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Can't say I agree with these statements. I would wager that the scale of money a rapidly growing finance sector is using is more important than an unsubstantiat

Can't say I agree with these statements. I would wager that the scale of money a rapidly growing finance sector is using is more important than an unsubstantiated claim of industry brain-drain.

Kalium 12y ago
Industry brain drain is a known phenomenon in other circumstances, such as the natural resources trap. It's plausible that it could occur here.
cynicalkane 12y ago
Brains are part of the real economy. Money is just money, and large amounts of it flows through institutions of various brain quality without being "eaten".
nickbauman 12y ago
Totally agree. When the finance sector grows, demands for return interest on capital investment intensifies, acting as a gravity-well for capital away from development. Firms like Goldman make every investment require higher and higher returns at a greater and greater scale. Money chasing money. Casino economy. Instead of opening a new line of business, your profits must be funneled into paying back on that loan at higher and higher rate.
- PaulHoule 12y ago
  Take a look at the allergy to investment in broadband in the US. The economics for Fiber Optics looks good in almost all situations in the US if you look at a ten year horizon. In the short term, however, Verizon can make more money by building an LTE infrastructure that costs more and does less and will be thrown away in five years and has 15x the OPEX of an optic fiber network. Today interest rates are crazy low and you'd think a company like Frontier would do this and know that that they won't be overbuilt in the flyover states and will pay a great dividend year after year for decades, but they don't. But just watch, once interest rates are crazy high you'll see companies scramble to get money.
  - kevin_thibedeau 12y ago
    Frontier's home city of Rochester had to redeploy fiber for all their trunk lines after a disastrous ice storm in the 90's. You'd still be lucky to get 4Mbit DSL from them. They are bottom feeders only out to milk a dying cow. Improving infrastructure is cost center that doesn't pad the execs wallets so it gets ignored.
- Retric 12y ago
  Returns are relative. Using the US example there has been a continious downward trend in post inflation returns over the last 100 years, but investment keeps growing.
- this_user 12y ago
  The finance sector does more than lend/invest capital themselves. Large investment banks provide a wide range of services for companies (e.g. bond issues, IPOs, secondary offerings, working out M&A deals, brokerage services, ...). The biggest problem with the finance sector is that it is extremely opaque and almost no one outside the industry understands what financial institutions actually do. Yet, everyone seems to know that banks are bad. Which is better: a bright graduate working on making a large web company's advertising algorithms slightly more efficient or the same person working for an investment bank on a bond deal that helps a biotech company raise more money for future R&D?
  - glesica 12y ago
    The economy wasn't blown up because an M&A or bond issue went bad. I don't think anyone seriously believes that "banks are bad", I think they (myself included) tend to think that "the banks we have are bad". It's a subtle, but important difference and totally consistent with the article.
  - chroem- 12y ago
    >Which is better: a bright graduate working on making a large web company's advertising algorithms slightly more efficient or the same person working for an investment bank on a bond deal that helps a biotech company raise more money for future R&D? That's the very definition of a false choice. We should be pouring more resources into developing new technology itself, not just trying to advertise or fund it more efficiently. Right now small technical innovators are being absolutely starved of capital, and it's going to have some pretty dire consequences for the US economy in the coming decades. When is the last time that you saw a successful hardware startup that did something nontrivial (a la Intel)? The only reason software businesses are doing so well is because they require very little capital. All of the shifting money between hands on Wall Street is sucking the air out of our industries.
