Practically, most people don't actually have that many major problems that need solving, and it is pretty simple to invent something that isn't what someone needs, and convince them that they need it, then to come up with novel ideas.
Industry and free enterprise does not solve problems much anymore. It sells the process of convincing people they have problems.
That said, actual product companies are making a comeback in Silicon Valley, and are using innovative new tech like 3D Printing, and there's some amazing work going on in Virtual/Augmented Reality as well (Occulus Rift, CastAR, Google Glass), - all physical products.
And lets not forget Tesla upending the world's perception of the economics of producing and owning electric vehicles.
While I agree with the sentiment about smart people wasting their potential chasing cash, I think it's only an intermediary phase before the next wave of "insanely great", life-changing products hits critical mass.
Citation? The world's perception of Tesla is arguably: expensive, unaffordable, impractcle plaything for rich people. But yeah I would drive it if you paid for it...
In fact it wouldn't surprise me if some sophisticated neural net algorithm developed for HFT was repurposed and used successfully for other things - medical research, climate modelling, brain research - basically anything involving non-linear dynamic systems.
Only problem of course is that all those HFT algorithms aren't FOSS, but the incentive to develop them in the first place would be greatly diminished since they'd lose whatever edge they had almost immediately after publishing.
The markets are a pretty decent lab for experimentation and learning about complex systems, which we're still not so great with, as long as systemic risk can be prevented and every player forced to take their losses instead of passing them off to governments. I personally don't think HFT is remotely as much a problem as what caused the financial crisis - a few flash crashes here and there plus an "HFT tax" on asset prices, vs the arguably-fraudulent origination and dissemination of trillions of dollars of bad debt resulting in the near total annihilation of the global economy. I think we'll gain a lot more (or at least lose a lot less) as a society by prioritizing the latter problem.
Well, smart people's labor isn't your property to allocate. Nor is it the property of "us." It belongs to those individuals.
So it's not a question of what "we" can or cannot afford.