Market index funds are... "worse than Marxism"?

April 5, 2021 3:08 PM

Money manager bigwigs are ironically complaining that government may need to rein in passive, low-fee or no-fee index funds.

Are index funds concentrating too much power in too few hands? Are they bad for consumers? Are they encouraging lethargy in investors? Or maybe actively managed funds just can't compete?

posted by wibari (54 comments total)

IMO the real issue is that index funds will eventually control the boards of every company that's in an index and corporate responsibility will get pushed further into the shadows, layers upon layers of people just doing what some other group tells them to do. (the article touches on this). But I don't really want Vanguard choosing the next set of corporate directors for major companies, as much as I might like Vanguard as an investor.

Also, active funds can just cut fees if they want to stay competitive.*


* big lols
posted by GuyZero at 3:15 PM on April 5, 2021 [19 favorites]

The fact that apparently the best way for someone to have a good financial future is to buy a fractional amount of control of a bunch of companies that you know nothing about, while ingenious, also seems like a prime example of how capitalism is absurd. I don’t understand the market, I don’t want to have to understand the market, I have no interest in controlling a company, and yet it is to the market I must go.
posted by Going To Maine at 3:20 PM on April 5, 2021 [62 favorites]

anyhoo! This seems like a good article and I will read it.
posted by Going To Maine at 3:20 PM on April 5, 2021 [4 favorites]

Isn't a big part of why so many people are "forced" to enter the market is the hollowing out of pensions and other retirement plans being replaced with 401Ks? Guaranteed retirement payouts replaced with market uncertainty?

And yep, the concentration of power scary:

Although many financial institutions offer index funds to their clients, the Big Three control 80 or 90 percent of the market. The Harvard Law professor John Coates has argued that in the near future, just 12 management professionals—meaning a dozen people, not a dozen management committees or firms, mind you—will likely have “practical power over the majority of U.S. public companies.”

Meanwhile:

Passively managed investment options do not just outperform actively managed ones in terms of both better returns and lower fees. They eat their lunch...

I'm reminded of this famous Long Bet (Warren Buffet vs a Hedge Fund): “Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S&P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.” Guess who won?

Ultimately this feels like the result of a long term shift in the Overton Window from the idea that society as a whole has a responsibility to care for its aging population to a move where the Invisible Hand will provide...
posted by gwint at 3:26 PM on April 5, 2021 [31 favorites]

Are they encouraging lethargy in investors?

Lethargy is one of the prime characteristics of a successful investor, though. Just not of a mark for fintech service fees.
posted by mhoye at 3:28 PM on April 5, 2021 [29 favorites]

the hollowing out of pensions and other retirement plans

Incidentally, a lot of the still existing pension plans (like civil service, for instance) are heavily invested in the equivalent of index funds.
posted by mrgoat at 3:30 PM on April 5, 2021 [17 favorites]

Isn't a big part of why so many people are "forced" to enter the market is the hollowing out of pensions and other retirement plans being replaced with 401Ks?

Sort of, but the fact is that pensions were all neck-deep in the markets anyway. The disintermediation of the market/retirement handcuffs doesn't change too much of that. I've become more and more of the opinion in recent years that there should be only one explicit retirement vehicle, namely, a government pension.
posted by tclark at 3:41 PM on April 5, 2021 [19 favorites]

There's an interesting point in the article that I think is missing an obvious solution. If (part of) the purpose of stocks is to allocate capital efficiently, and passive investing is bad because it doesn't perform that function at all, leading to a "worse than Soviet" outcome...wouldn't the value of active investing naturally increase whenever the allocation of capital becomes too inefficient? Active is less valuable right now because the allocation of capital is doing fine* (*definitions of "fine" may vary and/or involve ecological collapse). This seems like a self-balancing system.
posted by allegedly at 3:44 PM on April 5, 2021 [17 favorites]

I desperately wish someone would start an index fund (or Vanguard or whoever would take the policy that) they will use their shareholder votes to promote long-term, sustainable policies over short-term gains. That aligns with most of their fund-holders' goals and feels pretty Bogle-y to me. Hell, I'd even pay a small premium on my low-cost index funds for that.
posted by DebetEsse at 3:46 PM on April 5, 2021 [15 favorites]

It seems like a problem where the people involved are worried because it'll affect them, and we on the sidelines are being threatened/forced in harms way to save them oncemore.

