one case against index funds is the one you are alluding to: index fundies are freeloaders. let’s flip yr question, what are the passive investors “specializing” in? what service do they provide that complements what active traders do? they reduce compensation of active traders, what do they add? 1/

but that’s not the most serious case against index funds in my view. in increasing order of seriousness there is also the way diversified ownership changes principal and manager incentives… 2/

and most seriously, the political economy of ubiquitous passive ownership, which turns the stock market from a sharp-incentive information processor to an instrument to be stimulated and stabilized for macro (if you want to be nice about it) or patronage (less nice) purposes. /fin