That is what readers of David Ignatius' column on the "rehab economy" probably assume. After all, he seemed to get just about everything wrong. Ignatius tells readers that the go go economy of the last three decades appears to be at an end and we are now entering a period of slow growth, which he compares to the fifties and sixties. Okay, this is close to loon tune. The three decades following World World II were the period of most rapid growth in the history of the country. Productivity growth, economists' standard measure of an economy's dynamism, was almost 3 percent a year during this period. It fell to 1.5 percent in the mid-seventies and stayed there until the mid-nineties. There was a productivity upturn in the 90s, but adjusted for items like a growing depreciation share in output and some index number issues, productivity growth as it relates to living standards was still a full percentage point lower than Ignatius's slow growth period. Even Ignatius's story about bad stock returns in this period doesn't hold water. Real stock prices grew at close to a 7 percent annual rate from 1949-1969 (real stock prices fell almost 20 percent in 1970). This gain coupled with a dividend yield that averaged 3,2 percent, provided an average real annual return in the stock market of more than 10 percent. Of course the facts don't fit very well with Ignatius' story that we suffered slow growth in that era because people didn't have enough incentives to take risks and innovate during this era. That is probably why they were edited out.
Dean Baker
