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Starving the Squid

Brad DeLong, Project Syndicate, Starving the Squid, here. Frame automated trading as alpha  driving economic growth. The technology employed and it’s features is a side-show of debatable value. Rebuild locally, from the ground up, with Mercer County Cash Register.

Such a massive diversion of resources “away from goods and services directly useful this year,” I argued, “is a good bargain only if it boosts overall annual economic growth by 0.3% – or 6% per 25-year generation.” In other words, it is a good bargain only if it collectively has a substantial amount of what financiers call “alpha.”

That had not happened, so I asked why so much financial skill and enterprise had not yielded “obvious economic dividends.” The reason, I proposed, was that “[t]here are two sustainable ways to make money in finance: find people with risks that need to be carried and match them with people with unused risk-bearing capacity, or find people with such risks and match them with people who are clueless but who have money.”

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