Mankiw sender oss til to diskusjoner som forsøker å besvare spørsmålet:
- Robin Greenwood and David Scharfstein (pdf)
We offer a preliminary assessment of whether the growth of active asset management, household credit, and shadow banking – the main areas of growth in the financial sector – has been socially beneficial.
Our overall assessment comes in two parts. First, a large part of the growth of finance is in asset management, which has brought many benefits including, most notably, increased diversification and household participation in the stock market. This has likely lowered required rates of return on risky securities, increased valuations, and lowered the cost of capital to 30 corporations. The biggest beneficiaries were likely young firm, which stand to gain the most when discount rates fall. On the other hand, the enormous growth of asset management after 1997 was driven by high fee alternative investments, with little direct evidence of much social benefit, and potentially large distortions in the allocation of talent. On net, society is likely better off because of active asset management but, on the margin, society would be better off if the cost of asset management could be reduced.
Second, changes in the process of credit delivery facilitated the expansion of household credit, mainly in residential mortgage credit. This led to higher fee income to the financial sector. While there may be benefits of expanding access to mortgage credit and lowering its cost, we point out that the U.S. tax code already biases households to overinvest in residential real estate. Moreover, the shadow banking system that facilitated this expansion made the financial system more fragile.
- John Cochrane (pdf)
Wholesale, retail trade and transportation cost 14.6% of GDP, while all manufacturing is only 11.5% of GDP. We spend more to move stuff around than to make it!
Did you know that Kim Kardashian gets $600,000 just to show up at a nightclub in Vegas? How silly is that?
The size of finance increased, at least through 2007, because fee income for refinancing, issuing, and securitizing mortgages rose; and because people moved assets to professional management; asset values increased, leading to greater fee income to those businesses. Compensation to employees in short supply – managers – increased, though compensation to others – janitors, secretaries – did not. Fee schedules themselves declined a bit.
To an economist, these facts scream “demand shifted out.” Some of the reasons for that demand shift are clearly government policy to promote the housing boom. Some of it is “government failure,” financial engineering to avoid ill-conceived regulations. Some of it – the part related to high valuation multiplied by percentage fees – is temporary. Another part – the part related to the creation of private money-substitutes – was a social waste, has declined in the zero-interest rate era, and does not need to come back. The latter can give us a less fragile financial system, which is arguably an order of magnitude larger social problem than its size.
The persistence of very active management, and very high fees, paid by sophisticated institutional investors, such as nonprofit endowments, sovereign wealth funds, high-wealth individuals, family offices, and many pension funds, remains a puzzle. To some extent, as I have outlined, this pattern may reflect the dynamic and multidimensional character of asset-market risk and risk premiums. To some extent, this puzzle also goes hand in hand with the puzzle why price discovery seems to require so much active trading.