Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Silicon Valley will be the Next Target of Populists

Growing income inequality will make Silicon Valley the target of America’s next populist movement, a top Wall Street analyst predicted.

An Occupy Silicon Valley movement will target companies; like Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOG), because of their high stock valuations, Michael Hartnett predicted. Hartnett; the chief investment analyst at Bank of America Merrill Lynch, believes the vast wealth of tech companies will lead to calls for radical political action, The San Francisco Chronicle noted.

“It could ultimately lead to populist calls for redistribution of the increasingly concentrated wealth of Silicon Valley as the gap between tech capital and human capital grows ever wider,” Hartnett wrote. That sounds like there will be calls for basic income and higher taxation.

Amazon and Google are now more valuable than Chicago

Hartnett used a very interesting method to demonstrate the incredible value of tech companies. He compared their market capitalizations with the gross domestic product (GDP) of major American cities and found that some companies have more wealth than entire metro areas.

Some highlights include:

  • Apple (NASDAQ: AAPL) and Alphabet (NASDAQ: GOOGL); the company formerly known as Google; are both worth more than America’s third largest city – Chicago. Chicago had a GDP of $581 billion in 2016 while Apple had a market cap of $800 billion and Alphabet had a capitalization of $654 billion.


  • Apple and Alphabet’s market capitalizations exceeded the GDPs of all but two American cities; Los Angeles and New York.


  • Microsoft (NASDAQ: MSFT’s) market capitalization of $524 billion exceeded the gross domestic products of both Dallas and Houston (both $479 billion).


  • The market capitalization of Amazon (NASDAQ: AMZN) $462 billion exceeded the GDP of Washington D.C. ($454 billion).

  • The combined market capitalization of Apple and Alphabet $1.45 trillion exceeded the market value of all Eurozone and Japanese financial stocks ($1.31 trillion).


  • Big Tech was responsible for 40% of the S&P 500’s growth.


Is Big Tech in Danger from Populism 

Hartnett thinks the potential of a populist and economic nationalist backlash makes Big Tech a very risky investment, CNBC reported. He recommended that investors put their money in banks, resources, gold and the Eurozone instead.

Hartnett also makes a very good case for basic income by nothing that America’s labor force participation rate has fallen from a high of around 67% in the late 1990s to around 63% in 2017. He believes the labor-force participation rate (the percentage of Americans working) will rise slightly in the next few years but it will still be at a percentage of 63%. That number will be the lowest since 1978, when the United States was mired in inflation and recession.

He also thinks the S&P 500 will rise to 4,500 by 2020, which makes a good case for property taxes and a wealth redistribution mechanism like basic income. Such an effort might be needed to protect the wealthy from a new generation of Luddites.

Self-Driving Cars will kill 300,000 jobs a year

Anger against Silicon Valley is likely to be fed by new technology such as self-driving cars. Autonomous vehicles will wipe out 25,000 jobs a month or 300,000 jobs a year if they are widely adopted, Goldman Sachs Economics Research predicted.

If true that means four million people or 3.1 million truck drivers will lose their jobs, CBNC reported. Most of the job loss will be felt by truck drivers, one of the few well-paying working class jobs left.

To make matters worse most of the new job openings will be in healthcare, education and food service. That means there will be a lot of angry men who have seen their $40,000 a year trucking gig replaced by a $10 an hour “job” waiting tables or changing bedpans.

That sounds like a recipe for civil and political unrest because most of those who lose their jobs will be working class white men; in other words Trump voters. Such job loss will undoubtedly give rise to the next populist demagogue who is likely to be far more radical and hostile to the upper class than Trump.

Another problem will be even lower workforce participation as many men, seeing no jobs they want simply drop out of the labor force. There’s already evidence that 12% of American men aged 25 to 54 are not working. What happens to society when that percentage hits 20%?

Is Basic Income the Answer?

A potential solution would be some sort of basic income scheme perhaps modeled on the Alaska Permanent Fund; which redistributes oil and mining royalties to that state’s residents via a cash payment. This would at least enable people to participate in the economy.

Other radical solutions to consider would be a higher minimum wage, better education; free college, some sort of national service perhaps a program like the Civilian Conservation Corps of the 1930s or expanded public works. Something will have to be done because fewer people working means less economic activity and a dysfunctional economy.

Something will have to be done before America’s economy becomes like Japan’s and large numbers of people simply give up. A study by that nation’s Ministry of Health noted that 35% males aged 16 to 19 had no interest in sex, author and economist Harry S. Dent Jr. noted in his book The Demographic Cliff. Dent blames that on the lack of opportunity and dismal future facing Japan’s youth.

An interesting solution to that was put forward by Benoit Hamon, the defeated Socialist Party candidate in the last French presidential election. Hamon proposed giving everybody between 18 and 25 an unconditional basic income of $807.34 (€750) a month.

This would at least let people to participate in the economy. It might not be a perfect solution but that will be better than angry mobs burning down our cities. Hopefully something is done before armed mobs march on the Googleplex and Apple headquarters.