Steve Ellison writes:

This indicator was also mentioned in Mark Hulbert's article in the Wall Street Journal on Sunday. People who cite it as an indicator usually implicitly assume that the aggregate value of the stock market should grow at the same pace as GDP over the long term.

I believe this assumption is flawed for two reasons. Privately held companies are not counted, so changes in the relative percentages of public and private companies affect the ratio. More importantly, the traditional capital structure of 50% debt and 50% equity, in which all upside value goes to equity holders, is a good reason why stock valuations should increase faster than GDP, especially over very long periods. Indeed the inflation-adjusted compound annual growth rate in the S&P 500 between the generational lows of 1982 and 2009 was 4.4%, significantly more than GDP growth during the same period. So I don't lose any sleep over this ratio being higher now than in 1929.

Stefan Jovanovich writes: 

In a recent speech Jorg Meuthen made a simple point: GDP calculations assume that civil servants are somehow as magically "productive" as the people who have to do work for a living and successfully sell their work for cash.

No one in the "mainstream" (sic) wants to do calculations that remove all the recipients of government payments from political economic calculation. It is, from the point of view of modern economics, heresy.

I took Big Al's elegant calculation and found its "private sector" derivative.

The results are precisely what spec and others see in their views of the data. Not at all a pretty picture. If you take private earnings from wages net of taxes as a proxy for the country's additions to wealth, the 5 years up to and including 2017 only recovered the amounts lost from 2007 through 2011. From the point of view of people to do work that other people actually pay for, the last decade has been a complete wash. It is only the gains for this year and beyond that can be counted as actual increases in wealth.





Speak your mind


Resources & Links