Apple gained an amazing $284 billion in market cap since my February 2016 post. Only 12 companies (including Apple) are worth more than $284 billion. Amazon soared $204 billion (a 78% increase). Alphabet (Google) gained $156 billion in market cap.

Samsung soared $163 billion (a 107% gain) and Tencent soared $144 billion (a 85% gain) to move from outside the top 20 to become the 9th and 10th most valuable companies and the most valuable based outside the USA.

Facebook gained $126 billion and Microsoft gained $117 billion. GE lost $60 billion to drop out of the top ten. Wells Fargo also dropped out of the top 10.

The next ten most valuable companies:

Market capitalization shown are of the close of business May 12th, as shown on Google Finance.

In the 20 most valuable companies list there are 13 USA companies, 4 Chinese companies, 2 Swiss companies and 1 Korean company.

Alibaba (China) soared $131 billion (78%) and climbed to the 11th spot (from outside the top 20 last time). Bank of America soared $105 billion (up 79%).

Verizon was one of 2 companies in the top 20 to lose value in the period, Verizon declined $23 billion (over 10%) and dropped out of the top 20.

The total value of the top 20 gained $1.3 trillion since my February, 2016 post: growing from $5.9 trillion to $7.2 trillion. Remember, the companies making up the top 20 has changed.

Related: Global Stock Market Capitalization from 2000 to 2012 – Stock Market Capitalization by Country from 1990 to 2010 – Historical Stock Returns

A few other companies of interest (based on their market capitalization):

China Construction Bank, China, $225 billion*
Procter & Gamble, USA, $220 billion
Visa, USA, $215 billion.
Novartis, Switzerland, $209 billion.
Royal Dutch Shell, Netherlands, $205 billion.
Anheuser Busch, Belgium, $203 billion.
Chevron, USA, $200 billion.
Pfizer, USA, $196 billion.
Petro China, China, $194 billion.
Verizon, USA, $186 billion.
Coca-Cola, USA, $186 billion.
Oracle, USA, $185 billion.
Bank of China, China, $177 billion*
Toyota, Japan, $173 billion.
Walt Disney, USA, $172 billion.
Merck, USA, $172 billion.
Citigroup, USA, $169 billion.
Agricultural Bank of China, China, $164 billion*
PepsiCo, USA, $161 billion.
Sanofi, France, $129 billion.
China Life Insurance Company, China, $109 billion.

NTT, Japan, $94 billion.
Gilead Sciences, USA, $85 billion.
Novo Nordisk, Denmark, $80 billion.

Market capitalization figures were taken from Google finance. ADRs were chosen, if available (so I get the cap reported in USD).
* market cap taken from Google finance based on the Hong Kong exchange (no ADRs option was available) and converted to USD.
** market cap taken from Google finance based on the Korean exchange and converted to USD.

That shows how quickly things changed. The industrialization of Europe and the USA was an incredibly powerful global economic force. The rapid economic gains of Japan, Korea, Singapore, China and India in the last 50 years should be understood in the context of the last 200 years not just the last 100 years.

A central point Richard advocates for in the book is realizing that the current conditions are different from the conditions in which traditional economic theory (including comparative advantage) hold. The reasoning and argument for this claim are a bit too complex to make sensibly in this post but the book does that fairly well (not convincingly in my opinion, but enough to make the argument that we can’t assume traditional economic theory for international trade is completely valid given the current conditions).

I don’t expect this blog post to convince people. I don’t even think his book will. But he makes a case that is worth listen to. And I believe he is onto something. I have for years been seeing the strains of “comparative advantage” in our current world economy. That doesn’t mean I am not mainly a fan of freer trade. I am. I don’t think complex trade deals such as TPP are the right move. And I do think more care needs to be taken to consider current economic conditions and factor that into our trade policies.

Richard Baldwin uses 3 costs and the economic consequences of those changing over time to show globalizations history, where we are today and where we are going.

It isn’t very easy to follow but the book provides lots of explanation for the dramatic consequences of these costs changing over time.

One of his themes is that mobility of labor is still fairly costly. It isn’t easy to move people from one place to another. Though he does discuss how alternatives that are similar to this (for example telepresence and remote controlled robots to allow a highly technical person to operate remotely) without actually do moving the person are going to have huge economic consequences.

The “high spillovers” are the positive externalities that spin off of a highly knowledgable workforce.

In my opinion, it is likely politics is going to be the biggest factor going forward. This is going to provide huge benefits to countries that have relatively well managed governments (being led everywhere by politicians) such as Singapore, Norway and New Zealand big advantages. The practices in the USA of blowhards subverting government and rational policy is going to be very costly. The enormous wealth the USA has is a huge benefit that allows it to prosper even while managing itself poorly. At some level of bad policy and practice it will overcome the huge wealth advantage the USA has. At what point that happens, it is hard to predict.