I'm firmly convinced there's no good outcome of forcing things back onto individuals. "We need people, scared and hoping for the only way to escape poverty to retirement, to get exposed to the market more & eat up more of their non-work hours trying to navigate perilous decisions playing against experts" sounds like sharks complaining that the easy chum is gone & now they have to compete against bigger sharks.

Adding an intervention fee, of some sort, feels appropriate. The Feds need to step in on this? The Feds take ownership of whatever's in the way. Nationalize Vanguard, and distribute proceeds to everyone. etc.
posted by CrystalDave at 3:56 PM on April 5, 2021 [12 favorites]

wouldn't the value of active investing naturally increase whenever the allocation of capital becomes too inefficient

totally. that's why these claims are bogus, IMO. theyre just an admission by elitist managers that theyre bad at their job. if they knew what they were doing, they jump at a stagnant market where all the money was idle because their returns for picking a winner would be so much more lucrative. theyre just salty that they cant rip people off as much as they used to.

I desperately wish someone would start an index fund (or Vanguard or whoever would take the policy that) they will use their shareholder votes to promote long-term, sustainable policies over short-term gains

these exist! they're called "virtue funds" i believe.
posted by wibari at 3:57 PM on April 5, 2021 [18 favorites]

The next time somebody on Facebook complains about Biden's Marxist policies, I'll remind them that according to analysts at Bernstein, Marxism isn't as bad as passively investing in market index funds.
posted by Faint of Butt at 4:01 PM on April 5, 2021 [15 favorites]

Why not both? Bloomberg, 2016: Are Index Funds Communist? by Matt Levine

The alternative view is that, in the long run, financial markets will tend toward perfect knowledge, a sort of central planning -- by the Best Capital Allocating Robot -- that is better than Marxism because it is perfectly informed and ideally rational. And once you have that, you can shut down the market: The game is over, and the Best Capital Allocating Robot won. The Fraser-Jenkins thesis is that algorithmic investing runs the risk of destroying capitalism by abandoning the pursuit of knowledge. But the really fun alternative is that it runs the risk of destroying capitalism by perfecting that pursuit: Once you have solved the socialist calculation problem, what do you need markets for?

Stuff like this and the whole r/WallStreetBets $GME circus goes to show that the market's scariest enemy is itself.
posted by Apocryphon at 4:17 PM on April 5, 2021 [15 favorites]

theyre just an admission by elitist managers that theyre bad at their job.

Oh, it’s worse than that. The overwhelming majority of the fintech sector is a dead weight loss to society and the numbers show that quite clearly.
posted by mhoye at 4:31 PM on April 5, 2021 [55 favorites]

Guilty. All of my investments are in index funds. Worse yet, they are all in municipal bonds rather than equities. I just followed this advice:

"Wall Street makes its money on activity. You make your money on inactivity."
-- Warren Buffett
posted by jim in austin at 4:36 PM on April 5, 2021 [9 favorites]

As someone who used to work in Fintech, I would like to draw on my experience and first-hand knowledge to bring perspective to this discussion.

But really, mhoye hit the nail on the head, so I don't have to.
posted by SansPoint at 4:53 PM on April 5, 2021 [12 favorites]

"Still, passive investing may well be degrading the informational content of the markets, messing up price signals and making business decisions harder as a result."

The market is degraded by far worse. The reason we have pollution problems and goal warming is that there are costs that the market doesn't take into account. I'm way more worried about that than index funds.
posted by CheeseDigestsAll at 5:00 PM on April 5, 2021 [19 favorites]

So this article is dumb in a broad set of ways. It's a decent introduction to index funds I guess, but then it becomes a laundry list of every vague accusation made against them. Let me talk about the competition aspect. It's described as "a far bigger concern" in the article than price discovery, so I'll focus on that. The example given is that if someone owns all of the airlines, they will want the airlines to stop competing against each other to drive up profits. This makes sense.

