Am I a societal leech?
As I've been settling into my new job over the last two months, I've been a little troubled by a certain viewpoint. What is it, exactly, that I produce for society? Granted, my work ensures that I receive my share of the world's economic "pie"... but does my job actually make the pie any *bigger*?

I guess I should elaborate a bit on what I do. I'm a stat arb trader. I write computer programs that automatically trade stocks, taking advantage of temporary market inefficiencies in order to earn profits. (I do not, however, do any late trading of mutual funds...) Bluntly put, the profits "come from" all the investors out there who are making mathematically noisy trades on the stock market, and they "go to" our fund's investors and our operating expenses. The work itself appeals to me because it's creative, mathematical, and challenging. But don't produce food, shelter, clothing, or any tangible good. I don't save anyone else any labor because of what I do. The world isn't cleaner, more productive, economically wealthier, more entertaining, or more educated because of my efforts. There are only two effects of my job that could reasonably be called "benefits": first, to shuffle money around between investors in the stock market, with my company and me skimming off the top of every dollar; second, to force the stock market to price stocks more efficiently (since we're taking advantage of inefficient prices, the effect of our trades is to push those prices closer to values that we think are "efficient", with success in increasing pricing efficiency == our profits). On a macro level, the first of these is clearly of no benefit to society as a whole. So, on the grand scheme of things, I cause stocks to be priced more efficiently. (Aside: don't reply to this by going into a tirade about the efficient markets hypothesis. Companies like mine exist and are profitable, therefore EMH *must be* wrong. Markets are quite efficient, but not perfectly so.)

To counter that, my company *consumes* quite a lot. We rent an entire floor of prime office space in Midtown Manhattan. We buy computer equipment like crazy. We hire people to do this task of dubious macroeconomic value, thereby increasing prices in the labor market for everyone else. We get a catered lunch every day. And we trade an astounding quantity of stock on a daily basis, thereby forcing the stock exchanges to buy better computers, hire more accountants, and so on. (Of course, we're the ones who ultimately pay for that, through the commissions that the exchange charges.)

So here's my unanswered question: is super-efficient pricing in financial markets of any net macroeconomic value compared with the still-rather-efficient pricing that would occur in the absence of hedge funds? If it does have some value, is it worth all the resources that my company -- and all the other hedge funds in the industry -- consume? An interesting thought experiment here is to imagine a world without any hedge funds or stat arb traders. All the profits that the stock market generates would still be there, it's just that they'd be distributed a little differently among investors (since we wouldn't be pushing money around). Moreover, there wouldn't be any hedge funds out there consuming society's resources to a dubious macroeconomic end. Yes, there would be some measure of unexploited profit opportunity in the form of less efficient pricing of financial instruments, but who cares? As long as nobody bothered to exploit it, it wouldn't matter, right? The money would still go to *someone*.

Is this another form of the tragedy of the commons? Am I a leech on society (figuratively, the guy who sits in the commons, watching every blade of grass grow, so he can try to predict when to pluck them just before they're eaten by cows or sheep or whatever; then sells the hay he's made for a profit)?

-Brian