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Matt Levine

Are Index Funds Communist?

There won't be much left to do once the investment robots perfect capitalism.
Just some statues of Karl Marx.

Just some statues of Karl Marx.

Photographer: Hannelore Foerster/Getty Images.

I have been half-joking for a year and a half that maybe index funds should be illegal, but here is an almost entirely serious claim from Sanford C. Bernstein & Co. that they are worse than communism:

The basic idea is straightforward.  The function of the capital markets is to allocate capital. Good companies' stock prices should go up, so they can raise money and expand. Bad companies should go bankrupt, so that their resources can be re-allocated to more productive purposes. Analysts should be constantly thinking about whether companies are over- or underpriced, so that they can buy the underpriced ones and sell the overpriced ones and keep capital flowing to its best possible uses.