Could index funds be “worse than Marxism”?
I get a rise out of the &quot;Marxism&quot; boogeyman here. Few thinkers have done more than Marx to define and describe capitalism.<p>People should worry less about market structure and incentives. We have serious issues to repair in the financial markets, but the more pressing concerns should be quality of life, security, and productivity. We needlessly limit our universe of acceptable institutions and practices with a priori reasoning like &quot;Marxism is bad, so this other thing must be bad too because I can describe it similarly.&quot;<p>For what it&#x27;s worth, I think index fund concentration is a symptom of the moral hazard of bailing out losers and failing to help winners improve on critical growth areas. The downside is protected, so equities rally. As they rally together, correlation rises and people diversify using index funds rather than picking stocks. Allow some dispersion and stock picking will come back.<p>Two of this year&#x27;s major volatility events have involved multi-billion-dollar losses by hedge funds with concentrated margin positions (Melvin and Archegos). It&#x27;s only a matter of time before a chain reaction occurs, whereby one hedge fund liquidation leads to margin calls for other hedge funds, who in turn liquidate and exacerbate the process. If that happens big enough (or repeatedly enough), it will beat the bubble bullishness out of us.