Wall Street isn't Worth It

That’s the title of my new piece at Jacobin, which links back to a variety of discussions at Crooked Timber, in particular this one from Ingrid Robeyns. Mankiw, whom Ingrid cites, offers an implicit defence of the 1 per cent, implying though not quite asserting, that the gains accruing to those in this group (largely senior executives and the financial sector) have been the price we pay for a process that benefits everyone, yielding a Pareto improvement. As Ingrid says, Pareto improvements aren’t as self-evidently desirable as Mankiw assumes. My argument focuses on Mankiw’s factual premise, concluding that the expansion of the financial sector has made the majority of people worse off. This implies that a response to the global financial crisis focused on attacking the financial sector is feasible as well as being, in my view, politically necessary as an alternative to rightwing populism.

Jacobin doesn’t appear to have a comments section, so feel free to comment and criticise here. I’ve had an interesting discussion with Daniel on Twitter already, but it’s not really a great medium when more than a few people are involved.

55 thoughts on “Wall Street isn't Worth It

  1. Ernestine

    It’s not the lack of detail but the fact that you were flat out wrong that I had a problem with. The RBA almost unfailingly hits the cash rate target, because it sets the price cash, there is no “sheer chance” involved. Bill prices are largely determined by cash rate expectations, not the other way around.

    As to whether I agree with the title of the post, the answer is yes and no. Under the current framework and conditions large financial institutions can’t be just “let go” that is the road to debt deflation and depression.

    I do agree with the thrust of John’s article however that the current structure of the financial system is inherently unstable. Though we shouldn’t forget the role Keynesian demand management played in laying much of the groundwork for that instability.

  2. sdfc,

    I do believe you are exaggerating a bit now regarding me getting something ‘flat wrong’. First, you quoted only 1 of my 2 related paragraphs. I then provided details from the RBA site directly. Surely, this removed any ambiguity I might have created for you in my first post in which I had also linked to the RBA web-site. (This conversation reminds me of one I had some years ago with an accountant. I said you use the colour black for positive profit numbers and the colour red for negative profit numbers. Which colour do you use for zero profit? His answer was: This doesn’t happen in practise.)

    On the more important point, the topic of this thread. As the content of the article you linked to indicates, many people are working on redesigning the international financial system. I’ve already indicated my preferred approach and my reasons.

  3. Ernestine

    By sheer chance it is possible that the actual cash rate is equal to the target cash rate.

    Maybe you should clear up what the above statement means. I don’t see what it has to do with accounting.

  4. @sdfc

    I’ve mentioned before you quote out of context.

    In context, the statement you quote says: The chance that at any time t, excess demand for exchange settlement funds (at the actual cash rate at time t) = 0 and the RBA’s open market operations (at the target cash rate at time t) = 0 is small but it is possible to happen.

    All commercial financial transactions (ie excluding the black market and gifts among private individuals) involve accounts with debits and credits.

    The colour coding of profit numbers anectode illustrates, in a small way, the difference between analysing a system and the views of practitioners.

    I hope this is the end now.

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