“In recent years, annual trading in stocks — necessarily creating, by reason of the transaction costs involved, negative value for traders — averaged some $33 trillion. But capital formation — that is, directing fresh investment capital to its highest and best uses, such as new businesses, new technology, medical breakthroughs, and modern plant and equipment for existing business — averaged some $250 billion. Put another way, speculation represented about 99.2% of the activities of our equity market system, with capital formation accounting for 0.8%.” – John Bogle, founder of The Vanguard Group
Finance is the means by which the savings of a country are directed into (ostensibly) productive investments. Capital flows direct our scarce resources, deciding what gets built, what grows, and to an extent what succeeds and what fails. The financial system consists of many institutions, many instruments, many markets. And in 2008 it malfunctioned sufficiently as to bring down the world economy, but that’s neither here nor there.
As the above Bogle quote indicates, finance has become largely speculative (gambling, as some negatively term it), focused on making money with money rather than true, productive investment. At the same time, the financial sector has had to cope with a “global savings glut”, where we have more savings to be invested than there are investment opportunities. This has contributed to lower interest rates, inflated asset prices, and riskier financial instruments to compensate for lower yields in standard investment.
This all matters to us for two reasons. The first is that we have an aging population that is expecting to live longer and better than previous generations in retirement. For that to happen the retirement funds, 401ks, and pension funds of savers have to yield significant returns and that is becoming more and more difficult.
The second is how finance, the direction of our capital and savings, impacts what I’m going to term “the real economy”. If finance isn’t directing our savings to new capital creation it isn’t growing our economy. If finance isn’t directing our savings to research and development it isn’t creating the productivity gains which are NECESSARY for higher living standards. If finance is directing our savings to centers of finance and away from Ohio (where we have a comparatively underdeveloped financial sector and fewer investment opportunities) then it is directing businesses and Ohioans out of the state. The quest for higher yields can even result in perverse outcomes for Ohioans where our savings are being leveraged by fund managers to encourage the shuttering of factories and offshoring from Ohio so that the companies our savings are invested in can post higher returns.
The objective of the Dark Horse administration is to make sure our capital and our savings are working for us, the people of Ohio. We have a host of policies to make Ohio an attractive place to do business and invest. We intend to develop Ohio’s skills ecosystem, to develop centers of learning and innovation, to have the infrastructure to create advantages in transportation, energy, bureaucracy, and labor costs. We intend to make Ohio the best place in the world to live, to take care of and provide opportunities for the people of Ohio and to attract the best talents from around the world into the state. Through our policies, we will put Ohio’s capital to work and we will attract capital from across the country and around the world. Make no mistake, the Dark Horse administration will guarantee Ohio has yields.