2016년 3월 30일 수요일


자료: http://www.readperiodicals.com/201001/1985153831.html

※ 발췌 (excerpt):

Union membership has not only shrunk during the era of globalization but unions have become less militant. After peaking in the 1970s, the number of days lost to strikes plummeted into the 1990s. In a survey of 15 major industrialized countries, not including the United States, Piazza (2005: 290) calculates that the number of days per worker lost due to strikes was 1,641 in the 1960s, 2,586 in the 1970s, 1,632 in the 1980s, and a mere 658 in the 1990s.

2016년 3월 29일 화요일

Mirror: description or interpretation in the form of 'implicit quotation'

I don't know whether there is such a term or pattern in English grammar or style as 'implicit quotations', but I find very often something like that in English writings. I mean by it that:

  • there is no quotation marks; 
  • there is no explicit indications of speakers other than the writer herself, like 'according to' or 'someone says'; 
  • but the 'true' or 'original' speaker is surely not the writer herself; the latter often serves as an interpreter, reader or someone like reteller of the former.
This post is just an exercise to get familiar with such an element of writing.

Let's take up a sample paragraph:
So it is not surprising that the theories, although expressed in the elegant algebra beloved of modern economists, were simple. Solow's model of growth remained the basic workhorse theory until the 1980s. It said that the economy's growth of its total output depended on the growth in the inputs needed─land or materials, labor and capital─and an unexplained remainder or residual labeled "technical progress." When applied to actual GDP data, the results were mildly embarrassing for the theory, because studies revealed that the great majority of postwar GDP growth was "explained" by the "technical progress," that is, by the one part of the theory that had no economic explanation. Technical progress was treated in this growth model as manna from heaven.
And the part of sentences which immediately follow, it seems, can be viewed as an 'implicit quotation.' 
Business investment created new capital to use in production. Labor grew by an increasing working-age population and, as the growth models became more refined, the increasing level of education and skill in the workforce. Both contributed to growth, but "technology" explained more.

2016년 3월 28일 월요일

[발췌: 토마 피케티, 21세기 자본] 두 케임브리지 논쟁을 넘어서

출처: 토마 피케티. 21세기 자본.
자료: 구글도서

※ 발췌: 

'두 케임브리지 논쟁'을 넘어서

그러나 19세기 후반과 20세기 초에 이용 가능했던 국민계정 및 다양한 통계자료는 자본/소득 비율의 동학을 정확히 이해하기에는매우 부족했다는 점을 인식하는 것이 중요하다. 왜냐하면 국민소득이나 국내생산보다 특히 국민총자본에 대한 추정이 더 많이 이뤄졌기 때문이다. 1914~1945년의 충격 이후 20세기 중반에는 상황이 반대가 되었다. 이것이 분명 왜 이 시기에 자본축적과 동태적 균형의 가능성에 관한 문제가 계속 일으켜쓰며 오랫동안 숱한 혼란을 야기했는지를 설명해준다. 1950년대와 1960년대에 있었던 유명한 '케임브리지 자본 논쟁'이 좋은 사례다. ( ... )

  이 논쟁의 요점을 상기해보자. 경제학자 로이 해러드와 에브세이Evsay Domar가 1930년대 후반에 처음 β=s/g 공식을 명확하게 소개했을 때, 이 공식은 흔히 g=s/β로 변환되었다. 특히 해러드는 1939년 β는 이용 ( ... ... )

2016년 3월 27일 일요일

Mirror: future perfect in the past

Take up this sample sentence:

One hypothesis ... was that the postwar economy had just been reverting to its prewar trend, and when it had caught up to that trend, growth would slow again─as it later did.

And let's try to find an element of 'present perfect in the past' which serves as 'future perfect in the past'.

