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naraburns  nihil supernum  1yr ago (text post)   4039 thread views

Small-Scale Question Sunday for March 26, 2023

Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?

This is your opportunity to ask questions. No question too simple or too silly.

Culture war topics are accepted, and proposals for a better intro post are appreciated.

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I am a software developer (I know, so unique around here!) at the beginning of my career. I expect to get an offer from a trading company next week which will easily double my salary, possibly more depending on the market. The tech stack is amazing and exactly what I wanted to work with. The office and benefits look great. People seemed fun when I met the team and I was even assured that overtime is rare. I will get training in finance subjects so this is a perfect gateway into the industry. All in all, if one is to treat a job as simply a source of income, I cannot do much better than this. Especially with the current crappy labour market.

But I can't shake away the feeling that something is wrong here. The company is a market-maker in one of those areas of finance almost entirely uncoupled from the real economy and became pure speculation, so it makes all this money via basically imposing a tax on gullible layman day traders. There is absolutely nothing of value being produced. I am worried that when I get a bit older, I will regret that I wasted my potential on something so useless and zero-sum. Especially since until this point I have always worked on projects with a real "product". Often code that goes into things you could hold in your hand etc. It gives me enormous satisfaction, but pay is meh and life just seems to be getting more expensive. I know there is some value in providing liquidity to the markets, but I cannot fool myself enough to ignore that this whole operation is just a bunch of very smart people using their learning and wits to leech off the broader society. I had an informal lunch interview round and it felt a tiny bit embarrassing to be served lunch by someone who is at least doing something useful and in turn has to serve these people who aren't.

I know some people here work in finance. Would appreciate your perspective or anyone else with an opinion

Take the money, a few years is nothing and will pass quickly and if you are not stupid you should be able to gather some momentium to your own finances in that time. You can start worrying about meaningful work when you have a house, security, etc.

At the end of the day, meaningful work is for the rich and peasants. If you are rich, fine, and if you are ok being a peasant this is also fine but don't labour under dangerous illusions.

What's the cost in trying it out? Jumping ship after 6 to 12 months is not uncommon for a SWE, especially one early in his career. My advice would be to take the offer, and see if you find it fun or tolerable. If so, great. If not, the extra cash will allow you to take 6 - 12 months of vacation, soul searching, and job hunting, and still end up net zero in terms of income. The firm will, presumably, also be good for your CV, meaning you'll find the next job hunt even easier. Just be wary of life style inflation if you plan on switching jobs to something less lucrative.

I don't work in finance, but I can easily see how a zero-sum financial transaction from one perspective can be positive sum for the economy as a whole. If gullible layman day traders effectively hand their money to you, it sucks to be them but at least no value is destroyed, it's only transferred. If there were instead nobody smart in finance to take the other side of their bets, and their money ended up in the hands of ventures that can't possibly succeed, it would get destroyed just as surely but so would the value it represented. Even if the counterfactual were that they end up funding some safe-but-low-yield investment instead of funding startups that would have wildly succeeded, that's still a real loss due to opportunity cost, although in that case it's harder to say a priori that this is worse than the utility lost via decreasing marginal value of money when poorer amateurs lose gambles against richer experts.

Most of the zero sum part is in capturing a percentage of the positive sum that would have existed anyway. Especially in day trading, where the company has already received investments and the value created by the financial sector is just creating accurate and speedy value assessments, as well as liquidity.

Ie, maybe we have 100 traders/investors who, collectively, create $200 million in surplus value, $100 million of which is captured by them (and $100 million diffuses into the companies they invested in and customers and whatnot). A "fair" split would give each investor about $1 million in profit. But maybe one investor has an algorithm which let's them respond to news updates 10% faster than the others. And maybe this speedier algorithm actually helps create an additional $1k in value due to the more accurate valuations of companies. And then they use it to arbitrage $50 million of the surplus from the other traders, leaving them with $50.001 million, and everyone else with $500k. And then someone else makes an algorithm that's 15% faster, which creates an additional $1.5k in value (but costs $1 million to design and implement) which let's them take the top arbitrage spot and get the $50 million, and the 10% guy can only arbitrage $10 million, and the other 98 people have to split the remaining 40 million.

Ie, the group is creating surplus by filling an economic niche. The more competitive people are genuinely better and thus create more value, but most of their gains come from a larger slice of the surplus created by the nice. If they failed to exist, the second best person would create most of the value, so the marginal benefit from each increase in competitiveness is less than the potential profits extracted from capturing a larger slice of the pie.

This happens in a lot of physical industries. Amazon or Walmart aren't uniquely responsible for all of the profits they gain, because in their absence someone else would fill the role. And maybe that person would only be 90% as good and create 90% as much value. So in some sense the better company is uniquely responsible for 10% of their profits, and has shared credit for 90%. But instead they just get to keep all of it instead.

It's a weird issue, because we do want to incentivize the best people to be doing stuff, and the winner takes all system does accomplish that. But there is an inherent unfairness and issues with rentseeking behaviors which actually destroy wealth because they cost more than they actually create, but are worth it anyway because they capture more of the surplus created by the niche.

