I have a review essay of four books about Big Finance in the latest issue of The National Interest entitled "First Bank of the Living Dead." The books reviewed were: Sebastian Mallaby's More Money Than God, Robert Reich's Aftershock, Nouriel Roubini and Stephen Mihm's Crisis Economics, and John Quiggin's Zombie Economics. Despite my obvious affinity for zombies, I tried to avoid any favortism towards Quiggin's awesome brilliant spot-on unorthodox metaphor.
The opening paragraph:
Earlier this year, Goldman Sachs CEO Lloyd Blankfein attempted to justify his professional existence, proclaiming, “We’re very important. We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. . . . We have a social purpose.” This all sounds good enough, except that finance went from being responsible for 2.5 percent of GDP in 1947 to 7.7 percent in 2005. And at the peak of the housing bubble, the financial sector comprised 40 percent of all the earnings in the Standard & Poor’s 500. The incomes of the country’s top-twenty-five hedge-fund managers exceeded the total income of all the CEOs in that index. And by 2007, just about half of all Harvard graduates headed into finance jobs. If capital markets merely serve as conduits from savers to entrepreneurs, then why does such a large slice get siphoned off to compensate people like Lloyd Blankfein? To put it more broadly, what is the role of finance in a good and just society?
And the thesis paragraph:
Some of these books address some of the big questions some of the time. Most of the authors, however, focus on the retrospective at the expense of the prospective. With the partial exception of Roubini and Mihm’s Crisis Economics, these authors seem more concerned with looking back at the halcyon days of the postwar era than looking forward to the twenty-first century. Unfortunately, none of these books recognizes two important facts of life. First, at present, no economic model perfectly captures the interrelationship between the financial sector and the global economy. Second, no matter what regulatory arrangements are put in place, the next global financial order will last no longer than a generation—because whatever ideas replace the current ones will also prove fallible over time.
I fear that last paragraph reads a bit harsher than the rest of the essay. I learned something from all four books, and enjoyed engaging with all of them.
Go read the whole thing.
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