Paul Krugman writes in his New York Times column about Michael Bloomberg:
he got rich by selling equipment to destructive wheeler-dealers.
For those who don't know what I'm talking about, I'm referring to the famous Bloomberg Terminal, a proprietary computer system that gives subscribers real-time access to large quantities of financial data. This access is incredibly expensive — a subscription costs around $24,000 a year. But it's a must-have in the financial industry, because traders with Bloomberg Terminals can react to market events a few minutes faster than those without.
It's an extremely profitable business. But is it good for the economy? No.
After all, does getting financial information a few minutes earlier do anything significant to improve real-world business decisions that affect jobs and productivity? Surely not. Bloomberg has, in effect, made his billions off a financial arms race that costs vast sums but leaves everyone pretty much back where they started.
This is false and inaccurate in so many ways that it's hard to know where to start. To begin with, it's not just the private sector (those Krugman denounces as destructive wheeler-dealers) that pays for Bloomberg terminal subscriptions, but also governments — central bankers, finance ministries, regulators such as the Securities and Exchange Commission. I've heard of college development offices using them.
Second, it's hypocritical of Krugman to denounce Bloomberg for making money by selling "incredibly expensive" $24,000-a-year subscriptions that allow people to get financial information "a few minutes earlier" when the New York Times, which employs Krugman to write his columns, is itself selling subscriptions for $1,040 a year. Presumably the Times isn't bothering to employ 1,600 journalists so they can deliver news and information to those readers paying the $1,040 a year later than they could get it somewhere cheaper.
Anyway, part of what Bloomberg does is try to report market-moving news more quickly than the competing Reuters or Dow Jones newswires, but that is a very small part of what makes the terminal worth the subscription. There are network effects — if you have a Bloomberg terminal, you can find and message other people with a Bloomberg terminal. There is data and charts and analytics. There is aggregation of other content. If all of this were so easy to provide, the New York Times Company or Dow Jones or Reuters or FactSet would have put Bloomberg out of business years ago. No one likes to pay all that money for a Bloomberg terminal. But even people managing family offices or university endowments or other long-term money do voluntarily pay for (or okay, at least soft-dollar) the terminals in part because they feel like they are getting value for them.
As an excellent New York Sun article explained it back in 2006:
Access to Bloomberg offers its customers financial information and analysis that historically was accessible only to a limited number of Wall Street investment banks and trading houses. The company gives users full capability to analyze global equities, commodities, bonds, mortgages, currencies, and money markets. In recent years, Bloomberg LP has expanded its product offering to include trade settlements, record-keeping, and messaging, which has given the machines a network effect, allowing users to talk to one another. In other words, not having one is not an option.
Krugman portrays Bloomberg terminal users as kind of an elite — "traders with Bloomberg Terminals can react to market events a few minutes faster than those without." But as the Sun article pointed out, in a way, the Bloomberg, like the personal computer, was a democratizing innovation, because now anyone with a Bloomberg had access to bond pricing data that it used to be only the folks at Salomon Brothers or a few others had.
Krugman may find it hard to accept, but it's hard verging on impossible to make a fortune as big as Bloomberg's in capitalism without providing something that delivers real value to customers. Krugman can sneer at it as insignificant or disconnected to "real-world business decisions that affect jobs and productivity," but there are plenty of jobs in financial services, and plenty of others that depend on the provision of liquidity, pricing of risk, and well-informed decisionmaking about capital allocation that is the work of the financial services industry.