Tag Archives: american exceptionalism

American Exceptionalism: America vs. Britain

It becomes immediately apparent to any American who has the misfortune of visiting Britain how much worse of a country it is. Compared to America, everything is miniaturized and more expensive. The same probably applies to much of Europe, as well as Australia, Canada, and New Zealand, but for this post I’m primarily going to focus on Britain. For the British, this is a permanent reality, and the data affirms that Britain, according to a wide variety of metrics, is a worse country than America – and not the ‘utopia’ that the American left makes it out to be.

First, Britain is significantly poorer than America, as measured in ppp-dollars (purchasing power parity), meaning a reduced standard of living:

Despite the outward opulence of the Royal Family and Buckingham Palace, Britain is even poorer than Mississippi, the poorest of all fifty states:

Fraser has used the average PPP for the US. But as we can see there’s different PPP adjustments for different States. If $100 will buy you $115 worth of goods in Mississippi this is the same statement as the correct PPP adjustment for Mississippi incomes, or in this case GDP, is 100:115. Or, if you prefer, Mississippi’s properly PPP adjusted GDP per capita is $40,400 or so: well above the UK’s $36,200.

The median household income for Mississippi, surveyed between 2010-2014, is $39,680. For the UK, a 2013/14 HBAI report gave median household income (2 adults) as £23,556. Converted into US dollars, that’s still only $30,500.

Compared to Americans, Brits pay much more for common household electronics:

Although the home ownership rate in Britain is slightly higher than in America, the homes are much smaller:

Electricity is more expensive: In the UK, it costs 22 cents per kilowatt hour; America is just 13 cents:

The CPI (consumer price + rent index) index for the USA is 66, vs. 78 for Britain:

The Nordic countries have among the highest costs of living…The same liberals who whine about wages in America not being high enough, yet sing the prasies of Switzerland and Norway, fail to realize that wages relative to living expenses for the Nordic countries is far worse than America. This means a lower standard of living because your purchasing power is so poor.

Overall, there is more crime in Britain than in America:

This maybe attributable to shorter sentences and a lower incarceration rate. The average burglary sentence in the United States is 16 months, compared to 5 months in Canada and 7 months in England. America also has its three-strikes laws.

Significantly worse stock market performance (FTSE 100 vs. S&P 500):

And Germany has those awful toilets.

In Britain (and much of Europe and the Middle East) the plumbing is weak, prone to failure, and the toilets have a narrow and shallow bowl (instead of a much larger volume of water like toilets in America), often resulting in shit frequently sticking the sides of the bowl. American toilets, especially modern ones you find in office buildings and major chains, have voluminous bowls and powerful jets, and thus nothing stays behind after flushing.

..as well as much worse survival rates for all major cancers:

America tops the list, wit the highest survival rates of all cancers.

American Exceptionalism

This post succinctly summarizes why the US stock market ha done so well compared to the rest of the world:

If the world is circling the drain, America is furthest from the drain, on the most outer ripple. Wherever the market falls more than a couple percent, the huge funds step in and keep buying the dips, as developed economies are awash with liquidity and US stock market and treasuries are still the best game in town in a world of uncertainty. The S&P 500 has gained 5% since Brexit:

Public and private pension funds and insurance companies are among the biggest holders of stocks and treasury bonds. That’s a huge part of the economy that is helping keep interest rates low and stock prices high.

Those who heeded the doom an gloom headlines about Brexit and sold their stocks at the bottom (the worst possible time), would have missed out on this huge rally.

A winning investment strategy since 2009 has been to short all markets excluding US, while going long the S&P 500 or the Nasdaq 100:

As shown above, foreign markets have markedly lagged the S&P 500 since 2011. The S&p 500 (blue) is up 85% since 2012 (and this does not include the generous 2% annual dividends). China (pink) is flat. Brazil (green) is down 48%. Turkey (purple) is down 19%.

This agrees with a thesis of this blog, which is that America is still exceptional (or at least compared to the rest of the world).

As I explain in Slow Economic Growth Not a Big Deal, America is leading the world in terms of intellectual output and inflation-adjusted GDP growth. There is a lot of evidence that not only is America not in decline, it’s running laps around the rest of the world.

America still best place to invest. Emerging markets, Europe, and Japan have too many problems, either too much volatility, slow growth, high inflation, corruption, or too much regulation, which hurts capitalism. Emerging markets are dependent on capital inflows in order to keep growing, resulting in lots of debt at very high yields. America also has a lot of debt. but the key distinction is that it can name its own price, resulting in very low yields on its debt. Foreign countries also suffer from cognitive outflow: all their best and bright (understandably) moving to America, which has much more opportunity for the best and the brightest from all over the world. Rich foreigners and their smart kids are coming to America, buying up real estate in the most expensive of locations, attending America’s most prestigious schools, and then working at some of the most lucrative, fastest-growing companies like Snapchat, Facebook, Palantir, Airbnb, Pinterest, and Google, and making millions in the process (from the real estate, stock options, and high wages). Only in America is that possible, not in Denmark, Japan, or Brazil.

America occupies 63 spots of the top 200 institutions of higher education in the world, followed by UK with only 34:

America also has 6 of the top 10 academic institutions:

Unfortunately, for better or worse, a lot of Americans also being left out, sitting on the sidelines as others make tons of money. Although wealth inequality has always existed, perhaps to add insult to injury, it seems like policy makers care more about appeasing both extremes (either the really poor immigrants or the cognitive and financial elite) than average Americans, who are pushed to periphery in terms of policy. This could explain the appeal of Trump, as part of a growing backlash against policy makers who seem too deferential to either extremes of the wealth spectrum and ignoring ‘average people’ in the middle.

