Do Stock Markets Make Sustainability Impossible?
I'll be brief.
You imagine that the 1929 stock market crash caused the '31-32 bond market crash, and the subsequent bank failures, which in turn caused the depression. I believe you are wrong. You are mistaking symptoms for root causes. Stock market crash was a symptom, as was the bond market crash, and subsequent bank failures. Root cause of all of it was too much debt.
Turns out, "too much debt" was also the cause of the expansion that preceded the 29 crash, as well as the housing bubble in 2003-2007.
Read about Hyman Minsky's financial instability hypothesis. Mainstream economists were shocked by 2008 (because they don't acknowledge the role of banks, debt, and money in their economic models), but Minsky would not have been, since 2008 was just the very predictable next step after the burst of ponzi lending that happened from 2003-2007.
I encourage you to go read Minsky and then come back and we can talk further.
Thank you Michael, Jim and Dave. I will answer your important comments in the next posts (just below). First, however–it does seem that I need to be more clear. I am not always certain where we disagree vs. misunderstand? Perhaps it might help to let me know which of the following statements you agree or disagree with?
a) Are you in agreement with–or interested in learning about–the idea that modern society is unsustainable unless we reduce "growth-dependence"?
Every politician and news program seems to assume that everyone wants "economic growth"–which certainly means more jobs and investment success in the short-term–but with no regard for the long-term impossibility of unending growth. However, there is a minority of thinkers who support "post-growth," "degrowth" or "steady-state" economics. Most notably, a global think tank, the Club of Rome, commissioned an influential 1972 study at MIT, "The Limits to Growth." Their resulting view is currently summarized in a free 2016 ebooklet posted at ClubOfRome.org/a-finer-future-is-possible. Some excerpts:
According to the Global Footprint Network, humanity currently lives as if it had 1.5 planets… As a consequence, major ecosystems are facing tipping points… The pursuit of economic growth… is incompatible with staying within planetary boundaries…
Several documentaries and organizations promote similar non-growth ideas: The Four Horsemen — Mother Caring for 7 Billion — Growth Busters — Foundation for the Economics of Sustainability. If these non-growth ideas make no sense to you, then this article probably will make no sense to you. However, if you agree that modern society needs to reduce growth-dependence, please read on.
b) Do you understand that stock markets are growth-dependent? This is a very conventional fact. You will hear the "need for growth" taken for granted by every investment news program, economist and stock broker.
The owners of a "private company" (not publicly selling stocks) might happily exist for decades with a steady sales of about $10 million per year. In contrast, it is not feasible for the stocks of a "public" or "stock market" company to remain about the same price year after year. Because–as everyone knows–when a stock price seems either to decrease or to stay level for years, no investors wants to own such stocks. This starts a chain reaction. Selling-off causes lower prices–and the lower prices cause more selling-off. This obviously causes a stock price to crash (to fall sharply).
c) Do you understand that if there is a crash in a nation's "general stock market index" (the average price of the most popular stocks)–then this also causes a chain reaction, resulting in a stock market downturn of most stocks–including many with low-debt and high-valuation?
d) Do you understand that either a severe or a consistent "stock market downturn" will cause any modern nation to have a financial crisis? This is because every modern nation has large amounts invested in stock markets.
e) In summary–stock markets are growth-dependent. Therefore–nations with significant stock markets must be significantly growth-dependent. Therefore–in my view–anyone who agrees with deemphasizing growth-dependence should agree with deemphasizing stock markets.
In my view, the only room for serious disagreement here seems to be over the topic of growth-dependence. If, like most people, you do not see that the world needs to reduce growth-dependence–then I urge you to view the following documentaries and websites: The Four Horsemen — Mother Caring for 7 Billion — Growth Busters — FEASTA.org — ClubOfRome.org. Their primary activity is to convince people to reduce growth-dependence. It seems a waste of time for me to argue about growth-dependence with people who are immune to being convinced by these organizations.
However–not one of these organizations mentions the obvious growth-related consequences of stock markets! That is why I wrote the article, "Do Stock Markets Make Sustainability Impossible?" In my opinion–for anyone who agrees that sustainability is impossible unless we deemphasize growth–the obvious answer should be, "Yes–stock markets must be deemphasized."
[quote=Michael_Rudmin]…One of the reasons the stock market AND lending are so ubiquitous, is that these things empower a country to war more effectively… all the recognized nations nowadays are Agricultural Warlike. I think the principle of AW is that you engage in agriculture to increase your yields; with the increased yields you proliferate as fast as possible; when your environment degrades to the point that starvation would ensue, you go viking: conquer your neighbors, take their stuff, convert their land to agriculture, go on…[/quote]
I largely agree with Michael. The world today is engaged in perpetual economic warfare. Of which the major weapon is the stock market. Growth and "dog-eat-dog" competition are fundamental premises of stock markets. This "normalizes" the warfare, making it not only unavoidable, but "business as usual."
