Macro Roundup

FT reports on what German leadership thinks of the state of the "the German model."

".... When Steve Jobs returned to Apple as chief executive in September 1997, the computer maker was valued at $3bn — less than one-tenth the value of German conglomerate Siemens, Europe’s largest industrial group both then and now. Fast forward two and a half decades, and Apple’s market capitalisation exceeds not only Siemens — at $1.35tn the iPhone maker is worth more than the entire Dax index of Germany’s 30 leading companies.Valuations of companies have often been used to make misleading comparisons: there is a cottage industry of pundits who have tried to compare the value of large multinationals to the GDP of entire countries. But sometimes, such contrasts can illuminate powerful trends about the state of nations. The fact that Germany’s 30 largest companies have been overtaken by one single American giant is more than just a statistical quirk — it is a striking example of how Europe’s largest economy risks being left behind by the 21st century tech boom....Herbert Diess, Volkswagen chief executive, sees an existential challenge to the traditional auto business from new challengers. “If we continue at our current speed, it is going to be very tough,” he recently told senior managers at VW....“We have, I would say, disadvantages here,” Mr Diess tells the FT. “We don’t have the big tech companies here... and you need tech companies to partner with. So either we can go to the west coast or we can go to China. We don’t have the software skill and size. We don’t have a software industry.”...It is a concern shared by Angela Merkel, Germany’s chancellor. In an interview with the FT this month, she said that software companies were inserting themselves into producer-customer relationships, becoming essential “intermediaries” between businesses and their clients. German companies, she warned, had missed out on this development and were now at risk of falling behind. “It’s no longer enough to merely sell a product,” she said. “One also needs to develop new products from the data on these products.” Her fear: that without this expertise, Germany could end up becoming nothing more than an “extended workbench”, a kind of glorified assembly line...."

AEI’s Strain excerpts his new book in WSJ, just an FYI, he makes the points that wages are up, “hollowing out” of middle class driven by people graduating up and warns of the dangers of populist narratives. Just an FYI

"..The nonpartisan Congressional Budget Office (CBO) computes a comprehensive measure of inflation-adjusted market income that includes labor market earnings, the value of employer-provided health insurance, and business and capital income. The median household saw market income gains of 21% between 1990 and 2016, the last year for which data are available. The CBO also computes inflation-adjusted income after taxes and government transfers, which grew by 44% for the median household during this period. Households in the bottom 20% saw their post-tax-and-transfer income grow by 66% over these years....Another part of the story that is often overlooked:Hollowing out is mostly a story of upward mobility. Employment in high-skill occupations has grown as employment in middle-skill occupations has shrunk. On balance, the share of employment in low-skill occupations hasn’t increased.
Data from the U.S. Census Bureau from 1967 through 2018 shows a 12 point drop in the share of households with inflation-adjusted income between $35,000 and $100,000. The share of low-income households—those earning less than $35,000—has also fallen over this period, from 36% to 28%. And the share of households earning over $100,000 has tripled, rising from 10% to 30%.... Recent experience demonstrates that a hot economy benefits all workers, including the lowest paid, least skilled and most vulnerable. Hard work continues to pay off, and workers still enjoy the fruits of their labor and can improve economic outcomes for themselves and their families. And that is precisely why the constant message that American capitalism is broken is so harmful. Messages matter. If all people hear is that the economy has failed them—is rigged against them, in fact—it dims their aspirations and saps their energy, hurting their economic prospects. The populist narrative that workers are victims without agency or personal responsibility may have political power in these unsettled times, but it is also deeply demoralizing and damaging….”