Mason, in his post 10 THINGS MOST AMERICANS DON’T KNOW ABOUT AMERICA sums this up pretty well:

If you’re extremely talented or intelligent, the US is probably the best place in the world to live. The system is stacked heavily to allow people of talent and advantage to rise to the top quickly.

The problem with the US is that everyone thinks they are of talent and advantage. As John Steinbeck famously said, the problem with poor Americans is that “they don’t believe they’re poor, but rather temporarily embarrassed millionaires.” It’s this culture of self-delusion that allows America to continue to innovate and churn out new industry more than anyone else in the world. But this shared delusion also unfortunately keeps perpetuating large social inequalities and the quality of life for the average citizen lower than most other developed countries. It’s the price we pay to maintain our growth and economic dominance.

America may bee the land of opportunity for the best and brightest, but for far too many such exceptionalism is out of reach. One of the best, easiest ways for average Americans to take advantage of America’s economic dominance is to buy and hold the S&P 500.

Slow Economic Growth Not a Big Deal

From the NY Times: We’re in a Low-Growth World. How Did We Get Here?

It seems like since 2009 there have been a plethora of articles bemoaning the ‘slow growth’ of the US economy.

Or the usual headlines about the IMF revising its global growth forecast from 2.5 percent to 2.4887% …yaawn it’s all noise. Or hw how ‘slow growth’ is a ‘crisis’ and that, in the worlds of Krugman, we must ‘end this recession now’.

People have been saying this since 2009, yet the S&P 500 is up 250% since then.

We need to put things in perspective.

The reality is:

The US has greater inflation-adjusted GDP growth than most of the world, including much of Europe, the Middle East, and South America, and Japan

Countries like Russia, Brazil, and Turkey have higher nominal GDP growth, but also a lot of inflation:

It’s like selling a book for $20 but inserting a $20 bill inside. Yeah, you’ll get a lot of sales, but it’s costing you more money than you make. That’s the bad situation facing many of these emerging countries right now…they are borrowing a lot of money at very unfavorable rates to keep growth high, whereas America can borrow at very little and still have solid growth.

Profits & earnings for tech companies, payment processing, retail, and consumer staples companies have far-outpaced GDP growth. A lot of the lag comes from the chronically weak financial, commodity, and energy sector.

Google, Amazon, and Facebook reported blowout quarters for like the 50th time in a row. Companies like Nike, Lowes, Costco, Disney, Johnson and Johnson, Starbucks, and Home Depot reporting double-digit profits & earnings growth.

It’s much harder to grow a large economy than a smaller one. There’re diminishing returns to scale. It’s harder to grow an economy at the same rate it was growing when it was 10x smaller.

Like finding a dollar on the ground if you already have $1 in your pocket. Your ‘net worth’ doubles, but it’s only $2 total. Repeating this dozens of times will be much harder.

2% real GDP growth, while slow, is still growth. Most people cannot perceive the difference between 2% growth and 7% growth. No one wakes up in the morning and says ‘I can’t go to work today because the economy is only growing at 2.5% instead of 3%’.

Real GDP is back to 2003 levels, and far fewer people were complaining about slow growth back then:

Slow growth doesn’t preclude discovery and innovation, things like web 2.0, smart phones, apps, theoretical physics, mathematics, Uber, self-driving Tesla cars, Amazon drones, and on-demand entertainment. Airbnb recently raised $850 million at $30 billion valuation. Right now there is is a bunch of research going on regarding ‘moonshine modules’ as a way of applying abstract algebra and elliptic curves to string theory. All this amazing stuff going on despite ‘slow growth’.

So while more growth may desirable, ‘slow growth’ isn’t too much to lose sleep over.

There is evidence slow growth may be optimal, over the long run, by preventing the fed from raising rates. When there is too much growth, inflation goes up and the fed responds by raising rates, which sometimes causes a recession and a bear market like in 2001.

A lot of people have mentioned the UBI as a way of boosting economic growth, but it’s worth reminding that the effective income tax for the lowest 20-40% of earners is negative. The problem is America is becoming a nation of handout-seekers.

Another retort is that central bankers are buying back stocks, and hence why the S&P 500 is up so much. This is also false. The fed does not buy stocks, although companies occasionally buyback their stock. Profits and earnings expansion is the main reason why the market has done so well:

Large companies are printing cash quarter after quarter, buying back stock and issuing large dividends.

Explaining America’s Economic and Social Stability

Fred Reed ponders the ‘endgame ‘ for America.

Things do not look good. The country is disintegrating. The borders are open, against the will of much of the population. Our universities are in sharp decline, the students a rebellious unschooled rabble portending a peasant future. The economy gutters and standards of living fall. Jobs are few and becoming fewer. Racial animosity is high and rising, with blacks out of control and looting at will.

It is hard to see how this can continue without Something Happening. Yet no sign exists that the tide will abate—that standards and discipline will be reimiposed in academe, that grade schools will cease being indoctrination camps, that immigration will be stopped, that blacks will become calm and content, that some new form of economic order will halt the slide into semi-impoverishment.

He mentions moral decay, economic malaise, and civil unrest as reasons for some sort of cataclysmic change.

I tend to resist doom and gloom predictions about the United States because the economic data doesn’t support it and such predictions have a long track record of being wrong. The ‘something happening’ will likely only be a continuation of the the way things are, but more so. The best prediction of tomorrow or next week is today or last week.

