The Economics of Divestment

5/9/24

The expansion of pro-Palestinian demonstrations on college campuses has expanded the litany of chants from “from the River to the Sea” and “intifada forever” to now include “divest now” — all the while with the fate of the hostages taken by Hamas nary on these demonstrators’ radar. Unquestionably, this last slogan seeks to punish Israel. Pity that it’s likely to be the demonstrators themselves, rather than Israel, that would likely bear the greater cost if their chants translated to a reality. These demonstrators would be well served by spending more time in economics classes and less time parroting noxious slogans.

Presumably, those who would advocate for divestment in Israeli companies would want their school’s endowment to sell off any holdings of stocks and bonds of Israeli companies, or in the more extreme wish-list, shares and bonds of companies doing business with Israel. The more rapidly those forced sales were to occur, the more likely it would be that the prices of those securities would end up falling, in which case, the most direct effect of the policy would be the diminution of the aggregate market value of those same endowments.

New buyers would replace old buyers, whereby the new buyers would get to buy these securities at a discounted value relative to what they otherwise would have to pay. For all practical purposes…