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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (66673)	8/23/1999 6:31:00 PM
From: Don Lloyd	Read Replies (3) \| Respond to of 132070

MB - (In this case, even the early adopters of pcs didn't get a big productivity jump due to the high cost of the boxes at that time, their complexity, which entailed training costs and salaried trouble shooters, and their non-specifity of function. The prices have now come down, the boxes are less complex due to standardization, and we are approaching the buy boxes to stand still phase you mentioned.) Agreed, although companies like Walmart effectively adopted them for an advantage. Just buying them is worse than useless, they need to be integrated into an effective plan. I am starting to imagine a hypothetical simplified economy, and trying to judge whether the economic indicators reflect what people think they do. Assume an idealized, simplified economy, with ferocious competition and a constant 10% rate of productivity growth. Every year prices of each product fall by 10%, as 9 workers can do the work that previously required 10. Also, assume that each of those 1 of 10 displaced workers is absorbed into new industries producing new products, competing with the old products for the consumer/worker dollars. Without trying to match up a bunch of numbers, the following would seem to be possible : 1. No growth in dollar GDP and company revenues as prices fall to offset new products gaining market share of consumer expenditures. 2. Company profits flat at 3% ROI due to intense competition. 3. No monetary intervention. 4. Stable population Results - a. Measured CPI will understate nonexistent inflation as a negative number by only measuring pre-existing products and their falling prices, even as their share of consumption falls. The understatement should persist in the real world. b. The economy will seem to be stagnant as GDP and profits are absolutely flat y/y. There is no reason for any stock price appreciation. c. Profits will be at the low level of risk-free interest. d. With the economy working to perfection, there is no real inflation, but no growth of revenues or profits or stock prices, as all the positive results of productivity and efficiency improvement flow to the consumer, as the number of products increase as their prices decrease. There is a major continuous improvement in absolute living standards. e. In this situation, there is no justification for blindly buying stocks and expecting superior results, as the only way to profit is by identifying discrete companies who actually outperform the unreal perfect competition assumed above. Final Summary - Even if we were to have the high unmeasured productivity growth that some suggest, it still is no justification for the expectation of high future overall stock returns. The real economy can conceivably operate very well, providing both jobs and improving real living standards, without the results appearing in any macro measurements or allowing a superior return from financial investments of any kind. Regards, Don