Posted by
Andrews on Sunday, May 31, 2009 8:13:49 PM
I wrote in my post "
The Dow" that we often hear about how this is the worst market since 2003, or something similar. However, as such numbers fail to adjust for inflation, the reality is much worse. Now, I know I also wrote that the CPI is a mediocre choice for calculating deflation, which I explained in "
The Rubber Yardstick" (and mentioned in "
Inflation and Uncertainty", "
The Problem With Economic Debate", "
A Thought on the Clinton Surpluses" and "
Proof Keynes (and Krugman) Are Insane"), especially when considering inflation which strikes stocks or housing more than consumer prices, as has been the case for the past decade. Still, having nothing better, I decided to take a look at market history.
Taking the list of local minima, maxima and other noteworthy events
from this page, and using the CPI
from this page, I calculated the inflation adjusted DJI for the dates given. What struck me was that all of the 2000's were far higher than present. In fact, we are only about 122% of where we were in 1994, when considering inflation adjusted values, not nearly twice as much as the numbers alone would suggest.
Unfortunately I currently lack the time to calculate the monthly high and low for the Dow adjusted by inflation, to create a true chart of the stock market. (Or better yet, create a better deflator to avoid the consumer-bias of the CPI). But that is my plan in the near future. So, stay tuned for better information.
POSTSCRIPT
If you doubt the impact of inflation since the 1970's,
look at this chart of CPI.
POSTSCRIPT II
Here are the calculations for all the dates and DJI values given:
DJI DATE CPI(82-84=100) FACTOR ADJ
577 12/1974 51.9 1.927 1112
1011 7/1976 57.0 1.754 1773
776 8/1982 97.7 1.024 795
2722 8/1987 114.3 0.875 2042
1738 10/1987 115 0.870 1512
3975 2/1994 146.7 0.682 2711
3674 11/1994 149.8 0.668 2454
10006 3/1999 164.8 0.607 6074
11723 1/2000 169.3 0.591 6928
10630 3/2000 171 0.585 6219
8920 9/2000 173.6 0.576 5138
9720 3/2001 176.1 0.568 5521
9605 9/2001 178.1 0.561 5388
8235 9/2001 178.1 0.561 4620
10021 12/2001 177.4 0.564 5652
7702 7/2002 180 0.556 4282
7591 9/2002 180.8 0.553 4198
7286 10/2002 181.2 0.552 4022
8397 10/2002 181.2 0.552 4635
8771 11/2002 181.5 0.551 4833
8341 12/2002 181.8 0.550 4588
8601 2/2003 183.6 0.545 4688
9011 6/2003 183.1 0.546 4920
10453 12/2003 185.5 0.539 5634
11727 10/2006 201.9 0.495 5805
14164 10/2007 209.1 0.478 6770
11215 7/2008 218.6 0.475 5327
7062 2/2009 213 0.469 3312