[발췌: Ferenc Jánossy's] The End of the Economic Miracle (1969?/1971)

출처: Ferenc Jánossy. The End of the Economic Miracle: Appearance and Reality in Economic Development. Routledge. 2015. 12. 22. 282쪽.
#양서번역 #경제발전론

※ 주요 차례:



  • 1. All Economic Miracle Are Reconstruction Periods.
  • 2. The End of the Japanese Economic Miracle
  • 3. The Economic Miracle in the Federal Republic of Germany
  • 4. The Economic Development of the Soviet Union, Its Trendline, and the Two Reconstruction Periods
  • 5. Deviations from the "Classical" Reconstruction Period
  • 6. 
  • 7. 
  • 8. 
  • 9. The Diffusion of Innovations
  • 10. The Quantity of Embodied Labor
  • 11. 
  • 12. 
  • 13. Labor Power and Progress
  • 14. The Tension That Underlies Progress and the Bond That Limits Its Tempo

※ 발췌 1 (excerpt):
Routledge Revival: The End of the Economic Miracle
Originally published in 1971, this report presents Dr Jánossy's attempt to demonstrate that all post-war economic 'miracle' lasted only until production levels reached the levels they should have done had there been no war and concludes that economic development is extremely consistent. Jánossy also provides a detailed growth theory which suggests that this consistency is reached purely by the development of mankind and occupational structure rather than research or capital development. This title will be of interest to students of Business and Economics. 

※ 발췌 2 (excerpt):



  While our perception of the particular knowledge of single individual will forever remain incomplete, and the sum total of all human capability, learning, and skill eludes us, its result─the product of human labor─manifests itself as a perpetually rising stream of concrete values that can be evaluated both quantitatively and qualitatively. Even if we follow this stream to its source, our attention will be captured by the machines from which it flows rather than by the activity, let alone the knowledge, of the men who ultimately determine its volume. Even here, at the source, labor embodied in the means of production occupies the foreground, while living labor─primarily due to the division of labor─appears to subordinate itself to the machine. Since the tool has long passed from the artisan's hand to the steel grip of the machine, and with it the artisan's skill, and since today even electronic brains instead of human brains frequently supervise and direct the work of the machine, it is not surprising if a nation's wealth appears to depend upon the machinery at its disposal.

  The fact that the basic vehicle of economic developments is the development of man himself is forgotten, and the tempo of progress seems to be determined today by the spread of a perpetually self-perfecting machinery. Just as an entrepreneur believes that his capital itself bears interest and creates new capital, that wealth begets wealth, and that poverty remains poverty because it has no capital, so it appears that one country is rich because it possesses modern means of production, and another is poor because it has only primitive ones. The backward country seems to be backward because it is too poor to obtain modern means of production, and the developed country seems to be developed because its wealth enables it to install the most modern equipment.

  It goes without saying that nobody will defend such an extreme overvaluation of the means of production and deny the importance of labor power; and nobody is likely to dispute the fact that the development of the means of production and of labor power proceed hand in hand. The role, however, that each of these two processes plays in their mutual development is subject to widely different evaluation.

  We take the position that the overwhelming factor in this interaction is the development of labor power, and that consequently the economic progress of a country ultimately depends─in the long run, in other words─on the full flowering of its labor power, since society creates over and over again, although often after delays and reverses, the means of production commensurate to the prevailing level of development of labor. Obsolete means of production, inadequate to the population's given state of development, can, of course, lower the production level temporarily, but in the long run they can only hold back the course of development if this inadequacy persists long enough to stunt the development of labor power itself.

  But it is premature to delve into theoretical reflections at so early a point and to attempt to disprove views which, however widespread, are based only on the appearance and not on the essence of the reproduction process. Only in Part II of this book can we try to convert the reader to our heretical views, after presenting in Part I statistical facts that are widely known but are here placed in a new context that will at least bring some accepted views into question.

  A country's undisturbed economic development, with harmony prevailing between development of labor power and the means of production, obviously cannot contribute much to the solution of our problem, for only when this harmony is disturbed does the overwhelming factor become apparent. The most instructive case would be one in which the population of two countries with different levels of development would change places, leaving behind their possessions, and thus also the means of production. In such a case─for which history offers no example─the means of production would be separated from labor, and it could be unequivocally shown whether the attained level is maintained through the former or the latter. Closest to it in causing a similar separation─although in a very different manner─is the case in which war destroys a great part of the means of production and thereby creates a situation in which the country's labor force, whose structure and status preserved, must cope with the reconstruction of the economy with inadequate means of production.

