Outlook: Lottery investment

IF EVEN the Governor of the Bank of England thinks we should be filling our boots with technology stocks, surely all those private investors piling into the market with abandon must be on to something? Eddie George's comments were perhaps a little over-interpreted - contrary to some reports, that's not what he meant at all really - but since Alan Greenspan, chairman of the US Federal Reserve, seems belatedly to have bought the new economy story, why not other central bankers too?

Mr Greenspan has become an enthusiast for both the creative destruction loosed on the economy by new technologies and for the way the stock market has embraced them. He has, for some years, now been making speeches that flag the possibility of radical economic change.

In one of them last month, he compared investing in high-tech stocks to buying a lottery ticket. This is an intriguing idea that bears further examination, for it would suggest that the present mania for high-tech shares may not be as dangerous as it seems. In a lottery, people are willing to pay far more than the expected value of their winnings for the remote chance that they might hit the jackpot.

Similarly, Mr Greenspan suggested, investors are willing to put more than the amount on which they could expect a reasonable return into stocks that give them a small chance of making a fortune. This is not, of course, normal, rational investment, but much more akin to a gamble in which the punter knows he is much more likely to lose than to win. Like a lottery, in which the only consistent winner is the lottery company, not the punter, the aggregate returns on the technology bubble are bound to be disappointing. The parallel goes a bit further, perhaps. Because a large chunk of the proceeds go to "good causes", Britain's National Lottery is, in effect, a public levy used to finance projects for which people would be unwilling to pay tax in the usual way. It could be argued that the same is true of the technology boom.

Most of the money being invested in dot.com and telecoms companies are going to projects that are building the economy and infrastructure of tomorrow. The investment returns might turn out to be lousy, but, like the railway boom in the middle of the last century, the craze will leave behind something that transforms the economy and society, and generally enriches both.

So, on reflection, no wonder policymakers want to encourage investment in technology. It means the financial markets can, for once, live up to their place in economic theory as a device for applying capital to its most efficient use. Unfortunately, that's not the way most of us would view stock market investment. Stock market investors aren't looking, magnanimously, to give away their capital for the general good of humanity, but for personal enrichment. Most ordinary punters gamble only as much as they can afford to lose. The danger of the present stock market mania is that people are doing much more than that. If they are, then there will be a frightening degree of wealth destruction when the music eventually stops, as surely it must.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Graduate Recruitment Resourcer

£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence