Ethical Issues of StocksMr. Way, Economics, 4-26-12

12.2.9 Describe the functions of the financial markets.

12.1.4 Evaluate the role of private property as an incentive in conserving and improving scarce resources, including renewable and nonrenewable natural resources.

Ethical Issues of Stocks

• The rich get richer

• Profit maximization – at what cost?

• Corporatism

• Insider trading

The Rich Get Richer

• In order to buy stocks, you have to have money.

• The more money you have, the more stocks you can buy and profit from.

• This exponential growth of wealth causes tremendous inequality between classes.

• Worst of all, the richest of all make the most money without a modicum of work.

Profit Maximization

• Firms achieve profits by lowering costs.

• Costs include:– Environmental protections– Workers’ rights, pay, # of workers– Lawsuits for company wrong-doing– Taxes (which pay for social programs)

• Publicly traded firms are much more likely to be concerned ONLY with profit maximization

Corporatism

• A firm that achieves monopoly status is able to squeeze the maximum profit from a market.

• Therefore, profit maximizing firms will try to become monopolies by bankrupting or buying-out competition.

• Consumers are left with less choice, and giant, powerful corporations develop.

Insider Trading• Although it is illegal, the potential for profit

is so great that it is very common. Plus, it’s hard to detect and prove.

• The rise of giant corporations concentrate financial power in the hands of a small group of extremely wealthy individuals.

• Those few could share info and plan strategies to manipulate their companies’ rises and falls for maximum stock profits.

Conclusion

• Although the stock market definitely promotes economic growth, it also creates a variety of serious ethical dilemmas for society to address.

1/2-Page Writing Prompt

• Write a 1/2-page (single-sided, single-spaced) response to the question:

• Would society be better off without the stock exchange?

(suggestion: explain both positive and negative aspects of stock markets and conclude by making an overall evaluation)