What value do we create here?

http://www.astatespacetraveler.com/have-you-ever-wondered-what-value-we-create-here/

by carterac • 16 years ago

117 56 16 years ago

xxzz3• 16 years ago

First of all, I disagree with the entire premise of the question. Why does the intelligent have an obligation to dedicate his or her life to the creation of maximal value for society? Sounds like Nietzsche's slave morality to me. Why does the attractive/tall/healthy not have a similar special moral obligation?

Second of all, providing liquidity is very important. Sure, you are only shaving off a few basis points, but multiply that by a few trillion and you are creating serious value. How much value does a silly time-wasting video game provide relative to the efficient allocation of the world's capital?

Finance is an extremely exciting field, where machine learning, econometrics, physics, and just about everything else converge. Imagine a world without car insurance, where startups cannot offer equity, where there are no IPOs. Finance facilitates co-operation, trade, and, yes it is cliche, but world peace. If you are interested, please don't let the media and finger-pointing politicians turn you away from this exciting line of work.

peyton• 16 years ago

When you talk about creating serious value, you're not talking about value in general, but the value derived from the money supply. Not that there's anything dirty about money. But value can come from other places.

For some people, it's hard to escape the soul-sucking nature of working in finance. The super-high salaries are a kind of anti-filter: they attract people who really don't "love what they do." And eventually money isn't enough to keep such people working. That's why i-banking has such a high burnout rate.

Speaking of Nietzsche, I know someone who quit i-banking to teach philosophy, of all things.

benmathes• 16 years ago

I might be projecting, but having hung out with Carter (the author) a few times while he spent this past summer out here in Palo Alto, I can probably assure you that it's just an un-stated assumption that's causing you guys to differ. The reason he's asking that question of "what value do you add?" is because it leads to personal fulfillment. Some people are personally fulfilled by shaving basis points. Hell, I could be one of them if not for the the lost forests of entry-level finance work.

Carter is talking to people that want to have huge impact on society. They dream to be Rockefellers, Jobs's, Brins, and so on. In those cases, it's always worth stepping back and thinking about what overall impact you're having. If all you're doing is shaving basis points you're probably not changing the nature of society.

And no, this doesn't rule out finance; J.P. Morgan diverted the vast holdings of Europe into the burgeoning economy of these United States (http://en.wikipedia.org/wiki/J._P._Morgan#Treasury_gold) during a crisis.

jimbokun• 16 years ago

"They dream to be Rockefellers, Jobs's, Brins, and so on."

In other words:

"Do you want to spend the rest of your life selling sugared water or do you want a chance to change the world?"

http://www.pbs.org/wgbh/pages/frontline/president/players/sc...

albertsun7• 16 years ago

The intelligent don't have an obligation to create maximal value. But if you're making money without creating value for society, then what you're doing is rent seeking and "cheating" people who do create value. http://en.wikipedia.org/wiki/Rent_seeking

I definitely agree that finance is an exciting field where a lot of interesting topics converge. However, the examples you give are way exaggerated. The full complexity of the modern financial system isn't really needed to facilitate trade/provide insurance/provide financing/whatever else. Those things don't go away if fewer people are trading inside spreads.

Yes, liquidity is important for a market. But it's not an end in and of itself. There is no value in liquidity. There's only value in what liquidity enables. It's like what Paul Graham always talks about, you have to make something people want. Liquidity is kind of like ball bearings. No one really wants ball bearings, but they're useful because of what they enable. Liquidity is the same way.

Edit: I'm also not suggesting that there's no value in making ball bearings or intermediate products, just that they are not the ultimate goal.

lrm2425• 16 years ago

You're wrong about liquidity. By providing liquidity to a market you are providing immediacy to someone else. Market participants seeking immediacy place a specific value on it and are willing to pay someone for the privilege. As a market participant, if you want to buy or sell at the market, you're directly benefiting from the liquidity being provided by other participants.

Qz• 16 years ago

Considering how many people in the world are starving, ill, undereducated, and unemployed, I'd say we're doing a piss-poor job of 'efficiently allocating the world's capital'.

xxzz3• 16 years ago

* Seems like all the more reason to try harder

* Financial innovation does help here, such as micro-lending, although admittedly not something done by Wall Street

* It's a complicated issue. Maybe the best solution we can hope for at the moment is to not keep funneling resources to corrupt regimes, where the most starving happens to be in. For the record, foreign investment has been a huge part of China and India's recent success.

lionhearted4• 16 years ago

> Considering how many people in the world are starving, ill, undereducated, and unemployed, I'd say we're doing a piss-poor job of 'efficiently allocating the world's capital'.

