4 ms·

I'm not sure whether people understand just how big of a problem this is. Resilient economies are well-balanced economies. When Big Tech falls - and it will eve

I'm not sure whether people understand just how big of a problem this is. Resilient economies are well-balanced economies. When Big Tech falls - and it will eventually fall, because no industry is immune to corrections or busts - - the effect on the wider economy will be all the greater. The greater a share of the stock market that Big Tech holds, the larger the blast radius their failure will impose on the wider economy. That FAANG constitutes such a large part of major market indices communicates a failure on the part of regulators. Not just the kind of regulation that technologists care about, i.e. protecting free software and open access, but economic regulation as well, that tries to smooth out the business boom and bust cycles and care about the health of the wider American economy.

snarf21 6y ago
And it isn't just FAANG. Look at Disney and Comcast and all the other conglomerates. The SEC and FTC have totally failed our country in the 21st century.
- andrewmcwatters 6y ago
  I frequently think about the fact that such organizations, from the outside, seem like the people now working there have forgotten what they are supposed to be doing for the American people. The most prominent example I can think of is Microsoft getting in all this trouble over bundling a browser with Windows and yet this proliferation of forced App Stores runs rampant in the industry. Where in world is the FTC now? All of these people should be fired. They’ve been asleep for 20 years.
- throw0101a 6y ago
  You may be interested in the book Goliath by Stoller: > Americans once had a coherent and clear understanding of political tyranny, one crafted by Thomas Jefferson and updated for the industrial age by Louis Brandeis. A concentration of power, whether in the hands of a military dictator or a JP Morgan, was understood as autocratic and dangerous to individual liberty and democracy. This idea stretched back to the country’s founding. In the 1930s, people observed that the Great Depression was caused by financial concentration in the hands of a few whose misuse of their power induced a financial collapse. They drew on this tradition to craft the New Deal. > In Goliath, Matt Stoller explains how authoritarianism and populism have returned to American politics for the first time in eighty years, as the outcome of the 2016 election shook our faith in democratic institutions. It has brought to the fore dangerous forces that many modern Americans never even knew existed. Today’s bitter recriminations and panic represent more than just fear of the future, they reflect a basic confusion about what is happening and the historical backstory that brought us to this moment. > The true effects of populism, a shrinking middle class, and concentrated financial wealth are only just beginning to manifest themselves under the current administrations. The lessons of Stoller’s study will only grow more relevant as time passes. Building upon his viral article in The Atlantic, “How the Democrats Killed Their Populist Soul,” Stoller illustrates in rich detail how we arrived at this tenuous moment, and the steps we must take to create a new democracy. * https://www.goodreads.com/book/show/40538538-goliath https://www.goodreads.com/book/show/40538538-goliath There's been a back and forth over the last century on this topic.
  - snarf21 6y ago
    Thanks, added to the backlog.
Tsiklon 6y ago
I have no knowledge in this field whatsoever, but is this more an indication that we shouldn't be using the S&P 500 and similar indices as an overall indicator of the performance of the economy, is there value in looking at these indices absent of Big Tech?
- andrewmcwatters 6y ago
  There is an S&P 500 Equal Weight Index, but it makes essentially no difference.
  - Tsiklon 6y ago
    Equal Weight index from what I've just read about it apparently treats each company in the index equally - as in 1/500th of the total index's value. What I was more thinking of is that the S&P 500 is top heavy with Big Tech stocks, is it better to look an index absent of the Big Tech stocks?
    - andrewmcwatters 6y ago
      No.
    - llampx 6y ago
      An index absent of the big tech stocks would be the Russell 2000 or IWM.
- smabie 6y ago
  correlation between all stocks in the S&P 500 is so high that removing big tech makes little difference. Also, a major part of the problem in my view is the blind indexing of equities that most investors use for the bulk of their portfolio. Market cap weighting essentially results in what essentially a momentum overlay: new money is allocated disproportionately to the stocks with the highest market cap, resulting in those stocks going up even more.
  - ac29 6y ago
throw0101a 6y ago
Historical data says otherwise. Right now the five biggest make up 23%, in April they were 21.38%. In 1964 the five biggest made up 27.60%: * https://theirrelevantinvestor.com/2020/04/21/the-only-thing-working-right-now/ https://theirrelevantinvestor.com/2020/04/21/the-only-thing-... In 1964, AT&T alone made up 8.90% and in 1969 IBM alone made up 9.00%. The author of this story needs to look into history more and go back more than just thirty years. Companies and industries rise and fall and have for centuries in the stock market: * https://en.wikipedia.org/wiki/Technological_Revolutions_and_Financial_Capital https://en.wikipedia.org/wiki/Technological_Revolutions_and_... > This paper argues that the two boom and bust episodes of the turn of the Century –the Internet mania and crash of 1990s and the easy liquidity boom and bust of 2000s– are two distinct components of a single structural phenomenon. They are essentially the equivalent of 1929 developed in two stages, one centred on technological innovation, the other on financial innovation. Hence, the frequent references to that crash, to the 1930s and to Bretton Woods, are not simple journalistic metaphors for interpreting the “credit crunch” and its solution, but rather the intuitive recognition of a fundamental similarity between those events and the current ones. The paper holds that such major boom and bust episodes are endogenous to the way in which the market economy evolves and assimilates successive technological revolutions. It will discuss why it occurred in two bubbles on this occasion; it examines the differences and continuities between the two episodes and presents an interpretation of their nature and consequences. * PDF: http://www.carlotaperez.org/downloads/pubs/C.PEREZ_CJE_DoubleBubble_WP%20CERF%20No%2031.pdf http://www.carlotaperez.org/downloads/pubs/C.PEREZ_CJE_Doubl...
- Balgair 6y ago
  I would suspect that most of the stock markets over time are distributed as a power law. These distributions come up all over the place, from the sizes of asteroids, to the populations of cities. I'm not sure exactly why this is, but I seem to recall that it's related to the integrals of normal distributions.
- deleted 6y ago
  [deleted]
rjkennedy98 6y ago
> I'm not sure whether people understand just how big of a problem this is. I'm usually the last to defend the construction of the US economy, but I think this is a bit of an overreaction. The stock market is not the economy. Big Tech bubbles are bad, but this isn't 2008 where people lost their houses because of financial engineering. I think the bigger story (and issue) is just how few people are involved in and benefiting from Tech. These companies have massive market caps because they employ a tiny amount of people relative to how much money they make. For every one tech worker making high six figures there are a 50 people doing low-level healthcare service work. The vast majority of Americans own trivial amounts of stock, so they don't even benefit indirectly from the Tech bubble. All of this is just exacerbating the radical divergence of the haves and have-nots in our economy.
chmod775 6y ago
>I'm not sure whether people understand just how big of a problem this is. Resilient economies are well-balanced economies. You seem to be under the misconception that the stock market somehow reflects the actual economy, in fact you seem to think that the stock market is the economy. Those "top 5" companies taken together are less than 5% of the actual US economy, regardless of whichever way you want to calculate that (revenue/profit+wages vs GDP, ...) The ones hurt by an investment failing are just the investors themselves, which is the whole point of investment. You take the risk and reap the rewards. The only exception is when a "too big to fail" whatever (this narrative is complete bs btw) made bad investments again, so the government, and by proxy the taxpayer, steps in to finance the gambling addiction of people who are politician's retirement plans. Now you have made a considerable impact on the actual economy.
- throw0101a 6y ago
  > The ones hurt by an investment failing are just the investors themselves, which is the whole point of investment. You take the risk and reap the rewards. Counter-intuitively, investing in the Top 10 stocks has actually gotten you worse results than the market average. If you took Top 10 stocks at the beginning of each decade (1920, '30, …, 2010), and followed how it did for that decade (e.g., 1920-1929) it would done worse than the market average (by 1.51% annually on average): * https://www.youtube.com/watch?v=foqswJT3Spc https://www.youtube.com/watch?v=foqswJT3Spc

