I'm just trying to follow along: How did you derive the 4.7% return on stocks from the 2.7% pa GDP growth? (perhaps: there was an unstated 2% pa increase in stock price, which was added to the estimated 2.7% earmings to get 4.7%)Thus, over that time period, real GDP grew at ( 1920 / 506.6 ) ^ 0.02 = 1.027 , or 2.7% per year, compounded
Certainly corporate earnings have grown as fast, if not faster than real GDP
This would get us to an expected 4.7% real return on stocks
From 1950-2000, the same calculation yields a real GDP of 3.2%, which would imply an expected real return on stocks of 5.2%
One factor to consider: In 1920, the total tax burden (federal, state, local) was approx 20% of GDP. Today it is approximately 40%. Would this off-the-top deduction from GDP not decrease corporate earnings?