I agree that protectionism is a very bad idea. I wonder if he is as confident our politicians (that we foolishly elected) will avoid plunging us into such bad policies today as when he wrote this in 2016?

The complexity of the economic consequences of international trade require knowledge, skill, patience and practical thinking to create economic gains going forward. I am worried about the foolish leaders we are electing in many of the rich countries recently. They do not appear to understand complexity or value the importance of expertise, uncertainty and implementation of economic policy. The complexity today requires more understanding, study, learning and care than was required last century but instead we are electing people with less wisdom than ever (and we were not electing incredibly wise people very often in the past).

Related: Economic Measurement Issues Arising from Globalization – How to Balance the Benefits of Foreign Workers and the Potential Damage to Citizen’s Job Prospects (2013) – The USA Doesn’t Understand that the 1950s and 1960s are Not a Reasonable Basis for Setting Expectations – The Future is Engineering (2006) – Historical Stock Returns – We Need to be More Capitalist and Less Cronyist

However, we humans often compare ourselves to whoever is better off than us and feel jealous. So instead of appreciating good roads, food, shelter, health care, etc. we see where things could be better (either our parents had it a bit better or these people I see on TV or in this other country, etc.). It is good to see how we could improve if we then take action to improve. To just be frustrated that others have it better doesn’t do any good, it doesn’t seem to me.

There are significant ways governments can help or hinder the economic well being of their citizens. I am a big believer in the power of capitalism to provide wealth to society. That isn’t the same as supporting the huge push to “crony capitalism” that many of the political parties throughout the world are promoting. The “capitalism” in that phrase exists for alliteration, the real meaning is the word crony.

street scene in Seoul, South Korea (photo by John Hunter)

These Are the World’s Most Innovative Economies

These type of rankings are far from accurate, what does most innovative really mean? But they do provide some insight and I think those at the top of the list do have practices worth examining. And I do believe those near the top of this list are doing a better job of providing for the economic future of their citizens than other countries. But the reality is much messier than a ranking illustrates.

With that in mind the ranking shows

1. Korea
2. Sweden
3. Germany
4. Switzerland
5. Finland
6. Singapore
7. Japan
8. Denmark
9. USA

One thing that is obvious is the ranking is very biased toward already rich countries. When you look at the measures they use to rank it is easy to see this is a strong bias with their method.

China is 21st. Malaysia is 23rd and an interesting country doing very well compared to median income (I am just guessing without actually plotting data). Hong Kong is 35th, which is lower than I imagine most people would have predicted. Thailand is 44th. Brazil is 46th and even with their problems seems low. Brazil has a great deal of potential if they can take care of serious problems that their economy faces.

In a previous post I examined the GDP Growth Per Capita for Selected Countries from 1970 to 2010, Korea is the country that grew the most (not China, Japan, Singapore…).

Related: Leading Countries for Economic Freedom: Hong Kong, Singapore, New Zealand, Switzerland – Economic Consequences Flow from Failing to Follow Real Capitalist Model and Living Beyond Our Means – Easiest Countries in Which to Operate a Businesses (2011)

The data, from IMF, does not include China or India.

The chart shows data for net debt (gross debt reduced by certain assets: gold, currency deposits, debt securities etc.).

Viewing our post on the data in 2014 we can see that the USA improved on the expectations, managing to hold net debt to 80% instead of increasing to 88% as expected. Nearly every country managed to take on less debt than predicted (Vietnam took on more, but is very low so this is not a problem).

Taking on debt to invest in valuable resources (building roads, mass transit, internet infrastructure, education, environmental regulation and enforcement, health care, renewable energy…) that will boost long term economic performance can be very useful. The tricky part is knowing the debt levels doesn’t tell you whether the debt was taken on for investment or just to let current taxpayers send the bills for their consumption to their grandchildren.

Also government debt can become a huge burden on the economy (especially if the debt is owed outside the country). The general consensus today seems to be that 100% net debt level is the maximum safe amount and increasing beyond that gets riskier and riskier.

And it isn’t at all that this is a universal truth. Economically weaker countries have greater risks. And to me, if they go above 75% that starts to get very risky. The USA and Japan have extra latitude that others would be wise to realize. Taking on the same level of debt would be very troublesome for most countries. Japan has a huge percentage of their debt held internally which makes a huge difference (it is much safer).

