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I love how the author complains about wealth extraction but the author's last book opined about the brilliant entrepreneurial ability of govts. Just a guess bu

I love how the author complains about wealth extraction but the author's last book opined about the brilliant entrepreneurial ability of govts. Just a guess but I never got the impression that the author understood anything about capitalism or what companies in the private sector do. You can complain about finance and make all kinds of statements with horrible historical parallels...the fact remains: this isn't like law, if something isn't valuable in some way then you don't get paid for it. The definition of value is what someone else will pay. The govt, by contrast, is the ultimate wealth extraction vehicle.

amelius 6y ago
> The definition of value is what someone else will pay. Never heard of extortionate pricing? Sometimes a large part of the price we pay for a good is actually the price of the system, not the price of the good.
- hogFeast 6y ago
  Yes, which is why I said it wasn't like law. Law is the price of the system, the price to train lawyers, the intentional complexity of law so that there is more work, time, and complexity. Saying that there is extortionate pricing in finance is hard to prove given the level of competition. The areas of lowest competition, like deposit banking, are generally not "high finance", big salary stuff. And most of the barriers to entry in those areas are imposed by govt, not some natural consequence of finance (again, the author has an amazing ability to pick and choose what facts are relevant). Indeed, the main reason why the industry has consolidated was govt intervention after the GFC. I think what people mean is: oh, this person makes more money than I THINK they should have (pretty much inevitable with academics). But that is something else. Empirically, this line of thought also found no success in the 20th century. Lots of people have thought that another group of people make too much money. I am not aware of any instance where they were able to take that money costlessly (i.e. they were wrong). The point of capitalism is these decisions being decentralised, and we don't need to rely on the self-appointed geniuses to tell us who is making too much money (spoiler: they will think anyone who has more money is an evil extractor, and that they should have some for pointless work...quite why the author doesn't think they are an extractor is worth examining).
repsilat 6y ago
> if something isn't valuable in some way then you don't get paid for it They say "The market can stay irrational longer than you can stay solvent." Naturally that's a sword that cuts two ways -- many "correct" early Wirecard short-sellers lost money, but also many "incorrect" Wirecard bulls got rich on its rise. The weighing machine can take a long time to do its job, and in the meantime a lot of wealth destruction can take place. Not that I think there's a better solution, just that the system is imperfect and is improved by many of the baseline regulatory functions of government. Government isn't all a money-pit :p
- hogFeast 6y ago
  Right but the baseline regulatory function actually increases costs and prices. Extractive firms love these regulations because they create rents (i.e. law). The irony is too much. And the problem with Wirecard is that people don't ask what would have happened otherwise. Wirecard had the govt suing people for them (basic regulatory function I suppose? lol). The point of markets isn't that the price is always right but that by creating a venue for people to disagree, you get an efficient outcome in the end. Fund managers who owned the stock get rinsed and will probably not get more capital. Fund manager who shorted the stock got more capital. Btw, the reason why Wirecard didn't blow up instantly was the govt. Regulators are tasked with a limited set of functions. They choose not to perform them. The failure wasn't the market, it was regulation (the fraud itself was ludicrously childish, it is the kind of thing you see in China).
JSavageOne 6y ago
> The definition of value is what someone else will pay. The whole point of the book is explaining why this is wrong. Maybe you should actually read it so you can actually understand the argument she's making and offer a serious critique.
- hogFeast 6y ago
  Yep, I have read both books. And I have also read the multiple books which were written in the 19th century which also said this...how did that wisdom end up working? Again, the idea that there is a small group of people extracting wealth from everyone else in society is one of the oldest ideas in the world. It substantially predates capitalism, it is also wrong.
  - ebertucc 6y ago
    Could you link a book that has shaped your thinking on this? Or some keywords to search? I'm not too informed on economics but the distinction between productive and unproductive economic activity sounds plausible to me.* Do you disagree with this distinction itself? * Naive examples of what I think of as "unproductive activity" are high frequency trading, gambling, and most advertising.
    - hogFeast 6y ago
      Marx, Adam Smith, Ricardo, pretty much every early economist wrote about this...I think Aristole even wrote about this (very briefly: the statement that some industries are extractive is saying that the price they charge isn't related to production costs, asking where value came from was economics until the late 19th century). And if you go back further, any period in which there was economic turmoil saw attempts to make this distinction. If you look at the late 16th century, when population pressure is starting to build up after the Black Death, you had engrossing laws. Some of these were regulations for product quality (i.e. the wheat content of bread iirc) but some of this was just plain, old: oh, these traders are evil. The most obvious historical example would be the regularity of genocides against certain groups (Jewish people, Chinese, Armenians...all were accused, very successfully I might add, of predatory behaviour). Gambling isn't unproductive...that makes no sense. That is like saying restaurants or making films is unproductive. Advertising isn't unproductive either...that is an even worse mistake than gambling. HFT is difficult because...is sub-second liquidity actually valuable? Probably not. Definitely, we need liquidity providers, definitely we need someone looking at prices and trying to react to information faster...but a lot of HFT is just mindless nonsense where you work out the price of X based on the price of everything else. In bad times, these relationships break down, liquidity dissolves, and you are seeing real fragility in markets even with information that moves globally (tbf, that isn't only HFT but bad regulation...ironically, these were intended to stop traders making too much money...classic). But has it lowered costs? Yes. Massively (investing two decades was nothing like today, even over the last five years the amount costs have fallen is staggering). Has it made trading easier? Yes. Massively. And do we need liquidity providers regardless? Yes (ppl forget, if you aren't paying HFT guys a fraction of a penny/share, you are paying the broker a few dollars/share). Btw, everyone says these are unproductive because they don't see the hard work that goes into them. It is easy to throw stones when you think only the things you do has value.

