Wednesday, January 20, 2010

Yeah, idunno

I read somethin' the other day, online somewhere. Somethin' like this:

Finance accounts for 8% of GDP, but 40% of the profits.

It's not new news, but it finally clicked for me. So I spent an hour trying to track down the source, to no avail. But along those same lines, I did find this:

Profits from the financial sector comprise an even larger percentage of our GDP since the crisis erupted. Johnson thinks their share of corporate profits, which was an astonishing 40% in 2003, may actually be higher now, given that the rest of the economy is in bad shape. Banks have doubled their share of GDP to 8% from 4%, he said.

-- from an article by Jennifer Schonberger (October 8, 2009) at The Motley Fool. The Johnson noted therein is Simon Johnson:

Johnson is an authority on financial crises like this one. He's the former chief economist of the International Monetary Fund, a professor at MIT's Sloan School of Management, a senior fellow at the Peterson Institute for International Economics, and co-founder of The Baseline Scenario.

And then there is The Nature of Modern Finance at The Baseline Scenario, written by Simon Johnson (September 1, 2009):

But is it really healthy – or even sustainable – to have a finance sector as large as what we face today? (It is surely not a good idea for finance to account for 40 percent of total corporate profits... – such performance, in an intermediate input sector, suggests someone else in the economy is being severely squeezed.)

And this:

I know of no evidence that says you are better off with a financial sector at 8% rather than, say, 4% of GDP.

So, yeah, finance accounts for 8% of the GDP, and 40% of the profits. The evidence comes from Simon Johnson, from the Baseline Scenario, and the Motley Fool. But the organizing of the evidence in a striking way waited for the blogger whose work I could not find a second time.

I would have thought finance was more than 8% of GDP. Still, it's twice what it was. That's significant. And if you figure none of the lending counts in GDP -- only the wages and salaries of people in the finance business count -- then, yeah, that's one healthy chunk of GDP.

An unhealthy chunk, rather.

I'd call it excessive reliance on credit. Oh yeah, I do call it that.

1 comment:

The Arthurian said...

See also: Debt, the financial sector and economic growth on the Broad Oak blog.

That extra money went somewhere, Sackerson writes.