There is an extreme case of diminishing returns at play here, and unfortunately the amount of money that flows through these markets is so incredible that it becomes worth it (more than worth it) to commission the top minds of society to push the limit as close to 1 as absolutely possible.

Derivatives have great value to industry. Derivatives that require the fuel of 15 math Phds to lock in fractions of a percentage pricing inefficiencies so their firm can pocket the difference do not have much value at all.

It's like employing Harvard Med surgeons to remove gold dust from gold market sidewalks, and calling it "gold market efficiency".

> Derivatives that require the fuel of 15 math Phds to lock in fractions of a percentage pricing inefficiencies so their firm can pocket the difference do not have much value at all.

They have at least as much value as the total compensation of 15 math PhDs, otherwise that work would not be done.

It is bizarre that people conflate money with value.

A scammer who makes $1m dollars a year does not generate any value, in fact he removes value from society.

It's remarkable how on every single discussion on this topic the Circular Argument is eventually brought up lol

And yet if there was so much gold dust lying on the sidewalk that you could pay 15 Harvard med surgeons enough to pick it up and still have some left over, would you just not?

That is the issue.

The amount of gold recovered by them as a function of the entire global gold market is a minuscule rounding error. A loss so small that when distributed across every market participant (as it would be if left alone on the ground), would amount to no practical discernible difference in anyone's life.

But having 15 less top notch surgeons not doing surgery? There stands to be many practical discernible differences in many people's lives.

Keep in mind, the surgeons are not the only ones out there. There are large armies of grunts combing those streets 24/7 picking up all the easy pieces. The surgeons are there to get the dust that everyone else misses. It's an enormous waste of talent.

Gold is not analogous to trading.

If you subscribe to the theory that markets allocating capital based on supply and demand is beneficial for society (even if detrimental sometimes in the short term), then traders provide the utility of contributing to the proper allocation of resources in society (which is constantly in flux).

The fact that smart people opt to go into trading (or selling advertising) rather than research is a consequence of government underpaying scientists (or the volatility is too high, or the path to quality of life at work is too low).

Either way, if the situation is that society needs more scientists or doctors or whatever, then the government should be paying more to incentivize those choices.

Markets influenced by traders can lead to misallocation of resources, as traders often prioritise short-term profits through speculation rather than investing in productive, long-term projects beneficial to society. Traders frequently increase market volatility, contributing little to meaningful innovation or economic growth.

Additionally, even if governments improved pay for essential roles like scientists or doctors, the outsized financial rewards from trading would still attract talent away from these critical areas. Therefore, depending on markets and government incentives alone ignores the negative impact traders’ profit-driven strategies can have on society’s overall well-being.

I think I’d rather have the surgeons saving peoples lives tbh.

Then make it so one does not have to sacrifice their 20s and harm their health to become one.

Expand the number of medical schools, the number of residency positions, etc. Reduce tuition or pay graduates and residents more. Reduce unnecessary learning requirements so that one can expect to have a life and become a surgeon. Reform tort law.

None of these are under the purview of trading firms or the people that work there.

Everyone understands that there's a pricing utility to markets and market speculation. But consider that, like in all things, the free market has its 'biases': wouldn't you expect that something like trading, which directly produces profit with very little overhead and maximal ability to hedge against rush, would draw an inordinate amount of capital -- in the same way that things like infrastructure, sans government intervention, naturally repel it?

We have far, far too much of our economy sunk into a sector that fundamentally produces nothing of value, one that only shuffles value around and chooses to whom it will be allocated (coincidentally, often the people doing the allocating!).

Compare our economy and its woes to China. Do they spend nearly as much of their human capital figuring out how to get an extra bp on some statistical arb? Thethe origins of DeepSeek are illustrative in this regard.

Sure, some derivatives have some utility.

But, ok, Spread Networks spent $300m around 2010 to build a somewhat straighter glass fibre data connection between NY and Chicago. Other companies spent more to build a micro wave connection, since microwaves move faster through air than light through fibre.

Is that money really well spent? And I'm afraid a lot of what happens in finance is similarly private gain, without much social welfare increase.

That money is very well spent considering that the microwave network technologies developed for trading have huge applications for military and emergency response use. Similarly, millimeter wave technology built for trading firms in New Jersey could rightly be considered as one of the precursors to Starlink.

> I like apples and I like being able to buy them any day of year, even out of season. The only reason I can do so is because there is an entire industry of people who manage the inventory, distribution, try to predict supply and demand, and take on a risk doing that.

This has been the case for well over 200 years and is not done by the same kind of people that modern finance/fintech employs.

Imagine the world 150 years ago and imagine were you'd allocate the smart people that's the highest paid these days. They'd be doing science and developing technology instead of doing finance. Why is finance that much more important now? (is it just because it makes rich people richer?)

I do think finance is important in making markets more efficient, predictable, and liquid. In turn, this improves the amount of capital available and also improves the efficiency and availability of international trade.

