Engineering Why don't more engineers/scientists go into finance

[chiro]

This goes a little too far in this thread, but: what you describe there is not capitalism, but a (genuine) free market, which is kept free and open. Often they go together, but are not the same thing. If you put your emphasis on free markets and personal freedom - and here you have to especially mention negative freedom (freedom from something, e.g. hunger, illness) - then you actually arrive at social democracy.

Looking at the discourse in the US, the discourse is massively skewed into the direction of positive freedom (freedom to do something), and there everyone is focused mainly on a supposedly "free" economy. Unfortunately, both types of freedom are two sides of the same medal. If you don't have one, you can't geuinely have the other.

Interestingly, that system smells much more of corporatism than anything else.

I much more prefer the Swedish system to be honest, rather than that stone-age "capitalism" practiced in the US (does not seem so different from China anymore).

Hope people at some point realize, that the sixties were not so bad after all (in terms of average prosperity).

Fairness does not correspond with absolute freedom.

The system I (intended to) describe(d) is one that intends to be fair to all parties. This fairness imposes fundamental limits on things like the monetary system, business and trade practices, credit and banking limits, liquidation policies, and regulation amongst other things.

It does not mean absolute freedom to do whatever. Absolute freedom is a misnomer and I agree with your analysis thereof.

We actually already have some of these things in, but funnily enough (but not the least bit surprising) some of the new regulations get wiped out down the line.

We have anti-trust laws for example. We used to have corporation charter laws that were meant to give the public some kind of protection but they have gone. We implemented Glass-Steagal after the depression but that is gone. We had money pegged to gold for a reason and now that is gone (at least for now).

All these things and more, help create a situation of fairness. It does not mean freedom in an absolute sense: there is always a price to way for freedom, and unfortunately it always ends badly like putting a live hand grenade in a chimps hand.

With regards to free markets, my definition of free is free in the way that there the conditions for entry, for growth, and for operating are ones that operate more or less in ways that every entity agrees in fair.

Whenever you end up with having to implement a body or some system which is highly integrated with society (like the financial system), then the result is that the amount of protection and regulation that matches the potential abuse that this does to the rest of the system. We already have this 'kind' of thing, but it is clearly not what it should be.

The best way though is to create systems that are decentralized if possible, and ones that everyone can agree on. The reason is that decentralized systems have no point of failure and are a lot easier for everyone to agree on.

In practical terms, this means more localization to get rid of things like systemic risk which can be realized in terms of currencies, credit systems, trade systems, and so on.

There are a lot of different realizations of what is fair, but the idea is that if you want systems that are highly intricately linked like our financial system is today, then you need to add in a lot more protection so that it takes care of the worst (because it will probably happen, and it does in the form of hundred year floods). If you localize, you won't need this kind of thing, but you will have other issues to face.

IMO, the best solution would involve decentralization of currency, credit, and other systems that everyone can agree on (the most important thing) in a systemwide fashion. Having systems where people don't agree will always end badly. The agreement when reached translates into law for exchange and acceptance of credit, and the rest of it follows from there.

 

[mSSM]

IMO, the best solution would involve decentralization of currency, credit, and other systems that everyone can agree on (the most important thing) in a systemwide fashion. Having systems where people don't agree will always end badly. The agreement when reached translates into law for exchange and acceptance of credit, and the rest of it follows from there.

Well, that's the funny thing - what does it mean that "everyone can agree"? If you look at the situation after the 2008 crisis, the Europeans wanted to enact much stricter rules on the financial markets (well, except the British, but since they are economically completely incompetent, that's to be expected). The reason those rules were not put into place was that the US government interfered; but on behalf of whom? Certainly not on behalf of the American people, but on behalf of a minority of Wall Street players.

And that's where the crux of the current situation lies: the problem is not even that we need to make something that "everybody can agree on", but rather that we have a system where a few very influential small groups dominate the entire discourse and impose their needs on others.

(Funny enough, now the US government tells the Europeans to fix their financial system...)


In regards to the thread: I once read a number that about 20% of current Physics and Math graduates end up in the financial sector. From my point of view, that number should be several orders of magnitude smaller. So I wonder - how many more people do you want to go into finance?

I have no problem with finance as such, as it is a very important mechanism of allocating a limited number of ressources (which in the end comes down to money). But one needs to ask the question whether an economy is sustainable when a significant part of the populace is involved in trading _non_physical_ goods of some sort (be it services or financial products doesn't matter much), when less and less people are actually there to come up and produce anything substantial.

 

[Nano-Passion]

I've been watching this thread and am amazed that it has continued for so long. I see a bunch of posts that pretty well express my views.

Some of my classmates who went into business or finance make more than me, but most make less. I went into science and engineering because I wanted to do something useful and practical with my life, something to make this world a better place to live. I never cared about the money, but I've always had more than I needed.

Now I'm at the age when many are considering retirement, but I keep working because it is so much fun. For the last year, I've been paid well to do nothing more than to learn and train so that I can be productive developing new technology that has the potential of solving some of our most serious problems that finance majors can only complain and worry about.

