Question about raising taxes on the wealthy

The same place that the thousands you pay toward a new car go after a few years. It is devalued. Like any other investments, stock values can go up or down. That doesn't mean money appears or disappears. Value and money are two different things.

The statement I was responding to was:

I showed that the money put in the market isn't actually tied up at all, it is immediately available for other uses. I don't have the cash anymore, but it is still out there, moving through our economy.

What I have is an item - specifically a partial ownership of a company. That item may go up or down in value, but that change in value doesn't change the amount of money in the economy, it just changes my net worth.

 

Money and value are indeed two different things. So, when your $100 stock became worth only $5 where did your $95 go?

It devalued, in other words disappeared into thin air. This is far different than the money paid for a car, a car loses value but it is used. Its loss in value is made up in the economy by its utilization.

You did not show that at all, not even close. When you took the $100 out of your savings account and bought that stock you removed $100 from the rest of the economy and put it into the stock market where, though it seems that it can go anywhere in the economy, it does not. Its usual course is to stay in the market.

What you have bought is a lottery ticket in a casino where the tickets are nominally related to the value of real world corporations. If you consider the reality that the vast majority of stock prices have far more to do with the activity of buying and selling shares than the underlying value of the real world corporations they represent you might get an inkling of what I am talking about. if you consider that the amount of money tied up in equity markets is orders of magnitude larger than the value of all the assets of all the corporations traded on the markets including their profits into the foreseeable future you might see that maybe some of that money would be better off deployed in other sectors of our faltering economy and the fact that so much of the nations wealth tied up in these markets is becoming detrimental to the rest of the economy.

 

Not necessarily. You can let the same car sit in a garage and it will still lose value, even though it is not being used at all.

That $100 didn't vanish into the market at all. It went to another investor who either spent it or put it in savings.

But you aren't condemning the practice of buying and selling lottery tickets, are you? If I buy a lottery ticket it more than likely will become absolutely worthless, instantly devaluing. By your logic, that dollar vanished as well - yet the truth is different. That dollar went to pay for the people running the lottery, taxes on the lottery and toward the winner's payment. It didn't vanish any more than the money spent on stocks. The money itself remained in the economy, the product purchased just lost value.

The biggest difference between the stock market and the lottery is the fact that an investor has a chance to make an educated decision on what stocks to buy, and smart investors consistently make a profit. If you invest smartly in good companies you will make money. Your profit is based more on you and your decisions than on luck.

 

Printing money is monetary policy; it goes to buying bonds or making loans to banks. The events you talked about are fiscal policy; they are paid for by taxation or borrowing money.

 

How exactly did that happen?
Loaning your shares to a short seller is about the only way for someone else to gain from your loss but, like most shareholders you did not do that so you still need to explain exactly how your $95 loss got into someone else's pocket.

Lotteries are near zero sum games, someone always wins and someone always loses, the amount of money spent in the game can be accounted for and balanced with the payouts and expenses. This is not the case with the stock market. The stock market can crash and there can be no winners, only losers.

Unfortunately speculative markets often act irrationally so no matter how much information an investor has and no matter how rational they believe their decision making to be, they are subject to the irrational hysteria of the markets. Even many of the most sophisticated investors lost a lot of money in 2008 as the market panicked.

 

You still seem to confuse value with money. Once I bought the share of stock for $100, I no longer had $100. I had an item that at that moment was valued at $100. When the value changes I don't gain or lose money. Money doesn't appear or disappear. I still have the same share of stock. The only thing that changed was its value relative to a dollar.

It is no different than a car. I buy a car today for $15,000. Its value will change and in a few years it will probably be worth $5,000 - even if I never drive it. I didn't lose $10,000, the car just went down in value. In another decade or two, that car might turn out to be an unusual model and it could also go up in value to $25,000. In that case I didn't suddenly make $20,000, I just own something that went up in value. Money didn't appear or disappear, the value just changed.

But every dollar that is spent on a stock comes out immediately. It is also a zero-sum game. When you buy $100 in stock, it isn't as if a $100 bill magically becomes a stock certificate. You give that bill to another investor who gives you a stock certificate in return. Your $100 bill is now in that investor's hands to spend as he sees fit. No money left the economy and no money entered the market. Money was exchanged for an item. That money is now in someone else's hands.

True, a lot of investors lost a lot of money during the last crash, but a lot of other investors didn't lose much at all. Many smart ones got out of the market before it tanked and were able to rebuy shares after they became cheap again. My mother-in-law is a prime example. Her adviser called her and recommended she get out of stocks, so she switched to bonds a few months before the crash. Her adviser did the same thing and came out great. Many other investors had more balanced portfolios and controlled their losses. Smart investing can limit your losses and help improve your gains during fluctuations in the markets.