As I said, it seems to me that everyone suffers when the markets crash.
And I keep telling you there is no part of it I’m objecting to! I’m looking for reasons to believe each of those parts can exist without leading to a hopelessly compromised politics where it seems like every decision requires a seal of approval from ‘the markets’.
I’ve never heard a policy justified on the grounds that “Jeff Bezos would prefer to be even richer, so we can’t do that.” I’ve heard many policies justified on the grounds that “It would be bad for the markets.” I think the former is a much tougher sell and would be a lot less likely to gain traction.
So we’re arguing over whether it might be helpful to eliminate the stock market so as to eliminate a right-wing talking point? Ok then.
There were more frequent and severe panics and crashes in the period from 1800-1970 compared to 1970-2020, right?
Or, the markets crash when everyone suffers? That was certainly the case this past year, right?
That’s what I was going to respond with, and I started reading/copying blurbs about some of those panics. But stock markets did, kind of, exist back then, so I didn’t think it would end up being very persuasive to someone who believes that panics only occur because of the markets.
No.
No, there was a major contraction in Feb/March, but per my OP a couple trilly was hastily chucked at it and the S&P closed out the year on a record high.
The degree of financialization certainly was greater in the second period than the first, right? As well as the capacity for the Fed to respond to a deflationary crisis with a bunch of cash. Like today the Fed wouldn’t even have to ask for TARP, they’d just do it. Not saying it’s necessarily a good thing but they can sure pump a bunch of money into the economy in a hurry.
You seem to have a great deal of difficulty successfully identifying what I believe, which I’ll assume is my fault. I don’t mean to suggest that real-world conditions cannot affect markets or that markets exist and operate wholly independently of them. Indeed, a great deal of the policy-making capture seems to be geared towards mitigating the fact that the real world can and does affect the market.
We should stop here now that we’ve achieved 100% agreement.
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Ok, I’ll be stepping out of the thread now.
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Result: No Sale! 
Coffee is for closers.
Maybe it should bother you a little bit that you apparently can’t discuss your favourite subject adversarially without inventing silly things for your interlocutors to wrongheadedly believe.
I honestly have no idea what your position is. I’ve read your OP. I’ve read your replies. You don’t like the stock market. You don’t like commodities markets. You don’t like currency markets. You use weird terms like Spock market and shock market as if they’re widely understood.
Someone points out that markets actually have lots of benefits. And you respond by saying that, yes, there are “garden-variety benefits of the stock market as classically defined”. But now you’re looking for the benefits of “Actually Existing Stock Markets”, which is extraordinarily confusing. Like, when someone says that stock markets allow investors to pool their resources and generate profits in a diversified and regulated way, that actually happens in markets that exist! That is a very good thing in real-life stock markets.
When people point out to you that your perceived problems (e.g., political influence) would exist in the absence of stock markets and are not due to stock markets, you don’t really respond to that point.
Later you characterized the market as a “behemoth that eats money and occasionally destroys everything”, which, what? And when asked for your alternative to the existence of stock markets, you post a Simpsons gif and say only “Less than perfectly certain myself, honestly”.
So can you see why it’s very difficult to understand what your core position is, and why it might seem like nailing jello to a wall?
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Why do you need to identify my core position? I’ve asked you to tell me what’s so great about the markets, can there be markets as we think of them now or very similar without the ever-looming threat of a meltdown or the intermittent need for vast bailouts, can whatever regulations are required to achieve that be maintained against capital interest etc? Or, do those conditions arise inexorably from given prior conditions.
It seems to me that none of that requires knowing what I think or believe about the markets (very little, as it happens). It should only require articulating what you think or believe about them. No?
I mean I tried that and you were all no that’s the stock market. Which is what I was talking about!
IIRC I was all no, that’s the stock market about dividends and raising capital through IPOs and whatnot. Doesn’t seem like something I’d have been all in response to attempts to address the questions in the OP.
- They allow individuals to pool their money and invest in profitable enterprises they wouldn’t otherwise have access to.
- They allow fractional ownership, which makes it easier to transfer ownership, like when a humble hardware store owner wants to leave his kids his ownership, but there are three kids and only one store.
- They enable firms to easily raise money that can be profitably invested when they otherwise wouldn’t be able to.
- They make it easier to compensate employees with shares of the company, thereby aligning incentives between employees and owners, and reducing principal-agent problems.
- They allow owners of firms to raise capital when they face a liquidity shock (e.g., a kid getting sick or a tree falling on their house) without liquidating their companies at fire-sale prices.
- Transferable fractional ownership makes it easy for partners to enter and leave partnerships without dissolving the existing partnership.
- The price function serves as a signal that helps improve the allocation of resources. Prices aren’t right all the time of course, but when people are trying to figure out what career path to choose, what major to choose, seeing which firms and industries are perceived as most valuable and as having the brightest future is a really valuable insight.
These things have already been said, but they’re very real benefits of existing markets.
I don’t think corporations or banks or other entities can exist, stock markets or no, without the threat of a meltdown. Whenever there is leverage, there is a potential for crash (and possibly bailouts in response to that crash). But if that threat exists regardless of the existence of stock markets (which I think it does), then it seems irrelevant to whether stock markets are good.
I’m not sure what “achieve that” is pointing at here - achieve what?. Can regulations prevent things like crashes? Sure, extreme limits on leverage would mostly solve that problem. Does it require political will to impose those regulations? Of course. But again, unless you’re arguing that banks shouldn’t exist, leverage will carry with it the risk of crashes regardless of the existence of stock exchanges.
