Obviously the financial sector provide a lot of value, but they also extract a LOT of value and probably even worse employ a LOT of the smartest people (I recall the rebalancing of Iceland's economy after its banks failed), and couldn't we get nearly the same benefits with far less of the global economy being dedicated to financial services and trading (which neither I nor it seems the OECD categorise under "services")?
For example according to the OECD [1] 25% of Luxembourg's GDP (excluding interest and trading profits [2]) and 10% of employment is due to financial services! For comparison, for the UK and USA it's 8.8% and 8.3% of GDP.
In particular it's hard to me to see how market trading activity that provides a price for equities to the second, instead of say holding auctions every hour (which would probably greatly reduce profits for day traders and HFT), helps any drug development or aircraft leasing company to raise money. Financing deals don't happen on the market, and if market price is involved, typically something like the last month's average daily closing price is used.
We might call middlemen parasitic if they extract more value than they provide, but as you say, without finance the global economy wouldn't function. Let's instead consider the marginal utility of more of the economy being dedicated to finance. I'm convinced it's negative.
> In the national accounts, financial services output is measured as the sum of financial intermediation services indirectly measured (FISIM) and fees, for instance on account keeping, credit cards, brokerage, financial advice and asset management. ... Trading profits and other interest income, for instance on bonds and derivative products, are excluded from the national account measure of financial services output.
You imply in your argument that finance mainly makes money from HFT("it's hard to me to see how market trading activity that provides a price for equities to the second") but this is simply not true, HFT and quants make up a very small portion of financial staff or profits.
My understanding is that the majority of big finance's income is from private equity or debt deals (pairing companies who need money with investors who have money), not from trading (there's very few people who we can confidently say are net winning traders and they don't scale).
No I didn't mean to draw attention to HFTs specifically, I understand they aren't big. I said 'second' instead of 'subsecond' because humans are also capable of reacting within seconds. But you are right that all those day traders losing money even things out and I was concentrating on the wrong thing. Investing and trading on longer time scales is certainly profitable.
For example according to the OECD [1] 25% of Luxembourg's GDP (excluding interest and trading profits [2]) and 10% of employment is due to financial services! For comparison, for the UK and USA it's 8.8% and 8.3% of GDP.
In particular it's hard to me to see how market trading activity that provides a price for equities to the second, instead of say holding auctions every hour (which would probably greatly reduce profits for day traders and HFT), helps any drug development or aircraft leasing company to raise money. Financing deals don't happen on the market, and if market price is involved, typically something like the last month's average daily closing price is used.
We might call middlemen parasitic if they extract more value than they provide, but as you say, without finance the global economy wouldn't function. Let's instead consider the marginal utility of more of the economy being dedicated to finance. I'm convinced it's negative.
[1] https://www.oecd.org/en/publications/2025/04/oecd-economic-s...
[2] Quote from [1]:
> In the national accounts, financial services output is measured as the sum of financial intermediation services indirectly measured (FISIM) and fees, for instance on account keeping, credit cards, brokerage, financial advice and asset management. ... Trading profits and other interest income, for instance on bonds and derivative products, are excluded from the national account measure of financial services output.