Does the total cost of our financial system exceed the total benefits?
Overmighty finance levies a tithe on growth, by Benjamin Friedman: …The crucial role of the financial system in a mostly free-enterprise economy is to allocate capital investment towards the most productive applications.
…it is important to ask what this once-admired mechanism costs to run.
If a new fertilizer offers … a higher crop yield but its price and the cost of transporting and spreading it exceeds what the additional produce will bring at market, it is a bad deal for the farmer. A financial system, which allocates scarce investment capital, is no different.
The discussion of the costs associated with our financial system has mostly focused on the paper value of its recent mistakes and what taxpayers have had to put up to supply first aid.
What has somehow escaped attention is the cost of running the system.
A fast reply in the comment thread, “I did not think it was possible for economists to ask the right questions.”