Monday, March 30, 2009

Why I don't want to go into finance

Steven and I had a good old convo about this, and I felt that my thoughts weren't as focused/developed then. So here's round two...

Life and survival. That's where it all starts, no? So how does one survive? One work to produce the essentials required for survival, namely food, shelter, and the like. If you have enough people together, one could also form a community and meet everyone's needs together. When there's a group, one can specialize. In a large enough group, one can specialize in something that one likes. This way, the actual per capita effort required to meet the minimum needs for everyone survival is reduced. This means that some people could, instead of working to ensure the group's survival, work to enrich their lives and the lives of their peers. They would add something that would help others in the group, intentionally or not, simply because they benefit from others' work.

Money. They say that money was created because it was easier to carry than chickens. Amongst other things, it acts as a "measure" of the "worth" of the products of one's work. It does so in a very crude manner, so crude that nowadays there are times when the amount of money one makes has little correlation with the worth of one's work. I would guess that the meaning of the phrase "to make money" used to have meant something along the lines of "to produce something that someone else would find valuable" - directly related to production. But now, that phrase is synonomous to "to make a number in a bank account bigger". The link between making money and producing something valuable is missing.

Finance. Yes, I've taken MFE, and I know about how options and derivatives can be used for hedging purposes, to transfer risk to those who want it the most. But in reality, most people who are in the financial business are not out there to do hedging. Most of them are speculators, who are in it to make money. (Forgot what the statistics was, but it was in the MFE book, in one of the earlier chapters.) Yes, there are exceptions of course - people who started microlending, for one. There're also those who wants to go into finance for other reasons. But the majority of the people who are in finance work for a company whose only goal is to make money. Worst off, as the percent of speculators in the game approach 100%, the games would get closer to becoming zero-sum. I'm not quite qualified to say whether we've gotten close enough, but the consensus seems to be that, yes, it is quite close to being a zero-sum game. Now then, do financial companies really add much to the world? Once upon a time, financial groups like banks would have done just that. They helped decide who gets the loans, and who didn't, and that's important. You needed someone to decide on how to invest, to decide which ventures might turn out successful and which ones are bullshit. That in itself is a useful talent for a society to have. However, from what I've read so far, the majority of the financial industry does not concern itself with that.

Yes, finance is complicated and interesting. But so is physics and biology and statistics and many other things. Personaly, in gr 12, the thought of going into a too finance-related career irked me. It just didn't feel right. I thought, almost paradoxically, that actuarial science would be better. Insurance seemed useful, and pooling together risk make sense. They are adding stuff to the world - making new products like golf insurance (get a hole in one at a party => win free car ... I guess this particular example adds as much to the world as the entertainment industries does). Maybe it does, but if I can help it, I'm going to try and stay away.

End of Entry