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Too much finance is bad for the economy

economist.com

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Re: Too much finance is bad for the economy

#41

Post by danbruc »

nawitus wrote: post #31
danbruc wrote: post #12

Meh. What do we need economic growth for anyway? Producing and throwing away another hundred million tons of food every year? New phones every six months or once a quarter? A third car? More shoes? We have enough of everything and much more, there is absolutely no need to grow western economies any further.

Why is the current standard of living the ideal? Why not 10 years ago, or 10 years into the future? How about 20? 30?

I don't think that the current standard of living is ideal and I really hope it will improve a lot. But I don't see that improving the standard of living requires economic growth, I think change will do.

Re: Too much finance is bad for the economy

#42

Post by mikeash »

danbruc wrote: post #40
mikeash wrote: post #27

Earlier quoted context omitted.

We don't have nearly enough health. The ability to spend more on medical research is enough reason all by itself to keep the economy growing.

Why do we need growth for that? Wouldn't redirecting wasted resources do just fine?

That will get you some. Growth will get you more, faster.

Re: Too much finance is bad for the economy

#44

Post by josu »

Talking about thresholds like:

>The 2012 paper suggests that when private sector debt passes 100% of GDP, that point is reached. Another way of looking at the same topic is the proportion of workers employed by the finance sector. Once that proportion passes 3.9%, the effect on productivity growth turns negative.

Does not make any sense. Each economy is different, and the available data is probably not enough to give such accurate numbers.

>Ireland and Spain are cases in point. During the five years beginning 2005, Irish and Spanish financial sector employment grew at an average annual rate of 4.1% and 1.4% respectively; output per worker fell by 2.7% and 1.4% a year over the same period.

Using Spain as an example for "output per worker" is not a very good idea, they somehow broke productivity growth in 1994 and it's been stucked since then [1].

Productivity is affected by many factors, so conducting a ceteris paribus analysis is very complicated if not impossible. There is a really interesting book written by a journalist about productivity: The power of productivity [2]

[1] http://www.gapminder.org/world/#$majorMode=chart$is;shi=t;ly...,

[2] http://www.amazon.com/The-Power-Productivity-Poverty-Stabili...

Re: Too much finance is bad for the economy

#45

Post by beachstartup »

temuze wrote: post #28
crdoconnor wrote: post #25

Earlier quoted context omitted.

Bankers are middlemen and gatekeepers. Unlike pool cleaners, doctors, cooks and gardeners.

Not always. Finance is a pretty big industry and its hard to make a sweeping generalization like this. For example, let's look at your checking account. A banker's not a middleman here - they're providing a service that allows you to keep you money safe for free while they invest it and assume the risk. Seems like a good service to me.

uh, well, you just perfectly described a middleman, and since not everyone qualifies to have a bank account, a gatekeeper.

Re: Too much finance is bad for the economy

#46

Post by Retric »

nickbauman wrote: post #32
badloginagain wrote: post #5

Earlier quoted context omitted.

Can't say I agree with these statements. I would wager that the scale of money a rapidly growing finance sector is using is more important than an unsubstantiated claim of industry brain-drain.

Totally agree. When the finance sector grows, demands for return interest on capital investment intensifies, acting as a gravity-well for capital away from development. Firms like Goldman make every investment require higher and higher returns at a greater and greater scale. Money chasing money. Casino economy. Instead of opening a new line of business, your profits must be funneled into paying back on that loan at h…

Returns are relative. Using the US example there has been a continious downward trend in post inflation returns over the last 100 years, but investment keeps growing.

Re: Too much finance is bad for the economy

#47

Post by skylan_q »

bhouston wrote: post #3

Summary: > In short, the finance sector lures away high-skilled workers from other industries. The finance sector then lends the money to businesses, but tends to favour those firms that have collateral they can pledge against the loan. This usually means builders and property developers. Businessmen are lured into this sector rather than into riskier projects that require high R&D spending and have less collateral t…

Sounds like the ABCT to me.

http://en.wikipedia.org/wiki/Austrian_business_cycle_theory

Sounds to me like printing money and pumping it into finance leads to an unsustainible economy.

Re: Too much finance is bad for the economy

#48

Post by erikhansenwong »

hawleyal wrote: post #23
tbrownaw wrote: post #20

No, a large financial sector is an indicator of inefficiencies elsewhere. Else, there wouldn't be a reason to pay middlemen to solve said inefficiencies.

That is all that was said, correlation between too-large financial sector and negative overall growth.

You touched on the point I wanted to make. The reporter is making a jump between correlation and causation.

Re: Too much finance is bad for the economy

#49

Post by eldavido »

I'm an engineer. I could go into a high-risk career trying to cure cancer, or I could flip houses.

By my (admittedly rough and speculative) math, I'd make more money doing the second.

This has nothing to do with finance and everything to do with how capitalism privileges owners. Just because I can do something (e.g. cure cancer) doesn't mean I should do it out of some regard for the "public good", requiring great sacrifice, work, stress, and low pay, on my part. I might think differently if I got paid 1 cent for everyone who used my cancer drug, but that's just not how things work today.

Re: Too much finance is bad for the economy

#50

Post by nhaehnle »

skylan_q wrote: post #47
bhouston wrote: post #3

Summary: > In short, the finance sector lures away high-skilled workers from other industries. The finance sector then lends the money to businesses, but tends to favour those firms that have collateral they can pledge against the loan. This usually means builders and property developers. Businessmen are lured into this sector rather than into riskier projects that require high R&D spending and have less collateral t…

Sounds like the ABCT to me. http://en.wikipedia.org/wiki/Austrian_business_cycle_theory Sounds to me like printing money and pumping it into finance leads to an unsustainible economy.

Since there is an obvious political slant to the message, it should be pointed out that it is the finance industry itself that is "printing money". So take that into account while thinking through the political implications, if skylan_q's premise is actually true.
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