The column “Reality check: Is the stock market overvalued?” by Mark Weisbrot (Commentary, Aug. 16) presents an analysis based on the author’s perception of American businesses as being static in their operations rather than the ever-improving, dynamic entities that most of them are. In a universe of static technology and unchanging methods of doing things, as existed during Medieval times, there is only a fixed pie to divide. Thanks to the Renaissance and its continuation through today, and with high expectations that it will continue, the processes by which we do things are in a state of constant improvement, with consequential benefits to society and those that create such improvements.
Productivity and profitability have been improving, and are expected to improve further. If it weren’t for computers, for example, airline fares would be much higher and airline profits lower.
This increase in productivity applies to broad sectors of the economy. The recent gains in corporate profits have come from much more than growth in the national economy; they have come from increases in the economic efficiency with which businesses operate. By replacing processes with more efficient ones, we all benefit, and corporate profits can rise as can compensation to the creators of these innovations.
I don’t know what the stock market will do tomorrow or next month, but I have great confidence that it will take fewer man-hours to produce a refrigerator, laptop computer, newspaper and burrito in 2008 than in 1998. Therefore we can expect corporate profits to grow faster than the economy as a whole with consequential effects of stock valuations.