Aside from deemphasizing stock markets (which is extremely unlikely)–a more doable step might be for China and the USA jointly to sponsor a global treaty that defines any overall national trade imbalance greater than 10% to 20% as an act of war–unless done with permission. This might help high-growth nations to have slow-stable growth, lasting growth, diversified growth. I.e., less addiction to growth, less hatred from the loser-nations for the winner-nations, less fear that other emerging nations will eventually use economic warfare to dismember China and the USA.
(Also then less potential for addiction to a mono-economy, such as based on oil. A mono-economy is well-recognized by economists to be generally destructive to the sustainability and political stability of Russia, Venezuela, Saudi Arabia, etc.)
Of course, I doubt any of this will happen. Whether liberal or conservative, every politician talks about "bringing jobs back to America." Meanwhile, hardly if ever giving lip service to the financial health of the planet as a whole. Meanwhile, the Chinese and Mexican workers are not exactly wealthy. Each nation simply wants to destroy other nations economically. Nobody wants to build a "sustainable" global economy.
However, please point out to your uncle that nuclear missiles are not the same as spears. Similarly, stock markets are like the doomsday weapons of AW. Please note:
- The kings of ancient times–and the owners of Main Street businesses–are human beings who can choose from among a substantial range of ruthlessness vs. community spirit.
- In contrast, a Wall Street or "public stock" corporation must emphasize growth and shareholder profits. To do otherwise is to risk law suits, plummeting stock values and bankruptcy.
- Also, a Wall Street corporation is required to transfer wealth out of local communities and into Wall Street.
- Also, a Wall Street corporation is potentially immortal. Even if, for example, Woolworth's or the A&P dies–it will be replaced by Target, Walmart, Grand Union, Price Chopper, etc. All of which have no choice to disobey the "grow or die" agenda. All of which also easily overpower the small Main Street business. All of which must survive by siphoning money out of small communities. And use this to feed the international Wall Street investors. And which ultimately ends up hoarded by the most wealthy investors–who receive special discounts, can afford the best hedge fund managers, etc.
Alexander the Great conquered the world. He then spent lifelong efforts to control the conquered people. Unavoidably, after his death, his empire collapsed.
In contrast, every Wall Street corporation and CEO will be succeeded by a similar corporation and CEO. Also, corporations effortlessly are assumed to own their wealth greater than many nations, their ability to hire and fire entire populations, and to lobby governments to change laws. Corporations also legally have human rights. But even when they start wars or commit mass murder, there is usually nobody to put on trial.
Hollywood has made many movies about ruthless, immortal machines dominating humanity: War Games, The Terminator, The Matrix, etc. Meanwhile, we already are dominated by ruthless, immortal machines called "Wall Street corporations." They do not have computer brains. They are run by humans. However, these humans are chosen so as mechanically to follow "profit first" rules. The constant competition with similar corporations also ensures that, on average, the surviving variations of corporations are those which best follow the "grow or die" agenda.
[quote=Jim H]If a bond owner lives on his fixed return.. in other words consumes it, then it's fixed. But.. if a bond owner re-invests this return into more bonds.. then guess what! It's an exponential system. Money is an exponential system because of the interest – our money system is the thing that demands eternal infinite growth. A system that grows by a fixed percentage each year is not a linear system – it's exponential. resilience.org/stories/2013-09-15/albert-bartlett-on-message-about-exponential-growth-to-the-end/[/quote]
Jim, you have brought up the most fundamental question! Are stock markets fundamentally "different" from other investments? As you imply: no matter the investment, we can always re-invest–either in something the same or similar. I have similar arguments with all my friends. They say, "Rich people will always find ways to make money. It is all the same."
My reply to my friends is: "No! It is not the same! Without stock markets, there is the same opportunity to make US$10 million. But without stock markets, it is much more difficult to hoard absurd amounts such as US$1,000 million (billions). Without stock markets–there is also less opportunity for children and great-grandchildren to pay hedge funds to make them more billions without doing anything. There is also less opportunity to force governments to bail-out "too big to fail" banks. And to modify laws so as to favor billionaires and grow-or-die corporations. Above all, the grow-or-die stock market is like a pack of barking dogs chasing humanity over a cliff. Without the stock market, we might not change course–but at least we would have a choice."
Incidentally, how did I first start thinking in this direction? Back in the 1980's, one of my college text books said, "inflation is invisible taxation." Also around that time, I saw Ray Kroc, founder of McDonald's, recounting his life story on television. He said something like this. "When we had our IPO, I went to bed one night, then woke up with more money than I had ever imagined to exist." Later, I became an avid investor. Meanwhile, however, I continued to think about the fact that most billionaires do not become billionaries by selling billions of hamburgers or otherwise "earning" billions of dollars–but by convincing millions of people to invest in their stocks. Then around 2010 I realized that the stock market and overpopulation are the two main drivers forcing humanity over a cliff. I do not mention this as proof of anything. But merely because it may start some people thinking. Just as Ray Kroc started me thinking.
