Comment by pavlov

Sibling comments have provided good explanations of why modern economies need finance: risk management, capital allocation, enabling ventures, and so forth.

At the same time, it’s worth asking the question of why the financial sector just keeps growing and whether that’s desirable. Shouldn’t improved efficiency with digital systems make this intermediation layer thinner, less labor-intensive, more competitive? Instead it seems to be capturing an ever larger share of the economy’s output to itself.

In my opinion regulators should try deploying some blunt tools like transaction taxes and hard salary caps, and see if we’d be any worse off with a smaller and poorer financial sector.