  Our interest in postwar economic reconstruction periods thus has nothing to do with war itself; it stems, rather, from general problems of economic development. The reconstruction period should not be examined in order to revive the memory of the past or to fight the danger of a third world war. We analyze the reconstruction period because it has far greater significance for understanding undisturbed economic development─particularly that of the future─than an isolated view of the economic events of the last decade might indicate. 

( ... ... )

2016년 3월 24일 목요일

[발췌: 애덤 스미스, 국부론] 2권 3장의 첫 부분

출처: 애덤 스미스(1776). 국부론. 2권의 3장.

  • Book II: On the Nature, Accumulation, and Employment of Stock 
  • Chapter III: On the Accumulation of Capital, or of Productive and Unproductive Labour
  • CF. 3장 모두의 원문 발췌

자료 1: 애덤 스미스 지음(유인호 옮김). 국부론. 동서문화사 1판 1쇄(1978), 2판 1쇄(2008), 2판 10쇄(2014).

※ 3장 모두의 발췌:

  노동[의] 가운데 어떤 종류는 그것이 투하된 대상의 가치를 증가시키지만, 또 다른 종류의 노동은 그런 효과를 낳지 못한다. 전자는 가치를 생산하기 때문에 생산적이라고 하고, 후자는 비생산적(*1)이라고 할 수 있을 것이다. 이와 같이 제조공의 노동은 일반적으로 그가 가공하는 재료의 가치에, 그 자신의 생활비의 가치와 그의 고용주의 이윤가치를 덧붙인다. 이와 반대로 가사를 돕는 하인의 노동은 어떤 것의 가치도 덧붙이지 않는다. 제조공은 임으믈그의 고용주한테서 선불로 받는다 하더라도, 실제로 그의 고용주로 봐서는 아무런 비용이 들지 않는다. 그 임금가치는 일반적으로 그의 노동이 투하된 대상으 증대된 가치 속에 이윤과 함께 회수되기 때문이다. 그러나 하인의 생활비는 결코 회수되지 않는다.

  사람은 많은 제조공을 고용함으로써 부유해지고, 많은 하인을 부양함으로써 가난해진다. 다만 후자의 노동도 가치를 가지고 있고, 전자의 노동과 마찬가지로 보수를 받을 가치가 있다. 그러나 제조공의 노동은 어떤 특정한 대상 또는 판매할 수 있는 상품에 고정되어 실현되는 것이며, 이 상품은 그노동이 끝난 뒤에도 적어도 한동한 존속한다. 그것은 말하자면 일정량의 노동이 언젠가 다른 경우에 필요에 따라 쓰이기 위해 저장되고 비축되고 있는 것이다. 그 대상 또는 그 대상의 가치는, 나중에 처음 그것을 생산한 것과 같은 양의 노동을 필요에 따라 활동시킬 수 있다. 반대로 가정의 하인의 노동은 어떤 특정한 대상 또는 판매할 수 있는 상품에도 고정되어 실현되는 일이 없다. 그의 노동은 일반적으로 그것이 수행된 바로 그 순간 소멸되고, 나중에 그것과 교환하여 같은 양의 노동을 획득할 수 있는 흔적이나 가치를 남기는 일이 거의 없다.

  사회에서 가장 존경할 만한 계층 가운데서 어떤 사람들의 노동은, 하인의 노동처럼 아무런 가치도 생산하지 않고, 또 노동이 끝난 뒤까지 지속되어 나중에 같은 양의 노동과 교환할 수 있는 어떤 영속적인 대상, 또는 판매할 수 있는 상품에 고정 또는 실현되는 일이 없다. 이를테면 주권자는 그 밑에서 봉사하는 모든 사법 및 군사 관료, 전 육해군과 함께 비생산적 노동자이다. 그들은 공공의 하인이며, 다른 사람들의 근로의 연간 생산물의 일부로 부양되고 있다. 그들의 일이 아무리 명예롭고 아무리 유익하고, 나아가서는 아무리 필요한 것이라 하더라도, 나중에 그것으로 같은 양의 일과 교환할 수 있는 것은 아무것도 생산하지 않는다. 그들의 그해의 노동 성과인 공동사회의 보호·안전·방위는, 그 다음 해의 보호·안전·방위를 구매하지 않는다. ( ... ... )

2016년 3월 23일 수요일

[발췌] Greeks fret about faulty data (2010)

출처: "Greeks fret about faulty data," Fin24, 2010-01-22

※ 발췌 (excerpt):

( ... ... ) "Right now, even if everything they say is correct, they are not going to believe it," Manolis Kontopirakis, who headed Greece's statistics agency between 2004 and 2009, said.