Jim, there seems to me a huge difference between the "requirement" of stock markets to grow–vs. the "possibility" of bond investors to reinvest. This is similar to an army of psychopaths shooting as many people as possible–vs. individuals who only shoot when attacked by psychopaths. A non-Wall Street company might sell bonds for expansion. However–except for direct competition where expansion begets expansion–nothing fundamentally "forces" bonds to be sold. A non-Wall Street company is free not to expand–due to risks–ethics–or if just "rich enough" or "old enough" and not wanting the hassle. In contrast, a Stock Market corporation must constantly "grow or die." Every year, every Wall Street CEO must ask, "How are we going to grow this year?" Ask any economist or stock broker! Listen to any financial television show!
Often you will hear something like this, concerning nations as well as corporations: "China is still growing at a much higher pace than most countries. However, China's rate of growth is not as high as before. This is causing huge problems. The shock waves will be felt around the globe."
Think about it. Modern civilization has all the knowledge to grow food and survive in comfort. "Growth" obviously makes profits easier–but obviously, this is temporary. Growth should not become like a drug addiction to which we are "physically dependent"! And now, we not only depend on "growth"–but there must be "enough growth"–and even "growing growth." This is obviously just like a drug addiction and also obviously required so long as we have large stock markets.
Before having a large stock market, China was able to reduce its huge overpopulation. In the 1970's, Time/Life featured a story, calling it something like, "The most neglected news story of the century: China defusing the population time bomb." Now, China has recently abandoned its population control efforts. Also, some of the same economists who applauded China for "defusing the population time bomb"–today are applauding China for "modernizing its economics." This includes Fareed Zakara, who is strongly in favor of "stopping climage change" and a member of the Davos global economic conference. I.e., even some of the so-called "progressive" leaders are now all in favor of "infinite population growth." That which is mathematically unsustainable–and the most dangerous thing for the environment–is now endorsed by people who are the most highly trained in mathematics–and who are the most pro-environmental–simply because it is required by stock markets.
Today, many people are thinking, "Hmmm, maybe we must reduce our dependence on fossil fuels?" Meanwhile, nobody dares to think, "Hmmm, maybe we must reduce our dependence on stock markets?" Just as in the classic tale, "The Emperor's New Clothes," nobody dared to think, "Hmmm, maybe the emperor is stark naked? No, can't be. Not possible even to think that."
[quote=davefairtex]You are mistaking symptoms for root causes… Turns out, "too much debt" was also the cause of the expansion that preceded the 29 crash, as well as the housing bubble in 2003-2007… Mainstream economists were shocked by 2008 (because they don't acknowledge the role of banks, debt, and money in their economic models), but Minsky would not have been, since 2008 was just the very predictable next step after the burst of ponzi lending that happened from 2003-2007… economicshelp.org/blog/6864/economics/financial-instability-hypothesis[/quote]
Dave, thank you for this well-written reference. According to this reference, Minsky seems to strengthen what I am saying:
- Minsky says stock markets are naturally unstable and crash-prone.
- Minsky seems to emphasize "over-exuberance" (not debt) as the cause.
Meanwhile, like most economists, Minsky probably never questioned the existence of stock markets. According to this blog reference, Minsky instead insisted on strong regulation. Meanwhile, most Republicans (and perhaps Jim H here) seem to insist on "free markets" and deregulation. Furthermore, even for Minsky supporters, this blog references the following complications.
- Limitations of Financial Instability Hypothesis:
- Government regulation of financial markets is often more difficult in practise than theory. Financial firms have ways of avoiding government regulation.
- Regulators may fail because they get caught in same ‘irrational exuberance.’
- Financial instability is not the only cause of the 2008 crisis. For example, we had a prolonged growth in total debt levels, there was evidence of global imbalances, with large current account deficits in US, UK and Europe.[/quote]
Nonetheless, I largely agree that debt has been a primary initiator of stock market crashes.
- In 1928, street sweepers and millionaires alike were able to buy stocks with pennies on the dollar.
- In 2007, banks were illegally using the money of depositors to gamble in derivatives. (hblr.org/wp-content/uploads/2014/09/Derivatives-and-Credit-Crisis.pdf.) Derivatives are essentially "leveraged" investments–thus amounting to the same thing as the lax "margin" or "debt" requirements in 1928. Not to mention "illegally using other people's money" also being an extreme form of debt. Banks also made illegal mortgage loans because they could sell these loans to "aftermarket" lenders. So once again, debt was certainly significant.
- In addition to spending $2 trillion on an illegal war, Bush II reduced the budget for FDIC teams to monitor the banks.
