>I think one of the problems is that Doug is assuming an
>"ergodic" relationship between stock prices and GNP
>growth (and total returns traditionally include prices
>with the assumption of dividends reinvested in the same
>stock index, but before taxes and not counting
>transaction fees). Doug may roll his eyes. But
>really, asset valuation is not necessarily an
>inherently logical process.
Uh-oh, I detect the influence of Paul Davidson here!
I entirely agree that asset valuation isn't logical, at least over the short to medium term. That's one of my differences with Anwar Shaikh's position on the stock market; as a good orthodox Marxist, he rejects any notion of faddishness or irrationality. But historically, stock prices have tended to oscillate around underlying profit and dividend growth (see, for example, Robert Shiller's famous chart in Market Volatility). Periods of bullish overvaluation have alternated with periods of bearish undervaluation, all around a rising long-term trend.
Doug