Kicking Our Addiction to the Stock Market

The stock market is possibly the most egregious waste of enterprise in all of human history. We use it to measure the strength of our economy when in fact it represents our economy’s weakest link.

Recently, members of the subReddit WallStreetBets have highlighted the weaknesses that make the stock market a sleeping threat to our economy. While Wallstreet bet against GameStop, the members of this forum started a campaign to push up the value of the stock, creating a scenario where hedge fund managers and investors who bet against the stock stand to lose billions.

While some sources are trying to paint them as memers or “bros” doing this for laughs, the truth is these are activists who see themselves as taking a stand against the double standards our economic system places in favor of the wealthy. Bailing them out in a crisis while simultaneously allowing everyday citizens to flounder.

A Redditor recently posted:

These are concerned people taking a stand in the only way Wall Street and our government will listen. But it also lays bare an even deeper problem facing our society. The stock market itself.

Trading stocks generates no commodities, no products, and provides no meaningful services other than those that facilitate further trading on the market. Despite this, billions of man-hours are gobbled up every year; trading, regulating, and maintaining this market all on the gamble that we can put our money in and get more out.

Here is my case against the stock market.

1. The Stock Market is a Financial Gimmick Gone Horribly Awry

The stock market is not an inseparable part of our economy, it is a 17th century invention that simply got out of control.

While investments like bonds date back to the late 1400s, the origins of the stock market date to the Dutch East India Company (DEI) who sold shares of ownership to raise capital with the agreement that share owners would receive dividends from the profits. That seems pretty simple and makes sense.

That convention by itself is not the problem. Selling shares of a company to gain capital is a great way to propel innovation and bring healthy competition to a market that might be otherwise impossible to enter with industry leaders already established. Selling ownership for stock is not the problem. The problem came later.

Early investors saw they could make more short-term profit selling their shares to others than they could waiting for dividends. In 1611 the first stock market was formed to facilitate the exchange of DEI stock. These stocks were not being sold to raise capital; they were being traded from owner to owner to take advantage of the price fluctuations in the shares themselves.

And it was not long before we saw all the problems that continue to make the stock market a threat to economic stability today. Stock shorting, market crashes, embezzling, securities fraud, and more.

The original purpose of developing and expanding a business to better provide its services was abandoned. In its place was installed a new kind of gambling. Stock speculation. Stock speculation and trading now represents the vast majority of all stock market transactions. Today, billions of hours of labor every year are poured into what amounts to an institutionalized casino.

All a stock trader is doing is buying an abstract concept of ownership for one value and then selling it for another value. And the hope is to ride the fluctuation of public opinion about the arbitrary value of these units of ownership and hopefully sell it for more than you bought it for. It is nothing but a gamble. And day traders are nothing but gamblers who know card counting. (Sorry to any day trader friends out there, but it’s true and you know it).

2. The Stock Market Produces Nothing

The stock market is make-work whose only service to the economy is to give people an excuse to build office spaces. It is no different than getting a degree in underwater basket weaving when the only use of an underwater basket weaving degree is that you can teach other people underwater basket weaving. Except that’s still better than the stock market because with under water basket weaving you at least wind up with a basket.

Except for IPOs (Initial Public Offerings), we don’t trade stocks to help a business grow. We only buy stocks so we can eventually sell them, so that someone else can buy them, so they can sell them to someone else. And it goes on. By producing no valuable goods or services, all increases in value on the stock market are imaginary.

3. It is a Drain on Public Resources

The IRS budget is 11.8 billion dollars. The SEC costs taxpayers 1.9 billion dollars every year.

A vast amount of those budgets are dedicated to monitoring and policing potential abuses of the stock market and adjacent corporate activities so idiots don’t collapse the market down onto themselves and tank the rest of the economy.

We are spending billions in tax dollars to monitor a system that exports nothing of direct value but has the capacity to destroy our economy if not managed properly. It’s a horrendously awful trade off.

4. The Stock Market is the Original Ponzi Scheme.

Again, we’re not talking about small businesses selling ownership shares to raise capital. We are talking about stock trading. The only way the stock market generates a profit is by convincing more and more people to continue investing in it. The profit that a trader makes by selling a stock is paid for by other people investing money into the market to buy that stock. It works exactly like, and is in fact, an institutionalized Ponzi scheme.

5. The Great Depression

The Great Depression can be traced to abuse of the stock market and unethical lending practices. In the 1920s, banks loaned money for people to invest in the stock market. This falsely inflated the value of the market creating a giant bubble. At the first sign of a downturn, everyone panicked and sold (because they were all in debt up to their ears in order to buy the stocks in the first place). This exacerbated the crash. Now we had the entire financial sector of the US in massive debt with no collateral or any way to service that debt.

That crashed the banks and started the withdrawal panic which then bankrupted the banking system.

It all started with overextended stock speculation.

6. It is a Money Speed Trap

Velocity of Money is an economic indicator that measures the rate that money is circulating through the economy via the purchase of goods and services.

And that’s an important point that people like to ignore: “goods and services”. While some may disagree; to me “goods and services” is the most important part of the definition. Needlessly exchanging money back and forth with no corresponding production does not result in a healthy economy.

We can trade slips of paper around all day, but that won’t make food, clothing, houses, or any of the things we need to survive or improve our quality of life.

And that is exactly what the stock market is; trading money around for imaginary slips of paper. Money goes into the stock market, and then stops being exchanged for goods and services. Sometimes for decades, sometimes for generations.

The stock market traps that money and prevents it from driving business and commerce.

Dismantle the Market. Keep the IPO. That’s the Way to Go.

The point where the stock market began, and the only point where it has driven the economy forward is in the IPO. The “IPO with dividends” model gives people a reason to invest in start-up companies and propel innovation, while eliminating the false growth of stock price fluctuations.

The vast drain of human-effort and resources that the stock market exacts from the society is not worth the short-term gains.

Stock trading is yet another 17th century economic boondoggle that has been holding a great deal of our brilliance and ambition hostage, and it’s time we and it’s time we escaped from its grasp.

Dismantle the market. Keep the IPO. That’s the way to go.