The universities, despite the media attention they get, are only a small part of the US economy, which is mostly consumer and intellectual-property driven. If people keep buying stuff, exporters keep exporting, and high-IQ people keep innovating and creating companies, the economy will likely keep chugging along in spite of the moral decay, as I’ve written about here. Or at least that’s the way it’s been for the past 200 or so years of American history. In the 60′s you had the Vietnam protests and Nixon’s ‘silent majority’ against social changes, yet the economy and stock market not only preserved, it boomed. Racial strife goes back to the inception of the United States – it’s nothing new and it’s not going to improve. That’s not to say I condone this social change, but it’s not going to influence my economic or investing outlooks.

As others have mentioned, the labor market will continue to change, with more ‘gig’ jobs and fewer salaried ones. Technology will make certain things cheaper (food, clothes, electronics), but some services may still remain expensive (college, healthcare, rent, insurance, daycare, phone bill).

Somewhat counter-intuitively, America’s diversity and geographic size may be behind its long-term resiliency, as other countries have suffered from upheaval, civil war, and revolution. It’s this apparent ‘disorder’ and heterogeneity that engenders stability whereas homogeneity may give rise to either nationalism or mutiny. Similar to how prisons try to separate groups to prevent communication and hence upheaval, this system works on a greater scale in America, but automatically. Revolution is more likely when everyone has the same language, same shared interests and is crowded, than if everyone is different and spaced far apart. Geographically, America is a huge country with stark cultural differences between various regions that are spaced thousands of miles apart. Manhattanites and Deep-Southerners for example diametric opposites.

The success of capitalism, markets, and trade is also a major reason for America’s stability, providing enough for everyone of all socioeconomic levels, whereas countries that fail to provide these bare minimums tend to fall under disarray. Also, the reserve currency status of the US dollar allows cheap borrowing to fund social programs to help the underclass, paid for by bond holders.

Related: The Second ‘Great Experiment

America the Intellectual Capital of the World, or Why Smart People Deserve More

With the Nobel Prize nominations in the news, the alleged ‘dumbing down’ of America is mostly anecdotal, like an old wives’ tale regurgitated by liberal pundits until many hold it to be truth. For example, America leads the world in Nobel Prize laureates, and this is most evident in the high-IQ science categories:

The United States has won more Nobel prizes for physics, chemistry, physiology or medicine, and economics since World War II than any other country, by a wide margin

And from Arxiv last week, a high-IQ repository of research: BULK LOCALITY FROM ENTANGLEMENT IN GAUGE/GRAVITY DUALITY. The location? Chicago. Not China or Europe, but America. Thousands of physics and math papers are produced every year at leading American research institutions like Caltech, MIT, Harvard, Stanford, and so on. It’s not surprising America has the highest per-capita research output of any country:

And America has the 3rd highest research and development (R&D) spending per capita in the world, bested only by Korea and Israel.

Per-capita, the US continues to lead the pack in patent applications:

Why do so many high-IQ foreigners want to come here? Because America, through its generous STEM grants & loans, institutions, as well as free market, rewards intellect more so than any other country. If you’re a promising physicist, mathematician or computer scientist, going to America offers the best shot at recognition and riches.

Yeah, there is a lot of useless leftist propaganda taught at universities, but there is also a lot of good theoretical and applied research in the sciences, many of which will have practical commercial applications in the future. Some people say you can learn everything online, and maybe this is true for certain STEM fields like pure math, but some fields like physics, engineering, and computer science require labs and other capital-inventive equipment that necessitates a research facility.

I can understand why some people get mad that STEM academics make a lot (if $60-120k is ‘a lot’) of money, especially taxpayer money, but here is the ‘unfair’ reality of how the modern world works: governments, corporations, and colleges like to give smart people free stuff. Why? Because those are the people who create the most economic value, so investing in them is a good idea. Maybe it’s not fair, but little in life is. They are the people who create innovation and jobs, which in turn grows the economy. In addition, smart people also make more money, which means more money for Uncle Sam. Here’s that Pareto Principle again: the top 20% of earners pay 84% of income tax, and the lowest 20% of income earners have a negative effective tax rate:

And smart people earn more money:

High-IQ immigrants create companies, which means more jobs, tax revenue, and consumer spending. High-IQ researchers create technologies – stuff like computers, airplanes, phones, appliances, and medical devices – that indirectly create billions of dollars of economic value:

Or to quote professor George Reisman, “…highly productive and provident one percent that provides the standard of living of a largely ignorant and ungrateful ninety-nine percent…The wealth of the 1 percent is the overwhelming source of the supply of goods that people buy and of the demand for labor that people sell…The wealth of the rich is not to be found in a huge pile of goods from which only capitalists benefit, but in the means of production that benefit us all.”

This is not an argument for open borders, but the economy benefits by opening the door to high-IQ people from all walks of life, and then offering economic incentives for smart people to innovate and create.

Or, to put it Keynesian terms, investing in smart people has a higher multiplier than investing in low/average-IQ people.

Related: No Love For The High-IQ Basic Income

Economics Myths, Part 2: America Is In Decline/The Dollar Is Weak

This is part two of the ongoing economics myths series. A common refrain among the media these days is that ‘America is in decline’ or that the ‘dollar is going to become obsolete’. The Economist has jumped onto the dollar-is-doomed bandwagon, with the article The primacy of the US dollar looks unsustainable, which offers no compelling evidence that the dollar is actually in decline, or proof that is will become superseded, just suppositions that maybe in the distant future for vague reasons it will be. 95% of economics articles are vague and wishy-washy, often because there is little in the way of solid, empirical evidence to support the author’s view, so the author is left with little recourse but to do a lot of “hand-waving” and hope that the reader doesn’t notice.

Fortunately in the comments section on Hacker News people did notice, rightfully tearing apart the article.

