 20 years (mainly because the dominance the USA has there now is so large and many countries are doing smart things to drive successful businesses in their countries compared to 30 years ago). The USA did many good things, but probably more of the reason for the USA’s success if the bad policies elsewhere (as well as the post WW II position the USA was left in and the smart decision by the USA in the 1950s and 1960 to push science and engineering). Today many countries in Asia and Europe are better focused on the value of science and engineering than the leaders in the USA are. The USA is coasting on the huge science and engineering infrastructure built and nourished earlier.

Chart of manufacturing production by China, USA, Japan and Germany from 1999 to 2011. The chart was created by the Curious Cat Economics Blog using UN data. You may use the chart with attribution. All data is shown in current USD (United States Dollar).

The story of global manufacturing production continues to be China’s growth, which is the conventional wisdom. The conventional wisdom however is not correct in the belief that the USA has failed. China shot past the USA, which dropped into 2nd place, but the USA still manufactures a great deal and has continually increased output (though very slowly in the last few years).

The story is pretty much the same as I have been writing for 8 years now. The biggest difference in that story is just that China actually finally moved into 1st place in 2010 and, maybe, the slowing of the USA growth in output (if that continues, I think the USA growth will improve). I said last year, that I expected China to build on the lead it finally took, and they did so. I expect that to continue, but I also wouldn’t be surprised to see China’s momentum slow (especially a few more years out – it may not slow for 3 or 4 more years).

As before, the four leading nations for manufacturing production remain solidly ahead of all the rest. Korea and Italy had manufacturing output of $313 billion in 2011 and Brazil moved up to $308 are in 4-6 place. Those 3 countries together could be in 4th place (ahead of just Germany). Even adding Korea and Italy together the total is short of Germany by $103 in 2011). I would expect Korea and Brazil to grow manufacturing output substantially more than Italy in the next 5 years.

The country supposedly growing their manufacturing the most in the last 10 years is Russia, up 375%. Frankly I don’t believe that data accurately reflects reality. China is next, up 346%. Followed by Indonesia up 345.6%, Brazil up 280%, India up 255%, South Korea up 163% and then Germany up 95%. The figures are all in current USD, inflation alone would result in an increase of about 27% for the period. The slowest gains in manufacturing output are the UK (up just 21%), USA up 32%, Japan up 33% and France up 43%.

Chart of manufacturing production from 1999 to 2011 by the 5th through 14th largest manufacturing countries. The chart was created by the Curious Cat Economics Blog using UN data. You may use the chart with attribution. All data is shown in current USD (United States Dollar).

Of course, when looking at economic data all sorts of questions can be raised. My not believing the Russia data, for example. Also even accepting an inflation of 27% for the economy as a whole, for many manufactured goods that may not be very accurate. And using US $ for everyone creates some issues based on foreign exchange movements (so a country could actually produce 10% more in their own currency but if that currency fell 20% against the $ then they would show a 10% decline in manufacturing output). The data has weaknesses that have to be understood. Even so the data is useful and provides a very good long term picture of what is really going on economically.

I actually believe the USA’s 10 year figure is a discrepancy, but we will see how things shape up in the next 5 to 10 years. The USA had some very bad years from 2006 to 2009.

I expect in the next 10 years Indonesia and Brazil will do quite well and have a great shot at being among the tops in this group of the 14 leading manufacturing countries. China will likely do well, but I think growth will slow and it may well fall back from the lead (though likely remain somewhat near the top). India could do well, but their continued failure to address infrastructure and corruption problems make it very challenging. If they successfully addressed those they could easily be in the lead. I doubt they will though, so I expect them to be held back. Mexico has a chance to do very well, though they also have problems to deal with.

A bunch of the leading countries will struggle to grow significantly. The USA, Japan, Germany, Italy, Russia, France, UK, Spain and Canada are not likely to do fantastically. I would expect the USA to be near the top of this group. That leaves Korea as a country I think can outperform all in the previous sentence but to have trouble keeping up with any of the countries in the previous paragraph that don’t create problems for themselves.

Related: Manufacturing Output as Percent of GDP from 1980 to 2010 by Country – Manufacturing Employment Data: USA, Japan, Germany, UK and more, 1990 to 2009 – Top 15 Manufacturing Countries in 2009 – How Accurate is Manufacturing Data? – Top 12 Manufacturing Countries in 2007

You can find yourself with pile of money without saving; if you win the lottery or inherit a few million from your rich relative via some tax dodge scheme like generation skipping trusts or charitable remainder trusts.

But the rest of us just have to do a pretty simple thing: save money. Then, keep saving money and invest that money sensibly. The key is saving money. The next key is not taking foolish risks. Getting fantastic returns is exciting but is not likely and the focus should be on lowering risk until you have enough savings to take risks with a portion of the portfolio.

My favorite tips along these lines are:

• spend less than you make
• save some of every raise you get
• save 10-15% of income for retirement
• add to any retirement account with employer matching (where say they add $500 for every $1,000 you put into your 401(k)

Spending less than you make and building up your long term savings puts you in the strongest personal finance position. These things matter much more than making a huge salary or getting fantastic investing returns some year. Avoiding risky investments is wise, and sure making great returns helps a great deal, but really just saving and investing in a boring manner puts you in great shape in the long run. Many of those making huge salaries are in atrocious personal financial shape.

Another way you can boost savings is to do so when you pay off a monthly bill. So when I paid off my car loan I just kept saving the old payment. Then I was able to buy my new car with the cash I saved in advance when I was ready for a new car.

Many people seem to fret about how to get great returns or figuring out exactly what they need to save when they should be fretting about saving money. Yes exactly how much you need to save for retirement is hard to judge. Start saving 10-15% and when you are 45, having saved for 20 years, you can get an idea of what adjustments to make. If you don’t want to save 10-15% of your income for retirement at age 25, fine save what you can and just increase that amount with each raise you get.

Jim Blankenship’s post, Let’s Increase America’s Savings Rate in November!, asks for recomendations for increasing the saving rate by 100 basis points (for example, increasing your savings from 8% of your income to 9%). Saving some of your next raise is my favorite practice to succeed in this area.

Related: Smart practices to protect you personal financial well being – Saving for Retirement Has to be a Priority – Don’t Expect to Spend Over 4% of Your Retirement Investment Assets Annually – Easy budgeting