This is a very accurate description. I had long conversations with finance people before (including the engineers of the company I am about to join) and this is exactly their point of view. Nothing about accurate pricing etc. They see each market as rent producing asset which you capture by being smarter and writing better and faster algorithms. Then you take these rents and attack your rivals sitting on top of other rent seeking mountains. You practically have to because otherwise they will have too many rent sources and come dominate you. It is not very different to feudal competition.

If you believe Caplan, and I do, teachers are useless. If you believe Hanson, and I do, doctors are useless. Psychologists, advertisers, lawyers, useless useless useless, mostly zero-sum. Even the manufacture of widgets, how many do people need really.

As you note, bankers (the few honest ones) do provide some liquidity and price signals, and the market deems those important. It’s hard to justify the massive premium they get for that, but I think it's fair to say that historically those who tried to ‘curb banker’s speculation, usury etc’ have ended up harming the economy more than a naive anti-banker view would suggest. (And by that I don’t mean we should bailout failed banks. Let darwinism sort them out)

Day traders are players, it's not like you'd be "stealing" from an uninvolved party. So if I wasn't seeing clear harm, I would take the money, but I find all jobs almost equally unsatisfying, so you may come to a different conclusion.

I haven't worked in finance but I have changed my mind about the morality of certain financial instruments enough times to understand that my formulation of "morality" isn't written in stone.

What if OP is wrong about the morality of what his company does? Does he understand the financial system as a whole good enough to guarantee his intuition? I mean Marxists think owning capital at all is some form of immoral let alone financializing it. What if OP changes his mind about what he considers moral or not in a year or two, I certainly did that many times in my short life. What gives OP such a strong reason to feel something that is legal and fills a need in the market is immoral, it's not like he is going to launder money for criminals who murder children with chainsaws.

If he finds his job truly immoral he can quit, but if he doesn't take it he is doing it at great opportunity cost and just might find himself holding the bag a few years down the line. What if AI ends up blowing up the world? Should the people who worked for PyTorch in 2017 take moral responsibility for what their creation has facilitated? How does he know he isn't already in a situation like that? How abstract do you really want to go? Should we consider Alan Turing and Dennis Ritchie to be evil?

"Feeling good about what I do" is such a hippie-goody two-shoes sentiment. You'd don't simply choose to say that you have to first be able to afford saying that. I'm not dissing OP but preemptively dissing anyone who tries to fool him into not getting richer*.

Maybe as the OP, I can expand a bit more on my worldview concerning finance. I am not a "liberal" in the American sense nor anything to further left. Most of my understanding of the role of markets and finance in society comes from reading Polanyi, who doesn't take a very positive view on it but also has the common sense to credit these institutions with enormous amounts of economic development and peace between nations connected via international finance. But I also think that since 80s and especially since 2009 the finance class has evolved into some sort of grotesque aristocracy that warps most of real economy and state power into constantly feeding its members more resources while using those resources extremely anti-socially (i.e. conspicuous consumption and buying more influence).

I am not as naive as to literally reject the opportunity to become a minor member of a modern day aristocracy. That is why I applied and passed the gazillion difficult interview rounds after all. I still hope to be able to jump ship to a more product oriented company in the future if the tech sector manages to lift its nose and pay me a comparable salary

Ask yourself this, is some sort of abstract sense of "having done something" worth more than real bills in your bank account? Real bills that you can donate to charity, use to help your family, use to help your friends, use to buy your mom gifts? Use to buy your wife things?

Having been presented with similar decisions in life, my answer is, "it depends". I've made plenty of money without doing anything that I think is immoral and I intend to keep it that way. There are jobs that are easier and better paying that I've elected to pass on because I don't think I'd be happy feeling like my money was received by an extractive scam.

That is well and good, but I think it is extremely reckless and self-aggrandizing and myopic and a whole host of other bad things; to tell someone to prioritize their abstract notions of morality which might or might not be well-informed [1] over real money. Which has real potential to make the world better in the desired ways.

Doubling ones salary is no joke.

[1] https://www.themotte.org/post/426/smallscale-question-sunday-for-march-26/79754?context=8#context

If you were someone I knew and posed me this question in real life, my response would be "quit pussyfooting and double your salary before you get slapped, you moron".

That is pretty much what my friends are also telling me lol.

I love the Hajnalbrain cooperatebot expression. And being Turkish, when I read through the experiment I was initially just thinking along the lines of "yeah no if anyone punishes me I fuck them". So I guess not much use fighting my "nature"..

This depends strongly on who you are. I ‘sold out’ for a higher paying job and deeply regret it, caused me a ton of stress and health problems. I’m now taking much less pay for a position with more responsibility and work, but I’m easily 3x happier than I was.

As @Walterodim said above, it really depends on your circumstances and what you value. This could be a good moment to reflect on what you want to accomplish in your life.

Why do you regret it? Because it was stressful and health wrecking or because of something to do with the job content?

A bit of both, it was a service but not a good one. The stress was the bigger issue imo, had a lot of negative spillover into other parts of my life.

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