Very curious, can you tell me about your work?

 

[Pkruse]

Nano-passion: I work with a group of 150 engineers who do consulting for various companies who need help developing their ideas, or whose own engineering staff is overwhelmed with work. I'm humbled to be working with such awesome talent.

 

[twofish-quant]

If you look at the situation after the 2008 crisis, the Europeans wanted to enact much stricter rules on the financial markets (well, except the British, but since they are economically completely incompetent, that's to be expected).

That's not quite true. France and Germany have different financial systems than UK/US, and it's not a matter of stricter rules but different ones. For example, French and German banks can own stock in industrial companies, and they are much freer at issuing derivatives than US banks.

The reason those rules were not put into place was that the US government interfered; but on behalf of whom? Certainly not on behalf of the American people, but on behalf of a minority of Wall Street players.

In fact there were lots of rules that were put in place after the 2008 crisis. One problem is that the people who care a lot about what the rules are happen to be industry insiders. If you want better financial regulation, GREAT! However, if it becomes a "kill the bankers" lynch mob, then I'm going not going to sign up.

but rather that we have a system where a few very influential small groups dominate the entire discourse and impose their needs on others.

If you can't beat them, join them... One thing that is interesting is to see how legislative lobbying works on the inside. In the US political system, you are nothing if you are not part of an organization. The good news is that it's not that hard to become part of an organization.

It's not a few influential small groups dominating discourse. It's a lot of different groups each with their agendas. For example, you have the small banks versus the large banks versus the hedge funds versus mutual funds and that's just in the financial industry.

In regards to the thread: I once read a number that about 20% of current Physics and Math graduates end up in the financial sector. From my point of view, that number should be several orders of magnitude smaller. So I wonder - how many more people do you want to go into finance?

Look. If you come up with an alternative job to what I'm doing then I'll do something else. If you decide to "kill the bankers" and leave me in the street, then I'll fight you on this. It's not that I don't care about society but given a world in which society is screwed up and I'm employed and one in which society is screwed up and I'm unemployed, guess which one I'll choose.

Maybe there are too many people in finance, but would anyone be better off, if I didn't take the money?

But one needs to ask the question whether an economy is sustainable when a significant part of the populace is involved in trading _non_physical_ goods of some sort (be it services or financial products doesn't matter much), when less and less people are actually there to come up and produce anything substantial.

Let me ask another question. Suppose we end up in a world in which machines become hyperefficient and you can produce anything instantly by just thinking about it. That would put everyone out of work? So how would that economy work?

 

[twofish-quant]

IMO, the best solution would involve decentralization of currency, credit, and other systems that everyone can agree on (the most important thing) in a systemwide fashion. Having systems where people don't agree will always end badly. The agreement when reached translates into law for exchange and acceptance of credit, and the rest of it follows from there.

You will *never* get the nations of the world to agree on currency, credit, and other systems. There are some things that the US and Canada will *never* agree on, and if you can't get the US and Canada to agree, good luck on signing on China, Germany, India, France, Iran, Saudi Arabia etc. etc. You have to realize that in some places in the world, big government, centralization, and socialism are considered good things.

The big question is what are the "bare minimum rules" you can get people to agree to in order to prevent another disaster.

The other thing is that things will naturally centralize in finance, and law tends to centralize things. One thing about finance is that people will want to do the deal where they can find fast, efficient, and predictable courts. So if you have a complex securities transaction, you want it done in the Southern District of NY, or in London, or in HK, because if something goes wrong, it goes before a judge that has heard a million of these cases before.

There's also the "Las Vegas" effect. If you outlaw something everywhere except for one place, that one place will make a ton of money. There are several small islands in the Caribbean (BVI, Bermuda, or the Cayman Islands) that have entire economies based on being able to do stuff there that you can't anywhere else.

 

[mSSM]

[snip]

Maybe there are too many people in finance, but would anyone be better off, if I didn't take the money?

You misunderstand me. I am myself considering going into the financial industry if my plans for landing a spot in academia fails.

I am also not as ignorant as to believe that the financial system as such is the root of all evil.

However, I very strongly believe that the current system is not sustainable, and that 10, 15 years from now in countries like the US or Britain the financial sector simply cannot be as big (as percentage of GDP) as it is now. So I am asking myself if it still makes sense to start a career in finance (for me, that would be in about 5 years time).

Let me ask another question. Suppose we end up in a world in which machines become hyperefficient and you can produce anything instantly by just thinking about it. That would put everyone out of work? So how would that economy work?

Aren't you the one who is fond of mentioning Marx? That problem is developing already. Look at the major electronics manufacturers in China (e.g., Foxconn). They are already having dreams about replacing all of their manual work force by robots (Foxconn's CEO is not getting tired mentioning that).

Considering that all means of production will then indeed be in the hands of a very small number of people with the vast majority of the population cut out of the loop, one would indeed need to wonder how our society is going to look like then.

