This letter was submitted several days ago to the New York Times but not published there.
Editor:
Oren Cass’s criticism of U.S. financial markets overflows with questionable claims and suggestions (“The Finance Industry Is a Grift. Let’s Start Treating It That Way.” February 7). An example is his blaming the growth in finance and its alleged obsession with “the Excel spreadsheets” for the fact that since the end of the Great Recession “productivity in America’s manufacturing sector — the output generated per hour of labor — has been falling.”
Manufacturing-worker productivity has indeed fallen slightly. But it’s doubtful that this decline was caused by an engorged financial sector, for the simple reason that since the end of the Great Recession the size of the financial sector relative to GDP has also fallen slightly.
This recent shrinkage in the relative size of the financial sector stands in stark contrast to what happened from the end of WWII until the Great Recession. During these years, the financial sector relative to GDP grew steadily and impressively, rising from 3% in 1950 to 4.5% in 1980, then to just over 8% in 2009 before falling to about 7% today. If increased financialization suppresses manufacturing-worker productivity, that productivity from 1950 through 2009 should have fallen, or at least not risen. But in fact, over those same many decades the real hourly output of manufacturing workers also grew steadily and impressively. In 2009 that output was about 40% higher than in 2000, 60% higher than in 1990, 80% higher than in 1980, 100% higher than in 1970, 140% higher than in 1960, and 200% higher than in 1950.*
These facts are difficult to square with the accusation that a growing financial sector suppresses the productivity of manufacturing workers.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030* Phil Gramm and Donald J. Boudreaux, The Triumph of Economic Freedom (Lanham, MD: Rowman & Littlefield, 2025), page 93.
