Economic misconceptions

This evening I am going to see a lecture by Frank Furedi, "The Political Significance of the Economic Crisis". It's at the LSE but despite that, there doesn't seem to be a lot of economics in it.

Here is Prof. Furedi's article in Spiked in which he outlines the argument that I imagine he'll discuss tonight.

A couple of sentences really put me on edge:

Without the securitisation and financialisation of the economy, the accumulation of capital and a sense of prosperity could not have been maintained in Britain and the US. Outwardly it appeared that economies such as Britain’s and America’s were doing well during the past decade.

By the time of the credit crunch, the financial sector accounted for around 30 per cent of the British economy. On both sides of the Atlantic, industry continued to decline.

This is another variant of the myth that our economy is based on some kind of pyramid scheme where everyone thinks they are making something but actually nobody is.

Some responses to this:

1. The facts are: in the US and UK over the last 15 years the output of goods and services in the economy has grown by around 50%. If we have a 5% downturn now, at the upper end of estimates, we're still far better off than before.
2. The financial sector does not represent 30% of the British economy but 7-8% (and only 4% of employment). Those figures are from Goldman Sachs, but other estimates are similar or even smaller. The 30% figure represents "financial and business services" which includes a myriad of other things such as software development, the law, accounting, consultancy and marketing. Maybe these services don't directly contribute to consumer utility but they are an essential part in enabling consumers to get the goods and services that they want.
3. Are people so easily fooled that they think they are getting better off when actually it isn't true?
4. If the population is now getting more of its happiness from services (massages, visits to restaurants, cinemas) than from cars, coal and chocolate, what's wrong with that? There is nothing illegitimate about non-material benefits. Indeed this is one reason that economic growth in developed countries now uses far less carbon than it used to. That's a good thing.

I certainly don't think the growth of financial services in recent years has solved all our problems or even that it results in the ideal allocation of resources; but it's not a bad try.

I will report back after the lecture - perhaps some of these issues will come up.