| The article doesn't address the question: Why has the GDP share of the FIRE sector recently grown so much so fast? If its growth were the result of increasing authentic demand for financial services, or increasing efficiency in the supply of financial services, then that would be OK. However, I see three main bad reasons for the recent explosive growth in the FIRE sector: 1. Their cost of borrowing is artificially low. They don't need depositors anymore. They can borrow limitless funds from the Federal Reserve now at 0.25%. Their real borrowing rate is actually negative if we're honest about inflation, rather than relying on fabricated government numbers that leave out housing, healthcare, food, fuel and education. 2. The Fed is creating artificial demand for financial products. After the 2008-9 crisis, the Fed has created $3T out of thin air and used half of it to buy mortgage backed securities. 3. Over the last 30 years, the federal government has shown its willingness to bailout failed financial institutions that took on too much risk-- We saw it with the S&L crisis of the 1980s and 1990s; we saw it with the 1998 bailout of LTCM; and we saw it again with the $700B TARP in 2008. If we would simply allow the free market (rather than The Fed and federal government) to determine interest rates, and the demand for securities, and the appropriate level of risk appetite, then we'd see the FIRE sector shrink back to its historically low share of GDP. Page 37 of this paper by Thomas Philippon charts the growth of the US Financial Industry as a share of GDP from 1860 to 2007: http://pages.stern.nyu.edu/~tphilipp/papers/finsize_old.pdf |