"..it's a zero-sum game. If you do well in the market, it has to be because someone else is doing poorly. Either that, or the market is bubbling upwards ahead of a crash."
Man, this is a common fallacy. In the last 100 years the stock market index has gone up several orders of magnitude. How is this a zero-sum game? Or do you expect the DJIA to go back to 100 or whatever it started out at when this bubble pops? The world grows richer because people work and create value. There is stock market speculation, yes, but there is also genuine growth based on fundamentals.
I guess I really explained this poorly. I don't mean that capitalism is a zero-sum game. I mean that the financial industry, and more specifically the buy-side firms dealing in secondary securities markets, is a zero-sum game.
The DJIA has gone from 89 to 15k because of the labor and ingenuity of American employees and entrepreneurs. New companies come out with new products, these products meet consumer needs, this creates value, this value is reflected in the company's earnings, and corporate earnings are reflected in the stock price. None of this happens because some quant sits at a computer and programs in mathematical models of prices. If Coca-Cola was still trading at 50 cents with its current earnings, everyone - financial professional or not - would be jumping on it. It wouldn't stay at 50 cents a share for long.
Some sort of stock market, with decent liquidity and abundant information, is necessary for proper functioning of the economy. But the stock market we have, where hedge funds colocate boxes on the exchange so that they can execute trades within milliseconds of new information coming in, is overkill. I think it's really sad that so many of the best and brightest minds are drawn into competing with each other instead of creating value for others.
I feel the same way about law, which is another necessary-but-zero-sum profession. It also tends to attract really smart people, perhaps because really smart people are used to being smarter than everyone else. The link to tournament economics that someone posted on another article here is quite appropriate.
Neither finance nor law are of necessity zero sum activities, although both of them may end up dissipating some wealth in some cases.
Financial markets are what enables society to direct capital toward its most productive uses, and every time you find an arbitrage opportunity, you have just contributed a little to that goal; think of it as Gosplan, except that it actually works. This is perhaps easier to understand in the context of markets in physical goods. A merchant who notices that the difference in the price of widgets in towns A and B is smaller than the cost of transporting them, and starts doing so, is obviously realizing a net gain for society. Stocks and bonds aren't all that different from widgets.
Good laws make it possible for people to rely on contracts with complete strangers, rather than always having to laboriously build up bonds of trust, and they prevent people from imposing costs on third parties that never asked for them. While bad laws may be bad, good laws exist too, and lawyers do occasionally get involved in making them work.
There is a distinction between making the laws and gaming them.
There's a lot of small-government rhetoric out there about minimizing legislation. The analogous point to about minimizing litigation is also plausible.
Man, this is a common fallacy. In the last 100 years the stock market index has gone up several orders of magnitude. How is this a zero-sum game? Or do you expect the DJIA to go back to 100 or whatever it started out at when this bubble pops? The world grows richer because people work and create value. There is stock market speculation, yes, but there is also genuine growth based on fundamentals.
Now it is possible that we are building up towards a more fundamental crash (peak oil, http://anthropik.com/2005/08/thesis-6-humans-are-still-pleistocene-animals , etc.). But I don't think you were talking about that. Perhaps it is all fundamentally zero-sum (http://scrapbook.akkartik.name/post/2025552, "Guns, germs and steel", http://www.newamerica.net/publications/articles/2006/the_return_of_patriarchy). But in the frame of reference where the stock market continues to function it is def creating value.