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Lumifer comments on Guardians of Ayn Rand - Less Wrong
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It's not clear to me that the "why they earn so much" inference is correct. Consider lawyers; we clearly have too many lawyers (as determined by the percentage of law school graduates who are employed in the legal profession and complaints of unemployment and declining wages for the median or mediocre lawyer), but the best lawyers still command significant salaries. This seems to be mostly because law is a competitive field where you hire your champion, they hire their champion, and the champions battle--and in such a field we should expect that the wage of the best champions will always be high because I'm paying for having an edge, and the value of that edge depends on the value of the case times the quality difference, which is insensitive to a worker of non-extreme legal competence deciding whether or not to become a lawyer.
The analogy to hedge funds seems clear: how many mediocre money managers there are doesn't matter very much to the price of getting the person with slightly higher (expected) alpha to manage your money. It's also not clear that more hedge fund managers will lead to the FPE happening any faster, as the marginal money manager loses money, just as it's not clear that more scientists will lead to the singularity happening any faster, as the marginal scientist gets no citations.
(And, in fact, I think science operates in a very similar situation: the best scientists actually do control sizable resources and have very high 'effective' compensation, once you take into account status and security, but we seem to be graduating more science PhDs than their fields can support.)
That's not self-evident to me. If the supply of money managers increases under the reasonable assumption that the increase is appropriately distributed along the whole skill spectrum, the supply of high-skill managers will increase as well.
Huh? The left tail of the money manager distribution loses money, of course, but that's almost by definition. The average money manager does not lose money. We can argue whether he makes more money than a passive investment in "the market", but that's a complicated discussion that involves different markets, risk, etc.
Sure, but I explicitly mentioned I was varying the supply of mediocre money managers. What would make you think it's reasonable to assume that mediocre managers are appropriately distributed along the whole skill spectrum?
I'm specifically poking at the claim that we can tell that we have too few hedge fund managers because they make such high salaries. I think I'm in agreement with Salemicus that some forms of financing are positive sum (and thus provide a valuable social service), that top cognitive talent is heavily influenced by prestige, and that if there were a flatter plateau of extreme competence the salaries would be lower. I'm uncertain whether it's possible to achieve that by shifting more top talent from academia to hedge funds, since I think that will simply shift what counts as 'extreme' competence in that field.
I find it remarkable the number of financial concepts you think are complicated that look simple to me and the many experts in economics and finance (who aren't trying to sell a product) that I'm familiar with.
And why do you think this is so?