To better imagine the lives of future ems, I want to learn more about the lives of people who work near eighty or more hours per week today. Since I haven’t found much academic work, I thought I might ask readers here directly.
Dear Robin, Unfortunately I missed this topic, and I do miss reading this blog, but I have no time (heh). If you are still interested in stories of 80+ hour work weeks I'm another who's in that category (3 jobs: my 3yo daughter, my research, grant proposal writing) . And I'm stopping that nonsense with large life changes (another international move) in a few months. You are welcome to send a private email to gather data :-) and talk/catch up. Ciao for now, Amara
"I agree that because economists don’t agree on what caused the financial crisis, some of them are blinded by their bias."It means you shouldn't try to cherry-pick opinions from experts. I've heard enough well-reasoned opinions from many sides that I don't bother having an opinion.
"That individual trading companies had to be bailed out because they were too big to fail means that they are too big and the first thing that should have been done after they were bailed out was that they be broken up into pieces, each of which is small enough to fail. It doesn’t take any economic expertise to see and understand that."Yes it takes expertise. First of all, what is the optimal size of a company. If several small companies misallocate the same amount of capital it is pretty much as the same thing as big one does. You need to make calculations of what kind of incentives small firms face. Then you also run into questions of knowledge problem, evolution of financial institutions and so on. Financial regulation is complex business, trying to make "obvious truths" is signalling high status not understanding the enormous complexity of the issue. Even Robin has told people to ask someone else because he isn't sure he knows enough about the crisis. Focusing on the size of the institutions is missing other less sexy things like interest rates, animal spirits, macroeconomic theory, capital theory etc.
"Since the “advantage” of collusion, insider information, deception and manipulation is so large, it isn’t easy to deal with. A Tobin tax would limit that."What makes you think you know any better than the median economist? Sweden managed to kill their bond market with that. Tobin's tax sounds a lot like minimum wage law. Something that signals we care about the poor, but actually just harms them. It seems like rather easy problem to see through if we had a prediction market, and people with bad analysis would pay for their mistakes.
Many forms of Insider trading can be efficient. In fact in perfect markets, the only people making profits would be insiders. And the legal definition of insider trading is very different from the economic one. The "legal" insider trading is very small part of global markets compared to the economic one. To give you a basic example, if I know there's a gold under your house, and buy it, but don't tell you, I'm doing insider trading. Banning this is probably efficiency loss. Everyone who is making above-average profit (even with their own job!) is an insider on markets by economic principles.
Sure there rip-offs and ways to gamble the system through arbitrage of asset positions, but I hear people whining about insider trading every now and then without actually understanding the efficiency calculations needed to understand different forms of it, many of which are efficient. Basically I see it as another status signalling game.
I worked the 80+ hours per week as a lawyer as well. (Off and on - I was in M&A for nearly 15 years so work hours followed the business cycle, and I went through a few of them. I can attest, though, that, when you know you will be hit with 80+ hour weeks again as soon as the economy picks up, you don't reschedule your life in any way that might lead you or anyone else to depend on your doing anything but working 80+ hours.)
I agree with Matt's summary (particularly his perceptive opportunity cost point), with the exception that I also didn't exercise at all. I don't think I was unusual, though there were a good number of dedicated gym-rats at my firm. I still don't exercise now that I'm working more like 40-50 hours per week, though, so maybe it's just me. Or maybe there is a correlation between people driven to work obsessively and people driven to do other things obsessively (maybe exercise).
I'd also add anecdotally:
-Vacations/breaks: Because these were so infrequent, they tended to be much more extravagant that what I'll do now that I get regular vacations and weekends (and can be fairly confident that I'll get another day or two off at some point in the not too distant future). In part there was a sense of "I deserve this because I've been working so hard, and because I've been working so hard I need extraordinary measures to decompress" (which even at the time I recognized as high-octane hooey). It was also a strategy to discourage clients from deciding I needed to cancel for work at the last minute (because they'd be reimbursing me for tickets and deposits and such).
I was also willing to pay a premium for convenience (both to save time planning and to go to places well equipped enough for you to continue working, so you can actually go) and to avoid possible disappointment. If you think you're only likely to get one week off a year, the risk of making a bad choice in a "quirky" hotel isn't worth it.
