3 ms·

> on average, stock value over the long term (20+ years) is very likely to be in range of, say, 5%/year, plus or minus (actual number is not that important for

> on average, stock value over the long term (20+ years) is very likely to be in range of, say, 5%/year, plus or minus (actual number is not that important for our purpose here), after adjusting for inflation. Why should it be that way?

svachalek 9y ago
The classic explanation is that the economy is growing and thus the overall "pie" being shared is growing even if individual pieces are not as predictable. But I think broader and broader participation in the market via government policies like 401(k) has to be part of the story, and also I worry how much we try to extrapolate from modern financial history which is barely more than a single human lifetime.
- hsitz 9y ago
  William Bernstein has argued pretty well that the growth of economies over the long term has held pretty stable over (surprisingly) the last several hundred years. See his book, "The Birth of Plenty": https://www.amazon.com/Birth-Plenty-Prosperity-Modern-Created/dp/0071747044 https://www.amazon.com/Birth-Plenty-Prosperity-Modern-Create... The keys to economic growth he identifies are (1) property rights, (2) scientific rationalism, (3) capital markets, and (4) adequate transportation/communication. All of these appeared in sufficient form for prosperous growth several hundred years ago. There is of course no guarantee of continued growth at same rate as last several hundred years. But given the conditions that have prevailed it has settled at a fairly stable rate as sort of a natural law.
  - PoachedSausage 9y ago
    He missed out (5) Abundant fossil fuels.
    - vkou 9y ago
      This is the real cause of economic growth. The Soviet Union and the People's Republic of China industrialized at only a slightly slower rate then the West, despite not having much in the way of property rights or capital markets. Without two hundred years of unsustainable consumption of fossil fuels, property rights or capital markets wouldn't have given us a fraction of the economic growth that we got. Stock exchanges don't do much for you when 97% of your population are either subsistance peasants, or make hand-crafted tools used by subsistance peasants, and you have to spend 8 hours a day banging rocks together to stay warm and to scare away mountain lions. #4 is also only possible because of #5.
hsitz 9y ago
In one sense your question is similar to many others: Why should the sky be blue? Why should gravity at the surface of the earth accelerate objects downward at 9.8 m/s2? Of course, the answer to question of economic growth is more changeable, dependent on societal arrangements that are more likely to change than physical conditions governed by natural laws for the other two questions. But given the economic society we have, 4% or so is the observed stable growth, worldwide.

svachalek 9y ago

The classic explanation is that the economy is growing and thus the overall "pie" being shared is growing even if individual pieces are not as predictable. But I think broader and broader participation in the market via government policies like 401(k) has to be part of the story, and also I worry how much we try to extrapolate from modern financial history which is barely more than a single human lifetime.

hsitz 9y ago
William Bernstein has argued pretty well that the growth of economies over the long term has held pretty stable over (surprisingly) the last several hundred years. See his book, "The Birth of Plenty": https://www.amazon.com/Birth-Plenty-Prosperity-Modern-Created/dp/0071747044 https://www.amazon.com/Birth-Plenty-Prosperity-Modern-Create... The keys to economic growth he identifies are (1) property rights, (2) scientific rationalism, (3) capital markets, and (4) adequate transportation/communication. All of these appeared in sufficient form for prosperous growth several hundred years ago. There is of course no guarantee of continued growth at same rate as last several hundred years. But given the conditions that have prevailed it has settled at a fairly stable rate as sort of a natural law.
- PoachedSausage 9y ago
  He missed out (5) Abundant fossil fuels.
  - vkou 9y ago
    This is the real cause of economic growth. The Soviet Union and the People's Republic of China industrialized at only a slightly slower rate then the West, despite not having much in the way of property rights or capital markets. Without two hundred years of unsustainable consumption of fossil fuels, property rights or capital markets wouldn't have given us a fraction of the economic growth that we got. Stock exchanges don't do much for you when 97% of your population are either subsistance peasants, or make hand-crafted tools used by subsistance peasants, and you have to spend 8 hours a day banging rocks together to stay warm and to scare away mountain lions. #4 is also only possible because of #5.

hsitz 9y ago

In one sense your question is similar to many others: Why should the sky be blue? Why should gravity at the surface of the earth accelerate objects downward at 9.8 m/s2? Of course, the answer to question of economic growth is more changeable, dependent on societal arrangements that are more likely to change than physical conditions governed by natural laws for the other two questions. But given the economic society we have, 4% or so is the observed stable growth, worldwide.