A Top Ivy League Economist: Does Finance Produce Anything of Value?
|December 9, 2013||Posted by Staff under Editorials|
This 2013 excerpt of Project Syndicate, Spt 20, is by Robert J. Shiller of Yale University, co-creator of the Case-Shiller Index of US house prices, and author of Irrational Exuberance.
In the United States, 7.4% of total compensation of employees in 2012 went to people working in finance and insurance. The share is even higher among the most educated and accomplished people, whose activities may be economically and socially useless, if not harmful.
In 2006, just before the financial crisis, 25% of graduating seniors at Harvard University, 24% at Yale, and a whopping 46% at Princeton were starting their careers in financial services. Those percentages have fallen somewhat since, but this might be only a temporary effect of the crisis.
From 1950 to 2006, credit intermediation (lending, including traditional banking) declined relative to “other finance” (including securities, commodities, venture capital, private equity, hedge funds, trusts, and other investment activities like investment banking). Moreover, wages in “other finance” skyrocketed relative to those in credit intermediation.
A significant amount of speculation and deal-making is pure rent-seeking — wasteful activity that achieves nothing more than enabling the collection of rents on items that might otherwise be free. Those in “other finance” often engage in such behavior.
Ed. Notes: You can rake in a lot of money without any more effort than flashing a winning smile if the money you rake in was already saved up by somebody else, somebody who trusts that you know what you’re doing when it comes to investing and have their best interests at heart. But taking a slice of the money that other people already earned and set aside is not the same thing as growing the pie, increasing output of goods and services, and making more money available for everybody. Growing the pie does benefit society in general while just shifting existing money around only creates winners and losers. But note which attracts more job-seekers. What sort of values must they have?
Bigger picture, how important would saving and investing and speculating be in a just economy? In a just economy, all the techno-progress going on would slash the cost of living. So to be comfy, you would not have to make as much money or save as much. As prices for goods and services drop, fall, and keep withering away, the surplus you saved up would go further and further.
What would stop inflation so the underlying deflation could come to the surface. Honest money — no more new money issued than new goods and services produced. To get bankers and politicians to quit devaluing the currency, you might have to allow consensual currencies to compete with them, such as community currencies on the left and gold-backed notes on the right. As more people switch to the currency they prefer, the bankers and politicians would have to rein in their profligate lending and spending just to keep people using their notes and coins.
Digging deeper still, of course it’d help to gather up all the “rents” — all the money that society spends for the nature and privileges it uses — and route them thru the public treasury and back out again as a Citizen’s Dividend. That’d leave no piles of money lying around for the spendthrift to use as collateral and none to lure the materialistic into socially useless careers. But they’d be getting a CD, too, so maybe they could learn to love the beauty in life.
Life could be so much simpler and fair with implemented geonomics.