snarf21 6y ago

And it isn't just FAANG. Look at Disney and Comcast and all the other conglomerates. The SEC and FTC have totally failed our country in the 21st century.

andrewmcwatters 6y ago
I frequently think about the fact that such organizations, from the outside, seem like the people now working there have forgotten what they are supposed to be doing for the American people. The most prominent example I can think of is Microsoft getting in all this trouble over bundling a browser with Windows and yet this proliferation of forced App Stores runs rampant in the industry. Where in world is the FTC now? All of these people should be fired. They’ve been asleep for 20 years.
throw0101a 6y ago
You may be interested in the book Goliath by Stoller: > Americans once had a coherent and clear understanding of political tyranny, one crafted by Thomas Jefferson and updated for the industrial age by Louis Brandeis. A concentration of power, whether in the hands of a military dictator or a JP Morgan, was understood as autocratic and dangerous to individual liberty and democracy. This idea stretched back to the country’s founding. In the 1930s, people observed that the Great Depression was caused by financial concentration in the hands of a few whose misuse of their power induced a financial collapse. They drew on this tradition to craft the New Deal. > In Goliath, Matt Stoller explains how authoritarianism and populism have returned to American politics for the first time in eighty years, as the outcome of the 2016 election shook our faith in democratic institutions. It has brought to the fore dangerous forces that many modern Americans never even knew existed. Today’s bitter recriminations and panic represent more than just fear of the future, they reflect a basic confusion about what is happening and the historical backstory that brought us to this moment. > The true effects of populism, a shrinking middle class, and concentrated financial wealth are only just beginning to manifest themselves under the current administrations. The lessons of Stoller’s study will only grow more relevant as time passes. Building upon his viral article in The Atlantic, “How the Democrats Killed Their Populist Soul,” Stoller illustrates in rich detail how we arrived at this tenuous moment, and the steps we must take to create a new democracy. * https://www.goodreads.com/book/show/40538538-goliath https://www.goodreads.com/book/show/40538538-goliath There's been a back and forth over the last century on this topic.
- snarf21 6y ago
  Thanks, added to the backlog.