It's also a sophisticated "export" product itself.

However, I think there's a point where, absent sufficient regulation, it overshoots and most of the effort goes to squeezing nickels out of everyone else in underhanded ways. I feel like we could get 90-95% of the benefits with a finance industry that's half the current size, and also avoid a whole lot of indirect costs that come with an oversized finance industry.

> I like apples and I like being able to buy them any day of year, even out of season. The only reason I can do so is because there is an entire industry of people who manage the inventory, distribution, try to predict supply and demand, and take on a risk doing that.

In practice, if the availability of the apples you're eating is dependent on finance people, they're commodity grade, not specialty varieties.

I don't eat apples, but I'd rather have a good heirloom tomato from the farmer's market than the commodity grade stuff that's at the grocery store.

How do you get to the farmers market? Walk? If not then how was your vehicle produced and powered and how were its components got to you?

While it’s true that trading and financial markets provide value, the conversation around “wasted talent” isn’t necessarily about denying the value of these industries. It’s more about the broader context - are all forms of financial activity contributing to the greater good, or are some activities just enriching a small group of people without providing societal benefits?

Ok, but what do high frequency trading bots possibly do to help me eat apples in winter (a deeply unecological mode of consumption, btw)?

I believe that they provide liquidity. That’s a fancy way of saying that they ensure that any time someone wants to sell he can find a buyer, and every time someone wants to buy he can find a seller. That in turn means that folks are more confident of their ability to enter and exit a position, which means that they are more likely to enter and exit positions, which makes the market more efficient at finding prices.

And of course prices are hugely valuable: the market is a conversation about the relative value of everything, and the language it speaks is prices. So by enabling liquidity, high-frequency traders are enabling efficient allocation of resources towards those things which mankind most dearly needs and desires.

Amazing link. Including the car mechanic joke.

Thank you for the link, it was very insightful.

It's fun to see how every time a finance topic pops up, discussion steers towards lamenting on how "talent is wasted" by doing this and not that.

See, if you're a fishmonger and someone comes to you and say "why don't you trade flowers instead", you ignore them because they are not your customer. They won't trade fish with you, and in fact they wouldn't trade flowers either. They're just useless relative to your trade and only yapping so just turn your back on them and leave them be. Tell them to fuck off and find a flower monger if they really want it or mong those those flowers themselves because you are sticking to monging fish.

At the end of the day, it’s fine to ignore the critics or people who don’t understand your work, but dismissing the conversation entirely without considering the underlying point might close off an opportunity for meaningful reflection. Just my two cents.

Reflect on what? Some utopian cvasi-religious bullshit which has no real applicability except virtue-signalling? Why don't we all do nice things instead of being caught in the capitalistic rat race to make a living? (Not that other systems fared better). Why do we have to work shit, meaningless jobs instead of doing the grand things of life, engineering, arts, etc?

Well first of all because all those niches are already full beyond capacity. All the engineering, arts, cancer research, you name it, that the society can pay for is stuffed to bursting point and in no lack of pipelines of fresh wannabe recruits. Also cancer research is a deeply unprofitable enterprise overall, much in contrast to a domain like finance. One can labor a lifetime and get nothig, at least in finance they'll shovel some money from one pocket to the other and pocket the commission themselves.

Please leave people alone and stop suggesting alternate careers, that you yourselves did not choose. That's the uttermost hypocrisy. I don't wanna see anymore programmers with fat paychecks jumping on whatever latest fad like flies on a fresh laid turd doing AI and crypto and advertising and just bullshit pretend work at FAANG shedding crocodile tears on how the finance guys should be poor and suffering. Quit your high paying jobs yourselfes and go starve while doing biology PhDs then work as baristas while competing with the other 10,000 highly skilled Phds hoping to catch one of the 10 currently open positions in the world that pay a miserable salary with no stability in the future that does cancer research.

Yes this. There's no shortage of people working in quant finance who used to work in research who quit because they literally could not afford to start a family.

People imagine it's like prestigious professors at top research institutions leaving their posts because of the allure of money, when it's more like the 100x people just like them who were denied tenure and realized they chased a career in science like an inner city youth chases getting into the NBA: most people fail. Then what?

I even know people who worked in quant finance, struck it rich, quit to finish becoming doctors, and then came screaming back because of how horrible medicine was.

Nobody is saying finance people should be poor and starve. The same people critiquing the finance industry in this thread have been happy to critique ad tech as well, and I agree that they're both largely parasitic 'faux frais'. But regardless of which industries you choose to put in that category, the point isn't to make individuals choose to work in one or another -- that's not how serious change happens. It's to build support and hopefully eventually consensus on the idea that our economic system is broken and in serious need of change.

Your perspective is totally valid - people should do what works best for them. But dismissing the conversation out of hand could limit opportunities for a deeper understanding of what kind of work aligns with both personal fulfilment and societal good.