Volcker on the Crisis
One of the quiet heroes of current debates on financial reform is Paul Volcker, a veritable Cincinnatus who has been asking the right questions throughout. Here are a few of his queries from a recent NYRB essay:
Has the contribution of the modern world of finance to economic growth become so critical as to support remuneration to its participants beyond any earlier experience and expectations? Does the past profitability of and the value added by the financial industry really now justify profits amounting to as much as 35 to 40 percent of all profits by all US corporations? Can the truly enormous rise in the use of derivatives, complicated options, and highly structured financial instruments really have made a parallel contribution to economic efficiency? If so, does analysis of economic growth and productivity over the past decade or so indicate visible acceleration of growth or benefits flowing down to the average American worker who even before the crisis had enjoyed no increase in real income?
I highly recommend the rest of the essay. Volcker subtly works in some of the substantive dimensions of economic reform that are necessary to a sustainable economic recovery. If advice like his is not taken, it becomes all the more likely that more radical alternatives will gain traction.