Our debt-heavy architecture is not a thought-out tenet of academic finance. Instead, it is substantially a function of practical circumstance: the deductibility of interest payments on corporate debt from pretax profits. That simple reality makes debt financing generally cheaper than raising equity. And while there are other reasons why businesses might want to use debt, especially the investment leverage that it provides to equity owners, the tax shield and the resulting lower “cost” of debt often tip the finance scales in favor of borrowing versus putting in one’s own capital. This bias was not part of the plan. Because there was no plan. Debt’s allure emerged not from careful deliberation about an optimal corporate capital structure at the University of Chicago, but from the exigencies of financing World War I. What began as a hastily adopted wartime measure has hardened through time to become a deeply rooted expectation. A century later, we inhabit a financial world substantially shaped by this distinction between cheaper debt and dearer equity. It is a distinction that might have had some justification at the time but now leads to corporate decisions that otherwise might not make business sense…

Nearly seventy years after its creation, the S&P 500 may be fit for purpose, but it is clearly no longer the narrow one of the 1950s. While the S&P was initially a tool for measurement and understanding, it has over time become a central actor in shaping investor behavior. The widespread use of S&P-based products now actively influences the market the index was intended merely to observe. Though not a true observer paradox in the quantum physics sense, the feedback loop between measurement and subject has become pervasive. The consequences have been many, but perhaps the most significant one has been the widening gap between investment in the stock market and actual ownership of businesses through the stock market. This phenomenon, in turn, is a distinguishing characteristic of “financialization,” a criticism leveled against Wall Street in recent decades for focusing on generating financial returns regardless of, or even in opposition to, outcomes in the real economy…

The history of the U.S. stock market is often explained with colorful anecdotes. There is the gathering of the NYSE founders by a buttonwood tree in lower Manhattan in 1792, Jay Gould cornering stocks in the nineteenth century, shoeshine boys handing out tips in 1929, and Jerry Garcia’s deathbed reaction to the Netscape IPO. Those…