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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

#3

Post by bhouston »

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 to pledge.

> A property boom then develops. But property is not a sector marked by high productivity growth; it can lead to the misallocation of capital in the form of empty Miami condos or Spanish apartments.

> R&D-intensive industries - aircraft, computing and the like - will be disproportionately harmed when the financial sector grows quickly. By contrast, industries such as textiles or iron and steel, which have low R&D intensity, should not be adversely affected

Re: Too much finance is bad for the economy

#5

Post by badloginagain »

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…

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.

Re: Too much finance is bad for the economy

#6

Post by Kalium »

badloginagain wrote: post #5
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…

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.

Industry brain drain is a known phenomenon in other circumstances, such as the natural resources trap. It's plausible that it could occur here.

Re: Too much finance is bad for the economy

#7

Post by gumby »

Basically bankers are like lawyers, gardeners, cooks, doctors, pool cleaners etc: service jobs to help other people get things done. When you elevate the sector to have implicit value you get a terrible distortion.

Re: Too much finance is bad for the economy

#9

Post by bhouston »

gumby wrote: post #7

Basically bankers are like lawyers, gardeners, cooks, doctors, pool cleaners etc: service jobs to help other people get things done. When you elevate the sector to have implicit value you get a terrible distortion.

I agree with a caveat. In the grand scheme of things everything is a service to help others get things done (there is no final all important job) and there needs to be a balance.
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