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Proposition Honest Play - Enhanced Social Capitalism |
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There’s a new idea circulating, Proposition Honest Play, that, if implemented, would bring a whole new dynamic to “corporate responsibility,” and would ensure that the great wealth generated by companies here in the US would be shared by all our citizens. Should public corporations be required to redistribute a sizable portion of their wealth to fund universal social programs? Yes, because public corporations are capitalized dishonestly and it is long past time to pay the piper. You see, a legal quandary arose in this country around the stock market’s inception in the late 1700’s, and has festered to the present day.
Stock markets are zero-sum games. Imagine that stock markets are frozen and all electronic trading accounts are examined. The aggregate results will always be the same. There are only two kinds of participants in stock markets, buyers and sellers. So, five pennies net winnings must equal five pennies net losses, because net winnings may come from only one place, the net losers’ pockets. That puts the odds of winning or losing in stock markets at 50-50%, the same odds as a coin toss. Playing the stock market is a gamble. The Nobel Prize winning economist Milton Friedman once said, “There’s no such thing as a free lunch!” This quote is apropos to the stock market.
Historically, net losers in stock markets were misled into believing they were investing when they were actually gambling. Today, with almost everyone’s assets touching this world of gambling in some way through retirement, pension, insurance, or mortgage stocks and bonds, those who make money off stock markets do so directly off the backs of the public. (*See charts below for more detail) Therefore, the public should be the entity that benefits from any gains.
The social programs - like universal healthcare, universal higher education (from college to death), universal child care, a universal increase in teacher’s salaries, and universal programs to fight hunger, poverty and homelessness - will be offered to the general public, regardless of stock market participation, dividends received, and stock market losses or wins. This model will operate stock markets as zero-sum games; as gambling establishments, not investment opportunities. By changing the marquee above stock markets to read “Gambling Establishments,” the planet will be substantially reclaimed from the greed of public corporations.
Under Proposition Honest Play - an enhanced model of social capitalism - each corporation issuing public stock will forfeit cash equal to 30-50% of the total value of its stocks above a pre-established minimum price. The exact percentage forfeited will depend on the financial well-being of the company. This cash will be put into a universal fund administrated by a non-profit.
Each public corporation could pay in a variety of ways such as non-publicly traded assets, including selling treasury stocks, un-issued stocks, stock options, capital assets like land, and forfeiting retained earnings. Companies would be allowed to pay on an installment plan over a number of years to ease their burdens. Any new issue of public stock by a corporation would be subject to similar forfeiture.
With this massive re-distribution of corporate wealth into public coffers - to the tune of trillions of dollars ($4.6 trillion to $7.7 trillion dollars in common shares alone, according to Wilshire Associates) - individual savings will increase, consumption of goods and services will increase, and the economy will be buttressed against periods of economic recession and inflation. And, because this fund will not be traded on stock markets, it will not be subject to the same market swings that typically buffet retirement funds, pensions, and other market based securities.
Instead, fund assets will be diversified into real estate, government securities, and foreign investments, among others, to ensure good growth. Yet, even with this massive transfer of wealth, corporations will still retain an incentive to compete in domestic and international markets because they retain one hundred percent of their capitalized funds. The money they forfeit to the public comes from their “salted away assets,” not the assets they use for growth and development. This model funds social programs while encouraging corporate growth, research & development, and expansion at the same time.
As an added protection, average citizens will be given the choice to transfer, at no fee, all or a portion of their pension funds, 401K mutual funds, and other retirement funds (above a minimum market price) into universal retirement savings programs removed from stock markets. This model will manage a sensible divestiture of stock market retirement funds over a period of time, perhaps a number of years, without placing an undue strain on stock markets or the economy. (Public corporations and their insurance companies will be responsible for picking up any market short-fall below the minimum price for divested funds.) Once the divestment is undertaken, the public will be gambling in stock markets with less of their retirement funds but with more of their disposable income, thus encouraging smart and generous investment.
Is it better for the public to run honest casinos’ and get the gold mine, or continue to run dishonest casinos’ and get the shaft? To ameliorate this legal conundrum, save injured parties from lawyering up, quell political discord, and promote peace and prosperity, past sins will be forgiven. As it rolls forward, Proposition Honest Play will increase employment and lower all taxpayers’ burdens. All countries with stock markets will recognize the benefits of adopting this economic model and will be urged to do so.
