”
Inequality skyrocketed. While output per man-hour shot up by 32
percent between 1923 and 1929, wages crept up only 8 percent. In
1929, the top 0.1 percent of the population earned as much as the
bottom 42 percent. Business-friendly administrations reduced by 70
percent the exorbitant taxes paid by those with an income of more
than $1 million. But in the summer of 1929, businesses reported
sharp increases in inventories. It was the beginning of the end.
Were stocks overvalued prior to the crash? Did all stocks collapse
indiscriminately? Not so. Even at the height of the panic, investors
remained conscious of real values. On November 3, 1929 the shares of
American Can, General Electric, Westinghouse and Anaconda Copper
were still substantially higher than on March 3, 1928.
John Campbell and Robert Shiller, author of "Irrational Exuberance",
calculated, in a joint paper titled "Valuation Ratios and the Lon-
Run Market Outlook: An Update" posted on Yale University' s Web
Site, that share prices divided by a moving average of 10 years
worth of earnings reached 28 just prior to the crash. Contrast this
with 45 on March 2000.
In an NBER working paper published December 2001 and tellingly
titled "The Stock Market Crash of 1929 - Irving Fisher was Right",
Ellen McGrattan and Edward Prescott boldly claim:
"We find that the stock market in 1929 did not crash because the
market was overvalued.
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