has anyone tried to estimate how much can finance extract to itself before killing its host economy?
The Bank of International Settlements ("the central bank of central banks"): Why does financial sector growth crowd out real economic growth? (2015) [0]
"In this paper we examine the negative relationship between the rate of growth of the financial sector and the rate of growth of total factor productivity."
IMF: Rethinking Financial Deepening: Stability and Growth in Emerging Markets (2015) [1]
"The analysis uncovers evidence of 'too much finance' in recent years—that is, beyond a certain level of financial development the benefits to growth begin to decline and costs in terms of economic and financial volatility begin to rise."
On the optimal size of the financial sector, a speech by Benoît Cœuré, Member of the Executive Board of the European Central Bank (2014) [2]:
"While finance per se is necessary for growth, an oversized financial industry can be detrimental to real economic activity."
[0]: https://www.bis.org/publ/work490.htm
[1]: http://www.imf.org/external/pubs/ft/sdn/2015/sdn1508.pdf
[2]: https://www.ecb.europa.eu/press/key/date/2014/html/sp140902....
In their article, “Too Much Finance?” Jean-Louis Arcand, Enrico Berkes, and Ugo Panizza (2011) argue that expectation of bailouts may lead a financial sector to expand in size beyond the social optimum. They use a variety of empirical approaches to show that “too much” finance starts to have a negative effect on output growth when credit to the private sector reaches 110 percent of GDP. Stephen G. Cecchetti, M.S. Mohanty, and Fabrizio Zampolli (2011, 1) likewise argues that, “beyond a certain level, debt is a drag on growth.” The authors estimate the threshold for government and household debt to be around 85 percent of GDP and around 90 percent for corporate debt. Likewise, as we were writing this article, the OECD and the IMF both issued reports warning of a financial overgrowth (OECD 2015; Sahay et al. 2015).
I've often wondered how much money is spent on the money system itself. There are people whose entire days are spent devoted to the goal of keeping the money system flowing. They could be off somewhere else, tending gardens, nurturing children, cooking, educating, repairing, cleaning, healing from stress and trauma, etc. But no, they are at some office working for the all mighty dollar. Keeping tabs on society at large.
I'm not saying that it is overall evil to count supply and demand of resources. I'm merely wondering if the current state of money systems is really well suited to do this without devastating collateral damage on its host, the "human resources."
There are of course inefficiencies, but they're self-correcting. A bank that overpays its bankers will be undercut by one that doesn't. A company that overpays its banks will be undercut by one that doesn't. It works better than any alternative that's been tried.
We don't charge people for the air we breath.
Why not? There's a cost to keeping it clean. There's a finite amount. Some people consume more than others.
Answer: because keeping track of those costs and assigning them to individual persons would be way more expensive than just keeping the air clean and letting people consume as much as they want.
Food should be the same way - now that we produce so much of it, it's kind of insane to expect to keep diligent tabs on how much people are consuming.
This is why i think a basic income makes perfect economic sense. People already have the ability to consume society's resources without paying (medical care or prison care still cost money) - so we might as well just give everyone a small amount 'voice' in the system and then dismantle the barriers to entry that are ostensibly in place to protect poor folks.
The question of how much do we have to pay to get various financial services should in theory be solved by competition. The problem is that some financial institutions are behaving like a cartel and the government is undermining competition by stepping in to save failing financial institutions.
The problem isn't that Finance is "bad" any more than energy companies are "bad" or retailers are "bad". There are people accumulating wealth in a whole bunch of industries, why is the service Google or Facebook provides more valuable than what Bank of America provides?
If people bought houses merely to live in, prices would probably be lower and would be subject to much less volatility. Of course, there would be downsides as well (no houses available for rent, etc.) so I'm not suggesting we do away with finance.
In fact, I have no suggestions. I'm just pointing out that finance (treating goods and services as abstract financial instruments) creates opportunities for growth at the expense of added volatility to the markets being abstracted.
Local government could own rental houses, then rents would return to the local economy reducing taxes.
What other examples are there in this specific case, if people [could] only privately own[ed] houses to live in?
This is the endgame of all capitalist markets. There isn't any other end game, no matter how much people would like there to be one to satisfy their personal ideologies.
Edit: I should have made this comment with more tact and empathy, and maybe have been a whole load more hearable for it.
There is also plenty of evidence for the narrative of capitalism as spontaneous collaboration and growth.
Denying only one or the other of these statements is indicative of one beholden to an ideology.
There is? Has capitalism developed in any region of the world without the explicit help of a state? Even the birth of capitalism in Europe was facilitated by governments forcibly enclosing land into larger estates.
For now, the fact that technically minded people can have a backup plan that pays well is most definitely a feature, not a bug.
That sounds like it'd lend itself well to a simulation modeled with autonomous agents. That's not a popular methodology in economics.
Imagine two worlds, one where American financial regulations remain unchanged, and one where financial advisers are not allowed to be paid a referral fee by asset managers they recommend to clients. What would you expect to happen to intermediary fees in this situation? Would you support the policy? Or are you totally agnostic because of 'Chaos Theory', 'Higher Order Effects' and 'Economics is a pseudoscience'.
Physicists have known for a long time that many systems have unstable equilibria, where a random deviation knocking the system from equilibrium can result in catastrophe. This is the general field of nonlinear dynamics and chaos. The economists, the most famous ones at least, reject the idea without discussion, that the economy could be a chaotic system or even have manifolds where it might enter a chaotic regime.
The economy will function as long as there are sufficient physical resources and human will. Finance cannot kill it.
No point working when work doesn't pay. UK is about to implode if Brexit goes ahead and all the fake fiat from The City evaporates with the confidence.