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> How does the market grow if all trades are zero-sum? The same way a cancer does: by repurposing adjacent systems in service of propagating itself, often to t

> How does the market grow if all trades are zero-sum? The same way a cancer does: by repurposing adjacent systems in service of propagating itself, often to the determent of the function of those systems. In the case of a financial market this means people spending their time watching lines squiggle around on a screen instead of finding real problems to solve. Referring to the increase of stock prices as an indicator that markets are positive sum is a little like referring to an increase in hit points as an indicator that D&D is positive sum It's not useful to use a system's own abstractions to measure its effectiveness.

gmd63 3y ago
Cancer is an exploitation of the politics present in human cellular biology. The DNA of what makes us human mammals is molecular capitalism in this analogy. You can dismantle that, but then we would be floating amoebas in the primordial ooze. What you can do is identify when cells aren't behaving in good faith and punish them appropriately (through chemo etc) and find ways to prevent that behavior from surfacing again (diet / avoiding carcinogens / unknown future solutions).
- __MatrixMan__ 3y ago
  Agreed, I'm not for dismantling it wholesale, just for being a bit more targeted with our punishments. That is, I don't think that "the markets are up" is not an adequate indicator of "behaving in good faith". You have to look more closely at the actual outcomes. Whatever is being invested in, does it make life better or worse for the rest of us, etc.
  - gmd63 3y ago
    I agree we need more keen punishments, and am annoyed by market value being some coarse indicator for economic health. It's been more morally pleasing to me to see criminal companies and "currencies" collapse in the past few years than it has for me to have seen the general market go up, as long term health depends on excising fraud.
seadan83 3y ago
Outside money flows into the market, this allows it to be positive sum. For the DnD analogy, it is as if you had a cleric. Eg: IPO sells at $2, next seller buys at $4, next at $6, etc. Everyond makes money in that scenario. Eventually there can be losses, do all the losses counter balance these profits? No, because on net everything went up. If there were always trades that had losses to balance the gains, only then it would be zero sum. What's more, people convert types of holdings all the time, and it is the big players that move things. When a mutual fund allocates 1% more to stocks, or 1% less and putd that to bonds, those are very big net new or net negative money flows. So, it's not just paychecks being added in, there are lots of sources of dynamism to make the stock market system anything but closed. There is net new money flowing into it all the time.
- __MatrixMan__ 3y ago
  Money gets created when people take out loans which creates debt which is then traded in the markets. That's not money flowing into the markets, that's just the markets doing their own internal bookkeeping (much like D&D uses HP for internal bookkeeping about character health). If you want to convincingly argue that markets are positive sum you have to demonstrate that markets produce more than they consume in terms of something besides money. E.g. when some of the factory workers quit to go be day traders, the factory ends up producing more while consuming the same or less due to the positive effects of the investments enabled by the increased trading activity. This might be the case in some cases, and it won't be the case in others, and I don't know how to sum it in aggregate. Presumably somebody does. Whether it comes out positive or negative, asset prices are an implementation detail, not the thing we're measuring.
  - seadan83 3y ago
    I'm responding to only: "> How does the market grow if all trades are zero-sum?" I'm not trying to say that markets are necessarily a net positive. But we should also not be myopic about it either. There is more to it. Firstly, money being made solely by trading is rent seeking. It's maybe even the definition of rent seeking (?) Personally I'd be in favor of tax rates in the 40% to 50% region for rent seeking (long term and short term capital gains tax IMO should both be doubled). Perhaps we agree a bit there. > Money gets created when people take out loans which creates debt which is then traded in the markets This is still net new money into the market, ergo, the market is not at all zero sum. There is new money flowing into it. That _negates_ the statement that there must be one person losing for every person winning in the stock market, it is not zero sum. Everyone can actually be making money because there is new money being injected (and the opposite can be true when money is net leaving because interest rates are high and everyone is putting their money to cash or bonds instead). Same thing happens in a Ponzi scheme, everyone can actually be making money while there is new money flowing into the system. In the example you stated, if a person borrows money against their house, they are moving money away from real estate to the market. Their wealth is net-zero in that scenario, but relative to the market - the market saw a net increase. Thus, the market is not a closed system, it is therefore not by necessity zero-sum - it's possible to have more winners than losers when trading (and/or more losers than winners too) > If you want to convincingly argue that markets are positive sum you have to demonstrate that markets produce more than they consume in terms of something besides money. E.g. when half of the factory quits to go be day traders, the factory ends up producing more while consuming the same or less. Yeah, this is what happens with IPO. Oatly is an example, they had a supply crunch, they could not produce enough milk for store shelves. With their IPO money they funded the construction of additional factories to increase their production capacity. I think people forget this, the IPO of a stock is a huge injection of money to a company, as-is whenever the company issues more stock. Amazon is another example, instead of using cash to pay employees, they used stock; which freed up cash to go to other places. Though, post-IPO, shares being traded around is arguably all just rent seeking. A company can still issue more shares too though. This very thing saved both AMC and GME; both of those companies would have gone under if they were not able to raise money by issuing stock. On the other side, this situation is not always fully pure. Plenty of companies are run by MBAs that give themselves too many shares & their sole goal is to go public so they can offload their holdings rather than grow their company. Still though, the primary reason for stocks to exist is that companies can acquire additional funding without taking out loans, they get that funding by trading ownership. That's still a thing even if there is a lot of other corruption & rent seeking relating to it. Thus, we should not be myopic it, there is more to it.

gmd63 3y ago

Cancer is an exploitation of the politics present in human cellular biology. The DNA of what makes us human mammals is molecular capitalism in this analogy. You can dismantle that, but then we would be floating amoebas in the primordial ooze. What you can do is identify when cells aren't behaving in good faith and punish them appropriately (through chemo etc) and find ways to prevent that behavior from surfacing again (diet / avoiding carcinogens / unknown future solutions).