However, imagine someone owns all of the hotels or all of the restaurants; they'll want the airlines to charge lower prices so that there are more travelers and they have more business. Someone who owns all of the consulting companies will want lower airfares so they don't spend so much sending their employees around. If all of these someones are the same someone -- an index fund -- then there's no longer a clear incentive one way or the other.

And yes, Lowrey cites a paper showing an increase in airline ticket prices with more consolidated ownership. There's now a more current paper, by the same lead author, showing that, while ownership concentration from random active investors can lead to higher prices, that ownership by index funds actually leads to lower airfare prices:
We also find that common ownership by the “Big Three” (BlackRock, Vanguard and State Street) is associated with lower airline prices, while common ownership by shareholders other than the Big Three is associated with higher prices.
posted by Superilla at 5:31 PM on April 5, 2021 [6 favorites]

Chalk me up as lethargic. All my 401k and PSP money goes straight into various Index Funds at one of the Big Three. And I have them manage the distribution for me automagically...so I literally do nothing and every so often I get a message that they've tweaked my holdings in some way because X or Y fund is better or lower fee or whatever. I have no idea about what a truly good rate of return is, but for doing diddly squat other than checking balances from time to time its been growing at pretty close to what a quick google search suggests is a solid average return on the markets for close to 10 years. There would be no way I'd have the time or energy to manage individual investments myself....and frankly I've probably invested far more into my 401k because so far it's worked pretty well and been easy (past performance is of course no reflection of future performance etc.)
posted by inflatablekiwi at 5:42 PM on April 5, 2021 [4 favorites]

Looking for virtue funds that wibari mentioned in response to DebetEsse's wish (that I share!) for:
an index fund ... [to] use their shareholder votes to promote long-term, sustainable policies over short-term gains.

I've checked Vanguard's index fund list and see nothing described as "virtue", would love input if anyone has managed to invest in similar.
posted by esoteric things at 6:07 PM on April 5, 2021 [1 favorite]

I'm having a hard time grasping the point of this article. It's apparently a concern that due to index funds, "capital will get allocated only to the big companies and not necessarily to good, promising, or efficient companies." But I don't see anything that indicates that capital is currently allocated to good, promising or efficient companies, let alone "necessarily" so.

I do wonder if index-fund capitalism could give us a better answer the question of what an experienced CEO is actually worth on the market, since in a (hypothetical, future) large company controlled by index funds, the board would presumably no longer be stocked with the CEO's friends and admirers. Then again, I'm not sure what an index fund's incentives would actually be -- do the fund managers even particularly care whether a company is successful or not?
posted by Not A Thing at 6:26 PM on April 5, 2021 [6 favorites]

The overwhelming majority of the fintech sector is a dead weight loss to society and the numbers show that quite clearly.

I was going to say: this whole thing feels like mid-80's propaganda made in the Soviet Union.

Boss: Bad news, guys... the numbers are in, and they show that our managed funds are unequivocally terrible and are losing money for our investors. Let's brainstorm solutions!
Trader A: Raise the fees on index funds!
Trader B: Lobby Congress to ban passive investment strategies! Claim that every fund needs a dedicated steward because otherwise it'll encourage lazy trading!
Trader C: Cook the books to show hedge funds outperforming everything! If we have 500 funds, 1 of them is bound to win over any given interval!
Trader D: What if we stopped hiring white guys named Max straight out of Harvard undergrad for seven figures, and instead pushed our clients on low-fee options that would let us cut the firm's expenses and keep us off the radar of antitrust regulators?

