This question is an "eye of the beholder" one -- it's not only subjective, but oftentimes an equal number of people could argue that a startup does not improve or actually detracts from peoples lives.
Take facebook as an example. A lot of people would argue that it detracts from peoples lives (degrading the real-life experience of interacting with people), but a lot of people would also argue that it improves lives.
Now take finance. Forget about blankfein's "god's work" remark. In general, most parts of finance improve lives (though most HNers would disagree). Look at market making (providing liquidity for other traders). There's an intrinsic demand for liquidity from funds which try to manage an index, hedgers, and speculators. The goal of market making is to provide liquidity to facilitate those other traders. And yes, there's a small premium for the service, but the fact that the premium is shrinking over time reflects a lower cost for the rest of society.
(I'm going to agree with your first sentence by disagreeing with everything you said about market making)
> Look at market making (providing liquidity for other traders). There's an intrinsic demand for liquidity from funds which try to manage an index, hedgers, and speculators. The goal of market making is to provide liquidity to facilitate those other traders. And yes, there's a small premium for the service, but the fact that the premium is shrinking over time reflects a lower cost for the rest of society.
I think that's a very quaint view of market makers, maybe valid 20 years ago but it seems disconnected from modern circumstances. Market making has largely become synonymous with algorithmic trading, which now accounts for somewhere between 25%-75% of traded volume (obviously varying widely between markets, see http://ftalphaville.ft.com/blog/2011/03/04/505021/algo-tradi...).
A significant subset of the prop traders have been spiraling into a latency arms race, which has gotten to this absurd point where even millisecond-scale trading is considered slow.
Regular old market making (put orders on both sides of the book, make profits from the spread) only seems to work in the absence of significant competition. In reality, profitable firms are running all sorts of short-term speculations and even trying to prey on the trading behavior of people & other algorithms. There have been all sorts of algo-induced pricing anomalies documented at http://www.nanex.net/FlashCrash/FlashCrashAnalysis.html.
The supposed benefit of all this nuttiness is improved liquidity, but I wonder: Who needs liquidity at the millisecond scale? What business, other than algorithmic speculation, will suffer if they have to wait 1/2 a second to buy or sell something?
Also, I question whether the premium of modern prop trading is actually small-- there are a large number of prop trading firms that seem to be doing extremely well for themselves. I don't know the specifics, but I wouldn't be surprised if the sum of prop trading profits reach high into the billions.
Furthermore, these companies siphon off a large number of smart grad students, who would have likely otherwise done something actually socially productive with their time.
Sorry, but you just spewed a bunch of crap about market making and algorithmic trading that has no basis in fact. reading and blindly believing zerohedge is just as bad as watching cramer and calling yourself a trader. I will address one comment, instead of wasting space on many.
You claim that 25-75% of volume is made up by algo traders. I agree, and its probably closer to the 75%. However, this is meaningless. Since the beginning of trading more than 50% of volume is made up of speculators/market makers. It's always been that way, except now that its computers doing it people spaz out.
The only difference is now the spread on stocks is a penny or less instead of 25-50 cents or more. Damn computers arm race!
I agree, and that is actually a similar stance to the one I took in the thread this is a response to. But the idea wasn't to judge whether someone is actually improving lives but rather to see if they feel like they do.
There are a lot of different takes on the idea of improving lives here, none of which are wrong. I was just curious to see how others looked at this.
Take facebook as an example. A lot of people would argue that it detracts from peoples lives (degrading the real-life experience of interacting with people), but a lot of people would also argue that it improves lives.
Now take finance. Forget about blankfein's "god's work" remark. In general, most parts of finance improve lives (though most HNers would disagree). Look at market making (providing liquidity for other traders). There's an intrinsic demand for liquidity from funds which try to manage an index, hedgers, and speculators. The goal of market making is to provide liquidity to facilitate those other traders. And yes, there's a small premium for the service, but the fact that the premium is shrinking over time reflects a lower cost for the rest of society.