Does 4 mean that the stock market is become larger and larger relative to GDP? That seems unusual. Can the ratio get arbitrarily large, or will it have to level off?
Yes, essentially -- this is a central idea of growing societal inequality, that economic growth gains are accruing much more to the rich (who own stocks and real estate) than to the working class (real wages not increasing).
Whether the ratio is now unusual, or how large it will get, is a subject of intense speculation with many real-world consequences for society, and especially to what extent law and government policies are responsible for it or can mitigate it (e.g. capital gains tax vs income tax).
You have a point but this is mitigated by the fact that most Americans have very little saved for retirement, just eyeballing the numbers it appears a tiny percentage of people are able to put away a substantial amount for retirement.
http://time.com/money/4258451/retirement-savings-survey/
This article is very poorly written. First, how much you have saved should be directly related to your age, and they only touch on that in the second half of the article and only in way too big groups, ie not in any precise way.
Secondly, they don’t differentiate between married and unmarried. Two married 55 year olds with $300k each in 401ks are in better shape than individuals. As is someone with zero saved married to someone with $1M saved.
Also, they don’t include pensions and other defined benefit plans. That’s s substantial difference. If you are a school teacher two years away from getting $50k a year at retirement, you might not feel sane urgency to save.
and most importantly it ignores home equity. Paying off your home creates huge savings. I have a friend who paid off his $800k home by age 50, he would have answered that he has near zero retirement savings. He retired at 60 and built a million dollar home, no mortgage. Lots of people pay off homes by early retirement.
Finally, social security iften undercuts both the perceived need for big savings, and the means to do so. I’m paying in $9,000 per year right now, if i wasn’t i’d certainly contribute more to my 401k.
#4 means that the "rising tide lifts all boats" platitude is a lie. Or it means that the yachts are dumping their ballast into nearby dinghies.
I don't think the ratio can grow arbitrarily large, but I do think it can stretch the limits of reason for far longer that anyone thinks is possible before snapping.
The amount of the ratio below unity is the extent to which the ownership class captures gains from economic growth. The amount above unity is the extent to which the ownership class takes wealth from those with less wealth. That can theoretically rise as high as is necessary to make one person owner of the entire planet in one year. After that, the ratio drops back to unity, but by then no one cares to measure anything anymore.
If stocks rise 1.2 times growth, that means in aggregate, corporations captured 0.2 more value than was newly created that year, which means it had to be taken from existing wealth held by someone else. Some of that value might come from stockholders, and thus it would be recycled back to them, but the rest of it comes from non-stockholders, who lose it permanently.
