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At this point someone please explain to me how finance doesn't exist to extract wealth from the rest of us.

It's called capitalism because we use capital to allocate value creation. So obviously finance extracts wealth, that's their job in a capitalist system.

We only allocate to value creation if there is a functioning free market.

The banks profit margins would suggest that they are not really facing the fierce winds of competition.

But in the case of OP the value creation does not happen because they are working in finance instead of in a job creating value.

I want to see some decent analysis of the situation, not stories about how the system is supposed to work.

Decision of where to allocate money creates value. Imagine you have 500k to allocate. You can choose to invest in A or B, after analysis you realize A is a failing business, but B with 500k invested will create enormous value by producing product C. If you didn't allocate in B this company wouldn't have had enough money to produce C and succeed.

Yes, but this can still be true if the system works in a perverted way.

In your example, you should include how many $ go to the entity doing the allocation. If this is an insane amount of money, then maybe we are better off without finance and just figure out the optimal allocation in some other way.

But who will do that other way of optimally allocating?

To take a simple extreme edge case, let's imagine that there's a business that requires 500k to truly flourish, but if it gets that 500k, it will become $10B company within 5 years. If it doesn't get the 500k it will likely fail.

Only 1 person has noticed and believes that this business would have that potential. And let's say they either have 500k or they manage to convince others to get the 500k, how much of that $10B would they deserve?

if money come from printer and not from factory you need a "printer operator", not a worker or engineer

The job of secondary financial markets is to redirect areas of surplus unproductive wealth (that makes no return), to productive areas. By the magic of markets, sustained profitability = productive use of resources.

The problem with labourers who work in these secondary markets however, is the same as the guards who watch the gate: they can extract large tolls for being in the right place at the right time.

People in finance are rich because they're well-placed to skim highly productive traffic. However, it is -- in the vast majority of cases -- only skimming. The system functions very well to take unproductive surplus and allocate it effectively.

Though admittedly today, the larger beneficiaries are increasingly monpolies, and so on. But this isnt a side effect of the finance industry, but of the state.

> The system functions very well to take unproductive surplus and allocate it effectively.

How do you quantify this?

feels^2

But also, profit margins of major industries; amount of wealth held liquid; and so on.

You might have a moral idea of 'effective' in mind, which may not be realised. I mean only that one does not find cash lying around the vautls of the ritch -- as in pre-modern times. People do not bury gold as jesus advised. Rather they dont keep gold, it is a line item held by a business doing something with it.

I've heard this many times, but where is the proof? How would you apply it to the story of OP?

This...but a twisted, bloated, incompetent, and malevolently self-serving version of it.

Actual efficiency would dictate that there be only a relative handful of finance jobs, let alone very well-paid finance jobs. And that the vast majority of the money go to actually productive industries. And that the financial markets understand the principles and timescales of other industries, so they don't screw everything up with decisions equivalent to "Fiscal quarter ends in June, and Farmer Jones says he can harvest zero corn by then. Shut him down."

> Though admittedly today, the larger beneficiaries are increasingly monpolies, and so on. But this isnt a side effect of the finance industry, but of the state.

For markets to exist, monopolies must be avoided. As you can't expect large companies to police themselves, this was generally the role of the state. The states must strike a balance between keeping large companies happy (that want monopolies and have cash today) and true markets (which are efficient on the long run).

The finance industry is probably just a side effect of everybody focusing on short term (both public traded companies and politicians/states)

> The system functions very well to take unproductive surplus and allocate it effectively.

What did you measure to come to this conclusion?

In much of the developed world, economic productivity seems to correlate strongly with availability of free capital (I don't have a source but I imagine it's fairly straightforward to cook one up). Even US vs Europe, kind of similar economies, but with capital so much easier to come by in the US, and US productivity per capita is flying compared to Europe.

Availability of free capital is a function of both just general wealth of a society, and how well lubricated the wheels of finance are.

