Seriously, isn't it time to start replacing our lawyer jokes with financial expert jokes?
But, my friends, this is not the point of my hasty instabellman post. Since before the meltdown started, er, melting, Matthew Yglesias has been pointing out that, for all the money and status we allocate to the wizards of the financial services sector, what we have actually purhcased is our current shit sandwich.
I think Fareed Zakaria’s efforts to look on the bright side of the economic crisis probably go too far, but I certainly agree with this point:The financial industry itself is likely to shrink, and that’s not a bad thing, either. It has ballooned dramatically in size. Curry points out that “30 percent of S&P 500 profits last year were earned by financial firms, and U.S. consumers were spending $800 billion more than they earned every year. As a result, most of our top math Ph.D.s were being pulled into nonproductive financial engineering instead of biotech research and fuel technology. Capital expenditures went into retail construction instead of critical infrastructure.” The crisis will stop the misallocation of human and financial resources and redirect them in more-productive ways. If some of the smart people now on Wall Street end up building better models of energy usage and efficiency, that would be a net gain for the economy.
Indeed. I mean, in principle taking a large proportion of quantitatively skilled people and having them apply their technical chops to the financial markets could be a good thing if doing so ushered in an exciting new era of genuinely superior financial wizardry. But instead, Keynes observation that “The game of professional investment is intolerably boring and over-exacting to anyone who is entirely exempt from the gambling instinct; whilst he who has it must pay to this propensity the appropriate toll” seems just as true today as it was two or eight decades ago. Meanwhile, smart scientists and engineers are still producing useful stuff.