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The Economist: "Counting the cost of finance"

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(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?"

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