The Economist: "Counting the cost of finance"

Link to web site

(Image is from The Guardian's Steve Bell)

"EVERYBODY knows that the collapse of the financial system in 2008 was hugely costly for Western economies. But finance was taking a heavier toll on the economy even before Lehman Brothers went under.

"That is the conclusion of a new paper by Guillaume Bazot of the Paris School of Economics which takes a different approach to measuring the overall cost of finance.

"... [Maybe finance industry] higher incomes are what economists call rents: excess incomes earned by those with a privileged economic position. The financial industry is protected because governments and central banks will act to rescue it when it falters, in a way they would not do for chemicals, say. And the sector may also benefit from asymmetric information: some of the products it sells are highly complex and clients may not be aware of the full cost until well after a sale is made.

"The central question that the finance industry needs to answer is this: why has its increased importance been associated with slower economic growth in the developed world and a greater number of asset bubbles?"