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"Those who work in banking, venture capital, and other financial firms are in charge of allocating the economy’s investment resources. They decide, in a decentr

• jbooth 13y ago
  And that's as it should be. State-allocated capital without a private finance sector has failed miserably, like in terms of millions of people starving, everywhere it's been tried. There's a middle ground here. "Well-regulated market". Communists don't understand the market part (see Great Leap Forward) and Libertarians are idolators who think the market will automatically settle into the best thing for society if only we didn't have a government (see Somalia).
  • bduerst 13y ago
    Most of the self-proclaimed libertarians I have spoken to typically resort to 'No True Scotsmans' whenever you bring up a counter to their utopia. I say "utopia" because to them, a libertarian future was an insulated fantasy in which they controlled how everyone behaves.
    • deleted 13y ago
      [deleted]
  • soup10 13y ago
    I'm not advocating more government programs or central planning. I think it's more of a cultural issue and balancing social responsibility with profits.
  • scarmig 13y ago
    That's a wild overstatement. There have certainly been massive socialist famines, but there's also been massive capitalist ones (see: colonies of the UK in the 19th century). And socialist famines don't happen everywhere socialism is instituted (people did not starve en masse in East Germany), and in many of the places where famine actually did occur, it's probably better to view it as a success of central planning (in the limited sense that mass death was a purposeful, desired outcome, not something coming about because of economic incompetence). Amartya Sen has done a lot of research on this: the big factor that determines whether famines happen or not is less planning than it is democratic political structure.
    • watwut 13y ago
      Central planning in Russia was really incompetent and food shortages in Russia (not Ukraina) while Stalin was in power were often result of incompetence. In short, they used the fields in a wrong way.
      • scarmig 13y ago
        Incompetence is a matter of degree, as is famine. I'd be the last to say that Soviet economic competence was close to ideal. Indeed, it was significantly worse than even Tsarist economic management. But food shortages aren't the same as famines, and in the famines (assuming we're talking about the famines of the early 30s), economic incompetence wasn't the primary driving factor, although this may be simply a case where we simply have different definitions of incompetence. Stalin explicitly wanted millions of Ukrainians to die as collective punishment for not being sufficiently red, and it's fair to say that he thought it was better to have a dead peasant than a peasant not part of a collective farm, where they and all their activities could be made easily legible to the Soviet State and placed under bodily control. Those millions of deaths racked up could have been avoided if Stalin had wanted to, even within the rubric of central planning. It's really not even a matter of the famine being something that could've been "averted": the famine wasn't a natural occurrence but something engineered. Central planning, particularly central planning under a dictatorship, being highly conducive to psychopaths killing millions of people is something I'd agree with, but it needs explicit argumentation.
  • thwest 13y ago
    A significant private finance sector present in the 1920s in the US did nothing to prevent the great depression, where millions of people starved.
    • jbooth 13y ago
      And we passed a bunch of regulations afterwards which reduced the possibility of that happening again.
      • revscat 13y ago
        Regulations which, I believe, have largely been repealed.
        • Florin_Andrei 13y ago
          The future looks "bright" and full of "hope".
        • ArkyBeagle 13y ago
          It's all a heck of a lot richer story than that. If she's not just a curse word by now, Amity Schlae's (sp?) book on the Depression isn't bad at all. I dunno; all the bright-line false alternative stuff doesn't work. Economic history is still interesting. I believe it turns out that the regulation that got repealed probably would not have mattered much other than possibly setting up transparent exchanges for derivatives, and that seem speculative as well. YMMV, IMO, all that.
    • WalterBright 13y ago
      A good argument can be made that it's the 1914 takeover of money creation by the government that led do the financial collapse in 1930.
  • gopher1 13y ago
    Is China a well regulated market? Or are they communists who don't understand markets?
    • jbooth 13y ago
      China's a big place, a lot of people, several sets of rules depending on where you are and I don't even know which decade you're asking about. IM-uneducated-O their national decision makers currently do a better job than ours on economic policy (they actually invest in infrastructure and aren't in bankers' pockets on the plus side, a bit too cozy with leading industrial firms on the minus side), while local government there tends to be very corrupt by our standards.
      • gopher1 13y ago
        So maybe state-allocated capital doesn't always lead to mass famine?
        • jbooth 13y ago
          Are you just trolling? My comment made multiple references to the private sector that currently exists in China. You're aware that there's a healthy private sector in China currently, right? The name "Deng Xiaopeng" ringing any bells? They've had grains futures markets for 25 years now. Not state-allocated capital for food. Seems kinda implausible that you just missed that one. I'd suggest reading a newspaper sometime. Maybe a history book or two.
          • gopher1 13y ago
            Ahh I see. So your definition of the famine-inducing kind of state capital allocation is so narrow as to only include those instances where famine actually occurred. State allocated capital is totally fine then, so long as some of (undetermined amount?) a country's economic allocation of capital is governed by market forces?
            • 13y ago
  • danmaz74 13y ago
    I don't think the OP was arguing for a system "without a private finance sector". He was just arguing for a "middle ground" where effective regulation could cut the excessive of the private finance sector.
• fantnn 13y ago
  The more people are willing to pay for something, the more beneficial to society it is. You have 0 idea what you are talking about. Efficiently allocating resources and taking losses when mistakes are made is the engine that makes capitalism go.