- Banks today are almost ignoring the Dodd-Frank laws against the derivative speculation that triggered the 2008 crash. They hire expensive lawyers to challenge Dodd-Frank. Even when these court battles are certain to lose–banks can continue to break they law because their court cases are able to delay implementation. thenation.com/article/how-wall-street-defanged-dodd-frank
- The mega-banks also hire lobbyists who insist that mega-banks must "grow or die" via derivative speculation. Or else, the mega-banks claim, US banks will be at a competitive disadvantage. (Even though Canadian banks, like Toronto Dominion, aka TD Ameritrade, were highly successful without high-risk speculation.)
- Most Republicans vow to repeal Dodd-Frank.
- Democratic leader Hillary refuses to release her speech to Goldman Sachs. Did she also promise to neutralize Dodd-Frank?
Therefore, if we elect enough angels to the US Congress–and pray that every bank CEO will obey the laws without being monitored–then perhaps the stock market never needs to "crash." However, I could list other reasons for a crash than "debt."
In any case:
- My thesis is not primarily about whether stock markets crash–but whether they are sustainable–and whether they can allow the overall economy to become sustainable.
- Nor do I agree that it is necessary to label any cause as "primary." I am simply saying that the stock market requires growth. Therefore, so long as we have large stock markets, we have unsustainable growth-dependence.
- If, like most people, you simply think "growth is good," then perhaps we simply cannot agree. There are numerous organizations and documentaries dedicated to convincing us of the need to be free of growth-dependence. If they can not convince you, then I do not expect to convince you. (The Four Horsemen — Mother Caring for 7 Billion — GrowthBusters.org — FEASTA.org — ClubOfRome.org.)
- However, if you agree what the world needs to reduce growth-dependence–then I do not see how you can disagree that the world needs to reduce stock markets. To me, this seems as obvious as saying that if you want to minimize alcohol, you need to minimize whisky.
Thank you all for your contributions to this discussion about my article. After several weeks, no one seems to be replying further. So I will summarize what seem to be the two most important suggestions for improving my article.
- My article needs to become more clear that it assumes agreement with "ending growth addiction." It is futile for me to attempt to argue about the basic principles of sustainability–on top of arguing against the stock market on the basis of sustainability.
- As Jim H has also made clear, I need to argue more clearly that there is a fundamental difference between the stock market and all other forms of investing, with regards to sustainability. I now will make one more attempt to do so…
In his last post, Jim H referenced an excellent 2013 article: "Albert Bartlett: On message about exponential growth to the end."
Albert Bartlett might have been another obscure physics professor had he not put together a now famous lecture entitled "Arithmetic, Population and Energy" in 1969. The lecture, available broadly on the internet, begins with the line: "The greatest shortcoming of the human race is our inability to understand the exponential function." The logic is surprisingly simple and irrefutable. Exponential growth, which is simply consistent growth at some percentage rate each year (or other time period), cannot proceed indefinitely within a finite system, for example, planet Earth. The fact that human populations continue to grow or that the extraction of energy and other natural resources continues to climb does not in any way refute this statement. It simply means that the absolute limits have not yet been reached…
His favorite shortcut is the doubling time, the time it takes to get to twice the original number at a constant rate of growth. The formula is 70 divided by the percentage rate of growth per year (or other period). Just a 2 percent growth rate doubles the rate of use of a resource or the size of world population in 35 years. Actual world population growth is about 1.2 percent per year today, which seems benign; but, it implies the next doubling within 58 years to 14 billion. (U.N. forecasts project world population will reach 10 billion by 2070–57 years from now–and continue to grow through 2100.)
This Albert Bartlett article also mentions one of my own primary references, "The Limits to Growth," published in 1972 by The Club of Rome, as being related to Bartlett's thinking. Similar to Albert Bartlett, my article also ignores the short-term facts and figures used by most economists, and focuses instead on the simple mathematical impossibility of any system to be lasting if it depends on never-ending growth. Such as, above all, the stock market.
If Jim H agrees with Albert Bartlett, then we have substantial common ground. However, Jim H seems to believe there is no difference in sustainability between stocks and bonds–and that inflation of money is more damaging than either. However–in my opinion–in order to prove the huge differences in sustainability, we only need to consider the following two facts.
1. A huge difference in the degree of growth between stocks vs bonds vs inflation. The growth potential for stocks is obviously much higher than bonds. Otherwise, no investor would buy stocks. From 1929 through 2009, the average annual returns were 5.8% for US investment grade corporate bonds vs. 11.8% for US stocks–a difference of 6% (finance.zacks.com/stock-vs-bond-returns-4603.html). According to Bartlett's 2% formula, this implies that every 35 years, a stock-based economy generates 2 x 2 x 2 = 8 times more growth than a bond-based economy. For 70 years, this might become 8 x 8 = 64. I.e., if with a stock-based economy we have 35 years before planet Earth reaches a "point of no return"–then with a bond-based economy we might have 35 x 8 = 280 years. Obviously, a bond-based economy would give us far more time to change our destructive habits!
