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Comment by nsvd | Hacker News Reader

I don't think it's the case that finance is over produced. If it were, then the value of financial services would drop.

Rather, because the gain produced by financial instruments is proportional to the wealth someone has, the returns of finance disproportionately benefit those with large amounts of wealth. One man can only make so much plumbing or being a mechanic, but can make an arbitrary about by investing in ETFs.

In other words, if the financial sector was largely a collection of small businesses run by middle class people, no one would think it was a problem that they make money. That would be great! But in reality it's a smaller amount of companies and smaller amount of wealthy people that benefit from it.

That problem isn't unique to finance, it affects many parts of our society.

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> I don't think it's the case that finance is over produced. If it were, then the value of financial services would drop.

I don't think this follows for all financial services. Overproduction leads to a drop in value if the market is efficient, but real-life markets are not perfectly efficient. For arbitrage in particular, the whole point is that the market isn't efficient. Arbitrage makes it more efficient after the arbitrageurs have taken their cut, but the value of that service isn't necessarily determined efficiently. (At least as far as I know: I'm not an expert.)

> Rather, because the gain produced by financial instruments is proportional to the wealth someone has, the returns of finance disproportionately benefit those with large amounts of wealth. One man can only make so much plumbing or being a mechanic, but can make an arbitrary about by investing in ETFs.

> In other words, if the financial sector was largely a collection of small businesses run by middle class people, no one would think it was a problem that they make money. That would be great! But in reality it's a smaller amount of companies and smaller amount of wealthy people that benefit from it.

> That problem isn't unique to finance, it affects many parts of our society.

... but I do almost entirely agree with this.

I think regulatory capture needs to be considered as well.

At some point those that amass large amounts of wealth are disproportionately able to influence government regulation to ‘game’ the system itself in their favor.

It seems in the realm of finance, it’s much easier to obscure regulatory capture than in other domains, where anti-competitive practices are much easier to suss out.

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