__MatrixMan__ 3y ago
Agreed, I'm not for dismantling it wholesale, just for being a bit more targeted with our punishments. That is, I don't think that "the markets are up" is not an adequate indicator of "behaving in good faith". You have to look more closely at the actual outcomes. Whatever is being invested in, does it make life better or worse for the rest of us, etc.
- gmd63 3y ago
  I agree we need more keen punishments, and am annoyed by market value being some coarse indicator for economic health. It's been more morally pleasing to me to see criminal companies and "currencies" collapse in the past few years than it has for me to have seen the general market go up, as long term health depends on excising fraud.

seadan83 3y ago

Outside money flows into the market, this allows it to be positive sum. For the DnD analogy, it is as if you had a cleric. Eg: IPO sells at $2, next seller buys at $4, next at $6, etc. Everyond makes money in that scenario. Eventually there can be losses, do all the losses counter balance these profits? No, because on net everything went up. If there were always trades that had losses to balance the gains, only then it would be zero sum. What's more, people convert types of holdings all the time, and it is the big players that move things. When a mutual fund allocates 1% more to stocks, or 1% less and putd that to bonds, those are very big net new or net negative money flows. So, it's not just paychecks being added in, there are lots of sources of dynamism to make the stock market system anything but closed. There is net new money flowing into it all the time.

__MatrixMan__ 3y ago
Money gets created when people take out loans which creates debt which is then traded in the markets. That's not money flowing into the markets, that's just the markets doing their own internal bookkeeping (much like D&D uses HP for internal bookkeeping about character health). If you want to convincingly argue that markets are positive sum you have to demonstrate that markets produce more than they consume in terms of something besides money. E.g. when some of the factory workers quit to go be day traders, the factory ends up producing more while consuming the same or less due to the positive effects of the investments enabled by the increased trading activity. This might be the case in some cases, and it won't be the case in others, and I don't know how to sum it in aggregate. Presumably somebody does. Whether it comes out positive or negative, asset prices are an implementation detail, not the thing we're measuring.
- seadan83 3y ago
  I'm responding to only: "> How does the market grow if all trades are zero-sum?" I'm not trying to say that markets are necessarily a net positive. But we should also not be myopic about it either. There is more to it. Firstly, money being made solely by trading is rent seeking. It's maybe even the definition of rent seeking (?) Personally I'd be in favor of tax rates in the 40% to 50% region for rent seeking (long term and short term capital gains tax IMO should both be doubled). Perhaps we agree a bit there. > Money gets created when people take out loans which creates debt which is then traded in the markets This is still net new money into the market, ergo, the market is not at all zero sum. There is new money flowing into it. That _negates_ the statement that there must be one person losing for every person winning in the stock market, it is not zero sum. Everyone can actually be making money because there is new money being injected (and the opposite can be true when money is net leaving because interest rates are high and everyone is putting their money to cash or bonds instead). Same thing happens in a Ponzi scheme, everyone can actually be making money while there is new money flowing into the system. In the example you stated, if a person borrows money against their house, they are moving money away from real estate to the market. Their wealth is net-zero in that scenario, but relative to the market - the market saw a net increase. Thus, the market is not a closed system, it is therefore not by necessity zero-sum - it's possible to have more winners than losers when trading (and/or more losers than winners too) > If you want to convincingly argue that markets are positive sum you have to demonstrate that markets produce more than they consume in terms of something besides money. E.g. when half of the factory quits to go be day traders, the factory ends up producing more while consuming the same or less. Yeah, this is what happens with IPO. Oatly is an example, they had a supply crunch, they could not produce enough milk for store shelves. With their IPO money they funded the construction of additional factories to increase their production capacity. I think people forget this, the IPO of a stock is a huge injection of money to a company, as-is whenever the company issues more stock. Amazon is another example, instead of using cash to pay employees, they used stock; which freed up cash to go to other places. Though, post-IPO, shares being traded around is arguably all just rent seeking. A company can still issue more shares too though. This very thing saved both AMC and GME; both of those companies would have gone under if they were not able to raise money by issuing stock. On the other side, this situation is not always fully pure. Plenty of companies are run by MBAs that give themselves too many shares & their sole goal is to go public so they can offload their holdings rather than grow their company. Still though, the primary reason for stocks to exist is that companies can acquire additional funding without taking out loans, they get that funding by trading ownership. That's still a thing even if there is a lot of other corruption & rent seeking relating to it. Thus, we should not be myopic it, there is more to it.