"What if everything we’ve come to think of as American is predicated on a freak coincidence of economic history? And what if that coincidence has run its course?"

A repost from 2013:

A question that economic and market modelers had better be aware of. It is important enough that I've brought it up more than once:
Dec 2012

Other than that...

We only have one sample of U.S. market history, only one time the U.S. rose to economic dominance, only one period of invention like the one described above.

Anyone who uses past performance as anything more than past performance is either a mental defective or a charlatan. 

Nov 2008

 I've had my copy of the Cowles Commission's Common Stock Indexes 1871-1937 open on the desk for pretty much the past year.
I am struck by two things:
1) In the U.S. markets we've got one data-set, with a total of 1642 (Oct. '08) monthly points. Anyone trying to forecast off that had better have HUGE error bars. Or, fess up to the fact that no one really knows and acknowledge that this year a portfolio had a better chance if directed by an astrologer. (Arch Crawford is Hulbert's #1 market letter YTD...

Anyone serious about this stuff in light of fiduciary duty should probably read Dimson, Marsh and Staunton's Triumph of the Optimists, links below.

From New York Magazine:

Picture this, arranged along a time line.

For all of measurable human history up until the year 1750, nothing happened that mattered. This isn’t to say history was stagnant, or that life was only grim and blank, but the well-being of average people did not perceptibly improve. All of the wars, literature, love affairs, and religious schisms, the schemes for empire-making and ocean-crossing and simple profit and freedom, the entire human theater of ambition and deceit and redemption took place on a scale too small to register, too minor to much improve the lot of ordinary human beings.

In England before the middle of the eighteenth century, where industrialization first began, the pace of progress was so slow that it took 350 years for a family to double its standard of living. In Sweden, during a similar 200-year period, there was essentially no improvement at all. By the middle of the eighteenth century, the state of technology and the luxury and quality of life afforded the average individual were little better than they had been two millennia earlier, in ancient Rome.

Then two things happened that did matter, and they were so grand that they dwarfed everything that had come before and encompassed most everything that has come since: the first industrial revolution, beginning in 1750 or so in the north of England, and the second industrial revolution, beginning around 1870 and created mostly in this country. That the second industrial revolution happened just as the first had begun to dissipate was an incredible stroke of good luck. It meant that during the whole modern era from 1750 onward—which contains, not coincidentally, the full life span of the United States—human well-being accelerated at a rate that could barely have been contemplated before. Instead of permanent stagnation, growth became so rapid and so seemingly automatic that by the fifties and sixties the average American would roughly double his or her parents’ standard of living. In the space of a single generation, for most everybody, life was getting twice as good.

At some point in the late sixties or early seventies, this great acceleration began to taper off. The shift was modest at first, and it was concealed in the hectic up-and-down of yearly data. But if you examine the growth data since the early seventies, and if you are mathematically astute enough to fit a curve to it, you can see a clear trend: The rate at which life is improving here, on the frontier of human well-being, has slowed.

If you are like most economists—until a couple of years ago, it was virtually all economists—you are not greatly troubled by this story, which is, with some variation, the consensus long-arc view of economic history. The machinery of innovation, after all, is now more organized and sophisticated than it has ever been, human intelligence is more efficiently marshaled by spreading education and expanding global connectedness, and the examples of the Internet, and perhaps artificial intelligence, suggest that progress continues to be rapid....MUCH MORE

Re Triumph of the Optimists, the main point to take away is how different your portfolio returns look if you were invested in the Berlin market in late 1944, the Chinese market in 1949 or the U.S. market over the last 150 years. As The Economist pointed out the authors deliberately excluded the Warsaw and Moscow Exchanges "since they were closed down under communist rule. That led to returns best described as “steeply negative”. If these markets were taken into account, the historical equity premium would be even lower"

CXO Advisory put together the crib notes:
Triumph of the Optimists (Chapter-by-Chapter Review)

Victor Niederhofer takes a look at the methodology and conclusions.

Here's Dimson with an overview (7 page PDF)