The folly of youthful day trading

Op-ed views and opinions expressed are solely those of the author.

The recent outburst of day trading in stocks by the nation’s younger generation is a dumb thing to do. It’s like sitting at the table with a bunch of expert poker players, playing stock market roulette. It’s a good way to make a small fortune— out of a larger one. An un-clever way to lose your money. And, in many cases, these gamifying day traders are using stimulus money from the government to play with. They do not understand that you don’t get honest work from lottery tickets or day trading that treats the market as a casino.

Some of these youngsters involved in manipulating the price of GameStop seem to think they are part of some sort of moral crusade, an opportunity for “the little guy” to bring Wall Street and the One Percenters to their knees. Laughable, because the stock market is a meritocracy. There is no sane reason for the “little guys” to believe the market will be “fair” to their attempt to make a quick buck while trying to squeeze the Wall Street short-sellers and the hedgies.

But there is a deeper danger at work here, as the shares of financial companies, investment banks, and online brokerages fell following the GameStop roller coaster (its price went from $2.57 to $483.00, now back to about $40). The price drop in financial companies came from the fear that new, crippling regulations could come from governments that mis-assess the cause of the problem. The underlying macro danger is the growing disdain against capitalism and the American free enterprise system that now festers in the minds of too many young people.

We must remind ourselves that capitalism must act to protect itself in every generation. We cannot take our system for granted, or lapse into complacency. Even Barack Obama understood this, speaking in 2015 that “the free market is the greatest producer of wealth in history—it has lifted billions of people out of poverty”. The free enterprise system brings incredible wealth, growth and opportunity, and healthy lives to this country. But often, free enterprise falls under attack from nihilists, anarchists and socialists. Or from those young people who are ignorant of history and human nature.

The freedom to choose is a huge value in our society, but setting up a betting game for political purposes, or to attract investor money, is not. Manipulation of markets and stocks is not acceptable. It is a market failure that must, and is, prohibited. Regulations exist to counter this behavior, but bureaucrats do not always effectively apply them.

In the instant case of the stock market, capitalism pleads that government bureaucrats must learn they can’t pile on new regulations to protect old ones when old ones don’t work quite right. As regulators now seek to investigate and then pounce on the institutional players in the GameStop price ride, the trick is to not increase regulations, but to replace the ones that do not solve the problem. And yet, sometimes the government “cure” is worse than the disease.

Broker-dealer firms have a right to stop trading in a stock, to place restrictions on buying shares, and to police their own activities by placing borrowing limits to protect clients. In fact, regulators require restrictions in certain instances, to protect the financial integrity of the company and to protect irrationally exuberant novice investors.

Back to capitalism, its opponents often say that capitalism creates too much inequality; the rich get richer at the expense of the poor, etc. But let’s explore that claim and dig deeper. The bad-mouthers fail to remember that inequality is not so bad when the alternative is grinding, oppressive poverty, which has always been the historical case. Would you prefer to live in a nation of “equal paupers” or live in current-day America?

Refuting this mis-promotion of inequality, economist Arthur Brooks makes the case that it’s absolutely incorrect to say inequality is rising in this country. All economic groups in the U.S. have seen dramatic increases in their living standards in the last 20 years. Brooks wisely states: “There must be a bottom 10 percent of earners in any society. The morally relevant issue is how these people are actually living.” Capitalism is why people are risking their lives to come to America.


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John R. Smith


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