Kontopirakis quit shortly after Prime Minister George Papandreou's Socialists took over from the conservative New Democracy government in October. He angrily refuted claims his agency had knowingly forwardd the faulty data, which he said had hurt Greece's standing abroad.

( ... ... )

The 30-page European report suggests why. It accuses the two statistical agencies, Kontopirakis's National Statistical Service of Greece, or NSSG, and the General Accounting Office, of a string of offbeat practices and occurrences.

Page 18 of the report indicates that an unnamed general secretary of the NSSG─the post Kontopirakis held─“repeatedly contacted Eurostat claiming political interference over provision of figures” between October 12 and 21, just as the agency was preparing a revision of Greece's numbers. Konopirakis, however, denied being the official who made the calls.

( ... ... )

2016년 3월 5일 토요일

[메모] 김낙년 교수의 한국 국민계정 관련 발표 자료 링크

한국의 국민계정, 1911-2007: 주요 지표를 중심으로 

※ 발췌:

셋째, 금융중개서비스[주]16의 처리에 관한 것이다 국민계정에서는 수입이자{영문 용어: interest receivable} 또는 지급이자{영문 용어: interest payable}를 기본적으로 재산소득{영문 용어: property income} 거래로 파악하는데, 이를 금융기관에 적용하게 되면 그들이 산출하는 서비스를 제대로 평가하지 못하게 된다. 따라서 금융기관의 경우는 예외로 인정하여 그들의 수입이자와 지급이자의 차액을 금융중개서비스의 산출액으로 간주하고, 이 서비스를 이용한 산업(또는 가계)이 이를 중간소비(또는 최종소비)한 것으로 처리한다. II, III 기간에는 이렇게 추정한 금융중개서비스를 실제로 이용한 산업(또는 가계)의 중간소비(또는 최종소비)로 배분하여 처리하고 있다(한국은행, 1982, pp. 111-2; 1986, p. 76; 2000, pp. 198-9). 그런데 I 기간의 경우 1968 SNA에 따라 금융중개서비스를 해당 산업의 중간소비로 배분하지 않고 '금융 귀속 서비스'라는 의제 산업을 별도로 성장하여 그 산업의 중간소비를 일관 처리(즉 공제)하는 방식을 취하고 있다(<그림1>-I의 e 항목). 여기서는 I 기간도 II, III 기관과 일관성을 가질 수 있도록 이 시기 금융기관의 산업별 대출 실적을 이용하여 금융중개서비스를 해당 산업의 중간소비로 배분하였다,[주]17
[주]16 이것은 1993 SNA에서 사용하는 용어이며, 1953 및 1968 SNA에서는 각각 귀속 이자 및 금융 귀속 서비스로 불렀다.
※ 이 독자: 여기서 '귀속 이자'의 영문 용어는 'imputed interests'일 것 같고, '금융 귀속 서비스'의 영문 용어는 번역 작업 중에 블로그에 많이 기록한 문헌들 상의 용어인 'imputed bank services charge(IBSC)'일 것으로 추정된다. 은행업의 플러스 IBSC를 가상의 산업(위 본문 상의 의제산업)의 마이너스 산출액으로 계상하도록 한 지침이 1968 SNA이므로 이 용어에 대응함이 거의 확실하다.
[주]17 조선 총독부 재무국 자료(<금융사항참고서>, <조선금융연보>)는 각종 은행과 금융조합연합회의 대출금이 어느 산업으로 얼마나 대출되었는지를 보여준다. ( ... )
CF. 관련된 내용의 다른 출처 언급(매경 용어 사전):
금융귀속서비스(영문 : imputed bank service charges) 
금융기관은 자금잉여부문의 자금을 예수하여 이를 자금수요자에게 대출하는 것을 주기능으로 하고 있다. 따라서 은행의 주영업 수입은 수입이자와 지급이자의 차액으로 형성되며 이 수입에서 인건비와 기타 중간비용을 공제한 금액이 은행의 이윤이 된다. 그런데 국민계정에서는 이자의 수입이나 지급은 총산출 또는 중간소비에 계상하지 않고 생산된 부가가치의 분배, 즉 재산소득거래로 파악하고 있다. 이에 따라 각 산업에서 지급한 이자는 중간소비에 계상하지 않으며 수입이자도 총산출에 계상되지 않는데, 은행과 같은 금융업은 이와 동일하게 처리한다면 금융업의 총산출에 계상되는 것은 송금수수료나 외환매매수수료뿐이므로 금융 중개 서비스가 금융업의 총산출로 계상되지 않게 되어 금융업의 활동을 제대로 평가할 수 없게 된다. 이러한 불합리를 해결하기 위하여 일단 금융업의 수입이자와 지급이자 차액을 금융귀속서비스료라고 정의하여 금융중개서비스의 의제판매수입으로 처리, 금융업의 총산출에 포함시키고 있다.
한편, 동 금융중개서비스는 실제로는 금융기관 이용자에게 제공된 것이므로 지출 측에서는 산업 및 가계에 이를 배분, 중간소비 및 최종 소비한 것으로 처리해야 하나 이의 정확한 배분이 현실적으로 곤란하기 때문에 국민계정에서는 금융 귀속서비스라는 의제산업을 설정하여 이 산업이 서비스 산출 전액을 구입, 중간 소비한 것으로 처리하고 있다. 