In contrast (or counterpoint) to that, once the blackberry became a standard-issue leash I seemed to notice a large increase in vacations that involved open ocean cruises, hiking in rural Malaysia and the like, where there were no telephones or wireless connections. Maybe there's a cost-free way to handle that for ems, but I suppose it depends on what their leisure would be like.
-Help: As y81 says, lawyers who regularly work those hours often have outside help to cover the personal duties they cut out. For a fair number of the men this help was called a "wife." Most women (and the men whose wives continue to work) had more of their income eaten up with replacement domestic labor. (I am lucky enough to have an itinerant professor for a husband, so we had child care costs but he cleaned and cooked.)
-Shopping: As with vacation time, there is a willingness to pay a premium for convenience and speed. If it weren't for the internet I would probably have stopped shopping for anything but the most bare necessities. As it was, I did weekly grocery shopping from my desk in less than 5 minutes.
-Education: Only as required by law. (Which it is for practicing lawyers.) Non-work reading of all sorts fell by the wayside as well.
-Meals: In addition to eating out (or ordering in) a lot, there is the horrid habit of eating at your desk while working, which trains you to eat on autopilot (very bad for long-term weight maintenance) and does unpleasant things to the digestion. Then there is the incremental destruction of rain forest caused by re-printing docs with salad dressing on them.
-Social Life: If you don't cut this entirely, your acquaintances will do it for you because you have nothing to say for yourself other than to talk about work.
-Family: This moves to the backburner (after work, sleeping, eating, showering, and decompressing enough to go back and do it again the next day). You won't suffer through the 2nd grade play about the food groups, and you have an excuse to put off annoying calls from your mother, but it's not all positive. I remember having to deal with a work emergency for 14 hours on my daughter's 4th birthday (a Sunday).
Cutting family obligations has knock-on effects for family members because someone needs to do many of the family-related things the 80 hour worker doesn't. To the extent those things aren't or can't be outsourced, other family members have to take them on, requiring them to make cuts to other areas of their own lives (including their own work). I'm not sure how that would translate to the experience of future ems, but an effect like it might be something to consider.
I agree that because economists don't agree on what caused the financial crisis, some of them are blinded by their bias. That doesn't mean that all are blinded, and it doesn't mean that there was not a definite cause. It doesn't mean that “no one knows”, or that there are no policy changes that would accelerate recovery and prevent future crises.
That the financial sector had to be bailed out and couldn't be allowed to simply fail means that it is too big, too interconnected and insufficiently regulated. That individual trading companies had to be bailed out because they were too big to fail means that they are too big and the first thing that should have been done after they were bailed out was that they be broken up into pieces, each of which is small enough to fail. It doesn't take any economic expertise to see and understand that. That there are economists claiming otherwise simply shows me how biased they are.
What ever economic “efficiencies” are obtained by the size and interconnectedness of the financial sector it comes at too big a price if the whole sector needs to be bailed out. The economy can better deal with an ongoing degree of inefficiency than it can deal with periodic catastrophic failures. People may disagree with that, but my guess is that such people are biased because they gain both from the faux efficiencies and from the bailouts following catastrophic failure.
My reasoning behind a Tobin tax is that it displaces the cost of a transaction off zero. In effect it adds “resistance”, to slow down transactions and make the system more stable. In a past job, I build equipment that could separate flour from bran. In talking to flour companies, they said that fluctuations in the wheat market were much larger than their profit margin on turning wheat into flour. The only way they could do business was to base flour prices on the wheat futures market and when the order for flour was placed to buy wheat futures for delivery when they needed the wheat to make the flour.
Trading only turns information into pricing when markets are fair. If markets are not fair because of collusion, insider information, deception, and manipulation, then markets simply unfairly enrich those who practice collusion, insider information, deception and manipulation at the expense of those who don't. Since the “advantage” of collusion, insider information, deception and manipulation is so large, it isn't easy to deal with. A Tobin tax would limit that.
If markets were fair and well regulated, I would see no need for a Tobin tax. The problem is that markets are not fair and are not well regulated and are unlikely to be so because the market makers have the power to manipulate the regulators via lobbying.
I think that the traders who got bailed out in the financial crisis know full well what caused it. They just don't want to say so because it would then be dealt with and would reduce their income. They want to turn that information into profit/pricing as many times as they can by getting bailed out again and again.