Proposition Honest Play allows the public at large to benefit from the risks and rewards of stock markets in a way that is economically stable and does not put undue pressure on corporations to give up their essential assets. Public corporations which buy back their stocks and/or return to a private equity status yet in the interim have used publicly capitalized funds to expand and grow their businesses, would have to participate in this plan as well. To complete the cycle, this model offers a renewable source of funding through fresh IPO’s, additional stock issues, and mergers and acquisitions.
In short, Proposition Honest Play is a way of using corporate treasuries for public good without touching a company’s capitalized funds and hamstringing their ability to grow and expand their businesses. What’s not to like?
* Since aggregate investor class statistics are not compiled or published, they are not known. However, a basic analysis of the investor classes may be constructed to draw helpful conclusions. For example, it is well known in the financial community that the small investor class loses more money than the other investor classes. Further, how can some mutual funds consistently do well in the market without compromising the notion of a zero-sum game? The charts below illustrate how different investor classes can fare better or worse while the market remains a zero-sum game.
Chart 1 - Zero-Sum Ratio - 50/50
50% aggregate net winnings = chart 2
+50% aggregate net losses = chart 3
100% total net winning/net losses in stock market
Chart 2- Aggregate Net Winnings in stock market
40% aggregate net winnings (large and/or institutional investor class)
35% aggregate net winnings (medium investor class)
+25% aggregate net winnings (small investor class)
100% aggregate net winnings in stock market
Chart 3- Aggregate Net Losses in stock market
40% aggregate net losses (small investor class)
35% aggregate net losses (medium investor class)
+25% aggregate net losses (large and/or institutional investor class)
100% aggregate net losses in stock market
Willard is a writer with a Bachelor of Science in business from University of Alabama. He lives on the Upper West Side in New York City.
I like the idea, but I think the way to tax the stock market is to put a small rake on each transaction, like .5% of the value on each stock trade. Go ahead and tax every transaction in the economy that way and you have a pretty painless and large source of revenue.
Thanks for your comment, Ryan. Unfortunately, putting a small rake on each stock transaction continues to perpetuate the dishonesty and does nothing to solve the problem. The problem is the net losers in the market who will eventually pay for the small rake on each stock transaction were dishonestly led into a false world to pay for all the transactions in this false world.
Ryan, in your initial sentence, you infer that Proposition Honest Play (”PHP”) is a tax on the stock market. I kindly take exception to that characterization. My dictionary defines a “tax” as compulsory payment levied on income, property values or sales prices for the support of a government. PHP levies a compulsory payment on a percentage of all corporations’ publicly traded stocks to impose a “stiff penalty or a heavy fine” on public corporations for dishonesty and wrongdoing against the public. When a judge in a court of law adjudicates a monetary judgment against Enron, is the judge “taxing’ Enron or “penalizing or fining” Enron for wrongdoings against the public?
Ryan, let me spell it out for you. The market cap as of 5/07 was $15.35 trillion. This is the value of all the common shares of publicly traded stock in the stock market. The net losers in the stock market paid for every penny of this money. Public corporation used all this “scot-free” money to grow and expand their corporations and have never paid back one penny of this “principal” money. Dividend returns are merely interest on this principal. And most companies never even pay dividends. The public supports public corporations as stock prices rise by buying their goods and services. PHP offers a way for the public to be reimbursed for a sizable portion of this money gained dishonestly in a false world without harming corporations. The Securities and Exchange Commission (SEC) characterizes the stock market to be in the “world of investing” on its website. This is a mis-representation of the truth. The stock market is in the “world of gambling”. Public corporations are frightened by this proposition because they do not want to reimburse the public for this wrongdoing. The public deserves far better.
Ryan, let me clarify a point I made in my last comment. When I stated, “Public corporations used all this scot-free money to grow and expand their corporations and have never paid back one penny of this principal money,” I should have said, “Public corporations used their sizable, scot-free share of the net winnings to grow and expand their corporations and have never paid back one penny of this principal money.”
