Two essays crossed my desk on the same day this week, and neither one mentions asset management. Cory Doctorow published a piece arguing that Google, the internet’s dominant intermediary, has become an “absentee landlord,” too big to fail, too big to jail, and above all too big to care (Pluralistic, August 2026). The same morning, Keyana Sapp of Worse on Purpose published her publication’s independence charter, built around a single devastating observation about product reviews: “the moment a recommendation pays the recommender, it stops being a recommendation.” Past that point, she writes, it’s simply an ad.
Doctorow is writing about search. Sapp is writing about air purifiers (I was reading it originally because as a frequent outdoor runner I kind of obsess on air quality). But together they’ve described, more precisely than most finance writing manages, exactly what has happened to the machinery that allocates the world’s equity capital.
This is an essay about index providers, passive investing, and what happens to an economy when its largest capital-allocation mechanism is a measurement instrument that got promoted, without an interview, without a mandate, and without a fiduciary duty, into the most powerful investment committee on Earth.
I run an active equity firm, so you should discount my incentives accordingly. I’ll try to earn back that discount honestly: by presenting the strongest case for the indexed status quo before explaining precisely where it fails. When you come at the crown, you’d better be airtight.
The intermediary’s curse
Start with the pattern Doctorow borrows from Tim Wu: every intermediary begins by serving the two sides it connects, and every sufficiently dominant intermediary eventually discovers that its position between those sides is more profitably exploited than honored. Wu calls the end-state “Main Character Syndrome.” The intermediary stops being the stage and starts being the show.
Sapp documents the same disease in consumer media. Product reviews were once a service to readers. Then came the affiliate link, which is a tracking URL that pays the reviewer a commission on every purchase, and the customer quietly changed. She cites research showing that just 16 media companies, operating over 580 brands, hold the first page of Google for 85% of ten thousand product-review searches, churning out “best-of” lists faster than anyone could actually test products. The recommendation engine still looks like it serves the reader. Its revenue says otherwise.
Now, think about comparing that pattern against the benchmark index.
What a benchmark was, and what it became
A stock index began life as a measurement instrument. Charles Dow built his average in 1896 to describe the market, the way a thermometer describes a fever. For most of the twentieth century, that’s what indices did: they were the yardstick against which active managers were judged. Useful, neutral, boring.
Then the money started tracking the yardstick. First at a trickle after Bogle’s 1976 launch of the first retail index fund; then a flood. By the end of 2023, passive funds held more assets than active funds in the United States for the first time, roughly $13.3 trillion, and globally, passive AUM (assets under management) overtook active in 2024, and the share is still climbing.
Here is the pivot point nobody, possibly not even Bogle, deliberately chose: the moment trillions of dollars contractually replicate an index, the index stops being a measurement and becomes an allocation. The thermometer is now setting the temperature. Add a company to the S&P 500 and index funds must buy it, whatever the price. Remove it and they must sell. The yardstick has become one of the largest marginal buyers of equities in human history.
And who runs the yardstick? An oligopoly. The five largest index providers, S&P Dow Jones, CRSP, FTSE Russell, MSCI, and Nasdaq, control roughly 95% of the U.S. equity ETF market, with an industry concentration (HHI ~3,300) that the Justice Department’s own guidelines classify as highly concentrated. Index providers collectively pulled in more than $6.5 billion in revenue in 2023 at profit margins of 60–70%; the S&P 500 alone is tracked by trillions of dollars, generating licensing fees for S&P Global worth hundreds of millions per year.
Read that margin figure again, and then read Sapp’s sentence again. Index providers are not paid for the index being right about anything. They are paid for the index being tracked, and licensing fees scale with the assets replicating the product. The recommendation pays the recommender. Cap-weighting, then, is the affiliate link of asset management.
Oxford business law scholars studying this arrangement note the deep strangeness of it: the flagship products are “merely market-capitalization-weighted portfolios without meaningful creative input,” yet they command software-company margins because the brand is embedded in mandates, investment policy statements, and the plumbing of retirement itself. That is not a moat built from insight. It’s a moat built from default.