I am surprised to see objections to a Tobin tax coming from stock brokers. They charge commissions on sales don't they? How would a Tobin tax be different except that it would be smaller?
daedalus, how about get a decent economics book instead of trying to duduce the laws of efficiency on your own. The role of speculators is to move knowledge from real-world to prices. It can be a mathematical patterns in prices, or just practical knowledge about the conditions (like the future demand or supply of given resource). In some ways, its hard to distinct the two. Since conditions in the world are changing all the time (entropy hello), there will be need for speculators. Bias and price patterns could reduce in theory though.
The marginal product of speculator is not that much different from any other branches of production. So yes it does contribute to GDP, when rents are not collected. Trading uses resources. GDP is just a number. Efficiency is getting about more outputs with same inputs (resources). That is what good manufacturers do, and this is what (useful) speculators do.
Maybe the size of financial sector is currently too big and mostly rent-seeking. It possible. I don't have an opinion on that. I'm not an economist. These are quite complex questions. However, if trading does not increase the market efficiency, there will be no trading profits either (on average).
And I won't comment on your armchair economics on the financial mess. I've heard plausible stories that highly contradict each other especially on what should be done (from experts), and non-economists have very little useful to say, like Robin has said before, other than confirm their bias, that is.
The "tax on trading" is basically Tobin's tax, supported by ATTAC. Normally we wan't to get rid of transaction costs (and increase liquidity), not increase them. It is kind of like saying if you make it harder to buy cars, you'll have less rip-offs. Very little empirical research backs it up, Tobin's tax is more of signalling that "we do something about the evil capitalists" that sounds half-plausible. Most people who interested in it are not economists but left-wing politicians, which makes me very suspicious. It won't raise much revenue, let alone fund government.
Ari, I agree that trading can be beneficial by removing inefficiency, but that can't be what is driving the economy. Once all of the inefficiency is removed, then any profits that trading removes above that weakens the economy by removing profits that could be used to generate growth in non-trading sectors.
We know that the economy can't be sustained if 100% of GDP goes to traders, some GDP has to go to people who make stuff and who grow food. How could we determine if the percentage of the economy being captured by traders is too high, or too low? If it is too high, then the economy can't grow. We should see capital chasing the high “yields” of zero-sum trading and not the low yields of steady growth. We should see essentially what we have now; high unemployment with banks sitting on money they won't lend and corporations sitting on cash that they won't invest because there is no demand because unemployment is so high.
What happens if there is not enough trading to make the economy efficient? This is somewhat tricky conceptually. What is important isn't the amount of profit that trading takes out of the economy, what matters is how much is left in after inefficiency and the trading profit that it cost to remove that inefficiency is taken out. Inefficiency and trading profit are both components of GDP that don't produce economic growth. In other words, if trading simply removes inefficiency and collects that inefficiency as profit, there is no change in the fraction of GDP available for economic growth and there is no benefit from trading. To produce a benefit, trading has to reduce inefficiency at a lower cost than the profits that trading extracts.
I think greater “efficiency” at trading is a problem that is now impeding growth. As trading becomes more “efficient”, it captures a larger fraction of the inefficiencies in the market. When trading captures all of those inefficiencies, trading provides no benefit to the market, the benefit is only to the traders. In the limit, if traders captured all “inefficiency” in the market, then everyone else would be reduced to subsistence wages and subsistence profits.
If traders generate an inefficiency and then profit by exploiting that inefficiency (for example by scamming credit ratings), then there is negative benefit to the economy (i.e. it only hurts the economy). I think this is a major type of trading that is going on now and is characterized by the CDOs. CDOs were extremely opaque “investments” that were deliberately opaque and inefficient so as to scam investors out of their money.
One way to fix this is with a tax on every transaction. If every transaction was taxed, then traders would only make the transaction if their profit exceeded the tax. A portion of the inefficiency is then captured as tax and used to support the government and lower the taxes on other parts of the economy. Inefficiency that is less than the tax would be left in the economy and would represent increased profits to the parties in the transaction without the trader. Since a trader has to make two transactions (buy low and sell high), the trader gets hit with two taxation events where the normal buyer and seller only get hit once.
I think a good goal would be to set this transaction cost at a level where it is a major funding source for the government.
