Will Efforts To Lower Risk In Financial Services Harm The Economy?

This article raises many excellent questions about the value added by the financial sector. The financial sectors share of GDP, corporate profits and employee compensation has risen dramatically in recent years. The financial crisis imposed costs on society that raise questions about the real value added by financial services. This is a relevant question today since government efforts to reduce risk in the financial sector are being blocked by claims from financial industry lobbyists that the changes would have a negative impact on the sectors ability to innovate and stimulate economic growth. Financial service company executives e.g., the CEO of Goldman Sachs, argue that wages at Goldman Sachs are high because its employees are highly productive. Revenue per employee is very high at Goldman Sachs. This raises questions about the source of the high productivity as well as about the value of the services provided. These issues are explored in detail in the article and some answers to the questions are offered. Economists have a good understanding of the value added by manufacturing industries, and the factors that contribute to productivity and wages. Its about time that we reach a better understanding of these concepts in the financial services industry. The analysis in this article suggests that there are good reasons to question the social value added, and the productivity of the financial services industry.

(The link to this article has been repaired. I strongly encourage a careful reading of the article)