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Comment by yummyfajitas | Hacker News Reader

This article seems to be making quite a few implicit assumptions that should be made more explicit:

Meanwhile, big banks also utilize many kinds of trading that aren’t in the service of their traditional clients. One is proprietary trading...There’s no social defense for this practice...

Implicit assumption: speculation is socially worthless.

“You mean to tell me your work as a [fill in the blank here] is worth more to society than a firefighter? An elementary school teacher?...”

Implicit assumption: pay is or should be proportional to gross utility rather than marginal utility.

Apart from this it's typical economist claptrap - thousands of words, no real point. Why is it here?

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Implicit assumption: speculation is socially worthless.

And a further assumption that jobs that are deemed "socially worthless" ought not to be done, or ought to be prohibited. In which case professional poker is on the chopping block, or professional athletics is banned because it is deemed to have less "social value" than its compensation level.

Implicit assumption: pay is or should be proportional to gross utility rather than marginal utility.

Or that pay needs to be determined by some official, 'blessed', committee of professional economists who publish a list every year of salaries, based on how much social and economic value is provided by each field of work.

(Sounds kind of Soviet, actually.)

I'm not sure the argument is that jobs which are not useful should be prohibited, but perhaps it is interesting to try and figure out what it is about our current system that disproportionately rewards the people that juggle with money over and above (for instance) people that teach our children.

I'm not arguing for a centrally defined salary committee, but surely you have to wonder if there is a better way?

Seems fair.

That seems to be the most reasonable argument for redistributive taxation - the idea that the >$1M earner can afford to part with some of his surplus to fund programs that benefit society in its entirety, and more specifically those whose jobs are not so richly compensated.

Of course, the devil is in the details and implementation.

try and figure out what it is about our current system that disproportionately rewards the people that juggle with money over and above (for instance) people that teach our children.

This has been well studied. The answer is that compensation is proportional to marginal productivity rather than mean productivity.

I.e., consider a very important profession, say superhero. Having one superhero to stop the Joker is worth $1M. Having two superheros is worth $1.1M - Batman is sufficient to stop the very dangerous Joker, but two superheros can stop both the Joker and the far less dangerous Harleyquinn. The marginal productivity of an extra superhero is $100k even if the mean productivity is $550k. As a result, superheros get paid $100k because if any superhero quits, society loses only $100k rather than $550k.

An extra banker produces a lot of value. An extra teacher produces very little. Hence, teacher pay is lower than banker pay.

(As a proponent of the signalling theory of education, I'd also argue that the value of a lot of education is actually negative.)

Could you explain what you mean by your last statement?

> An extra banker produces a lot of value.

For some value of "value".

(Also, the example of two superheros isn't a good one - they will probably collude and get something much closer to their full value)

(Or take the world hostage.)

In context, value for the bank paying the banker.

It's also the case that marginal arguments are very clear when the examples use small numbers. It has the side effect of making them sound silly. But I guess there are not 2 of very many real professions.

The issue of proprietary trading is not about speculation. If anything it is about a lack of speculation. It is about a conflict of interests between a firm and its clients and its shareholders. As I understand it, sometimes it amounts to the employees acting against the interests of both the other two parties.

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