[quote=pri_dk]This is an oversimplification. True, trading shares that have already been issued do not directly provide additional capital. What it does provide is liquidity – something that is essential in capital markets.
If there were not an active market for a security, investors would be reluctant to buy it because they would be concerned that they may have trouble selling it later. IPOs and other offerings would be much more difficult, and happen far less often.
A big reason that publicly-traded companies can issue stock/bonds/whatever to raise capital is that the buyers of these securities are confident that they are purchasing a liquid investment. The existence of active markets is what gives them this confidence.
So the vast majority of trading does not directly raise capital, but it does very much “have an effect on whether Ford expands their workforce or opens a new plant.” The liquidity of Ford’s stock makes it possible for Ford to issue more.
Securities markets do not exist simply to provide a venue for gambling. This is a popular myth, but completely incorrect.
One of the biggest reasons that the US is the most prosperous economy in history is that we have the most established and, in fact, transparent markets that have ever existed. These markets give companies the ability to easily raise capital, expand their business, and (this one’s for you CAR!) hire more employees.[/quote]
Agree with all of this. And should not have ignored in my comment. But my point was (which I also confess, I totally ignored in my comment) that lowering taxes (or raising them) on those with the highest income has virtually no effect on expansion of capital or creation of jobs. There is no shortage of capital for those purposes. The relatively highly efficient markets ensure that.