I don't think this is a controversial theory, even if it comes with unpleasant side effects (white collar crime, inequality etc). Just as having a buoyant defence industry that can churn out a lot of boom is great for a country's war fighting potential.

It's essentially the willingness of a society to fund what looks like and could actually be a complete waste of time and money.

In the US there's plenty of money to throw on seemingly frivolous pursuits, because stagnant money is generally considered wasted money. It's considered better to have that money "working for you" invested in something, anything. You could lose out, you could also win big, at least you tried. Can't have omelets without cracking eggs, as the saying goes.

Another Europe-like example is Japan: A rich society with lots of money, but society doesn't want to waste it. So most of the money is stagnant, stored in deposit accounts or in a bedroom drawer (literally, see: Tansu Yokin[1]) instead of being invested in something consequently leading to a stagnant economy.

[1]: https://www.seattletimes.com/opinion/a-nations-character-rev...

Money in a drawer doesn't really detract from any national investment. It's just paper.

It's the allocation of capital that matters. Land, machinery, and so on.

The extent of this is that if money sits in drawers not being spent, it represents diminished demand, which suppresses prices; the government can then print a corresponding amount of money to allocate capital towards other purposes. Leaving money in the drawer means delaying until another day your vote for how national resources should be allocated.

The modern monetary system is a big pyramid scheme so...

It's actually Pretty Bloody Hard(tm) to store or move money/wealth safely and properly, not the least because most of us are all highwaymen when given the opportunity. Banks exist to try and bring some civility to that madness, with the cost being (ideally) a pittance skimmed from the top to keep their highwaymen tendencies at bay.

If you want to call them a protection racket akin to the mafia... you're probably right.

Of course, banks these days are much more than that and there's plenty to rightfully crucify them for. But even still, there's a reason being called a third-rate bank clerk is an insult among the highest order.

Finance jobs in London / New York (partially) can afford those pay rates because they extract wealth from the rest of the world.

Whether they do so in return for services rendered or are extracting rents by acting as gatekeepers is a question that never quite gets resolved. A little of each I suspect, depending on the context.

Fundholding GPs don't do badly. A lot get 6 figures if they are partners in a surgery.

I think most Doctors etc need to wait until they're consultants until they make decent money.

But I'm like you - fell into banking due to being a Lotus Notes developer when it was flavour of the month and have never left. I reckon I'm on over double what I would be if I'd ended up working for IBM or Cap Gemini or similar.

[And I should say I ended up in project/programme/change management. I'm not still a Notes Developer]

>I think most Doctors etc need to wait until they're consultants until they make decent money.

A consultant gets £100k -> £140K ish from the NHS. However, many supplement that with private work and therefore make significantly more.

Yeah, 100k is starting pay band for Consultants, 140k is after 14 years of service _as a consultant_.

To get to the starting line of Consultant they have to go through the Residency gauntlet which start you off at 36k and hideous hours.

Yup - I'm not saying it's good or fair, or bad and unfair. I'm just saying this is what it is.

To be fair though, they work for it. A consultant I saw recently did a full day with the NHS and they 3 - 4 hours of appointments in the evenings privately at a different hospital.

I don't know, the doctor route seems like a lot of work for the money. My FIL told his kids not to do it, and he was a surgeon who ran a department. They messed around with the doctors' pensions, and it made a lot of them quit. Conditions are also awful, he started the department in a temporary building and retired with it still there.

A doctor is also a kid who got full A grades as a high school graduate. They'd have the pick of what university course to do, and then they end up doing this thing that takes until you're 30, with insane nighttime hours. It just makes no sense to me that there are still kids who think this is worthwhile. It's not even as if you are guaranteed to be allowed to specialize in what you want either, that's a battle with all the other top students.

>>A doctor is also a kid who got full A grades as a high school graduate.

Yes, because the number of med school places in the UK is limited by the government (because they have to fund the extra cost of the course over what students pay in tuition fees). You don't really need to be that smart to be a doctor.

