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Oct 17 2008 2:17pm EDT
The Future of the Financial Sector
NYU's Thomas Philippon (whose research I wrote about here) has some wise words about the role the financial sector plays in economic growth:
it is certainly not true that a large financial sector is required for sustained economic growth (see the 1960s). Rather, it appears that a large financial sector is needed when economic growth is driven by young, cash-poor, innovative firms.
The future of the financial industry depends on the needs of the real economy. The U.S. is still an amazingly innovative economy...What the current financial crisis tells us is that we might not need to spend more than 8% of our economic ressources to buy these financial services. My own estimate is that the financial sector should be around 7% of GDP if the U.S. remains an innovative, relatively finance-intensive economy. That is still about $1 trillion a year. That is still about $1 trillion a year. But what, then, is to become of the rest of the financial engineers? They could always go back to being...engineers.
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