@blherrou maybe. but maybe it's better to compare indexing to explicitly low-information forms of investing. if you aren't investing based on information about firm prospects then, sure, paying an active manager high fees who probably also lacks any real new information is a bigger ripoff to the end investor. but we have securities for low information investors, from CDs to bonds. going for equity returns on no information is a bit... rentierish, perhaps.

@blherrou (btw, i'm not condemning individuals who invest via index funds and ETFs. that's sometimes wise, sometimes not, at a personal level. but at an architectural level, i'm not sure why we want a financial system in which ordinary people with little information hold equities, and come to make political demands of outsize returns. the Obama administration was very explicit about measuring its economic performance in equity returns, a very bad idea.)

@blherrou (this is an old view of mine: why should no-information investors expect equity returns free-riding off of pricing work by active investors, whose returns their presence diminishes? it occurs to me now that in theory i can make a case for this kind of investing in terms of systemic risk. diversified equity investors bear first-loss on systemic risk, justifying some outsize return…

@blherrou if it leads to structuring more of the aggregate investment portfolio as equity rather than debt, that reduces the risk of disruptive debt defaults. we're better off if our aggregate cap structure is tilted towards equity rather than debt, indexing could encourage that. in practice, though, i'm still skeptical. if this was our rationale, we'd want financial rules and procedures to encourage regular new equity issuance by existing firms, and…

@blherrou we'd expect to new primary-market equity investment -- ie not purchases of existing shares -- to exceed payouts. instead our current practices treat after IPO primary-market-confusingly-called-"secondary"-offerings as rare, regulated events, so the market treats them as confessions by managers of overvaluation, so they are infrequent.)

@blherrou (in other words, for this version of socially useful low-information diversified investing to make sense, it should lead to firms retiring debt and issuing equity into the market. but we much more often see debt-financed buybacks of equity, exactly the opposite, during this era of the index investor. part of that is that it's been a low interest rate era! but i think we'd need to regulate quite differently if we wanted to use indexing to promote systemic derisking.)