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Comment by bjornsing | Hacker News Reader

The OP’s reasoning is based on a popular yet fundamental misunderstanding: an overvaluation of companies with many employees (a.k.a. “big” companies).

The key to economic growth is not firms with many employees, it’s firms with highly productive employees. You want a system that kills off unproductive firms, so that better uses can be found for their capital and employees.

You don’t want a system that kills off highly productive firms just because they stay relatively small. As an example Renaissance Technologies was founded in 1978 and has only about 310 employees today. Yet I can assure you that the US economy would not have been better off without it.

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> As an example Renaissance Technologies was founded in 1978 and has only about 310 employees today. Yet I can assure you that the US economy would not have been better off without it.

Another example is Germany, even though the country has some massive companies there's a lot of quite productive medium/small companies (Mittelstand) doing specialised work.

As a counter example, I see a shit ton of Indian firms in sectors such as pharma or tech, which employ hundreds or even thousands of people, but they collectively make much less in revenue than a similar competitor in the US, even though their business is mostly international.

310 employees is not very small. Anyway, the sweet spot for company size depends on what the company does, as productivity gains in certain tasks can be bought through capital expenditure. Heavy industry is an obvious outlier on the bigger-is-better side. Software, on the other hand, arguably has very low returns on increased company size.

And? From the tone of your comment I get the impression that you disagree, but the content is just trivia that I see no issue with.

> key to economic growth

At a national level, there are no single keys, there aren’t even major factors. You’re kind of trading in the same narrative rhetoric of the article you are ackshuallying.

The Renaissance Technologies example is funny anyway. My dude, literally nobody but bankers thinks hedge funds are good for the economy, let alone a good use of “productive employees.”

I think it's good that pension funds can get returns.

Yeah but Renaissance is funny because they have 2 funds. The Medallion fund which only has employee money makes the amazing returns, while the normal fund for pension funds barely outperforms the market.

“Barely outperforms the market” over a 50 year period (for a pension fund to cover obligations) is still a pretty big deal.

Except there are far more funds that already do that (even if their count is in the minority), so their sheen wears off.

Oh wait, there have been some years the normie fund actually underperformed the market, while the Medallion fund exceeded its expectations. So much that investors got real pissed (around 2018 iirc), and that's how the separation of funds structure actually came in the financial media spotlight.

For Renaissance specifically, their signature fund has been closed to outside investors (with all funds returned) for decades, so pension funds aren't able to take advantage of their outperformance. I believe their publicly-available funds don't have nearly the same kind of returns.

With all that aside, better liquidity and pricing of risk is the overall systemic value that all speculators in the market provide. You be the judge as to whether the remuneration is commensurate with that value.

Not if the economy collapses before you can collect / spend your pension. I think such an event is inevitable even though it may be a long time away. Pending global conflicts could bring it forward. If you need a pension and don’t get it there isn’t really much you can do about it.

> At a national level, there are no single keys, there aren’t even major factors.

> My dude, literally nobody but bankers thinks hedge funds are good for the economy.

These two beliefs explain each other. If you don't believe the control plane is productive you will struggle to see any major factors in growth. The reason economies grow is because powerful members of society can benefit directly, personally and excessively when there is growth. Otherwise they'd ban growth for environmental reasons (or similar). That reason is both necessary and sufficient.

Hence the value of things like hedge funds.

> Otherwise they'd ban growth for environmental reasons

fantastic to see this delusional thinking spelled out today

> At a national level, there are no single keys, there aren’t even major factors.

It is possible to stare so hard at all the trees that you miss the forest, that’s true. But if you take a step back and look at the big picture it’s not that complicated. Adam Smith had most of it right in 1776.

I think a lot of people besides bankers think hedge funds are good for the economy.

There has to be a reason why larger companies are valued at their levels and it probably has something to do with economies of scale.

Can you explain what utility renaissance actually provides? And don't say liquidity in the market cause that's a line of bullshit

I'm not saying they provide cover. But such a company could provide cover better than most.

> don't say liquidity in the market cause that's a line of bullshit

It's not a line of bullshit. For every notable prop shop (that is, attempting to trade one's own money for profit, which you may view as an illegitimate market activity) there is in the market, there are 100x as many portfolio managers (who manage other people's money, such as pension funds, which you may view as a more legitimate use of the market).

Every trade that a "legitimate" entity puts on has a counterparty, and the more counterparties there are from speculative activity[0], the more liquidity there is and the more efficiently things can be transacted. Everyone ends up happier.

You could argue that the field of managing money in general pays more than it is "worth", but that's kind of an argument of cosmic morality. Who should be paid more, elementary school teachers or firefighters?

[0]: https://www.cmegroup.com/education/courses/introduction-to-f...

I do not view pension funds as a more legitimate use of the market. The market as a whole is completely zero sum in my view.

And of course the CME group has a positive view of speculators, because they profit from speculative activity.

> The market as a whole is completely zero sum in my view.

How is it even possible to believe this? How do you think societies should manage their resources and plan for the future, if not a market? Soviet style central planning, or a cash and barter only economy? And if the answer is that we should have a market, then the market is providing some utility (because if it was providing neutral or negative utility then why have it) and is therefore not zero sum.

You must be aware somewhere that both sides of every single trade are in it because they find a benefit in that trade, right? Some need the cash, some need to turn cash into investments, some are changing their minds from favoring firm A to favoring firm B, etc, etc. All the way to pension funds ... doing the exact same thing.

You can imagine other ways to do it (but good luck making these other ways "fair" or "efficient" or "fast") - or you can recognize that a market is an elegant (in the engineering sense) way to do it. Once you have a market, you also want liquidity. Anyone who tried buying or selling illiquid shares (or illiquid goods), knows how much of a pain is lack of liquidity. It truly is desirable.

Not financial expert but I think "liquidity in the market" would be more of a high-frequency trader thing. The advantage to everyone else is that good investors inject information into the market and move prices towards their "correct" price earlier, preventing other investors from buying overpriced securities. Of course they make a profit by capturing the chance to buy underpriced securities but there's still a benefit. It also ought to mean financial resources are better allocated towards companies that are profitable and/or will make a profit in the future.

tl;dr: (Actively managed) funds and investors are the Gosplan of capitalism.

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