2016년 3월 3일 목요일

[발췌: Haldane et al] What is the contribution of the financial sector (2010)

출처: Andrew Haldane, Simon Brennab, and Vasileios Madouros. "What is the contribution of the financial sector: Miracle or mirage?" Chapter 2 in The Future of Finance:  LSE Report. 2010

※ 발췌 (excerpt):
ABSTRACT: This chapter considers the contribution made by the financial sector to the wider economy. The measured GDP contribution of the financial sector suggests it underwent a "productivity miracle" from the 1980s onwards, as finance rose as share of national output despite a declining labour and capital share. But a detailed decomposition of returns to banking suggests an alternative interpretation: much of the growth reflected the effects of higher risk-taking. Leverage, higher trading profits and investments in deep-out-of-the money options were the risk-taking strategies generating excess returns to bank shareholders and staff. Subsequently, as these risks have materialised, returns to banking have reversed. In this sense, high pre-crisis returns to finance may have been more mirage than miracle. This suggests better measuring of risk-taking in finance is an important public policy objective─for statisticians and regulators, as well a for banks and their investors.

1. Introduction

  The financial crisis of the past three years has, on any measure, been extremely costly. As in past financial crises, public sector debt seems set to double relative to national income in a number of countries (Reinhart and Rogoff (2009)). And measures of foregone output, now and in the future, put the present value cost of the crisis at anywhere between one and five times annual world GDP (Haldane (2010)). Either way, the scars from the current crisis seem likely to be felt for a generation.

  It is against this backdrop that an intense debate is underway internationally about reform of finance (Goodhard (2010)). Many of the key planks of that debate are covered in other chapters in this volume. Some of these reform measures are extensions or elaborations of existing regulatory initiatives─for example, higher buffers of higher quality capital and liquidity. Others propose a reorientation of existing regulatory apparatus─for example, through counter-cyclical adjustments in prudential policy (Bank of England (2009b), Large (2010)). Others still suggest a root-and-branch restructuring of finance─for example, by limiting the size and/or scope of banking (Kay (2009), Kotlikoff(2010)).

  In evaluating these reform proposals, it is clearly important that the on-going benefits of finance are properly weighed alongside the cost of crisis. Doing so requires an understanding and measurement of the contribution made by the financial sector to economic well-being. This is important both for making sense of the past (during which time the role of finance has grown) and for shaping the future (during which it is possible the role of finance may shrink).

