Healthcare

US Competitiveness—Hiding in the Numbers

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We all know about the huge US trade deficit with the rest of the world.  Most of us know this is just about trade in goods, so that it does not include the trade surplus in services—which compensates for roughly 40% of the total deficit.  So services are large and growing but nowhere near the size of the problem.  What’s less obvious is just how incomplete this story is.

It’s straightforward to see why. Look at the iphone.  Iphones imported into the US are a significant (but of course far from decisive) contributor to the deficit.   It’s an expensive item and we get lots of them.  However essentially all of the profit from that item goes to Apple, and in fact most of the value-added is from software written here.  From a functional point of view it is a US-manufactured item, because that’s where the software is written.  The balance of payments calculation is backwards.

This isn’t a one-off.  Here is a list of the top ten US companies by market valuation. 

🏆 Top 10 U.S. Companies by Market Capitalization (2026 estimates)

  1. NVIDIA Corporation – approx. $4.5 trillion (currently world’s largest)
  2. Apple Inc. – ~$4.0 trillion
  3. Alphabet Inc. – ~$3.8 trillion
  4. Microsoft Corporation – ~$3.6 trillion
  5. Amazon.com, Inc. – ~$2.5 trillion
  6. Meta Platforms, Inc. – ~$1.4 trillion
  7. Broadcom Inc. – ~$1.7 trillion
  8. Tesla, Inc. – ~$1.3 trillion
  9. Berkshire Hathaway Inc. – ~$1.0 trillion
  10. JPMorgan Chase & Co. – ~$0.6–0.7 trillion (approximate, rounding into the top decade range)

The #1 is now Nvidia.  Perhaps surprisingly it’s just like Apple.  They don’t make the hardware either.  What they provide is another kind of software—detailed specifications embedded in a form for transfer to TSMC for fabrication.  The high-value contribution is made by developers in the US, which is where the profit is realized as well. (It’s interesting to compare Nvidia with TSMC.  Both companies have monopoly positions in their markets, but Nvidia avoids the huge capital expenses of hardware, and makes much more money by being on top of the production stack.)

The problem here is that the goods versus services distinction doesn’t mean what we think it does.  We want to think about that distinction as somehow capturing hardware versus software, but it doesn’t work that way.  More and more software is getting embedded in products, so it’s counted wrong.  It’s more correct to think about software as highly-skilled manufacture.  The same kind of thing happens with pharmaceuticals.  More and more of the value creation is not in building the product hardware, but in defining content.  And the software business is great—fewer capital requirements and you’re on top of the heap.  There is also a strong trend to monopoly from network effects and the built-in economies of scale. Most of the businesses on the top 10 list—one way or another—are software businesses and many are effective monopolies in their sectors.  It’s not surprising our economy has evolved in that way.

Going forward there is every reason to believe this trend will continue and even accelerate.  AI makes it ever easier to build software that works with all kinds of products.  And robotics in particular can be revolutionary. As robots become software platforms, rather than individual products, all kinds of businesses can be imagined primarily as software applications.  Al has already made it possible for small teams to do things that used to require many more people with distinct specialties.  We’ve already seen companies come from nowhere in a very few years—there will be more and faster.

What does that say about the future?  On the face of it that sounds terrible—people are not adding value by standing in front of drill-presses all day, so what happens to them?  Certainly Trump’s idea of building a future for the US depends on the drill-presses, so what is the right picture?  We need to follow through to a logical conclusion.

To begin we need to talk just about business competitiveness.  If we’re going to succeed in the kind of business environment just described we need three things: 

  • We need innovative types able to start the new businesses which will make up the rapidly evolving landscape we just described
  • We need people who will provide the kind of value-added needed by such businesses
  • We need government to support innovation.  In practice that means not choosing winners and losers and protecting innovators from the powers that be.

Those are absolute requirements.  Before we can talk about anything else, we have to satisfy those.

At the same time however we need to provide for the well-being of the population and the national security of the country.  These two types of requirements seem distinct, but as we’ll see they are closely linked.

On the innovation side we have traditionally been well-positioned here.  The single most legitimately-true feature of American exceptionalism has been our openness to enable people from anywhere and with any background to find a home where they can thrive and fit in.  We have been the place for the best and brightest from everywhere to come and build success.   Most recently this was true for AI, where many of the key players come from Chinese backgrounds.  US openness was perceived as unique worldwide.  Many company founders and employees have been immigrants and children of immigrants. Additionally the strong network of research universities and government labs meant that the latest technologies could be counted on to be supportable for new business. 