    - this_user 12y ago
      > When is the last time that you saw a successful hardware startup that did something nontrivial (a la Intel)? Define 'nontrivial'. I'd call Tesla and SpaceX nontrivial. Or what kind of hardware are you talking about? Maybe take a look here: https://angel.co/hardware https://angel.co/hardware > All of the shifting money between hands on Wall Street is sucking the air out of our industries. That's the very definition of a false cause and it's also so woolly that is barely means anything. Which money is "shifting hands on Wall Street" and what is is that even supposed to mean? Of course money is being transferred, that's the very idea of a financial system. And how does this "suck the air out" of anything? Banks are not the ones who would rather fund your photo sharing app than the next Intel. If you want to go down that route, blame the Angels/VCs who are the driving force behind what is getting funded. Or blame the people who are more interested in reading about/working on the latest flavour-of-the-month Javascript framework instead of actually tackling the hard(ware) problems. Wall St. are not the ones behind the wheel when it comes to determining which new ideas get attention.
- zo1 12y ago
  I've often held the opinion (and someone argue/correct me if I'm wrong here), that a lot of this artificial demand for growth is a problem due to inflation. I.e. Government keeps devaluing the currency and lowering natural interest rates, causing individuals (and banks) to seek riskier returns. This effect is pervasive in the economy. I can't even begin to comprehend what our economy/world would look like if interest rates and inflation weren't controlled/manipulated by state governments. Sustainable companies? Ones that don't chase every tiny increase in short-term profit/gain? I don't know. Would we even have such a huge equity market? Most of everyone's money is in the equity market, and I have no idea why. Everyone is trying to leverage what little they have to "beat inflation" that they only thing they can do is either a risky business venture, or play the equity market. </rant_while_under_the_influence_of_food_poisoning>
  - jschwartzi 12y ago
    The really scary thing is that our leaders talk like this is a good thing. It's as if to them there is no other way to make money but to put your money together with other people's money and hope that someone with real initiative comes along and generates profit with it. In short it seems like they've created a system where the only way to truly be successful is to work in high finance, where you collect 2% of everyone's money as a fee no matter what.
  - maxerickson 12y ago
    The bond market is larger than the stock market (by 2x or more). There's also quite a few people whose primary asset (most of their money) is their house. I think you are also using a different definition of natural interest rates than is typical in economics jargon, in the jargon, the natural interest rate is approximately the rate at which the economy is growing (it isn't particularly likely that easy money is restraining economic growth, so low central bank rates shouldn't lower it; if anything, they would tend to push them higher). Poorly structured regulations are probably a bigger problem for the economy than easy money. An example would be regulation that appears to approve of the activities of a company that is giving derivatives high ratings when they know it is bullshit. That regulation either needs to be effective or to not exist. Another example would be the tax incentives surrounding mortgage interest, combined with pseudo-governmental programs to lower the interest rates on mortgages. It turns out that people don't buy a house based on some carefully estimated value of the house, they buy the house based on the payments they think they can afford to make. Given that psychology, the tax incentives lead people to pay a higher price for a house, and the lower interest rates lead them to pay a higher price for a house. What do you get? Skyrocketing housing prices that don't particularly benefit anybody.

