Simon Says...

Allow me to repeat part of Simon Johnson's statement (from Thursday's post):

The issue is not finance per se, i.e., the process of intermediation between savings and investment. This we obviously need to some degree. But do we need a financial sector that now accounts 7 or 8 percent of GDP?

In other words: We need finance. But we don't need it to be such a big part of our economy as it is today.

I agree.

Here, from a year-old post by ContraHour on Seeking Alpha, is a glance at how big finance has become:

The topmost trend-line shows the accumulation of total debt. At the right-hand side, the next one down from the top is "Domestic Financial," equivalent to Simon Johnson's "modern finance."

At the right-hand side, the most recent numbers show domestic financial debt is the biggest component of the debt. At the left-hand side, the oldest information shows domestic financial debt as the smallest component. Clearly, domestic financial debt has been the fastest-growing component of debt.

Finance is the cancer.

Exponential Growth

If you ask, most people would probably say exponential growth is "out of control" growth. That's not what it means. Technically, it means that growth is regular, predictable, and under control.

Well, maybe not "under control" -- but definitely regular and predictable.

Krugman Agonistes

"Well yeah it's bad, but we need it, so I'll say it ain't really so bad."

In yesterday's post, "The true fiscal cost of stimulus," Paul Krugman writes:

So fiscal expansion is good for future growth. Still, it does burden the government with higher debt, requiring higher taxes or some other sacrifice in the future. Or does it? Well, probably — but not nearly as much as generally assumed.

Y'know, I like the guy. I like a lot of what Krugman says. But he's desperately trying to make an argument here in favor of debt. When I read it I was sympathetic, but I don't buy the argument. He's waffling, and he's trying to weasel around the problem of insurmountable debt.