Best of luck finding an investment as safe as US Treasuries (dominated in good ole greenbacks).
With Europe in economic malaise and China’s economy hitting the brakes, it’ll be a long time before US economic supremacy is challenged.

Someone else comments:

Not likely, the US is on the rise again after suffering a decade plus of weakness.

The strong dollar is powering the US economy ahead while most of the world is struggling to stay above water. Americans gained roughly 20-25% in purchasing power against the rest of the world in just the last 18 months. US households have paid down a vast amount of debt in five years, significantly improving their debt to income ratio (while much of the world has done the opposite). Full-time job openings are at 15 year highs. The US share of all global wealth remains above 45%. The US median income remains among the highest of any nation, with no indication of erosion inbound. US economic competitiveness is among the highest, and total US manufacturing output is the highest it has ever been. Economically the US has been persistently getting better the last three to four years. The US is also about to enter a significant wage increase cycle that will see the standard of living move upward for the first time since the late 1990s.

By comparison, China is a disaster; Japan is stuck in the same hole it has been in for 25 years with ‘deflation’ (debt) continuing to eat away at their economy; Europe hasn’t seen net GDP expansion since roughly 2007, with the Eurozone having twice the unemployment rate of the US, and with the Eurozone QE program failing to boost growth meaningfully.

Further, US neighbors Canada and Mexico both have done tremendously well over the last decade and will continue to, which will act as a multiplier for the US economy.

All of this is true….compared to the rest of the world, America’s economy is doing pretty well, as I explain further here: Evidence That America Is Not In Decline.

Post-crisis US GDP growth is trouncing other developed countries:

And since 2014, the US dollar has trounced its peers:

The left, as part of their ‘anti-America’ agenda, want to believe that primacy of the US is unsustainable due to wealth inequality and other imagined problems. But, despite the left’s pessimism, the rest of the world apparently cant get enough of America, as I explain Wealthy foreigners bought $100 billion in US real estate:

So much for the ‘post America’ era that many leftist pundits predicted in 2008 and 2009 – the exact opposite has happened. From surging stocks, to the unending inflow of foreign capital, to a strong dollar, America has been emboldened, it’s economic hegemony only strengthened in recent years compared to the rest of the world, with the exception of China and India, which has fallen behind or stagnated. America is not just pulling ahead of the rest of the world, it’s running victory laps. As middle-America, bombarded with doom and gloom from the sensationalist media, gripe about the lousy labor market, flat wages, and America’s ‘best days being behind it’, rich, high-IQ foreigners can’t get enough of America, buying-up America’s most valuable real estate in the epicenters of intellectualism and wealth creation, Manhattan and Silicon Valley, and inundating America’s most prestigious schools and tech companies with applications.

Since 2008 or so, we’ve seen the rise of the West and the decline of the rest. But why is this? Maybe because America, through its free market, rewards high-IQ and innovation more so than other countries, which tend to be corrupt, inefficient, and socialist (or at least worse than America). If you’ve ever been to a a liberal-leaning foreign country, you’ll immediately notice how lackadaisical everything is, and that is because there is little accountability, unlike in America where employees are under a lot of pressure to perform good service or risk getting fired in the competitive job market. America, more so than most countries, values competence and quantifiable results.

China’s investors find safe haven in American real estate

From Yahoo finance: China’s investors find safe haven in American real estate

Commercial real estate isn’t the only type of property seeing large inflows of Chinese money. The country’s investors have also been active in the residential realty. They bought $28.6 billion in American residences, accounting for 28% of all foreign purchases by dollar volume, according to data from the National Association of Realtors. The homes they acquired tended to be on the luxury side; the average house in the U.S. sold for $255,600 but Chinese buyers spent on average $831,800 for their American homes.

What happened to the post-America era the left predicted in 2008 and 2009 would happen? So much for that.

As emerging markets suffer from low inflation-adjusted growth, high inflation, falling currencies, corruption, and divestment, and the left whines about wealth inequality and capitalism being dead – rich, high-IQ foreign investors cannot get enough of America and its most valuable real estate. Foreign applicants are inundating America’s fastest growing tech companies as well as Americas most prestigious institutions of higher learning. The left constantly criticizes America, but the rest of the world apparently cant get enough of America, and this probably makes the left irritated that the rest of the world isn’t sharing their post-America vision.

Related: Wealthy foreigners bought $100 billion in US real estate

Evidence That America Is Not In Decline (long post)

Rumors of America’s decline have been exaggerated.

Vox Day, in a recent post, writes:

What we are witnessing is nothing less than the gradual demise of the biggest, wealthiest economy in world history. It is truly a privilege and an education to behold. It is rather like being able to witness the death of the last Tyrannosaurus Rex. Regardless of how the fallout from the event may affect us personally, we have seen and experienced something that very few men have ever known.

Vox is right about SJWs (can’t stand em’, too) and other things, but I disagree here. If we call the SJWs on their lies over the imaginary college rape epidemic, we should also hold ourselves to high standards and not fall for the same delusional thinking and demagoguery that plagues the SJW left. That means having to confront and acknowledge empirical reality, even if we don’t necessary like it or agree with it. I like to think of myself as a ‘right-wing’ Penn Jillette, calling ‘bullshit’ on things, but from a right-of-center perspective, and no one is off-limits when they are wrong. Kinda like James Randi, Michael Shermer and Richard Dawkins, but the focus being on economics, finance, and sociology. Anyway, I don’t want to make this too political. But I actually want the economy to do well because when the economy succeeds, so to do the best and the brightest who comprise it, and that is how civilization and living standards advance.

Is America in decline? If so, the rest of the world with the possible exception of China is doing much worse. We’re seeing the rise of the west (America) and decline of the rest, which I will explain in more detail throughout this post.

