Anyway, good input!

Sounds like you'd be just as well off link-surfing Wikipedia?

You've ignored the broader point about distribution. The Fed show that the top 1% own about half of corporate equities and mutual fund shares. So saying that shares are held by “billions of ordinary people” is quite wildly misleading.

My point wasn’t that ordinary workers own no shares through pensions or retirement accounts. But it is a limited and very unequally distributed channel for returning productivity gains to labor. It doesn’t make “shareholder profits” equivalent to “workers’ pensions.”

The key is that the wealth generated by workers makes its way into private pockets at many stages along the chain. Much of it never even makes its way to shareholders, neither through stock value increases nor dividends.

So any manager who values his pay check will say "the index may go up, may go down. The investor's paper wealth may increase or decrease. That's not my problem! And in a market like this, I risk underperforming if I don't own this asset. So of course I'm going to buy it!"

Let's say, "If we had a tax system that captured a greater share of the increase in profits resulting from higher productivity (which mostly goes offshore and does not in fact "generate more jobs"), then we'd have no problem at all funding the pension systems, and much more."

Firstly, pension funds hold some share of stocks, but far from all. Second, pension funds hold a share of a pie that's not all that came out of the bakery. The bakery made a lot more dough, but much pie was spent (horribly mixing metaphors) to buy assets like property and private investments. So in reality pension funds hold a fraction of a fraction. Third, pension funds invested in equity is a replacement for the old pension systems of yore where companies were forced to set aside money and invest smartly to fund guaranteed income pension plans. They don't have to do that anymore. Instead they contribute to a 401(K) or similar in other countries, which lowered their costs and reduced company risk. For listed companies, those savings went to the shareholders, of which pension funds were just a fraction of a fraction.

I hope this illustrates that we, the salaried workers, see only a small fraction of the value created by increased productivity.

Correction: index funds don't have a choice. They must follow the index, and so must buy the stock.

side effect: they'll have to sell other stocks, pushing their prices and weighting in market cap weighted indexes down.

> Passive investors are unable to rapidly respond to these types of changes because liquidating portfolios will incur capital gains taxes. (?)

For some active investors, yes. For passive investors (say you through your employer's pension fund), the tax isn't the problem. It's that the market has such a short time to adjust the price of these companies before indexes are forced to include them--and so might buy them at wildly inflated prices. Then, not too long after, the early investors can sell at still-high prices as soon as their lockup periods end. It's a massive transfer of wealth from pension funds and index investors to the early investors in those companies.

(with the obvious caveat that less demand means less production, which would mean there wouldn't be a lot of surplus. But in a world where we don't burn so much oil, it probably wouldn't be worth either party closing the Strait anyway...)