Great post! Brian Arthur recognised the changing nature of US business in this insightful article from 1996. Lays out the framework for the new breed of technology companies dominating today. Coincides with the move higher in PE ratio of the whole market. Would be interesting to see extent of PE rise across industries.
There was (I thought) very insightful analysis of this question more than 10 years ago, from Jeremy Siegel and especially the Philosophical Economics blog.
For instance, that accounting changes around 2001 reduced earnings and made them more volatile due to treatment of goodwill. This lifted acceptable P/E ratios, which on pro-forma earnings were more similar to past periods.
Another thoughtful data based analysis, thanks. A big question must be whether the high level of profit per employee is structural or cyclical. If structural, then your new measure seems well backed, but if cyclical then I fear we’re in for a double whammy of lower multiples of lower profits. Is there an ‘elastic limit’ to how much companies can squeeze employees? My inner Marxist fears social pushback on high corporate margins, industry concentration and low corporate taxation.
Very insightful. One of the best responses to the Shiller PE I've seen. What might your thoughts be on the change in tax policy towards investment income? The post-Reagan era has been ostensibly kinder to investment income than the post-war policy up to Reagan, although the amount of tax loopholes during the pre-Reagan tax regime might make that a difficult comparison.
Great post! Brian Arthur recognised the changing nature of US business in this insightful article from 1996. Lays out the framework for the new breed of technology companies dominating today. Coincides with the move higher in PE ratio of the whole market. Would be interesting to see extent of PE rise across industries.
https://hbr.org/1996/07/increasing-returns-and-the-new-world-of-business
There was (I thought) very insightful analysis of this question more than 10 years ago, from Jeremy Siegel and especially the Philosophical Economics blog.
For instance, that accounting changes around 2001 reduced earnings and made them more volatile due to treatment of goodwill. This lifted acceptable P/E ratios, which on pro-forma earnings were more similar to past periods.
https://www.philosophicaleconomics.com/2013/12/shiller/
Has his thinking become wrong-headed or unfashionable?
Another thoughtful data based analysis, thanks. A big question must be whether the high level of profit per employee is structural or cyclical. If structural, then your new measure seems well backed, but if cyclical then I fear we’re in for a double whammy of lower multiples of lower profits. Is there an ‘elastic limit’ to how much companies can squeeze employees? My inner Marxist fears social pushback on high corporate margins, industry concentration and low corporate taxation.
Very insightful. One of the best responses to the Shiller PE I've seen. What might your thoughts be on the change in tax policy towards investment income? The post-Reagan era has been ostensibly kinder to investment income than the post-war policy up to Reagan, although the amount of tax loopholes during the pre-Reagan tax regime might make that a difficult comparison.