* record scratch *
* slow pan around the room, full of jaws hanging open aghast *
* cut to exterior shot of Trader D being forcefully defenestrated from a gleaming Wall Street tower *
posted by Mayor West at 6:40 PM on April 5, 2021 [18 favorites]

Index funds must be good if a bunch of wealthy money managers are against them.
posted by freakazoid at 6:41 PM on April 5, 2021 [16 favorites]

Also, if you search for "Socially Responsible ETFs" or "Socially Responsible mutual funds" you will find plenty of choices. Unfortunately many of them are not that much better than your totally average S&P 500 index fund, but they seem to be at least trying.
posted by freakazoid at 6:45 PM on April 5, 2021 [3 favorites]

Alright, I went and R'd TFA, and this is solid gold. One the one hand, you have an anodyne observation that index funds are making investment available to people who never would have borne the volatility of picking individual stocks. On the other hand, you have some fairly big names in finance arguing that too many index funds will mess things up for day-traders, because if there's a billion dollars of index fund money sitting in Gamestop, then the completely-bonkers things that happen because of high-frequency trades, insider info, movement based on the rumor-mill, or the idiots on /r/WallStreetBets will have much less impact on the spot price for the stock.

Seriously, read Section 3. Important Serious People are arguing "we can't let this happen, or else all the wacky shit that causes quick spikes and dips in share prices will be evened out and then hedge funds won't have any appeal!" with a straight face.
posted by Mayor West at 6:50 PM on April 5, 2021 [20 favorites]

The idea that index-fund managers have a shocking amount of shareholder power at major companies because they aggregate a ton of individual shareholders that don't care at all is compelling, until I realize that a) buying into a managed mutual fund probably wouldn't grant me any additional access, and b) as an individual shareholder my voice would also mean nothing compared to even a small minority shareholder.

Like, I might be sympathetic to some of the concerns in the article, but it's really hard to get past the thought that I already have so little power in the market, and this is the one thing that benefits me the most; you want me to give that up for some vague notion of fairness or responsibility to the economy? At a time when nearly every concern under the sun can be rebutted by "okay, show me the money," I don't get to do the same?
posted by chrominance at 7:12 PM on April 5, 2021 [18 favorites]

Things that Wall Street is up to that should be of serious concern to all Americans:

1. Unregulated (and often secretive and deliberately obfuscated) Derivatives.
2. High Frequency Trading.
3. Poorly-regulated and unaccountable Rating Agencies.
4. Creative accounting practices that hide debt and dangerously leveraged positions.
...etc.

Things that Wall Street is up to that are not worth worrying about:
1. Index funds.
2. Casual Friday.
posted by Anoplura at 7:31 PM on April 5, 2021 [20 favorites]

While you can look at who is saying it and why, the issue identified here is real, in that you now have huge blocks of stock that simply don't move, actually making the rest of the market smaller and more subject to eccentric forces than it might be in a broadly held market full of stock pickers. I do wonder where the bid will be if current trends reverse, and we see lots of money flow out of index funds at once.

I think the increased abstraction between ownership, board and management is creating perverse incentives. It is not an original observation, Mark Fisher labels the phenomenon Market Stalinism

On the issue of performance, I think Buffet's a smart guy who knew very precisely the bet he was making and when he made it in order to ensure his point got made. He basically called the bottom for US equities ahead of a ten year bull run, and knew that hedge funds would underperform because they are mostly hedged. That's to be expected, frankly. See how they've done in the last 12 months. The lower correlation between those two asset classes is specifically why institutional investors, such as the endowments and pension funds that remain, are likely invested in both US large caps through indexed exposure, and hedge funds.

Buffet is himself a very successful active manager, and in many ways an activist manager, taking concentrated bets far away from his benchmark, taking significant stakes in companies and influencing management, so I think he absolutely believes in active management for himself. I also think he is likely right that for most investors trying to pick good mutual funds is a fools game, buy the index and get out of the way, large caps are a very efficient market. That doesn't mean indexing has no issues, and you should be aware of what you're buying. Which is a lot of Apple, Amazon, Facebook, and Google.
posted by OldReliable at 8:07 PM on April 5, 2021 [6 favorites]

Still, passive investing may well be degrading the informational content of the markets, messing up price signals and making business decisions harder as a result.

Gosh. It sounds like index funds are the only and worst thing obscuring, complicating, and distorting the market, and preventing us from holding corporations accountable.

Not hedge funds, or private equity, or speculation, or securitization. or secret offshore accounts, or convoluted tax avoidance schemes, or insider trading, or fraud, or money laundering, or high frequency trading, or even short selling. Just index funds.

