In January 2021, retail traders on r/WallStreetBets initiated a short squeeze of GameStop stock, causing its share price to balloon from $17.25 on January 4th to a pre-market value of over $500 before markets opened on January 28th. (As of the time of writing, $GME is trading at $53.33 per share.) In response to the short squeeze and to the reactions of various stock-trading firms, numerous lawmakers have called for reform of the stock market. Sen. Warren (D-Ma.) wrote to SEC Acting Chair Allison Lee, expressing her deep concern that “casino-like swings in the value of GameStop and other company shares are… an example of the gamesmanship that interferes with the ‘fair, orderly, and efficient’ function of the market”.

However, one question that has gone unaddressed is the role of the stock market itself, or even securities trading at large. The phenomenon that drives stock trading is known as rent-seeking, in which an individual attempts to increase their share of existing wealth without creating new wealth. This contradicts a fundamental principle in free-market economics: namely, that selfinterested agents benefit society by creating new wealth in the form of goods and services. While stock trading can be a way to get rich quick for some, does the stock market serve the public interest as a whole?

If an entrepreneur starts a business, they do so with the expectation that they’ll make money. As a result, they have to keep track of expenses, such as labor costs and raw materials, in addition to income. Considering the cost of managing a business, how can anyone make a profit? The answer is simple: they put labor into the production of goods and services that they can exchange for money, increasing not just their own wealth but the wealth of their communities as a whole.

The stock market operates on different principles: for one, traders make money by buying and selling securities, without contributing anything to the value of those securities. This is reflected in the zero-sum nature of the stock market. When someone sells their shares, they do so with the expectation that those shares will decrease in value—otherwise, they would choose to hold on to their shares. Similar logic applies to share buyers: they expect the stock to increase in value. The conflicting nature of these interests means that someone is going to be left holding the metaphorical bag, as there is no way for both parties to benefit at once. Stock traders can increase their own wealth, but they do so at others’ expense.

These concerns can lead to real-world problems. The volatile nature of the stock market can lead to financial devastation for entire communities, and major players have room to manipulate stock prices. It was reported in 2001 that Enron Corporation, a major Houston energy company, willfully misreported the fact that it had billions of dollars in debt in an effort to keep its share price up. Once news of Enron’s misdeeds broke, it declared bankruptcy. Their share price plummeted from a high of $90.75 in mid-2000 to less than $1, leading Enron employees and shareholders to lose billions in pensions and stock prices. As it stands, the stock market is here to stay. However, these recent developments should lead us to question whether reform is truly enough.