Video: the high cost of finance and the finance curse

In this film Dr Gerald Epstein discusses his work on how an oversized financial services sector such as the City of London, or Wall Street, can extract wealth from an economy, leading to lower growth, higher indebtedness, and rising inequality. This talk was given as a keynote lecture at a research workshop on the Finance Curse co-organised by the Tax Justice Network and the Sheffield Political Economy Research Institute (SPERI).

Gerald Epstein is Professor of Economics and founding Co-Director of the Political Economy Research Institute (PERI) at the University of Massachusetts Amherst. In 2016 he and Juan Antonio Montecino estimated the costs to the US economy of hosting its financial sector. He separated his estimates into three categories:

• rent-seeking activities and excess profits
• misallocation of finance
• and the crisis costs imposed on the economy by the 2008 financial crisis.

Gerald believes that the number he arrives at, an excess cost of $22.3 trillion between 1990 and 2023, is likely to be an underestimation because the costs of the financial crisis may be much greater and the numbers do not involve lost tax revenues from various financial innovations.

In this talk he discusses that research and its implications for economic and social development:

“In order to understand the roots of the financial malaise we have with these overcharged, supercharged finance curse financial systems is this transition from what I call boring banking to roaring banking – boring banking of the 1950s, 60s and 70s that was highly regulated to this more highly charged financial system that we have in the UK and in the United States increasingly…I think we have to consider a whole panapoly of things associated with financialisation to help us understand.”

His paper ‘Overcharged: The High Cost of High Finance’ is available here, is well worth reading, and will inform research of a similar kind in calculating the cost of the City of London finance sector.