Can't say I agree with these statements. I would wager that the scale of money a rapidly growing finance sector is using is more important than an unsubstantiated claim of industry brain-drain.

Kalium 12y ago

Industry brain drain is a known phenomenon in other circumstances, such as the natural resources trap. It's plausible that it could occur here.

cynicalkane 12y ago

Brains are part of the real economy. Money is just money, and large amounts of it flows through institutions of various brain quality without being "eaten".

nickbauman 12y ago

Totally agree. When the finance sector grows, demands for return interest on capital investment intensifies, acting as a gravity-well for capital away from development. Firms like Goldman make every investment require higher and higher returns at a greater and greater scale. Money chasing money. Casino economy. Instead of opening a new line of business, your profits must be funneled into paying back on that loan at higher and higher rate.

PaulHoule 12y ago
Take a look at the allergy to investment in broadband in the US. The economics for Fiber Optics looks good in almost all situations in the US if you look at a ten year horizon. In the short term, however, Verizon can make more money by building an LTE infrastructure that costs more and does less and will be thrown away in five years and has 15x the OPEX of an optic fiber network. Today interest rates are crazy low and you'd think a company like Frontier would do this and know that that they won't be overbuilt in the flyover states and will pay a great dividend year after year for decades, but they don't. But just watch, once interest rates are crazy high you'll see companies scramble to get money.
- kevin_thibedeau 12y ago
  Frontier's home city of Rochester had to redeploy fiber for all their trunk lines after a disastrous ice storm in the 90's. You'd still be lucky to get 4Mbit DSL from them. They are bottom feeders only out to milk a dying cow. Improving infrastructure is cost center that doesn't pad the execs wallets so it gets ignored.
Retric 12y ago
Returns are relative. Using the US example there has been a continious downward trend in post inflation returns over the last 100 years, but investment keeps growing.
this_user 12y ago
The finance sector does more than lend/invest capital themselves. Large investment banks provide a wide range of services for companies (e.g. bond issues, IPOs, secondary offerings, working out M&A deals, brokerage services, ...). The biggest problem with the finance sector is that it is extremely opaque and almost no one outside the industry understands what financial institutions actually do. Yet, everyone seems to know that banks are bad. Which is better: a bright graduate working on making a large web company's advertising algorithms slightly more efficient or the same person working for an investment bank on a bond deal that helps a biotech company raise more money for future R&D?
- glesica 12y ago
  The economy wasn't blown up because an M&A or bond issue went bad. I don't think anyone seriously believes that "banks are bad", I think they (myself included) tend to think that "the banks we have are bad". It's a subtle, but important difference and totally consistent with the article.
- chroem- 12y ago
  >Which is better: a bright graduate working on making a large web company's advertising algorithms slightly more efficient or the same person working for an investment bank on a bond deal that helps a biotech company raise more money for future R&D? That's the very definition of a false choice. We should be pouring more resources into developing new technology itself, not just trying to advertise or fund it more efficiently. Right now small technical innovators are being absolutely starved of capital, and it's going to have some pretty dire consequences for the US economy in the coming decades. When is the last time that you saw a successful hardware startup that did something nontrivial (a la Intel)? The only reason software businesses are doing so well is because they require very little capital. All of the shifting money between hands on Wall Street is sucking the air out of our industries.
  - this_user 12y ago
    > When is the last time that you saw a successful hardware startup that did something nontrivial (a la Intel)? Define 'nontrivial'. I'd call Tesla and SpaceX nontrivial. Or what kind of hardware are you talking about? Maybe take a look here: https://angel.co/hardware https://angel.co/hardware > All of the shifting money between hands on Wall Street is sucking the air out of our industries. That's the very definition of a false cause and it's also so woolly that is barely means anything. Which money is "shifting hands on Wall Street" and what is is that even supposed to mean? Of course money is being transferred, that's the very idea of a financial system. And how does this "suck the air out" of anything? Banks are not the ones who would rather fund your photo sharing app than the next Intel. If you want to go down that route, blame the Angels/VCs who are the driving force behind what is getting funded. Or blame the people who are more interested in reading about/working on the latest flavour-of-the-month Javascript framework instead of actually tackling the hard(ware) problems. Wall St. are not the ones behind the wheel when it comes to determining which new ideas get attention.
zo1 12y ago
I've often held the opinion (and someone argue/correct me if I'm wrong here), that a lot of this artificial demand for growth is a problem due to inflation. I.e. Government keeps devaluing the currency and lowering natural interest rates, causing individuals (and banks) to seek riskier returns. This effect is pervasive in the economy. I can't even begin to comprehend what our economy/world would look like if interest rates and inflation weren't controlled/manipulated by state governments. Sustainable companies? Ones that don't chase every tiny increase in short-term profit/gain? I don't know. Would we even have such a huge equity market? Most of everyone's money is in the equity market, and I have no idea why. Everyone is trying to leverage what little they have to "beat inflation" that they only thing they can do is either a risky business venture, or play the equity market. </rant_while_under_the_influence_of_food_poisoning>
- jschwartzi 12y ago
  The really scary thing is that our leaders talk like this is a good thing. It's as if to them there is no other way to make money but to put your money together with other people's money and hope that someone with real initiative comes along and generates profit with it. In short it seems like they've created a system where the only way to truly be successful is to work in high finance, where you collect 2% of everyone's money as a fee no matter what.
- maxerickson 12y ago
  The bond market is larger than the stock market (by 2x or more). There's also quite a few people whose primary asset (most of their money) is their house. I think you are also using a different definition of natural interest rates than is typical in economics jargon, in the jargon, the natural interest rate is approximately the rate at which the economy is growing (it isn't particularly likely that easy money is restraining economic growth, so low central bank rates shouldn't lower it; if anything, they would tend to push them higher). Poorly structured regulations are probably a bigger problem for the economy than easy money. An example would be regulation that appears to approve of the activities of a company that is giving derivatives high ratings when they know it is bullshit. That regulation either needs to be effective or to not exist. Another example would be the tax incentives surrounding mortgage interest, combined with pseudo-governmental programs to lower the interest rates on mortgages. It turns out that people don't buy a house based on some carefully estimated value of the house, they buy the house based on the payments they think they can afford to make. Given that psychology, the tax incentives lead people to pay a higher price for a house, and the lower interest rates lead them to pay a higher price for a house. What do you get? Skyrocketing housing prices that don't particularly benefit anybody.