1929 vs. 1999

Rakesh Bhandari bhandari at phoenix.Princeton.EDU
Tue Feb 23 10:30:37 PST 1999

thanks for the excellent post, Enrique.
> - In 1929, P/E ratio was 20 and profits were growing at a healthy pace.
> Today it is 32, profits have been stagnant for a couple of years, and
> are now declining.

Doug has suggested that the restoration of profitability has had much to do with lower interest rates. If inflation is killed, will then not then raise real interest rates and undermine the recent profit rate hikes?

> - In 1929, productivity was growing rapidly. Today, productivity growth
> sucks. (Not to worry, though; new numbers are being made up even as we
> speak).

A couple of weeks ago, Louis Utichelle of the NYT looked skeptically at the recently posted spike in productivity growth from 1.1% to 1.4%. He suggested that once we corrected for the business cycle and adopted a more realistic estimate of inflation, output has not increased sufficiently to justify an optimistic view of productivity growth.

yours, rakesh

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