indicator of the value of firms. They point to rapid productivity growth in
the second half of the 1990s and argue that the stock market rationally an-
ticipates a continuation, or even an acceleration, of this trend.^9 A difficulty
VALUATION RATIOS 183
Figure 5.5. 1-year Growth of 10-year MA(E) vs. P/10-year MA(E). 1-year Price
Growth vs. P/10-year MA(E).
(^9) While popular discussion normally emphasizes productivity growth in a few new econ-
omy sectors, Nordhaus (2000) shows that productivity growth rate increases in the 1990s
were widespread and not narrowly focused on these sectors.