Sunday, April 24, 2011

The debt ceiling test and why index funds are probably evil

We're coming up on one of the great natural experiments of our time. If I and my fellow travelers are right about how the American world works, then either the US debt ceiling will be raised or Goldman Sachs will make a vast (even by their standards) amount of money. If the debt ceiling is not raised, and GS doesn't make another fortune, then I'm wrong about how the supreme court blessed power of emergent corporate entities.

I think I'm right though, so, unless Goldman Sachs has bet big on US debt interest rates rising, the US debt ceiling will be raised.

There's not a lot of comfort in being right though. Being right means that another brief experiment in representative democracy [1] is drawing to a close; voters, even crazy tea party voters, just aren't all that important.

Corporate entities are important though, and not all corporate entities are equal. Exxon has different interests from Apple. Philip Morris and Google are not the same. Privately held corporations can own Senators just like the public, but they can be quite idiosyncratic.

Since all corporations are not equal, all of us are not completely powerless. Those who still have savings can choose which corporations to feed. Some, like Exxon, will oppose a CO2 tax. Others, like Google, will be relatively neutral. Some, like Goldman Sachs, are largely parasitic. Others, like Apple or Subaru, produce useful products. Combining the limited power of voting with the limited power of stock ownership we may be able to keep civilization together long enough for our children to deal with it.

There's a problem though. The problem is that most smart non-uber-wealthy investors [1] put their money in Bogle's proletarian invention - the index fund. That doesn't give us any "vote" on which corporations grow, and which don't.

In the world of corporate rule, index funds neuter our limited influence. We need a new variety of socially conscious investing, a basket of corporations that are mostly compatible with human civilization.

Anyone know of a set to start with?

See also:

[1] The uber-wealthy have access to information we don't have, and they shouldn't have.

1 comment:

Anonymous said...

I've recently been taking a look at Exchange Traded Funds (ETF)