long overdue time for a steer roast...,

jacobin | I’d like to look at a specific question raised by the discussion of private returns and social value, namely: can Wall Street, in its present form, be justified? That is, does the share of income flowing to corporations and professional workers in the financial sector reflect their marginal contribution to the total value of social output, so that, if their work ceased to be done and their skills were allocated elsewhere, we would all be worse off?

I argue that society as a whole would be better off if the financial sector were smaller, and received much smaller returns. A political strategy based on cutting the financial sector down to size has more promise for the Left than any alternative approach now on offer, and is a necessary precondition for a broader attempt to make the distribution of wealth and power more equal.

The financial sector has grown massively since the 1970s, whether size is measured in terms of the volume of transactions, the number and remuneration of highly skilled professionals, the share of corporate profits, or, most importantly, the political power of the finance capital. As Frase observes, referencing Felix Salmon, the huge returns extracted by this sector distort the distribution of income for the economy as a whole. The market return on any activity must be adjusted for the cut taken by the financial sector. This fact makes the attempt to assign ethical status to marginal productivity academic, in the worst sense of the term.

Taking this further, any strategy for the Left that yields more than modest changes in the distribution of income, wealth and power, must involve a direct conflict with the financial sector, and must imply a substantial contraction in the size, wealth and power of that sector. A necessary condition for such a strategy to be feasible is the premise that the incomes flowing to the financial sector come at the expense of the rest of the economy, and in particular, at the expense of working people.

Conversely, if the financial sector makes a contribution to the economy that is commensurate with, or greater than, the incomes flowing to that sector, then a policy that substantially reduces the size of the financial sector is likely to harm the rest of the economy. In principle, it might be possible to redistribute income from the financial sector through progressive taxation, without greatly changing its operations. In practice, however, the political futility of such a strategy is obvious. As long as the financial sector commands its current resources, and is viewed as an essential contributor to prosperity, it will easily defeat proposals for higher taxation.