How equity ownership shapes values

How does engagement with markets affect socioeconomic values and political preferences? A long line of thinkers has debated the nature and direction of such effects, but claims are difficult to assess empirically because market engagement is endogenous. We designed a large field experiment to evaluate the impact of financial markets, which have grown dramatically in recent decades. Participants from a national sample in England received substantial sums they could invest over a 6‐week period. We assigned them into several treatments designed to distinguish between different theoretical channels of influence. Results show that investment in stocks led to a more right‐leaning outlook on issues such as merit and deservingness, personal responsibility, and equality. Subjects also shifted to the right on policy questions. These results appear to be driven by growing familiarity with, and decreasing distrust of markets. The spread of financial markets thus has important and underappreciated political ramifications.

That is from a newly published paper by Yotam Margalit and Moses Shayo, via the excellent Kevin Lewis.


I knew W. Was on to something in the early 2000’s with privatizing social security.....

Maybe, but I'd hate for policy to be made concerning this. That was why conservatives supported the looser credit for home buying. They thought the correlation of homeowners being conservative would hold.

Homeowners probably are more conservative in things relating to housing (property taxes, landlord-tenant laws, etc.).

The issue is that the main fissures between the parties at the national level are no longer economic. There's no reason ownership of homes or stocks would make people more conservative on non-economic issues. In Israel, where the main political issue is peace with the Palestinians, giving people equity made them support left-wing parties more because those parties were more pro-peace (study link posted in my comment below). Similarly, I don't imagine too many equity holders are happy about Trump getting into constant fights with China, each announcement knocking a percent or two off their portfolios. And homeownership could make people more pro-immigration because more immigration raises housing values.

If we ever go back to a situation where the main difference between the parties is free markets vs. government interventionism, then the correlation of home and stock ownership with conservatism would probably go back.

Homeowners don't have to be conservative. Plenty of liberal NIMBYs.

Correlation and not causation. Owning the home isn't what makes someone conservative. The grind of hard work and thriftiness combined with the demands on the individual to measure up to lending standards are what makes someone conservative. Remove or lower those standards and owning a home becomes not a whole lot different from renting.

I am not so convinced. I mean I agree about the hard work and stuff but this seems to be a study that says giving people free money makes them more conservative if they invest it.

It is likely to boil down to Lenin's Who-Whom? Renters want to steal someone else's house. Naturally they are attracted to the Left - the party of the looters. Home owners suspect their home will be taken from them. Naturally they are attracted to the Right.

The interesting question is how expensive does a home have to be before someone switches politics. That is, do voters really believe that the Left will only loot the super-rich? Suppose you own a home in rural West Virginia that only just breaks into six figures. Is that enough to vote for the Right? I would b prepared to bet it does.

"Renters are significantly more likely to lean left. Among homeowners, President Trump beat Hillary Clinton in the 2016 election by a margin of 6 percentage points, but Clinton won the renter vote by a staggering 30 percentage points."

OK, but it's also very well-known that people who 1) are married; 2) live outside of big cities; 3) have higher incomes tend to lean Republican. If you control for these three factors -- all of which obviously correlate with whether someone is a renter or not -- there may still be a renter v. homeowner correlation with voting behavior but I would guess it would be much smaller than 30 points.

A national poll that is does not cover county-level or state-level responses is useless, and misleading.

"Results show that investment in stocks led to a more right‐leaning outlook on issues [...] These results appear to be driven by growing familiarity with, and decreasing distrust of markets."

Wait, equity holder distrust markets more ... and this causes them to move rightward on issues and policies?

Do they turn into Austrian School followers; markets are imperfect but government is even more imperfect?

*decreasing* distrust of markets, i.e., increasing trust of markets. Double negative.

+1, that confused me on a first reading also, I had to re-read the sentence for it to make sense.

Ah yes but what happens when they move past Econ 101 learn even more about markets?

Interesting. I've also seen a study that equity ownership in Israel made people move to the left, become more likely to support peace with the Palestinians, and less likely to support Likud:

Perhaps equity ownership makes people more libertarian, in that they move right on economic policy questions while moving left on questions of society, war & peace, etc. Thus, in times and places where non-economic questions predominate economic ones (such as America today), equity owners may lean left.

