note to self: buy this book

I've always been bothered by the idea that stock prices were the value of a company, that the value and sale of stock could lead to the loss of jobs, even though there appears to be no connection between the two other than perception of worth. It seemed wrong to me, if not crazy. Well, I may be right, and this clip from Marjorie Kelly's book The Divine Right of Capital is my proof:

In an era when stock market wealth has seemed to grow on trees--and trillions have vanished as quickly as falling leaves--it's an apt time to ask ourselves, where does wealth come from? More precisely, where does the wealth of public corporations come from? Who creates it?
To judge by the current arrangement in corporate America, one might suppose capital creates wealth--which is strange, because a pile of capital sitting there creates nothing. Yet capital providers--stockholders--lay claim to most wealth that public corporations generate. Corporations are believed to exist to maximize returns to shareholders. This is the law of the land, much as the divine right of kings was once the law of the land. In the dominant paradigm of business, it is not in the least controversial. Though it should be. What do shareholders contribute, to justify the extraordinary allegiance they receive? They take risk, we're told. They put their money on the line, so corporations might grow and prosper. Let's test the truth of this with a little quiz: Stockholders fund major public corporations--True or false? False. Or, actually, a tiny bit true--but for the most part, massively false. In fact, "investing" dollars don't go to AT&T but to other speculators. Equity investments reach a public corporation only when new common stock is sold--which for major corporations is a rare event. Among the Dow Jones industrials, many have sold no any new common stock in thirty or fifty years. The stock market works like a used car market, as accounting professor Ralph Estes observes in Tyranny of the Bottom Line. When you buy a 1999 Ford Explorer, the money goes not to Ford but to the previous owner of the car. Ford gets the buyer's money only when it sells a new car. Similarly, companies get stockholders' money only when they sell new common stock. According to figures from the Federal Reserve and the Securities and Exchange Commission, in any given year about one in one hundred dollars trading on public markets reaches a corporation. In other words, ninety-nine out of one hundred "invested" dollars are speculative. And the past wasn't much different. One accounting study of the steel industry examined capital expenditures over the first half of the twentieth century and found that issues of common stock provided only 5 percent of capital.

So what do stockholders contribute, to justify the extraordinary allegiance they receive? Very little. Yet this tiny contribution allows them essentially to install a pipeline and dictate that the corporation's sole purpose is to funnel wealth into it. The productive risk in building businesses is borne by entrepreneurs and their initial venture investors, who do contribute real investing dollars, to create real wealth. Those who buy stock at sixth or seventh hand, or one-thousandth hand, also take a risk--but it is a risk speculators take among themselves, trying to outwit one another, like gamblers. It has little to do with corporations, except this: public companies are required to provide new chips for the gaming table, into infinity. It's odd. And it's connected to a second oddity--that we believe stockholders are the corporation. When we say that a corporation did well, we mean that its shareholders did well. The company's local community might be devastated by plant closings. Employees might be shouldering a crushing workload. Still we will say, "The corporation did well." One does not see rising employee income as a measure of corporate success. Indeed, gains to employees are losses to the corporation. And this betrays an unconscious bias: that employees are not really part of the corporation. They have no claim on wealth they create, no say in governance, and no vote for the board of directors. They're not citizens of corporate society, but subjects. We think of this as the natural law of the market. It's more accurately the result of the corporate governance structure, which violates market principles. In real markets, everyone scrambles to get what they can, and they keep what they earn. In the construct of the corporation, one group gets what another earns. The oddity of it all is veiled by the incantation of a single, magical word: ownership. Because we say stockholders own corporations, they are permitted to contribute very little, and take quite a lot. What an extraordinary word. One is tempted to recall the comment that Lycophron, an ancient Greek philosopher, made during an early Athenian slave uprising against the aristocracy. "The splendour of noble birth is imaginary," he said, "and its prerogatives are based upon a mere word."

Gambling. We base our economic decisions on the needs, opinions and say-so of a bunch of gamblers. America is, in fact, run by casino owners. No wonder we've developed such a love for state lotteries and Indian Gaming centers; they're just low-rent versions of our prime national obsession - striking big in Wall Street Roulette

I've said this before, and I'll say it again. It's not capital gains taxes that should be cut, it's long-term investment gains that should be cut. Any capital gains that are made through speculation and short-term "investments" with no apparent intention of providing capital for the long haul should be taxed heavily. It's gambling, and it's no better than poker or craps - worse, because it's treated like it helps the nation, when in fact it absorbs funds that might be put to good use. Speculation has largely created this current financial crisis, which will cost us, the nation, billions (and in lost "value" in the stock market, has already "cost" trillions around the world). Imagine instead if that money had been truly invested in alternative energy start-ups, or infrastructure, or higher education.

What would America be like today if we quit placing our faith in Dame Fortuna and started placing it in the People?

props go to Bora for this big bitchin' quote.