Right now, we’re in a Goldilocks economy of modest growth, no stagnation, tame inflation, and no meaningful economic headwinds. Some pundits like Summers and Krugman bemoan how America’s economic growth is too anemic, especially compared to the 40′s and 50′s, and that its best days are behind it, but as I show here and in the graph below, US GDP growth has broken from the pack, since 2008 exceeding pretty much all g-20 nations. Yeah, 2-3% GDP growth ain’t great, but compared to pretty much everywhere else that has either no growth (Japan, UK, France) or high-inflation growth (Turkey, India, Brazil) – it’s pretty good.

America is running circles around the rest of the world:

And that is especially impressive for an economy as large as America. We’re never going to get back to 40′s era growth, and that’s fine. Law of large numbers and diminishing returns. It’s harder to grow an economy that is 5x larger at the rate it was growing when it was 5x smaller.

Post-2008 GDP growth is pretty much back to the historical average, or at least back to where it was in the late 90′s and 2000′s. Not hyper-speed growth, but certainty not recessionary.

Recent real GDP (below) doesn’t differ too much from historical performance:

Also, having too much growth isn’t always desirable since it tends to result in interest rates going up too quickly (a flat or inverted yield curve), resulting in bear markets and recessions. It’s better to have a prolonged, slow explanation than bursts of growth followed by severe busts, the later of which characterized the US economy until the creation of the federal reserve, which has had a stabilizing effect on the economy and stock market.

True, Consumer Sentiment Plunge Lowers Odds of U.S. Growth Rebound, but a lot of this data is just noise. Consumer sentiment tends to be very volatile is of little predictive value.

The University of Michigan’s preliminary sentiment index for May plunged to 88.6, the lowest since October, from 95.9 the prior month. It was weaker than even the lowest estimate of 68 economists surveyed by Bloomberg. Another report showed factory production stalled in April.

Hmmm..but the S&P 500 is 4% higher than October 2014. Those who shorted the market based on low consumer sentiment would have lost money. Consumer sentiment was in the low 70′s a few years ago, but that didn’t stop stocks from making huge gains since then. Contrary to the doom & gloom financial media narrative that consumers somehow suddenly stop consuming when they lose confidence, dour consumers have pretty much the same propensity to consume as happy ones.

If you look at the chart above, one can argue that a consumer sentiment indicator below 95 is a bullish signal since bear markets and recessions have typically followed very high readings. We should be welcoming this low reading as good news, not as a reason to fret. Sometimes, the most enduring economic expansions are the ones where the most number of people feel left out, in what I call the un-particpatory economic boom. When everyone gets too happy, too giddy…when everyone starts to feel rich…that’s when the market seems to roll over. Unless you’re among the cognitive and financial elite, you may feel left out of the recovery…and that is OK, even it seems socially undesirable. Sometimes in a recovery, especially this one, as more and more jobs become automated and the wealth gap widens, not everyone will be smart or skilled enough to participate fully in the recovery – or at least they will have to wait longer than usual, and we need to comes to terms with this reality.

Furthermore, consumer spending, like most indicators, tends to be volatile as shown below, but the overall trend is positive:

But back to the topic of America being in decline, the evidence of such a decline doesn’t bear itself out. As of May 2015,The S&P 500 made another high this week. One can argue that maybe this is due to QE, but profits & earnings are also rising in lockstep with stock prices, suggesting that fundamentals, not QE, is mostly responsible. America may be facing moral decay, and I don’t dispute that there are problems, but it hasn’t irreparably hurt America’s economy, global influence, military might, profits & earnings…stuff like that. Look at how some of the biggest, most influential tech companies in the world (Apple, Google, Microsoft, Facebook) are all in America. Same for institutions of higher learning, and so on. America’s most prestigious institutions of higher learning and tech companies are being inundated with foreign applicants. Foreigners keep buying America’s most expensive real estate (New York, Aspen, Southern California, Bay Area) and buying up our debt – something you wouldn’t expect for a country that is supposed to be dying.

Everyone talks about ‘dumbing down’ of America like it’s a fact, yet these people don’t see or are ignoring that curriculum, even for the youngest of students, is getting harder. If there’s dumbing down, you won’t find it in the post-2008 American public school system.

The typical American high school student is taking harder courses and performing better in them, according to a new study released today.The 2009 National Assessment of Educational Progress High School Transcript Study underlines the importance of rigorous curriculum, particularly with higher-level math and science courses, as a key to greater achievement in high school.

America dominates ‘top university’ rankings:

As shown by the global IQ map, if America is dumb, the rest of the world (with the possible exception of East Asia) is dumber:

And from Voxeu The Geography of Academic Research:

…we draw on a database of 76,046 empirical papers published between 1985 and 2004 in the top 202 economics journals (Das et al. 2013). We provide basic facts on the country focus of empirical economics research and the likelihood of publication in top journals for research on the US and on other countries. The newly-assembled dataset first highlights just how little empirical research there is on low-income countries. Over the 20-year span considered, there were four papers published on Burundi, 9 on Cambodia, and 27 on Mali. This compares to the 36,649 empirical economics papers published on the US over the same time-period (Figure 1).

America has the highest per-capita research output of any country:

It’s just a weird, paradoxical situation we’re in, of America doing so well by so many metrics but many Americans being so pessimistic. As Americans gripe about America’s alleged weakness and decline, the rest of the world can’t get enough of America. Compared to the rest of the world, America reigns supreme terms of its rising currency, surging stock market, inflation-adjusted GDP growth, central bank policy, consumer spending, free market capitalism, etc.

Only the Bombay market has outperformed the S&P 500, but that doesn’t account for India’s substantially higher inflation and falling currency.

