Three Expensive Milliseconds

Paul Krugman references a paper by NYU Stern School of Business Associate Professor Thomas Philippon that “puts it at several hundred billion dollars per year.”


Three Expensive Milliseconds
Paul Kriugman
New York Times Op-Ed
April 13, 2014 (April 14th, 2014 Edition)

…Mr. Philippon starts with the familiar observation that finance has grown much faster than the economy as a whole. Specifically, the share of G.D.P. accruing to bankers, traders, and so on has nearly doubled since 1980, when we started dismantling the system of financial regulation created as a response to the Great Depression.

What are we getting in return for all that money? Not much, as far as anyone can tell. Mr. Philippon shows that the financial industry has grown much faster than either the flow of savings it channels or the assets it manages. Defenders of modern finance like to argue that it does the economy a great service by allocating capital to its most productive uses — but that’s a hard argument to sustain after a decade in which Wall Street’s crowning achievement involved directing hundreds of billions of dollars into subprime mortgages…