logarithmic stock chart?

Question

http://en.wikipedia.org/wiki/Image:DJIA_historical_graph.svg
this chart is a common chart used today to describe the markets...you will notice that the later years are squished tighter together. I'm wondering what the market conditions are under Bush compared to Clinton to Reagan...What factors are squishing the last few years? Is it volume traded? Is it the real value in 1970 Dollars? Help me understand this. Feel free to have opinions on the current state of our economy.

this is the logarithmic version, the 1st one is the linear
http://en.wikipedia.org/wiki/Image:DJIA_historical_graph_%28log%29.svg

Answer 1

Growth compounds over time, such that a 3% gain when the DOW was at 1000 would be an increase of only 30 points, whereas a 3% gain when the DOW was at 10,000 would be an increase of 300 points. The logarythmic chart allows you to see the effects of percentage gain (3% in both instances) vs. actual change (30 vs. 300 points). The volatility that preceded the 1929 crash is more visible in the logarythmic chart, as is the stagflation in the late 60's to late 70's and also the more stable and consistent (and desirable) growth that is visible after the 1980's.

My personal opinion is that the economy is relatively strong. Note that the Dow industrial average has only increased an average of 3% per year under Bush (vs the 10%-ish historical average), but that is due to the economic downturn, 9/11 and the gross overvaluation of the markets in 2001. Since its low in 2003 (when those things were vetted out of the economy), the return has been in excess of 15% per year, which strongly exceeds historical averages.