An an example, Bernanke, as controversial as his policies were, seemed to be a success, and so much so that other countries have adopted QE programs. When Europe’s economy seemed to be going over the cliff in 2011, the major policy makers of Europe ignored the zerohedge people and went strait to Bernanke’s playbook of infusing liquidity to boost confidence, staving off a potential crisis. Now five years later, while growth in Europe is anemic, there is no crisis.

The debt may seem unsustainable, but it actually is because these countries who are buying it have no alternative and they keep rolling it over. It’s not like China wants to redeem its holdings, because that would make things worse for them. As part of American exceptionalism, the dollar is among the safest, most stable place for foreigners to park their surpluses, and I don’t see that changing.

Forbes explains it best, about why China cannot just arbitrarily dump treasuries:

If China does not buy the next Treasury bill… someone else will buy it with dollars, because it can`t be purchased with anything else but dollars. If China sells a T-bill out of its portfolio… it can only sell it for dollars. What does it do with the non-interest-bearing cash it acquires? It can buy goods or services or real property available from the U.S., available only for dollars. If China prefers none of these, its remaining option is to trade them for yen or euros, using that cash to buy stuff for sale in yen or euros. But now, someone or some institution that gave up the yen or euros now has those dollars, and where do they go? They can buy stuff for sale in dollars, or they can buy those interest-bearing T-bills that were just sold by the Chinese. Hmmm.

And from Business Insider:

A large selling of U.S. dollar assets by China will be noticed by global markets and could cause a panic selling of USD across the world. The resulting crash of the dollar would drive interest rates higher and hurt the U.S. economy. The end result? China would be hit hard because of falling OECD demand for Chinese goods.

The system may seem perilously unstable, but it works. The bigger things get, the more effort goes into making them work. The more interconnected the world becomes… the more that is at stake, and this dissuades policy makers from making rash, impertinent decisions. That could explain the ‘Long Peace’ phenomena observed by Pinker in his book, The Better Angels of our Nature. Contra Taleb who argues that large systems are prone to blowing up, a large system may be better because more effort goes into making it work and individuals have less power or incentive to disrupt it. The events of 2008 warped people’s thinking, particularly the punditry, into believing that financial crisis are very common (they aren’t) and that policy is ineffective (it can actually be quite effective). A large system has the resources (R&D, infrastructure, venture capital, markets, consumers, etc) that allows the best and the brightest to thrive whereas millennia ago, without such systems, humans all lived in quaint dwellings and caves, and no one was able to excel because day-to-day survival took precedent over innovation. As a libertarian-leaning conservative, I actually believe there is a role in public policy to create optimal socioeconomic environments for the best and the brightest to live to their fullest cognitive potential, and such policy will pay dividends down the road in the creation of tomorrow’s Teslas, Apples, Ubers, Googles, and Facebooks. It’s not that we need less government spending; we need smarter spending.

However, the hollowing out of the middle is real, as America splits between a rarefied high-IQ elite and everyone else. It may seem contradictory for the economy to be doing so well when so few seem to be participating, but the economy as measured by the actual data (real GDP growth, profits & earnings, etc..) doesn’t show decline. How people feel about the economy or are impacted an the personal level is often much different than the broader picture. Many people still think we’re in a recession, and this is not surprising since the media tends to focus on the negative and it’s true that inflation adjusted wages have stagnated for large portions of the population, but the recession ended a long time ago.

But what about record food stamp usage, stagnant wages, student loan debt, and the high youth unemployment?

I don’t mean to make this too political, but a lot of people on the left who complain about student loan debt being too high oppose programs such as workplace cognitive screening that could replace costly diplomas, on the grounds of ‘disparate impact‘. There is also the element of personal responsibility in that students who do go to college should major in a high-ROI field such as STEM, and that we need better screening to identify students who are smart enough (an IQ > 115 according to Charles Murray) to benefit from college instead of dropping out or failing, and then discourage students who don’t meet the IQ threshold from applying. Part of the problem is that the SAT has becomes less of an IQ test and more of a ‘general knowledge exam’, making it less effective at identifying students who would truly benefit from higher education.

Youth unemployment is high in America, but I don’t necessarily think that problematic. There are a myriad of factors, ranging from possibly Obamacare, the push to raise minimum wages, and automation making unskilled jobs obsolete (structural unemployment). Young people delaying careers for higher education, and living with their parents instead of making landlords rich – may be a good idea, as I mention here:

Despite a poor job market, another possibly is that the millennials, being the smartest and most educated generation ever, are delaying careers, family formation, and home ownership for longer-term investments like education. While worse-off now, when in their 50’s, millennials will be in a superior position than their parents when this tradeoff between short-term gratification and long-term education and planning finally pays off. Millennials that live with their parents are prudently saving money for their future instead of making landlords rich.

Maybe it’s better that young people delay making a pittance through dead-end jobs and instead focus on high-paying, self-actualizing, in-demand skills like coding, publishing, mathematics, writing, entrepreneurship, and finance.

As mentioned in my post, The Smartist Era, we’re becoming a drop-out nation, and I think this has continued to the nascent MGTOW movement:

We’re also becoming a drop-out nation. Adults moving back in with their parents, delaying marriage, leaving the workforce and dropping out of college saddled with debt they have no hope of paying off.

And this confers with an article but the Washington Post about the unappreciated benefits of being alone:

Ratner has a new study titled ‘Inhibited from Bowling Alone,’ a nod to Robert Putnam’s book about Americans’ waning participation in group activities, that’s set to publish in the Journal of Consumer Research in August. In it, she and co-writer Rebecca Hamilton, a professor marketing at the McDonough School of Business, describe their findings: that people consistently underestimate how much they will enjoy seeing a show, going to a museum, visiting a theater, or eating at a restaurant alone. That miscalculation, she argues, is only becoming more problematic, because people are working more, marrying later, and, ultimately, finding themselves with smaller chunks of free time.

