May I ask where you got your 3% because that number is very low compared to any number I have ever read? This Wikipedia chart shows annualized returns to be 10.47%. That is >3x your 3%.
https://en.wikipedia.org/wiki/S%26P_500_Index#Annual_returns
It's true that stocks in the US in the 20th century dramatically outperformed that 3%. This is for three reasons: first, up to about 1975, the world's economic growth rate was higher than 3%, due to the Second Industrial Revolution; second, up to about 1975, the US's economic growth rate was even higher than the world's, because it was taking over the markets previously supplied by the bombed-out economies of Europe (especially the UK) and Japan. Third, since about 1970, the share of economic output that went to owners of capital (rather than labor) increased dramatically.
Now, the third of those things probably can't happen again, because capital's share of output is already super high. (It's not that it can't get higher, but it can't go past 100%.) The second could happen again, but if it does, the US will be in the position of the UK, Japan, or Germany — it's now the Single Superpower (not even a mere Great Power) who could lose market share, probably to China or to a non-nation-state power. Investors in Japan's and Germany's stock markets in 1925 or 1935 didn't do so well.
The first, well, that's anyone's guess. It's a total wildcard.
It's certainly reasonable to posit a Third Industrial Revolution, made out of some of free software, nanobots, biotech, abundant solar energy, AI, and automated fabrication. I sure hope we get one. But if we do, it's not at all obvious who the returns will flow to. (Everyone, I hope, not just shareholders.) Accumulating capital goods, as we've been doing for three million years, is less important when your capital stock can double every 24 hours through self-replication. Breweries do not account for the quantity of yeast they have on hand as a durable capital asset.
And it seems equally plausible that we'll instead experience a new Bronze Age Collapse or Decline and Fall, as inexpensive DIY drones, very affordable precision projectiles, anonymous markets in assassination, and ubiquitous retail surveillance provide a decisive advantage for attackers over defenders in the physical world, just as their software counterparts have on the internet.
"...first, up to about 1975, the world's economic growth rate was higher than 3%, due to the Second Industrial Revolution; second, up to about 1975, the US's economic growth rate was higher than the world's, because it was taking over the markets previously supplied by the bombed-out economies of Europe (especially the UK) and Japan."
Do you read the posts you reply to? Because the chart I linked starts in 1970. And you are discussing GDP when the post you were replying to specifically was talking about investing in the market.
[1]: http://www.economist.com/blogs/buttonwood/2014/02/growth-and...
If the growth did continue, then they would make money, but often it doesn't, so they overpaid, so they get below-average (and often below-break-even) returns.
Also, per-capita GDP growth is irrelevant; what correlates positively with equity returns is total GDP growth, including the change in population.
So, on the contrary, this article provides a great deal of reason and even empirical evidence to believe that returns on US stocks should follow US economic growth rates.
For example imagine I own stocks making up 1% of in a company w/ earnings of $X, and market cap of 10 * $X. If the companies growth over a year is 3%, at the beginning of the year my stocks should be worth 0.01 * $X and at the end of the year 1.03 * 0.01 * $X due to the growth, BUT shouldn't i also have received 0.01 * $X (my share of earnings) in dividends that I am free to reinvest, giving me a 4% return overall?
It seems like maybe you're saying that the revenues, and therefore the profits, don't count here because they're not part of economic growth, but just part of the ongoing economic activity. But what determines the P/E ratio, which is to say the return on capital (as a reciprocal), across the market? What keeps investors from bidding the market cap of the company up from ten times earnings to a hundred, a thousand, or ten thousand times earnings? It's the availability of other investments that they expect to grow in value at a higher (risk-adjusted) rate. If you can get a 16% annual return on your investment by buying solar panels instead of stocks, then the guy who does that will have 16% more money to invest in more solar panels every year, until either he bids the price of solar panels up (due to limited manufacturing capacity) or he bids the price of electricity down (due to limited transmission grids or electrical demand). The first of those is already happening; the second one should start happening in about 2024, earlier in some areas.
Now, you could argue that there's a difference between this solar panel maniac guy spending 16% of his capital base in solar panels every year, accumulating more and more solar panels and selling the electricity from them to buy more, and GDP growth, because the solar panel maniac is accumulating a stock, while what the GDP measures is a flow.
But note that by the hypothesis that the maniac is investing to get some relatively inflexible percentage return on his investment, he receives a flow of earnings that is proportional to that investment. And that flow is part of the GDP.
You should not expect stock market returns to mirror GDP growth. The S&P 500 is not strictly representative of US economic performance, which is precisely why the huge corporations did so well with the cheap dollar and significant global economic expansion while domestic locked companies didn't fair nearly so well.
GDP growth flows to both debt and equity. The debt market is actually much larger than the equity market and since its returns are lower than equities, and they both share GDP as a source of returns in the long run, equities should beat GDP growth in the long run. This argument isn't iron clad, but hopefully you can see the general picture.
The Gordon growth formula is taught in intro to finance classes to estimate returns to equity. The theory is that stock market returns equal the dividend yield plus growth in stock prices. Stock prices alone are in the long run expected to grow at the same rate as GDP, but the actual return should be higher by the rate of the dividend yield.
These are the most basic arguments against what you're saying, but I would also caution against assuming that any particular macroeconomic trend will end, especially that it will end in a timeframe relevant to decisions related to solar panel installations. Sometimes they just keep going. There is no mathematical reason that equity prices can't go to infinity, as required rates of return can decrease to zero. If the world becomes more predictable and stable, equities can keep becoming more and more valuable with no damage to finance theory.