And perhaps one of the reasons our country seems to have fallen apart since the mid-90s is that mass equity ownership really died with the popping of the dotcom bubble and never really returned.

Equity ownership went up with the popping of the dotcom bubble. It wasn't until the aftermath of the financial crisis that it experienced a slight decline. 55% of the country owns stock. In 1998 it was 60%.

Thanks for the correction. It looks like households' direct holdings and mutual funds peaked around 2000, but stock ownership in pensions (which would include IRAs/401ks) is still going strong:

U.S. stock market ownership distribution
Ownership peaked at 65% in 2007 and fell significantly due to the Great Recession. As of 2013, the top 1% of households owned 38% of stock market wealth. As of 2013, the top 10% own 81% of stock wealth, the next 10% (80th to 90th percentile) own 11% and the bottom 80% own 8%.
We need progressive capital gains taxes so that the median wage earners have more incentive to get more stocks, and the top 10% owners pay higher rates.

They say people are conservative in the things they know best.

Because if what you know best changes too much, you aren't the expert anymore.

That's why conservatives voted in a Very Stable Genius who knows best.

It's only ever a question of alternatives! :-)

The subjects were exposed to a Fama complete information processing machine. It is not flat earth, there is no time dependency. The subjects will know more about the world then the players of fantasy games where market mechanisms are hidden.

Two things happen when one participates in financial markets in a serious manner. First, one gains an appreciation of how much information other people in aggregate have and one doesn't have oneself. That leads to a Hayekian skepticism towards central planning. Second, one becomes disciplined in trying to see reality as it actually exists, not necessarily what would be easily articulated to meet social desirability bias constraints. Internalizing the costs and benefits of being right and wrong in the form of trading profits and losses discourages fooling oneself. In turn, that leads to an impatience with political correctness.

I would bet that experience with owning a business leads to significantly less window smashing.

Not if you own a business selling windows.

"And perhaps one of the reasons our country seems to have fallen apart since the mid-90s is that mass equity ownership really died with the popping of the dotcom bubble and never really returned."

Percentage of American adults who own stock:

2007....65% peak

I would interested to know if these stats are truly equities, or any security. The prevalence of self funded retirement plans has placed more people in the market than any other factor I know of. Many retirement plans also do allow for equities as well, so that could be a confounding factor.

I know what "left" means. Does "right" mean anything except anti-left? Surely there are lots of rights, but only one left, however much its fine detail is Life-of-Brian-ish.

There's many subsets of both 'left' and 'right', obviously.

I think the original test of left v. right is still the correct one: If you were in Revolutionary France and had to pick a side, would you support the King or the Jacobins?

I'd leave France.

From this test I am absolutely "left", yet I do not often agree with the positions of people calling themselves "left" today.

A simple definition in this context will do: right-wing people generally favor lower taxes and a government that focuses on the defense of private property rights. Left-wing people generally favor higher taxes and a government that spends more resources on redistribution and social insurance programs.

Things get a bit more interesting once you start looking at attitudes toward immigration, national security and social issues but that's not necessary in this context.

The purpose of the Fed is to keep inflation in check while promoting full employment. That's funny. The purpose of the Fed is to keep stock prices rising. "Decreasing distrust in markets" is an odd way to describe this, but economists are the world's leading obfuscators. Why not write "increasing trust in markets"? Because that's not what they mean.

Isn't this just because they were given money and now have some wealth? Skin in the game gives them an incentive to support the game.

"We randomly assigned 1,560 of them to receive substantial monetary sums (£50) " Substantial? That's play money. The results are meaningless.

Have us put half our wealth into the markets; then see what happens! :-)

Tucker Carlson: "What you're watching is the ancient battle between those who have a stake in society, and would like to preserve it; and those who don't, and seek to destroy it."

Owning shares is literally having a stake in society. Owning a home even more so.

None of this is surprising. Politicians on the right, from Margaret Thatcher to George Bush (jr), have long promoted home ownership and stockmarket investment because owning a stake in society, even a small one, pushes voters' values to the right.

