Why the Top Economies Might Not Be the Best

Using traditional metrics, The Economist ranked 37 “mostly rich” countries.

However, a closer look reveals some not so traditional information.

The Top Economies

The Economist’s metrics were “GDP, stock market performance, core inflation, unemployment, and government deficits.” These were the top five’s numbers for three of the variables:

Ireland

Explaining Ireland’s gob smacking per capita GDP of $104,270 (2023) we just need to name Google, Apple, and Meta, and the 167 U.S. companies that opened offices there last year, and corporate taxes. At 12.5%, Ireland’s corporate tax rate is far lower than the U.S.’s 21 percent. Just 10 U.S. companies provide an estimated 60% of Ireland’s corporate tax dollars.

But it all is slightly misleading. Whereas GDP is supposed to represent the money value of goods and services produced by a country, Ireland does not really make the iPhones (for example) that are in its GDP. Actually, they are designed in the U.S. and made in Asia. But accounting rules let Apple list them for Ireland.

The Observer tells us the MDD–Modified Domestic Demand–more accurately measures economic activity by minimizing the corporate distortions:

Denmark

Meanwhile, weight loss is what we should think of for Denmark.

As weight loss injectables, Ozempic and Wegovy have achieved success that was only equal to surgical solutions. While many people became slimmer, the Danish economy grew bigger.

Denmark’s economic growth was fed by Novo Nordisk. Described as stratospheric, its pharmaceutical industry was responsible for two-thirds of this growth. Even without industry specific statistics, we can assume that the vast proportion came from Novo Nordisk’s Ozempic and Wegovy sales:

However, here too, the numbers are slightly misleading. Because the U.S. and other countries manufacture the drugs, Denmark benefits instead from corporate taxes that come from Novo Nordisk’s profit. At 39 billion Danish kroner ($5.7 billion) during the first half of 2023, their profit continued to buoy Denmark’s GDP.

The U.S.

Meanwhile, the U.S., called by The Economist, “the envy of the world,” is #20. In a Planet Money interview, the co-author of the magazine’s article on the U.S. economy explained why it is so strong. Emphasizing productivity, energy, the stock market, and the dollar, he said why the U.S. ascended from producing a 40% slice of the G7 nations’ output pie during the 1990s to 50% of the whole, now.

Productivity

Explaining U.S. economic strength, the co-author of The Economist article started with a 70% rise in per worker productivity during the past 30 years. Further clarifying, he cited the business dynamism that makes labor more mobile. From there, he named investment in physical structures, software R&D, and a speedy innovation response. Then, finally, he said that workers benefited from the productivity bump through higher wages.

Energy

With energy, he said our supply protects us from global volatility. Businesses and households benefit from domestic oil and gas. Households wind up with reasonable prices while businesses know they can predictably satisfy their energy demand.

Stock Market

Looking at global stock markets, the U.S. stock market, based on capitalization, has 60% of that pie. As a result, not only is cash is available for venture capital but also, the size begets a liquidity that facilitates market activity and attracts investors.

The U.S. Dollar

And finally, we’ve got the dollar. As a reserve currency, the dollar has a massive share of the global currencies held by central banks. Starting with U.S. debt, being a reserve currency facilitates the financing required by our borrowing. Then, the benefits spill over to making it easier for U.S. companies to borrow and grow.

Our Bottom Line: The British Coastline

With posts like today’s, I like to return to the coast of Great Britain, Explained by a classic paper from mathematician Benoit Mandelbrot, the shorter the ruler, the longer and longer (and longer) the coast:

So yes, the closer we look at statistics and ranking, like the British coastline, the more we see.

My sources and more: Always handy, The Economist described the best economies while a Planet Money interview detailed U.S. strengths. From there, many of my details on Ireland came from The Observer and this past post and this post on Denmark. Finally, for much more on Ireland’s taxes, you might enjoy (as did I) what the Tax Foundation explained.

Please note that several of today’s sentences were in a previous econlife post.

Also, our featured image of Night Lights from NASA is a less traditional way to identify economic activity.