
Economic Inequality (2016) - airstrike
http://www.paulgraham.com/ineq.html
======
skookumchuck
> A high-frequency trader does not. He makes a dollar only when someone on the
> other end of a trade loses a dollar.

A free trade is where not only equal value is exchanged (according to the
values assigned by the traders), but _both_ parties benefit from the trade.
Otherwise they wouldn't trade.

Whether a trade is flipped a short time or a long time later makes no
difference.

For example, if I buy MSFT for $100 and later sold it for $110, who "lost"
$10?

~~~
dragonwriter
> A free trade is where not only equal value is exchanged (according to the
> values assigned by the traders), but both parties benefit from the trade.
> Otherwise they wouldn't trade.

This is only true under the perfect information about future utilities
assumption, which is false generally and strikingly false when it comes to
financial markets.

Financial trades often reflect imperfect information and either different risk
tolerance or simple information asymmetry what one party has a more accurate
estimate of future performance than the other. Neither of these situations
involves actual realized mutual benefit.

~~~
skookumchuck
> This is only true under the perfect information about future utilities
> assumption, which is false generally and strikingly false when it comes to
> financial markets.

There is no such thing as perfect information, and you're not going to get it
via government regulation or values fixed by government fiat, either.

Free markets do not rely on perfect information at all. They rely on the
participants making their own decisions on what the value is to themselves.
Even if you are sure they are wrong.

> actual realized mutual benefit

You also cannot decide for others what is of benefit to them. They may (and
surely do) value different factors entirely differently than you do.

~~~
dragonwriter
> There is no such thing as perfect information

Exactly, which is why the microeconomics 101 “free trades have mutual benefit
or they wouldn't happen” idea is generally _wrong_ , though it may tolerably
approximate reality under the best possible conditions in certain markets.

~~~
skookumchuck
It is not wrong. The correct phrase is:

"Free trades have mutual perceived benefit or they wouldn't happen."

What makes a free trade free is the absence of force or fraud, not perfect
information.

By the way, imperfect information is also called "risk", and risk affects the
price of the trade. It's why responsible people can borrow money at lower
rates than irresponsible ones. Or why a car that won't start will sell at a
far lower price than one that does, even if the repair is reconnecting a loose
wire. Or why you'll be willing to pay more for an item from a reputable dealer
than an unknown one.

------
skookumchuck
> The reason he and most other startup founders are richer than they would
> have been in the mid 20th century is not because of some right turn the
> country took during the Reagan administration, but because progress in
> technology has made it much easier to start a new company that grows fast.

I would add that what enables such growth is the internet and the easy,
instant access it gives to world markets, rather than just your local area.

