I’m not sure if that’s true of engineers or scientists. Perhaps the rate of invention and advancement in science increases lineally with the number of people working in those fields instead of having diminishing returns? Perhaps not, but that seems much less clear to me.
Anyway, I was just explaining what “optimal number of investors” looks like; there comes a point when adding another professional investor to the economy adds less to the economy then adding a professional of another type. Almost by definition, investors only have value in as much as they direct capital to other people doing other things of value; there comes a point when you have too many investors compared to the number of people doing things worth investing in for additional investors to have any value.
The question of if we’re at that point or not is a valid one; but I will say that it doesn’t appear obvious to me that the increase in the percent of resources going into the financial sector in the US from 1990 to today has made our markets more efficient or more stable then they were in 1990.
I’m not sure if that’s true of engineers or scientists.
I think it’s arguable for scientists as the set of things-to-be-discovered is really vast. But engineers—they don’t discover things, they make things and the demand for them is not unlimited. For the sake of argument, imagine half the population being civil engineers—does that look useful?
there comes a point when adding another professional investor to the economy adds less to the economy then adding a professional of another type.
Yep, you’re basically measuring things in terms of opportunity costs. But there are a couple of important questions here: (1) What do you want to measure in? Dollars? and (2) How could you possibly know/observe/calculate that particular point? You either need to trust the markets or believe is successful central planning.
I think it’s arguable for scientists as the set of things-to-be-discovered is really vast. But engineers—they don’t discover things, they make things and the demand for them is not unlimited. For the sake of argument, imagine half the population being civil engineers—does that look useful?
For civil engineers, probably not, no. But I would say that most people who actually invent physical things and develop new technology would also fall under the category of engineers, and that the set of useful-things-that-could-be-invented-or-improved-with-our-current-knowlege-base is also pretty vast. (Not as big as the set of “things to be discovered”, perhaps, but still quite large.)
But, as for your general point, sure; there comes a point where you get diminishing returns from most professions.
You either need to trust the markets or believe is successful central planning.
Well, trusting the markets is one thing, but like I said a few posts ago, I think current govenrment policy is warping the market here towards too much investment in the financial sector. For one thing, when you have capital gains tax at only about half of income tax, you are going to tend to skew the market towards finance and away from working in other fields.
For one thing, when you have capital gains tax at only about half of income tax, you are going to tend to skew the market towards finance and away from working in other fields.
I think it’s a bit trickier than you make it out to be. Keep in mind the difference between investors—people with the money—and investment professionals—people who help the investors use their money.
Your argument is that low capital gains tax rates make people invest more than they would do otherwise. And this creates demand for services of investment professionals and a corresponding job market.
However this is pure market satisfaction of an existing demand. I don’t see anything wrong with that—unless you want to make the argument that the society needs fewer investors or that they need to invest less. Do you?
What I would say is that it creates a bias towards the type of investment covered by capital gains tax (investment in the stock market, for example) and away the type of investment where you would still be paying income tax (investing in your own education, starting your own small business and paying yourself a salary, ect). Neither of those kinds of investment is necessarily better or worse then the other, but when you create a bias for one over the other, it makes the economy less efficient.
What I would say is that it creates a bias towards the type of investment covered by capital gains tax (investment in the stock market, for example) and away the type of investment where you would still be paying income tax (investing in your own education, starting your own small business and paying yourself a salary, ect).
I’m having trouble coming up with significant (on the whole economy scale) examples of investments that you pay income tax on. Education is one exception, true, but it’s heavily subsidized. Your own small business is not such an example as the investment is the cost of the business assets. You realize the investment gains when you sell that business and then you pay the capital gains tax. The salary that you pay yourself is not investment return, it’s part of business costs (and so tax deductible, of course).
The salary that you pay yourself is not investment return, it’s part of business costs (and so tax deductible, of course).
Yes, you’re correct. I worded that poorly, what I was thinking of is small single-ownership businesses that just take their business profits as income that they report on their regular tax forms.
Anyway, that’s not the only example; I think there’s a lot of things that the govenrment does that supports finance, either directly or by reducing the risk.
