Volcker: “Give me one shred of neutral evidence that financial innovation has led to economic growth”
I pointed out recently that:
- From 2003 to 2008, the value of global over-the counter derivatives increased 300%–by a factor of four, while U.S. fixed capital (read: productive assets) increased by only 25%.
- Profits (or so-called profits) for U.S. financial companies have gone up 258% since Q4 2008, while profits for nonfinancials have gone up 5.5%
Meanwhile when businesses tell us about constraints on their growth, investment capital is the very last thing on their list.
Given that financial services companies don’t produce anything that people, businesses, or governments can consume (including, it seems, investment capital), these numbers look pretty crazy.
It seems that Paul Volcker thinks so as well.
“I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence,” said Mr Volcker, who ran the Fed from 1979 to 1987 and is now chairman of President Obama’s Economic Recovery Advisory Board.
Mr Volcker said that the biggest innovation in the industry over the past 20 years had been the cash machine. He went on to attack the rise of complex products such as credit default swaps (CDS).
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