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The Effects of Gambling in Finance-The Productivity Paradox Summary

It is known that the productivity of labour in the US has been decreasing in spite of intensive investment in information technology. The literature sites several views for this paradox. This paper attributes the paradox on the effects of a “zero-sum” activity, namely to the dominance that pure gambling has acquired in the financial sector. In spite its beneficial role, the financial sector has created many negative obstacles to the functioning of our economies. The power that gambling has acquired in its function is a strongly negative obstacle. Gambling benefits from the advancement of the information technology, but does not contribute to the welfare of the public. On the contrary, it benefits a few and preys on not well informed and not sophisticated in financial matters agents, and aggravates the inequality of income.We consider financial gambling to be contrary to the reason the financial sector exists, and to the spirit of the competitive economy. We stress its effects, and we argue that gambling distorts the evaluation of the productivity of real capital, reduces the society's time preference, and thus, prevents the optimum long-run growth of the economy.In the last section of this paper we summarize a suggestion we have made in a SSRN publication. It intends to deal with several problems the financial sector creates. There we have recommended that firms in the this sector should become, in a fair manner, quasi-partners with firms in the private sector that use their services to finance investment the projects they undertake. The main advantage of our proposal is that it induces firms in the real sector to develop more concrete investment strategies, and financial firms to evaluate carefully the plans they accept to finance. When the operation of the financial firms are interconnected (as the removal of the Glass-Steagall Act allows) the proposed quasi-partnership minimizes the risks of domino effects when there are shortages in liquidity. In addition, it reduces the tendencies of investors to gamble, and brings the economy closer to the state the New Classical School wishes: to the state where its sectors are well integrated and they face only irreducible risks.

Author : Anastasios Anastasopoulos

Publisher : SSRN

Published : 2018

ISBN-10 :

ISBN-13 :

Number of Pages : 7 Pages

Language : en

Keyword :

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