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Re:Challenging the myth that the rich are specially-talented... by notahacker on Sunday May 29, 2016 @01:01PM (#11797082)
A better way of putting it would be that your investment might improve the economy only via side effects (e.g. the investor who you purchase the shares from is able to invest that money in a new business venture or buying actual goods, or a boost to the company's share price from your buying activity [if you're a massive fund owner] encourages new businesses to start up in that industry or makes it cheaper and easier for them to raise capital)

Your contribution to the wealth of the economy from buying the stock is only the effect of the marginal increase in the speed of transaction and price from the share owner selling to you rather than having to wait for the next, possibly lower bidder on the share. The contribution to the economy made from you passively holding the stock is only the effect of the marginal boost to the share price from you not selling on entrepreneurs, lenders and investors. The average gain you make from share price appreciation is likely to be more than that; the difference is economic rent.

Given there are already enough stock investors for trades to be made in microseconds with tiny spreads, the positive effect of an individual secondary market stock trade is so close to zero as to make the "functionless investor" characterization broadly correct.[1] Moreover, since your decision to purchase secondary market stock has an opportunity cost; you might otherwise have invested it directly in producing something in a market without such ready access to capital, its effect on economic growth might be net negative.

[1]of all the circumstances where economists treat transfer payments as irrelevant, this one might be the most justified

Re:Challenging the myth that the rich are specially-talented... by morgante on Sunday May 29, 2016 @01:25PM (#11797191)
The margins are where economic points must be argued though.

Your same logic could be applied to consumers. Any one individual buying products does not keep the economy functioning. We could say they're "functionless consumers."

Except if you extend that logic to all consumers, there is no economy.

Similarly, any one secondary investor might not make or break the existence of functional capital markets. But if you extend that logic to all secondary investors, suddenly there are no longer any primary investors.

Re:Challenging the myth that the rich are specially-talented... by notahacker on Sunday May 29, 2016 @02:24PM (#11797539)
Sure, all economic activity is measured at the margin, but all businesses depend on the marginal consumer pushing them into profitability to survive. On the other hand, most businesses function perfectly happily without any secondary market investors or any realistic prospect of selling on the secondary market in the foreseeable future. Absence of secondary market liquidity reduces the sources of investment available to growing businesses, but doesn't drive it to zero, and thus the real economy tends to be much less sensitive to the marginal dollar invested in blue chip stocks than the marginal dollar consumed.

Perhaps even more importantly, I also pointed out that (i) the marginal contribution of buying secondary market stocks to the growth of the economy is substantially less than their average 7% annual return for the passive investor and (ii) because the risk adjusted return of this economic rent is an attractive alternative to investing in creating new capital, it can in certain circumstances even have a negative effect on economic growth. Those were the real points Keynes was trying to make.