The net losers in the market pay for this $15.35 trillion dollars market cap and all these trillions of dollars go to the net winners, which includes public corporations, who are always net winners in the market, and the shareholders who luckily shake out of the market as net winners. Public corporations participate in the market only when they sell their stocks at Initial Public Stock offerings (IPO’s) and other stock sales or when they re-enter the market to buy back their stocks.
The net winners’ money helps to fuel the market, but the net winners luckily leave the market with a gain in their pockets, so they never actually pay for anything. The world of investing and the world of gambling can not legally overlap. Presently, it is unlawful to use the word “investment” or a derivation thereof in the world of gambling. But, unfortunately, that is exactly what goes on wrongfully every day in the stock market since the market is in the world of gambling.
Under Proposition Honest Play the general public will continue to support the stock market in an honest world of gambling, because the market will pay for universal social benefits normally paid for by taxpayers. A gambling enterprise is no place for retirement funds or money, which folks can not afford to lose. Today’s stock market provides an unhealthy and dishonest environment. Honesty is the best way to conduct any business enterprise and the public deserves to be treated honestly and fairly in such an important matter.
Looking at the stock market with an overview perspective of aggregate net winnings and net losses may be unfamiliar to many people. Most people look at the market from the perspective of individual stock sales which serves to perpetuate the false notion the market is not a zero-sum game. Aggregate net winnings and net losses are not compiled or published, or seldom talked about by market analysts. The reason being the results are already known by the powers that be, i.e., a 50-50 zero-sum game. And, the net truth will expose the dishonesty.
I’d suggest that possibly you’re looking at the wrong place for abuse of the public. A better example would be our debt structure. Ultimately the stock market is simply that, a market. You can only ‘lose’ if you choose to sell your shares and even then its only a zero-sum loss if someone who bought them from you then turned a profit on them (or the reverse where they sold them to you at an above average value). There’s a lot of criminality that goes on regarding the stock market but probably not in the sense that its a direct dupe of the public in the same way that the debt structures in this country are.
Pension funds and banks don’t put their money into stocks (regulations prevent them) rather they put them into debt structures. So basically when you buy a house or a car or rack up credit card debt, they break that up and sell it as an ‘investment product’. Debt is what allows the country to continue moving on despite the fact that the typical working class American is losing the battle against inflation in a big way. Debt is the entire reason why the working class isn’t up in arms about a lot of the economic turmoil because were it not there then the health care issues in this country wouldn’t be tolerated at all. Over the last thirty years the working class American has lost healthcare and effective retirement plans and has had them replaced with an abundance of revolving lines of credit.
Basically institutionalized debt without which inflation wouldn’t be as large of an issue. And primarily its all backed and approved by the United States government, in its role as lender of last resort. Ready to bail out the incredibly rich should the risk spectrum turn out to be against them, claiming its for the good of the public when what they mean to say is its for the good of their re-election campaign.
Greg, I agree that the debt market or bond market abuses the public’s trust, as well. Which market abuses public trust the most is a question which may be addressed by identifying shared culpabilities. It is one thing to point out problems, but more helpful to come up with workable solutions. When bundled (debt)bonds are sold as “investment products,” the same wrongdoing is occuring in the bond market. The bond market is a zero-sum game too. So, bonds are being wrongfully sold in the world of investing, and should be truthfully and honestly sold in the world of gambling. So, the marquee above bond markets should read “gambling establishments” too. You may ask if the commodities and real estate markets are zero-sum games? Since the “investment” products sold in these markets have intrinsic value, unlike stocks and bonds, these markets can be, but are not necessarily zero-sum games. Proposition Honest Play offers a solution towards abuse of public trust in the stock market. A different, but equally equitable solution is needed to address the abuse of public trust in the bond market. Perhaps, bond issuers should be legislatively mandated to pay a small, equitable transaction fee on each bond issued into a universal fund to compensate the public for such wrongdoing.
Referencing your comment re: the stock market, an individual stock trade is a single line accounting item in a stock trading portfolio. To understand the zero-sum game concept in the stock market, it is important not to focus on single stock trades, but rather to focus on the bottom line of each stock trading account/portfolio and then arrive at an aggregate net accounting. Greater leverage may be achieved by finding common ground between disparate points of view.