mffl wrote: ↑Sat Aug 13, 2022 5:09 pm
SimpleGift wrote: ↑Sat Aug 13, 2022 2:26 pm
mffl wrote: ↑Sat Aug 13, 2022 10:23 am
One fascinating aspect of this topic is how different charts make it look like it's a real thing, and others make it look like it's not a thing. Your chart makes it look very real. Nisiprius' chart makes it look like it's not. Both are valid representations of reality.
The difference in perspective seems to be a result of the difference in time scales we are looking at.
From the perspective of an individual stock investor — with an investing career of 20, 30, or 50 years — there has certainly been a wide dispersion in ending wealth amounts, depending on the particular period one is born into.
However from an academic perspective, we have return data on corporate enterprise extending over almost four centuries, going back to the 1600s and 1700s. Admittedly, the very early return data is quite weak — but even within this limited data set, stock returns on the scale of centuries have averaged a fairly consistent 5%-6% real per year.
For more, see this Forum discussion from several years ago:
The Deep History of Stock & Bond Returns
Right, this makes sense. So there really does seem to be consistency, but over perhaps 75 year supra human timescales rather than 20-30, and it's weak-ish even at 50. That perspective difference might be a large portion of why the various charts thrown around in this thread can all be true at the same time.
To some extent, though, I find that even odder, and that sort of begs my original question. Intuitively, I understand short term volatility, but if there were some long term consistency, it's over the 20-30 year horizon that I'd expect to see it, not the 75+ year horizon. Wouldn't you think reversion to the mean -- if it were to happen at all -- would have to happen on a timescale shorter than "human flight to internet"? Because you'd think that when the really big, once in a couple generation type things come along, they would break whatever the prevailing rate of inertia was, in one direction or the other. Yes, I suppose, the emergence of both flight and the internet were required to keep the compounded 7% thing going long term, but it just seems even odder that the fit is better the further you zoom out. Certainly that hasn't always been the case throughout human history.
So far my best grasp of this is that since the late 1800s, or perhaps even earlier to the 1600s, as you suggest, but perhaps NOT earlier than that, population growth has been pretty stubbornly exponential, especially in stable countries. That's certainly the cause of some of the growth, and it is in fact itself exponential and stable. Then if productivity is generally positive long term -- more erratic than population growth, but still bounded over long timescales -- then economic growth should be expected to be relatively consistent and exponential. And if the market is just the economy with a temper, it will -- eventually -- revert to the true value of the economy. Therefore, population growth is relatively consistent, even over shorter timescales.
Population growth is anything but consistent? It rises quite rapidly as life expectancies lengthen, and then slows dramatically. France in the 19th Century does not have fast population growth. Victorian Britain does, and then it does not. Every other industrialising country follows the same pattern into the 20th Century.
Economic growth less so (due to adding in the less stable productivity growth factor), and the market least of all, but if you zoom out far enough to smooth out the peaks and valleys, it's just a straight line too on a log chart.
So one theory might be that we're in for trouble if population growth continues to slow, as that contributes a large portion of the absolute economic growth, and nearly ALL of the consistency.
1. Population growth is not consistent. 2. As long as GDP per capita grows, actual population growth is not a big issue.
Just raising the rest of the planet up to the standard of living of Costa Rica will keep us busy this century. Costa Rica is a place where the poor live in shacks - that have running water & electric lights & TVs. And they have free universal healthcare, and free education up to age 18. And the life expectancy and literacy of a developed country.
Another might be that population growth has already slowed, and the zoomed out rate of growth isn't problematic yet, not even with the 2018, 2020, and 2022 bear markets. In fact the tech era since the 80s has a higher return if anything. Perhaps technological productivity growth is supplanting population growth, and perhaps that's... ok? After all, Moore's law is a bit artificial and misunderstood, but still presents as a pretty consistent exponential curve itself.
Productivity growth surged in the lead up to 2000, but has been quite flat since. Technology is not obviously causing productivity growth.
