The Negative Equity Premium

Asset Returns and Economic
Growth
Dean Baker
Center for Economic and Policy Research
J. Bradford DeLong
University of California at Berkeley and NBER
Paul Krugman
Princeton University and NBER
Draft 3.0
March 24, 20051

They effectively prove that equity returns will be lower with reduced economic growth. Their modeling is sound, and consistent with current economic procedure. The risk factor of basing social insurance upon equity returns finds outline within the Paper. They also portray the difficulty of maintaining equity returns based upon foreign investments. Their shortcoming comes in their initial assumptions, the greatest error being expectation that economic growth and productivity growth will be maintained by Migration through the next Century.

Migration to the United States can be expected to reduce within the next decade. Other Countries work to develop equal Capital infrastructure comparable to the United States. Such Infrastructure will generate equal opportunities to the U.S. economy at a lower Cost of Living, without need to alter Speech patterns, Food consumption, or Cultural Mores. American reduction of the Cost of Living would reduce rates of equity returns, utilizing the same Analysis as the Authors used in the Paper.

What is the effect of lower Immigration on Economic and Productivity Growth?

Economic growth will decline, or even become negative, unless Senior labor is recruited. Any Senior recruitment will be dependent upon greater Wage premiums, enticing older Workers to remain in the Workforce. The reduced physical energy of older Workers will retard Productivity growth, and there will be greater Training Costs; the later generated by the fact higher Wages will lead experienced Labor to exit the Labor force, and less capable and older Workers must be trained at higher cost. Productivity growth will turn into negative fields, while the slower Workpace plus higher Wage premiums will reduce equity returns. lgl