Japan Nikkei All Time High Is NOT What It Seems - No AI Zone

With headlines screaming Japan's Nikkei 225 stock index hitting ALL TIME HIGHS, you might think this actually means something! The prior all time high was December 29, 1989, so basically the Japanese stock market went NOWHERE for 34 years!  The chart looks even worse! Using the 1989 year-end high as the start date and normalizing to 1000, with other world indexes added for good measure, this is what we get:

S&P 500 = U. S. S & P 500 STOCK INDEX

DAX = Germany DAX PERxFORMANCE-INDEX
HSI = China HANG SENG INDEX
CAC 40 = France CAC 40 INDEX
FTSE = U.K. FTSE 100 INDEX
NIK = Japan NIKKEI 225 INDEX

The numbers are no better:

While the Nikkei 225 has had a good year, up 27% , every prior rolling period it has underperformed the S&P. Ok, the 10 year rolling return, from 2014 to 2024, at 9.4% is close to the S&P's 10.3%, but over the long term the Nikkei is DOWN (all returns are continuously compounded). And Japan is not alone. Everywhere else in the world lags the U.S.. (Kudos to France for a competitive 3 year cagr!)

WHY IS THIS? Some answers seem obvious. Brexit kneecaps the U.K AND the E.U! And China going rogue doesn't help the Hang Seng. Germany is steady but consistently behind the United States. So what's going on here?

I think it's Econ 101 and Ricardo's competitive advantage, a touch of Adam Smith plus the rise of equality in America (admittedly, now under fire). 

The answer is labor and capital and culture. The U.S. has more mobility of capital AND labor than any nation in the world. We have fewer capital restrictions than almost any other economy. We also have the greatest mobility of labor in the world. 

While some don't want to acknowledge it, the U.S. has open borders - and this is a good thing! Immigrants counter the crushing effects of ageing population, fuel the demand for labor and propel American growth. U.S. has the weakest caste system in the world (read DEI -diversity, equality and inclusion) which contributes to the mobility and American prosperity. 

To the extent isolation, fascism and bigotry are rising, these advantages are at risk. No society is perfect but the question was not perfection, it was why does America outperform?