Is greed still good?: John Coates argues in a new book that a small number of large financial institutions — index and private equity funds — increasingly pose a threat to American democracy and to themselves – Harvard Law Today
“Index funds have a complicated effect on inequality. On the one hand, they allow ordinary working-class Americans to more cost effectively diversify their investments for retirement and put it into the stock market in a way that would be maybe too expensive for them to do if they tried to do it in some other way. And since owning stocks, at least in our country, has typically produced higher returns than other kinds of saving, that is a source of reducing inequality, because it allows more people to get the benefit of rising capital prices. So, if you’re out of the stock market, you’re going to get left behind in the U.S. economy. On the other hand, not everyone has enough money even to use index funds. I mean, there are millions of Americans who have no investments at all. And so, in that way, index funds further intensify the spread between those who are left out entirely of the private investment part of our economy and those who are in it.
“Private equity, I think, is more unambiguous because the returns are almost entirely benefiting the wealthiest — the people who run private equity funds and the executives who work for the companies that they buy, all of whom are in the top 1%. And they’re all using the private equity vehicles to get even richer; it’s become the standard way to get really rich now in America. And then on the flip side of it, the typical result after a buyout by a private equity firm is that they lay people off, and there are fewer workers that work at the company afterwards.”