
What value do we create here? - carterac
http://www.astatespacetraveler.com/have-you-ever-wondered-what-value-we-create-here/
======
xxzz
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.

~~~
Qz
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'.

~~~
lionhearted
> 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.

~~~
jsankey
Agreed, we've done a pretty amazing job to become so productive. But we've
done a terrible job of distributing this among the world's population. It's
pretty appalling that with our current levels of productivity there are still
so many people whose basic needs are not being met.

I guess it depends what you mean by efficiently allocating capital. What's the
end goal? Just to produce as much as we can?

~~~
lionhearted
> Agreed, we've done a pretty amazing job to become so productive. But we've
> done a terrible job of distributing this among the world's population.

The problem isn't distribution - it's a couple of different things.

Forgive me if this seems obvious, but the biggest reason some people are poor
is lack of production - by and large, the poorest people aren't producing very
many things that their fellow man wants to trade them things for. Even looking
at charity as a short term bridge, to be independent and emancipated person
you need to produce as much or more than you consume. So, why aren't they
producing? That's a heck of a complicated question. I'd say the number one
most common reason is bad government, and the number two is time.

Bad government - well, you know how that works. I was just in Cambodia last
month - no matter how much you'd like to produce, you're not going to be able
to to under Khmer Rogue Agrarian Communism. You need basic free action,
liberty, human rights to produce.

Most people agree with that well enough. But they don't necessarily like the
second answer - time. It takes time for people to grow into producing and
succeeding. The fastest it happens is 1-2 generations, but those are people
coming from cultures with high priority on education, industry, and family
ties (I'm thinking of Ashkenazi Jewish and Han Chinese as my first examples -
people from those cultures regularly go from nothing to fairly wealthy in 1-2
generations). Most more normal cultures, it seems to take 3-5 generations of
incremental lessons and improvements to get out of poverty. My great-
grandparents were dirt poor - literally had nothing, my grandparents were
quite poor, my parents came up poor and moved into middle class, and I've got
a shot to break upwards from there.

I think you can help people out with that cycle, but only so much. I mean, the
track record of foreign aid is really, really bad. (I can dig up some
citations and studies if you don't know about it - but foreign aid has
basically failed to end poverty in the countries it was sent to; poverty
actually increased in a number of places that got large amounts of aid) I
think it really does take 3-5 generations under normal circumstances for
people to get into the right mentalities of produce things, consume and save
wisely with the money, educate your children, delay gratification, etc, etc.
Much of this happens in the home. These lessons take a while to learn.

It's not a consumption problem first - it's a production problem. It's not
that there's not enough food to eat - it's that people aren't growing and
cooking enough food. If they were, they'd have enough to eat. When we keep
giving people food, that doesn't seem to get them into learning how to grow
and cook, which is what they need to be emancipated and independent, living,
producing, and getting wealthy on their own.

> It's pretty appalling that with our current levels of productivity there are
> still so many people whose basic needs are not being met.

First and foremost, I think you've _got_ to be an optimist at how great things
are. Flush toilets are a luxury in Cambodia, man. I think it's marvelous that
we have so many flush toilets in the world. Seriously, I'm in Hong Kong now,
and I'm walking into nice hotels and using the men's room there and just
really enjoying the experience. After Cambodia, using a nice bathroom feels
like incredible luxury to me.

But I digress - first and foremost, there's the problem of bad government.
Bad/corrupt/stifling rule = no progress. So the people of Burma, North Korea,
Venezuela, Cuba are in trouble until then. You need protections of human
rights and liberty, and some sort of sanity about allowing people to produce
and keep what they produce. No mass murdering, arrests and tortures,
confiscation of property at the whim of some bureaucrat.

And then you need time. Cambodia's rapidly improving since the Vietnamese
government overthrew the Khmer Rouge in the early 90's. It was an utter
wasteland under the Communists, now it's poor but improving every year. In two
more generations (40-50 years, they have kids young there), it'll be fairly
prosperous. They'll have flush toilets, they won't have the same traffic
accident rate, there'll be more hospitals and infrastructure and clean food
and water and medicine. Things will improve. It does take time, though.