The one and only reason I have money invested anywhere is that I am hoping that if I make it to old age that I will have enough squirreled away that I can continue to eat and pay rent even if I eventually have to stop working. If someone wants to get paid to manage that money and provide me with a lower rate of return than an index fund would, then I'm going to need them to whip up a bespoke ESG fund that meets my moral standards and doesn't pretend like Alphabet, Amazon, Apple, and Facebook are ethical places to park my meagre savings.

Short of that, index fund it is.
posted by evidenceofabsence at 9:01 PM on April 5, 2021 [9 favorites]

Gosh. It sounds like index funds are the only and worst thing obscuring, complicating, and distorting the market, and preventing us from holding corporations accountable.

Index funds are just a fund of the biggest companies across a broad range of sectors - it's as simple as a bet that the big will keep getting bigger. And it's practically tautological - if a company shrinks enough, they get dropped from the index.
posted by GuyZero at 9:19 PM on April 5, 2021 [2 favorites]

It's nice that your hedge fund friends and your Communist friends now have something they can agree on: Marxism is better than ordinary people relying on low-fee mutual funds for their financial security.
posted by escabeche at 9:25 PM on April 5, 2021 [15 favorites]

Well, if this is a problem, traders should probably move into bonds more aggressively. The Odd Lots podcast indicates that bonds pricing is even more opaque. Basically, bonds are way more fragmented, are often held by a single firm, and have short lives when compared with equity, so they're traded less, and there is not even a central exchange for bonds.

So you have a situation where bond mutual funds have to report their assets, which may not actually have traded in the market recently. For a couple reasons they pay third parties to price their assets for them, and apparently those firms are increasingly resorting to the Oroboros method of using what someone else wrote down last time.

I don't think anyone's arguing that retail investors should be picking and choosing bonds, so IDK why equities should be any different.
posted by pwnguin at 9:45 PM on April 5, 2021 [1 favorite]

The Atlantic article buys into a mode of discourse that deliberately confuses root causes and symptoms. This is not an accident, and it is not a criticism of the Atlantic. It is a big ole' thing in financial thinking.

Index funds are profitable for ordinary investors for the same reason that markets have reduced information value: industry concentration.

Never in the history of capital, as we know it, have all industries known such concentration in a small number of firms. That's just.... not "a thing." At least not in the orthodox economic view on industrial organization. The world we actually live in does not exist in textbooks.

The undergraduate textbook measure is "Herfindahl–Hirschman Index," which is not an index in the stock sense. It is an "index" in the sense that is a synthetic value, a unitless value, that can only be compared or contrasted to other HHI scores.

Take any gosh darn industry you have ever heard of, and google for HHI charts over time. Prepare to be frightened. We live in a world where no significant industry remaining on the continent isn't dominated by a small number of pseudo-monopolists.

The folks worried about passive funds are wringing their hands over a done deal -- suddenly mom and pops expect to participate in the actually-existing securities markets that reflect radically shrunken limits of competition, instead of paying management fees to participate in a fabulist view of a competition that could have happened in an alternate history.

(The Atlantic's journalists are responsible enough to note that Buffet and company consciously work against this trend -- not that they oppose industry concentration -- Just, they wish to earn a profit on bases other than "ride the balloon upwards")
posted by your postings may, in fact, be signed at 10:04 PM on April 5, 2021 [5 favorites]

With index funds, nobody’s behind the scenes, dumping bad investments and selecting good ones.... Active managers direct investment dollars to companies on the basis of those companies’ research-and-development prospects, human capital, regulatory outlook, and so on. They take new information and price it into a company’s stock when buying and selling shares.

People are fallible, so there's a limit to the value of having someone behind the scenes. The fact that active managers can't beat index funds would seem to imply that, despite all of their research and expertise, active managers aren't all-knowing, can't predict the future, and can't make perfectly optimal decisions across multiple industries.

