The financial sector is really, really big

Writing in Jacobin, John Quiggin argues that the growth of the financial sector can’t be justified in terms of the value it produces; that is, those of us not in banking and finance would be much better off if that sector were much, much smaller. Along the way, he reminds us how astonishingly large it is:

The financial services sector as a whole accounts for more than 20 percent of US GDP, and this share has grown by around 10 percentage points since the 1970s. Additional expansion has taken place in the business services sector, encompassing law and accounting firms and other outgrowths of a financialized economy. Overall, it seems reasonable to conclude that Wall Street in its various forms accounts for around 20 percent of total US income, a share comparable to that of the US government.

I don’t know about you, but I’m just floored by the notion that the moving-money-around sector of our economy accounts for fully one-fifth of the total. And that’s just the private sector. If you add in government redistribution programs,* it turns out that more than one-third of our economy is devoting to creating and distributing purchasing power, rather than to creating and distributing the goods and services we’re actually buying. 

Imagine that as you go through your daily routine, there’s a banker following you. (Or, if you like, two bankers and a federal employee.) He holds your wallet. Every time you pay someone $2, you pay the banker $1. You buy an $8 lunch, you give the banker $4. You buy a car for $20,000, you give the banker $10,000. As a country, that’s basically what we’re doing. 

There’s an old joke about a community whose economic activity consists of “taking in each other’s washing.” If only those folks had had computers – they could have gone into finance, and become rich taking in each other's zeroes and ones.  

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*According to the Center on Budget and Policy Priorities, U.S. government spending equals 23 percent of GDP. Federal redistribution programs include Social Security (22 percent of federal spending), Medicare, Medicaid and CHIP (21 percent), welfare (12 percent) and benefits for veterans and federal retirees (7 percent), for a total of 62 percent. Sixty-two percent of 23 percent is 14.26 percent.