Greg and Doug on Stocks & SS

[Seth Ackerman]

But that's a deeper question, I think, than what Greg was asking, which
is: how can you flay the privatizers for assuming that stock prices will
grow faster than GDP while demonstrating with your own chart that stock
returns have been almost twice GDP growth. And the answer to that
question is: there's a difference between stock *price* growth and total
stock market returns.

As for the deeper question of where capital gains come from: I've never
been able to make heads or tails of it.

Seth


> Seth Ackerman wrote:
> 
> >The 6% percent figure is stock market *returns*. It's stock *prices*
> >that can only grow as fast as the economy long-term, right? The
> growth
> >of stock prices (capital gains) is only one part of stock returns,
> the
> >other part being the dividend yield. So it makes sense for the return
> on
> >stocks to be higher than than the growth rate, no? Or am I missing
> >something?
> 
> Stock prices should, over the long term, grow at the same rate as
> profits,
> since that's what they're a capitalized claim on, and profits should
> grow
> roughly in line with GDP, also over the long term. Dividends are paid
> out
> of profits (unlike corporate interest payments, which is deducted
> before
> profits are computed). So isn't there a double-counting of dividends,
> once
> as they paid out and once as they capitalized? The double
> capitalization of
> dividends, to paraphrase the coporate tax cut flacks? Damn, I've got
> to
> think about this.
> 
> Doug