The plumbing allocates so you don’t have to, and effectively, you can’t
Defenders of indexing describe it as the democratization of choice. Look closely and you’ll find remarkably little choosing going on.
At the retail level, allocation happens before any decision is made. Target-date defaults, 401(k) menus, robo-advisors, the choice architecture routes household savings into cap-weighted index trackers as automatically as Google’s answer box routes a query to a product that has paid to be your top result. You didn’t pick five hundred companies. You picked a box on an HR form, and a committee in Manhattan picked the companies.
The institutional version is subtler and, I’d argue, worse. Somewhere in the last few decades, tracking error, historical performance deviation from a benchmark, was enshrined as the working definition of risk itself. Investment policy statements are written against benchmarks. Consultants screen against benchmarks. Careers end over benchmarks. The result is that even nominally active institutional money orbits the index at low altitude, and the index committee, an opaque, discretionary body inside a for-profit licensing company, owing fiduciary duty to no investor anywhere, has become a de facto capital allocator at civilizational scale.
When SpaceX went public in June 2026, the yardstick didn’t merely measure the event; it redrew its own markings to admit it. Nasdaq and FTSE Russell amended their index inclusion methodologies in early 2026, in explicit anticipation of the mega-listing, cutting the waiting period from three months to roughly fifteen trading days, and SpaceX entered the Nasdaq-100 on July 7, 2026, fifteen trading days after listing, a change that triggered an estimated $22 to $27 billion in automatic buying across Nasdaq-100 and Russell index trackers. Even CME Group’s own commentary conceded that SpaceX’s price discovery “may be driven less by fundamentals and more by supply-demand imbalances.” The index wasn’t measuring the market. It was moving it, after first amending itself to do so.
Then there’s stewardship, where Doctorow’s absentee-landlord metaphor stops being a metaphor. The Big Three passive managers, BlackRock, Vanguard, State Street, together constitute the largest shareholder in roughly 88% of S&P 500 companies and cast about a quarter of the votes at those companies’ shareholder meetings. The stewardship teams doing that voting number in the dozens of people per firm, casting votes at over 40,000 shareholder meetings annually, a workload that makes genuine company-level judgment arithmetically impossible and standardized checklist voting inevitable. The results look like what you’d expect from a landlord who never visits the property: in the 2025 proxy season, the Big Three supported 98.7% of management-sponsored resolutions and 7.5% of shareholder-sponsored ones. They cannot sell, the index forbids it, and they will not dissent. That is not ownership. That is absenteeism.
The forward production function: the case for why this even matters
So what does it do to an economy when the marginal equity dollar is allocated this way? Four mechanisms, each independently documented, all pushing the same direction.
First: cap-weighting allocates capital in proportion to the past and calls it prudence. A capitalization-weighted index is, definitionally, a momentum machine pointed backward: it directs the most new capital to whatever has already grown largest. There is no mechanism inside it, none, that asks whether a company’s assets have a future. It is the industrialization of extrapolation.
Second: passive growth degrades the price signal everything else depends on. Grossman and Stiglitz showed in 1980 (“On the Impossibility of Informationally Efficient Markets,” American Economic Review) that prices are only informative because someone is paid to make them so; if nobody gathers information, prices can’t reflect it. Every dollar migrating from research-driven strategies to replication shrinks the aggregate budget for figuring out what companies are actually worth. Related work by Haddad, Huebner, and Loualiche (“How Competitive Is the Stock Market?”) finds that the rise of passive investing has made aggregate demand for stocks measurably less elastic, meaning fewer investors stand ready to trade against mispricing when it appears.
Third: in an inelastic market, the distortion compounds where the money lands. Gabaix and Koijen’s “Inelastic Markets Hypothesis” finds that a dollar of flow into equities raises aggregate market value by roughly five dollars, because most holders, index funds, pension mandates, target-date glide paths, are constrained and can’t lean against the flow. Now combine that multiplier with cap-weighted routing: the mechanical flow disproportionately inflates the largest incumbents, cheapening their cost of capital relative to challengers for reasons that have nothing to do with their prospects, fundamentals, or even what the company does. Flows became the fundamentals, and the incumbency collects the fees.