Tsiklon 6y ago

I have no knowledge in this field whatsoever, but is this more an indication that we shouldn't be using the S&P 500 and similar indices as an overall indicator of the performance of the economy, is there value in looking at these indices absent of Big Tech?

andrewmcwatters 6y ago
There is an S&P 500 Equal Weight Index, but it makes essentially no difference.
- Tsiklon 6y ago
  Equal Weight index from what I've just read about it apparently treats each company in the index equally - as in 1/500th of the total index's value. What I was more thinking of is that the S&P 500 is top heavy with Big Tech stocks, is it better to look an index absent of the Big Tech stocks?
  - andrewmcwatters 6y ago
    No.
  - llampx 6y ago
    An index absent of the big tech stocks would be the Russell 2000 or IWM.
smabie 6y ago
correlation between all stocks in the S&P 500 is so high that removing big tech makes little difference. Also, a major part of the problem in my view is the blind indexing of equities that most investors use for the bulk of their portfolio. Market cap weighting essentially results in what essentially a momentum overlay: new money is allocated disproportionately to the stocks with the highest market cap, resulting in those stocks going up even more.
- ac29 6y ago

throw0101a 6y ago

Historical data says otherwise. Right now the five biggest make up 23%, in April they were 21.38%. In 1964 the five biggest made up 27.60%: * https://theirrelevantinvestor.com/2020/04/21/the-only-thing-working-right-now/ https://theirrelevantinvestor.com/2020/04/21/the-only-thing-... In 1964, AT&T alone made up 8.90% and in 1969 IBM alone made up 9.00%. The author of this story needs to look into history more and go back more than just thirty years. Companies and industries rise and fall and have for centuries in the stock market: * https://en.wikipedia.org/wiki/Technological_Revolutions_and_Financial_Capital https://en.wikipedia.org/wiki/Technological_Revolutions_and_... > This paper argues that the two boom and bust episodes of the turn of the Century –the Internet mania and crash of 1990s and the easy liquidity boom and bust of 2000s– are two distinct components of a single structural phenomenon. They are essentially the equivalent of 1929 developed in two stages, one centred on technological innovation, the other on financial innovation. Hence, the frequent references to that crash, to the 1930s and to Bretton Woods, are not simple journalistic metaphors for interpreting the “credit crunch” and its solution, but rather the intuitive recognition of a fundamental similarity between those events and the current ones. The paper holds that such major boom and bust episodes are endogenous to the way in which the market economy evolves and assimilates successive technological revolutions. It will discuss why it occurred in two bubbles on this occasion; it examines the differences and continuities between the two episodes and presents an interpretation of their nature and consequences. * PDF: http://www.carlotaperez.org/downloads/pubs/C.PEREZ_CJE_DoubleBubble_WP%20CERF%20No%2031.pdf http://www.carlotaperez.org/downloads/pubs/C.PEREZ_CJE_Doubl...

Balgair 6y ago
I would suspect that most of the stock markets over time are distributed as a power law. These distributions come up all over the place, from the sizes of asteroids, to the populations of cities. I'm not sure exactly why this is, but I seem to recall that it's related to the integrals of normal distributions.
deleted 6y ago
[deleted]

rjkennedy98 6y ago

> I'm not sure whether people understand just how big of a problem this is. I'm usually the last to defend the construction of the US economy, but I think this is a bit of an overreaction. The stock market is not the economy. Big Tech bubbles are bad, but this isn't 2008 where people lost their houses because of financial engineering. I think the bigger story (and issue) is just how few people are involved in and benefiting from Tech. These companies have massive market caps because they employ a tiny amount of people relative to how much money they make. For every one tech worker making high six figures there are a 50 people doing low-level healthcare service work. The vast majority of Americans own trivial amounts of stock, so they don't even benefit indirectly from the Tech bubble. All of this is just exacerbating the radical divergence of the haves and have-nots in our economy.

chmod775 6y ago

>I'm not sure whether people understand just how big of a problem this is. Resilient economies are well-balanced economies. You seem to be under the misconception that the stock market somehow reflects the actual economy, in fact you seem to think that the stock market is the economy. Those "top 5" companies taken together are less than 5% of the actual US economy, regardless of whichever way you want to calculate that (revenue/profit+wages vs GDP, ...) The ones hurt by an investment failing are just the investors themselves, which is the whole point of investment. You take the risk and reap the rewards. The only exception is when a "too big to fail" whatever (this narrative is complete bs btw) made bad investments again, so the government, and by proxy the taxpayer, steps in to finance the gambling addiction of people who are politician's retirement plans. Now you have made a considerable impact on the actual economy.

throw0101a 6y ago
> The ones hurt by an investment failing are just the investors themselves, which is the whole point of investment. You take the risk and reap the rewards. Counter-intuitively, investing in the Top 10 stocks has actually gotten you worse results than the market average. If you took Top 10 stocks at the beginning of each decade (1920, '30, …, 2010), and followed how it did for that decade (e.g., 1920-1929) it would done worse than the market average (by 1.51% annually on average): * https://www.youtube.com/watch?v=foqswJT3Spc https://www.youtube.com/watch?v=foqswJT3Spc