Of course, this is an over-simplification, not to be taken literally. By other reckoning methods, average annualized growth is 7% for stocks and 5% for bonds. Also, there is not necessarily a direct correlation between investment returns and total industrial activity. Nor would bonds in a bond-dominant economy behave the same as bonds in a stock-dominant economy. Nonetheless, the basic mathematical laws are undeniably correct in showing the vast difference in the "growth-reliance" and "growth-pressures" of bonds vs. stocks. Also I repeat: the very reason that stocks are able to exist, in spite of their higher risks, is because of their promise of higher growth rates.
Meanwhile, the average rate of US price inflation for 1919 to 2014 was 3.22% (inflationdata.com/Inflation/Inflation_Rate/Long_Term_Inflation.asp). Albert Bartlett showed that this was enough to be highly destructive and unsustainable. However, the price growth of 3.2% is not nearly as vicious as the stock market growth of 11.8%. I would also argue–and indeed any economist would assert–that without somewhat consistent inflation in this general range, the stock market would collapse. I.e.–regardless of whether the stock market is "the tail or the dog"–it is obviously impossible to reduce inflation, and likewise impossible to be sustainable, unless we deemphasize stock markets. Until, like poker games and lotteries, stock markets no longer are large enough to cause the US economy to crash every time that US stock markets crash.
2. More importantly: it is simply illegal, unfeasible and impossible for a stock market corporation to stop seeking maximum growth. This is by far the more important difference between stock markets and bond markets. This is the main point of my article. Even if a bond-based economy somehow ended up with a similar average growth rate as a stock-based economy–the nature of bonds does not require growth! A "Main Street" business can say at any time, "We do not like the available means of growth." Because there is too much cost to the environment. Or too much cost to the community. Or they are simply "wealthy enough."
Conversely, a "Wall Street" or "Stock Market" corporation is simply not able to deemphasize growth! Firstly, the executives of Stock Market corporations are legally required to serve the financial interests of shareholders. This means doing anything legally possible to increase share prices. Secondly, the value of the company is in the popularity of the shares. This popularity is based on growth potential. This obviously will plummet if they cease to seek growth.
Any stock market–and any corporation that is publicly traded on the stock market–and any nation and any planet with a stock market based economy–is always under overwhelming pressure to seek maximum short-term growth. As anyone can verify by listening to any investment program or asking any stock broker.
I am very interested in receiving discussion and feedback on the following ideas in my article, "Do Stock Markets Make Sustainability Impossible?" Here is a paragraph from each subsection. (For full article see Vermocracy.Org.)
- Unless stocks are deemphasized and bonds emphasized, it is ludicrous to assume that solar energy—or anything else—can create sustainability.
- Protesting stock markets is as important as protesting air pollution—but nobody is doing so.
- The New York Stock Exchange is not an original or necessary institution for capitalism, democracy, Christianity, America or free enterprise.
- There is no magical law that requires stock markets to have happy endings.
- Overpopulation is not mandated by religion so much as by stock markets.
- No movement is making the essential moves against Wall Street to make sustainability possible.
1. Unless stocks are deemphasized and bonds emphasized, it is ludicrous to assume that solar energy—or anything else—can create sustainability. Of course, it benefits the environment to develop non-polluting energy sources. However, overall “sustainability” must include financial stability. Otherwise, we face ever-repeating wars and stock market crashes and consequential ever-increasing populist demands to dismantle environmental protections. From about 1900 to 2000, we had a very inexpensive source of energy called “oil.” The personal computer also increased productivity several times over. All with no net increase in financial stability. In contrast, the ancient Hawaiians perfected fish farming. Thus, they primarily just needed to eat fish and then go surfing and dancing. Also, ancient Hawaiians were never told that they must eat more fish every year. That would have sounded ludicrous to everyone. Today however, we so-called modern people are told by most economists and politicians that we constantly face ruination, not only if productivity fails to grow, but even if the rate of growth fails to grow. At the crux of this naked inanity are stock markets.
2. Protesting stock markets is as important as protesting air pollution—but nobody is doing so. Of course, there has been an “Occupy Wall Street” movement. However, the Wikipedia article on OWS mainly lists protests against some of the inevitable consequences of overemphasis on stock markets: “wealth inequality, political corruption, corporate influence of government.” There seems no suggestion to deemphasize stock market investing. With no intellectual leaders speaking out against stock markets—it is obviously not feasible for political leaders to do so. Bernie Sanders, self-proclaimed “democratic socialist,” probably is the most harsh critic of Wall Street ever to make it to the US Congress. Every little bit helps. However, his most radical proposal is a small tax on high-frequency trading. Sanders has never proposed to reduce the general tax discount on stock market investing—nor proposed a tax discount for bond investing—nor criticized our dependence on infinite growth.