" even a small one, pushes voters' values to the right."

It's surprising to me how anybody can look at pictures of burning buildings, graffiti. looting of buildings and mobs hurling objects at police who have to stand there and just take it, and support that mob. Those are not peaceful protestors, those are thugs that enjoy watching the world burn.

Yes, it’s sad to see the rioting and how many people are bending over backwards to justify it. Like, if you’re angry at the police and want to graffiti a police car, I could maybe see an argument for that, but there’s absolutely zero reason to go around smashing windows of and looting businesses that had nothing to do with police brutality.

That said, it should be noted that the stock markets are up today. Last week, the one day stock markets took a dive was when Trump put out that kind of ominous tweet about China. As an equity holder, I am far more financially impacted by the kind of erratic stuff Trump is doing than these riots. So my stake in society moves me to the left.

If history is a guide, let's hope the covid stuff is over and Trump is erratic again.

Things weren’t great before COVID either. There was the 20% drawdown in late 2018. The S&P 500 did better under Obama than Trump, and the difference would be even greater if you looked at mid- and small- caps too, which have really not done well since 2018:

It's a hell of a lot harder for that growth without relying on the dead cat bounce Obama got. Most of his gain was reversion to the mean. It would be like crediting Trump with a 50% increase from March to the end of the year if the market hit 30k again.

I wonder what the CCP has done (and failed to do) that has had an order of magnitude greater impact on equity values.

I don’t recall ever seeing a major movement in US stocks as a result of Chinese policy.

If you’re referring to COVID, I’ll point out that the stock market was making new highs all the way until the last week of February. Of course, all the mistakes by the Chinese government were made in December and January. According to the Efficient Markets Hypothesis, stock markets would have already incorporated all knowledge of Chinese errors by February and concluded it was not a big deal. By the last week of February, the ball was in the US government’s court, and it was the failures of the US government that caused the stock market collapse in March.

It is difficult for the market to make projections when the public information being used are CCP lies.

Since I have a vested interest in America, I’ll take the haircut.

What these past few years has exposed is who prefers China, like universities that want my tax money while hoarding endowments larger than the GDP of small countries.

Sometimes it’s bigger than the stock market, but it’s time to bring some of the outsourcing home.

Well it’s not a zero-sum game. The Israelis in the study became more pro-peace with Palestinians after getting equity stakes because they saw that peace profits both sides. That is the same with America and China. As an equity holder, I have a vested interest in the prosperity of both countries so I reject the zero-sum mentality that is more common among the people who see everything in terms of national struggle, who are really no different than the extremist BLMs and white supremacists who see things in terms of race struggle.

We wouldn’t have what we have without the stock market. It’s paying better than the banks. But if I’m forced by law to put some into Tbills or bonds...

Or maybe they just shifted towards the party more likely to goose the "market" with stimulus and bailouts

But I was told the have-nots wanted a stake in society: a meaningful job, an education, a chance to own a home, etc. It seems they want to loot Target, North Face and Apple.

The sums were pretty small. I think this may be another experiment that cannot be replicated.

What I wonder is whether mass and diffused ownership is different, qualitatively, from concentrated, activist ownership. This was an argument in Burnham's managerial revolution - the divorce between property and control. I would wager that it is the control part of ownership, more than the actual ownership, which influence one's politics. If your only choice is buy and sell, the effects are much smaller. But this is a non-scientific argument, based on inference.

It would be socially beneficial for more middle class folk to have more "equity" in the stock market, relative to their own home. Most policies trying to get that distribution comes up against how most middle class folk would like to consume some 5 -20% more, before investing much discretionary non-consumption income into financial assets.

Semi-privatizing Social Security, allowing folk to allocate some 20% of their So Sect contribution into specific S&P 500, or Dow Jones stocks would help.

For those who don't like Soccer / World Cup Football, there's an easy way to change that. Make a $50 bet ($20?) on a team.
Suddenly, your interest goes WAY up, fast - and then you learn a lot more about the rules, and the teams... and then it's a much more fun experience. (Not as good as US Football, but much better.)

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