Fourth: universal ownership may be quietly softening competition itself. Azar, Schmalz, and Tecu’s Journal of Finance study found that common ownership by overlapping institutional investors was associated with meaningfully higher airline ticket prices, implied concentration increases ten times larger than antitrust authorities’ threshold for presumed market power. A firm whose largest shareholders also own all of its competitors faces blunted incentives to compete, invest, and disrupt. (This literature is genuinely contested; a 2022 Journal of Finance paper disputes the airline findings, and Azar’s own later work suggests economy-wide common ownership may cut the other way, but the mechanism is exactly the kind of thing you’d want someone to be watching, and the watchers own the airlines.)
There’s a name for this arrangement, and it isn’t a flattering one. Peter Thiel built a worldview on the claim that “competition is for losers,” that monopoly is the natural aspiration of any serious business. His defense was that monopoly profits fund invention. The index complex has arrived at Thiel’s destination without his alibi: sixty-point margins on a sorting rule, distributed by an oligopoly of three, resting on an ownership structure that quietly holds Thiel’s thesis on behalf of shareholders who never had to adopt it, because when you own every firm in an industry, competition among them is just money leaving your portfolio. Thiel’s monopolism at least required a founder with intent. This one runs on autopilot, wearing Bogle’s humility as a costume.
Stack the four together and you get a coherent, uncomfortable picture: an allocation machine that funds the past at a subsidy, starves the price system that’s supposed to correct it, and defangs the ownership function that’s supposed to discipline it. For those of us who think the defining economic fact of this century is a once-ever transition in how civilization powers, feeds, moves, and heals itself, there’s a fifth consequence that follows from the first: a backward-pointed capital allocator will, by construction, keep funding the legacy economy’s capital expenditure until physics, not the index committee, forces the writedown. The index cannot see a stranded asset coming. Seeing things coming is precisely the function it deleted.
The case that index tracking is better: steelmanned, because a credible thesis requires it
Everything above is the prosecution. Here is the defense, argued the way its best advocates would argue it, because an argument you haven’t tried to lose isn’t one you’ve won.
The cost revolution was real, and it was enormous. Passive investing collapsed the toll on intermediating household savings from roughly one percent a year to a few basis points. Compounded across trillions of dollars and multiple decades, that is one of the largest peacetime transfers from the financial sector back to ordinary savers ever engineered. Whatever indexing costs the economy in allocative precision, it must be netted against what it returned to households in fees not paid. A cheaper pipe is itself a productivity gain.
Much of what passive displaced wasn’t price discovery, it was theater. The pre-index world was not a golden age of informed capital allocation. It was heavily populated by closet indexers charging active fees for benchmark-hugging portfolios. Passive didn’t kill research so much as it killed fake research, and there’s a respectable argument that this was a quality filter: the active management that survives cheap beta must actually differentiate to justify existing.
Grossman-Stiglitz describes an equilibrium, not a death spiral. As the passive share grows, the reward for genuine information gathering rises, because the remaining informed dollar has more price-setting influence. On this view the market doesn’t need more active managers; it needs fewer, better ones, properly paid by the inefficiencies indexing creates. (You will notice this argument is structurally flattering to concentrated, high-active-share fundamental investors. I noticed too. It being convenient for me doesn’t make it wrong, but you should know I checked.)
The secondary market may matter less for real investment than the critique assumes. This is the strongest arrow in the defense’s quiver, so take it seriously. Corporate investment is financed overwhelmingly from retained earnings and debt, not from issuing shares; net equity issuance in the U.S. nonfinancial corporate sector has been negative for roughly two decades, as buybacks exceed new issuance. Meanwhile the primary markets that actually form new capital, venture, growth equity, project finance, credit, remain intensely, sometimes pathologically, active. If public cap-weighting mostly reshuffles ownership claims on existing assets rather than directing new investment, its damage to the forward production function is second-order.
And broad, cheap ownership has a return the efficiency ledger doesn’t capture. Index funds put tens of millions of households on the right side of the capital share of income for the first time. In an era when the gap between asset owners and everyone else is a live civic wound, that’s not nothing. It may even be load-bearing for social cohesion, which, if you’ve read anything else I’ve written, you know I consider an input to the economy, not a decoration on it.