3. Contrary to popular assumption: the New York Stock Exchange is not an original or necessary institution for capitalism, democracy, Christianity, America or free enterprise. This article merely points out that modern society is dominated by corporations—which are funded by stocks and bonds—and that long-term stability and peace are possible if and only if we merely deemphasize the stocks! Some people will instinctively respond that to deemphasize stocks is somehow to advocate “communism” or “totalitarianism.” This is obviously not true. Here are the facts.
- Bonds are not communist. The US government and most US corporations sell bonds.
- You can buy books on the “all-bond portfolio.” This is a respected investing method.
- China and Russia are communist or totalitarian or both—and have stock markets.
- Washington, Jefferson and Franklin were not communists—and had no stock market.
- Adolf Hitler was propelled to power by the stock market crash of 1929. Stock markets cause totalitarianism. They are not a cure for it.
Others will respond, “This is a free country. If you do not like stocks, you are free not to buy them.” Ironically, this is exactly what this article argues should be true. If the stock market game were deemphasized to the level of a Las Vegas casino, then we might all choose to play it or ignore it. Unfortunately, that is clearly not our situation.
- Unlike casino games, every news show frets about stocks. Because they affect everyone.
- The stock market crashes of 1929 and 2008 caused millions to lose their jobs and possibly their life savings—regardless of whether they bought stocks.
- Walk in to any office of any stock broker and ask what will happen if you do not invest? The answer is that more than 1/2 the value of your savings will be lost to inflation.
- Walk in to any university and ask any economist, why do we have inflation? The answer is that we must have inflation to support the stock market.
- If a prostitute is forced to pay 1/2 her income to a pimp, she is said to be “owned” by the pimp. Similarly, everyone is somewhat “owned” by the stock market.
- For more thoughts in this direction, Google the phrase: inflation is invisible taxation.
4. Contrary to most financial experts: there is no magical law that requires stock markets to have happy endings. Most financial gurus will advise a never-sell buy-and-hold strategy for stocks. Also, for those who desire greater safety, large investments in corporate or municipal bonds. This is in spite of the ubiquitous refrain by the same people: “past performance does not predict future performance.” Buy-and-hold is like a religious faith based entirely on the performance of US stocks in the previous century. This ignores what happened in 2008 and what has happened to most non-US stock indexes since 2008. Also, we saw numerous bankruptcies and near-bankruptcies of US blue-chip corporations, insurers and regional governments in 2008: California, General Motors, Goldman Sachs, AIG, Lehman Brothers, etc., etc. This has proven that corporate and municipal bonds are now like wooden fire escapes: only safe just so long as there is no great need to be safe. Investment-grade corporate bonds should be safe. If not for our over-emphasis on stock markets, most bonds would be safe. Currently however—so long as the stock market has the power to trigger a cascade of blue-chip bankruptcies—then allocating anything for corporate or municipal bonds primarily means that you can allocate less for maximum-safety gold or US Treasury TIPS.
5. Overpopulation is not mandated by religion so much as by stock markets. Obviously, reproduction is essential for any species. Obviously, nature must create an off-switch for reason wherever reproduction is concerned. It is therefore understandable that even the most rationally-trained people are often bizarrely self-contradictory in opposing the clear mathematical imperative to stabilize the global human population. The Roman Catholic church has gradually been persuaded by scientific reason—such as that the earth is not the center of the universe. However, a religion can not be expected to abandon tradition for reason—when those supposedly representing “reason” are fanatics for tradition. It is not priests so much as economists who maniacally insist on infinitely more children. Even when the ignorance required to believe in “infinite population” is far more obvious than required for an earth-centered universe. In contrast, the Bible teaches that God created every species. Therefore, to destroy any species is to declare war against God. Not to mention the extinction of dozens of species every decade due to human overpopulation. Also, if all Christians are one family and all Muslims are one family — as both of their scriptures teach — then before having a second child, all parents should at least pay for the education of another child who is living among garbage.
6. No movement is making the essential moves against Wall Street to make sustainability possible.
- There is what I call the “High Plains Drifter” initiative. This means firstly, for one reputable economist to write one book arguing that capitalism has a future if and only if stock markets are deemphasized. Secondly, for the leaders of one underdeveloped or “outsider” nation to read said book and thus to start one new game on their own terms: encourage corporate bonds with national insurance programs and low tax rates—meanwhile discourage stocks—and thus become increasingly admired and imitated after each new, ever-inevitable global stock market crash. Russia, China, India, Greece, Cuba, Venezuela and Indonesia obviously should encourage bonds over stocks. Currently however, every nation stubbornly bellies-up to be fleeced at the anachronistic Wall Street game—regardless of whether they are a naïve novice, an atheistic anti-capitalist, a religious fundamentalist or even a chronic loser.