Considering how many in the world aren't starving, ill, undereducated, and unemployed, I'd say we're doing an utterly frigging amazing job of 'efficiently allocating the world's capital'.

Seriously - the question isn't, "Why are some people poor?" It's, "Why AREN'T some people poor?" Poverty is the natural state of humanity - we evolved from being apes and crawled out of forests, jungles, and caves. The fact that there's any literacy, lifespan over 30 years, immunization from disease, infrastructure, and knowledge is marvelous in and of itself. The rate that those things are growing lately is astounding. Humanity is doing a pretty amazing job lately.

moultano• 16 years ago

Unfortunately, capitalism ensures that "efficiently allocated" means "allocated in proportion to the combined wealth of the purchasers." It is, however, _very_ good at that. I really wish liberals had the balls to redistribute wealth directly and explicitly, and then let the free market provide the services (instead of filtering it through a government program first.)

billybob• 16 years ago

"Why does the intelligent have an obligation to dedicate his or her life to the creation of maximal value for society?"

What does intelligence have to do with it? Sweeping the streets is an honorable job and makes the world a little nicer. Writing a botnet for spammers isn't and doesn't.

tullius3• 16 years ago

I personally don't see any harm in asking the question "How much value does my job create?" While finance is an exciting field that does provide significant benefit in certain areas (i.e., liquidity, efficient pricing) the majority of the field is engaged in enormous zero-sum games, much like a casino. I think it's no wonder so many people get burned out in finance while entrepreneurs stay active and excited in what they are doing.

swombat• 16 years ago

Not very well written. The point is unclear... I had to read xxzz's comment to really figure out what he meant (probably because to me as to xxzz, "increasing the liquidity of the secondary bonds market" doesn't sound like "worthless value" at all, so the main point of the article contradicts my sense of values).

I think the question "How do we add value?" is important, but only in the sense that it can help you figure out what are the key activities of the business, that you should be involved in. It can help focus you, basically.

stoic• 16 years ago

This is exactly what I was thinking as I read the article. I think of it as a sort of mantra that can be applied in a variety of directions, whether you're a startup founder, an early-stage employee, an employee of a larger organization, or just a human being trying to make the most of your time.

i.e., "Am I doing something worthwhile?" -- which could mean different things depending on the context, the goals or principles of the person, or what have you. I guess it depends on how you define "value" :)

albertsun7• 16 years ago

The first two comments on the site provide a great insight into the question.

The first commenter posts to try and explain what value is being created.

Efficient markets -> lower transaction costs -> greater access to the markets by everyone. Why is that un-noble? Isn't Art.sy doing the same thing?

All true. Then Carter responds agreeing and writes a bit about what Art.sy is doing.

Art.sy is not saving the world, but our goal is to create a fundamental change in the way art is bought, sold, and appreciated. We envision a dramatically different future where artists can pursue their passions more sustainable, and where everyone else will be more inspired by original art.

The first commenter isn't wrong about why creating liquidity has value, he just hasn't gone far enough. So there's greater access to the markets by everyone. What good does that do? There are several more steps before getting eventually to the production of things that have real value.

Art.sy does the same thing, but hasn't lost sight of the end goal. The reason for providing a more efficient and liquid market is so that more artists can create more original art.

lrm2425• 16 years ago

The first commenter was me. The financial markets are horizontal in the goals they serve. Drawing connections to specific utility can be done, but doesn't have to be done. For example:

Efficient markets -> lower transaction costs -> greater access to the markets by everyone -> farmer sells a futures contract to lock in price and hedge risk -> farmer uses capital to buy equipment -> farmer grows more crops

Your definition of utility is valid, but your desire to draw direct connections between end game utility is misplaced because there are millions of connections that can be drawn. Each market participant interacts with the markets according to their own definition of what is and is not important to them. You seek to define value for every human using financial markets in the world.

rubinelli• 16 years ago

I don't get it. How is arbitrage supposed to increase liquidity, if it is in practice increasing the cost of transaction? Isn't the middleman increasing the friction in the system?

ww5202• 16 years ago

When something is illiquid due to insufficient buyers and sellers, the bid and ask spread is large. A big discount is needed to motivate people to buy it. E.g. you ask for $100 to sell your lawn mower because that's what every seller asking for. People only bid $60 to buy a lawn mower because they know it's difficult to resell it. The spread is $40. Now from time to time, a few buyers would get desperate and buy at $100; likewise a few sellers would sell at $60.

Someone then comes in and says the spread is crazy. He offers to bid to buy at $70 and to ask to sell at $90. The few desperate sellers of course would sell to him at $70 instead of $60. And the few desperate buyers would buy from him at $90. He narrows the spread from $40 to $20, and makes $20 in between. He basically increases the buyer and seller pools by adding himself to them, thus increased the liquidity of the lawn mower secondary market.

