Update: several great new reviews since this was written, including Martin Wolf’s selection among Financial Times best books of 2018:
A splendid polemic against modern finance . . . hard-hitting, well written and informative.
I’ve got an article in the Financial Times, entitled Brexit offers London’s rivals a poisoned chalice. It argues that France and Germany are slavering at the thought of luring British bankers after Brexit, and warns them to be careful what they wish for, because of, well, the finance curse. (It’s been out for a couple of weeks, but I was in Iowa when it came out and constantly travelling since then.)
Underneath the articles there are (of course) a number of angry comments, and I’ve now set up a page on this site in the FAQ section to respond to those, and also to an article about the Finance Curse in the Schumpeter column in the Economist, by a correspondent who I’m convinced cannot have read the book. This page is a work in progress.
(Please feel free to cross-post this, as long as you attribute it to here.)
Alongside the launch of The Finance Curse, and my Guardian article, there’s a new study by Andrew Baker of the University of Sheffield, Gerald Epstein of the University of Massachusetts Amherst, and Juan Montecino of Columbia University, estimating that the UK has suffered a cumulative £4.5 trillion hit to its GDP from 1995-2015, due to its financial sector being too large and having turned away from its proper traditional functions towards more harmful and predatory ones. That is equivalent to 250 percent of GDP – or £170,000 per UK household.
One of the big component of the (currently forthcoming) research by Andrew Baker, Gerald Epstein and Juan Montecino is a factor called “misallocation costs” — that is, the costs that the distorted incentives prevalent in the financial sector inflict on the wider British economy. One of the big factors of misallocation is the distortion of lending. Financial institutions seem to far prefer to lend to whizzy financial schemes than to lend to the rest of the economy.
It’s quite hard on a casual search to find out how much money UK-resident banks lend to the various different sectors of the economy, even though this is one of the most important measures of the usefulness of the City of London to the UK economy. Continue reading