Is 6 figures a lot?

top 5% nationally is £81k

The pound is slightly heavier than the dollar and overall UK wages are lower. But truth is in most of the world being a doctor is a good career but not something you can build outstanding wealth on. Hence Europeans are often puzzled with "I want my kid become a doctor" cliche from American media.

That's just not true. Being a doctor still ranks among the top professions by wage in the UK at least, especially since the wage is largely the same regardless of area, and making six figures in an area where you can buy a house for under six figures allows you to live a very very nice life.

I have noticed this anecdotally as well in costal areas of the United States.

It’s like textbook Baumol’s cost disease[0], except housing is rising fastest while the cost of labor nearly not at all, because buyers (hiring firms) just don’t buy

[0] https://en.wikipedia.org/wiki/Baumol_effect

I always found it interesting that a lot of economists thought that a rising tide lifting all boats could be characterized as a "disease".

Personally I'd prefer it if good quality healthcare were cheaply available to all without having to be bottleneck on expensive-and-time-consuming-to-train human labour, even if it did mean that the 0.5% of the population that are doctors might end up working differently (and not necessarily for less -- it's not as though the industrial revolution has impoverished society).

That's not the same issue at all though.

A waiter from the early 19th century will have much the same productivity as now. Doctors (we would hope) could be more productive by, say, not using bloodletting and leeches to heal people.

It is the same issue. The reason that medical care is so expensive is that it's bottlenecked on a small number of people who are qualified and licensed to provide it. If it weren't bottlenecked on them then it would be a massive boon to society overall, and it's not clear that it would be particularly detrimental to those people.

>It is the same issue. The reason that medical care is so expensive is that it's bottlenecked on a small number of people who are qualified and licensed to provide it. If it weren't bottlenecked on them

That bottleneck is unrelated to the baumol effect.

The bottleneck is the cause of the Baumol effect. If medicine didn't require qualified and licensed human labour to provide then we wouldn't have such high healthcare costs.

Now admittedly, there is a gap between the increase in labour productivity of wait-staff and the labour productivity of healthcare providers over the period since, say, the industrial revolution, but both are outstripped by orders of magnitude by the increase in productivity in the manufacturing and IT sectors. Manufacturing is no longer bottlenecked, because we offshore it, and IT is not bottlenecked because new technology is continuing to rapidly increase labour productivity.

I think, my layman’s understanding is the Baumol effect can be basically thought of as paying people to not be the next highest productivity gaining job.

So say bond market traders and computer programmers got more productive relative to doctors, then baumol effects would be paying doctors to not quit and get jobs at google or some bond desk. It’d be much less pronounced/related than say, trade school electricians who haven’t become much more productive with the advent of computers but are still needed. Doctors have a lot of other effects limiting their supply by things the licensing practices

Right, I think that's a valid way of seeing it, and you pay them not to do the next highest productivity gaining job because their current job is productive, particularly in price inelastic sectors like healthcare.

The reason I think it's valid to call it a disease is because you want it to be higher productivity yet, and more price elastic. Increasing healthcare provider productivity would not lower their boats, it would either shift them into the next highest productivity job, or better all round, shift them into new roles within the healthcare system opened up by the increased productivity (for example, personalised healthcare).

Actually, I think I understand now.

From the point of view of "the alternative is people earn less", "disease" does seem a misnomer. I was thinking from the point of view of "the alternative is sectors become more productive", so "disease" doesn't seem to fit as well.

The Baumol effect is paying more for the same productivity, which can feel like a disease when you have to pay more and more for the same in some area for services relative to goods to the point where you end up pathologically preferring goods over services.

The JFK-popularized term defending a special interest project trickling down benefits to a wider community isn’t really what it feels like to someone in a coastal US city and who is trying to hire an electrician or baby sitter and finding they are priced out of the market.

The Baumol effect means that as society gets richer and GDP goes up, orchestral musicians or wait staff or any other profession whose productivity which which enjoy but whose productivity largely hasn't changed since the 19th century get paid more.