Actually, of all the things that improve nations, ironically, it seems like
foreign investment into industry does the best. But maybe this is selection
bias - industry is only built in stable places, and we already know stability
is important. Still, I see a lot of the wealth in Cambodia coming from foreign
investment in hotels, hospitals, and other infrastructure that was designed
for Western visitors, but is also immense help to the Khmer people. (The
hospital is half-price for Khmer, for instance, and those hotel jobs are
highly sought after)

> I guess it depends what you mean by efficiently allocating capital. What's
> the end goal? Just to produce as much as we can?

Well, it doesn't hurt. Things we produce start out as luxuries and eventually
become commodities. There's (slow) internet in Cambodia, which is a result of
the people who made hardware and software and networking originally. There's
cars in Cambodia. They'll import flush toilets eventually. (You can find them
already at luxury places) Medicine that gets invented in the West gets
genericized 15 years later, and is available for very little money in
developing places at that point. All the knowledge we invent and innovate
makes it's way over there. They can and do use modern agricultural techniques.
New designs on cars and clothing and manufacturing make the way over to
developing places.

Yes, actually, producing as much as we can is a pretty good plan for improving
the world. That, and overthrowing bad governments I suppose. Then it just
takes time - people need to learn little lessons about producing, saving,
delaying gratification, and so on. It takes a little while - we're all of us
still just overgrown apes and all - but we're moving forwards at a pretty
remarkable pace.

~~~
jsankey
> The problem isn't distribution - it's a couple of different things.

I certainly agree that we can't solve this problem by just trying to
redistributing existing wealth (i.e. aid). It was never a viable long term
solution, and not even as much of a short term one as I would have guessed.

But I stick by the point that we've made amazing strides in productivity, but
overall we've not distributed this well. What I really mean by this is, IMO,
it would be a better result overall if the world were less productive, but the
minimum living standard were higher.

I agree that it's productivity we need to spread, not wealth. The former will
bring the latter. But, I think it's fair to say that some parts of the world
could afford to spend more of their effort towards facilitating this. Even if
that means a drop in overall output, for a while at least.

> Things we produce start out as luxuries and eventually become commodities.

Sure, but the incremental benefits of these items to people tends to get
smaller. These could be sacrificed at least until everyone reaches a flatter
part of this curve.

This like medicines, sanitation, are not exactly in the same class as, say, an
iPod.

> Yes, actually, producing as much as we can is a pretty good plan for
> improving the world.

In practice a decent plan, and perhaps even the only practical one given human
nature and our political systems. But still not a goal in itself.

~~~
lionhearted
> What I really mean by this is, IMO, it would be a better result overall if
> the world were less productive, but the minimum living standard were higher.

Maybe, but I think it's a bit of a non-sequitor. There's no either/or choice
there. Consistently, a place producing a lot equates with a high quality of
life. The only places that do better for quality of life are relatively small,
extremely homogeneous societies (Okinawa, Switzerland, etc). As a general,
large scale strategy, produce more is pretty good. Attempts to produce less
and streamline it to where the governor thinks it should go have all ended
poorly thus far.

> Sure, but the incremental benefits of these items to people tends to get
> smaller. These could be sacrificed at least until everyone reaches a flatter
> part of this curve. This like medicines, sanitation, are not exactly in the
> same class as, say, an iPod.

Definitely - and this is a choice we already get to make as individuals. You
can choose how much you want to consume, invest, and give charitably. It's an
individual ethical judgment, and one we must all make and live with.

> In practice a decent plan, and perhaps even the only practical one given
> human nature and our political systems. But still not a goal in itself.

Well, I think "produce as much good stuff as we can" is a good goal in itself,
but improving the baseline of the whole world is good too. Actually, I think
they're complimentary goals, and not really in opposition with each other at
all. Working to build as much good stuff as possible in the world makes it
easier to make more good stuff cheaper - I don't think there's any natural
antagonism or choice between producing more and improving the baseline for the
rest of the world. In fact, I'm pretty sure they're complimentary goals.

------
carterac
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.

------
swombat
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
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" :)

------
albertsun
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.

~~~
lrm242
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.

------
inafewwords
[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
_Long time lurker. Please forgive me for length_

What a thing to say with _that_ username :)

------
alttab
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.

------
CrLf
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.

------
rubinelli
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?

~~~
ww520
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.

------
ww520
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>

------
mkramlich
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?"