• skylan_q 13y ago
  I would say the flaw is more fundamental. ...which companies and industries will shrink and which will grow. If there's no demand for the product or service, where is the business and financial model? The financiers don't determine what will turn a profit. They only predict what will return a profit. A market that signals growth and large profits will attract more investment. Investing in a market that doesn't return a profit is something financiers try to avoid. The market shapes the investors decisions, and the decisions shape the market.
  • crucialfelix 13y ago
    This isn't a complaint about markets and investors, it has nothing to do with the companies or how any financiers determine the destinies of those companies. Its about the unbearable amount of money they extract for the service they provide.
• pasbesoin 13y ago
  Individual advantage versus group advantage. ("Competition" versus "cooperation".) It may not have a single, "simple" solution, but it is always worth keeping in mind -- necessarily so, I would argue. Recently, we've had an extreme emphasis, in much of our (U.S., "Western") rhetoric, on the individual and competition. However, such emphasis, in the extreme, does not scale too well. One might argue that we are failing at scale, for some fundamental reasons.
• _greim_ 13y ago
  > That wall street occasionally invests in companies that actually do create wealth and allocate capital to the betterment of society is more a case of broken clock sometimes being right. I don't think the two goals—greed and making society better—are necessarily orthogonal, as you seem to be asserting. The incentive structure just isn't set up correctly.
• jobu 13y ago
  The incentives for the financial sector are broken "Bloated and inefficient, the financial sector is focused on hooking up bankers with large bonuses rather than matching savings with investment."
• randyrand 13y ago
  >on making more money. Not making society better. Not allocating capital effectively. The simple flaw in your argument is that you assume that these things are usually mutually exclusive. In fact, it is typically the opposite; they usually are one in the same. The things that are "best" for society also tend to make the most money. People pay for things because they want (or need [2])them, because it makes their lives better [1]. To extend this to investments, smart investments are investments to companies who will eventually make money, because their products are worth buying. Investing money is an incredibly rewarding but very risky activity. Smart investments will make upwards of 100x ROI, bad ones will lose every penny. Having smart investors is an imperative to maximizing the usefulness of money. Just look at Solyndra ;) 1. since people are having trouble understanding how to interpret this sentence let me clarify. "Better" is completely subjective. For the purpose of making buying decisions, "better" is whatever the person making this buying decision defines as "better" for them. All in all the point of "better" not really being "better" is irrelevant (as it the distinction between want and need). If you want to make the argument that investors are investing in companies that actually make our lives worse, then the solution is typically banning those companies and products directly, not banning investments to those companies. 2. thanks to /u/revscat (yes I know this is not reddit)
  • terio 13y ago
    Warren Buffet likes to argue that he does not make risky investments. With that in mind and under the light of how profits are made by the financial sector, it is pretty clear that when they make risky investments it is mostly with the client's money. The rest is just friction, like a toll booth.
    • ForHackernews 13y ago
      This is the key point. The wealthiest people on Wall Street are glorified middlemen gambling with somebody else's money and skimming cream off the top.
  • revscat 13y ago
    > People pay for things because they want them, because it makes their lives better. More often than not, people pay for things because they must. Food is not optional, nor is clothing, shelter, or health care. For the majority of American population gasoline, auto insurance, and related transportation expenses are similarly non-optional. Similarly electricity and water. For much of the population you can add in child support or day care. There is not much money, if any, left over for discretionary spending. The point is that you seem to believe that all spending is voluntary. This is flatly not true, and smacks of willful ideological naïveté.
• steveax 13y ago
  The stay out of jail part isn't even part of the equation these days is it? Considering how many people are in jail for almost destroying the world a few years ago, I'll go out on a limb and say the chances of that are effectively zero.
  • debt 13y ago
    There was outright fraud in some cases but, for the most part, the credit crisis was a systemic failure. It would be impossible to pin it on a few individuals.
    • steveax 13y ago
      I'm not advocating pinning it on a few individuals but rather a whole bunch of individuals. Compare the convictions for the recent fubar to the S&L crisis.
• ChuckFrank 13y ago
  I agree completely. The justification of market liquidity and accurate resource allocation are in fact false. As this article clearly articulates. Rent is the primary justification for their involvement in the market. And again as the article accurately articulates. The Rent is Too Damn High! (not to mention the brain drain on the labor markets, and the corrupting influence on politics, and the speculative instabilities, etc.)
• malandrew 13y ago
  "Those who work in banking, venture capital, and other financial firms are in charge of allocating the economy’s investment resources. They decide, in a decentralized and competitive way, which companies and industries will shrink and which will grow. It makes sense that a nation would allocate many of its most talented and thus highly compensated individuals to the task." This quote also stuck out to me to for two reason: (1) First, yes, it's true that these individuals collectively allocate the capital in our nation (and other nations), but at no point has anyone made a convincing case that this is the optimal (i.e. global maxima) for the overall good of society. There are myriad alternative ways in which society could organize itself to better allocate capital. What evidence out there actually supports the status quo as the best way, especially considering that we've never really given support to any plausible/promising alternatives. (2) Second, it matters not if you are the "most talented" individuals for the task if you don't act impeccably ethically. The only thing worse them incompetent people with good intentions are competent people with ill intentions. Wall Street if full of the latter, ensuring that their talents are going towards doing a remarkably good job at extracting rent from any of society's productivity gains.