The 2010s: The Height of Capitalism—Winners and Losers

The Washington Post reported on the Standard & Poor’s (S&P) 500 stock index (January 1, 2020). Starting in 2010, the index posted a total return of 256% over the past decade, averaging 13.5% annually. This is higher than the average annual total return of 10.3% from 1920 to the present. For example, if you had invested $10,000 in the S&P 500 in early 2010, it would have grown to $36,000 by the end of 2019. Looking at 2019 alone, the total annual return was 31%. Since 52% of Americans invest in stocks through their retirement plans, it can be said that 52% of Americans are participating in this profit generation.

Ultimately, this rise in value is due to the financial crisis that preceded it. According to an analysis of S&P data since the 1930s by The Washington Post, the highest total stock return was in the 1950s (average annual total return of 19.21%). The 2010s rank as the fourth-best decade. Looking at this upward trend—which follows decades marked by financial crises, recessions, and the Great Depression—it made me realize that the advice from Korean stock experts to “buy when prices are at their lowest, when they’ve hit bottom” is indeed correct. The reason, of course, is that the government injects money and implements various policies to facilitate recovery. For example, this ranges from the public spending and low interest rates initiated by the Obama administration following the financial crisis of the 2000s to the current tax cuts under the Trump administration.

The market capitalization of leading high-tech companies (Apple, Microsoft, Amazon) is in the trillions—equivalent to South Korea’s GDP. The stock values of these high-tech companies have reached record highs over the past decade. As I mentioned in an article I cited from the Chosun Ilbo not long ago (introduced in “Creativity Is National Power”), the value of these companies is on par with the annual GDP of an entire country. The value of the high-tech sector has exceeded 6 trillion over the past 10 years.

Not only stocks, but also bonds, real estate, and hard assets have all risen in value. Furthermore, the value of residential real estate has also increased significantly. It has risen by 14.9% compared to levels before 2006 (prior to the financial crisis). As of 2019, there were 11.8 million American households with a net worth exceeding 1 million (1 billion), excluding the value of their primary residence.

However, those with nothing to their name (especially those who lost their homes during the financial crisis) and those living paycheck to paycheck amid sluggish wage growth are unable to participate in this game. Ultimately, while some see their wealth grow simply by holding on to what they have, others cannot even enter the game and struggle to get by day to day. The rich get richer, and the poor get poorer... We are living in the most capitalist of eras, at the very pinnacle of capitalism.

01/20/2020 by Dr. Lan Joo