  ( ... ... ) Banking contributed to a Great Recession on a scale last seen at the time of the Great Depression.
  Yet the official statistics on the contribution of the financial sector paint a rather different picture. According the the National Accounts, the nominal gross value-added (GVA) of the financial sector in the UK grew at the fastest pace on record in 2008Q4. As a share of whole-economy output, the direct contribution of the UK financial sector rose to 9% in the last quarter of 2008. Financial corporations' gross operating surplus (GVA less compensation for employees and other taxes on production) increased b £5.0bn to £20bn, also the largest quarterly increase on record. At a time when people believed banks were contributing the least to the economy since the 1930s, the National Accounts indicated the financial sector was contributingg the most since the mid-1980s. How do we begin to square this cycle?

  ( ... ... ) In Section 3, we consider growth accountng breakdown ( ... ) This suggests banking has undergone, at least arithmetically, a "productivity miracle" over the past few decades. Section 4 explores in greater detail some of the quantitative drivers of high aggregate returns to banking, while Section 5 explores some of banks' business activities. Risk illusion, rather than a productivity miracle, appears to have driven high returns to finance. The recent history of banking appears to be as much mirage as miracle. ( ... )

2. Measuring Financial Sector Output

(a) Historical Trends in GVA

(b) Measuring GVA in the Financial Sector

  To begin to understand these trends, it is important first to assess how financial sector value-added is currently measured and the problems this poses when gauging the sector's contribution to the broader economy.

  ( ... ... )

  This is also the case for some of the services provided by the financial sector.[n.2]  For example, investment banks charge explicit fees when they advise clients on a merger or acquisition. Fees or commissionsare also levies on underwriting the issuance of securities and for the market-making activities undertaken for clients. But such direct charges account for only part of the financial systems's total revenues. Finance─and commercial banking in particular─relies heavily on interest flows as a means of payment for the services they provide. Banks charge an interest rate margin to capture these intermediation services.

  To measure the value of financial services embedded in interest rate margines, the concept of FISIM─Financial Intermediation Services Indirectly Measured─has been developed internationally. The concept itself was introduced in the 1993 update of the UN Systems of National Accounts (SNA). The SNA recognises that financial intemediaries provide services to consumers, businesses, governments and the rest of the world for which explicit charges are not made. In associate guidelines, a number of such services are identified including:
  • Taking, managing and transferring deposits;
  • Providing flexible payment mechanisms such as debit cards
  • Making loans or other investments; and
  • Offering financial advice or other business services.

  FISIM is estimated for loans and deposits only. The calculation is based on the difference between the effective rates of interest (payable and receivable) and a 'reference' rate of interest, multiplied by the stock of outstanding balances. According to SNA guidelines, ‘this reference rate represents the pur cost of borrowing funds─that is a rate from which the risk premium has been eliminated to the greatest extent possible, and that does not include any intermediation services.’[n.3] For example, a £1,000 loan with a 9% interest receivable and a 4% reference rate gives current price FISIM on the loan = £1,000×(9%-4%)=£50. And for a £1,000 deposit with a 3% interest payable and a 4% reference rate, this gives current price FISIM on the deposit =£1,000×(4%-3%)=£10. Overall, estimated current price FISIM accounts for a significant share of gross output of the banking sector (Chart 7).

  Estimating a real measure of FISIM is fraught with both conceptual and computational difficulties. In the earlier example of the second-hand car dealer, statisticians can use the the number of cars sold as an indicator of the volume of gross output. But the conceptual equivalent for financial intermediation is not clear. Would two loans of £50 each to the same customer represent a higher level of activity than one loan of £100? ( ... ... )

(c) Refining the Measurement of FISIM

  While the introduction of FISIM into the national accounts was an important step forward, it is not difficult to construct scenarios where the contribution of the financial sector to the economy could be mis-measured under this approach. A key issue is the extent to which bearing risk should be measured as a productive service provided by the banking system.

  (i) Adjusting FISIM for Risk

  Under current FISIM guidelines, which use risk-free policy rates to measure the reference rate, banks' compensation for bearing risk constitutes part of their measured nominal output. This can lead to some surprising outcomes. For example, assume there is an economy-wide increase in the expected level of defaults on loans or in liquidity risk, as occurred in October 2008. Banks will rationally respond by increasing interest rates to cover the rise in expected losses. FISIM will score this increased compensation for expected losses on lending as a rise in output. In other words, at times when risk is rising, the contribution of the financial sector to the real economy may be overestimated. This goes some way towars explaining the 2008Q4 National Accounts paradox of a rapidly rising financial sector contribution to nominal GDP.

