Fantastic article! Please write more like this. Very fun to get access to the honest, earnest thoughts of those immersed in finance today. As in academia, talking to researchers gets you much newer info than reading papers (which lag by a year) or textbooks (which lag a decade).
As for fundraising and total AUM
Also I was reminded of Tyler Cowen’s quip on Dwarkesh: “I think the relevant number for the financial sector is what percentage it is of wealth, not GDP. So you’re managing wealth, and the financial sector has been a pretty constant 2% of wealth for a few decades in the United States, with bumps. Obviously, 2008 matters, but it’s more or less 2%, and that makes it sound a lot less sinister. It’s not actually growing at the expense of something and eating up the economy. So you would prefer it’s less than 2%? Right. But 2% does not sound outrageously high to me. And if the ratio of wealth to GDP grows over time, which it tends to do when you have durable capital and no major wars. The financial sector will grow relative to GDP. But again, that’s not sinister. Think of it in terms of wealth.”
If this is true, can we predict at a high level whether finance is saturated or has room to grow by looking at the total wealth to finance income ratio?
Thanks so much for your thoughtful response James. I will certainly do my best - it's tricky figuring out how to combine insightful commentary with technical complexity.
Re: your point on saturation in finance, I am not sure how to think through this question. I do think zooming out the way Cowen has makes much more sense, but we aren't really taught to appreciate the larger picture as much! Broadly, your inquiry It sounds like it would be more in the realm of economics. Perhaps we can discuss this further after I've gotten to learn more about it.
Fantastic article! Please write more like this. Very fun to get access to the honest, earnest thoughts of those immersed in finance today. As in academia, talking to researchers gets you much newer info than reading papers (which lag by a year) or textbooks (which lag a decade).
As for fundraising and total AUM
Also I was reminded of Tyler Cowen’s quip on Dwarkesh: “I think the relevant number for the financial sector is what percentage it is of wealth, not GDP. So you’re managing wealth, and the financial sector has been a pretty constant 2% of wealth for a few decades in the United States, with bumps. Obviously, 2008 matters, but it’s more or less 2%, and that makes it sound a lot less sinister. It’s not actually growing at the expense of something and eating up the economy. So you would prefer it’s less than 2%? Right. But 2% does not sound outrageously high to me. And if the ratio of wealth to GDP grows over time, which it tends to do when you have durable capital and no major wars. The financial sector will grow relative to GDP. But again, that’s not sinister. Think of it in terms of wealth.”
If this is true, can we predict at a high level whether finance is saturated or has room to grow by looking at the total wealth to finance income ratio?
Thanks so much for your thoughtful response James. I will certainly do my best - it's tricky figuring out how to combine insightful commentary with technical complexity.
Re: your point on saturation in finance, I am not sure how to think through this question. I do think zooming out the way Cowen has makes much more sense, but we aren't really taught to appreciate the larger picture as much! Broadly, your inquiry It sounds like it would be more in the realm of economics. Perhaps we can discuss this further after I've gotten to learn more about it.
An excellent write-up!
As always, thank you for taking the time to read and for your support AT!