The risk to the arbitrager is that he guesses the amount of potential buyers or sellers wrong and set the wrong narrower bid and ask prices. E.g. he could buy a lot of lawn mowers at $70, but there are much fewer buyers willing to buy at $90. He would have to reduce his offer price to $85, $80, $75, $65, or $60 to really get the buyers going. As you can see his profit margin erodes and eventually turns into a loss.

carterac• 16 years ago

Wow, I'm quite surprised and honored to come home and see that my post got so many votes.

Having read through most comments below, I want to make a few points:

1. I am not implying a moral obligation to do some jobs over others. Nor am I suggesting a framework to judge the value of some jobs over others. If I had known this was going to be read by so many people, I would have spent more time making sure my message was communicated more clearly. I'm sorry for giving some people the wrong idea.

2. My point is actually very simple and I expect the vast majority of Hacker News readers already get it: for people considering what jobs to do, especially young college students, be wary of focusing on the value of fun and money. Fun and money can be very distracting when you are young and haven't experienced so much freedom before. However, the decisions you make when you are young can have consequences for the trajectory of your whole life. Always think about what will give you long-term and enduring happiness and satisfaction. Often, I think long-term happiness is connected with a cause greater than your own immediate satisfaction. Hence the consideration of value creation.

It's obvious advice, but I hoped my story would make it more digestible for college students.

mkramlich• 16 years ago

In a similar spirit to the article's question I've recently switched the emphasis of my economic thinking from, "How can I make money?" to "Are there any real-world problems I encounter frequently, or know that others are experiencing, that I think I can solve, and make money while doing it?"

ww5202• 16 years ago

Reminds me of Richard Hamming's saying: "What important problems are you working on?"

Very good read - "You and your research" http://www.cs.virginia.edu/~robins/YouAndYourResearch.html

inafewwords• 16 years ago

[Long time lurker. Please forgive me for length]

I think the most obvious creation of value comes from my view of how video games increase the value of technology. Video games tax the underlying hardware and software technology to its limits causing those underlying systems to shift towards greater utility under market pressure.

If value is seen by its utility, then I would say that it is inevitably the result of market pressure to have a better product. Where money is concerned, profit pushes improvement. This is just part of the underlying structure the economy.

If you are asking about social incentives, it is a personal one for the programmer. He feels fulfilled writing the program. Is it not the same self-fulfillment that his manager was seeking- the idea of meeting his ideal self's human potential? It may not be the same goal, but the main crux of the argument is in self-fulfillment.

But all of that is off-topic considering the headline.

If you are looking for an argument that would give merit that this job "creates value," I would say that it feeds the families of those who work at that company by making it more sustainably profitable.

I'd weasel my way out of answering the question directly. I would counter that you can ask the same thing about what value marketing gives. Sure the companies have useful products, but what does all that money spent on image branding and market testing product color and style pallets give? Hell, even the TV programming they place it against can be absolutely vapid and lacking in any moral or mental fortitude.

But back to my off-topic rant up above. When the general economy hires talent, we generally view that the use of such talent not only increases the talent pool by demand but also the training quality of future professionals by the increased use of such training facilities (universities, researchers, hardware, market). Relying on only measuring directly viewable metrics is a nice and dandy, but the big picture approach (although based on ideals and doesn't correlate 1 to 1 in reality) is a general notion that is hard to argue against.

tl;dr The more you use a resource the more it improves (towards efficiency). This includes talent.

ananthrk• 16 years ago

Long time lurker. Please forgive me for length

What a thing to say with that username :)

CrLf• 16 years ago

Maybe not on-topic considering all the other comments, but by the time I was finished with the first paragraph I could only think how far that is from my "ultimate dream job".

Actually, and considering value, I guess my ultimate dream job was building stuff that provided no value whatsoever but fun for me (and others as an added bonus).

I'm starting to find too frequently that stuff that provide value actually provide no value at all. Especially on the business software side of things, the idea is usually to ease the lives of the users but in reality, users hate whatever is thrown at them, and with good reason, it usually solves them an existing problem by creating two new ones.

alttab• 16 years ago

He all but said he create the basis of yet another High Frequency Trading firm.

I had an interview with one in the past and while the models that they used were fascinating and I could get lost in them forever driven by pure mathematical interest - it seems unbalancing.

While HFT does provide liquidity and the ability to instantly make a market, it also makes companies and trades look more liquid than they are. More than half of the stock exchange's trades are made by high frequency traders.

There are ups and downs and each situation should be weighed individually.

Overall, I'd say the epiphany that the author had is sadly something that many people miss. We then turn around and we wonder why the world is such a bad and dangerous place.

What value do we create here?

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