There was a very interesting article out this morning on Bloomberg discussing “Is The Stock Market About To Go Totally 90’s?” The opening paragraph is as follows:
“Early in 1992, Time magazine projected that the nascent economic recovery would be ‘one of the slowest in history and the next decade one of lowered expectations.’ That was the conventional wisdom and, at the time, seemed eminently reasonable. It also turned out to be completely wrong. The Internet and huge productivity gains propelled above-average economic growth and a rip-roaring, “Cult of Equity†bull market that surged into the year 2000. We spent and borrowed like mad and eased into fluffy college majors.”
There are a couple of issues with this statement worth discussing.Â
To start with, Time Magazine was not entirely wrong. The chart below shows the annual percentage change in real economic growth from 1854-present. I have marked both the zero percent growth rate line and the average rate of real economic growth which is 3.56% historically.
While Time Magazine was early in the sub-par growth rate call for a couple of years, it eventually did come to pass through the entirety of the 21st century, so far. While the internet boom did cause an increase in productivity, it also had a very deleterious effect on the economy. As I discussed recently in “50% Profit Growth:”
“Since 2000, each dollar of gross sales has been increased into more than $1 in operating and reported profits through financial engineering and cost suppression. The next chart shows that the surge in corporate profitability in recent years is a result of a consistent reduction of both employment and wage growth. This has been achieved by increases in productivity, technology and offshoring of labor. However, it is important to note that benefits from such actions are finite.”
