Does the stock market hurt the economy directly? [closed]

Question

In 1929 America experienced its first stock market crash within a relatively close time period of the ushering in of phone booths . The first stock market crash in history may have been around 1750 with its origins being around 1602. The more recent stock market crashes were closer to a more modern age(1970s) when computers started surfacing, metaphorically speaking.

There are expert systems capable of comparing centuries of data and able to predict any artificial oscillation of stock prices, the data of which may formulated by the broker. How could a stock be anything but illegal considering the value of the stock is liquid, and that the price can simply be changed with help of media, advertisements, and expert systems. Brokers are able to drop the price 1% if 51% of the market has bought it at value or do the opposite if and take a long position of selling an item to buy it back later when it drops?

It literally positions the American citizen against a super computer. With such an unfair match up, it seems easy for the stock market to leave millions of productive Americans with nothing and have the gains of the market be pocketed by a broker in exchange for nothing but a more crippled economy.

It's as if they've masked something called a price tag with a pure pyramid scheme based on computer efficiency, a virtual economy, based on implied value.

"In 1978 and 1979, lawyer and First Lady of Arkansas Hillary Rodham engaged in a series of trades of cattle futures contracts. Her initial $1,000 investment had generated nearly $100,000 when she stopped trading after ten months. In 1994, after Hillary Rodham Clinton had become First Lady of the United States, the trading became the subject of considerable controversy regarding the likelihood of such a spectacular rate of return, possible conflict of interest, and allegations of disguised bribery,[1] allegations that Clinton strongly denied.

In a Fall 1994 paper for the Journal of Economics and Finance, economists from the University of North Florida and Auburn University investigated the odds of gaining a hundred-fold return in the cattle futures market during the period in question. Using a model that was stated to give the hypothetical investor the benefit of the doubt, they concluded that the odds of such a return happening were at best 1 in 31 trillion.[14]"

Answer 1

You make crashing the stock market sound like child's play. Most of the stock market crashes in history have been a result of natural disasters, which caused mass panic among the stockholders.

Computerised stock exchange didn't change the game too much. However, it left the stock market much more prone to manipulation. With the interlinking of economies due to globalisation, there was no other way to go about it.

The online stock market is much more stable now. In 2014, the American government introduced circuit breakers, which left the market much less prone to the possible aftermaths of a mass panic.

As mentioned earlier, the interlinking of international markets has also made regional economies much more stable. The stock market has a tendency to stabilise itself.

Factors like those mentioned by you can cause ripples at most, but nothing that lasts long enough to create a major impact. With all of that said, people have long admitted that the stock market does indeed leave the economy volatile.

Answer 2

I think the main problem with your scenario is that if a firm tries to artificially drop the price of a specific stock and then buy the stock, there's incredible incentive for another savvy trader to buy the stock that has been artificially reduced in price and then sell it when the panic ends. These traders act as a counterbalance to the kind of manipulation you're describing.

Meanwhile the "little guy" who would need to be protected from these kind of predatory practices should have a diversified portfolio for his retirement savings. Any manipulation of one stock should barely register and long term investors(ie normal people saving for retirement) should be mostly unaffected by these kinds of short term manipulations.

Also, the idea that super computers can actually predict stock prices is highly contentious. Many economists ascribe to the Efficient Market Hypothesis which states that there are basically little to no gains to be made by data analysis, since stock prices already incorporate all relevant publicly available information. There's some fairly compelling evidence for this, notably that market indexes outperform most managed funds.

There are many ways stock market helps the economy, an important consideration for whether it's a net good or bad institution. The stock market allows regular people to own a piece of the world's businesses and reap the benefits of the growth of technological innovation and capital accumulation. The stock market also provides a relatively easy way for firms to get the money they need to expand, creating jobs and wealth.