Comment by theptip
9 years ago
Matt Levine has been musing on some issues adjacent to this one over the last year, e.g.
https://www.bloomberg.com/view/articles/2016-08-24/are-index... https://www.bloomberg.com/view/articles/2017-10-26/maybe-ind...
The basic observation being that if we can get the benefits of capitalism when most equity is owned by a passive investment fund like an index tracker, then what's the problem with the state owning all the equity in that tracker, and redistributing the proceeds to the population?
Note that there are a few significant questions left unanswered in there, but the fundamental question of "if index trackers work why wouldn't communism" is quite provocative.
>what's the problem with the state owning all the equity in that tracker, and redistributing the proceeds to the population?
Hierarchical, centralized corruption of the state is the problem, as evidenced by failed communist implementations. If a more distributed model could be devized, perhaps it could avoid such problems.
I agree that concentration of power is corrupting (this is a general rule). But if the power is held by a dumb algorithm that simply invests and divests based on simple rules (i.e. an index fund), and IF this preserves most of the benefits seen in a free market economy (big "if" there), then that would seem to sidestep much of the concern about centralized corruption.
That said, I see some strong concerns with this approach:
1) Is this dumb algorithm easy to game by virtue of being so simple?
2) Is it possible for a tyrant that gains power to turn this passive equity into concrete control over the economy organizations?
3) (Probably most germane in the context of the OP), if the majority of the economy is owned by passive investment vehicles, would there be market competition any more? Or would high-risk investment capital dry up, to the detriment of startups and small businesses, and causing the economy to be less efficient overall?
This last concern also applies directly to Altman's American Equity proposal, at least to the strong version where most of the US GDP is tied up in the program. It's possible that the weak version (where a small chunk of the GDP is in the program) would be positive, while the strong version would be harmful.
I don't possess enough Econ expertise to have a strong opinion here, but would be interested to hear others' thoughts on this.
Also, perhaps we should call this concept something other than "Communism", since it only partially overlaps with that ideology; Communism explicitly identifies the "working class" and "capitalist class", and describes the exploitation of one by the other. While the outcome described by American Equity looks like the Communist endgame, in that wealth is collectivized, it is also quite different in many other ways, specifically the preservation of free markets, property, etc.
So get rid of the state. If automation can take over every other job, there's no reason for a state that employs humans either.
Matt Levine's Money Stuff is my favorite newsletter. I'm not a finance guy, but he has a way of exploring thought-provoking ideas in a way I can understand. Are index funds marxist? is among my favorite recurring topics.
Anyways, if you like his writing, I'd encourage subscribing. http://link.mail.bloombergbusiness.com/join/4wm/moneystuff-s...
"if we can get the benefits of capitalism when most equity is owned by a passive investment fund like an index tracker, then what's the problem with the state owning all the equity in that tracker, and redistributing the proceeds to the population?"
This is the "fixed amount of wealth" fallacy, wherein the author regards the amount of wealth in the society as an invariant, rather than a variable.
The only reason that equity exists at all is because of the efforts of people who created it (and thus own it). Without those efforts, there would be no equity for the state to own. Without a promise of owning that equity, nobody has a reason to make those efforts. Thus, any state policy to "own all the equity" also removes the reason that equity exists in the first place.
And now you're in the Soviet Union; enjoy eating your two bananas every year, because nobody has a reason to bring you any more.
Provocative in the sense that we have far too much evidence of the destructive force of communism, most recent example Venezuela.