Re:The Covid-19 pandemic is forcing a rethink in macroeconomics
by roenxi on Saturday July 25, 2020 @12:53AM
(#23946934)
Buying and selling stock doesn't create any boost to the economy. But it is the engine for two very powerful positive effects:
(1) If a person can start a successful new company, they get assets (stocks) that they can sell for money. This creates an extra incentive to start new companies.
(2) Large investors (eg, Buffet-sized) have an incentive to buy significant stakes in companies and improve their management, then sell them to long-term investors. Being able to sell shares for a profit after improving the company creates an incentive to improve companies and then move on to the next one.
And there are a couple of other things like that. So stock trading doesn't in itself do anything useful for the economy but it is the point in time where past decisions that did boost the economy are realised as a profit in dollars. It also creates a barometer for measuring what people with money think about a company's chances, which is useful information and hard to get otherwise.
There is also a very helpful long-term effect where people who can accurately predict the future make money from stock trading, which means over time (in theory) company ownership becomes biased towards excellent long term planners.
(1) If a person can start a successful new company, they get assets (stocks) that they can sell for money. This creates an extra incentive to start new companies.
(2) Large investors (eg, Buffet-sized) have an incentive to buy significant stakes in companies and improve their management, then sell them to long-term investors. Being able to sell shares for a profit after improving the company creates an incentive to improve companies and then move on to the next one.
And there are a couple of other things like that. So stock trading doesn't in itself do anything useful for the economy but it is the point in time where past decisions that did boost the economy are realised as a profit in dollars. It also creates a barometer for measuring what people with money think about a company's chances, which is useful information and hard to get otherwise.
There is also a very helpful long-term effect where people who can accurately predict the future make money from stock trading, which means over time (in theory) company ownership becomes biased towards excellent long term planners.