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And for the most part I’ve cheerfully granted them (except fractional ownership, I don’t see how that requires markets) but have gone on to say that they are either a trivial portion of the market’s actual functioning (honestly, other people said this and I assume they weren’t wrong) and in many cases achievable through other means. I’ve suggested that the markets as they currently exist exert far more control over policy-making than can be justified by their observable benefits as they currently exist. And I’ve speculated that the markets as they currently exist will always emerge from markets as we conceive of them.
IDK I mean cancer exists regardless of the existence of cigarettes. The question isn’t “Would nothing bad ever happen without (actually existing) markets?” but “Does a ton of bad stuff happen because of (actually existing) markets?”
To achieve the existence of markets other than (actually existing). And such regulations/whateer would require political will not just to impose, but to maintain. Capital would always seek to peel back regulation.
I am a bit late to this party, and I confess I only skimmed the thread, but I do have a take on this, which is that it’s not true. More particularly, the Keynesian Beauty Contest is structurally distinct from a financial market in two important ways. First, from a game-theory perspective (which Keynes didn’t have the benefit of), the KBC is basically a simple coordination game, where everyone’s incentive is to vote with the majority. It’s literally a game of sheep. The reason KBC gets to weird results is that there aren’t any good ‘Schelling points’ in how people evaluate beauty. But, for example, if the photo panel consisted of a conventionally beautiful woman wearing make-up and a bunch of women whose features are not considered attractive by Western society and who weren’t made-up, then the game would be very simple. Most of the Level 0 thinkers would vote for the conventionally beautiful woman, all of the Level 1 thinkers would vote for the conventionally beautiful woman, and so would the L2, L3, L4, etc thinkers. There’s actually no incentive to be contrarian, it’s just that identifying the non-contrarian position is made difficult by the rules.
A financial market is different in two ways. First, while there is an ultimate prize that’s doled out by a non-participant in the market, the recipient of the prize is not the company that gets the most votes. It’s the company that makes the most money from its business. (Caveat: it’s a little more complicated than this, because you can’t have a successful business without convincing someone with money to fund it, but I don’t think this is a fundamental objection.) What that means is that the dum-dum story you started with is a perfectly valid way to interact with the stock market. If you find someone selling an investment for $100, and based on your analysis you correctly conclude that it will throw off $110 in cash over its lifetime (discounted to present value based on your personal discount rate), then you would be wise to make the investment. Your only risk is that your analysis is wrong, and the investment ends up being worth $90 based on objective reality as it unfolds. Critically, you cannot lose in this scenario because everyone else in the world decides that $90 is the correct value. Reality can overrule the majority. That’s not the case in the KBC. It is not a correct strategy to vote for the face that is most beautiful, because there is no objective answer about what face is most beautiful, and the prize actually goes to the face that gets the most votes. It’s a different game.
The dum-dum approach is essentially what is known as “value investing,” and it’s not the only coherent way to play the financial markets game. You can also make an investment based on the expectation, essentially, that someone else will buy it from you for more than it’s worth. This strategy is more KBC-like, because it does rely on “public opinion”–if you buy something for $100, expecting to sell it for $110 in a year, then you lose if you can only find interested buyers at $90, and you lose no matter how good your analysis was, and you lose even if all the haters are “wrong” in some objective sense. There’s still a very important distinction with the KBC though, which is that the speculative investment game is fundamentally contrarian in outlook. Critically, the payoff from speculative investment isn’t a prize that comes from someone who isn’t a player in the game (like the payoff in the KBC or like the profits that a business makes). In order for you to profit from speculative investment, someone has to do worse than they would have done otherwise. Either the person who sold you the investment for $100 should have charged $110, or the person who bought for $110 should have only paid $100. (Even more caveats here, and things that look like speculation may not be, but the fundamental point I think is correct.)
Financial markets are very, very weird, but the weirdness does not fundamentally derive from any KBC-like dynamics. A much better starting point is GTO strategy in poker. Lots of really strange things happen because there’s an adversarial dynamic between the players and lots of weaknesses that can be exploited by other players if they’re displayed. But, as everyone’s favorite poker author would say, it’s still fundamentally a battle over the antes, even if you’re putting 200 BBs in on a later street. (Again, this is not quite right, because you always have the option to opt out of the speculative game and just see if you make a good hand, but whatever.)
As to whether all this is socially good, it depends on what the comparison is. You could simplify financial markets by outlawing all secondary trading. You can buy stock from a company when it issues stock, and in return you’re allowed to get dividends and a share of the net proceeds when a company winds up. That would be simple, and it would make everything work like the dumb-dumb intuition you laid out. OTOH, it would make business investment unattractive, because your money is going to be locked up indefinitely–what if you have an emergency and need cash? You’re screwed. Most people would conclude that this is a worse system.
OTOH, obviously there are many regulations that currently apply to financial markets, many of which are nearly universally agreed to be good. As an example, there’s no good reason to allow companies to lie about their operating results to raise money, so it’s illegal. But by and large, the weirdness of financial markets has to do with middle-manning and arbitrage, not obviously abusive behaviors at the fringes, so these regulations don’t change the fundamental dynamic. Ultimately, I think you are stuck with a choice between letting people do secondary transactions in securities, which results in lots of middle-men doing weird things with no obvious social value in an attempt to get one over on each other, or you don’t, and no one wants to make investments.
The point about political reactions to stock prices is important and interesting too, but it’s very different, so I’m going to let that one simmer for a few more weeks…
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