The stigma or being alone is going away, in our increasingly competitive economy that rewards rewards intellect and self-determination, as we transition to a nation of salaried employees to a winner-take-all nation of entrepreneurs. The person who likes to spend time in solitude learning to code is or trade stocks is faring much better in this economy than the person who is overeager to please others. That’s not to say social skills are completely obsolete, but like religion, they are becoming less relevant in our post-2008 world. You look at some of the biggest success of our post-2008 economy – namely web 2.0 companies like Snapchat, Uber, Slack, and Tinder – and you see they typically involve introverts who are getting very rich very quickly. Being alone is not just a way to save money or find inner peace, but – in the Silicon Valley at least – a possible pathway to riches and fame.

Also, like normal unemployment (U1 or U2) rate, youth unemployment is also falling:

The empirical evidence suggests that the US economy is doing fine despite record wealth inequality. Record wealth inequality hasn’t hurt key economic metrics such as profits & earnings, consumer spending and exports, and GDP growth, as mentioned earlier, is healthy. What we’ve seen is that real entitlement spending is making up the gap in wages, in that more people are drawing aid from the government.

From Daily Signal, Food Stamp Participation Doubled Among Able-Bodied Adults After Obama Suspended Work Requirement

A new report from the Congressional Research Service (CRS) confirms that food stamp participation doubled among able-bodied adults after the Obama Administration suspended the program’s work requirements.

The welfare reform of 1996 requires that after three months on food stamps, recipients be engaged in some kind of work activity for at least 20 hours a week. Tucked away in the mammoth 2009 so-called “stimulus” spending bill was the suspension of this requirement for able-bodied adults with no children.

The good news is Obama recently signed a $9 billion food stamp cut into law.

Someone rebutts:

How can you say such in support of your position, given the non-participation rate being what it is? For them, wages haven’t stagnated, they’ve collapsed. That, for a large portion working, wages have stagnated is not symptomatic of an economy healing. You say the recession ended a long time ago. That’s easy to show as even I can juggle the books and polish a turd, on paper.

But there will always be some form of economic weakness no matter where you look. Anxieties over the economy are not new, and even in the strongest of expansions there will always skeptics who have litany of reasons for why things will go wrong. I guess my point is that the economy and America may be strong (as measured by the data) even if not everyone can participate fully in the recovery. You look at the role IQ plays in our increasingly competitive economy, and people of lesser intellectual means may be falling behind, but that doesn’t prove the whole economy is weak. That is called the fallacy of composition – to make an inference about a bigger system from one of the smaller parts.

A common theme among the doom and gloomer crowd is to doubt the veracity of the economic data, as if it’s rigged, but there was hardly any conspiratorial talk when things were falling apart in 2008. As mentioned earlier, anecdotal evidence and the economic data can diverge, and the former is often not a reliable indicator for economic health. People who feel like they are not participating in the recovery, who feel like they are being left behind, are more inclined to believe that America is in decline or the economy sucks, regardless of evidence that shows otherwise. The inability to disprove that the government data is fallacious does not prove that it is, so trying to argue on the premise that the data is flawed leaves the opponent with the burden of proving that the data is not fake. The result is a Turtles-all-the-way-down/Homunculus argument, where every piece of evidence is countered with ‘fake data all the way down’. The burden of proof should be on the person who insists the data is false, which is the premise of the Russell’s teapot analogy. If we cannot agree on a uniform set of data for reference, there can be no debate. Part of the problem with the social sciences, of which economics is one of them, is that any argument can be met with an equally convincing counter-argument, if one tries hard enough to find one. I can offer an argument and someone can offer seemingly convincing counter-evidence and this can continue back and forth, of each side dredging more and more counter-evidence. Eventually, we have a situation where there is not a consensuses (except for very few circumstances), but a set of augments that supports/refutes both sides. It’s not like mathematics, which has consensus in the form of proofs. The best you can do in an economics debate is to lay out your evidence/cards, counter some opposing evidence (like a poker round), and leave it at that (the round is over).

The S&P 500 made another high this week. As long as you forget that $10 worth of pre 1965 quarters melt down to $180+ of silver

I’ve heard this ‘dollar losing gold/silver purchasing power’ argument for awhile. On one hand, in a process called bifurcated inflation, real prices for some goods have exceeded inflation, but on the other hand, our dollars buy things that never existed decades ago, new products that have much more utility than old technologies. A $300 iPhone has considerably more utility than a 1960 TV set and rotary phone. Netflix costs $10-20 month, versus 20 cent movie tickets of earlier generations, but with Netflix you can watch pretty much any movie or show ever produced.

In debating the doom and gloomers, the Homunculus argument also comes into play when discussing the impact of QE on the economy, where every piece of evidence that the shows the economy and stock prices growing due to fundamentals is dismissed as being attributable to QE or some form of intervention. Pretty much everything boils down to either the data being manipulated or fed intervention. Nevermind that companies like Apple, Disney, Google, Microsoft, Netflix, and Facebook keep posting blowout quarters, even in some instances long before 2008. Those millions of people who are buying iPhones were somehow enticed by the fed. Rather than choosing the most parsimonious explanation, let’s instead create increasingly intricate conspiracies.

