patrick.net

You can find the parasite by removing them from the picture and seeing if the wealth creation/preservation is or isn't reduced.

And by "wealth" I mean the stock and provision of goods and services that satisfy human needs and wants.

By this measure, Big Finance is very parasitical, taking its skim without much actual wealth creation going on.

1% here, 2% there, it adds up quick.

Norway has a state-owned bank, as does N. Dakota:

http://en.wikipedia.org/wiki/Bank_of_North_Dakota

established when ND was a helluva lot more "Progressive" (the O.G. Progressive party) that it is now.

Buying stuff on credit can make perfect sense -- e.g paying 5% interest on a car loan means you can settle for a somewhat cheaper car and get it years before you could save up the money for the more expensive car (total principle and interest being the same over the period in this case) but when credit is applied to housing what also happens is that we can bid up the cost of housing dramatically (same thing with education).

Cars are not in any supply/demand shortage, we've solved that manufacturing problem and production is only limited by demand take-up.

Housing, not so much! Given the lack of new supply in most areas, prices are solely at the bid, the point of pain of the buyer, which is essentially how much the bank is willing to lend (in normal markets, in even more constrained markets specuvestors can win with cash bids and find the financing later).

Education is the interesting thing. For K12 it's a glorified baby-sitting service but college can and should be reinvented (e.g. with an inverted classroom of online recorded lectures and quizzes and in-class 'homework'). Lots of rent-seeking going on in Big Education, too!

If it benefits mainly the top 0.1% at the expense of the 99.9%, then yes.

To maximize profits (and shareholder value), companies must pay as little as possible while extracing as much labor as possible.

Reducing some of the wealth disparity could help us move from a "parasitic" economy toward a more "cooperative" economy.

No, I'm not advocating outright communism or the abolition of private property. That doesn't work either.

Bellingham Bill says

You can find the parasite by removing them from the picture and seeing if the wealth creation/preservation is or isn't reduced.

And by "wealth" I mean the stock and provision of goods and services that satisfy human needs and wants.

But if the financial sector were working properly, wouldn't it aid in wealth creation by supplying capital from those who had it to those who needed it? Or should there be no financial sector to speak of other than direct from the Government?

freak80 says

If it benefits mainly the top 0.1% at the expense of the 99.9%, then yes.

So, you come down as the Financial sector is helpful if contained, but it is not contained in the present?

Bellingham Bill says

And by "wealth" I mean the stock and provision of goods and services that satisfy human needs and wants.

Does someone who say, works in auto finance help or hurt GDP? Does the insurance business help or hurt GDP?

CL says

So, you come down as the Financial sector is helpful if contained, but it is not contained in the present?

I would say the financial sector is helpful as long as it benefits more than just the top 0.1% of our society. If only 0.1% of the population owns the vast majority of corporate businesses, how is that healthy?

I wouldn't say the financial sector should be "contained" directly, but a fairer tax code (that charged higher taxes on capital gains & dividends for ultra-high net worth individuals) would make things fairer. If I'm not mistaken, Warren Buffett claims he pays a lower tax rate than his secretary.

freak80 says

If only 0.1% of the population owns the vast majority of corporate businesses, how is that healthy?

But are the corporations "owned" by the .01%, or by investors? And if the financial people own the majority of the majority of corporations through shares, isn't that by-product of them just having too much money?

In other words, is it that finance exists that is the problem, or is it inequality that is the problem?

Is finance inherently parasitical, or is it in practice, today?

CL says

But are the corporations "owned" by the .01%, or by investors?

I thought stock investors, by definition, owned part of the company. Isn't that right? The ultra rich have most of their assets in things like stocks (and bonds). A bond technically isn't "part ownership" but it does give the owner part of the profits in the form of interest.

CL says

In other words, is it that finance exists that is the problem, or is it inequality that is the problem?

Exactly my assertion. A finanical sector is needed to "pool resources" and spread financial risk. At least as far as I can tell.

CL says

Is finance inherently parasitical, or is it in practice, today?

No to the first question, yes to the second. Especially when large financial institutions are allowed to become TBTF without any kind of regulations on risk-taking. TBTF is too-big-to-exist in my humble opinion. Example: if I have so much power over the economy that my personal finances are TBTF, I can be as irresponsible as I want to with my money.

I'm going to Vegas!! The rest of you can pick up the tab. If you refuse, I'll crash the economy!

CL says

Is the Financial Sector parasitical?

CL says

But in normal capitalism how does it hurt, if the system funds purchases, takes a cut for the investment, then spends the investment on anything? Is it that their share of the profits is just too large? Or is it always a negative?

It's the obscenely large cut, the fraudulent ways in which the financial sector maximizes its cut, the zero-sum games they play, and the incredible inefficiencies they introduce into the economy.

