Too much finance is bad for the economy • Hacker News Board

Re: Too much finance is bad for the economy

#141

Post by zik » Sat, Feb 21, 2015, 1:11 AM UTC

gaius wrote: post #105

bhouston wrote: post #3

Summary: > In short, the finance sector lures away high-skilled workers from other industries. The finance sector then lends the money to businesses, but tends to favour those firms that have collateral they can pledge against the loan. This usually means builders and property developers. Businessmen are lured into this sector rather than into riskier projects that require high R&D spending and have less collateral t…

In short, the finance sector lures away high-skilled workers from other industries LOL. When other industries aren't run by chinless public schoolboys where engineers are second class citizens, call me.

I think that's mostly just a British thing.

Re: Too much finance is bad for the economy

#142

Post by tomp » Sat, Feb 21, 2015, 1:23 AM UTC

chongli wrote: post #110

Chinjut wrote: post #99

Earlier quoted context omitted.

The complaints are not necessarily directed at individual people who rationally choose careers in finance over other vocations, given the system they live in. The complaints are to a large extent over the fact that our society has been set up this way, with the goal of perhaps trying to change that so that people would feel less incentive/need to abandon science, mathematics, etc., for finance (in multiple senses!).

It hasn't really been set up this way. It didn't even evolve to be this way. It's ultimately a law of nature: ownership of capital yields exponential growth. The more you start with, the faster you grow. Most other sorts of vocations yield linear growth.

Exactly. The more leverage you have, the more money you (can) make. That's why we had a string of billionaires coming from internet companies (in a relatively short period of time) - internet enables a small team of humans to provide a service and sell to anybody in the world. Finance has a smaller, but less risky and longer-lasting leverage - invested money.

Re: Too much finance is bad for the economy

#143

Post by tomp » Sat, Feb 21, 2015, 1:28 AM UTC

esja wrote: post #73

jeffreyrogers wrote: post #65

Earlier quoted context omitted.

> The bank doesn't invest your money. Yes they do. That's why runs on banks are a problem. Only the central bank (at least in the US) creates money. And you can't invest your money in the central bank.

That's no longer correct: all banks create money. When a US bank approves you for a loan, it simply credits your account with new money. This money does not come from other accounts, i.e. this "investment" in you is made entirely with new money, created by the bank. When you repay the loan, the money disappears from the system. There are limits to how much money can be created in this way, but those aren't relevant h…

That's not "creating" money - you have "money" in your account, but that's just a number. In reality, that money is on the bank's balance sheet, and it can lend it to others (or a part of it, depending on the regulations). It can also lend money that was actually created by the central bank and loaned to the commercial bank. But regardless of the number on your account, if the bank runs out of money (is insolvent), your money is gone (absent government guarantees/bailouts).

Re: Too much finance is bad for the economy

#144

Post by underpantsgnome » Sat, Feb 21, 2015, 1:31 AM UTC

gaius wrote: post #105

bhouston wrote: post #3

Summary: > In short, the finance sector lures away high-skilled workers from other industries. The finance sector then lends the money to businesses, but tends to favour those firms that have collateral they can pledge against the loan. This usually means builders and property developers. Businessmen are lured into this sector rather than into riskier projects that require high R&D spending and have less collateral t…

In short, the finance sector lures away high-skilled workers from other industries LOL. When other industries aren't run by chinless public schoolboys where engineers are second class citizens, call me.

Are you suggesting that finance isn't?

Re: Too much finance is bad for the economy

#145

Post by AnthonyMouse » Sat, Feb 21, 2015, 1:35 AM UTC

lifeisstillgood wrote: post #139

AnthonyMouse wrote: post #134

Earlier quoted context omitted.

It is kind of surprising actually. Scientists create more wealth than managers. If they aren't better compensated it indicates an economic inefficiency that someone could profit by eliminating. There are obviously structural reasons why this hasn't happened or it would have already, but given the amount of money on the table, someone who figured out how to do it would stand to profit immensely.

That's a great thought. I am assuming that the structural issue is that science in order to create the wealth must "open source" it's knowledge and this be unable to capture private profit, whereas corporations can maintain proprietary control and create less wealth but more profit. If we do solve it however, perhaps through some patent system, we will incur another problem - Albert Einstein for instance (photons, re…

The patent system is actually highly problematic because it a) provides no reward for research leading to negative results (which is extremely important to scientific progress) and b) provides the money after the fact rather than while the research is being conducted, requiring scientists to solicit investors up front (and possibly not be able to find any) and then gives the fruits to investors who may or may not reinvest it into future R&D. Then on top of that the patent monopoly makes the new invention more expensive and discourages third parties from making improvements they can't deploy without permission, which reduces the overall value of the invention.

We might actually do better to just throw the patent system away and replace it with massive direct public funding of scientific research. The interesting question then is how to decide what to fund and in what amounts, which seems to be the heart of the problem.