-FDIC insurance (protects banks to a great extent by basically eliminating the need for bank runs)
-The fact that the Federal Reserve loans banks money to banks (and not to anyone else) at an extremely low interest rate
-Emergency measure like the bank bailouts and QE
-The loophole that allows hedge fund managers can classify their income as “capital gains tax” instead of income tax even though they’re not risking their own money
ect.
To be clear, I think that several of those policies are very good ideas; FDIC insurance makes the whole economic system more stable, and the emergency bail outs and QE makes sense to me as an emergency responses to a once-per-century level financial crisis. However, the net effect of that is going to be a distortion of the market.
Anyway, back to the original point, I don’t think you can just look at how much someone is paid and use that to estimate how valuable their service is to society. For one thing, people are very commonly willing to accept a lower pay in order to do a job that they believe is altruistic, good for society, “important”, “personally satisfying” ect; everything from scientists to doctors to social workers. The net effect of that is probably to lower the wages of those “altruistic” fields compared to what they would earn in a hypothetical world where every worker is just trying to maximize personal profits; and, by making those wages somewhat lower then they “should” be, lowering the cost of things like science, medicine, and education and thus increasing how much of those things get done. That’s probably a good thing for society as a whole.
I think there’s a lot of things that the govenrment does that supports finance, either directly or by reducing the risk.
That is certainly true. However it is also true for e.g. agriculture.
I don’t think you can just look at how much someone is paid and use that to estimate how valuable their service is to society.
Does anyone claim that? Looks strawmannish to me, not to mention that I have no idea what “valuable to society” means and how to measure it.
For one thing, people are very commonly willing to accept a lower pay in order to do a job that they believe is altruistic, good for society, “important”, “personally satisfying”
Notice the rather important “personally satisfying” thing—it has nothing to do with being good for the society. I might find lying in the sun and composing appallingly bad poetry to be personally satisfying and yes, I will be paid less for it (e.g. zero) than if I were doing something other people want to pay money for.
That is certainly true. However it is also true for e.g. agriculture.
Sure, and you could argue that the US also spends more resources on agriculture then is strictly optimal because of that. (There may be arguments for that, if it lowers the chances of an unlikely but catastrophic food shortage, but that’s a different discussion.)
Does anyone claim that? Looks strawmannish to me, not to mention that I have no idea what “valuable to society” means and how to measure it.
I don’t think that I’m straw-manning here. I’m just saying that from an altruistic standpoint, the utility created for other people (and perhaps for society as a whole) by you doing your job might be as or more important as the utility created by you earning money at your job and then donating 10% of it or whatever to charity, so that’s probably something worth considering as well.
Your response seemed to be that we should just let the market figure that out, but if a large percentage of people are willing to do what they view as “altruistic work” for less then market price then that itself changes the market, preventing you from judging the utility created by someone’s work just from their income.
If the fact that people are willing to do altruistic work for less money lowers the cost of that altruistic work, then charity money spent on that altruistic work should go farther; for example, if the fact that people are willing to do science for $40,000 a year when they could be doing finance for $100,000 makes science much cheaper to do, that might be more important in the long run then having more people earning $100,000 and donating 20% of that to science.
Notice the rather important “personally satisfying” thing—it has nothing to do with being good for the society.
It very often does, though. People very often choose professions because they want to “help people”, or they want to “advance science”, or they want to “protect people”, ect. I think altruistic intentions do very frequently come into play here.
I’m just saying that from an altruistic standpoint
I’m not an altruist and I don’t see any reasons to approach issues in this framework.
the utility created for other people
So, how do you want to measure it if you don’t trust the market? The market is all about revealed preferences, if you don’t think it’s adequate, tell me how to evaluate the “value to society” or “the utility created for other people” by, say, Alice standing over there.
People very often choose professions because they want to “help people”, or they want to “advance science”, or they want to “protect people”, ect.
People say that they do. I think they quite often they are deluding themselves.
And, of course, aren’t you assuming the automatic fulfillment of basic needs? Will you still want to “help people” if it means your own kids will go hungry?
I’m not an altruist and I don’t see any reasons to approach issues in this framework.
Ah. Well, the context of this thread was:
Because some Less Wrongers are planning on earning to give and finance is a commonly considered career option for those who are earning to give, I thought that it might be of interest to the Less Wrong community.
So, how do you want to measure it if you don’t trust the market?