  Of course, the financial sector does bear the risk of other agents in the economy. Banks take on maturity mismatch or liquidity risk on behalf of households and companies. And banks also make risky loans funded by debt, which exposes them to default or solvency risk. But it is not clear that bearing risk is, in itself, a productive activity. Any household or corporate investing in a risky asset is a fundamental feature of capital markets and is not specific to the activities of banks. Conceptually, therefore, it is not clear that risk-based income flows should represent bank output.

  The productive activity provided by an effectively functioning banking system might be better thought of as measuring and pricing credit and liquidity risk. For example, banks screen borrowers' creditworthiness when extending loans, thereby acting as delegated monitor. And they mananage liquidity risk through their treasury operations, thereby acting as delegated treasurer. These risk-pricing services are remunerated implicitly through interest rates banks charge to their customer.

  Stripping out the compensation for bearing risk to better reflect the service component of the financial sector could be achieved in different ways. One possibility would be to adjust FISIM using provisions as an indicator of expected losses. A broader adjustment for risk, as has been suggested by several commentators, would be to move away from the risk-free rate as the reference rate within FISIM.[n.4]  For example, a paper prepared for the OECD Working Party on National Accounts (Mink (2008)) suggested that the FISIM calculation should use reference rates that match the maturity and credit risk of loans and deposits. This would also eliminate an inconsistency within the current National Accounts framework. Measured financial intermediation output increases if a bank bears the risk of lending to a company. But gross output is unchanged if a household holds a bond issued by the same company and thus bears the same risk.

  ( ... ... )

(ii) Measuring risk

  ( ... ... )

  Attempting to adjust the measurement of bank output for risk by changing the reference rate in FISIM is an improvement on current practices. But it would still fall short of assessing whether the financial sector is pricing risk correctly and hence assessing the true value of the services banks provide to the wider economy. Unless the price of risk can be evaluated, it seems unlikely the contribution of the financial sector to the ecoomy can be measured with accuracy.

3. Decomposing the Contribution of the Financial Sector─the Productivity "Miracle"

  To that end, an alternative way of looking at the contribution of the financial sector is through inputs to the production process. ( ... ) Was this [rapid growth in finance] accompanied by a rising share of resources employed by finance relative to the rest of the economy? Or did it instead reflect unusually high returns to these factors of production? 

  ( ... ... )

  The time-series evidence is some respect even more dramatic. Philippon and REshelf (2009) have undertaken a careful study of "excess" wages in the US financial industry since the start of the previous century, relative to a benchmark wage. Chart 15 plots their measure of excess wages. This shows a dramatic spike upwards which commenced in the early 1980s, but which exploded from the 1990s onwards. The only equivalent wage spike was in the run-up to the Great Crash in 1929. Philippon and Reshelf attribute both of these wage spikes to financial deregulation.

  This picture is broadly mirrored when turning from returns to labour to returns to capital. In the 1950s gross profitability of the financial sector relative to capital employed was broadly in line with the rest of the economy (Chart 16). But since then, and in particular over the past decade, returns to capital have far outpaced those at an economy-wide level.

  Chart 17 plots UK banks' return on equity capital (RE) since 1920 (Alessadri and Haldane (2009)). Although conceptually a different measure of returns to capital, the broad message is the same. Trends in ROE are clearly divided into two periods. In the period up until around 1970, ROE in banking was around 7% with a low variance. In other words, returns to finance broadly mimicked those in the economy as a whole, in line with the gamble payoffs in Chart 6. But the 1970s mark a regime shift, with the ROE in banking roughly trebling to over 20%, again in line with gamble payoffs. Excess returns accumulated to captial as well as labour.

