Wall Street Costs The Economy 2% Of GDP Each Year

Forbes ^ | 31-MAY-2015 | Steve Denning

[dila813]

Depends on the audience, doesn’t it?

[Yollopoliuhqui]

The Money Masters

https://www.youtube.com/watch?v=Dq9yjt_JbWs

Reinstate Glass-Steagall NOW!

[impimp]

Removal of regulations is good. Breaking up banks by force is bad.

[dila813]

But merging them by force is ok?

[expat_panama]

Ooops, I missed a day flying north and my absence causes a half % drop w/ increasing volume --distribution day!  No problem, this Forbes piece proves that a shrinking WallStreet brings econ growth!  I mean, after all everyone knows that the crash of 1929 brought such prosperity in the '30's and the crisis of '08 mean happy days in '09 --right?  Either that or we need a thread for As GDP Sags, White House Excuses Boom - Editorial, Investor's Business.  In the mean time we got lots of 'excessive financialization' throughout the day today:

8:30 AM Personal Income
8:30 AM Personal Spending
8:30 AM PCE Prices - Core
10:00 AM ISM Index
10:00 AM Construction Spending

[Lurkina.n.Learnin]

“after all everyone knows that the crash of 1929 brought such prosperity in the ‘30’s”

LOL, I know my dad came to Californie with his mattress strapped to the top of his car.

[bert]

An IMF study of the US economy is not to be taken seriously.

[expat_panama]

very good constructed argument by Steve Denning

huh.  Weird how we can both read the same piece and have completely opposite takes.  What I saw was that Forbes presents an "IMF Study" which in reality begins with "This Working Paper should not be reported as representing the views of the IMF."

The whole thing began w/ a three-year old tract (someone's master's thesis?) w/ stuff like "Semi-Parametric Regressions" showing how econ growth can fall as credit continues to expand.  Besides the fact that the researchers ignored the rhetorical mandate to eschew obfuscation (too many big words) they also don't care that growth is neither strength nor well being.   Just like we see the most physical growth in a new born baby we can also see lots of econ growth in say China or Costa Rica.

[expat_panama]

to Californie with his mattress strapped to the top of his car

Seems folks w/ that story are becoming more and more rare.  I'm thinking of the privilege I had years ago chatting w/ a 90-some year old about her memories going to California from Minnesota in a covered wagon.

[Jumper]

Somehow, it is rather ironic that companies move their assets offshore for various reasons, the most obvious for factory labor... these stocks are in essence the reason Wall Street exists. Stocks go up due to variations and Wall Street is essentially the old school clearing house for trading activity. Chicago is the place where they trade Pork Bellies....

[expat_panama]

An IMF study of the US economy is not to be taken seriously.

In this case the study was done by a couple of Italians (who in fairness did make a few decent points) and the only reason the IMF passed it around was "to elicit comments and to further debate."  If that was their goal then they hit a home run.

[Lurkina.n.Learnin]

Dad’s gone now. He was born in Beaver County Oklahoma in 1930. Pretty much the center of the dust bowl.

[dila813]

Yeah, Dodd-Frank then!

Its all good

[central_va]

Might as well call the Wall st - K Street - FedGov Triumvirate what it is - Fascism. But even Mussolini would NOT offshore Italy’s manufacturing to another country. What we have now is worse than the 1930’s.

[expat_panama]

Dodd-Frank then!

If we agree we don't like Dodd-Frank then we should both want to set this Forbes piece to one side.  OK, so Denning says he bases his thinking about the IMF paper on a NYT rant that supposedly called Dodd-Frank a "monster".  It didn't.  In fact, it said Dodd-Frank made the economy "safer and fairer" and in stead of repeal it called for even more laws.

[dila813]

What it says is that we are loosing 2% of GDP because of it.

Those things are said in relationship to the purpose of it, not the reality of it.

It is a contrasting verses reality article that is written to influence the regulation devotees.

[dila813]

The key point he is trying to push (not regulation reduction):

“More and more complex financial practices lead to increasingly complex regulations, which in turn create the political momentum for deregulation, while leaving untouched the root cause of the problem: the financial sector is now simply too big.”

He points to regulation being too complex is due to the size of the financial sector.

The thing I disagree with him about, is the complex regulation is the cause of it being too big. He seems to think it is just in the nature of these financial institutions.

[expat_panama]

it says is that we are loosing 2% of GDP because of it.

--and it's wrong.  His 'proof'--

-- is that U.S. econ growth is on par w/ Ecuador and not nearly as good as that of Poland therefore we need less WallStreet so we can rise from Ecuador to Poland.  Insane.  Give me time and I probably could find some wasted economy somewhere that doubled this past year from a GDP of $7.50 to this year's $15.  That kind of economy is just not a good goal for America.  We're not like Ecuador and we don't want to be like Poland.

...the root cause of the problem: the financial sector is now simply too big.”

All human production is a mix of labor and capital (ok, excluding production from say, bodily functions).  Denning may be close to reality in that we want the right mix and not an economy that's excessively capital intensive, anymore than we want one that's excessively labor intensive.  Thing is that if we got lots and lots of capital the solution wouldn't be to have less capital, but rather what we need is more labor.  These days any excess capital should be permitted to create more jobs but our problem is that WallStreet's constantly pegged as the bad guy and this is why (imho) the job market has suffered.

[St_Thomas_Aquinas]

The curve seems right. The analysis seems wrong.

But Poland is doing things better than us right now. They’ve seen the glories of Progressivism and want no part of it.

[expat_panama]

My take is the old saying "figures don't lie but liars figure".

Of course there's a higher growth rate for the young emerging economies. There's always a much bigger payoff for the first two lanes of highway built than for when you build the second tow lanes. So while growth is nice it should never be confused with the advantages of already being really big.