Consider basic banking:
1. Secure deposits of any amount.
2. The ability to query, deposit, withdraw.
3. Electronic payments including debit cards and online payments.
4. Online banking (this makes banking cost less).

Basic banking should be so systematic, so standardized, so well-implemented, and so streamline that its cost is basically a rounding error. That cost should then be socialized and minimized and all basic banking services delivered as non-profit.

Profit is suppose to be a reward for doing something innovative, not for maintaining a revenue stream by preventing an inefficiency in the economy from ever being fixed.

When banks profit by harming their customers rather than by helping their customers, those customers have less money to buy other goods and services. The entire efficiency and total wealth of the world goes down. This is where capitalism in its modern form fails.

If the market is unable to produce honest, ethical banking, then this extremely important task should not be left to the market. So far, the market has failed epically.

CL says

But if the financial sector were working properly, wouldn't it aid in wealth creation by supplying capital from those who had it to those who needed it? Or should there be no financial sector to speak of other than direct from the Government?

We definitely need a financial sector, but it must be non-profit. The entirety of history has shown that any for-profit financial sector will become corrupt, parasitic, counter-productive, and unpolicable.

What we need is a well-picked group of experts in economics, software development, law, and ethics to form a non-profit corporation to standardize and streamline all financial services and contracts. These employees will be paid, not by the profitability of the system, but by how well it works as evaluated by the public.

Whenever a company proposes that some new kind of product or contract template is needed, that company submits a fee that goes to evaluating the product or contract template to determine if it is necessary or helpful and to correct the product or contract template to ensure it is just, transparent, easily understood, and in the best interest of all parties and society at large.

Have you ever rented a car? When you rented a car, did you read the instruction manual for the car? Of course not. You just drove it, and you could do that because all cars are basically the same. This is called the power of familiarity and standardization. You don't have to learn how to drive every make and model of car.

Image if the same thing applied to mortgages, other loans, credit card lines, 401Ks, annuities, and every other financial product. No more fine print. No more deceptive and manipulative practices. You'll know what everything about a mortgage just by a one-page brochure and the power of familiarity.

The power of familiarity and standardization drives everything from electric power sockets to websites to mass transit systems to gas pumps to restaurants. Surely something as important as financial services and contracts should also be based on this principle.

If you compound interests on other people, with money you create (and you don't return that money in the cycle as dividends or salaries), then you can suck dry the rest of the economy within a few decades.

That's a level of parasitism. This is usually justified by the risks they take: if things turn against them, they can easily lose most of that money. That's they earn a percentage on money lent.

However history has proven that they don't take the risk. The taxpayer takes the risks.

So they just extract a percent of the productive economy, using money they are entitled to create, in exchange of nothing. They don't produce anything, and they don't risk anything. They just milk their position.

Most people, who just want to own a house, will pay a major part of their life savings to these people, in exchange of essentially nothing.

Dan8267 says

If the market is unable to produce honest, ethical banking, then this extremely important task should not be left to the market. So far, the market has failed epically.

As far as I can tell, the "regular" banking works just fine. Maybe I'm wrong.

Investment banking, on the other hand...

The Glass-Stegall Act of 1933 separated the two, right? But we thought it was too old-fashioned and repealed it.

Dan8267 says

We definitely need a financial sector, but it must be non-profit. The entirety of history has shown that any for-profit financial sector will become corrupt, parasitic, counter-productive, and unpolicable.

How is it possible to have a non-profit financial sector? A non-profit financial sector almost sounds like an oxymoron.

When people buy stocks/bonds or lend money, they hope to make a profit.

Heraclitusstudent says

So they just extract a percent of the productive economy, using money they are entitled to create, in exchange of nothing. They don't produce anything, and they don't risk anything. They just milk their position.

So, really, our complaint is that the wealthy benefit disproportionately from the system, resulting in a loss of productivity from the other sectors. They are skimming off the top.

In another world, where financial markets were too heavily constrained, we'd be arguing that the Government needs to loosen up its constraints on the sector, then?

It's not inherently parasitical, just today, and only due to the tremendous inequality that exists?Dan8267 says

We definitely need a financial sector, but it must be non-profit.

Like we would have Government make funds available to the non-profit, and the non-profit assumes the role of what--all private banking?

CL says

It's not inherently parasitical, just today, and only due to the tremendous inequality that exists?

It's not inherently parasitical, but today it is.

It is also very badly organized, unstable, prone to bubble and crisis. It assumes that lending and money creation are the same thing. These 2 things should be totally separate. The government alone should create money based on its deficit. Banks should just be there to allocate capital, and do so only by lending money they borrow from other sources, and be responsible for their own risks.

Heraclitusstudent says

The government alone should create money based on its deficit.

Really??? Then there's no reason to limit debt. No need for taxes! Just print money! It's free!

Maybe I misunderstand your argument.