Socially-useful finance produces four services for the real economy:
- Convenience (not having to haul around precious metals and testing equipment)
- Satisfying rational patience (or rational impatience)
- Insurance (via diversification)
- Control (getting better managers of operating companies to do their jobs better)
One argument that appears to be underlying this session is this:
We see many financial innovations that do not clearly and immediately add to convenience, to the satisfaction of patience, to insurance via diversification, or to better corporate control. As a result, we economists tend to think that Wall Street should consist of (a) Renaissance, (b) Bridgewater, (c ) Vanguard, and (d) ATM machines. There is money to be made by matching people with risks to be borne with people who can bear them more cheaply. There is more money to be made by matching people with risks to be borne with people who do not understand the situation.
Now I am not sure I want to fully endorse this nihilist position. But is this nihilist position correct? Should financial innovations be allowed? Or should such innovations be judged guilty until proven innocent, and shot on sight?