Washing dishes is very low status.Whereas, creating a wicked-smart AI that initiates Singularity makes you the ultimate 'big man' status-wise. Dangerous is exciting and exciting is sexy.
Are you sure you don't care about credentials or prestige? Maybe you actually do but at the same time you don't want to be the kind of person who cares about such things and it ends up manifesting in weird ways, for example as your inability to enjoy any work done on behalf of others.
Regardless of its source, this inability seems like a terrible curse, that makes you virtually doomed to unhappiness in the world we live in. You seem to perceive it as a fixed trait of your personality but try to imagine is as something changeable and then actually change it. Seek counseling / therapy, explore more alternative career options, talk to friends and family who are likely to influence you. Anything to escape the choice between a life of 80 hour work weeks in an intellectually taxing profession and a life of ennui.
I think you should read the link John Maxwell posted. It's very common for people to believe they're getting more work done by working longer hours when they actually aren't. The literature also suggests that this problem is even more true in intellectual jobs than it is in manual labor jobs.
I pretty much agree, having worked 80 hour weeks as a lawyer for long periods, though not recently. In my case, exercise did get cut back, but I've probably never gone longer than 12 to 18 months at this level, so maybe Matt is right that it isn't sustainable.
I would add that, unlike grad students, lawyers who work at this level can hire a maid to do most of the errands, shopping, cleaning etc. that otherwise occupy most people.
Adding to what Matt said, I would say that (i) socializing (other than with work colleagues) goes to zero, (ii) recreational reading goes to zero, and (ii) watching TV, for me, meant watching the ninth inning (Rivera gets the save) as a way to unwind after getting home and before going right to sleep.
mjgeddes, are you a trader? Honestly, just talking to people who work at the industry (other than your own) is a cheap way to get highly beneficial information about the job's work-life balance, how interesting it is etc. No need to do theoretical reasoning that is probably detached from the real world.
daedalus, trading is zero sum but that doesn't make it useless. For example if I traded my apple pie to your watch, you appreciated the apple pie more than your watch, and I appreciated the watch over my apple pie. It was zero-sum, but we both benefited and mirabile dictu, social utility was created.
Take prediction markets for example. Many laymen might condemn them as pointless gambling. It is zero-sum but they create information. The smarter the speculators are, the more efficient the market is. Likewise real speculators transfer information from "real world" to prices. Sometimes it is just correcting the mistakes (bias hello) of other traders but that is mostly efficient too.
In stock market, the social function of speculators is to make the market more efficient. The better they do their job the less we waste capital.
Of course not all speculation has to be efficient. Ripping each other off is certainly possible in ways that waste human capital or cause massive reallocation on real street. This depends highly on empirical data and the details. Average economist opinion is your best bet there.
My mom is a workaholic; over 90 hours a week. She doesn't have time to exercise, regularly gets take out or fast food on nights she works late (my dad rarely cooks), and her social life is mostly limited to church and family. I don't think her TV watching habits are that far below average.
Paul, that is not always correct. For a market to be efficient, the market must be transparent where buyers and sellers have equivalent information and multiple options. When a monopoly power is involved, the market is not efficient and the monopoly power can extract a disproportionate share of the value added in the value added chain from raw materials to consumer utilization.
It doesn't matter what the monopoly is in, if the monopoly is in an essential part of the value added chain, then that monopoly can extract a disproportionate share of the value added. That leaves less for the rest of the value added chain, and in the limit not enough to support growth of the rest of the value added chain, so growth slows due to the monopoly power, and growth is limited to what the monopoly power will allow.
This is a common business strategy, become a monopoly power, then use that monopoly power to maintain monopoly power. It would be even more common if it were not illegal.
What traders try to trade on is inside information, information that they have a monopoly on. Turns out that is illegal too, but it is still extremely common. In effect, the function of traders is to be the conveyors of differential pricing information, but they do so at a cost that is equal to the the differential being conveyed. If all market participants had perfect or even equivalent market knowledge, there would be no pricing differentials that traders could profit from.
The problems that caused the financial meltdown was that the “information” was being gamed. S&P and the other raters had a financial interest in rating CDOs as less risky than they were. Some of the traders knew this (the traders that hired S&P), and so could take that into account.
Traders only add value to a market when they are a small fraction of the market. Once traders start to dominate the market, they extract a disproportionate share of the value-added and the non-trader value of the market declines.