Which is not to mention the way in which this casts money managers as stewards of the market who set things to rights by rewarding the good and punishing the bad. They aren't. They're people tasked with trying to turn a buck. There's nothing wrong with that, but those are two very different things, and you don't accomplish the former simply by focusing on the latter.
posted by evidenceofabsence at 10:15 PM on April 5, 2021 [2 favorites]

so, are they finally coming around to the idea that markets are just another form of central planning? about thirty years behind, but better late than never?
posted by eustatic at 10:32 PM on April 5, 2021 [4 favorites]

also, i have never wanted to invest in an index fund more than after having read this article.
posted by eustatic at 10:34 PM on April 5, 2021 [8 favorites]

but like, what if we democratically planned the economy, instead?
posted by eustatic at 10:35 PM on April 5, 2021 [3 favorites]

They'll be lobbying for a tax credit per transaction, mark my words. Let them eat their market-beating returns.

If the market is so efficient that active managers lose, it means we have too many active managers and should eat the juiciest. Simple economic logic. If the market empirically remains unbeatable even as the active element shrinks and shrinks, well, then we have a more radical question to entertain.
posted by away for regrooving at 11:43 PM on April 5, 2021 [1 favorite]

@your postings, I haven't looked up HHI data and will run with you on the concentration, but it sounds like you're relating index fund returns to market concentration, that popular indexes are the top of the capital kings so reward concentration?

But then why doesn't the DJIA beat the S&P 500 which beats the Russell? Because that doesn't seem to be happening -- -- --

Okay then, I wasn't looking broadly enough. The fall-off is after the Russell 2000. The total NYSE is flat since 2008, while the top 2000 partied. So yeah. Concentration.
posted by away for regrooving at 11:59 PM on April 5, 2021

I think total NYSE doesn’t tell the whole story. NASDAQ is certainly up over that time period.
posted by nat at 12:10 AM on April 6, 2021

The population may have shifted and I need to sum for all listed companies, at least as a first approximation. But the within-NYSE comparison of head to tail seems interesting?
posted by away for regrooving at 12:15 AM on April 6, 2021

But Russell 200 contains a bunch of NasDaq listed stocks. As do the other indices.
posted by nat at 12:19 AM on April 6, 2021

Yeah that's true, that one set may be doing better than another. Needs more spreadsheeting.
posted by away for regrooving at 12:21 AM on April 6, 2021

Yup. I would be interested to see how the growth in the major index funds breaks down into nyse vs nasdaq listed stocks. And also how, say, the nyse portion of Russell compares to nyse as a whole— and same for nasdaq.
posted by nat at 12:28 AM on April 6, 2021

Index funds now control 20 to 30 percent of the American equities market, if not more.

I think this has the potential to cause problems if the index funds start to represent more than 50% of equity.
If it reached 90%, it would make it really cheap for a non index fund speculator to manipulate the market, when they buy; the index funds will buy - when they sell; the index funds will sell, so the effect of every trade they make would be magnified tenfold. They could then just repeatedly buy and sell the same block of shares and make money every time.
posted by Lanark at 4:46 AM on April 6, 2021 [2 favorites]

It’s a fascinating conceit, that there are, essentially, structural externalities to the market itself when a particular investing or trading strategy becomes dominant. Why, it’s almost as though actors rationally pursuing a strategy can change the game itself in unexpected ways. If only these Wall Street traders had sat all the way through the first week of game theory.

More cynically, I imagine it is galling for these titans of industry to control thousands of shares of blue-chip companies which they can’t use to control the companies. I see this article as a way to introduce the idea of “hybrid” index funds or something, which will let hedge fund managers take a more active role / collect management fees.
posted by gauche at 5:06 AM on April 6, 2021

Guilty. All of my investments are in index funds. Worse yet, they are all in municipal bonds rather than equities.
Ah, the Rex Kramer fund.
posted by stevis23 at 5:09 AM on April 6, 2021 [1 favorite]

I have a PhD in finance, now work in Big Tech, and all my money is in index funds. With my cards on the table, I think this article is deeply irresponsible and fear-mongering.

Index funds are the ideal investment for normal people because they are a generalized investment in the continued growth of the global economy. You don't need to know anything about individual companies or sectors---you just have to be willing to take the risk that our economy will continue to grow as it has in the past. In the long run an index fund investment will compensate you for that risk, better than basically any other asset that has been studied.