  These returns were by no means unique to UK banks. Chart 18 plots ROEs for major internationally active banks in the US and Europe during this century. Two features are striking. First, the level of ROEs was consistently at or above 20% and on a rising trend up until the crisis. This is roughly double ROEs in the non-financial sector over the period. Second, the degree of cross-country similarity in these ROE profiles is striking. This, too, is no coincidence. During much of this period, banks internationally were in engaged in a highly competitive ROE race. Therein lies part of the explanation for these high returns to labour and capital in banking.

4. Explaining Aggregate Returns in Banking ─ Excess Returns and Risk Illusion

  How do we explain these high, but temporary, excess returns to finance which appear to have driven the growing contribution of the financial sector to aggregate economic activity? In this section we discuss potential balance sheet strategies which may contributed to these rents. Essentially, high returns to finance have been driven banks assuming higher risks. Banks' profit, like their contribution to GDP, may have been flattered by the mis-measurement of risk.

  The crisis has subsequently exposed the extent of this increased risk-taking by banks. In particular, three (often related) balance sheet strategies for boosting risks and returns to banking were dominant in the run-up to crisis:

  • increased leverage, on and off-balance sheet;
  • increased share of asset held at fair value; and
  • writing deep out-of-the-money options.

  What each of these strategies had in common was that they generated a rise in balance sheet risk, as well as return. As importantly, this increase in risk was to some extent hidden by the opacity of accounting disclosure of the complexity of the products involved. This resulted in a divergence between reported and risk-adjusted returns. In other words, while reported ROEs rose, risk-adjusted ROEs did not (Haldane (2009)).

  To some extent, these strategies and their implications were captured to a degree in performance measures. For example, the rise in reported average ROEs of banks over the past few decades occurred alongside a rise in its variability. ( ... ... ) In that sense, the banking "productivity miracle" may have been, at least in part, a mirage─a simple, if dramatic, case of risk illusion by banks, investors and regulators.

(a) Increased leverage

  Banks' balance sheet have grown dramatically in relation to underlying economic activity over the past century. Charts 19 and 20 plot this ratio for the UK and the US over the past 130 years. For the US, there has been a secular rise in banks' assets from around 20% to over 100% of GDP. For the UK, a century of flat-lining at around 50% of GDP was broken in the early 1970s, since when banks' assets in relation to national income have risen tenfold to over 500% of GDP.

  This century has seen an intensification of this growth. According to data compiled by the ^Banker^, the balance sheets of the world's largest 1000 banks increased by around 150% between 2001 and 2009 (Chart 21). In cross-section terms, the scale of assets in the banking system now dwarfs that in other sectors. Looking at the size of the largest firm's assets in relation to GDP across a spectrum of industries, finance is by far the largest (Chart 22).

 The extent of balance sheet growth was, if anything, understated by banks' reported assets. Accounting and regulatory policies permitted banks to place certain exposures off-balance sheet, including special purpose vehicles and contingent credit commitments. Even disclosures of on-balance sheet positions on derivatives disguised some information about banks' contingent exposures.

  This rapid expansion of the balance sheet of the banking system was not accompanies by a commensurate increase in its equity base. Over the same 130 year period, the capital ratios of banks in the US and UK fell from around 15-25% at the start of the 20th century to around 5% at its end (Chart 23). In other words, on this metric measures of balance sheet leverage rose from around 4-times equity capital in the early part of the previous century to around 20 times capital at the end.

  If anything, the pressure to raise leverage increased further moving into this century. ( ... ... ) Among the major global banks in the world, levels of leverage were on average more than 50 times equity at the peak of the boom (Chart 25).

  ( ... ... )

  Taken together, this evidence suggests that much of the "productivity miracle" of high ROEs in banking appear to have been the result not of productivity gains on the underlying asset pool, but rather a simple leveraging up of the underlying equity in the business.

(b) Larger trading books

(c) Writing deep out-of-the-money options

 ( .. .... )

  What all of these strategies had in common was that they involved banks assuming risk in the hunt for yield─risk that was often disguised because it was parked in the tail of the return distribution. Excess returns─from leverage, trading books and out-of-the-money options─were built on an inability to measure and price risk. The productivity miracle was in fact a risk illusion. In that respect, mis-measurement of the contribution of banking in the National Accounts and the mis-measurement of returns to banking in their own accounts have a common underlying cause.

( ... ... )