Re: The party's over

["Jose G. Perez" <jgperez@xxxxxxxxxxxxxxx>]

Thanks for posting this Louis, but no cigar.

It may well be true that the stock market turns out to be overvalued right
now, but this article doesn't prove it. Quite the contrary, it assumes what
is sets out to prove, and then says, I told you so.

>>Dean Baker of the Center for Economic and Policy Research (CEPR) was the
first economist to work through the arithmetic of the bubble, and his
findings have since been confirmed by other prominent economists. It works
like this: in the long run, investors hold stocks only because of the
earnings of the underlying companies. Stockholders get a return from two
sources: the shared earnings paid in the form of dividends, and an increase
in the price of the stock (capital gains).

>>The average dividend payout is only about 1.5%. Capital gains, over the
long run, cannot grow much faster than the economy-- unless you are starting
from a point where stocks are undervalued relative to future earnings. But
the average stock price relative to earnings-- known as the
price-to-earnings ratio-- is still near twice its historic level. So unless
you are willing to believe that stock prices are unrelated to the profits of
the companies they represent, you can't expect capital gains much higher
than the long run growth rate of the economy-- at least from here on out.
That rate is currently estimated at about 2.2% annually.<<

Actually there's never been any "mystery" about financial bubbles, they have
been a regular feature of financial markets for several hundred years and,
in any given 3, 5 or 7-year period, there is ALWAYS going to be a bubble
because capitalism and financial speculation go together like bread and
butter.

But the key assertion is the one that says that profits (so-called "capital
gains" here, but let it pass) can't be expected to grow more quickly than
the rate of growth of the economy as a whole (here projected at a miserly
2.2%, although for several years the rate has been higher).

There's absolutely NO REASON given as to why profits cannot grow more
quickly, and, indeed, none COULD be given for the argument is bullshit and
*demonstrably* false to anyone who cares to acquaint themselves with the
facts, i.e., anyone who is *serious.*

    Profits can, and historically DO grow more quickly than the economy as a
whole. The have been growing more quickly for the last 25 or 30 years, as
anyone willing to dive through the statistics can verify. How can this be?
By paying the workers a slightly smaller percentage of the increasing "pie."

    When you get right down to is, in the last analysis, all NEW value
created in the economy goes to one of two places, to wages or to "profits"
(surplus value, really, which then goes through a whole complicated process
to get turned into the profits of individual enterprises, rents, interest
payments and so on. But in the case of this argument, we can ignore all
that). Let's postulate an economy that has a perfect 50-50 split between the
two, and grows, say, 4%. Suppose wages are held constant, what happens to
the other half? After the 4% growth, wages have grown 0% and profits 8%.

    That's exactly what has been happening in  the American economy for
decades. Leaving aside both the imprecision of these kinds of figures, and
the fuzziness of bourgeois national accounts concepts, you will see that the
average wages of individual workers haven't changed much (once you take into
account the recent revisions to inflation estimates, etc., carried out over
the last couple of years), but that the portion of national income
represented by wages has declined steadily, from somewhere around 65% to
closer to 55%. "Profits" (using the term very imprecisely just for the
purposes of this illustration) grew from roughly 35% to 45% since 1972 or
so. And that's 45% of a pie that has grown considerably.

    So that's fallacy one.

    Fallacy two is viewing the U.S. economy as a shut-in system, divorced
from the world as a whole. The fact is that through a million and one
mechanisms, surplus value generated in the colonial and semicolonial
countries winds up at the banquet tables of the imperialist powers. And that
both the magnitude of these imperialist profits and the *share* of enjoyed
by American imperialism, I believe, has *increased* if you look at the
economy on a 20- or 30-year timeline.

    How do 100 countries wind up with a lower GDP percapita TODAY than 20
years ago? Has productivity declined? Has there been a massive
de-technologization driving people towards ever more primitive and less
productive ways of working? No, they're simply being squeezed harder by the
imperialist powers, both through outright gun-at-your-head extortion and
through the "normal" workings of the capitalist market.

    What's happened is that all that surplus value is being transferred to
the imperialists by mechanisms that include everything from repatriation of
profits to a constant and unfavorable (for producers of raw materials)
evolution in the terms of trade.

José

----- Original Message -----
From: "Louis Proyect" <lnp3@xxxxxxxxx>
To: <marxism@xxxxxxxxxxxxxxx>
Sent: Thursday, January 04, 2001 4:42 PM
Subject: The party's over


>From the Common Dreams news center

http://www.commondreams.org/views01/0103-04.htm

Published on Wednesday, January 3, 2001

The Stock Market Party's Over by Mark Weisbrot