Wednesday, November 25, 2015

Izabella Kaminska and the Tech Rentiers

With a title like that I feel I should commission a graphic novel.
From Dizzynomics:

Tech rentiers
I was going to start this post by saying I almost never disagree with anything Bloomberg’s Matt Levine writes. But then I realised that would be wrong. I never disagree with him.

Until today that is.

(Although, to be fair, the disagreement is more of a supplementary pedantic comment than a disagreement outright. I’m being annoying.)

To cut to the chase I think Levine may have missed a trick in his Monday note commenting on how hedge funds/banks are increasingly focused on poaching talented techies rather than traditional trader types for their industry.

Here’s the relevant part:

Here is a story about how “hedge funds and asset managers are scrambling to poach talent from Silicon Valley” so they can program computers to do more good trading stuff. One reaction that you often see to this sort of news is that it is a waste for smart computer scientists to work in the financial industry, because they should be changing the world by programming self-driving cars or computers that cure cancer or whatever.

This is of course a bit irrelevant to the actually existing tech industry, which mostly optimizes advertising. Also, though, the point of hiring computer scientists in finance is to automate functions of the financial industry. If you accept that allocating capital is a worthwhile social function, then automating it so that fewer people can do it more efficiently is also worthwhile.

And, then you need fewer people to allocate capital. So all those human traders who used to allocate capital based on gut instinct and favor-trading are freed up to do whatever more socially valuable thing it is that they should be doing.

So, as a whole, I mostly agree.

But I’m also acutely aware that I nearly suffered a mini-seizure in the middle of Waterloo station because my suddenly iPhone wouldn’t cooperate when I was trying to copy and paste a simple extract into this blog. Which kinda sums up my feelings about over-relying on information tech.

So yes, value allocation is mostly a low-value rentier business, which could do with being disrupted for the sake of the real economy. I get that. That’s the argument that fintech people put forward all the time. Having one techy do the jobs of four traders is much more efficient, boosts margins for every financial firm involved whilst lowering the financial sector’s footprint on the real economy.

But does it really do that? Really?...MUCH MORE
Although she doesn't mention it, the next phase for 'tech' companies is always the urge to political power.
It can be something as straightforward as Google rising to the top of the heap among corporate lobbyists at the Federal level or as insidious as 'disruptors' going directly political at the local level.

The political problem is and has always been that the people most drawn to being in the ruling class* are exactly those you would least want to have power.

*In democracies the urge to rule has to be cloaked in the words of governance lest the naked power grab be too off-putting for the electorate.

By-the-bye, here is the original article Mr. Levine uses for his mini-riff: "Hedge funds poach computer scientists from Silicon Valley".