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Politics : View from the Center and Left -- Ignore unavailable to you. Want to Upgrade?

To: Dale Baker who wrote (28894)	9/20/2006 11:34:15 AM
From: wonk	Read Replies (2) \| Respond to of 541078

Dale (and Tim): The problem with articles like these is that (1) they’re complex and (2) they say on the one hand, then on the other hand. One has to distill the complex to the simple. Look at this chart. morganstanleyindividual.com One has to subtract the risk-free rate (t-bills) from the other indices to get the underlying rates of return for the particular asset class, so from 1925-2000…. Core Asset Return Return Risk Free Rate (T-Bills) 3.8% Long term Govt Bonds 5.3% 1.5% Large Cap Stocks 11.0% 7.2% Small Cap stocks 12.4% 8.6% as compared to real median HH income gain of 0.7% I’m not in the same location as my Ibbotson data but off the top of my head if you were to sync up the measurement period to the household income data since 1965, the long term govt bonds & equity returns would probably be 1.5% higher. So without my data I’m guessing, but from 65-05, LT Govt bonds would have a real rate of return of 3%, large caps around 8.7% and small caps around 10.1% above the risk free rate. Yet, again, median HH income rose only 0.7% annually (approximately). In one sense Marx was right. All value is created by labor. It’s real easy to see this if we imagine ourselves as venture capitalists. We can dump $100 million into a new company, and bad management and bad employees can (and do – I’ve been there) burn through every dime. Good management and good employees will get the returns shown above (actually far greater return) provided of course all the other prerequisites of success are there. What created the value? Certainly not capital – people did. Capital is just a tool, a critical tool of course, but a tool nonetheless which can be used well or poorly. Heck I’m a capitalist through and through, but the disproportionate distribution of returns between labor (as shown by the real median HH income) and capital as documented annually by Ibbotson (for example) is a prescription for disaster. ww p.s. Tim you are utterly wrong to dismiss the Sentiment Survey. The economy doesn’t run because of the Government or Big Business or Small Business or all in combination. The Economy runs on Confidence. pps I really need to run, and go make some money <g>.