What Are the Benefits of the Stock Market?

BY busadmin  March 9, 2009 at 4:19 PM EDT

New York Stock Exchange; By photog63 via Flickr

Question: How does having a stock market benefit the entire country? To the extent that IPOs represent a mechanism for gaining funds for projects that increase profits, it is very useful. But don’t stocks also represent debt that now we are told we have too much of?

It seems to me that the 2007 values represented an imbalance between the actual value of American business that its production could support and a perceived level that was unreal. We couldn’t fill those shoes. How, coming out of this, can we make the fit between reality and perception better?

Paul Solman: The market benefits the country as you suggest: by making it easy to raise lots of money from lots of people for new investments. Stocks don’t represent debt unless you’ve borrowed money to buy them (which some people surely have, sometimes indirectly by refinancing their homes, for example).

As to a better fit between reality and perception, how about the fact that stocks have been losing value? The only problem with this solution, at the moment, is the vicious circle/downward spiral we’re in. As stocks lose value, people cut their spending. Businesses have lower profits – or losses. The shares of those businesses – their stock – is thus worth less….

I’m going to stop now. I’m depressing myself.