That’s the honest best case: indexing as a massively cheaper pipe that purged the pretenders, concentrated the rewards for real research, left true capital formation to markets it doesn’t touch, and broadened ownership of the productive economy along the way.
Where the defense fails
It fails in one place, and the place is load-bearing: secondary-market prices are the signal every other market steers by.
Concede the whole net-issuance point. Concede that companies fund capex from cash flow and that venture capital forms the new stuff. All of it still navigates by public prices. Venture investors underwrite to public comparables and exit into public markets. Boards approve projects against hurdle rates derived from equity costs of capital. Executives, paid overwhelmingly in stock, allocate years of their companies’ resources in whatever direction the ticker rewards. Lenders mark collateral to it. If the public price of the incumbency is inflated a flow-multiplied five-for-one by mandate-driven money that never asked a forward-looking question, then every one of those downstream decisions inherits the error. The corruption isn’t contained in the secondary market. The secondary market is the map the rest of the economy uses to navigate, and the defense has merely proven that we are driving into a ditch because the cartographer is blind, not because the engine is broken.
Likewise the cost argument, which is true but incomplete. The fee savings are real, countable, and celebrated annually. The allocative cost, the challenger that stayed capital-starved, the incumbent capex that flowed into assets a decade of physics will strand, the competition that softened under universal ownership, is diffuse, unattributed, and appears on no one’s statement. We ran this experiment before, with credit ratings: outsource judgment to an oligopoly of licensed measurers paid by volume rather than accuracy, embed their output in every mandate, and wait. In 2008 we learned what the yardstick was worth. The index oligopoly has better margins than the rating agencies ever did, and a bigger book.
So the steelman narrows the claim; it does not defeat it. The refined claim is this: indexing’s efficiency gains are real and were captured in its first act; its allocation costs compound in its second act, and they compound fastest precisely when the economy needs to reallocate most. In a static economy, a backward-looking allocator is merely inefficient. In an economy mid-transition, where energy, materials, transportation, water, and biology are all re-platforming at once, a backward-looking allocator is a bet against the transition, made with other people’s retirements, collecting licensing fees all the way down.
What follows
I won’t insult you with a pitch; you can see where I sit. But three conclusions seem to me to survive contact with the strongest counterarguments, and they’re actionable whether or not you ever own an active fund.
1. Know who’s allocating your capital. If your equity exposure is cap-weighted, your investment committee is an index committee: unelected, unaccountable, paid by tracked assets, and structurally indifferent to whether the economy it’s funding can persist. That may still be a trade you want. It should at least be a trade you know you’re making.
2. Distinguish the pipe from the map. The genuine achievements of indexing, low cost, broad access, tax efficiency, are properties of the vehicle. The failure is in the weighting: the decision rule that says yesterday’s market cap is tomorrow’s opportunity. Those are separable. Cheap, diversified, forward-weighted exposure is not a contradiction in terms; it’s just not what the oligopoly is licensed to sell.
3. Price the assumption. Every cap-weighted dollar embeds a forecast, whether its owner knows it or not: that the companies which dominated the last economy will dominate the next one, in proportion. That is not a neutral, riskless default. It is the single largest active bet in the world, and it’s simply the only one that never has to justify itself, because the yardstick that would measure it is the one making it.
Doctorow ends his essay by calling Google a Bizarro-world Spider-Man: great power, no responsibility. The index complex has arrived at the same place. Nobody rigged anything. Nobody had to. We simply let a measurement instrument compound into a sovereign, kept calling it passive, and agreed not to notice that the thermometer had been setting the temperature for years.
The market still needs a scoreboard. It just needs a scorekeeper who doesn’t take a cut of the points.
Nothing herein is investment advice; it is an argument, which is different, and better.