Evidence in support of the idea that work doesn't cut that much: http://calnewport.com/blog/...
Dear Robin, Unfortunately I missed this topic, and I do miss reading this blog, but I have no time (heh). If you are still interested in stories of 80+ hour work weeks I'm another who's in that category (3 jobs: my 3yo daughter, my research, grant proposal writing) . And I'm stopping that nonsense with large life changes (another international move) in a few months. You are welcome to send a private email to gather data :-) and talk/catch up. Ciao for now, Amara
"I agree that because economists don’t agree on what caused the financial crisis, some of them are blinded by their bias."It means you shouldn't try to cherry-pick opinions from experts. I've heard enough well-reasoned opinions from many sides that I don't bother having an opinion.
"That individual trading companies had to be bailed out because they were too big to fail means that they are too big and the first thing that should have been done after they were bailed out was that they be broken up into pieces, each of which is small enough to fail. It doesn’t take any economic expertise to see and understand that."Yes it takes expertise. First of all, what is the optimal size of a company. If several small companies misallocate the same amount of capital it is pretty much as the same thing as big one does. You need to make calculations of what kind of incentives small firms face. Then you also run into questions of knowledge problem, evolution of financial institutions and so on. Financial regulation is complex business, trying to make "obvious truths" is signalling high status not understanding the enormous complexity of the issue. Even Robin has told people to ask someone else because he isn't sure he knows enough about the crisis. Focusing on the size of the institutions is missing other less sexy things like interest rates, animal spirits, macroeconomic theory, capital theory etc.
"Since the “advantage” of collusion, insider information, deception and manipulation is so large, it isn’t easy to deal with. A Tobin tax would limit that."What makes you think you know any better than the median economist? Sweden managed to kill their bond market with that. Tobin's tax sounds a lot like minimum wage law. Something that signals we care about the poor, but actually just harms them. It seems like rather easy problem to see through if we had a prediction market, and people with bad analysis would pay for their mistakes.
Many forms of Insider trading can be efficient. In fact in perfect markets, the only people making profits would be insiders. And the legal definition of insider trading is very different from the economic one. The "legal" insider trading is very small part of global markets compared to the economic one. To give you a basic example, if I know there's a gold under your house, and buy it, but don't tell you, I'm doing insider trading. Banning this is probably efficiency loss. Everyone who is making above-average profit (even with their own job!) is an insider on markets by economic principles.
Sure there rip-offs and ways to gamble the system through arbitrage of asset positions, but I hear people whining about insider trading every now and then without actually understanding the efficiency calculations needed to understand different forms of it, many of which are efficient. Basically I see it as another status signalling game.
Sorry that was so long -
I worked the 80+ hours per week as a lawyer as well. (Off and on - I was in M&A for nearly 15 years so work hours followed the business cycle, and I went through a few of them. I can attest, though, that, when you know you will be hit with 80+ hour weeks again as soon as the economy picks up, you don't reschedule your life in any way that might lead you or anyone else to depend on your doing anything but working 80+ hours.)
I agree with Matt's summary (particularly his perceptive opportunity cost point), with the exception that I also didn't exercise at all. I don't think I was unusual, though there were a good number of dedicated gym-rats at my firm. I still don't exercise now that I'm working more like 40-50 hours per week, though, so maybe it's just me. Or maybe there is a correlation between people driven to work obsessively and people driven to do other things obsessively (maybe exercise).
I'd also add anecdotally:
-Vacations/breaks: Because these were so infrequent, they tended to be much more extravagant that what I'll do now that I get regular vacations and weekends (and can be fairly confident that I'll get another day or two off at some point in the not too distant future). In part there was a sense of "I deserve this because I've been working so hard, and because I've been working so hard I need extraordinary measures to decompress" (which even at the time I recognized as high-octane hooey). It was also a strategy to discourage clients from deciding I needed to cancel for work at the last minute (because they'd be reimbursing me for tickets and deposits and such).
I was also willing to pay a premium for convenience (both to save time planning and to go to places well equipped enough for you to continue working, so you can actually go) and to avoid possible disappointment. If you think you're only likely to get one week off a year, the risk of making a bad choice in a "quirky" hotel isn't worth it.
