by Archie M. Richards, Jr., CFP^®
September 29, 2003

During the next several decades, America will enjoy substantial increases in stock prices and enter its golden age. Here's why:

• Technology is advancing more rapidly than most Americans realize. It will raise productivity to new levels, producing a flood of goods and services.

• Government will continue to become less intrusive. Limited government brings on prosperity and bull markets.

Both of these trends have prevailed since 1980, when the rate of inflation peaked. I see nothing to prevent them from continuing. The results, which have themselves prevailed since 1980, will also continue, as follows:

• Inflation will go on declining. Why not? With the economy not stressed, there's no need for an excessive money supply. We will even experience benign deflation - a decline in the general price level.

• Interest rates will keep heading down. Instead of financial institutions paying us interest on our short-term money, we will pay them for keeping it safe and accessible.

• Despite lower prices, personal income will rise.

• Stock prices and price-earnings ratios will increase more than most people expect.

The root causes of these agreeable trends, as mentioned, are improved technologies and better government policies. Here are examples:

Technology is not only advancing, it's doing so at ever-increasing speeds. From 1910 to 1950, for example, the speed of calculating doubled every 3 years. From 1950 to 1966, it doubled every 2 years. Now, it's doubling every year.

A single 4-inch optical cable can carry one thousand times the average telecom traffic per second of the entire world in 1997, only 6 years ago.

The military has a flying robot with tiny flapping wings and a two-mile range. Weighing only half an ounce, it transmits live color video in real time. Eventually, similar but larger flying machines may serve as flying carpets.

"Smart Dust" contains particles that sense temperature, light intensity, and motion. Each one transmits data up to 50 meters, where the information is picked up by another particle that adds its own data and passes all of it on. The data eventually reaches a base station, where it can be evaluated and used for monitoring.

On factory floors, robots and ever-more-capable computers will increase labor's productivity enormously.

Spitting in a paper cup will enable cancer to be diagnosed almost immediately. A drug that suits the person's individual DNA can then be quickly formulated to kill it.

Using tiny microphones hidden in our clothes, we'll be able to talk with anyone in the world, with immediate translation supplied by the Web.

American governments continue to spend too much and interfere too much. But we forget how much policies have improved since the 1970s. For example, top income tax rates, now 35 percent, have fallen by half, enabling rich people to furnish the capital investments that provide jobs. No longer are the trucking and airline industries tightly regulated. Phone services are no longer a monopoly. Generalized wage and price controls no longer prevail.

Individual freedom is increasing throughout the world. Reducing government narrows the gap between rich and poor. I expect the prices of foreign stocks to rise even faster than those of U.S. stocks.

Talk radio reveals that Americans are far more distrustful of big government than the citizens of Washington, DC. Liberals would like to host more shows, but few people want to listen to them.

Before long, liberal U.S. Senators will number fewer than 40, preventing them from filibustering. I expect U.S. legislators eventually to become subject to term limits. America's gargantuan government sector can then begin being disassembled.

With the cost of living falling and incomes rising, America will enter its golden age. But this may not last long. Here's why:

For centuries, technology has displaced jobs at low levels and created them at high levels. But when computers are able to exercise judgment and common sense - oh yes, that's coming, too - robots will occupy even high-level jobs. Eventually, the number of unemployed will become overwhelming.

Maybe the robots will hire real people as assistants just to keep us happy. Maybe they'll stick us in zoos. But in the meantime, buy a broad diversity of stock index funds and reap a golden harvest.