The "disease" is equivalent to a rising tide raising all boats or the lack of commodification of certain forms of human labor.

The "cure" for baumol's "cost disease" would be an explosion in income inequality.

But if we had robotic wait staff then that would be a net benefit for society, and the human former wait staff would go and do something else that's slightly more valuable for an amount of pay that's either slightly less or slightly more depending on the effect of automation on the whole economy, probably slightly more in the long run. This is the story of industrialisation!

Thought experiment: would it be good if we replaced mass transit by individual taxi drivers, because there would be so much demand for those taxi drivers that their boats would be lifted?

No, coz people like to be served in restaurants by humans.

Horn and Hardart pioneered the automated restaurant concept and while they were popular during the great depression when belt tightening was a sheer necessity, once growth and good jobs returned they died out.

Now that wealth inequality is back with a vengeance wait-staff automation is back with a vengeance.

Senior doctors are paid OK actually. Consultants are paid between 105-140k [1] with a big pension contribution too. That's not Goldman pay, but also quite secure and a big pension contribution from the employer which isn't included in the salaey. Also scope for very nice NHS/private combo. Also at this point, to have any medical care in the UK, you basically need to know a doctor...

Now, sure, that salary might be too low, and working for the NHS seems like hell but it would seem the money isn't the main obstacle. Maybe not right now for 2 years ago that was a very good pay.

There are other pay-related issues. Marginal tax between 100 and 150 or so is incredibly high, around 60-70%. This is because many nasty things kick in there. Tax free allowance shrinking for example. Doctors are double screwed in some cases, as by law they have to contribute a lot of their salary to pension, and in this threshold often exceed their allowance - which is a real kick in the nuts, seeing how they can't reduce it, and anyway, pension saving should always be seen favourably in a place like UK. These are by the way some of the reasons for doctor shortages in the UK, senior doctors have little incentive to work harder, many cut their hours with little difference to their net pay.

But these aren't strictly linked to their headline salary.

[1] https://www.healthcareers.nhs.uk/explore-roles/doctors/pay-d...

> These days, what are your options realistically in this country? Particularly if you want to hang around your family in the south?

In 2013 I was working as a CTO in London, managing a team of 40, and I could just about afford a run-down 2-bedroom in a just-ok part of Zone 1, assuming I wanted to make some savings too. My salary wasn't bad for the role, outside of banking. Anyway, that was pretty much the end of living in the UK for me.

90% of the problems in the UK come down to the cost of housing in London (and maybe a couple of other key cities, but mainly London)

This cost is driven by relatively high wages in London, so people on good salaries can afford more, so prices go up as supply is constrained and demand increases.

The rest of the western world is starting to see this, and before London had the issue, city states in the far east like Hong Kong and Singapore had the same problem.

> This cost is driven by relatively high wages in London

I disagree on this cause, FWIW, and would say the cost is driven entirely by the constrained supply you mention. It's a very, very politically difficult problem to fix, because if you increase the housing supply, people who already own houses see their net-worth decrease. I am sure there are some smart solutions, but most MPs and many voters already own homes and don't have much of an interest in fixing it yet.

The UK is over educated so everyone who walks into an interview has a degree so it just isn’t worth anything and puts you at the starting line, internships are there to mold nothing into something and if that values too low for you there is a queue of people behind you also with degrees who would be happy for the opportunity.

If your focus is money then higher education is the wrong path anyway, it’s oversubscribed.

In ~2006 I had a similar experience arranging my work placement during university, although I was earning a bit more — £16k for software development in the South East, just outside London. The banks were certainly offering a lot more, £30-something-k.

The university careers person said five banks would each take all fifty of us, just on the basis of us being Imperial College students, so we should apply them and forget anything else we were interested in as it wouldn't pay well. She couldn't understand the person who wanted to work at a computer game company.

We complained to the head of department, who was furious. A short time later there was a new careers person.

I wonder if we ever crossed over, i also worked for Intel in the west country (Swindon) and now whore myself out to aerospace/defence in the same area.