- Or, a “Newman Age” could be upon us if some new promotional strategy somehow enabled stock market corporations in every sphere to be eclipsed by for-charity corporations à la Newman’s Own—with a similar ferocity as My Space was eclipsed by Facebook. Currently however, there seems little significant interest in such projects.
- Or, a “Fight Fire With Fire” initiative might mean for some nonprofit foundation to manage “socially responsible” brokerages, autotrading systems, trust funds and mutual funds. If 1/3 of the foundation’s resulting income were used to finance pro-environmental politicians and organizations—while 2/3 were hoarded and reinvested—this eventually might build up a war chest with which to enable environmentalists to cross swords with billionaires and corporations. Currently however, environmentalists must forever act like the Dutch boy with a finger in a dyke.
Ebay, Google and Facebook all had humble beginnings—and yet, soon eclipsed stock market giants, even before joining the stock market. For the first time in history, it is no longer necessary to own steel mills in order to challenge the likes of Carnegie and Mellon. What is lacking today is only the will, not the capability. Each of the above “non-Wall Street initiatives” obviously could be accomplished within fewer than a dozen years by fewer than a dozen inspired individuals. This is probably a narrow window of opportunity and to which almost nobody is yet responding.
nice deatiled information. good work mate
[quote=chrishaiden66]nice deatailed information. good work mate[/quote]
Thank you, Chris Haiden. I usually am against long repeats of previous messages–but a recap at this point seems appropriate. (I just hope nobody else does this, please.)
As I said, Jim H was helpful in challenging me to show more clearly that stocks are different from bonds. Dave Fairtex also brought up very important facts–such as that more money is already in bonds than stocks. This point was also brought up at my one other lively discussion at "OWS": http://occupywallst.org/forum/feedback-please-do-stock-markets-make-sustainabili
Perhaps I should add a "Frequently Asked Questions" section to the end of my article, briefly summarizing my responses to such issues.
Also, one person at OWS has posted a list of savants who potentially are already as "anti-stock market" as myself. However, I do not think any of them are. I have combined that list with what I have learned here at Peak Prosperity. The result is a "savant list" that seems to emphasize my original point: "Protesting stock markets is as important as protesting air pollution—but nobody is doing so."
Here is my resulting "savant" list, as currently posted at OWS (April 5, 2017). I list each "savant" or organization which people have told me either agree with my message or disprove my message. I briefly explain that they seem to do neither.
I have not had time to study each savant in-depth. Anyone who finds possible errors, please "reply" with corrections. Overall however, if any of them believed as I do that the stock market is the core problem of the world, I believe they would make this crystal clear. I do not find any such indications.
1.) Albert Bartlett. The core of my thinking seems identical to his. Unfortunately, he died in 2013. I have no chance to ask him if his thinking applies foremost to the stock market? He seems rather to have focused on overpopulation. Quoting from a 2013 article: "Albert Bartlett might have been another obscure physics professor had he not put together a now famous lecture… "The greatest shortcoming of the human race is our inability to understand the exponential function." The logic is surprisingly simple and irrefutable. Exponential growth, which is simply consistent growth at some percentage rate each year (or other time period), cannot proceed indefinitely within a finite system, for example, planet Earth… Actual world population growth is about 1.2 percent per year today, which seems benign; but, it implies the next doubling within 58 years to 14 billion." (resilience.org/stories/2013-09-15/albert-bartlett-on-message-about-exponential-growth-to-the-end) (en.wikipedia.org/wiki/Albert_Allen_Bartlett)
In comparison, from about 1920 to 2010, inflation has averaged 3.2% annually, US corporate bonds 5-5.8% and the US stock market 7-11.8%. In addition to experiencing the greatest growth, the stock market is the one component which is unable to stop growing without causing global collapse. Furthermore, the stock market also uniquely REQUIRES inflation and population growth. If and only if we disconnect the economy from the stock market can we achieve consistently low or negative price or population growth without catastrophic collapse. Also, consequently, we thus might remove the pressure on everyone to invest in growth, which obviously generates a "vicious cycle." Currently–in contrast–anyone who fails to invest is certain to lose more than 1/2 the value of all earned income to inflation.
2.) The Club of Rome and "The Limits to Growth" of 1972. And follow-up reports, especially the 2016 summary currently posted at ClubOfRome.org: "A Finer Future is Possible." The Club of Rome largely agrees with the "anti-growth" thesis of Bartlett. However, The Club of Rome fails to focus on stock markets as the most obvious engine of unsustainable growth–also fails to suggest bonds as an obvious alternative to stocks–meanwhile suggesting a vague and utopian idea of "alternative investment methods." To top this off, they improperly blame "humanity" (en.wikipedia.org/wiki/The_First_Global_Revolution). Even though "humanity" has absolutely no choice except to grow-or-collapse so long as the economy is tied to stock markets. This is certainly not the same as my own focus against stock markets.