 

[twofish-quant]

However, I very strongly believe that the current system is not sustainable, and that 10, 15 years from now in countries like the US or Britain the financial sector simply cannot be as big (as percentage of GDP) as it is now. So I am asking myself if it still makes sense to start a career in finance (for me, that would be in about 5 years time).

I'm not so sure that it's not sustainable. If your manufacturing is efficient enough then you can have most of your population doing things that are socially useless without the system falling apart. You have 3% of the population grow food, 17% of the population make stuff, and then have everyone else play useless games.

One thing is that just because it's a bad system, doesn't mean that it's not sustainable. I can imagine a society in which 20% of the people do "useful stuff" and the remaining 80% end up as lawyers that just sue each other.

Personally, I'd prefer "planting flags on other planets" useless rather than "make work suing each other" useless.

Aren't you the one who is fond of mentioning Marx? That problem is developing already. Look at the major electronics manufacturers in China (e.g., Foxconn). They are already having dreams about replacing all of their manual work force by robots (Foxconn's CEO is not getting tired mentioning that).

One interesting thing about the Chinese economy is that the number of people that are employed in manufacturing has stayed roughly constant over the last thirty years. The number of people in agriculture has gone down, and services are going up. The other thing about China is that the country is about to get very old, very quickly which means that you end up with robots.

Considering that all means of production will then indeed be in the hands of a very small number of people with the vast majority of the population cut out of the loop, one would indeed need to wonder how our society is going to look like then.

What worries me is that people will just "get used to it" and consider it "normal." People get fed a steady diet of Youtube so that they won't revolt, because "revolution is for losers" and the system just goes on. And we don't ever get back to the moon or end up on Mars.

 

[mSSM]

What worries me is that people will just "get used to it" and consider it "normal." People get fed a steady diet of Youtube so that they won't revolt, because "revolution is for losers" and the system just goes on. And we don't ever get back to the moon or end up on Mars.

Somebody is going to patent "the moon" or "mars" (or rather something like "travelling to an extraterrestrial astronomical formation by rocket-propelled means), and then going to sue the hell out of you because they thought of that first. :-D

As regards the sustainability: your are absolutely right. If productivity goes up, then more people can live happy lives doing less work. Now, in an ideal world, this would indeed be the case. In the real world, this isn't so (given our current system). Since the 70s, increases in productivity have not benefitted the average worker. This is even more blatantly obvious in the US than it is in Europe. And somebody did benefit from that increase in productivity, considering GDP went through the roof but median wages grew a lot less than that.

And now even in Europe people start worrying what is going to happen to the welfare state. Not in the next couple of years, mind you, but in ~20 years, when the baby boomers exit the work force, such that one worker has to pay for three pensioners.

You would think that that is not a problem given our increase in productivity. But indeed it is, since a large amount of capital is not benefitting society.

 

[chiro]

You will *never* get the nations of the world to agree on currency, credit, and other systems. There are some things that the US and Canada will *never* agree on, and if you can't get the US and Canada to agree, good luck on signing on China, Germany, India, France, Iran, Saudi Arabia etc. etc. You have to realize that in some places in the world, big government, centralization, and socialism are considered good things.

The big question is what are the "bare minimum rules" you can get people to agree to in order to prevent another disaster.

The other thing is that things will naturally centralize in finance, and law tends to centralize things. One thing about finance is that people will want to do the deal where they can find fast, efficient, and predictable courts. So if you have a complex securities transaction, you want it done in the Southern District of NY, or in London, or in HK, because if something goes wrong, it goes before a judge that has heard a million of these cases before.

There's also the "Las Vegas" effect. If you outlaw something everywhere except for one place, that one place will make a ton of money. There are several small islands in the Caribbean (BVI, Bermuda, or the Cayman Islands) that have entire economies based on being able to do stuff there that you can't anywhere else.

It doesn't have to happen at all at once and it doesn't mean that absolute agreeability will happen: it's more of what you are alluding to: creating some bare minimum ruleset and then taking it from there.

I didn't mention the systems of governance and society: I mentioned currency and credit.

Although I definitely agree that currency and credit paradigms are linked to many things including governance, economic models of nation states, idealogies of societies/leaders/citizens and so on, the point of the decentralization is to create the scenario where you don't get a monopoly on currency or credit creation in a way that facilitates "real" trust and not just trust.

Trust is a term that comes and goes every empire and generation. Real trust is an entirely different manner: real trust is based on something that is not infallible by the actions of man.

The thing that history should have told us not the first time or the fifth or even the tenth time, is that trusting people only on their faith always ends badly.

There are actually a lot of good ideas both new and old for having "real" trust. Some are based on precious metals (like gold and silver), some are based on technology and mathematics (like Bitcoin). Gold can't be 'printed' and mathematics doesn't 'lie' if the definitions and behaviour match the description.

With regards to financial transactions and business, this is another issue that needs to be tackled however solving the credit and currency problems in terms of 'trust' is really the critical problem that a lot of people would really like solved with real trust as opposed to trust because a fair trading environment between nation-states that everyone can undeniably agree on (one based on elements not related to human fallibility).