Monday, May 14, 2012

Thought of the Day: Finance is a Form of Infrastructure

I ran into this older New Yorker article (from late 2010) in which the economist Paul Woolley, founder of the Woolley Centre for the Study of Capital Market Dysfunctionality at the London School of Economics, makes a great point: “Why on earth should finance be the biggest and most highly paid industry when it’s just a utility, like sewage or gas?”
He’s right: financial investment is merely infrastructure, a social means of facilitating the provision of actual physical goods and services that people need and want, just as a road or bridge is a means to transport those goods, or electricity is a means to their production. Banks and other investment institutions, therefore,  should be run like publicly-owned utilities, with explicit social responsibilities. Furthermore, members of the banking and investment professions should be made into publicly responsible professionals like doctors, professors, or lawyers: think "accountant" in it most unadorned sense -- staid, quiet, and conscientious. However, there are a thousand layers of myth, propaganda, and illusion that elevate finance into the profession with the highest pay, prestige, and power -- its practitioners believe that they are courageous risk-managment aristocrats deserving of obscene wealth, and they have the money to get enough of the public to buy into this illusion. While Adam Smith had great praise for local manufacturers who improved their communities, he saw absentee owners and men of finance as mere administrators, more akin to civil servants than to princelings. Boring accounting -- that is what finance really is underneath the layers of illusion, and that is how we should make it.

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