I think that a significant issues of bias comes from people who are trying to be rationalist over-valuing things that are easy to measure just because they are easy to measure. I agree with you that it’s harder to measure, but that doesn’t mean it’s not just as important.
Let me give a quick thought experiment about my thinking of the subject. Let’s say that you really want to advance science as quickly as possible. Right now, your options are you can either work as a scientist for $40,000 a year, or you can work in finance, earn $100,000 a year, and then donate $20,000 a year to scientific research. If most people choose the better paying job, then the people hiring scientists will be forced to pay them more and more in order to hire them. Eventually, the price of a scientist would go up to $80,000 or $90,000 a year. So even though science is getting somewhat better funding from the extra charity money coming in, it’s likely not enough to cover the higher cost of hiring scientists.
That’s obviously an over-simplified example, and there’s really not enough information to say one way or the other, but that’s the way I’m thinking about the subject.
People say that they do. I think they quite often they are deluding themselves.
Perhaps. Human motivation is a very complicated thing, obviously.
I think, very often, “a job where I help people” and “a job I find personally satisfying” are very deeply linked concepts, at least for a lot of people. So, maybe people help people because they want to help people; maybe people help people because it makes them feel good when they help people; maybe people just want to think that they’re the kind of people who feel good when they help people, or maybe (most likely, even) it’s some combination of all three. So what?
And, of course, aren’t you assuming the automatic fulfillment of basic needs?
I’m assuming that the education job or science job or whatever does at least pay enough to fill basic needs, yes. If there aren’t any jobs at all in field X, then you probably shouldn’t go in that direction.
Let’s say that you really want to advance science as quickly as possible.
OK. The first question is, can you advance science? You get gold stars for participation only in the kindergarten. Any reason you think you will actually produce value as a scientist instead of being a burden to be dragged along?
Right now, your options are you can either work as a scientist for $40,000 a year, or you can work in finance, earn $100,000 a year, and then donate $20,000 a year to scientific research.
A funny comparison you’re setting up. For equivalent situations, don’t you want to donate $60,000?
So even though science is getting somewhat better funding from the extra charity money coming in, it’s likely not enough to cover the higher cost of hiring scientists.
That may or may not be true—you will have to make strong assumptions about several things to argue any side of this case.
So what?
The point is that altruism is rare. Not that many people are willing to make personal sacrifices purely for the good of others.
OK. The first question is, can you advance science? You get gold stars for participation only in the kindergarten. Any reason you think you will actually produce value as a scientist instead of being a burden to be dragged along?
You could just as easily ask “can you succeed in finance”? Obviously, if you don’t actually have the ability to do a certain job, then you probably shouldn’t make that your career path.
For equivalent situations, don’t you want to donate $60,000?
I would say that if you are working in finance, living in a financial center (say, New York City), and most people you know are also working in finance, it would be very difficult to live on $40,000 a year. You would be expected by your social acquaintances to own expensive suits, to drive a nice car, to go on expensive social outings, ect.
Giving 20% of your income, the way I’m suggesting, is itself a really, really hard thing to do. Most people don’t manage to give 10%.
The point is that altruism is rare. Not that many people are willing to make personal sacrifices purely for the good of others.
Interesting. What makes you think that? My impression is that most people tend to be at least somewhat altruistic, and that “altruistic emotional rewards” (like “the joy you get from helping someone else”) tend to be a major driving factor in many people’s decision making processes.
That’s a fully general argument, isn’t it? You can apply it to, say, engineers in exactly the same way.
I’m not sure if that’s true of engineers or scientists. Perhaps the rate of invention and advancement in science increases lineally with the number of people working in those fields instead of having diminishing returns? Perhaps not, but that seems much less clear to me.
Anyway, I was just explaining what “optimal number of investors” looks like; there comes a point when adding another professional investor to the economy adds less to the economy then adding a professional of another type. Almost by definition, investors only have value in as much as they direct capital to other people doing other things of value; there comes a point when you have too many investors compared to the number of people doing things worth investing in for additional investors to have any value.
The question of if we’re at that point or not is a valid one; but I will say that it doesn’t appear obvious to me that the increase in the percent of resources going into the financial sector in the US from 1990 to today has made our markets more efficient or more stable then they were in 1990.
