I’m generally an Adam Davidson fan, but his recent New York Times Magazine article in defense of Wall Street is pretty unconvincing. The big problem is right up there in the lede where he says “Perhaps the best way to really appreciate what Wall Street does is to imagine life without it.”
Certainly if your goal is to instill an appreciation for Wall Street, trying to imagine an economy with no financial intermediation at all is a way of making the status quo look good. But is this really an enlightening way to think about the issue? For comparison, consider the fossil fuel extraction industry. I think it’s indisputably true that if humanity had never discovered the ability to dig up fossil fuels and burn them for energy the world would be a much worse place. Fossil fuel extraction is, in important ways, the indispensible cornerstone of the past 200 years worth of economic progress. But does this tell us anything about the merits of raising the gas tax or imposing stricter regulations on mercury admissions from power plants? I don’t think it does. There’s no doubt that having a banking system is preferable to not having one, but it’s precisely because finance is important that it matters a lot whether or not the financial system as currently constituted works well. Simply saying that we’d miss the banking sector if it entirely vanished doesn’t shed any real light on live issues. I hope wolves don’t go extinct, but I’m also glad that wolves don’t roam the streets of Washington, DC.