Overcharged: the high costs of high finance

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From the Roosevelt Institute in the United States, a long report that seeks to generate an overall estimate of costs to the US economy of the financial sector, over and above the benefits that the finance sector provides:

“What has the flawed financial system cost the U.S. economy? How much have American families, taxpayers, and businesses been “overcharged” as a result of these questionable financial activities?

After some detailed work, an answer is in:

“In this report, we estimate these costs by analyzing three components: (1) rents, or excess profits; (2) misallocation costs, or the price of diverting resources away from non-financial activities; and (3) crisis costs, meaning the cost of the 2008 financial crisis. Adding these together, we estimate that the financial system will impose an excess cost of as much as $22.7 trillion between 1990 and 2023, making finance in its current form a net drag on the American economy.”

Here is the result, visually:


This is absolutely compatible – one might say it represents the same thing as – our Finance Curse thesis, which Fools’ Gold authors have been working on for some time.

Call for a more ‘competitive’ financial sector invariably seek a larger financial sector. It’s easy to persuade an unsuspecting public that creating more jobs in the financial sector through such ‘competitive’ tax and regulatory policies is a good thing for one’s own economy –  but as this report and the Finance Curse thesis make clear, in some situations too much finance is a bad thing.

Being ‘competitive’ means competing against other parts of your own economy, in essence.


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