Baird query re profits 'n' stock prices.

[Greg Nowell]

Baird raises an interesting point (on an LBO post)
pertinent to the disccussion of how stock returns (not
profits as such; retained earnings can be reinvested)
could exceed the growth of GDP.  I.e, out old friend,
concentration.  It's certainly the case that as Wal
Mart's displaces boutiques GDP might stay the same
while the listed profit of stocks goes up.  Nominally
we would expect Wal Mart to be more efficient.  But on
the conservative assumption that there was no
efficiency and/or growth in sales gain, that total
wages spent to move products were the same,  that the
profits were smushed over from the boutiques to the Wal
Marts, we would still have a neutral GDP effect while
the S&P 500 was pushed higher.  It stands to reason
that GDP could grow at one rate and S&P could grow
faster.

It follows from this that there is a non-trivial error
in using stocks as a proxy indicator of profits.

Given Marx's emphasis on concentration as a feature of
capitalism,  a disconnect between S&P growth and GDP
might even be *required*.   Baird has offered a very
elegant solution to the question we've pushed around on
both lists.   I like it quite a bit.

--
Gregory P. Nowell
Associate Professor
Department of Political Science, Milne 100
State University of New York
135 Western Ave.
Albany, New York 12222

Fax 518-442-5298