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OK, 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 t

by gjm11 10y ago

OK, 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.)

chrisseaton 10y ago
I think what I'm looking for is specific acts that are unethical. What action have they done which is unethical? What will trigger my conscience? Putting a net over someone's garden, I can see that as an unethical act because it infringes on the other person and my conscience feels bad for the person under the net. Is there a similar concrete action that I can see as unethical in the trader's systems? Paying a huge sum of money to put machines inside a stock exchange's server room (I think people do that?) so they get lower latency for example. I don't see that as being an unethical act. Both the stock exchange and the trader are entitled to do whatever they want with their own systems in their own buildings, and presumably a fair price is being paid for the privilege. Nobody else's property or quality of life is infringed.
- gjm11 10y ago
  As I say, I'm not sure anyone's done anything exactly unethical -- but the final result can be very unsatisfactory even so. Still, let's see. Suppose a hedge fund discovers a pattern in the trades made by certain large pension funds. (Example: suppose there is some regulation that limits how much of any one asset they can hold at the end of each calendar month, and this leads to somewhat-predictable selling on the last trading day of each month.) They find that they can make money by selling (short if necessary) a lot of these assets the day before, and then buying them back after the pension funds make their trades. The pension fund managers don't have the option of changing when they make those trades, because there's an annoying law restricting what they do. End result: everyone whose pension is in the pension fund ends up just a tiny bit poorer, and the hedge fund is just a bit more successful. (Who loses? Pension funds; hence, investors in pension funds.) Or let's take your HFT example (though I think most hedge funds are not in the HFT business and don't really care about shaving a few microseconds off their latencies). So, we have an HFT firm. They pay that huge sum of money to the people who run the stock exchange to get their machines colocated. Now they, instead of their rivals who don't have the colocated machines, get to do all the market-making trades; their trading volume goes up, their rivals' goes down, and they make a pile of extra money. Those few microseconds of lower latency don't benefit the other people they trade with -- they matter only to HFT firms. And their rivals can't make up for it by quoting lower spreads, because prices are quantized and the very small price reduction that would be appropriate simply isn't possible. All that's happened is that our HFT firm has paid a pile of money to the exchange, and now they get to make more of the trades. This is the exact same structure as if they'd bribed the exchange for preferential treatment instead. (Who loses? Other market-making traders, which pretty much means other HFT firms.) In each of these scenarios, no one is stealing from anyone else. Nothing illegal is going on. But both of them are zero-sum: our protagonists are making more money and someone else is making less. (Almost perfectly zero-sum. In the first case, the price distortions arising from the pension funds' artificially constrained trades are smoothed out a bit. In the second, people trading with the HFT firm get their orders filled a few microseconds earlier.) Is it unethical, exactly? I dunno, and in any case your values and mine may not coincide. But the pattern each time is the same as when I put up a net that extends over your garden and catches some of the money raining from the sky: I have invested time and effort, with the consequence that I am a bit richer and you are a bit poorer.

by gjm11 10y ago

chrisseaton 10y ago

I think what I'm looking for is specific acts that are unethical. What action have they done which is unethical? What will trigger my conscience? Putting a net over someone's garden, I can see that as an unethical act because it infringes on the other person and my conscience feels bad for the person under the net. Is there a similar concrete action that I can see as unethical in the trader's systems? Paying a huge sum of money to put machines inside a stock exchange's server room (I think people do that?) so they get lower latency for example. I don't see that as being an unethical act. Both the stock exchange and the trader are entitled to do whatever they want with their own systems in their own buildings, and presumably a fair price is being paid for the privilege. Nobody else's property or quality of life is infringed.

gjm11 10y ago
As I say, I'm not sure anyone's done anything exactly unethical -- but the final result can be very unsatisfactory even so. Still, let's see. Suppose a hedge fund discovers a pattern in the trades made by certain large pension funds. (Example: suppose there is some regulation that limits how much of any one asset they can hold at the end of each calendar month, and this leads to somewhat-predictable selling on the last trading day of each month.) They find that they can make money by selling (short if necessary) a lot of these assets the day before, and then buying them back after the pension funds make their trades. The pension fund managers don't have the option of changing when they make those trades, because there's an annoying law restricting what they do. End result: everyone whose pension is in the pension fund ends up just a tiny bit poorer, and the hedge fund is just a bit more successful. (Who loses? Pension funds; hence, investors in pension funds.) Or let's take your HFT example (though I think most hedge funds are not in the HFT business and don't really care about shaving a few microseconds off their latencies). So, we have an HFT firm. They pay that huge sum of money to the people who run the stock exchange to get their machines colocated. Now they, instead of their rivals who don't have the colocated machines, get to do all the market-making trades; their trading volume goes up, their rivals' goes down, and they make a pile of extra money. Those few microseconds of lower latency don't benefit the other people they trade with -- they matter only to HFT firms. And their rivals can't make up for it by quoting lower spreads, because prices are quantized and the very small price reduction that would be appropriate simply isn't possible. All that's happened is that our HFT firm has paid a pile of money to the exchange, and now they get to make more of the trades. This is the exact same structure as if they'd bribed the exchange for preferential treatment instead. (Who loses? Other market-making traders, which pretty much means other HFT firms.) In each of these scenarios, no one is stealing from anyone else. Nothing illegal is going on. But both of them are zero-sum: our protagonists are making more money and someone else is making less. (Almost perfectly zero-sum. In the first case, the price distortions arising from the pension funds' artificially constrained trades are smoothed out a bit. In the second, people trading with the HFT firm get their orders filled a few microseconds earlier.) Is it unethical, exactly? I dunno, and in any case your values and mine may not coincide. But the pattern each time is the same as when I put up a net that extends over your garden and catches some of the money raining from the sky: I have invested time and effort, with the consequence that I am a bit richer and you are a bit poorer.