In contrast (or counterpoint) to that, once the blackberry became a standard-issue leash I seemed to notice a large increase in vacations that involved open ocean cruises, hiking in rural Malaysia and the like, where there were no telephones or wireless connections. Maybe there's a cost-free way to handle that for ems, but I suppose it depends on what their leisure would be like.
-Help: As y81 says, lawyers who regularly work those hours often have outside help to cover the personal duties they cut out. For a fair number of the men this help was called a "wife." Most women (and the men whose wives continue to work) had more of their income eaten up with replacement domestic labor. (I am lucky enough to have an itinerant professor for a husband, so we had child care costs but he cleaned and cooked.)
-Shopping: As with vacation time, there is a willingness to pay a premium for convenience and speed. If it weren't for the internet I would probably have stopped shopping for anything but the most bare necessities. As it was, I did weekly grocery shopping from my desk in less than 5 minutes.
-Education: Only as required by law. (Which it is for practicing lawyers.) Non-work reading of all sorts fell by the wayside as well.
-Meals: In addition to eating out (or ordering in) a lot, there is the horrid habit of eating at your desk while working, which trains you to eat on autopilot (very bad for long-term weight maintenance) and does unpleasant things to the digestion. Then there is the incremental destruction of rain forest caused by re-printing docs with salad dressing on them.
-Social Life: If you don't cut this entirely, your acquaintances will do it for you because you have nothing to say for yourself other than to talk about work.
-Family: This moves to the backburner (after work, sleeping, eating, showering, and decompressing enough to go back and do it again the next day). You won't suffer through the 2nd grade play about the food groups, and you have an excuse to put off annoying calls from your mother, but it's not all positive. I remember having to deal with a work emergency for 14 hours on my daughter's 4th birthday (a Sunday).
Cutting family obligations has knock-on effects for family members because someone needs to do many of the family-related things the 80 hour worker doesn't. To the extent those things aren't or can't be outsourced, other family members have to take them on, requiring them to make cuts to other areas of their own lives (including their own work). I'm not sure how that would translate to the experience of future ems, but an effect like it might be something to consider.
I agree that because economists don't agree on what caused the financial crisis, some of them are blinded by their bias. That doesn't mean that all are blinded, and it doesn't mean that there was not a definite cause. It doesn't mean that “no one knows”, or that there are no policy changes that would accelerate recovery and prevent future crises.
That the financial sector had to be bailed out and couldn't be allowed to simply fail means that it is too big, too interconnected and insufficiently regulated. That individual trading companies had to be bailed out because they were too big to fail means that they are too big and the first thing that should have been done after they were bailed out was that they be broken up into pieces, each of which is small enough to fail. It doesn't take any economic expertise to see and understand that. That there are economists claiming otherwise simply shows me how biased they are.
What ever economic “efficiencies” are obtained by the size and interconnectedness of the financial sector it comes at too big a price if the whole sector needs to be bailed out. The economy can better deal with an ongoing degree of inefficiency than it can deal with periodic catastrophic failures. People may disagree with that, but my guess is that such people are biased because they gain both from the faux efficiencies and from the bailouts following catastrophic failure.
My reasoning behind a Tobin tax is that it displaces the cost of a transaction off zero. In effect it adds “resistance”, to slow down transactions and make the system more stable. In a past job, I build equipment that could separate flour from bran. In talking to flour companies, they said that fluctuations in the wheat market were much larger than their profit margin on turning wheat into flour. The only way they could do business was to base flour prices on the wheat futures market and when the order for flour was placed to buy wheat futures for delivery when they needed the wheat to make the flour.
Trading only turns information into pricing when markets are fair. If markets are not fair because of collusion, insider information, deception, and manipulation, then markets simply unfairly enrich those who practice collusion, insider information, deception and manipulation at the expense of those who don't. Since the “advantage” of collusion, insider information, deception and manipulation is so large, it isn't easy to deal with. A Tobin tax would limit that.
If markets were fair and well regulated, I would see no need for a Tobin tax. The problem is that markets are not fair and are not well regulated and are unlikely to be so because the market makers have the power to manipulate the regulators via lobbying.
I think that the traders who got bailed out in the financial crisis know full well what caused it. They just don't want to say so because it would then be dealt with and would reduce their income. They want to turn that information into profit/pricing as many times as they can by getting bailed out again and again.