amelius 6y ago

> The definition of value is what someone else will pay. Never heard of extortionate pricing? Sometimes a large part of the price we pay for a good is actually the price of the system, not the price of the good.

hogFeast 6y ago
Yes, which is why I said it wasn't like law. Law is the price of the system, the price to train lawyers, the intentional complexity of law so that there is more work, time, and complexity. Saying that there is extortionate pricing in finance is hard to prove given the level of competition. The areas of lowest competition, like deposit banking, are generally not "high finance", big salary stuff. And most of the barriers to entry in those areas are imposed by govt, not some natural consequence of finance (again, the author has an amazing ability to pick and choose what facts are relevant). Indeed, the main reason why the industry has consolidated was govt intervention after the GFC. I think what people mean is: oh, this person makes more money than I THINK they should have (pretty much inevitable with academics). But that is something else. Empirically, this line of thought also found no success in the 20th century. Lots of people have thought that another group of people make too much money. I am not aware of any instance where they were able to take that money costlessly (i.e. they were wrong). The point of capitalism is these decisions being decentralised, and we don't need to rely on the self-appointed geniuses to tell us who is making too much money (spoiler: they will think anyone who has more money is an evil extractor, and that they should have some for pointless work...quite why the author doesn't think they are an extractor is worth examining).

repsilat 6y ago

> if something isn't valuable in some way then you don't get paid for it They say "The market can stay irrational longer than you can stay solvent." Naturally that's a sword that cuts two ways -- many "correct" early Wirecard short-sellers lost money, but also many "incorrect" Wirecard bulls got rich on its rise. The weighing machine can take a long time to do its job, and in the meantime a lot of wealth destruction can take place. Not that I think there's a better solution, just that the system is imperfect and is improved by many of the baseline regulatory functions of government. Government isn't all a money-pit :p

hogFeast 6y ago
Right but the baseline regulatory function actually increases costs and prices. Extractive firms love these regulations because they create rents (i.e. law). The irony is too much. And the problem with Wirecard is that people don't ask what would have happened otherwise. Wirecard had the govt suing people for them (basic regulatory function I suppose? lol). The point of markets isn't that the price is always right but that by creating a venue for people to disagree, you get an efficient outcome in the end. Fund managers who owned the stock get rinsed and will probably not get more capital. Fund manager who shorted the stock got more capital. Btw, the reason why Wirecard didn't blow up instantly was the govt. Regulators are tasked with a limited set of functions. They choose not to perform them. The failure wasn't the market, it was regulation (the fraud itself was ludicrously childish, it is the kind of thing you see in China).

JSavageOne 6y ago

> The definition of value is what someone else will pay. The whole point of the book is explaining why this is wrong. Maybe you should actually read it so you can actually understand the argument she's making and offer a serious critique.

hogFeast 6y ago
Yep, I have read both books. And I have also read the multiple books which were written in the 19th century which also said this...how did that wisdom end up working? Again, the idea that there is a small group of people extracting wealth from everyone else in society is one of the oldest ideas in the world. It substantially predates capitalism, it is also wrong.
- ebertucc 6y ago
  Could you link a book that has shaped your thinking on this? Or some keywords to search? I'm not too informed on economics but the distinction between productive and unproductive economic activity sounds plausible to me.* Do you disagree with this distinction itself? * Naive examples of what I think of as "unproductive activity" are high frequency trading, gambling, and most advertising.
  - hogFeast 6y ago
    Marx, Adam Smith, Ricardo, pretty much every early economist wrote about this...I think Aristole even wrote about this (very briefly: the statement that some industries are extractive is saying that the price they charge isn't related to production costs, asking where value came from was economics until the late 19th century). And if you go back further, any period in which there was economic turmoil saw attempts to make this distinction. If you look at the late 16th century, when population pressure is starting to build up after the Black Death, you had engrossing laws. Some of these were regulations for product quality (i.e. the wheat content of bread iirc) but some of this was just plain, old: oh, these traders are evil. The most obvious historical example would be the regularity of genocides against certain groups (Jewish people, Chinese, Armenians...all were accused, very successfully I might add, of predatory behaviour). Gambling isn't unproductive...that makes no sense. That is like saying restaurants or making films is unproductive. Advertising isn't unproductive either...that is an even worse mistake than gambling. HFT is difficult because...is sub-second liquidity actually valuable? Probably not. Definitely, we need liquidity providers, definitely we need someone looking at prices and trying to react to information faster...but a lot of HFT is just mindless nonsense where you work out the price of X based on the price of everything else. In bad times, these relationships break down, liquidity dissolves, and you are seeing real fragility in markets even with information that moves globally (tbf, that isn't only HFT but bad regulation...ironically, these were intended to stop traders making too much money...classic). But has it lowered costs? Yes. Massively (investing two decades was nothing like today, even over the last five years the amount costs have fallen is staggering). Has it made trading easier? Yes. Massively. And do we need liquidity providers regardless? Yes (ppl forget, if you aren't paying HFT guys a fraction of a penny/share, you are paying the broker a few dollars/share). Btw, everyone says these are unproductive because they don't see the hard work that goes into them. It is easy to throw stones when you think only the things you do has value.