All of this decline in the market has not shaken their faith because the official interpretation is, “It’s just a correction. It always goes up. This is a test of your patience.” And people, while they’re a little bit annoyed because it’s taken so long, they haven’t changed that view. So they’re still expecting the market to do wonders in the coming years. But I think another scenario is quite a bit more likely and that is that the market bounces up and down and up and down and no historic turning point is in the near horizon.
They don’t show that bull markets, like we saw from 1982 to 2000, are common. There’s been only two of them – the Twenties and the Nineties. If you take the US stock market from 1871 to 1991 and compute what the average annual growth rate of stock prices corrected for inflation has been, it’s been two per cent a year. Of course, then it’ll pay higher dividends so over that whole period you’ve got a return of something like seven per cent, but it has not been anything like the 1990s. But people still have this view of the world because they’ve seen it do this through their entire life – that the market has just gone up and up. They want to know when is that starting again and that’s the wrong question to ask...
These people are saying that the growth rate of our economy will be higher than it was over earlier epics of human history when other innovations like the railroad, the automobile, electricity, computers – there’s so many of them – so this human progress has been going on producing growth over the last century. I have never seen any convincing study arguing that it should be higher now. I mean, I love the internet too, but I don’t know how it’s different from electrification in its potential for promoting growth.
-Robert Schiller in 2002
(transcript of a BBC show featuring Diane Coyle, Robert Brenner, Mark Cliffe, Nick Crafts, Danny Quah,Bill Martin, and Peter Warburton)