Alan Greenspan does not like the Dodd-Frank Bill

Here is his FT Op-Ed, sure to draw fury from those who think he no longer has much cache as an expert on financial reform.  (Addendum: Henry comments.)  Here are the most interesting excerpt:

During the postwar years, the degree of financial complexity has appeared to grow with the rising division of labour, globalisation, and the level of technology. One measure of that complexity, the share of gross domestic product devoted to finance and insurance, has increased dramatically. In America for example, it rose from 2.4 per cent in 1947 to 7.4 per cent in 2008, and to a still larger 7.9 per cent during the severe contraction of 2009.

Increased financial shares are evident in the UK, the Netherlands, Japan, Korea, and Australia, among others. Even China has joined, its share rising from 1.6 per cent in 1981 to 5.2 per cent in 2009. Deregulation, especially in America during the 1980s, clearly accounts for part, but certainly not all, of the share rise.

“among others” is not especially satisfying — is it a general trend or not?  Here is a useful chart, showing the evolution of finance as a share of gdp in the United States (and many slides here).  It runs straight up from 1940 or so onwards.  That said, I am not sure this is grounds for optimism.  The share is very high in 1929, and does not re-achieve that height until the mid-1980s (an eyeball estimate).  Does the graph show a pattern of natural growth?  Or is excess finance like a tumor which must be periodically excised and can remain at lower levels, relative to gdp, for decades, with no apparent harm?


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