How do rich people make money in the stock market if it's a "scam?" And how do politicians use the stock market to take money from anyone? (usually they use taxes to do this) What about index funds, which usually have proven returns and require no special knowledge?
Definitions:
scam (verb): to obtain (something, such as money) by a scam
scam (noun): a fraudulent or deceptive act or operation
together: to obtain (something, such as money) by a fraudulent or deceptive act or operation
Rich/powerful people obtain money and influence by fraudulent or deceptive operations, via the stock markets, from less powerful people, by convincing them that they should participate in said market, either as small investors or indirectly by having their banks, insurance, and pension invest into the stock market.
The rules, and conditions on the stock market are in such a way that they reward power and wealth with further power and wealth. E.g. being able to invest into better locations, infrastructure and connections for HFT, being able to hire better analysts and more mathematicians, invest into satellite data and machine learning to track cars in parking lots to estimate the results of earnings calls, pay lawyers and lobbyists to change influence politics and change laws.
> And how do politicians use the stock market to take money from anyone?
Insider knowledge.
> How do rich people make money in the stock market if it's a "scam?"
They have an army of traders and their job is to buy and sell non stop, taking advantage of smaller players who think the game is fair, until a profit appears.
> What about index funds, which usually have proven returns and require no special knowledge?
Why don't everyone buy into index funds then (genuine question) ?
They should, unless they have an “edge” over others, such as inside information or analysis that others did not do or did incorrectly, such as checking satellite photos of parking lots (in days prior to delivery).
If you do not have an edge, then you are simply gambling. But I would say craps is more fun. Low cost index funds like VOO are just true inflation protected securities over 5+ year timeframe, in my opinion, because you know the US federal government is going to pull out all the stops to prevent its biggest organizations from collapsing.
I'm still not sure in what form this "taking advantage" happens. I think the stock market provides unique opportunities in how one can start small and grow with additional capital, knowledge or time when it becomes available.
> Why don't everyone buy into index funds then (genuine question) ?
For a variety of reasons: some find it boring, some think they can beat the index, some get stock grants and stick to what's familiar, some buy stocks that they hear about (because their friends do), etc. Even those who (mostly) buy into index funds may invest a chunk of their portfolio into riskier assets.
There's actually been a bunch of articles over the last year or two talking about how the large number of passive investors in index funds is causing an issue for price discovery of individual stocks.
And everyone doesn't do it because some people are ok with taking more risk for more return.
Well not politicians quite, but IMHO western bond buying is driving up asset values and fundamentally increasing economic stratification. PCE is a trash measure. It's like our monetary policy says "make sure workers keep working, make sure their feedstuffs stay cheap, and don't worry whether they have a meaningful opportunity to acquire ownership of the economy."