I see what our engineers are paid and its genuinely concerning.

Is the UK more in line with the norm though and the US is the outlier? I would say the UK, Europe, and Japan all have similar wages (although Japan has worse benefits and on the whole a larger expectation of workers so it's not like for like.)

> Is the UK more in line with the norm though and the US is the outlier

Mostly the US is an outlier. Unfortunately, UK property prices, food prices, utilities etc make Silicon Valley look cheep.

Not disagreeing with your general point, but UK food is very cheap, compared to almost anywhere in western europe and nowadays with the states too.

UK's food, not eating out mind you, is on par with even eastern europe in some cases.

That's a boring, played-out stereotype that wasn't even true 30 years ago, let alone now. If you've never set foot in a UK supermarket I could see you perhaps still languishing under this delusion.

I think they are referring to the price, not the quality or selection.

From a very quick search, a litre of milk is 20% cheaper in the UK compared to France, Germany and even Poland.

But no, food is incredibly cheap.

Its true i can't eat steak 4 nights a week as god intended but we manage to scratch cook 3 meals a day for 2 people for £70 a week, £85 with a wine pairing.

If you want to forgo eight different vegetables and four different proteins im sure you can do it for less.

I know too many people complaining "food is expensive" when all they live off is gas mark 6 / 25 mins beige rubbish.

I literally just came back from a month in Poland, and UK food prices in supermarkets are just as low if not lower. Certainly Aldi prices easily beat Polish supermarket prices on nearly everything, maybe with the exception of baked goods.

Don't get me wrong - M&S and Sainsburys are very expensive places to shop. But I don't see the quality at Morrisons or Asda or yes, even Aldi as being any worse and the prices are very low. Go to France or Germany and try to compare, I can bet that for your average buyer groceries will be cheaper.

I was there twice last year.

Food was cheaper. It's not that UK is cheap, it's more that eastern europe has gotten more expensive.

I think they meant by price, not by quality. And there's nothing wrong with Eastern European food anyway!

It feels like it's got more expensive though, and worse quality. A lot of the garlic I've had this year has been in a sorry state to use a random example, and as well as food you buy to cook things like fish and chips which used to be a cheap takeaway meal cost a fortune now.

The depressing thing is that it'd rise a lot more if supermarkets weren't using their weight to squeeze farmers.

>Unfortunately, UK property prices, food prices, utilities etc make Silicon Valley look cheep.

That's not true - UK food is _very_ cheap, and overall living costs are quite a lot less than the UK. Property is the real killer in the UK (and eating out I suppose).

Eating out is entirely optional, it's property that's the killer, and as everyones wages increase, so does rent, because there's more money chasing the same number of properties.

US is an outlier. You can look at self-described data for front-end engineers from the annual State of JS survey for an indication (try clicking on USA vs World): https://2024.stateofjs.com/en-US/demographics/#yearly_salary

Did you at least get to play with the demo computers? Some of the most fun times before everyone had a super powerful machine were when we got to borrow the top-of-the-line demo machines to play on all weekend. Set up in one of those conference rooms, pizza for everyone.

If you are only doing it for the money, your point is fair - but there are many of us for whom - beyond reasonable necessities - that is at best a secondary consideration.

Anybody who moves from engineering to finance doesn't have their heart in engineering - which is fine, but its not like they had no choice.

Agree though that London and parts of the South place extra pressures on people looking to build a life and home.

> Anybody who moves from engineering to finance doesn't have their heart in engineering - which is fine, but its not like they had no choice.

Ahhh, the classic no true engineer / scotsman argument ... I couldn't possible be an Engineer because I like hard software projects with smart people, good budgets, and tight deadlines.

Passion does not pay the bills; or later on, a comfy lifestyle.

I also had a similar experience in Northern Italy. I did an unpaid internship for 2 months during my bachelor (you don't really have a choice here) and then remained working part-time from time to time while getting my master. When I graduated they offered me €17k, meanwhile I got a €65k internship offer in Milan...