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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 th
by morgante 10y ago
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.
- notahacker 10y agoSure, 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.