At one point, I had mused that perhaps Andrew had a point here. But there’s a small problem with this line of reasoning – in particular my numerical example. The price-earnings ratio is invariant to the growth rate only in the special case where it happens to be the inverse of the return to capital. A price-earnings ratio equal to 20 would be consistent with returns equal to 5% not 6.5%.
The Mankiw rebuttal was hardly convincing on any of its attempted arguments.