That equity premiums have generally declined during the past decade is not in dispute. What is at issue is how much of the decline reflects new, irreversible technologies, and what part is a consequence of a prolonged business expansion without a significant period of adjustment. The business expansion is, of course, reversible, whereas the technological advancements presumably are not.

Some analysts have offered an entirely different interpretation of the drop in equity premiums. They assert that a long history of a rate of return on equity persistently exceeding the riskless rate of interest is bound to induce a learning-curve response that will eventually close the gap. According to this argument, much, possibly all, of the decline in equity premiums over the past five years reflects this learning response. It would be a mistake to dismiss such notions out of hand. We have learned to no longer cower at an eclipse of the sun or to run for cover at the sight of a newfangled automobile.

But are we really observing in today's low equity premiums a permanent move up the learning curve in response to decades of data? Or are other factors at play?