Taking on government debt (at acceptable interest rates) and investing in economically productive projects is wise. There is a huge risk of taking on the debt given that reasonable business case but then spending in foolishly which creates big economic problems in the long run. If the investment don’t pay off the grandchildren of those taking out the debt will be stuck paying it back. But if the investments are wise the grandchildren will inherit a strong economy and benefit from the wise use of debt that was invested well.

I don’t think it takes much imagination to worry about all the ways taking on debt could result in bad long term results. I do believe in the value of wise government spending. I also do worry about politicians just rewarding those that pay give cash to them (their “campaign funds,” show a history of paying former politicians as lobbyists etc. when they leave…) instead of fulfilling their obligation to the country.

Related: Government Debt as Percent of GDP 1998-2010 for OECD – Gross Government Debt as Percentage of GDP 1990-2009: USA, Japan, Germany, China

Chart by Curious Cat Economics Blog using data from the International Energy Agency (IEA) and the US Department of Energy. Chart may be used with attribution as specified here.

The 2014 and 2015 data on this chart is from IAE report for total installed photovoltaic (PV) solar capacity. See previous post on chart of Solar Energy Capacity by Country from 2009 to 2013. Different data sources for different year (and/or countries in the same year) is not ideal but for the purposes of this data in this post is sufficient.

Installed PV capacity is even more questionable that much other economic data. Economic data are always approximations of reality but with PV you have additional questions. The same plant located outside London or Rome have different capability to produce (and there are many factors that contribute not just the most obvious such as how much sun shines in a particular geography). Installed PV data is based on the capability of the equipment regardless of the solar potential of the location.

So even with the same investment it is likely Italy gets more production than Germany. The IAE report attempted to determine what was the likely ability of the solar PV capacity to produce for each country as a percentage of total electricity needs. They estimate Italy has the largest percentage of electricity needs capable of being produced by installed PV systems at 8%, with Greece at 7.4% and Germany at 7.1%. Japan is ranked 5th at just under 4%, UK is 12th at 2.5%, China is 22nd at 1%, India 24th and the USA 25th at close to .9%. They estimate the total global percentage at 1.3%.

These figures also show the huge power needs of China and the USA. Even with huge investments in Solar they us so much electricity that it is slow to make large gains in the percentage of total power generated by solar.

In the USA in 2013 solar energy capacity was under 1% USA total electrical capacity. In 2013 hydropower was 6.8%, wind was 5.3% and biomass was 1.3%. The increase in solar capacity should continue to grow rapidly and is making significant contributions to the macroeconomic energy picture (even if it doesn’t appear dramatic).

Related: Chart of Global Wind Energy Capacity by Country from 2005 to 2015 – Leasing or Purchasing a Solar Energy System For Your House – Nuclear Power Generation by Country from 1985-2010 – Manufacturing Output by Country 1999-2011: China, USA, Japan, Germany

U.S. Health-Care System Ranks as One of the Least-Efficient

None of these rankings are perfect and neither is this one. But it is clear beyond any doubt that the USA healthcare system is extremely costly for no better health results than other rich countries (and even more expensive with again no better results than most poor countries). It is a huge drain on the economy that we continue to allow lobbyists and special interests to take advantage of the rest of us via the Democrats and Republican parties actions over the last few decades.

We have to improve. The costs imposed on everyone to support those benefiting from this decades old transfer of economic wealth to health care special interests should no longer be accepted.

The top 5 countries are: Hong Kong, Singapore, Spain, South Korea and Japan. The first four have costs about 25% of the USA. Japan costs about 40% of the USA per person cost.

Mylan’s despicable actions with Epi-pen and the direct participation of both political parties in increasing the costs foisted on the health care system by Mylan is just one in hundreds of the individual actions that continue to saddle the rest of USA economy with huge costs.

Related: Out of Pocket “Maximum”, Understanding USA Health Care Costs – Decades Later The USA Health Care System is Still a Deadly Disease for Our Economy – 2015 Health Care Price Report, Costs in the USA and Elsewhere – USA Health Care Spending 2013: $2.9 trillion $9,255 per person and 17.4% of GDP – USA Spends $7,960 Compared to Around $3,800 for Other Rich Countries on Health Care with No Better Health Results (2009 data)

In 1965 foreign ownership of USA stocks totaled about 2%, in 1990 it had risen to 10% and by 2015 to 26%. That the foreign ownership is so high surprised me. Holdings in retirement accounts (defined benefit accounts, IRAs etc.) was under 10% in 1965, rose to over 30% in 1990 and to about 40% in 2015. The holdings in retirement accounts doesn’t really surprise me.

The combination of these factors (and a few others) has decreased the holding of USA stocks that are taxable in the USA from 84% in 1965 to 24% in 2015. From the report

As with much economic data it isn’t an easy matter to determine what values to use in order to get figures such as “foreign ownership.” Still this is very interesting data, and as the report suggests further research in this area would be useful.