(Note that China is a kind of opposite pole—a huge inwardly-focused country whose export businesses are primarily in hardware with hard-won price advantages.  That’s not to say they can’t move in our direction, but thus far their focus has been different, with less software value added.)

It’s significant that the overall well-being of the population counts for plenty here—it’s not an additional extra goal.  Many important contributors didn’t come rich.  Recently we’ve been less successful in that, as we’ll talk about later.

What we do have to note here is that we have recently decided to relinquish all of those traditional advantages in a burst of self-destructive nationalism.  We now have overt hostility to foreigners, attacks on universities, and cancelled research money.  We’ll throw lots of money into today’s hottest development item—the current version of AI—but we have chosen to be deliberately blind to whatever comes next.  In addition we’ve decided to choose winners and losers in today’s technology based entirely on “intuition”.  Since climate change is now officially non-existent, all technologies associated with it are removed from our national consciousness.  Unless some of this is reversed we will be like the British after World War II, living in past and lost grandeur.

As for the well-being of the population and national security, the most important message is a simple one:  there are a great many important problems that the private sector will not solve by itself.  This may seem obvious (it was to Adam Smith) but it’s contrary to the endlessly restated ideology of the last decades.  I’ll start with security. 

Government needs the professional competence to decide what actions have to be taken in the economy for reasons of national security.  That includes what products and capabilities we need to have here and what needs to be done proactively to prevent the kind of dependencies we have with rare earth elements today. We have to be able to think ahead in a way that the private sector won’t.   So government needs professional competence protected from political persecution.  Government also needs to think broadly about security.  We will never be able to take everything in-house, and even domestic suppliers have their own interests.  So complete self-sufficiency is a chimera, and security is intrinsically concerned with international relations and the world order overall. 

As for the well-being of the population, the most important thing to say is that the businesses that form the basis of US economic strength won’t necessarily fix it.  They’re not going to employ everybody.  However the overall wealth of the country will translate to general prosperity in the domestic economy (e.g. entertainment, home services).  That will help—but still won’t be enough to fix it.  To go further will require things like an adequate minimum wage as well as a bigger role for the government in infrastructure of all kinds.  There is no shortage of work that needs to be done—in physical infrastructure or healthcare for example.  Climate change will require significant near-term modifications all over the country.   The margins you get in sector-dominant software companies should provide the money to do it.  The challenge will be to restore the idea that shared prosperity is ultimately the best thing for everyone’s benefit.

National well-being isn’t charity; it’s a key part of making the whole system work.

Propagandists for Power

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This note is occasioned by John McWhorter’s piece in the NY Times, basically praising Clarence Thomas as a thinker who has been too easily dismissed.

While I agree with Mr. McWhorter on some subjects, I think he is very wrong on this one.  And his mistake is the same one made by other people about other public figures.

First about Clarence Thomas:

  • He is someone who has received help every step of his career, but who has nonetheless declared himself self-made.  His autobiography is emphatic to the point of absurdity on the subject. 
  • His general philosophy is heavily influenced by that mythology.  Like many other pseudo-self-made people (there are admittedly more rich than poor of them), he asserts “I did it, so can anyone else who has what it takes.”  No one should be asking government for help.  That he sincerely believes this does not make it either true or admirable.
  • Despite his self-delusions, he has not achieved his success as a thinker.  He has achieved success as a propagandist for power.  His ideas, however well or badly thought-out, are irrelevant to his current position.  He is a tool in the Koch organization’s (and Republican party’s) battle plan.  The position being propagated is simple and convenient:  we just don’t have to care.
  • Contrary to what you sometimes read in the papers, he has not driven the Supreme Court to its current position on the extreme right.  That is a Koch-managed and funded enterprise that has put a succession of Federalist Society judges on the Court.

We should now talk more generally.  There were places and times in the past when people seemed at least worried about selling out.  That is, whether they were putting personal advantage above some notion of morality.

We are no longer at that place or time.  In the United States (and elsewhere) today, there is no morality stronger than financial success.  People don’t need to agonize anymore, because riches are proof of morality.  That’s the Clarence Thomas problem, and he is far from the only example.

