Finance
Further thoughts on American exceptionalism
Last year I did a post discussing the US’s ability to attract people global talent for our high-tech industries. In April, I posted about how immigration might have helped make the U.S. a GDP per capita that is slightly higher than in other developed economies. Recently I came across a few more articles related to the issue of American exceptionalism – in this case, about wealth in the stock markets.
Although gross domestic product per capita in the US is modestly higher than in Europe, Canada and Japan, our stock market capitalization is far above that of our population, or even above our GDP. Here is the AI overview:
As of June 2024, the US stock market represented 61% of the world’s stock market capitalization, the highest level since the 1960s. This is a significant increase over the past fifteen years, and is especially notable given that the US only accounts for about a quarter of global GDP. The US stock market is also about ten times larger than its nearest competitor, Japan.
Not surprisingly, the same source suggests that high-tech is the cause of this skewed distribution of wealth in the global stock market:
However, some say this level of concentration could imply an unbalanced economy. For example, the concentration of the US stock market itself is also remarkable: just three companies – Apple, Microsoft and Nvidia – account for 10% of the market value of global equities.
Of the eighteen Asian Americans in the House of Representatives, five are Native American. Ten years ago, only one member of Congress was Indian-American. The presumptive Democratic candidate for the US presidency in 2024, Kamala Devi Harris, has an Indian mother, while the Republican vice presidential candidate JD Vance is married to an Indian American, Usha (née Chilukuri) Vance. Last fall, two Indian Americans, Nimrata Nikki Haley (née Randhawa) and Vivek Ramaswamy, both prominently competed for the Republican presidential nomination. . .
This contrasts with other Asian American groups, such as Chinese Americans, the most numerous subgroup in America (5.2 million vs. 4.9 million Indian Americans). There is a difference in representation at executive level noted in areas such as the technology sector; significantly more people of Indian descent than Chinese rise above technical to senior management positions.
In the second messageKahn points out that Indian migrants disproportionately come from relatively successful groups within the Indian population:
In India itself 28% of Hindus are ‘General category’, meaning they are not eligible for any affirmative action, unlike Dalits (‘untouchables’), indigenous tribes or adivasi and “Other Backward Classes” (OBCs). A questionnaire of Indian-American Hindus report that here they instead belong to 83% of the general category, 16% of OBCs (compared to 35% of Indian Hindus), and 1% of Dalits or of adivasi origin (vs. 35% of Indian Hindus). Private surveys have shown that 25% of Indian Americans are Brahmin, as opposed to a maximum of 5% of Indians.
But caste only tells part of the story. The most striking aspect of Indian migrants is their relatively high level of education, which correlates with (but does not fully explain) their unusually high incomes earned in the US:
Nearly 80% of Indian immigrants in America over the age of 25 have a bachelor’s degree. This compares to 33% in the general US population. They contribute to a higher labor participation rate than the total population, 72% versus 67%. More than 75% of Indian immigrants work in management, business and science (compared to 41% of the general population). It’s no surprise, then, that the median household income of Indian immigrants is significantly higher than that of Americans overall ($132,000 vs. $66,000 in 2019).
Note that $132,000 is even above the average income for college graduates.
Here it might be useful to consider three ethnic groups: Chinese-Americans, Indian-Americans, and Jewish-Americans, each numbering roughly 5 or 6 million. Both Chinese and Indian migrants come from a country of just over 1.4 billion people, and each group tends to have above-average education. That makes Jewish-Americans the outlier. But Kahn convincingly makes the case that in some ways (not all) Jewish-Americans come closest to the Indian migrant experience.
India, for example, has a complex set of ethnicities, many of which have long been genetically and/or culturally isolated. Kahn points out that although intermarriage is now quite common among both Jewish and Indian-Americans, these groups were more isolated for much of their history.
Of course, many populations have low marriage rates outside their ethnic groups. But what makes Jewish people and high-caste Indians different is that for centuries they have largely avoided intermarriage despite living within other, much larger societies. Consider that the global Jewish population is approximately 15 million, while the entire Western world (broadly defined as Europe, America, and Australia) has a population of 1.82 billion. Similarly, Brahmins constitute only about 5% of India’s 1.44 billion population. In contrast, China’s most successful group (the Han) comprises more than 90% of China’s population.
Today, nearly 40% of the world’s Jewish population lives in America. This figure rises to roughly 50% if you consider only Ashkenazi Jews, the most successful part of the Jewish population. Based on the evidence from Kahn’s posts, one could argue that the massive wave of Indian migration to the US between 1980 and 2020 had a major impact. economic impact equivalent to doubling our Jewish population. In other words, we have added millions of people who are among the most educated and productive individuals in their ancestral homelands.
Now let’s consider the fact that US companies account for 61% of global stock market wealth, a figure that has grown dramatically in recent decades. Obviously there are many factors that led to this result. But a key factor may have been the US’s ability to attract a disproportionate share of the global talent pool that is good at:
1. Creating innovative new products.
2. Have the financial and management skills to turn these products into successful businesses.
The wave of Jewish immigrants from 1880 to 1920 demonstrated that they were able to achieve these two goals to a degree far greater than their 2% share of the U.S. population. The recent wave of Indian migrants has shown similar success.
This is not to say that these are the only two groups that matter for stock market prosperity. The founder of Nvidia is from Taiwan and the founder of Tesla is from South Africa. Instead, I suggest that America’s ability to attract disproportionately large numbers of high-caste Jewish and Indian immigrants is emblematic of its broader appeal to talented people from around the world. In summary:
America’s modest advantage over other developed countries in GDP/person is a function of our more productive workers on average.
America’s enormous advantage over all other countries in market capitalization is a function of our vastly disproportionate extremely talented people, possibly combined with the network effects of being able to work together.
It is difficult to imagine how the US could ever reduce wealth inequality to European, Canadian, or Japanese levels without driving out a large portion of our most talented people.
