
Is growth in the financial sector good for the economy? - jakozaur
https://agenda.weforum.org/2015/07/is-growth-in-the-financial-sector-good-for-the-economy/
======
yummyfajitas
It's a bit unclear to me how the authors establish the direction of causality.
Isn't it an equally valid interpretation that low productivity industries with
lots of collateral cause the financial sector to grow?

The one paper they cite which isn't paywalled uses a rather flawed
methodology:
[http://www.bis.org/publ/work381.pdf](http://www.bis.org/publ/work381.pdf)

The same methodology also shows that too many doctors, telephones and or R&D
technicians inhibits growth:
[http://www.iie.com/publications/pb/pb15-9.pdf](http://www.iie.com/publications/pb/pb15-9.pdf)

The reason is that if you try to fit a quadratic regression to an S-curve,
you'll come up with a downward sloping parabola (if the data points live near
the right side of the S, if they live near the left you'll get an upward
sloping one). That's simply a limitation of quadratic regression. Oops.

------
danmaz74
> see Reinhart and Rogoff 2010

Isn't that the famous study which turned out to be [edit: almost] completely
wrong because of errors in the excel formulas?
[https://en.wikipedia.org/wiki/Growth_in_a_Time_of_Debt#Metho...](https://en.wikipedia.org/wiki/Growth_in_a_Time_of_Debt#Methodological_flaws)

~~~
ende
Entirely wrong? No. But the reported effect was somewhat exaggerated.

------
zby
"Our hypothesis is that it arises because finance tends to favour relatively
low productivity industries as such industries usually own assets that are
relatively easy to pledge as collateral."

My alternative hypothesis would be brain drain from production R&D into
finances.

~~~
danieltillett
Both hypothesises can be true. Nothing complex is ever caused by one factor.

------
CmonDev
Since it's no longer a Free Market, might as well go with a planned economy -
now that supercomputers allow for actual real-time planning.

~~~
TeMPOraL
There never was a Free Market. I second the idea of revisiting central
planning with tools capable of doing proper optimization at scale.

~~~
rorykoehler
I would recommend looking to nature for patterns. Large networks of loosely
interdependent organisms work best. Once one species (e.g. humans) become too
dominant the whole system begins to fall apart.

There is no central planning in nature. It could be argued that central
planning is an unnatural state. A far more robust solution would be to focus
on having an economy made up of many small/medium size organizations and
individual makers. Currently our economy with our "too big to fail"
institutions is very fragile, as single points of failure can have
catastrophic global effects. It would be much more healthy to eliminate the
possibility of devastating single points of failure.

~~~
TeMPOraL
I'm not sure about appeal to nature here; biology seems rather centralized in
a lot of aspects. An organism may be made of many cells, but each of those
cells have a specific function. Kidney cells do not compute, and brain cells
do not contract to pump blood. When a cell starts doing whatever is best for
it locally, we call that "cancer". Centralized management arises naturally
whenever there's a need for efficiency. So while there's a lot of distribution
going on, I wouldn't say centralization is unnatural. It seems common enough
on many different scales.

~~~
rorykoehler
The body as you have described it is one node (an organization in my example)
in the wider network. For that node to function it needs to have all of its
components working in unison but if the node fails other nodes can adapt and
the system keeps on chugging.

~~~
TeMPOraL
This layering of central and distributed seems common on all levels. If you go
up from your example, you have an ecosystem that needs to work in unison. But
if it fails, there are always other planets...

~~~
rorykoehler
Yes this occurred to me too. Very interesting. At what layer is the economy at
naturally?