The question of active vs passive allocation has been studied for a loooong time, starting with the Grossman-Stiglitz paradox, which lays out reasons to think that there will never be 100% passive dominance. The quantitative question of just how much active management is required to ensure optimal information allocation is unanswered, and IMO probably unanswerable, but I don't think anyone serious (read: anyone not talking their book) thinks that we're anywhere close to the threshold today.

As an aside, I would wager that most academics don't actually believe the airlines + common ownership paper as anything more than an amusing example of p-hacking. The results go away under a variety of common-sense robustness checks, and the underlying story never made sense---it's kind of insane to think that airlines would be fixing prices at the route level due to month-to-month changes in ownership concentration without any paper trail.
posted by rishabguha at 7:15 AM on April 6, 2021 [18 favorites]

Ultimately this feels like the result of a long term shift in the Overton Window from the idea that society as a whole has a responsibility to care for its aging population to a move where the Invisible Hand will provide...

This is one of those horrifying ideas that suggests hardly anybody really understands why economies work. The “Invisible Hand” has become a death cult, and I mean that much more literally than you might think:

• There are a small number of people at the top evangelizing the cult and becoming filthy rich off converts.
• Ordinary people are brought in at the ground floor with an uncontroversial, watered-down expression of the core ideas (“free markets!” “supply and demand!”) sold as a self-help strategy (“retirement!” “comfort!”).
• Those who question the orthodoxy are to be shunned. (“Marxist!”)
• Followers’ personal finances and general wellbeing become inextricably tied to an ever-deepening involvement with the cult.
• The deeper one gets into the cult, the more the individual’s own judgment is diminished in favor of “trusting the great plan.” Whatever the “Invisible Hand” produces is ipso facto good, and it is the follower’s duty to swallow any qualms over his personal results and accept it.
• The typical front-line participant never sees the benefit those at the top of the pyramid do, because the money is flowing upwards, but the message is still that if you participate harder you can be as rich as they. This is a lie.
• Outside sources of authority are either to be co-opted (religion) or fought (government). Competing sources of authority that cannot be subjugated to the will of the cult leaders is evil and to be rejected and destroyed by good followers.
• Those at the top of the pyramid have one goal, pursued by every possible angle: to expand the base of the pyramid, in this case by (e.g.) privatizing Social Security, which can be advertised as a good to the naive lower-level participants, but would be a disaster in practice because the only reason for it is to bring in more money for the cult leaders to loot.

More to the point, leaving care for the elderly to Market Forces? Without intending any personal offense to members of a group we’ll all be moving into one day, the elderly are expensive and inefficient. Remind me again what it is the “Invisible Hand” does to the expensive and inefficient parts of an economy? The only way anybody could ever think this is a good idea is to be completely, religiously bought into something they do not understand at all.
posted by gelfin at 7:29 AM on April 6, 2021 [13 favorites]

What might be good for retail investors might not be good for the financial markets, public companies, or the American economy writ large,

SO CLOSE
posted by bq at 11:30 AM on April 6, 2021

-it's kind of insane to think that airlines would be fixing prices at the route level due to month-to-month changes in ownership concentration without any paper trail.

I am more concerned with airline corporate boards remaining concentrated in the hands of a narrow group of people from a gender, racial and social standpoint. That said, I have no proof that there's anything sinister about how big passive index funds vote for board positions. The concentration is simply cause for concern.
posted by GuyZero at 12:43 PM on April 6, 2021

I was tweeting reflexively about sovereign funds when this hit but what I was trying to think of were the Löntagarfonder or employee funds that were contemplated as part of the Swedish Meidner Plan.
posted by adoarns at 3:11 PM on April 7, 2021

Wall Street: we would like you to get rid of pensions and invest retirement assets in the market

People who want to retire: *invest in low-cost index funds*

Wall Street: Not like that!
posted by adoarns at 3:26 PM on April 7, 2021 [7 favorites]

Well, if you insist. *Invests in low-risk municipal bonds.*
posted by evidenceofabsence at 2:38 PM on April 8, 2021