In a previous CD post “Economic Growth,” I had a graph of world GDP per capita from 1 – 2003 A.D., and commented that “sustained economic growth of even 1% per year was not a reality until the 19th century, and sustained economic growth of 2-3% was not a reality until the last 50 years,” and only in advanced economies like the U.S.

That post generated a lot of interest, and it was linked to several other blogs. That made me think about historical stock market performance, which should follow the same historical pattern as economic growth, since they are linked so closely together. Without positive economic growth, you won’t have positive stock market growth.

Sure enough, sustained positive growth in the U.S. stock market was not a reality until 1950, see the graph above of the S&P 500 Index from 1800-2007. The S&P 500 Index stock series back to 1800 is from Global Financial Data.

From 1800 to 1950, the average annual nominal stock market return was 1.35%, inflation averaged 2.4%, resulting in a negative, real annual stock market return of -1.05%.

From 1950 to 1975, the average annual return on the S&P 500 was 6.1%, inflation averaged 3.24%, resulting in a real return of 2.9%.

From 1975 to 2007, the average stock market return was 9.1%, inflation averaged 4.3%, generating a real return of 4.8%.

Bottom Line: It’s only been in the last 50 years that positive, real stock returns were a reality, and it’s been in the last 25 years that real, annual stock returns have approached 5%.

From today’s Investor’s Business Daily:

1. U.S. corporate taxes are the second highest among industrialized nations. As a percentage of GDP, corporate income taxes rose from 1.2% in 2003 to 2.3% in 2005, the highest level in 25 years.

2. About 14 million Americans at lower incomes have been removed from the federal income tax rolls since 2000 because of the earned income tax credit and the per-child tax credit.

3. The rising tax burden (see graph above) is borne disproportionately by those who are successful. The top 50% of Americans pays almost 97% of income taxes. And most of that — 54% — is paid by the top 5%, and the top 1% pay more than 34% of all personal income taxes collected.

4. The CBO found that the after-tax income of those “superrich” actually declined after the 2003 tax cuts — by 8.3% from 2000 to 2004.

Jacob Sullum in today’s Washington Times answers the questions: a) why do employers pay for our health insurance?, and b) why does health care cost so much?

Most Americans get medical coverage through their employers, which is a strange situation when you think about it. People do not expect their employers to pay for their car insurance, their life insurance or their homeowner’s insurance. Why should employers pay for their health insurance?

This strange situation was created more or less by accident. During World War II, businesses competing to attract scarce workers got around wage and price controls by offering health insurance instead of higher pay. In 1943 the Internal Revenue Service decided not to count this increasingly popular fringe benefit as taxable income, a policy codified by Congress in 1954.

The seemingly free coverage makes health care more expensive for everyone. Not only are you unlikely to know or care how much your employer spends on health insurance, but the coverage may be more generous than you would choose on your own, which means you are unlikely to know or care how much particular services cost.

If you were using your own money to buy insurance, you might opt for a cheaper policy with a higher deductible, in which case you would be more conscious of things like the fee for an office visit or the difference in price between name-brand and generic drugs. Indifference to such considerations contributes to escalating health care costs.

See a previous Carpe Diem post here on the same topic.

“Every politically controlled educational system will inculcate the doctrine of state supremacy sooner or later. . . . Once that doctrine has been accepted, it becomes an almost superhuman task to break the stranglehold of the political power over the life of the citizen. It has had his body, property and mind in its clutches from infancy. An octopus would sooner release its prey. A tax-supported, compulsory educational system is the complete model of the totalitarian state.”

~Isabel Paterson, The God of the Machine (1943)

Related, from The Cato Institute: “The Utah House of Representatives passed the nation’s first universal school voucher bill, and it’s probably going to pass the Senate this week as well, and be signed by the governor. If it is signed into law, it will be an unprecedented step forward for educational freedom in this country.”

Check out the Concierge, a wireless interactive touch-screen computer console integrated in shopping cart handles, featuring personalized account recognition, product scanning, self-checkout, in-store cart tracking, dynamic advertising, product finder, interactive shopping list, and recipes.

Watch a demonstration video here.

“In a memorandum dated November 5, 1955, submitted to the government of India, Milton Friedman, who predicted the end of the post-war boom and stagflation, was at his prescient best while candidly critiquing the model of planned development being formulated under the auspices of the eminent mathematician P. C. Mahalanobis.

It is worthwhile revisiting Milton Friedman’s arguments, as valid now as they were then, with most of them quietly implemented over three decades later as part of India’s new economic policy from the 1990s.”

From the article “Milton Friedman and India,” in the Economic Times of India, via Professor Lawrence White at Division of Labour.

India’s real GDP grew by 9.2% in the year to last September (the latest numbers available). Over the past four years it has clocked up an average annual pace of more than 8%, compared with around 6% in the 1980s and 1990s—and a measly 3.5% during the three decades before 1980, when highly interventionist policies shackled the economy (see graph above).

India seems to be reaping the rewards of reforms that were made in the early 1990s. These massively lowered barriers to trade and liberalized capital markets. As a result, total trade in goods and services has leapt to 45% of GDP, from 17% in 1990.

From The Economist Magazine article “India on Fire.”

“The inverse relationship between quantity demanded and price is the core proposition in economic science, which embodies the presupposition that human choice behavior is sufficiently rational to allow predictions to be made. Just as no physicist would claim that “water runs uphill,” no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.”

~James Buchanan, 1986 Nobel economist, George Mason Univ.