The Hidden Consequences of Passive Investing
What is good for investors might not be good for the economy
The Atlantic recently put out a compelling piece discussing investment trends. The beginning of the article describes the rise of passive investing from an investor's point of view; better performance with lower fees. The latter half is where I think it gets particularly interesting, discussing the effects of passive investing on the economy.
The name of the article, “Could Index Funds Be ‘Worse Than Marxism’?”, suggests that all might not be rosy when it comes to passive investing. To better understand why index funds might be worse than Marxism, we’ll need some background information.
What is Marxism?
Karl Marx’s philosophy was motivated by his theory that human history has been defined by a struggle between classes. The rich and powerful exploit the poor, eventually resulting in an uprising. A revolution ensues, and society is reorganized into new upper and lower classes, only for the cycle to repeat again.
The way out of this endless class struggle, according to Marx, was to reduce the prevalence of private ownership. Publically owned goods and resources can, hypothetically, be distributed more fairly, reducing inequality and exploitation. Marx…
