Can someone with an actual economics degree explain to me whether it's a valid criticism of the "Market cap as % of GDP" metric that many US companies derive value from multinational labor and consumption, and if not, why not? Thanks in advance.
SB in economics here and current business school student (I know, I know: burn the future MBA at the stake!).
Indeed, it is a valid criticism. The market cap/GDP measure is mismatched, since market cap theoretically reflects investors' expectation of future cash flows globally while GDP is a measure for only one country. Also, GDP is problematic for a bunch of reasons, so even if all companies were only operating in the United States, GDP would still only be a crude measure of economic output.
Plus, as you mentioned yourself mcap corresponds to the present value of all future cashflows and GDP to one years output. The only way this would make sense is you were comparing changes in GNP to changes in mcap.
It is valid criticism. The rule is a rule of thumb, so isn't like a law of physics. The amount of internationalization would be relatively similar over short periods of time, so is an OK measure cf 10-20 years ago, but yes has problems comparing over a century.
Other similar issues are the amount of private ownership of US companies (that aren't included in Total Market Cap), and also foreign ownership of US companies which is higher than it used to be (I think).
