Could Index Funds Be ‘Worse Than Marxism’?

Economists and policy makers are worried that the Vanguard model of passive investment is hurting markets.

For millions of Americans, getting into the market no longer means picking stocks or hiring a portfolio manager to pick them for you. It means pushing money into an index fund, as offered by financial giants such as Vanguard, BlackRock, and State Street, otherwise known as the Big Three.

Index funds mirror the market, in other words, rather than trying to pick winners and losers within it.

Actively managed investment options could make up for their higher fees with higher returns. And some do, some of the time. Yet scores of industry and academic studies stretching over decades show that trying to beat the market tends to result in lower returns than just buying the market.

One primary concern comes from the analysts at Bernstein: “A supposedly capitalist economy where the only investment is passive is worse than either a centrally planned economy or an economy with active, market-led capital management.” 

The point of their research note, if rendered a touch inscrutable with references to Hayek and the Gossnab, is about market signals and capital allocation.

Annie Lowrey The Atlantic 5 April 2021

https://www.theatlantic.com/ideas/archive/2021/04/the-autopilot-economy/618497/