I am surprised to see objections to a Tobin tax coming from stock brokers. They charge commissions on sales don't they? How would a Tobin tax be different except that it would be smaller?
daedalus, how about get a decent economics book instead of trying to duduce the laws of efficiency on your own. The role of speculators is to move knowledge from real-world to prices. It can be a mathematical patterns in prices, or just practical knowledge about the conditions (like the future demand or supply of given resource). In some ways, its hard to distinct the two. Since conditions in the world are changing all the time (entropy hello), there will be need for speculators. Bias and price patterns could reduce in theory though.
The marginal product of speculator is not that much different from any other branches of production. So yes it does contribute to GDP, when rents are not collected. Trading uses resources. GDP is just a number. Efficiency is getting about more outputs with same inputs (resources). That is what good manufacturers do, and this is what (useful) speculators do.
Maybe the size of financial sector is currently too big and mostly rent-seeking. It possible. I don't have an opinion on that. I'm not an economist. These are quite complex questions. However, if trading does not increase the market efficiency, there will be no trading profits either (on average).
And I won't comment on your armchair economics on the financial mess. I've heard plausible stories that highly contradict each other especially on what should be done (from experts), and non-economists have very little useful to say, like Robin has said before, other than confirm their bias, that is.
The "tax on trading" is basically Tobin's tax, supported by ATTAC. Normally we wan't to get rid of transaction costs (and increase liquidity), not increase them. It is kind of like saying if you make it harder to buy cars, you'll have less rip-offs. Very little empirical research backs it up, Tobin's tax is more of signalling that "we do something about the evil capitalists" that sounds half-plausible. Most people who interested in it are not economists but left-wing politicians, which makes me very suspicious. It won't raise much revenue, let alone fund government.
Ari, I agree that trading can be beneficial by removing inefficiency, but that can't be what is driving the economy. Once all of the inefficiency is removed, then any profits that trading removes above that weakens the economy by removing profits that could be used to generate growth in non-trading sectors.
We know that the economy can't be sustained if 100% of GDP goes to traders, some GDP has to go to people who make stuff and who grow food. How could we determine if the percentage of the economy being captured by traders is too high, or too low? If it is too high, then the economy can't grow. We should see capital chasing the high “yields” of zero-sum trading and not the low yields of steady growth. We should see essentially what we have now; high unemployment with banks sitting on money they won't lend and corporations sitting on cash that they won't invest because there is no demand because unemployment is so high.
What happens if there is not enough trading to make the economy efficient? This is somewhat tricky conceptually. What is important isn't the amount of profit that trading takes out of the economy, what matters is how much is left in after inefficiency and the trading profit that it cost to remove that inefficiency is taken out. Inefficiency and trading profit are both components of GDP that don't produce economic growth. In other words, if trading simply removes inefficiency and collects that inefficiency as profit, there is no change in the fraction of GDP available for economic growth and there is no benefit from trading. To produce a benefit, trading has to reduce inefficiency at a lower cost than the profits that trading extracts.
I think greater “efficiency” at trading is a problem that is now impeding growth. As trading becomes more “efficient”, it captures a larger fraction of the inefficiencies in the market. When trading captures all of those inefficiencies, trading provides no benefit to the market, the benefit is only to the traders. In the limit, if traders captured all “inefficiency” in the market, then everyone else would be reduced to subsistence wages and subsistence profits.
If traders generate an inefficiency and then profit by exploiting that inefficiency (for example by scamming credit ratings), then there is negative benefit to the economy (i.e. it only hurts the economy). I think this is a major type of trading that is going on now and is characterized by the CDOs. CDOs were extremely opaque “investments” that were deliberately opaque and inefficient so as to scam investors out of their money.
One way to fix this is with a tax on every transaction. If every transaction was taxed, then traders would only make the transaction if their profit exceeded the tax. A portion of the inefficiency is then captured as tax and used to support the government and lower the taxes on other parts of the economy. Inefficiency that is less than the tax would be left in the economy and would represent increased profits to the parties in the transaction without the trader. Since a trader has to make two transactions (buy low and sell high), the trader gets hit with two taxation events where the normal buyer and seller only get hit once.
I think a good goal would be to set this transaction cost at a level where it is a major funding source for the government.
Washing dishes is very low status.Whereas, creating a wicked-smart AI that initiates Singularity makes you the ultimate 'big man' status-wise. Dangerous is exciting and exciting is sexy.