The real key with population is "the Demographic Dividend". See Japan post WW2. Or Ireland in the 1980s & 90s. China since about 1990. Once Total Fertility Ratios drop, you have this situation over the subsequent 20 years where the workforce keeps growing, and the number of dependents falls. Often associated with large scale migration of women into the formal workforce. The Dependency ratio (dependents per worker) falls.
The next phase is where Italy is now. Or Japan. Where the number of old people rises dramatically and the Dependency Ratio goes into reverse. Japan has struggled with this & they seem to be far better at providing for their old than many western countries. So that's a warning.
And perhaps if tech stopped propping us up, governments would start stressing out and heavily incentivizing larger families again, etc. And people would feel less wealthy, which might possibly tend to increase the birth rate. In other words, it might end up being self correcting if tech growth can't offset all the population growth.
Maybe.
A couple of points there:
1. although US social policy provides little support to families to have more children, AFAIK, natalist policies have been widely tried since the 1930s in other countries. Ceausescu's Romania banning abortion & artificial means of birth control, etc. Massive incentives for more children (Nazi Germany first, but many countries in modern post war Europe).
Broadly these have been unsuccessful. European nations, the most advanced practitioners, have TFRs generally below 2.1 ie below replacement. Former communist Eastern Europe and Southern Europe particularly low.
2. What we do know is:
- the more religious people are the more children they tend to have - Chassidic Jews, Amish, Mormons etc. So if there is another big religious revival in the Western World then you might see a birthrate surge.
- extensions in life expectancy tend to bring about a fall in birth rates. But there's a lag, as more of the over 35s are alive but so are their children. So there is a distinct "hump" in the population for c 2 generations whilst this works its way through. Since 1900, world life expectancies have x2 with less developed countries increasing by the most.
- related to that is when do people marry, and do women have a place in higher education and in the formal workforce? Garry Becker and the Chicago economics school seem to be right. Children are an enormous economic opportunity cost in terms of lost income & careers etc. And women bear the disproportionate share of that. To the extent that women can delay having children, they will have fewer... or none at all.
Countries that have experienced (mild) revivals in TFR, like France and Scandinavia, seem to be:
- ones where there is a lot of state support for families. For example universal, cheap childcare
- housing prices are not exiguous - young couples can afford apartments or homes
- men take on a greater share of childcare and housework. For example paternity leave is both offered, and taken
None of the above is true of places with really low birthrates like Spain, Japan, Italy.
Urban India now has TFRs of around 1.8-1.9 vs 3.1 for the country as a whole (down from over 6 in 1960). That is quite striking.
(the biology of deferral of having children is pretty stark. I encourage anyone to research the odds. Remember that when Mrs Blair (British PM Tony Blair's wife, and an accomplished trial lawyer, a QC) had her 4th child in her 40s, she was already clearly one of the women in this world who was quite fertile -- so she was not representative of the odds of any randomly selected 40-something British woman having a child).
3. the Baby Boom is an odd one. It seems related to a deferral of child-bearing due to the exigencies of the Great Depression and the Second World War. It really was only a significant factor in the overseas Anglosphere - Australia, Canada, USA. It was much later and more muted in Europe (including Britain).
The Baby Boom is one of the very few (only?) recorded rises in TFR since the 1850s in a developed country*. The hypothesis is that people did so much better in the late 1940s & 1950s than their parents had, or than that they had expected to growing up in the 1930s, that having children seemed a smaller cost. And the returning soldiers and sailors tended to marry very quickly upon return. And women left, voluntarily or not, the majority of the "male" roles they had occupied during the war years when men were in uniform.
https://academic.oup.com/book/404 Sara Harper
Demographics: A Very Short Introduction is an excellent and readable introduction to these issues.
I don't think demographics is much help in determining the course of stock prices.
* Russia after the 1918-21 Civil War. But Russia was not a developed country in that time - industrialisation under Stalin came later.