Sources and further reading
An, Yu, Matteo Benetton, and Yang Song. “Index Providers: Whales Behind the Scenes of ETFs.” Journal of Financial Economics (2023). sciencedirect.com/science/article/pii/S0304405X23001174
Azar, José, Martin C. Schmalz, and Isabel Tecu. “Anticompetitive Effects of Common Ownership.” The Journal of Finance 73, no. 4 (2018): 1513–1565. onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12698
Azar, José, and Xavier Vives. “Revisiting the Anticompetitive Effects of Common Ownership.” VoxEU / CEPR. cepr.org/voxeu/columns/revisiting-anticompetitive-effects-common-ownership
CME Group. “The SpaceX Mega-IPO: Why Index Choice Matters.” June 2026. cmegroup.com/articles/2026/the-spacex-mega-ipo-why-index-choice-matters.html
CNBC. “Passive Investing Rules Wall Street Now, Topping Actively Managed Assets.” January 18, 2024. cnbc.com/2024/01/18/passive-investing-rules-wall-street…
CNN Business. “SpaceX Is Joining the Nasdaq 100. Here’s What to Know.” July 7, 2026. cnn.com/2026/07/07/economy/spacex-nasdaq-100-stocks
Dennis, Patrick, Kristopher Gerardi, and Carola Schenone. “Common Ownership Does Not Have Anticompetitive Effects in the Airline Industry.” The Journal of Finance (2022). onlinelibrary.wiley.com/doi/abs/10.1111/jofi.13176
Doctorow, Cory. “Google Is a Scammer’s Paradise.” Pluralistic, August 2026. pluralistic.net
Governance Intelligence. “The Quiet Power of the Big Three: A New Era of Corporate Governance.” governance-intelligence.com/shareholders-activism/quiet-power-big-three…
Gabaix, Xavier, and Ralph S. J. Koijen. “In Search of the Origins of Financial Fluctuations: The Inelastic Markets Hypothesis.” NBER Working Paper 28967 (2021). nber.org/papers/w28967
Grossman, Sanford J., and Joseph E. Stiglitz. “On the Impossibility of Informationally Efficient Markets.” American Economic Review 70, no. 3 (1980): 393–408.
Haddad, Valentin, Paul Huebner, and Erik Loualiche. “How Competitive Is the Stock Market? Theory, Evidence from Portfolios, and Implications for the Rise of Passive Investing.” Working paper (2021).
Institute of Business & Finance. “BlackRock, Vanguard, State Street: The Big Three Explained.” 2026. icfs.com/specialists-desk/big-three-blackrock-vanguard-state-street
Oxford Business Law Blog. “Can You Take Me Higher? How the Big Three Benefit from the Dominance of Index Providers.” June 2024. blogs.law.ox.ac.uk/oblb/…/can-you-take-me-higher…
Palladino, Lenore. “Do Corporate Insiders Use Stock Buybacks for Personal Gain?” Roosevelt Institute Working Paper (2019). rooseveltinstitute.org/…/RI_Corporate-Insiders….pdf
Red String. “Three Firms Own Everything: BlackRock, Vanguard, State Street.” 2026. red-string.ai/money-blackrock
Sapp, Keyana. “On Independence.” Worse on Purpose, August 5, 2026. worseonpurpose.com.
Seeking Alpha. “SpaceX to Join Nasdaq-100, Effective July 7, 2026.” June 27, 2026. seekingalpha.com/news/4607865-spacex-to-join-nasdaq-100…
SpotGamma. “SpaceX IPO Index Inclusion: How Rule Changes for SPY, QQQ, and IWM Force Index Funds to Sell Stocks and Buy SpaceX.” May 2026. spotgamma.com/spacex-ipo-index-changes-spotgamma
State Street Global Advisors. “Closing Time: How Passive Investing Is Reshaping Equity Market Microstructure.” January 2026. ssga.com/…/how-passive-investing-reshaping-microstructure
Thiel, Peter, with Blake Masters. Zero to One: Notes on Startups, or How to Build the Future. Crown Business, 2014. See also Thiel, “Competition Is for Losers,” The Wall Street Journal, September 12, 2014.
World Investment Advisors. “Market Bulletin: The SpaceX IPO and Its Implications for Index Fund Investors.” June 2026. worldadvisors.com/blog/…/spacex-ipo…
Wu, Tim. The Age of Extraction. 2025.