One up on wall street chapter 1
Philippon is a French economist at NYU’s Stern School of Business.
One up on wall street chapter 1 code#
They did that by changing the tax code to encourage businesses to hire financial whizzes who could spin ordinary income into certain, preferred types of investment income, and by loosening restrictions on the kinds of financial activities that the titans of Wall Street could engage in.Įxtra pipes attracted better plumbers - the more the finance industry grew, the more it tugged at highly educated workers. Lawmakers kept encouraging financial innovation, which built a market for smarter investment bankers. Some of America’s growth was driven by Washington. Other advanced countries didn’t see anywhere close to that growth in their financial sectors. The sector grew six times as fast as the economy overall during the past three decades. Over the past half-century, America’s financial industry built a whole bunch of new pipes. Ideally, the pipes deliver the water from people who have stockpiled it (investors) to people who want to put it to productive use (entrepreneurs, executives, home buyers, etc.).
One up on wall street chapter 1 series#
To understand how and why that is, think of money as water and the financial system as a series of pipes. The problem is, America’s financial system has grown much larger than it should have, based on how well the industry performs. It’s not that finance is inherently bad - on the contrary, a well-functioning financial system is critical to a market economy. Every dollar a similar worker earns in finance comes with a drain, making the economy 60 cents worse off. In perhaps the starkest illustration, economists from Harvard University and the University of Chicago wrote in a recent paper that every dollar a worker earns in a research field spills over to make the economy $5 better off.
Using a different methodology, the most prominent researcher on the size and economic value of Wall Street, a New York University economist named Thomas Philippon, estimates that the United States is sinking nearly $300 billion too much annually into finance. In 2012, economists at the International Monetary Fund analyzed data across years and countries and concluded that in some countries, including America, the financial sector had grown so large that it was slowing economic growth. There are many ways to quantify how that financial growth-without-improvement hurts the economy. The financial industry has doubled in size as a share of the economy in the past 50 years, but it hasn’t gotten any better at its core job: getting money from investors who have it to companies that will use it to generate growth, profit and jobs. It misses how much the economy has suffered at the hands of some of its most skilled, most talented workers, who followed escalating pay onto Wall Street - and away from more economically and socially valuable uses of their talents. While it’s true that the country would be better off if more workers had more training - particularly low-skilled, low-income workers - that theory misses a crucial, damaging development of the past several decades. There’s a prominent theory among some economists and policymakers that says the big problem with the American economy is that a lot of Americans don’t have the talent to compete in today’s global marketplace.