The Federal Reserve and other central planners have worked overtime to lead the world back to "recovery" from the depths of the 2008 financial crisis. Using one of their main signaling indicators, they've succeeded: stock market indices are hovering near all-time highs.
But, as has been often discussed here, are we really better off for it?
Recent survey data from Bloomberg show that 4 out of 5 Americans don't feel any more financially secure as a result of the stock market rescue. 62% believe the country is headed in the wrong direction:
“I keep hearing in the news and reading in the paper that it’s getting better,” said Patricia Picerno, 52, of Sandy Hook, Connecticut. “That’s for people who have money; for the person in the middle who doesn’t have any money, I don’t think it’s changed at all.”
"I don't think there’s anything real behind it,” said David Skelly, 47, a policeman in Kankakee, Illinois. “It’s just an artificial boom.”
Such results communicate a profound and deep mistrust of Wall Street, and deservedly so. By failing to hold Wall Street even marginally accountable for its financial and sometimes criminal sins, the current and prior administrations have aided and abetted the shredding of market and political trust in America.
So what can be done about the fact that investing with Wall Street is sometimes a sucker’s game in which we have little or no trust? How do we find hope and meaning in a world where the powerful look out for themselves first, second, and always?
In this week's podcast, Chris talks with Michael Shuman, author of Local Dollars Local Sense: How To Move Your Money From Wall Street to Main Street & Achieve Real Prosperity. Shuman has written eight books on community economics and believes that deploying your investment capital locally offers the best financial return prospects vs investing it in traditional stocks and bonds -- plus yields an additional valuable community resilience multiplier that Wall Street doesn't:
Let’s set aside the strange and mystical qualities of money that are printed out of the Federal Reserve and are kind of the magic wand of the national government. But at the local level, there are real resources—real wealth, real economic activities that are taking place—and people are using that money in terms of buy things from those businesses and invest in those businesses. The more that people can localize their transactions and keep their money circulating within their communities, while they can never completely disconnect from the Rube Goldberg machine of the global economy, they can insulate themselves (...)A lot of the work that I do is on the economic virtues of locally owned business. And we now have a really huge body of evidence that communities with the high density of locally owned businesses prosper. There was nice regression analysis published in the Harvard Business Review in the summer of 2010 that showed that in communities with a lot of local businesses, you had the highest probability of per capital job growth. We have a study that came out of the Federal Reserve in Atlanta last September looking at all counties in the United States showing that those counties with the highest likelihood of finding a local business have the highest per capita income group and the highest probability of eradicating poverty. So these are all, I think, very powerful data that ought to lead one into—all things being equal—to put your money into a local business.
There is a widespread misunderstanding that local small business is not very profitable. And in point of fact, we know from statistical abstract in the US that sole proprietorships are three times as profitable as C corps with partnerships falling in between. And if you look at the latest data in Canada, which is much more refined, it shows that the most profitable companies in Canada have ten to twenty employees and they have about double the profitability of the firms that are being traded on the Toronto Stock Exchange where everyone has their money. So if we can figure out a way to get investment in local businesses right, this is where people are going to get the best rates of return.
Click the play button below to listen to Chris' interview with Michael Shuman (43m:48s):
This is a companion discussion topic for the original entry at https://peakprosperity.com/michael-shuman-the-benefits-of-deploying-investment-capital-locally-vs-wall-street/