Monday, February 11, 2013

Banking crises soaring

By Frank Moraes

Sal Gentile over at Up with Chris Hayes found a remarkable paper from the Bank of England, Long and Short-Term Effects of the Financial Crisis on Labour Productivity, Capital and Output (pdf). They find that there is a long-term effect on an economy's productivity of 1% per year that the crisis drags on. In other words, we all pay a hefty long-term price for the sins (and profits) of the banking industry.

As a result of this, governments have a real interest in limiting financial crises. Unfortunately, governments are doing just the opposite. The authors of the paper look at data from 61 countries over the period 1955–2010. And they find that the number of financial crises has skyrocketed over the last 30 years. Here is the graph taken from Up with Chris Hayes:




Think about this for a moment. Here is a clear case of the unfettered market hurting productivity. I remember back when I read Ayn Rand and her constant admonitions that capitalists only worry about theirenlightened self-interests. That word "enlightened" is so big, you could march a Nazi military column through it. But what I find remarkable is that as Rand has become more and more important to the market fetishists, these people act more and more in unenlightened and short-term ways.

The government needs to get back to regulating the finance industry. All we have gained from looser regulations has be a ballooning of the financial part of our economy. And that doesn't produce anything. Goldman Sachs does not bring good things to life!

(Cross Posted at Frankly Curious.)

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