Financial Sector Costs Us More than Any Other Sector In Economy


The financial sector receives more of the average paycheck than any other sector of the economy.  Its share of the economy totals $2 trillion dollars.

In 1985, the financial sector earned less than 16% of domestic corporate profits.  Today, it’s over 40%.

In the 1960s, finance and insurance accounted for only 4% of GDP, whereas in 2007 finance and insurance accounted for 8% of GDP.

The purpose of the financial services industry is basically to transfer money from savers to entrepreneurs. It primarily consists of using a computer to shift money from one bank account to another. This service requires virtually no physical labor and very few material resources.

Yet, this relatively simple service cost our country more than $2 trillion in 2007. That was more than the country spent on health care, construction, food, utilities or transportation.

United States GDP by Industry Graph 2007 (Infographic)
How can financial paper shuffling to cost us more than the construction of the skyscraper where the paper shuffling will then take place? How does this industry get us to spend such an inordinate amount of money on their services?

The free market system automatically optimizes resource allocation to satisfy society’s wants and needs. The current problems in our financial sector can be seen as our economy’s attempt to reduce the excessive size of the financial sector and redirect those resources to more productive purposes. Yet, the government is doing everything in its power to counteract this process. The feds have taken or committed to take over $12 trillion from the other sectors and given them to financial institution to maintain this imbalance. This works out to $42,105 for every man, woman and child in the U.S.

The financial sector is at a historic high as share of the overall economy.

Graph of Financial Industry Sector Share of US GDP Over Time (Since 1860)

Graph Source:

Note another year in history when it peaked, 1929.  At that time, many of the country’s resources were shifted to this low-employee, unproductive sector.  It was followed by a decade of unemployment and economic stagnation.  This would suggest that it may be unwise for the government to fuel this bloating if they wish to avoid another lost decade.

This begs the question “Why is government taking money from the paychecks of working people and giving it to AIG and Goldman-Sachs?” They claim that their failure will result in the collapse of our entire economic system.  This would, of course, eventually lead to a dystopian Mad Max scenario. However, the presented choice between government bailout and complete financial collapse is a false dichotomy. In reality, if the government allowed these irresponsible actors to fail, they would enter a bankruptcy process and be sold off to more smaller, more responsible companies.

Correlation doesn’t necessarily imply causation. However, the reason the government is so set on using tax dollars to prop up these insolvent companies (as opposed to taking the bankruptcy route) might be related to campaign contributions. For instance, AIG executives gave more than $630,000 during the 2008 political cycle even as the company was falling apart. President Obama collected a total of $130,000 from AIG in 2008, while McCain accepted a total of $59,499. Last year AIG and its subsidiaries spent about $9.7 million on federal lobbying, or about $53,000 for every day Congress was in session in 2008. Additionally, Obama’s top presidential campaign contributor was Goldman-Sachs. McCain’s was Merril-Lynch.

For all the awful investments AIG made, this political investment has produced a 1730000% rate of return.

  • boriskist (@boriskist)

    this post is wonderful & and so are you and this blog.

  • erik

    your wrong about utilities they cost us nothing .look up . our elected is embezzling threw whats called delegated assets .this is like they take the money profits around 95% use towards a pension most will never see as a investment .

    • Hi, Erik! I’m sorry. I don’t really understand your comment. Could you dumb it down a bit?

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  • sam

    hm, good article, but i would be hesitant to blame it completely on the feds.. there is just no sustainable way for investors to continually expect returns on investment that outpace inflation. in fact, inflation caused by the fed is one of the biggest things fighting this trend..

    as a result, any capitalist system in late stages will become overwhelmed with an inefficient finance industry. they suck all the money out of the system, then sit on it, sucking any productivity dry that might arise..

    laissez faire = lazy fair

    • Hi, Sam! I’m sorry. I don’t really understand your comment. Could you dumb it down a bit?

  • Mort Persky

    Mike, have you noticed that Cato, Heritage and half a hundred other rightie websites engaged in fighting the War against Welfare have all but taken over Google’s response to requests for info on “us welfare statistics by state” or even “us welfare statistics”? And they must be paying a tidy sum, as Cato’s pdf assault leads off an amazing number of Googlepages. After quite a while & quite an effort, I finally got to you and a few more people & articles on the other side, but I did get here. The big trick in Cato’s pdf is its proclamation that the U.S. is “losing” LBJ’s War on Poverty at a trillion a year. I’d like to explain to Cato that the trillion is for helping the poor, but they’d never hear me. And LBJ’s old line from a liberal’s heart has been captured & carted away.

    • Hi, Mort! Thanks for commenting!

      I’m not sure about Google’s algorithms. Somehow, I got to 2nd place for “welfare statistics”. I have no idea why, though.

      I can see both sides of the argument on social welfare programs.

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  • Fatehjee

    It’s also related to the fact that the US Government needs to sell an enormous amount of bonds each day/year just to keep the US government solvent. Who sells these bonds? Of course, the financial sector. So essentially the financial sector has our government by the balls – and this interdependence is why the gov will not break them up.

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