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Saturday, August 04, 2012

Why do we have stock markets?

Wired has a most interesting piece, mostly about why stock traders want to trade at as close to light speed as possible, and how that's being accomplished, but the article also raises a fundamental question, and gives a disquieting answer:

"High-frequency trading raises an existential question for capitalism, one that most traders try to avoid confronting: Why do we have stock markets? . . . Trading increasingly is an end in itself, operating at a remove from the goods-and-services-producing part of the economy and taking a growing share of GDP . . ."

I'm not an economist, but I'd suggest a small tax on each stock/commodity/futures/whatever transaction.

Definitely worth a read.


FancyHorse said...

I've wondered that myself. The interests of stockholders are often contrary to those of consumers and of employees.

Martin LaBar said...

Actually, a great many consumers and employees are stockholders, through retirement accounts, etc., although they don't necessarily have any control over those accounts.

The interests of stock traders are often contrary to those of consumers, employees, and even large stockholders.

atlibertytosay said...

I typically argue against any tax because many people rely on stock markets in retirement or at least, the income they have derived from it over their lifetime.

Your mention of a tax here is interesting though because I have seen it posited here that "a tax on day trades" would be beneficial in many ways.

• Help consumer sentiment - stock market fluctuations have a strong impact on consumer sentiment. Voume would decrease and fluctuations would be less dramatic.

• Obvious reason - raise revenue

• Non obvious reason - give a tiny bit more accountability to these day traders and schister (sic) trading firms.

• It would help companies - they wouldn't have to estimate how much capital they actually have in their securities or bonds and take as many risks. A lot of people don't realize how easily small companies are put out of business because they overestimated how much they could take out of the shareholder equity.

This is one of those rare cases where I'm for a tax on anything traded within the first 10 days of ownership.

Martin LaBar said...

Yes, I think here that the benefits of curbing behavior might be worth adding a little tax, even if the resulting tax money were thrown in the ocean, and you have indicated the reasons why, some of them, at least. Thanks.