Derivatives have great value to industry. Derivatives that require the fuel of 15 math Phds to lock in fractions of a percentage pricing inefficiencies so their firm can pocket the difference do not have much value at all.
It's like employing Harvard Med surgeons to remove gold dust from jewelry market sidewalks, and calling it "gold market efficiency".
The amount of gold recovered by them as a function of the entire global gold market is a minuscule rounding error. A loss so small that when distributed across every market participant (as it would be if left alone on the ground), would amount to no practical discernible difference in anyone's life.
But having 15 less top notch surgeons not doing surgery? There stands to be many practical discernible differences in many people's lives.
Keep in mind, the surgeons are not the only ones out there. There are large armies of grunts combing those streets 24/7 picking up all the easy pieces. The surgeons are there to get the dust that everyone else misses. It's an enormous waste of talent.
If you subscribe to the theory that markets allocating capital based on supply and demand is beneficial for society (even if detrimental sometimes in the short term), then traders provide the utility of contributing to the proper allocation of resources in society (which is constantly in flux).
The fact that smart people opt to go into trading (or selling advertising) rather than research is a consequence of government underpaying scientists (or the volatility is too high, or the path to quality of life at work is too low).
Either way, if the situation is that society needs more scientists or doctors or whatever, then the government should be paying more to incentivize those choices.
Additionally, even if governments improved pay for essential roles like scientists or doctors, the outsized financial rewards from trading would still attract talent away from these critical areas. Therefore, depending on markets and government incentives alone ignores the negative impact traders’ profit-driven strategies can have on society’s overall well-being.
Expand the number of medical schools, the number of residency positions, etc. Reduce tuition or pay graduates and residents more. Reduce unnecessary learning requirements so that one can expect to have a life and become a surgeon. Reform tort law.
None of these are under the purview of trading firms or the people that work there.
They have at least as much value as the total compensation of 15 math PhDs, otherwise that work would not be done.
A scammer who makes $1m dollars a year does not generate any value, in fact he removes value from society.
This has been the case for well over 200 years and is not done by the same kind of people that modern finance/fintech employs.
Imagine the world 150 years ago and imagine were you'd allocate the smart people that's the highest paid these days. They'd be doing science and developing technology instead of doing finance. Why is finance that much more important now? (is it just because it makes rich people richer?)
It's also a sophisticated "export" product itself.
However, I think there's a point where, absent sufficient regulation, it overshoots and most of the effort goes to squeezing nickels out of everyone else in underhanded ways. I feel like we could get 90-95% of the benefits with a finance industry that's half the current size, and also avoid a whole lot of indirect costs that come with an oversized finance industry.
We have far, far too much of our economy sunk into a sector that fundamentally produces nothing of value, one that only shuffles value around and chooses to whom it will be allocated (coincidentally, often the people doing the allocating!).
Compare our economy and its woes to China. Do they spend nearly as much of their human capital figuring out how to get an extra bp on some statistical arb? Thethe origins of DeepSeek are illustrative in this regard.
In practice, if the availability of the apples you're eating is dependent on finance people, they're commodity grade, not specialty varieties.
I don't eat apples, but I'd rather have a good heirloom tomato from the farmer's market than the commodity grade stuff that's at the grocery store.
And of course prices are hugely valuable: the market is a conversation about the relative value of everything, and the language it speaks is prices. So by enabling liquidity, high-frequency traders are enabling efficient allocation of resources towards those things which mankind most dearly needs and desires.
But, ok, Spread Networks spent $300m around 2010 to build a somewhat straighter glass fibre data connection between NY and Chicago. Other companies spent more to build a micro wave connection, since microwaves move faster through air than light through fibre.
Is that money really well spent? And I'm afraid a lot of what happens in finance is similarly private gain, without much social welfare increase.
See, if you're a fishmonger and someone comes to you and say "why don't you trade flowers instead", you ignore them because they are not your customer. They won't trade fish with you, and in fact they wouldn't trade flowers either. They're just useless relative to your trade and only yapping so just turn your back on them and leave them be. Tell them to fuck off and find a flower monger if they really want it or mong those those flowers themselves because you are sticking to monging fish.
Well first of all because all those niches are already full beyond capacity. All the engineering, arts, cancer research, you name it, that the society can pay for is stuffed to bursting point and in no lack of pipelines of fresh wannabe recruits. Also cancer research is a deeply unprofitable enterprise overall, much in contrast to a domain like finance. One can labor a lifetime and get nothig, at least in finance they'll shovel some money from one pocket to the other and pocket the commission themselves.
Please leave people alone and stop suggesting alternate careers, that you yourselves did not choose. That's the uttermost hypocrisy. I don't wanna see anymore programmers with fat paychecks jumping on whatever latest fad like flies on a fresh laid turd doing AI and crypto and advertising and just bullshit pretend work at FAANG shedding crocodile tears on how the finance guys should be poor and suffering. Quit your high paying jobs yourselfes and go starve while doing biology PhDs then work as baristas while competing with the other 10,000 highly skilled Phds hoping to catch one of the 10 currently open positions in the world that pay a miserable salary with no stability in the future that does cancer research.
People imagine it's like prestigious professors at top research institutions leaving their posts because of the allure of money, when it's more like the 100x people just like them who were denied tenure and realized they chased a career in science like an inner city youth chases getting into the NBA: most people fail. Then what?
I even know people who worked in quant finance, struck it rich, quit to finish becoming doctors, and then came screaming back because of how horrible medicine was.
I also encourage everyone to read CFTC response to the Vatican's (!) Congregation for the Doctrine of the Faith https://www.cftc.gov/PressRoom/SpeechesTestimony/giancarlore... It talks about about the social utility of derivatives and refutes the narrative that they are basically tools of "speculation." Traders take on risks others can't bear, creating massive economic value that ripples through the entire system.