When you’ve read Mises, you’ll understand that (just as Murphy’s a pouter and a panderer), Hayek’s a popularizer and a pussy (NTTAWWT)
as he, himself, observed.

But, under it all, there’s a rather simple market lesson to take away. And that is that there will always be those ready to step forward and furnish, usually abundantly, whatever the market seems to desire. For the present, it desires Tim Worstalls but it also craves Richard Murphys. And, until the public is smarter, better-educated, and less motivated by envy and larcenous schemes, it will pay for pouting and pandering. With Murphy, it seems his stupidity is at least honestly come by but there are others (Krugman jumps to mind) who are smart, learned, and well-placed to spread false and destructive economic information. And that’s a situation that won’t change anytime soon, if ever, and especially as long as public education (and education in general) is a leftist enterprise.

If things like skoolsandhospitals are such grand investments over the long run – a quite debatable point – then let the fund managers make that decision.

Richard Murphy is essentially arguing for state control and direction of investment. It makes me wonder why the late FA Hayek and all those classical liberals ever bothered.

Besides property only exists to serve needs of people and the pools of people that gather in companies – funded by in part by the stock market. No companies means no occupiers means no income stream.

Am I right in thinking that Colin Hines is the thinker behind many Green Party policies also?

That speculation was used to fund the City of London, the financial services industry and the excessive salaries paid within that industry

So the financial services industry works for the benefit of those working in it. Is this news to anyone? I hope not. It’s no different to any other industry.

Everyone is free to choose how they invest in the market: if you believe that the well paid managers add value, then invest in a hedge fund. If you prefer the John Bogle approach, buy a low cost index tracker.

I am saying that the equity market has been deliberately distorted by the denial of the supply of new equities

We have new equities being issued, some by startups, some by foreign companies, some more recently by the banks. How much more should we be getting?

Why are businesses not issuing more? A preference for debt financing perhaps? Would you support making dividends tax-deductible to give tax equality between these two forms of finance?

average annual returns from 1900, stocks come in at about 1 per cent; it is only if you re-invest dividend income that the figure rises to 4 or 5 per cent.’

Are these returns after inflation? I think so. How well did cash or bonds do?

Let’s ignore the startups, as they will be a small part of the FTSE-All share until they have become well established businesses, and focus on those large and mid cap companies – the BP’s, Vodaphones, Rolls-Royces etc. If they are continually issuing more equity, why would the share price rise? You want to avoid these speculative bubbles, so surely all we are left with is the dividend? Not necessarily a bad viewpoint, but then why complain about shares performing so poorly when dividends are excluded?

The other important point is why should a business continually have to raise new capital? At some point one would expect it to be able to finance expansion, R&D etc out of its profits. Someone (Tim? Megan McArdle?) recently had a post about Worldcom(?), showing that a highly profitable business that is continually borrowing more and more money may be a good sign of something wrong, e.g. fraud.

If you are looking for more than 1% from your pension fund

Don’t pension funds re-invest the dividends? Or, at least what is left after a huge percentage of them is lost in tax? Returns would be higher if the tax burden was reduced, and shifted from taxes that punish success to those that encourage it (LVT).

Richard, you’re going to have to expand on that point because last time I checked the City was packed with people trying to encourage IPOs and secondary offerings

“Secondary investment markets do not need to be casinos”

yes … I’d like a bit more explanation on that one too.

You wilfully miss the point.

I do not one minutes say that all investment should be in the mechanism I propose.

I do not for one minute say that the existence of a market to allow an orderly ex it from an investment position is harmful.

I do not say people should not invest in equities.

I am saying that the equity market has been deliberately distorted by the denial of the supply of new equities that means the forced investment of pension monies into that market when there are no new assets to purchase has created an inevitable cycle of boom and bust which has been severely detrimental to people’s pension prospects.

In that circumstance I am saying that there it is a need for a new, alternative, investment market for which there would also, of course, be a need for an orderly process of secondary sale.

Secondary investment markets do not need to be casinos.

There is ample evidence that in some secondary markets, such as that for some bonds, the number of trade is very limited and that does not in any way undermine the attractiveness of the primary product. I can assure you, I have done the research to prove the point.

Maybe your problem is that you jump to conclusions without doing research. I think it appropriate to work in the alternative direction. That is why you persistently support the status quo when it is obvious that it does not work what I’m interested in creating workable solutions.

It’s a pretty fundamental difference, isn’t it?

Richard

Tim adds: “There is ample evidence that in some secondary markets, such as that for some bonds, the number of trade is very limited and that does not in any way undermine the attractiveness of the primary product.”

Erm, actually, I think you’ll find that illiquid secondary markets do indeed reduce the attractivness of the primary market. You’ve noted that banks have problems in getting away CDOs these days, as no one is willing to trade in the secondary market?

“Maybe your problem is that you jump to conclusions without doing research. I think it appropriate to work in the alternative direction.”

I think that’s actually your problem. You try to do everything from first principles: you are continually reinventing the wheel and are entirely unaware of what brighter people, who have thought longer and in more detail, have found out about markets. No, I’m not including me in that number. Just most economists who have won the Nobel in the past 40 years. You simply don’t understand, because you deliberately ignore, what we now know about what you are trying to rediscover.