Hey everyone. I have gotten into a discussion/argument with a colleague of mine. He believes that shorting stocks is immoral because it allows market manipulation at the expense of the “average joe.” Clearly, this individual is not the sharpest tool in the shed (which makes debating them even more challenging).
I have made the following points which I thought were decent, but nothing I say has really gotten through so far:
Shorting stocks is not reserved only for hedge fund managers – the “average joe” can go online and short a stock just as easily as buying one
All shorting a stock means is selling it before you buy it. It’s no more immoral than selling a stock after you buy it.
Buying gold is essentially shorting the dollar. It is immoral to buy stock in gold? (No.) Then why is it immoral to short the dollar?
These points have been basically ineffective. Please help me out here.
Right. So ultimately it all evens out. Thanks – I’ll tell him that next time we speak. He’s one of these fabian socialists who has a mental image of greedy corporations preying on innocent joes like him, so its doubtful I’ll be able to make any progress. But thanks anyway
WAIT, YOU HAVE THE NAME “CAPITALIST”!? was sure it would be taken, so I didn’t even try it!
Just remind him that shorting stocks isn’t some mystical, magical thing. It’s simply acting on a belief that a stock is over-valued.
Stocks could technically be manipulated in a large variety of ways and that includes “vanilla” buying and selling. Should buying and selling stocks be outlawed?
Buying gold using someone else’s dollars, you mean? Selling stocks you don’t own without withdrawing them from the possession of some current owner is essentially the same thing fractional reserve banks do with dollar deposits…
Ok. If it is voluntary then I see no problem with that.
I’m new around here and will assume that most here are gold-standard supporters? I always found the Austrian contempt for fractional reserve rates somewhat contradictory to the other tenets of Austrian economics. If one individual voluntarily gives his money to a bank knowing the bank’s fractional reserve rate, what is wrong with that? By my understanding of Mises’ theories regarding human action I see no problem with fractional reserve. The real problem is that the Fed sets the reserve rate – not the reserve rate itself.
Instead of the gold standard, I prefer the Free Banking system (in which there is no Fed and no regulation of reserve rates so the market would be allowed to choose reserve rates) but I guess thats another topic altogether.
Well as far as fractional reserve banking goes, Austrian Economics doesn’t say it’s ‘wrong’ really, it just points out that the concept of fractional reserve banking is bankrupt and all banks are technically insolvent. We then apply that knowledge and say fractional reserve banking is wrong, especially since we don’t have free banking so there’s not really an alternative.
Some would argue that it’s essentially fraudulent, and have called for 100% reserve banking along with the gold standard. If all the participants are informed and consenting, then of course it isn’t fraud, so that’s a tough position to hold too absolutely.
Right, technically they’re informed and they just don’t care to look into the details to understand how ‘fraudulent’ the banking system really is. So that’s kinda tough to argue each way. I do know that my high school econ teacher tried to tell us money was still backed by gold so i could sort of argue that maybe there’s a trend in public schools to keep people ignorant but that’d be just as hard to prove
We’ve lost too many threads this way already! This seems to be the single largest area of disagreement among Austrians (except maybe strategy.) Can’t we have other discussions without all discussions coming down to 100% gold reserve vs. free banking?
On the OT, I’d agree with your friend that there are greedy corporations making a profit off the victimization of others. Halliburton, Bechtel, Blackwater… but I fail to see just what this has to do with short selling. How exactly do corporations use short selling to victimize others?
Now, here’s something they do do to screw people over, which is not and should not be illegal - pump and dump. What is the best way for the average Joe to defend himself against a pump and dump strategy? Answers itself, doesn’t it?
Now, here’s a point that you might make to him. Corporations which successfully screw the commoner over tend to be, well, rich. This means that they can buy access to government, and that it’s very unlikely that government policy would do anything to hurt them. On the other hand, if someone tries to outsmart them (like a certain junk bond trader prosecuted by Rudy Giuliani) it is likely that they would run to the government for help. So increased regulation will empower the greedy, evil corporation, not weaken it.
Right. This reminds me of a Mises quote (from Human Action I think):
“The profit system makes those men prosper who have succeeded in filling the wants of the people in the best possible and cheapest way. Wealth can be acquired only by serving the consumers.”
In the absence of government economic protection and regulation, only companies that serve the customer prosper.
There is some other relevant quote that I cannot remember… something about how those who have the most capital are often the most opposed to the free market because it takes away their protection and allows for competitive entrepreneurs and startups to challenge them. Anyone know what I’m talking about? Bueller?
My cynical side says it’s like the idiots who threaten the weatherman during a drought. The entire market is voodoo to them anyway. Short-selling is a prediction of decline, so the ignorant believe that it causes decline. Add in confusion between ABPT dropping in price, with generalized hard times, and voila! Short-selling QPRS starves babies and kills puppies.
christians used to and muslims still do believe that usury of any kind was immoral. it can be argued that shorting is particularly immoral as it profits on the failings of other real endeavours. it produces nothing useful but acts as a leech on development in a way that buying stocks in a straightforward belief of a company’s worth does not do as much.
i wonder if the money generated by this practice were available to society in a healthier way whether we would all prosper more. hedgers are only more reprehensible as they are bigger. a terrorist is a person with a bomb but no aeroplane.
sadly if it was outlawed it would probably take place under cover anyway
This idea of shorting stocks is immoral dates back for centuries. If it were immoral, a case could also be made that buying stocks is immoral because only those with the ability to pay are those who will buy and then they make the price go up, make profits and widen the population’s income inequality.
Shorting stocks is the human action required in order to restore the stock market to its equilibrium point where buyers and sellers will agree on a price, after a huge boom fuelled by an excess of psychological hope that was unconfirmed by economic reality.
IT IS NOT IMMORAL BUT WITHOUT ANY DOUBT IT IS JUST CASINO BUSINESS.
About your example on the dollar vs. gold … it is valid. But the dollar and gold have worldwide aggregated values not like corporations
Moreover, corporations tend to be over/under value and these cyclical value fluctuations are caused by CASINO (short selling/hedging the stocks and stuff like that). Short selling int he stock market has become “betting”.