[MontyCarloHall]

Agreed. Amongst the top 5% smartest quantitatively-minded kids I knew in college, I’d say ~25% of them ended up at quant shops like Jane Street, sometimes straight out of school, sometimes after doing a PhD.

I can only imagine what good that brainpower could do for humanity if it weren’t occupied finding cleverer ways to manipulate electronic money.

[dude250711]

> I can only imagine what good that brainpower could do for humanity if it weren’t occupied finding cleverer ways to manipulate electronic money.

Maybe humanity can start paying them decent money first?

[achierius]

You're right, we should fix our economic system so that it better incentivizes things we care about rather than stuff like quant research.

[infecto]

But what system should we use that fixes our economic system? This is not so much a defense of capitalism but asking what would be a better replacement. Capitalism in my opinion is the best solution so far that helps drive society forward when society is made up of all types of folks with different opinions and views of the world.

[nh23423fefe]

Why did you say we, when you meant I?

[techdmn]

Apologies for a (mild) thread-jack. My opinion, one problem with our economic system is focus on short-term results, to the point that several notable companies' stock prices are completely divorced from the reality of their performance. This makes sense if the stock market is primarily a device for gambling or extracting wealth. Investors care less about the prospects of the company than the prospects of the market. I suspect this can trickle all the way down: Board -> CEO -> managers -> individual contributors, all given goals intended to pump the stock short-term, rather than build long-term results.

How do we start to care about quality, building lasting things, fundamentals? What would happen if we taxed capital gains at 100% for the first, I don't know, 3 / 6 / 9 months of holding an asset? Maybe investors would have more incentive to care about fundamentals?

Anyway, I assume I'm wrong about all of this, just looking for someone to explain why. ;-)

[dostick]

There’s no fixing capitalism. It’s a failed system, as Marx predicted 100 years ago. But despite that for more than 100 years almost every country in the world implementing with same disastrous results.

[lotsofpulp]

> to the point that several notable companies' stock prices are completely divorced from the reality of their performance.

Which companies? Because the net income and profit margin trends for the most highly valued companies have been the highest in history, for many years now.

[smokel]

They could spend their time playing chess, solving Fermat's last theorem, or invent space weapons. And why stop at humanity?

[MontyCarloHall]

Perhaps with the exception of space weapons, none of those would pay Jane Street-tier salaries.

All I'm saying is that I wish our economic system were set up such that people with the mental aptitude to work at a place like Jane Street could earn commensurate salaries for applying that aptitude towards problems with much greater positive externalities than proprietary trading. Alas, it is not so.

[alchemist1e9]

It’s incorrect that proprietary trading has negative externalities. It’s also exhausting trying to explain that to an audience that has fundamental misconceptions about economics, financial systems, and monetary systems, so I don’t think I have the energy today. Hopefully someone else will and add to this thread.

[MontyCarloHall]

I never said it has negative externalities (whether it does or doesn't is a totally separate discussion), only that its positive externalities are certainly much less than some other fields that employ commensurately smart people, e.g. healthcare or climate change research.

[siva7]

Unfortunately brainpower isn't the deciding factor if someone will turn out to be the one doing good things for humanity

[Cthulhu_]

Thing is, there's very few problems that don't involve money or making money that can be solved with software. Even laudable projects like green energy are ultimately capitalist endeavours, since nobody will build solar panels etc for free.

[nemomarx]

Yeah but building stuff to sell is fairly different from making trades faster or other market stuff?

It's another level detached from real value

[infecto]

How is it different? We could make an argument that the efficient allocation of capital is what drives the rapid expansion of solar. It provides loans for businesses and individuals, it helps investors raise money, it rewards companies for doing well, it allows farmers to hedge crops. It is not perfect but it helps facilitate most of our modern society. Not perfect but which system would be better?

[nemomarx]

If you could either improve hft by some percentage, which slightly increases market liquidity and has downstream impacts, or you could work on making the manufacturing cost of solar panels the same percentage cheaper or making then some percentage more efficient, the latter option is more direct.

I think it would be good if our best minds went to work on directly creating better things instead of indirectly moving money around efficiently so that other people might eventually find success.

[infecto]

I get the intuition, making solar panels cheaper feels more “direct” than making markets more liquid. But that framing underestimates how much “indirect” efficiency matters.

Capital has to get from savers to builders. Liquidity, tighter spreads, and efficient pricing lower the cost of capital for all projects, including the ones building better solar panels. If financing those projects is cheaper and faster because markets function well, more of them get done.

It’s easy to glorify the visible widget (solar panels) and discount the invisible infrastructure (capital markets), but the latter is what makes scaling the former possible. The system needs both.

[strogonoff]

There is a difference between 1) doing something valuable that is then rewarded with money through market mechanics and 2) maximizing money as an end in itself. The former is a great feature of capitalism, the latter is its tragedy and Achilles heel.

In the first case, money is important (if you completely ignore it, you can’t deliver value sustainably), but in a perfect world it should be more like fuel and an indicator that you are doing something right.

[infecto]

Already said it before but the efficient allocation of capital benefits all of us. From the farmer hedging their crop prices to the local manufacturing company that is drawing a loan to expand their business. What system would you have in its place?

[strogonoff]

Off the top of my head, for the manufacturing company, why not have people invest in it? If it is doing something good, people will buy shares, and the company will gain the money to expand. For the farmer, if the issue is harvest instability, why not amortise the cost accordingly?

[infecto]

That sounds tidy in theory, but in practice it’s rarely that simple. Investors don’t just fund “good” companies, they fund opportunities with risk/return profiles that make sense relative to alternatives. Plenty of companies doing socially useful things struggle to raise capital because the payoff is long, messy, or uncertain.

Same with farming. “Amortize the cost” only works if margins and credit markets allow it. A small farmer facing price volatility, weather risk, and thin margins doesn’t have the same access to capital markets as a Fortune 500 manufacturer.

The whole point of efficient markets is to reduce those frictions, to better allocate risk and capital so that good projects (whether in manufacturing or farming) don’t just work “in theory.”

For me, no better system exists in the world. It’s not perfect but until there is something that works better I will have the agree with it.

[strogonoff]

> Investors don’t just fund “good” companies

Exactly what I am lamenting in my original comment. Investors chase returns, i.e. money for its sake.

As long as that is conceptually a thing, it is a no-brainer to fund a bad company if you are sure its shares will go up in price during the term of your investment; it is also in your interest (and acceptable within the “money for its own sake” framework) to ensure its shares do go up by helping hype it up; etc.

This all, I believe, is a source of strong and far-reaching negative externalities, which I am far from sure are trumped by its potential benefits.

> A small farmer facing price volatility, weather risk, and thin margins doesn’t have the same access to capital

Why do you need access to capital in order to price in the risks or the cost of relevant insurance? (That’s what I meant by amortising, I might have used a wrong term.)

Why are you “facing thin margins” like it is not an open market where you set your prices and your margin is your choice?

[unabirra]

Thinking that these kids would be solving meaningful societal problems if they were not working on HFT is delusional at best. To be able to tackle hard problems and make any meaningful impact you have to be very passionate about the problem that you are researching/trying-to-solve, and no amount of money is going to make this passion materialize when it's just not some of it inside you already. Now don't get me wrong I'm sure these people are really smart and I would be even willing to bet that the distribution of IQ at Jane Street is tighter than many top research labs even when the latter group produces more tech and accolades than the former; raw intelligence is not the only ingredient of world changing minds.

At the end of the day I believe that if CS/finance was not "cool" and paid the way it does (specially at the level of HFT) most of those kids currently there would go back to the good old law/medicine...