I think it’s arguable for scientists as the set of things-to-be-discovered is really vast. But engineers—they don’t discover things, they make things and the demand for them is not unlimited. For the sake of argument, imagine half the population being civil engineers—does that look useful?
Yep, you’re basically measuring things in terms of opportunity costs. But there are a couple of important questions here: (1) What do you want to measure in? Dollars? and (2) How could you possibly know/observe/calculate that particular point? You either need to trust the markets or believe is successful central planning.
For civil engineers, probably not, no. But I would say that most people who actually invent physical things and develop new technology would also fall under the category of engineers, and that the set of useful-things-that-could-be-invented-or-improved-with-our-current-knowlege-base is also pretty vast. (Not as big as the set of “things to be discovered”, perhaps, but still quite large.)
But, as for your general point, sure; there comes a point where you get diminishing returns from most professions.
Well, trusting the markets is one thing, but like I said a few posts ago, I think current govenrment policy is warping the market here towards too much investment in the financial sector. For one thing, when you have capital gains tax at only about half of income tax, you are going to tend to skew the market towards finance and away from working in other fields.
I think it’s a bit trickier than you make it out to be. Keep in mind the difference between investors—people with the money—and investment professionals—people who help the investors use their money.
Your argument is that low capital gains tax rates make people invest more than they would do otherwise. And this creates demand for services of investment professionals and a corresponding job market.
However this is pure market satisfaction of an existing demand. I don’t see anything wrong with that—unless you want to make the argument that the society needs fewer investors or that they need to invest less. Do you?
What I would say is that it creates a bias towards the type of investment covered by capital gains tax (investment in the stock market, for example) and away the type of investment where you would still be paying income tax (investing in your own education, starting your own small business and paying yourself a salary, ect). Neither of those kinds of investment is necessarily better or worse then the other, but when you create a bias for one over the other, it makes the economy less efficient.
I’m having trouble coming up with significant (on the whole economy scale) examples of investments that you pay income tax on. Education is one exception, true, but it’s heavily subsidized. Your own small business is not such an example as the investment is the cost of the business assets. You realize the investment gains when you sell that business and then you pay the capital gains tax. The salary that you pay yourself is not investment return, it’s part of business costs (and so tax deductible, of course).
Yes, you’re correct. I worded that poorly, what I was thinking of is small single-ownership businesses that just take their business profits as income that they report on their regular tax forms.
Anyway, that’s not the only example; I think there’s a lot of things that the govenrment does that supports finance, either directly or by reducing the risk.
-FDIC insurance (protects banks to a great extent by basically eliminating the need for bank runs)
-The fact that the Federal Reserve loans banks money to banks (and not to anyone else) at an extremely low interest rate
-Emergency measure like the bank bailouts and QE
-The loophole that allows hedge fund managers can classify their income as “capital gains tax” instead of income tax even though they’re not risking their own money
ect.
To be clear, I think that several of those policies are very good ideas; FDIC insurance makes the whole economic system more stable, and the emergency bail outs and QE makes sense to me as an emergency responses to a once-per-century level financial crisis. However, the net effect of that is going to be a distortion of the market.
Anyway, back to the original point, I don’t think you can just look at how much someone is paid and use that to estimate how valuable their service is to society. For one thing, people are very commonly willing to accept a lower pay in order to do a job that they believe is altruistic, good for society, “important”, “personally satisfying” ect; everything from scientists to doctors to social workers. The net effect of that is probably to lower the wages of those “altruistic” fields compared to what they would earn in a hypothetical world where every worker is just trying to maximize personal profits; and, by making those wages somewhat lower then they “should” be, lowering the cost of things like science, medicine, and education and thus increasing how much of those things get done. That’s probably a good thing for society as a whole.
That is certainly true. However it is also true for e.g. agriculture.
Does anyone claim that? Looks strawmannish to me, not to mention that I have no idea what “valuable to society” means and how to measure it.
Notice the rather important “personally satisfying” thing—it has nothing to do with being good for the society. I might find lying in the sun and composing appallingly bad poetry to be personally satisfying and yes, I will be paid less for it (e.g. zero) than if I were doing something other people want to pay money for.
Sure, and you could argue that the US also spends more resources on agriculture then is strictly optimal because of that. (There may be arguments for that, if it lowers the chances of an unlikely but catastrophic food shortage, but that’s a different discussion.)
