This is a hugely popular sentiment in the wake of the financial crisis, but do you actually have some examples of rent seeking activity by banks in 2014 that is emblematic of this? Your modern megabank takes in billions of dollars in profits per quarter and I'm just curious where the rent seeking shakes out in all of that.
The Goldman LME aluminium warehousing, where they paid people to deposit aluminium with them to inflate the length of the queue to get aluminium out, so that the queue was longer and they could charge more (literal!) rent before people eventually got their aluminium out.
> Your modern megabank takes in billions of dollars in profits per quarter and I'm just curious where the rent seeking shakes out in all of that.
I have a thesis that every megacorp turns to rent seeking, because they're too rigid to innovate. But yeah, I suspect it's a small proportion of the profit of the financial industry as a whole. A lot of people want to buy and sell stuff, so there's a lot of money to be made in even a slim margin there.
It's certainly conceivable that the risk management Wall Street provides has led to economic growth, but considering the systemic instability that led to the 2008 crash, I take that claim with a grain of salt.
[0]: http://en.wikipedia.org/wiki/Financialization [1]: http://tcf.org/blog/detail/graph-how-the-financial-sector-co...
These are just the ones I'm familiar with. I believe it's 80-20. 20% of banks profits are rent-seeking behavior. If we compare this with megacorps in general I'm sure some of their bottom-line is also from rent-seeking behavior.
Edit: additional thought: Rent-seeking is child's play when you consider too-big-to-fail, too-big-to-jail.
Some people will argue for just about any absurd personal opinion. It doesn't mean it's correct or that it has any merit.
> I think a case can be made that a substantial percentage of profits earned by the financial industry derive from economic "rent seeking" and are not materially contributing to productivity in society.
Even if this is true so what? What's your point? A lot of businesses don't contribute to productivity nor do they need to.
If you object and say "but they deserve these profits!" then you're arguing that they are contributing to productivity (and then the profits would be fine)
If you take, for example, pharmaceuticals or the food industry, you'd find a lot more f'ed up things, with people massively taken for a ride. But apparently it's not hip to hate on those industries yet.
However, it also allows the financial industry to become commoditiesed and lowers the barriers to entry. You only need to walk down the City of London to see the sheer number of banks form all over the world. They all compete (except when they collude) and drive down prices. Secondly, you also start seeing large corporates doing their own banking - what does a bank to that BP can't do on their own?
Also the idea of a level playing-field on competition doesn't exist IMHO. It's a corrupt area that needs squashing.
I like this attempt to disinfect this mess with some sunlight, though at the end of the day the only way to truly solve these problems (as they may exist) will be for all of us to stop being willing participants in the system. I believe strongly that technology will offer solutions for this in the near future.