I’d even put Milton Friedman in that category (along with a good chunk of the Federalist Society).  Milton Friedman was certainly capable of understanding the logical flaw in his argument:  it’s okay to declare that corporations serve their stockholders—but only if someone else is minding the store.  If those same corporations are also running government, then no one is minding the store.  Instead he made himself a wealthy and respected genius, again as a propagandist for power.

No one should be venerating propagandists for power, no matter how sincere such people believe themselves to be.

The Coronavirus Message for Climate

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Since the coronavirus is at the top of everyone’s consciousness, there has been a lot written about what the coronavirus experience has to say on a great many issues.  After a while you start to get numb.  However for climate change the parallels are so explicit and telling that they need to be emphasized.  The argument in this piece is not new, but it’s worth spelling out in detail.

The coronavirus shows just how hard it is for us as a country—or as a world—to act ahead of a disaster even when the evidence is clear.  We were unprepared when the crisis came, because we just didn’t want to believe it could happen.  Our reluctance not to believe was of course encouraged by players (foreign and domestic) who felt there was something to be gained by delay.

The result is measured both by the numbers of dead and by the economic consequences of the drastic measures taken to stop the exponential growth of cases and deaths.  In the US that means on the order of 200,000 deaths and the worst job loss since the Great Depression.  The weeks of delay made this situation exponentially worse.  You can argue about the details, but there is no question that failure to act early cost us dearly on both counts.  We’ll muddle through, but badly wounded.

The parallels to climate change are explicit—but for climate the muddling through is no sure thing.  There are two primary points:

  1. CO2 in the atmosphere just adds up—which means that whatever problems finally force us to act will keep getting worse until we can manage to stop fossil fuels completely.  In other words from whatever time we recognize a crisis, we will be locked-in for many further years of worsening crisis.
  2. That’s even worse than it sounds because—as with epidemics—there is an exponential growth aspect here too.  To see this we can start with the example of hurricanes.  For hurricanes, the damages in the wind-speed categories are such that each step makes the previous look trivial.  In other words, as wind speed grows in a regular, linear way, damage goes up exponentially.

This isn’t just a matter of hurricanes; it’s typical for damage.  For floods you go from marginal areas affected to major cities.  In any category you can think of, damage goes up exponentially.  The bottom line is that for all those years of lock-in, every additional ton of carbon dioxide we add to the atmosphere will pack a wallop.  This is the stuff of nightmares.

The latest climate report gives us the timescale.  To avoid catastrophic consequences CO2 production needs to drop 45%  by 2030 and reach 0 by 2050.

We couldn’t get ourselves to believe the coronavirus would really happen, and climate disaster is even further from our past experience.  So the tendency to disbelieve is even stronger.

There are plenty of well-connected, interested players out to convince us to wait.  The oil companies and their allies are doing quite a good job of it.  Pence and Pompeo (among many others) are Koch organization soldiers in a Trump organization out to sabotage all efforts to control climate change.  Another indication of oil company power is Harvard University’s recent announcement of a commitment to fight climate change—by making their investment portfolio carbon-neutral starting in 2050, the year when the scientists say we need to be done!

That’s where we are.  Climate change is the coronavirus on a bigger scale.  It’s much more dangerous and with even more powerful forces out to convince us to wait, and wait, until it’s too late to matter anymore.  We’ve been warned.

Reasons For Pragmatism

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“COD Volunteers Give Back to the Community During COD Cares: Roll Up Your Sleeves Service Day 103” by COD Newsroom is licensed under CC BY 2.0

Ideology can be inspiring, but it’s never the same as a plan to get a job done.  For now it’s getting in the way on many issues.  Here are a few examples:

  • Healthcare

ACA is an imperfect compromise with known issues—in part because it was a non-final version enacted in the wake of Scott Brown’s Koch-funded victory for Ted Kennedy’s Senate seat.  All attempts since then to improve ACA have been blocked by anti-healthcare Republicans.

That being said ACA has enabled tens of millions of people to be covered for the first time, and it is supported by a non-regressive tax—the ACA surcharge.  It also attempts to get around some of the worst problems private insurance by covering pre-existing conditions and regulating how much of premiums must be paid out in benefits.  In fact insurance profit margins in healthcare are well-below margins in every other insurance category.

The most critical issues today are to improve coverage, pricing, and the range of offerings for ACA plans.  Some of this is just a matter of rolling back Trump efforts to destroy ACA.  The rest is more complicated, but nonetheless well-studied.  This needs to happen independent of long-term plans.

