the only meaningful sense in which index fund investors “provide capital” is bearing risk. liquidity is not a scarce resource under elastic fiat currency. 1/

you can argue that index investors are compensating for bearing undiversifiable macro risk, and that’s a contribution. it’s the best case you can make for the practice from a social, rather than private, perspective! 2/

except upspiraling valuations and obvious policy stabilization undo that case. if policy (to stabilize employment, they of course will say) targets continuing appreciation and ensures downswings are short, then funds holders aren’t making that contribution. 3/

and when we made indexing a recommended best practice, when we advised sympathetic ordinary professionals to rely upon a practice that also made less sympathetic, less ordinary wealthy people even richer, we created a political coalition that would predictably work to stabilize an upward path. 4/

leaving indexers making the opposite of any contribution. stabilization of capital markets undermines their allocative purpose, income to shareholders has to be offset by disinflationary policy elsewhere. 5/

nonshareholders pay both the expanding profit margins, and, less directly, for the spiraling higher multiples. /fin