Libs and Cons Special Blog Series: When Smart People Fuel Stupid Economic Misconceptions

Misconception: The Stock Market and The Market are one in the same. Republicans seem to hold this idea of "the market" as if godlike in its command of business and economy. If the economy seems to be good, Republican credit themselves for their faith in the market, and they credit the market for its freedom and power. If the economy turns lousy, they point to cycles and tell us not to worry because the market will make everything right.

Reality: The Stock Market is one mechanism of exchange that makes up The Market.

The Stock Market is gambling with a bigger purpose. Over time, the stock market measures the markets functional success in spreading societal well-being. It operates essentially as a casino, albeit one that incorporates highly advanced mathematical slot machines and a dual business purpose. The first purpose is to raise cash to grow the business. People invest (or "bet" or "gamble") their money based on their perceived value of the business. It's kind of like a second mortgage for the business where the business pays its lenders back with good decisions that increase the value; the stock is liquid and lenders can cash it in for prevailing stock price at any given moment, The catch is the interest may be positive or it may be negative.

The number of lenders relates to the second function of the stock market as an executive check and the balance. In theory, a large, diverse pool of investors react to information (earnings reports, outlook, expansion, day-to-day operations) that determines the value of the stock. Since supply of the stock is essentially fixed, a stock's value is driven by demand for the stock which is driven by the ongoing success of the business. The stock market, however, is only as good as the speed and accuracy with which the business relays important information to investors. In the internet era, this should happen instantaneously; that it doesn't and that the market has essentially vomitted and shit simultaneously and uncontrollably speaks volumes on the speed and accuracy of the information provided to investors.

Compounding the problems we're witnessing today are bonuses structured to give executives large amounts of stock eventually gave them a controlling interest within shareholder pools that became shallow as the economy evaporated. This explains why shareholders were happy to reward the executives... The executives had in effect become the shareholders. In so doing, they manipulated the model to make it as inefficient as it could possibly get.

The market, on the other hand, is a system of exchange that can best be described as EVERYTHING. It's everything, it's everything that effects everything, it's everything that effects everything that effects everything. The market is the mechanism for economics; economics is the system for and measure of the expansion of societal well-being. Like the stock market, the efficiency of the market is only as good as the infrastructure for deliverying well-being to people; it can be measured by velocity, reach, and quality.

If the market is some omnipotent economic force that we should respect and fear as some Republican governers and talking heads seem to infer, then a bunch of executives just bought a one way ticket to hell. Enjoy your free business class upgrades while they last.