We talk about these things like they are separate closed systems when they are not.

It is an innovation and banking problem. There are all kinds of feedback loops involved.

The ridiculous amount of liquidity in the global system changes and distorts risk preferences.

It also creates these giant sinks of brain power that are just moving money around. We have had amazing innovation the past twenty years in electronic markets, hedge funds, venture capital firms, cryptocurrency. Think of how much brain power is being wasted just modeling capital structures instead of something actually innovating because there is so much capital moving around that needs to be modeled.

How much brain power is being wasted at hedge funds? I have read hedge fund manager Jim Simons say he thinks he has the best research department in the world inside his hedge fund. It is not that much different than dedicating the best research department in the world to playing better poker. It is an utter waste of resources and we see it all around us with the complete lack of innovation.

I agree with that. Money seems to flow to "safe" products. Some minor iteration of payments, CRM, taxis or fitness.

How do you fix it when the incentives are skewed towards quick bucks? Government pushing certain industries has worked for China. There'll be a lot of opposition to that in the US I'd imagine.

That's not even remotely accurate. There's a huge amount of investment capital flowing to other sectors. Just because people aren't posting about it on HN doesn't mean it's not happening.

https://www.crunchbase.com/

It happens to a degree in the US with federal research grants, but maybe not to the extent of other countries.

I don't know what you mean by banking problem but let me tell you the purpose of money once there are enough savings to fund every single investment. The money must be spent on something that is an end in itself i.e. consumption. All economic activity has the end goal of increasing the ability to consume. If you insist on saving and investing anyway then investment itself turns into consumption i.e. a recreational activity that costs money.