“Medicare of All” is an ideological choice—to get healthcare away from the insurance companies.  It’s a good slogan but something of a misnomer, because the changes from Medicare are decidedly non-trivial.  The Sanders bill optimistically assumes all private insurance will be gone in four years, but without a real plan to make it happen.  While virtually all developed countries have some form of universal healthcare, the systems are dramatically different from country to country, and many keep some form of private insurance.  Even current Medicare has many roles for private insurance.

Focusing on Medicare for All does nothing for current problems, and puts us in an ideological battle for the future.  As Krugman recently pointed out “Not many people love their insurance companies, but that doesn’t mean that they’re eager to trade the coverage they know for a new system they don’t.”  Additionally—for current Medicare recipients—Medicare for All is easily posed as a threat to Medicare itself.  That worked (using ACA) in the Scott Brown election and could well work again.

The long-term objective is affordable, universal coverage.  And the first steps start now.

  • Climate Change

If anything should ever be non-ideological it’s climate change.  Facts are facts, and the solutions are primarily matters for science and engineering.  The main political issues are how much money to spend and who is going to pay for it.

Both sides, however, have turned this into a culture war.  That the Kochs have dishonestly challenged the basic science is by now almost beside the point.  “Bad science” is just an epithet thrown out in the culture war.

We need to stop the culture war and make sure we take care of the people who will be hurt as the economy goes off fossil fuels.  Green New Deal makes some things better and some things worse.  There’s so much political deal-making thrown into it, that it can’t possibly be viewed as anything other than a left-wing grab bag.  Maybe that helps in defeating Trump—which is of course necessary for any progress—but there are too many distractions from the climate change goal.

We need to make sure that everyone realizes that the new post-climate-change world is a good world for all—even people who want to drive AV’s and Chevy Suburbans.  And we need to commit to protect everyone—coal miners, car mechanics, people hit by carbon pricing—who might otherwise be hurt in the process.  That’s the objective.  We can refuse to play the Koch’s culture war game.

We have to get away from the notion that we need to create a kind of “socialist new man” of conservation.  We’re not repealing the industrial revolution.  We just changing the technological underpinning of how things work.  That’s not to say there aren’t other environmental issues, but they’re not the same.  We shouldn’t expect fixing climate change will put the EPA out of business.

  • Jobs

This whole area is filled with so many wrong and misleading ideologies that we can start with a catalog of wrong ideas.

Manufacturing is the basis of economic strength.

The Chinese have gutted manufacturing in the US.

Balance of payments is a good measure of economic strength.

A strong private sector will provide everything necessary for economic success.

Tariffs protect and strengthen the domestic economy.

Low business tax rates build national competitiveness.

Taxing businesses hurts everyone.

Strong unions and strong anti-trust enforcement will preserve the middle class.

Public sector jobs aren’t real jobs, they just pull money out of the private sector.

In the future there just won’t be jobs for everyone.

From the list it’s clear this isn’t a matter of left versus right (even if you discount the lunatic fringe running things today).  The world is moving into new territory (more and more companies with 0 cost of production, tighter and more automated international links).  So the challenge is to see things as they actually are.

Ideologies can get in the way of understanding.  No candidates seem willing to talk about the transition from a manufacturing to a service economy.  Unions and antitrust enforcement are still good ideas, but they buy less than they used to.   As the last of the points indicates, futurists tend to provide more ideology than reality, so nothing beats experience and pragmatism.

For ourselves we see government challenges as:

Supporting education and research to keep ahead of technology change.

Managing the continuing transition from a manufacturing to a service economy.

Taxing and regulating dynamic international corporations with monopoly power.

Building and maintaining a bigger public sector to provide necessary services the private sector won’t.

Maintaining quality of life for all who live here.

Consciously working at creating and managing the international institutions that make the world work.  We used to recognize this responsibility (and avenue to exercise power), and no one else is stepping into the gap.

Overall we need to recognize the problems we do have—not the ones of the 1930’s—and look what will actually be effective to fix them.

There are many other areas where the same kind of story plays out—where an ideological war masks a more tractable, practical problem.  I’d even put immigration in that category.

It’s hard, given the daily atrocities of the Trump era, to focus on anything less than epic changes.  But if we’re going to put the pieces back together afterwards, it’s pragmatism that will get the job done.