Related: There is No Such Thing as “True Unemployment Rate” – The 20 Most Valuable Companies in the World – February 2016 (top 10 all based in the USA) – Why China’s Economic Data is Questionable – Data provides an imperfect proxy for reality (we often forget the proxy nature of data)

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)

Interesting chart based on Federal Reserve data (via the Wall Street Journal)

While the costs of higher education in the USA have become crazy the evidence still suggests education is highly correlated to income. Numerous studies still show that the investment in education pays a high return. Of course, simple correlation isn’t sufficient to make that judgement but in other studies they have attempted to use more accurate measures of the value of education to life long earnings.

Related: The Time to Payback the Investment in a College Education in the USA Today is Nearly as Low as Ever, Surprisingly – Looking at the Value of Different College Degrees – Engineering Graduates Earned a Return on Their Investment In Education of 21%

The blog post with the chart, Why Wealth Inequality Is Way More Complicated Than Just Rich and Poor has other very interesting data. Go read the full post.

Average isn’t a very good measure for economic wealth data, is is skewed horribly by the extremely wealthy, median isn’t a perfect measure but it is much better. The post includes a chart of average wealth by age which is interesting though I think the $ amounts are largely worthless (due to average being so pointless). The interesting point is there is a pretty straight line climb to a maximum at 62 and then a decline that is about as rapid as the climb in wealth.

That decline is slow for a bit, dropping, but slowly until about 70 when it drops fairly quickly. It isn’t an amazing result but still interesting. It would be nice to see this with median levels and then averaged over a 20 year period. The chart they show tells the results for some point in time (it isn’t indicated) but doesn’t give you an idea if this is a consistent result over time or something special about the measurement at the time.

They also do have a chart showing absolute wealth data as median and average to show how distorted an average is. For example, median wealth for whites 55-64 and above 65 is about $280,000 and the average for both is about $1,000,000.

Related: Highest Paying Fields at Mid Career in USA: Engineering, Science and Math – Wealthiest 1% Continue Dramatic Gains Compared to Everyone Else – Correlation is Not Causation: “Fat is Catching” Theory Exposed

The incredible policies that have created such loose credit has the world so flooded with money searching for somewhere to go that 0% is seen as attractive. This excess cash is dangerous. It is a condition that makes bubbles inflate.

Low interest rates are good for businesses seeking capital to invest. These super low rates for so long are almost certainly creating much more debt for no good purpose. And likely even very bad purposes since cash is so cheap.

One thing I didn’t realize until last month was that while the USA Federal Reserve stopped pouring additional capital into the markets by buying billions of dollars in government every month they are not taking the interest and maturing securities and reducing the massive balance sheet they have. They are actually reinvesting the interest (so in fact increasing the debt load they carry) and buying more debt anytime debt instruments they hold come due.

The Fed should stop buying even more debt than they already hold. They should not reinvest income they receive. They should reduce their balance sheet by at least $1,500,000,000,000 before they consider buying new debt.

Unless the failure to address too-big-to-fail actions (and systems that allow such action) results in another great depression threat. And if that happens again they should not take action until people responsible are sitting in jail without the possibly of bail. The last bailout just resulted in transferring billions of dollars from retires and other savers to the pockets of those creating the crisis. Doing that again when we knew that was fairly likely without changing the practices of the too-big-to-fail banks. But I would guess we will just bail them out while they sit in one of the many castles their actions at the too-big-to-fail banks bought them and big showered with more cash in the bailout from the next crisis.

How to invest in these difficult times is not an easy question to answer. I would put more money in stocks for yield (real estate investment trusts, drug companies, dividend aristocrats), I would also keep cash even if it yields 0% and actually a new category for me – peer to peer lending (which I will write about soon). Recently many dividend stocks have been sold off quite a bit (and then on top of that drug stocks sold off) so they are a much better buy today than 4 months ago. Still nothing is easy in what I see as a market with much more risk than normal.

I am almost never a fan of long term debt. I would avoid it nearly completely today (if not completely). For people that are retired and living off their dividends and interest I may have some long term debt but I would have much more in cash and short term assets (even with the very low yields). Peer to peer lending has risks but given what the fed has done to savers I would take that risk to get the larger yields. The main risk I worry about is the underwriting risk – the economic risks are fairly well known, but it is very hard to tell if the lender starts doing a poor job of underwriting.

Related: The Fed Should Raise the Fed Funds Rate – Too-Big-to-Fail Bank Created Great Recession Cost Average USA Households $50,000 to $120,000 – Buffett Calls on Bank CEOs and Boards to be Held Responsible – Historical Stock Returns