Invisible Sun

JACKSON HOLE, Wyo. -- Please let's bastardize an old saying a bit and claim that a table is worth a thousand words.

The first column shows the December-on-December change in the

S&P 500

. The second shows the annual change in real (inflation-adjusted)

final sales to domestic purchasers

-- the broadest available measure of domestic consumption. (These

numbers are available at the


site, and a recent

column defined final sales.) The third shows the annual change in real (inflation-adjusted) disposable (after-tax)

personal income

. (These

numbers are also available at the BEA site.)


Share prices rose a lot faster in the 1990s than they did in the 1960s. Lots of people know that. But far fewer know that final sales and real income both rose a lot faster in the 1960s than they did in the 1990s.

Any good forecaster knows that income growth -- a direct product of employment growth -- does much more to determine consumption than do shares. But most market participants do not (ask one and confirm it). Share prices rose almost thrice as fast during the 1990s as they did during the 1960s. This doubtless produced a spending pace faster than would otherwise have been the case, but consumption gains were nonetheless generally limited to income increases that clocked in at less than half their 1960s pace.

The New Era types, whose claim that the price of things no longer adjusts to bring the supply and demand for them into balance, rests solely on the assertion that trend productivity growth has risen so much that little else matters, have more than a bit of explaining to do. If productivity growth is indeed now bigger than it was even in the 1960s, when it averaged 2.9%, and given that worldwide deflation has produced all-around lower input prices, then employers necessarily ought to be rewarding employees with higher nominal wages. But they aren't. Wages in the 1990s have grown at a rate more than two full percentage points below their 1960s pace.

And it's just real hard to believe that it's because employees like it that way.

Side Dish






. All apologies for any confusion.

People keep asking about Japanese small-caps. Happened to see this on a wire.

A Japanese index tracking conditions among companies with less than 300 workers rose 3.3 points to 43.2 last month, the fourth straight increase and the biggest jump since August 1987, said Shoko Chukin Bank, which surveyed 800 companies.

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