The fed ended QE a year ago and began the taper two years ago, but the S&P 500 has surged 20% since then. If Wall St. felt that QE and printing were purely responsible for the rise in stock prices, this would not have happened. As shown below, profits & earnings of the S&P 500 have risen in lockstep with stock prices:

As I stated here, QE is not some magical elixir but merely a a monetary stimulus of last resort. Many people overestimate its effectiveness, and in fact, it inflation didn’t surge following QE, as so many predicted it would:

This is not too surprising since QE, unlike a stimulus, is just an asset exchange that replaces long-dated bonds with ‘reserves‘, which are not lend out.

QE helped the economy some extent, but it’s hardly the main reason why stocks and the economy have recovered so vigorously from the depths of 2008 & 2009. The main criticism of QE is that it did more to boost asset prices than economic growth, but since the PE ratio of the S&P 500 is only somewhere between 17-20 despite a huge 200% rally since 2009, the divergence been prices and fundamentals isn’t that great. And given that inflation didn’t budge, it didn’t push the economy into an inflationary overdrive. At this point fundamentals seem to be doing most of the work, not fed policy. Another reason given for rising stocks prices is aggressive buybacks, and this is true to some extent, but only a small factor.

The present bull market is about 100% bigger than the 2002-07 one, but buybacks are only at 07′ levels, suggesting that fundamentals are playing bigger relative role.

The Tobin’s q, on the other hand, shows stocks being richly valued:

But this in itself is not a reliable indicator since in the late 90′s stock valuations wildly diverged from the long-run average, and there’s no guarantee they won’t do it again. If the general public becomes as enamored with stocks as they were a couple decades ago, it we could possibly see the S&P 500 double. I certainly would not want to be on the sidelines or short then.

In conclusion, I hope this exegesis provides a convincing argument for why America is not in decline (or If America is in decline, the rest of the world is doing even worse). Republicans should be more optimistic about America, because America (and especially the Silicon Valley), more so than anywhere else, through its free markets, infrastructure, consumer base, and intellectualism, rewards high-IQ, talent, and merit more so than anywhere else. That’s why high-IQ, ambitious foreigners keep wanting to come here, and I think republicans, who believe in the merits of free markets and capitalism, should welcome this.

8-Year-Old Girl Makes $127,000 a Month

This 8-Year-Old Girl Makes $127,000 a Month Baking Sweets on YouTube

lol, bu..bu..but..isn’t America supposed to be in decline, says the left? How is this possible when, according to the left, the only capitalism that exists is crony capitalism? And the America Dream is dead, too, according to liberals, because rich people killed it. I guess this girl did not get the memo. Maybe the fed is behind this, since the fed is manipulating everything, according to the left. The fed gave her TARP money and…somehow this ties in with QE…idk…this is the tortured thought process liberals go through as they try to ‘explain away’ American and individual exceptionalism, devising increasingly elaborate conspiracy theories for how everything is rigged, as these liberals are losers at life and it’s easier to bring down the successful than raise yourself up. This is how the cognitively inferior reconcile their mediocrity.

Why Bay Area/Silicon Valley Real Estate Keeps Going Up

Atherton has the highest median property value of any region in America, with Menlo Park and Palo Alto not far behind. The entire Bay Area real estate market has been white-hot since 2012, coinciding with the huge public offerings of Facebook and Twitter and the 40+ percent gains in the S&P 500, and shows no sign of cooling. Inflation-adjusted prices will keep rising for years, even decades, to come. There won’t be another 2007-09, at least not in your lifetime (unless you’re like 5-years old and reading this blog). Why is Bay Area real estate doing so well?

1. Silicon Valley’s meritocracy rewards high-IQ and the best and brightest more so than anywhere else in America, making Silicon Valley attractive to tech investors and tech entrepreneurs. Anyone with a good idea and some coding can become a millionaire overnight and a billionaire within a couple years. Coders strait out of college, or even without college, can earn a solid six-figure income – even tens of millions upon the company going public or being acquired, and a lot of this money finds its way into the local real estate market.

2. Rich, high-IQ foreigners need somewhere to put their fortunes, and the Bay Area real estate market offers among the best combination of rate of return and stability.

3. Stanford is a magnet for intellectualism, making the entire region more valuable. There is a positive correlation between the IQ of residents and real estate prices of said region.

4. Enormous capital circulating in that region from foreigners and newly minted millionaires & billionaires in the web 2.0 boom & stock market boom. It’s a like a free market feeding frenzy there, of people becoming instantly wealthy despite the left insisting that the American dream is dead and America is in decline.

5. America still center of the universe, and Silicon Valley is the center of America, with Manhattan a close second. Everything that is important in the world is going on there. Tesla, Google, Facebook, Snapchat, Uber, Apple, etc – all in Silicon Valley.

6. America is an economic safe haven, especially since 2008 and 2013. Other countries are rife with a combination of either inflation, deflation, stagnation and corruption – America has none of that. Real GDP growth of 2-3% may not seem great, but it beats all other g-8 nations.

7. No currency risk. Adjusting for the strength of the US dollar, US real estate has outperformed pretty much all other countries, with Bay Area real estate posting among the highest returns. Other countries may have seen bigger percentage gains in their real estate prices – but when adjusting for the post-2011 strength in the US dollar, the results are actually inferior. It doesn’t do much good if real estate is rising 50%, but your country’s currency falls 50% against the dollar. The gains cancel out. But gains in American real estate are in dollars, so there is no currency risk. People with homes in the Bay area saw a net-worth gain of 20-40% in a 2-year period between 2012-2014 as other currencies plunged. Had you kept your money in Euros, for example, you would have lost 40% vs. a gain of 40%.

Here are some of those Atherton homes for sale, if you got a couple million lying around. I actually think homes in the $1-5 million range are better investments than the super-expensive ones since cheaper homes are easier to sell and prices are easier to track.