There are also those that argue that even these expectations of return are based on an extremely atypical era of history in which rapid industrialization of much of the world lead to being able to expect a return due to rapid expansion of the real economy, and that the US was uniquely poised to take advantage of this era because (among other things) we were one of the few industrial nations that was not bombed extensively during WWII. That era could be ending, with a saturation of bankable projects with high returns to large populations and rapid slowing (and in some cases reversal) of expansion of resource extraction and population growth and the pulling of existing population into market systems. This is far more global than the previous disruptions talked about in this analysis.
If this is the case, we can expect long-term real returns to become far lower on average than even these estimates, far more unpredictable and volatile, and very difficult to weed out from the much higher short-term unstable returns of ponzi finance that creates high notional wealth without a corresponding investment in the real economy to stablize it.
Surely if a certain future payoff is expected a priori to be good (because of expected favorable business climate or whatever), then the price paid will adjust accordingly. This means that expected return (a function of price paid and payoff) will be comparable to other investments with similar payoffs, rather than being good.
If, say, business climate were unfavorable, and payoff is expected to be low, price paid for the investment should adjust for this so that expected return need not be low.
If there is large degree of uncertainty associated with a payoff, then expected return may be high to reflect the low price one might get due to people’s distaste for variance. (The expected return may be low though if people have a taste for variance; e.g. lottery tickets.)
The point is that expected good economic conditions per se need not be the driver of a priori expected returns. (That they are expected means that the price adjusts to reflect this, leading to mediocre returns.) Rather, the higher order moments of the (subjective) payoff probability distribution may play a more important role.
Could you spell out what you mean? or point to someone who claims to believe this in more detail?
What much of the world was industrializing after the war? What percentage of publicly traded firms exploit foreign investment opportunities?
The German stock market did a lot better than the US market in the 50s.
later: it would make more sense to talk about reconstructing Europe and Japan than about industrializing new places, but my other comments continue to stand: why would US equities be a good way to invest in Germany, and why would does the US return beat the European returns, when Europe captured most of the value of its reconstruction?
There are also those that argue that even these expectations of return are based on an extremely atypical era of history in which rapid industrialization of much of the world lead to being able to expect a return due to rapid expansion of the real economy, and that the US was uniquely poised to take advantage of this era because (among other things) we were one of the few industrial nations that was not bombed extensively during WWII. That era could be ending, with a saturation of bankable projects with high returns to large populations and rapid slowing (and in some cases reversal) of expansion of resource extraction and population growth and the pulling of existing population into market systems. This is far more global than the previous disruptions talked about in this analysis.
If this is the case, we can expect long-term real returns to become far lower on average than even these estimates, far more unpredictable and volatile, and very difficult to weed out from the much higher short-term unstable returns of ponzi finance that creates high notional wealth without a corresponding investment in the real economy to stablize it.
Surely if a certain future payoff is expected a priori to be good (because of expected favorable business climate or whatever), then the price paid will adjust accordingly. This means that expected return (a function of price paid and payoff) will be comparable to other investments with similar payoffs, rather than being good.
If, say, business climate were unfavorable, and payoff is expected to be low, price paid for the investment should adjust for this so that expected return need not be low.
If there is large degree of uncertainty associated with a payoff, then expected return may be high to reflect the low price one might get due to people’s distaste for variance. (The expected return may be low though if people have a taste for variance; e.g. lottery tickets.)
The point is that expected good economic conditions per se need not be the driver of a priori expected returns. (That they are expected means that the price adjusts to reflect this, leading to mediocre returns.) Rather, the higher order moments of the (subjective) payoff probability distribution may play a more important role.
Could you spell out what you mean? or point to someone who claims to believe this in more detail?
What much of the world was industrializing after the war? What percentage of publicly traded firms exploit foreign investment opportunities?
The German stock market did a lot better than the US market in the 50s.
later: it would make more sense to talk about reconstructing Europe and Japan than about industrializing new places, but my other comments continue to stand: why would US equities be a good way to invest in Germany, and why would does the US return beat the European returns, when Europe captured most of the value of its reconstruction?