I don’t think that I’m straw-manning here. I’m just saying that from an altruistic standpoint, the utility created for other people (and perhaps for society as a whole) by you doing your job might be as or more important as the utility created by you earning money at your job and then donating 10% of it or whatever to charity, so that’s probably something worth considering as well.
Your response seemed to be that we should just let the market figure that out, but if a large percentage of people are willing to do what they view as “altruistic work” for less then market price then that itself changes the market, preventing you from judging the utility created by someone’s work just from their income.
If the fact that people are willing to do altruistic work for less money lowers the cost of that altruistic work, then charity money spent on that altruistic work should go farther; for example, if the fact that people are willing to do science for $40,000 a year when they could be doing finance for $100,000 makes science much cheaper to do, that might be more important in the long run then having more people earning $100,000 and donating 20% of that to science.
It very often does, though. People very often choose professions because they want to “help people”, or they want to “advance science”, or they want to “protect people”, ect. I think altruistic intentions do very frequently come into play here.
I’m not an altruist and I don’t see any reasons to approach issues in this framework.
So, how do you want to measure it if you don’t trust the market? The market is all about revealed preferences, if you don’t think it’s adequate, tell me how to evaluate the “value to society” or “the utility created for other people” by, say, Alice standing over there.
People say that they do. I think they quite often they are deluding themselves.
And, of course, aren’t you assuming the automatic fulfillment of basic needs? Will you still want to “help people” if it means your own kids will go hungry?
Ah. Well, the context of this thread was:
I think that a significant issues of bias comes from people who are trying to be rationalist over-valuing things that are easy to measure just because they are easy to measure. I agree with you that it’s harder to measure, but that doesn’t mean it’s not just as important.
Let me give a quick thought experiment about my thinking of the subject. Let’s say that you really want to advance science as quickly as possible. Right now, your options are you can either work as a scientist for $40,000 a year, or you can work in finance, earn $100,000 a year, and then donate $20,000 a year to scientific research. If most people choose the better paying job, then the people hiring scientists will be forced to pay them more and more in order to hire them. Eventually, the price of a scientist would go up to $80,000 or $90,000 a year. So even though science is getting somewhat better funding from the extra charity money coming in, it’s likely not enough to cover the higher cost of hiring scientists.
That’s obviously an over-simplified example, and there’s really not enough information to say one way or the other, but that’s the way I’m thinking about the subject.
Perhaps. Human motivation is a very complicated thing, obviously.
I think, very often, “a job where I help people” and “a job I find personally satisfying” are very deeply linked concepts, at least for a lot of people. So, maybe people help people because they want to help people; maybe people help people because it makes them feel good when they help people; maybe people just want to think that they’re the kind of people who feel good when they help people, or maybe (most likely, even) it’s some combination of all three. So what?
I’m assuming that the education job or science job or whatever does at least pay enough to fill basic needs, yes. If there aren’t any jobs at all in field X, then you probably shouldn’t go in that direction.
OK. The first question is, can you advance science? You get gold stars for participation only in the kindergarten. Any reason you think you will actually produce value as a scientist instead of being a burden to be dragged along?
A funny comparison you’re setting up. For equivalent situations, don’t you want to donate $60,000?
That may or may not be true—you will have to make strong assumptions about several things to argue any side of this case.
The point is that altruism is rare. Not that many people are willing to make personal sacrifices purely for the good of others.
You could just as easily ask “can you succeed in finance”? Obviously, if you don’t actually have the ability to do a certain job, then you probably shouldn’t make that your career path.
I would say that if you are working in finance, living in a financial center (say, New York City), and most people you know are also working in finance, it would be very difficult to live on $40,000 a year. You would be expected by your social acquaintances to own expensive suits, to drive a nice car, to go on expensive social outings, ect.
Giving 20% of your income, the way I’m suggesting, is itself a really, really hard thing to do. Most people don’t manage to give 10%.
Interesting. What makes you think that? My impression is that most people tend to be at least somewhat altruistic, and that “altruistic emotional rewards” (like “the joy you get from helping someone else”) tend to be a major driving factor in many people’s decision making processes.
I am not quite sure why that is relevant. Expectations of your social acquaintances are a really bad way to run your life.
I look at what people do, not at what they say.