Reevaluting the Stock Market
From Zanecorpwiki
Over the years (I can remember actively thinking on this over 10 years ago), I've come to the relatively firm conclusion that Stock Markets aren't Real and that putting money into the stock market is not an investment in any meaningful sense. However, in an interview with Eswar Prasad discussing China's problem with growth on Planet Money, Mr. Prasad made an offhand remark that the stock market functions as a conduit for corporate earnings to reflected in personal wealth.
The surprising, and hugely significant bottom line, was that in the US, about 2/3rds of economic growth inures to personal income, whereas in many first world nations, it's more like 50-60% and around the world even less. This is hugely important. I assume that households receiving a big share of growth is relatively settled as a good thing. Personally, I think society would benefit if we cranked the number even higher and--though I wouldn't take it quite this far--a strong argument could be made that something close to 100% of the growth should be ultimately reflected in personal income in order to maximize overall output and growth.
Prasad's suggestion was that the stock market is mechanism by which this occurs. It's a hugely interesting question, and while I don't yet see any implications towards my previous thoughts. Meaning, even if it's true that the stock market functions to spread the wealth around to individual, there are still huge problems with the stock market. It may still be a bubble, it may still be a terrible way to make investments, and regardless of anything else, it shares out the wealth very un-equally. So, at best, it may be that the stock market is a net win because it's more important to get the money into any household, even if it's done in an unfair way. Looking at the fact that in the past decade (TODO: closer to two decades?) median income has dropped in a time of tremendous economic prosperity while the higher and higher you climb the economic ladder, the more and more growth you find in household wealth bespeaks to, in my eyes, a manifestly broken distribution mechanism.
Still, this is a big change in perspective. It moves me from the idea that the stock market is a problem to the idea that the stock market has problems.
