A friendly Cafe patron shared with me part of an e-mail that one of his friends (who is anonymous to me) sent to him. I don’t feel at liberty to quote the e-mail sent to this Cafe patron by his anonymous friend; here, though, is an accurate summary of the point in that e-mail that I want to address: ‘Pay received by workers in the financial sector is very high even though those workers contribute nothing real to the economy.’
This sentiment – that workers in the financial sector, while highly paid, contribute nothing ‘real’ or ‘material’ – is widespread. Politicians, pundits, professors, and preachers – especially (although not exclusively) those on the political left – are fond of peddling this piece of populist dogma. Much as dictators and economically ignorant media personalities routinely blame “speculators” for unpopular increases or decreases in prices, economically uninformed commentators and office seekers are today ever-eager to criticize workers in the financial industry.
These critics of finance suffer from appalling hubris. They conclude that finance produces nothing of value simply from the fact that they do not see what it is that finance produces. These critics mistake their blindness for being piercing vision that scans the landscape and finds only emptiness. That they see nothing is very true, but it does not at all follow that there is nothing to be seen by those with genuinely good eyesight.
The Cafe patron who shared with me his anonymous friend’s e-mail asked me how he could answer that e-mail. Here’s a (elaborated) version of what I wrote back:
Your friend is simply and deeply wrong to assert that finance-industry workers contribute nothing to the economy. Ask your friend if he has ever used a bank teller. Ask him if he deposits his money into a bank account (or does he just stash all of his money under his mattress?). Ask him also if he’s ever used a mortgage broker. Ask him if he, personally, assembles his own financing to buy his house or to buy or to lease his car. (By this question I mean for you to ask your friend if, instead of going to a bank to deal with all of those unproductive yet overpaid financial workers he instead, personally, approaches thousands of strangers on the street to bargain individually with each of them to lend to him a few hundred or a few thousands of dollars at a decent rate of interest – to be repaid with interest over the course of years or decades – so that he can buy a car or a house.)
Ask him if he has ever used a credit card.
Ask your friend if he’s ever taken out a student loan. How about a business loan? Or a loan for home-improvement? Ask him if he’s got insurance on his car and on his house. And does he have life insurance? Ask your friend if he’s ever flown on a commercial jetliner. (If he answers ‘yes,’ follow-up with these questions: How do you suppose the funding was assembled to enable thousands of workers to spend many months doing nothing but building that jetliner? And do you, my friend, think that Delta Airlines or United Airlines would dare to fly an aluminum-tube full of people six-miles high in the sky across hundreds of miles of terrain or water if no one was willing to insure that flight against financial liability?)
Ask your friend if he has health insurance. Ask him if he applauds the widespread availability of health insurance.
Ask your friend if he’s ever traveled to a foreign country and exchanged U.S. dollars for Canadian dollars or for pesos or pounds or euros or yen – and then, upon returning to the U.S., exchanged this foreign currency for U.S. dollars.
Ask your friend if he owns any stocks or bonds. Ask him ‘Where did you get them?’ Ask him ‘How can you be so confident that current management doesn’t simply spend all the money you’ve invested in those companies to line their own pockets rather than to try to increase the companies’ profits?’ Ask him how he plans to sell those of his stocks and bonds whose prices he expects to fall. Ask your friend if he has ever sought – verbally or in print – investment advice.
Ask your friend to explain to you how scarce financial capital is allocated to the many different competing uses for it – allocated in ways that generally cause outputs to rise because that capital is allocated to entrepreneurs and firms that are most likely to put it to productive (“real”) uses and kept away from entrepreneurs and firms that are more likely than not to put it to unproductive (and, hence, wasteful) uses. Ask him if he, being no expert in finance, wisely depends upon, and defers to, specialists rather than spend his own time personally analyzing and minutely and continually monitoring the economic and business landscape in order to choose which of the many businesses to invest his pension savings in.
If your friend has ever done even a small fraction of the things that I suggest above that you ask if he’s done, then his own actions are powerful evidence against his assertion that financial-sector workers produce nothing of value for the economy.