Are you sure you don't care about credentials or prestige? Maybe you actually do but at the same time you don't want to be the kind of person who cares about such things and it ends up manifesting in weird ways, for example as your inability to enjoy any work done on behalf of others.
Regardless of its source, this inability seems like a terrible curse, that makes you virtually doomed to unhappiness in the world we live in. You seem to perceive it as a fixed trait of your personality but try to imagine is as something changeable and then actually change it. Seek counseling / therapy, explore more alternative career options, talk to friends and family who are likely to influence you. Anything to escape the choice between a life of 80 hour work weeks in an intellectually taxing profession and a life of ennui.
I think you should read the link John Maxwell posted. It's very common for people to believe they're getting more work done by working longer hours when they actually aren't. The literature also suggests that this problem is even more true in intellectual jobs than it is in manual labor jobs.
You could try washing dishes for a living.
I pretty much agree, having worked 80 hour weeks as a lawyer for long periods, though not recently. In my case, exercise did get cut back, but I've probably never gone longer than 12 to 18 months at this level, so maybe Matt is right that it isn't sustainable.
I would add that, unlike grad students, lawyers who work at this level can hire a maid to do most of the errands, shopping, cleaning etc. that otherwise occupy most people.
Adding to what Matt said, I would say that (i) socializing (other than with work colleagues) goes to zero, (ii) recreational reading goes to zero, and (ii) watching TV, for me, meant watching the ninth inning (Rivera gets the save) as a way to unwind after getting home and before going right to sleep.
mjgeddes, are you a trader? Honestly, just talking to people who work at the industry (other than your own) is a cheap way to get highly beneficial information about the job's work-life balance, how interesting it is etc. No need to do theoretical reasoning that is probably detached from the real world.
daedalus, trading is zero sum but that doesn't make it useless. For example if I traded my apple pie to your watch, you appreciated the apple pie more than your watch, and I appreciated the watch over my apple pie. It was zero-sum, but we both benefited and mirabile dictu, social utility was created.
Take prediction markets for example. Many laymen might condemn them as pointless gambling. It is zero-sum but they create information. The smarter the speculators are, the more efficient the market is. Likewise real speculators transfer information from "real world" to prices. Sometimes it is just correcting the mistakes (bias hello) of other traders but that is mostly efficient too.
In stock market, the social function of speculators is to make the market more efficient. The better they do their job the less we waste capital.
Of course not all speculation has to be efficient. Ripping each other off is certainly possible in ways that waste human capital or cause massive reallocation on real street. This depends highly on empirical data and the details. Average economist opinion is your best bet there.
My mom is a workaholic; over 90 hours a week. She doesn't have time to exercise, regularly gets take out or fast food on nights she works late (my dad rarely cooks), and her social life is mostly limited to church and family. I don't think her TV watching habits are that far below average.
Paul, that is not always correct. For a market to be efficient, the market must be transparent where buyers and sellers have equivalent information and multiple options. When a monopoly power is involved, the market is not efficient and the monopoly power can extract a disproportionate share of the value added in the value added chain from raw materials to consumer utilization.
It doesn't matter what the monopoly is in, if the monopoly is in an essential part of the value added chain, then that monopoly can extract a disproportionate share of the value added. That leaves less for the rest of the value added chain, and in the limit not enough to support growth of the rest of the value added chain, so growth slows due to the monopoly power, and growth is limited to what the monopoly power will allow.
This is a common business strategy, become a monopoly power, then use that monopoly power to maintain monopoly power. It would be even more common if it were not illegal.
What traders try to trade on is inside information, information that they have a monopoly on. Turns out that is illegal too, but it is still extremely common. In effect, the function of traders is to be the conveyors of differential pricing information, but they do so at a cost that is equal to the the differential being conveyed. If all market participants had perfect or even equivalent market knowledge, there would be no pricing differentials that traders could profit from.
The problems that caused the financial meltdown was that the “information” was being gamed. S&P and the other raters had a financial interest in rating CDOs as less risky than they were. Some of the traders knew this (the traders that hired S&P), and so could take that into account.
Traders only add value to a market when they are a small fraction of the market. Once traders start to dominate the market, they extract a disproportionate share of the value-added and the non-trader value of the market declines.