"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 7.7 percent, provided an average real annual return in the stock market of close to 15 percent."

The dividend yield on the S&P 500 didn't average anywhere near 7.7. percent between 1949-1969, as you can see here: http://www.clevelandfed.org/Research/Commentary/2001/040101.pdf (pdf, p. 3).

In fact, the dividend yield in the postwar era was only above 7% for a couple of years. It peaked in 1951 and then started to plummet, and as early as the late 1950s, it had fallen to below 3.5%, where it stayed through the entire 1960s. Maybe as you're so vehemently fact-checking the Washington Post's economic ignorance, you should fact-check your own as well. [You're right. I was being quick and looked at earnings to price ratio, instead of the dividend to price ratio. It should have jumped out at me that 7.0 percent did not make sense for the latter. DB]

Mr. Baker:
Thank you for reading the Post, so I don't have to. & thanks for pointing out the errors in its pages.

I read the Post every day starting a year or so before I moved to Washington in 1990. I stopped my subscription after the Post tilted toward George W Bush in the election aftermath of 2000. A few years ago I stopped buying it at newsstands; last year I quit reading the "free" copy at the office.

It's just too painful for me to read baloney spewed by completely-out-of-touch-with-reality people. You're a better man than I in many ways I'm sure, but #1 is your ability to endure inanities enough to provide analyses.
Thank you.

Thanks for the great post, once again. Great work, Mr. Baker!

The note cited to above, in someone's comment, cites a table from Robert Shiller's website, which does show that the dividend yield on the S&P was lower than what Mr. Baker indicated.

The note is concerned with explaining why the dividend yield is "so low," however. It doesn't invalidate, at all, the point Mr. Baker was making. The paper suggests several explanations for why the dividend yield lowered *throughout* the entire post war period up to 2000. From the paper, p.3, "In the postwar period, lower dividend yields have been more than offset by higher earnings growth and hence higher stockprice appreciation; indeed, total stock returns increased."

And importantly, the paper is concerned with the dramatic drop in dividends from 1990 to 2000 - the question posed is thus: "Figure 1, equities since 1871 [referred to in a comment above], reveals a striking decline in this measure over the past decade. The dividend yield now stands at around 1.25 percent, a near-record low. What explains this 10-year [1991-2001] decline?"

Nonetheless, would Mr. Baker be willing to address this possible discrepancy?

Thanks.

In my copy of Dr. Baker's post, the dividend yield is reported as 3.2 not 7.7 as referred to in D. Sitton's post. I assume 3.2 is correct -- or corrected.

I can only assume that David Ignatious and Fred Hiatt either reflect the Village ignorance of economic history before Ronald Reagan or else have been drenched in Republican and Wall Street spin for so long that they can't tell the myths from the facts. As Bob Somerby points out in the Daily Howler, the members of the Village of the Washington power circle has reached an astounding level in their intentional stupidity on economics and history.

This is another one of those articles floated by our own, unique American version of Pravda that attempts to perpetuate the myth that the last few decades of unrestrained financial markets were in fact the good old days for us all, when in fact, only a few prospered and many suffered.

The numbers you state on productivity growth during the 1949-1969 era are even more surprising in that this was a time when a single wage earner could support a family leaving the other parent at home to handle the full time job of caring for the kids.

The last several decades have changed to where it is much more likely that both parents need to work to make ends meet - (that is if the child is fortunate enough to have both parents given how many single parents there are today).

How does the fact that there are many more two wage earner households today affect productivity numbers given?

Maybe one reason dividends dropped off is the increasing use of stock options as compensation for executives, which came into fashion in the 50's:

http://books.google.com/books?id=oLEQ0QyMji8C&pg=PA27&lpg=PA27&dq=stock+options+history&source=bl&ots=cDtyXEOpsU&sig=1eRhnFCwuW1-amCoWIUnJfEcJMY&hl=en&ei=ywxrSqnUB-H7tgeOqezGBQ&sa=X&oi=book_result&ct=result&resnum=6

Correct me if I'm wrong (these things change at the whim of the bill writers in the financial industry), but dividends would have been taxed at full income-tax rate (then 91% in the top bracket), making an even bigger difference between that and capital gains than today.

Speaking of disingenuous and shill reporting, we may soon find out how viable a broad based commercial market there is for "Fox on 15th Street" type of media content. The Associated Press is leading efforts to start charging for their version of "Fox on 15th Street" content to commercial publications that link to their intellectual property content.

Many of us suspect that their success will be akin to an old saying that goes "you might sell that sh*t over there but you can't give it away here".

We'll just have to wait and see how this story plays out for the Associated Press.

Actually, dividend payouts fell for an extremely simple reason, stock prices rose. If you pay 50 percent of your earnings in dividends and your earning to price ratio is 8 percent (PE of 12.5), then your dividend yield is 4.0 percent.

On the other hand, if you pay out 50 percent of your earnings in dividends and your earning to price ratio is 5 percent (PE of 20), then your dividend yield is 2.5 percent.

That is the story, the share of earnings paid out as dividends stayed pretty much constant. The PE rose

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