3.) Gold enthusiasts–and "The Four Horsemen" documentary–and the Peak Prosperity organization–and presumably many other groups with somewhat survivalist tendencies. I am somewhat improperly combining many disparate groups into the category of those who often recognize the need to stop growth-dependence–but who somehow decide that the way to do so is to return to the "gold standard" or to "non-fiat currency" or simply to reduce the level of debt. After lively discussions with a gold enthusiast at SeekingAlpha.com and with several members of the Peak Prosperity forum, neither I nor they seem able to understand each other. Clearly however, they somehow reject my notion that the stock market is a center of growth-dependence.
4.) "Mother Caring for 7 Billion" documentary and "Hooked On Growth" documentary. These are both very educational documentaries about the need to overcome growth-dependence. However, they both somewhat fail to make clear suggestions about doing so or to focus against the stock market. I emailed them both. I received a reply from Dave Gardner of GrowthBusters and "Hooked on Growth." He said that he liked my thinking, had never heard such ideas, and would discuss them with his associates. He has not replied further. Hopefully he is still thinking it over…
5.) Prof. Richard Wolff seems to have a perspective that is potentially compatible with mine. I must attempt to contact him. Wolff is a self-avowed "Marxist," with which I do not agree. However, according to a Bill Maher interview, Wolff seems to claim a brand of Marxism that is not opposed to capitalism, so much as a method of removing the errors of capitalism. Wolff routinely denounces greed and the fragility of the stock market and of capitalism in general. However, I can not find any indication that Wolff considers capitalism separately from stock markets. Therefore, I doubt that he has considered whether capitalism might be greatly improved by deemphasizing stock markets. ("Stock Unpredictability": youtube.com/watch?v=qeylp9UPeNk) ("Marxian Economics vs Capitalism": youtube.com/watch?v=f8BUXLAu2ZA) (Bill Maher interview: youtube.com/watch?v=W-6nrAnDGyU)
6.) Former Greek Finance Minister Yanis Varoufakis seems to be a practical man who desires social justice. I should attempt to contact him. Varoufakis seems to claim to use both Marxist and capitalist economic theory, as well as to criticize them both (theguardian.com/news/2015/feb/18/yanis-varoufakis-how-i-became-an-erratic-marxist). However, in my brief readings about Varoufakis, so far I can find no evidence of anything like my idea that capitalism can be made sustainable by deemphasizing stock markets. Even though, in my opinon, Greece is one of the most obvious cases of a nation which should deemphasize stock markets and emphasize corporate bonds. In my opinion, Greece has no hope of winning the global stock market game. (reuters.com/article/us-ecb-qe-varoufakis-idUSKBN0MA0H120150314) (en.wikipedia.org/wiki/Yanis_Varoufakis)
7.) The website of Max Keiser seems to claim that current debt levels are dangerous for the stock market. This may be true. In any case, however, this is about standard short-term economics. This has no relationship to my criticizing the basic long-term unsustainability of the stock market. Indeed, in my view, the stock market itself inevitably causes increasingly excessive debt levels. A long-term solution can not be achieved by harping against debt levels. Sustainability might only be achieved by harping against the stock market itself. (maxkeiser.com/tag/stock-market-crash)
8.) Gar Alperovitz calls to "democratize the ownership of our economy"–such as with a "public option" in health care–and that "worker ownership, including worker cooperatives, can and should be encouraged through federal policy initiatives." These are not new ideas but typical socialist ideas similar to those of Bernie Sanders. I like most of these ideas. However, how can we possibly "democratize the economy" if we do not greatly reduce the size and influence of stock markets? Conversely, if we do reduce the size of stock markets, then sustainability can be achieved without convincing Americans to become socialists. I admit that it may be equally improbable to convince Americans to reduce stock markets as to become socialists. However, my opinion is that reducing stock markets–or at least reducing the tax incentives to invest in stock markets–is clearly the more logical priority.
On the other hand, I am delighted by the following Alperovitz quote. This seems almost identical to some of my own writings, except being better-written:
"""So long as large private corporations must meet stock market demands for ever-greater (often quarterly) profit increases, they must “grow or die.” This dynamic is diametrically opposed to the need to slow or halt overall growth and resource use in general. And it also runs directly contrary to the need to control carbon emissions in particular. Additionally, corporate political power commonly acts as a powerful obstacle to progress on other vital ecological issues—as we have seen in the United States with the failed climate change legislation and continued efforts to discredit climate change science.""" (garalperovitz.com/2015/05/need-new-economic-system) (humansandnature.org/economy-gar-alperovltz)
Nonetheless, I am befuddled by the following incongruities:
• A "stock market corporation" is officially labeled a "public corporation" but Alperovitz calls them "private." I suspect his use of "private" means "not government-owned"? If so, this is probably insignificant. But if not, I might be misunderstanding the paragraph?
• Much more importantly–Alperovitz apparently fails to go on to say that, therefore, we must phase-out stock markets!