The Upside of a Stock Market Crash

A drought-stricken forest choked with dry brush and deadfall is an apt analogy.

While a stock market crash that stairsteps lower for months or years is generally about as welcome as a trip to the guillotine in Revolutionary France, there is some major upside to a crash. Let’s start by noting how drawn-out crashes reset the dominant ethos of the era from wild debt-funded speculation to long-term investing in productive assets.

(Whatever that means….nobody seems to know what a “productive asset” even is… presumably a call option on a Momentum Stock that expires in two days qualifies….)

In an era where punters expect to turn $4,000 into $400,000 in a few months via a frenzied speculative churn, there is no role or incentive for long-term investing. A 10% return is barely acceptable on a single trade on a single day, so the idea that one invests one’s nestegg in stocks that might (if all goes well) return a total gain of 10% annually… you must be joking, right? Ten percent a year?

An incentive structure that no longer rewards speculation would be a positive for the nation. A market that drifts lower, impoverishing every buy the dipper and draining the capital from every speculator, large and small, would be extremely beneficial as it would lower expectations and re-establish measures of value that have lost all meaning.

In the larger scheme of things, nations which save some earnings and invest these savings in enterprises which increase productivity generate broad-based prosperity. Nations which become dependent on speculative bubbles to generate illusory gains of phantom capital stagnate and collapse once the bubbles pop, which all speculative-debt-funded bubbles eventually do.

A stock market crash that only slipped lower for months or years would also force the nation to look at the broken rungs on the ladder of upward mobility. As it now stands, upward mobility has been reduced from available to almost all to available to the children of the wealthy (i.e., an aristocracy) or a Darwinian death-march in which an army of hopefuls obtain the necessary baseline credential (a college B.A. or B.S. diploma) and then experiences the Darwinian death-march’s appalling attrition as hundreds of insolvent PhD graduates seek a handful of tenure-track positions and naive law-school grads are worked to exhaustion and then jettisoned as over-credentialed offal.

The only ladder rung left is from debt-serf to tax donkey. Which brings us to the bracing prospect of getting amazingly rich in an amazingly short time via stock market speculation in leveraged instruments such as options and futures contracts.

On the one hand, there’s 40 or even 50 years of grinding away for The Man to pay the monthly nut of student loans, a pickup truck loan and if you’re lucky, a staggeringly large mortgage, and on the other hand, turning $4,000 into $400,000 and telling The Man to take this job and shove it.

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