This spectacular departure from normal price-to-earnings ratios was justified on the following basis: We had entered the New Economy, where through superior information-gathering capacity granted by artificial intelligence, inventories would be much more carefully controlled. Productivity would be drastically higher, and corporate profits would soar at a much higher rate.

Now we know better. (We know to run like mad whenever anyone uses the word "new" in an investment context, among other things.) There has been a profits depression in the past year, with profits falling by about 20% in just a few quarters.

We know that stupefying overcapacity was created in the very fields in which "new" technologies were supposed to be most effective: computers, chipmaking, telecom, fiber optic and, of course, the Internet's content providers.

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So much for the New Economy.

Where We Are Now

But now -- 15 months after the bubble burst and far into an endless round of dramatic falls in profits -- what is the P/E for the Dow? Very roughly 26 again -- almost as high as it was at the top of the stock bubble. And the P/E for the much larger, tech-laden S&P 500 is also very roughly about 27 -- almost the same as a year ago.

The market hasn't corrected at all for the sad truth that the New Economy's underlying assumptions turned out to be mistaken, and we're back in the same Old Economy with uniquely cruel business cycles, booms and busts.

Just to give you an idea of how far out of historical whack the stock market is, consider this: Profits rise over the long term by about 4% a year, with immense deviations around the mean. If the earnings depression ends tomorrow and profits rise at 4% a year again, it will take roughly 14 years (not months, years) for the Dow's P/E to reach historical norms -- even if the Dow doesn't rise 1 point in those 14 years. Or, to look at it another way, the Dow would have to fall by about half for it to resume historical P/E behavior.

This is sobering stuff. Still, one has to assume that it doesn't happen by accident. Next time, I'll look at why the market is still so high, and what this tells us about the human capacity to learn and to forget.