Furthermore, there is often a destruction side to the arrival of new technologies. Some are not wholly new but replace existing ways of doing business. Thus the owners of traditional retail firms and shopping malls should see declines in profitability and share prices as the Internet companies see rises in theirs. And the value of the U.S. stock market derives not just from its winners and new technologies, but also from its declining older technologies as well. An additional issue over the next five years is that the new technologies could be deflationary, as they tend to represent lower cost ways of doing existing activities.
Generalized deflation tends to depress stock markets.
It is unclear at present whether the world is entering a generalized deflation, but it is certainly a risk. So, a Dow at 36,000 seems quite unlikely to occur in the next five years, however much we may all hope for such. History is not encouraging when looking for sustained periods when share prices increase far faster than the historic time preference for money. When they do move sharply out of line, a period of painful readjustment often follows to bring consumption and saving rates back into equilibrium. The process of creative destruction suggests new technology share prices that have recently risen rapidly could fall later, as the new technology becomes more commonplace and the destruction of old technologies begins to show up.