Is financial innovation good?
Felix Salmon, for one, writes:
Net-net, financial innovation is a bad thing: the downside, during
times of crisis, is higher than the upside in more normal years.
Maybe I am taking Felix and others too literally but I am genuinely puzzled by this attitude. I can understand that particular financial innovations might be bad, but financial innovation overall? Surely this claim was false in years 1200, 1900, and also 1950. (Of course you’ll find very harmful financial explosions between those years and the current day but still on net you’ll take the progress.) If the U.S. economy resumes growing at an average rate of about two percent a year, eventually our economy will look very, very different than it does today. It’s hard for me to see running the economy of 2100 with the banking system of…what is the nostalgic year? 1992? 1957?
We’ll need more than better ATMs, which is not to say we need approve of every step along the way.