Almost three years ago Lord Turner caused astonishment when, in an interview, he said that much of the financial services sector was "socially useless". He was (and still is) chairman of the Financial Services Authority. The interview openly denigrated the work carried out by hundreds of thousands of well-paid and often highly-skilled people for whom Turner was the regulatory supremo. It would be hard to imagine a more brutal insult to their professional self-respect.
If one believed that much of the financial sector was "socially useless", a logical further claim was that it was "too big". Turner's arguments were therefore widely adopted by left-wing critics of the banking industry and elaborated in a more general critique of the City of London. The City was alleged to be excessively large relative to the UK economy as a whole and, by implication, to be an unproductive parasite on genuinely productive manufacturing. This seemed to establish a case, now often articulated by government ministers, for "rebalancing the economy" away from financial services and towards manufacturing.
Despite the rumpus that followed his remarks, Turner has now returned to the charge in a new book: Economics After the Crisis: Objectives and Means (MIT Press, £17.95). The title is both ambitious and misleading, since the book is more concerned with topical issues that have arisen in the last few years of policy muddle and market upheaval than it is with economics as an intellectual discipline. At any rate, Turner is as hostile to finance in his latest work as he was in his 2009 interview. The second chapter is Turner's most extended treatment so far of the "socially useless" thesis.
Economies are said to contain two kinds of activity, those which constitute "real value added" and those that are concerned with the distribution of income and wealth. Examples of the second — labelled "distributive rent extraction" by Turner — are a bookmaker (who redistributes between gamblers) and a divorce lawyer (who redistributes between husbands and wives). The nub of Turner's critique is that finance is largely involved with redistribution rather than "real value added". In his words, "The higher the share of complex financial services in our economy, the greater the danger that highly skilled people will be attracted to activities whose social impact is simply distributive". He fears that, as a result, "a financial system could grow beyond its socially optimal size".