And there is also another point, which is that maybe scientists aren't particularly underpaid, maybe it's that managers are overpaid, e.g. because investors in public companies are so diffuse and distant from the companies they're invested in that they can't prevent executives from paying themselves more than they deserve. If you solve that then fewer people will want to go to business school instead of becoming scientists and companies will have the money they're no longer paying managers to potentially invest in R&D.

Re: Too much finance is bad for the economy

#146

Post by refurb » Sat, Feb 21, 2015, 2:31 AM UTC

AnthonyMouse wrote: post #134

magic_beans wrote: post #35

Earlier quoted context omitted.

Business is much more lucrative than science. Not surprising.

It is kind of surprising actually. Scientists create more wealth than managers. If they aren't better compensated it indicates an economic inefficiency that someone could profit by eliminating. There are obviously structural reasons why this hasn't happened or it would have already, but given the amount of money on the table, someone who figured out how to do it would stand to profit immensely.

It is kind of surprising actually. Scientists create more wealth than managers.

Creation of wealth only plays a role in salaries in the sense that you can't pay someone more than the value created overall.

Supply and demand is really what drives salary.

Re: Too much finance is bad for the economy

#147

Post by refurb » Sat, Feb 21, 2015, 2:34 AM UTC

esja wrote: post #61

crdoconnor wrote: post #33

Earlier quoted context omitted.

>For example, let's look at your checking account. A banker's not a middleman here Yes, he is. He takes your money and lends it out to others, whom he charges for the privilege. That's how fractional reserve banking works. Of course, these days since interest rates are zero, that's not really a profitable line of business. It's mostly used to upsell the more profitable products like mortgages or credit cards.

The banker actually creates brand new money to give to whoever is approved for a loan - he/she doesn't use your money for that purpose.

Not sure why you're getting downvoted. A fractional-reserves system does create more money than what is deposited.[1]

[1]http://en.wikipedia.org/wiki/Fractional-reserve_banking#Exam...

Re: Too much finance is bad for the economy

#148

Post by AnthonyMouse » Sat, Feb 21, 2015, 2:47 AM UTC

chongli wrote: post #110

Chinjut wrote: post #99

Earlier quoted context omitted.

The complaints are not necessarily directed at individual people who rationally choose careers in finance over other vocations, given the system they live in. The complaints are to a large extent over the fact that our society has been set up this way, with the goal of perhaps trying to change that so that people would feel less incentive/need to abandon science, mathematics, etc., for finance (in multiple senses!).

It hasn't really been set up this way. It didn't even evolve to be this way. It's ultimately a law of nature: ownership of capital yields exponential growth. The more you start with, the faster you grow. Most other sorts of vocations yield linear growth.

> It hasn't really been set up this way. It didn't even evolve to be this way. It's ultimately a law of nature: ownership of capital yields exponential growth. The more you start with, the faster you grow. Most other sorts of vocations yield linear growth.

Anything with revenues in excess of expenses has the potential for exponential growth if you use the profits to expand the business. A successful landscaping business can have exponential growth, that doesn't mean each of the guys mowing lawns will be making exponentially more money.

But it has been set up that way in finance. It isn't a law of nature that mutual fund managers make a percentage of the fund as their compensation. The profitability of arbitrage is strongly influenced by the regulatory environment and the amount, timeliness and accuracy of information available to traders without privileged access.

Here's an example. I propose that we make insider trading entirely legal. According to all of the arguments used to justify HFT and the like this is the right choice because it will increase liquidity and more quickly and accurately reflect the true value of securities in their market price. Somebody please tell me why this argument is wrong in a way that doesn't apply equally to HFT.

Re: Too much finance is bad for the economy

#149

Post by Tycho » Sat, Feb 21, 2015, 2:51 AM UTC

AnthonyMouse wrote: post #134

magic_beans wrote: post #35

Earlier quoted context omitted.

Business is much more lucrative than science. Not surprising.

It is kind of surprising actually. Scientists create more wealth than managers. If they aren't better compensated it indicates an economic inefficiency that someone could profit by eliminating. There are obviously structural reasons why this hasn't happened or it would have already, but given the amount of money on the table, someone who figured out how to do it would stand to profit immensely.

Somebody already has. They're called Renaissance Technologies.

Re: Too much finance is bad for the economy

#150

Post by AnthonyMouse » Sat, Feb 21, 2015, 3:05 AM UTC

refurb wrote: post #146

AnthonyMouse wrote: post #134

Earlier quoted context omitted.

It is kind of surprising actually. Scientists create more wealth than managers. If they aren't better compensated it indicates an economic inefficiency that someone could profit by eliminating. There are obviously structural reasons why this hasn't happened or it would have already, but given the amount of money on the table, someone who figured out how to do it would stand to profit immensely.

It is kind of surprising actually. Scientists create more wealth than managers. Creation of wealth only plays a role in salaries in the sense that you can't pay someone more than the value created overall. Supply and demand is really what drives salary.

Supply and demand sets the price of everything. You're just restating the fact that scientists don't make a lot of money. The interesting question is why there isn't more demand for scientific research when the returns are so high. Clearly it isn't that the market and society have no desire for additional scientific progress.