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> Clearly they are making something of value in someone's eyes. Most of what a successful hedge fund does is moving wealth rather than creating it. The people
by gjm11 10y ago
> Clearly they are making something of value in someone's eyes.
Most of what a successful hedge fund does is moving wealth rather than creating it. The people it's moved to will no doubt be very happy to pay for that service, but that doesn't mean any value is actually being created.
Imagine a world where money literally rains down from the sky. Anyone can pick it up and use it to buy things.
But some enterprising people think "Hmm, I bet I can get a larger share of this money". Some of them put up big poles and attach enormous nets to them, collecting money that would otherwise have fallen in other people's gardens. Some buy planes that fly around catching money before it has a chance to land. Some find ways to generate strong winds that blow the money to where they can collect it.
Much competition ensues. Higher, wider nets! Faster planes with broader-area money-collecting apparatus! Stronger winds!
After a while, most of the money falling from the sky ends up in the pockets of a few organizations that can afford (and have the skill to develop) the most effective money-collecting machinery (nets, planes, wind generators) and have managed to negotiate legal rights to collect money falling in areas they wouldn't otherwise have had access to.
They very kindly sell their money-collecting services (this is how they fund the development of better and better money-collecting machinery) and, indeed, they provide good value for money: you can often pay them $1M and get back $2M. They are, that is, providing a service that is valuable to their customers.
But they are not increasing the amount of money falling from the sky. All they're doing is catching it more effectively than anyone else is able to. They do very slightly increase the total amount of money being collected, because their machines can get at a few otherwise inaccessible places, but mostly all they do is redirect to themselves (and their customers) money that would otherwise have ended up in someone else's hands.
A successful hedge fund is a little like one of these money-collecting organizations. It has developed effective ways of making money flow into their pockets rather than others', it provides that service to its investors at a price they are happy to pay, it may create a very little value by increasing market efficiency a bit, but mostly it's playing a zero-sum game.
> Why does everything have to be objectively useful and beneficial to the whole of society?
Clearly it doesn't. After all, we have all these hedge funds, and the people running them and working for them are very nicely compensated for it.
> the simple question of 'is something willing to pay for it with their own money'
If you make that your only question then you end up approving of theft and assassination, both of which are things people are willing to pay for with their own money. Unless you're happy with that, you need some other principles.
- chrisseaton 10y agoSo the company that invested the most time and effort into collecting the money earns the most money. In your analogy if they were illegally cutting down other people's nets or illegally breaking their wind machines, I'd see a problem with that. Just as theft and assassination are covered by the common law. Otherwise, I understand your argument but just disagree that anything unethical is going on.
- gjm11 10y agoOK, so now we've switched from "why can't we just agree that what you deserve to be paid is exactly what others are willing to pay you" to some combination of that with "you deserve to be paid more if you've invested more time and effort" and "you only deserve to be paid for things that aren't actually illegal". The trouble with the second of these, as an ethical principle, is that it offers no way to decide what to make illegal in the first place. Suppose your legal system has carelessly failed to forbid murdering people for money; then doing so meets all of your criteria (people will pay for it, doing it well surely requires an investment of time and effort, and it isn't against the law). Someone arguing against it will have to make exactly the kind of argument you've objected to here: "Murder-for-hire is a bad thing even though people will pay for it, because overall it makes the world a worse place." You may reasonably be completely untroubled by this if you think your legal system, as it is now, perfectly captures all the moral principles it's reasonable to care about. Personally, I am not convinced that any actually existing legal system does this. > I understand your argument but just disagree that anything unethical is going on. OK. How do you feel about the ethics of the situation in my fable? The first person who realised that he could get more money by putting up a big net that extends over his neighbour's garden: anything wrong with that? Are you happy with the final result, where the overall amount of money everyone's getting is the same but lots of people are having to work very hard to make it be them rather than someone else who gets it? I'm not sure I'd exactly say that hedge funds, or indeed the money-collecting businesses in my fable, are acting unethically. If they didn't do it, someone else would and the situation wouldn't be any better. But I would say that the overall result is a pretty terrible one. What we have here is a coordination problem: you have lots of people acting in individually-reasonable ways, and the overall outcome is much worse than what you'd get if by some magic everyone could agree to act so as to produce a mutually-better outcome. (E.g., just letting the money carry on falling from the sky.) (The best answer we currently have to large-scale coordination problems is regulation enforced by the government. That has plenty of problems of its own, of course.)