Are long-term investments a good way to help the future?

Let me see if I understand what you are saying. People have set up supply chains that can produce popcorn from nothing, so when you buy popcorn then it sends a message to this supply chain that it should create one more, and then it does. So it sounds like you are saying there is a similar type of supply chain for the abstract good "use some resources now to create more resources in the future". When you buy a loan or equity it sends the signal "we need one more of those" and so one more ends up being produced.

Of course I was not saying "most of the time when people buy something, it makes them worse off", but I was concerned that this might happen often enough that if the way investment works is by initiating a long chain of transactions, then maybe there is a high likelihood that at least one of those transactions is a bad one.

What I understood from your comment is that we can probably ignore this concern at least until the point where people are no longer just trading loans or equities. Because there may be a bunch of people that you have changed who they are buying/selling loans from, but not how many they bought/sold because they were pretty sure about how many they wanted to buy/sell and won't change that in response to the infinitesimal change in market price. The one person who does change what they do is not a typical buyer/seller, but someone who was just on the edge of deciding what to do, which means that the money now or the more money later are of roughly equal value to them. This presumably means that they have a way of getting the more money later from the money now that doesn't involve just trading loans, so then they will do that.

So, this does make me update in the direction of that the value created is mostly real, but I still don't feel completely comfortable with it. "Use some resources now to create more resources in the future" is still pretty abstract, it would be nice to have a better idea of what is a typical example of it, and how there could be a supply chain for it similar to the supply chain for popcorn. Although maybe it is wrong to try to focus on examples.

Also if I've understood you right, then cata's comment is almost completely a red herring? It seems like your argument would apply even if you were just trading abstract financial instruments with a defined interest rate, without any direct connection to companies.

We can even say something more. When they manufacture popcorn, they do so because they expect to sell popcorn. If you choose to be the type of person who would buy popcorn, this is plausibly correlated to others' similar decisions to buy popcorn and to the perception of demand for popcorn by those making popcorn. One way they observe popcorn demand is through popcorn sales, and there are many others. So if you buy a unit of popcorn, you are not only causing them to create the popcorn to replace it (since they now own less popcorn to sell to others or future you) but you also raise anticipated future demand for popcorn (and you'd also do that in any number of other ways). And you can make a case that you actually acausally caused the manufacturing of more popcorn in the past, as well. Markets can be weird, man.

If you're willing to buy or own equity in some particular company, your demand is driving up the price for that company's equity... As a result, they can acquire capital to do whatever kind of presumably-profitable endeavor they can think of, presumably creating real economic value...

I think Tesla is a good example of this.

They're not profitable, and haven't been since inception (aside from a couple of unusual quarters here and there). But the money wasn't lost so much as spent on increasing capacity each year. And that spending has been working -- their revenue has grown on average 55% per year since 2013, the first full year of Model S production. (That's a lot!)

They've had the cash to spend more than they made in part by selling additional equity every year or two. (They've also taken out loans.) For example, last March, Tesla raised over a billion dollars by selling stock and convertible notes.

They're able to do that only because investors like me believe in the long-term vision, expect the company to eventually be profitable, and are willing to buy and hold the stock in the meantime.

1. If I understand right, according to this model if the company doesn't own any of its own equity and doesn't plan on issuing new equity, then the value is lost?

2. It sounds like I can paraphrase the argument as saying that it is better for companies to have resources than individuals, because they will use them to produce more resources whereas individuals will not. Is that right?

So, this is an important point and one which is I think particularly relevant to short-term investing. I've added a link in the OP to a summary of the debate regarding whether short-term investing is good from an EA perspective.

However, I think when you talk about long-term investing as I am in this post, the situation is different. There are opportunities for effective charity now, but we don't really know whether they will still exist centuries from now. There is also the issue of how to identify these opportunities long after you are dead, though I suppose you can pick some EA institution to give the money to and hope that they are still around by then (and that their values haven't drifted in a bad direction).

If I spend the $1000 on popcorn, rather than investing it, the $1000 doesn't evaporate, it merely moves to someone else. And then that person can do something useful with it. I don't know why this should create less value then long term investment, but then my Economics 101 is lacking too.

IANAE, but it seems to me that if you want to think about whether value was created or lost, you shouldn't focus on whether the dollars evaporated or not. Whether there should be more or fewer dollars is a question about the optimal money supply, and it's not clear that more is always better.

Instead, it seems to me that one should think about money as a communication tool. Whenever money is spent or invested, it tells the economy, "More of this, please!"

So if you spend $1000 on popcorn, you're incentivizing more popcorn. If you invest it in a speculative venture, you're saying, "More of this kind of speculative venture."

Alternatively, you could ignore all the money, and look at what's happening in the physical world -- ah, this person got food, this person got a car, etc.

So if you want to know whether $1000 is better spent on popcorn, or long-term investments, it seems to me that you'd want to ask which is better for the world: a marginal increase in the supply of popcorn, or a marginal increase in long term projects. I think the answer to that question is not trivially obvious -- it depends on how much new popcorn you get for a marginal $1000 spent, and on how much new long-term planning, and also on what the supply of those things was like when you started, compared to what would be optimal.

But my guess based on the existence of instant gratification bias is that long-term projects are generally underinvested in, and so the additional long-term investment is better for the world, on the margin. (I do like popcorn though.)

No, investing $1000 creates a lot less than $1000 of value, but, usually, the value is more than 0 (though it can be 0, or even negative).

Wait, you seem to be conflating the concept of investing $1000 with the concept of making $1000 by investing. Certainly if you invest $1000 then you will make a lot less than $1000, and may even lose money. But the question is whether the money that you make or lose is representative of real value added or lost in the world.

In the popcorn example there's no analogue of "the money you make by investing" because spending money on popcorn doesn't make you earn more money. This means that what I wrote about how rational decisionmaking and no negative externalities implies that real value has been created, doesn't apply to the popcorn case. I agree that if you buy popcorn, there is a chance that the person you buy it from will decide to invest the money, in which case the value ends up getting created anyway. However, it seems that this is not the only thing that could happen, and also if you are making truly long-term investments (e.g. centuries) then the other person will almost certainly not invest for as long as you would have.

So, my understanding of the economic theory is that burying the money under a mattress should create capital that grows at the rate of GDP growth, whereas investing it should create capital that grows at the (faster) rate of the stock market. However, this doesn't answer the question I was trying to address in this post, which is how much should we trust the economic theory? My intuition is that the better causal models we can come up with to explain why the theory works, the more we should trust it, as long as those causal models don't predict that the theory is likely to break down when you apply it to reality. I don't really see anything that I would call a causal model in your comment.