I’m just thinking of it as the fully developed form of the Spock market (just as the Spock market is the natural development of the stock market). I can imagine a Spock market that really does function like a casino. To imagine the shock market, imagine a casino where various degens going busto very often means large-scale job losses and vast economic contractions for society as a whole. As a result of this, very large whales are periodically bailed out of massive losses with public money. Public policy decisions are made with the preferences and leaks of these whales in mind.
I’m not going to say there’s a necessary real-world difference between the two, but I suspect there’s a factual or historical distinction to be drawn (I don’t know all that much about the tulip craze, for example, but it would surprise me if government intervention as we would think of it today was proposed at any point). And I think it might be useful to distinguish between them discursively even if there’s no way to disentangle them in real terms.
Probably something like this. Something that would make the shock market far more closely resemble the stock market. Whether it would be stringent trading frequency limits, limits (or bans) on ‘indirect’ trades or whatever you call trades on the market that aren’t “I am buying this stock because I think it will perform well” type trades, I don’t know exactly. Happy to take pitches.
I think the opposite is true. A free market can only exist where there is effective regulation because otherwise the strongest entities will bully competitors and consumers alike.
I think you and I are probably in agreement then. I was simply confirming with @All-InFlynn what he was describing as the “Stock Market” compared to the “Spock” or “Shock” market.
One of the challenges in talking about markets in general, and especially the “free” market, is that both of the words have been propagandized. So, for example, a classical economist like Adam Smith was describing movement towards a “free market” to be movement away from economic rent extraction of landlords, financiers, etc. Whereas present day, it’s generally taken to mean less regulation, and fewer restrictions on the ability to extract economic rent.
I think detractors are underestimating the value of liquidity. The sale of a private business or even mechanisms for seed financing involve way higher transaction costs and are way more slanted to benefit society’s richest than IPO sales which are way more slanted toward the big guys than regular stock trading.
It might not be a bad idea to tax like a dollar per security transaction of public exchange to discourage high frequency trading or some of the other BS Wall Street firms do. We could even have a higher tax on short sales, margin trading, or really large transactions, but any attempt to fully scrap and replace the financial markets that I can think of is likely to lead to something worse.
Seeking to understand you better here. What statements from detractors have led you to feel that they are underestimating the value of liquidity?
What would this likely worse outcome look like to you?
Because the current system as it stands, even if we only look back at the past 20 years or so, has resulted in among other things:
multi-trillion dollar “bailouts”(some would describe them as handouts or outright theft) more than once
increasing amounts of wealth inequality year over year
estimated $3+ trillion increase in wealth for the wealthiest Americans during a pandemic that has resulted in unemployment, evictions, and a contraction of GDP.
I could list many more bullet points because, imo, these types of results derive from features of our system rather than bugs. So, to put a finer point on my previous question…what would this likely worse outcome look like…$8T in wealth gains to the wealthiest during a pandemic, rather than $3T? Multi-trillion dollar bailouts every 5 years rather than every 10 years?
Well, I was under the impression that we are discussing more than just the stock market ITT, so as to include all markets for financial instruments. I confirmed that upthread with the OP, and it seemed that bbb7979 was also making a broader reference to financial markets.
I would agree that the existence of a stock market as described in an economics textbook may not lead to the side effects that I listed. But the real existing stock market, which OP labeled as the Spock market or Shock market seems to be intimately connected to them.
When the markets “fail”, the wealthy who own and control the markets are bailed out by the institutions that are controlled by the politicians and regulatory authorities that do the bidding of the wealthy.
Its definitely big enough that it shouldn’t be ignored in this kind of analysis.
The argument has some merit but required a much deeper dive. The level of stock prices also impacts decisions that companies make about reinvestment of free cash vs. payment of dividends, etc.
I also think the “IPOs don’t actually raise much money” argument is a red herring. One big feature of markets is that they make employee shares much more liquid, and therefore desirable. Like, when Facebook went public, they didn’t actually need the money. What they (i.e., the employees) did need was the ability to trade shares of their stock that were technically very valuable, but only to the extent they could monetize them.
While stocks do move up and down, they do ultimately have an inherent value. A share of stock’s inherent value at any given time is equal to the sum of all expected future dividends, discounted back to the present.
The ability for someone like me to take all my excess cash and sock it into a highly-diversified set of profit-making enterprises, which then gives me the rights to their collective future dividend stream, is absolutely huge for my ability to grow my net worth and achieve financial freedom.