He is among the handful people following the Keynesian school of thought that manage to make sense, and still see some of the problems, through the veil of non-sense that this school represents (others are Roubini, maybe Hussman, etc.). They all have a tendency to see accurately the problem, but completely miss the solution.
So there are lots of things to disagree with in his latest report. I am not going to focus on those, but rather just mention a point he makes in the appendix of his quarterly report:
We squared off using the Oxford-style debate rules: 5-minute alternating presentations, 2 minutes each to rebut, 20-minutes of give and take with the audience, and 1 minute each to summarize. The audience voted at the beginning and again at the end of the debate. The opening poll from the 200 attendees (each of whom had forked over $1,500 to attend a special 2-day The Economist Magazine conference in November graced by Summers, Geithner, and other illuminati) was, not surprisingly, in favor of innovation to the tune of 80% to 20%.Interesting, PIMCO's Bill Gross says, in February Investment Outlook:
Let’s start with the Investment Industry component. It is so obvious in this business that it’s a zero sum game. We collectively add nothing but costs. We produce no widgets; we merely shuffle the existing value of all stocks and all bonds in a cosmic poker game. At the end of each year, the investment community is behind the markets in total by about 1% costs and individuals by 2%.
As total fees in the past grew by 0.5%, we agents basically reached into the clients’ balance sheets, snatched the 0.5%, and turned it into income and GDP. Magic! But in doing so, we lowered the savings and investment rate by 0.5%. So, we got a short-term GDP kick at the expense of lower long-term growth.
From society’s point of view, this additional 4.5% burden works like looting or an earthquake. Both increase short term GDP through replacement effect, but chew up capital.
All of the extra financial workers might as well be retirees or children, in that they are supported by the rest of the workforce, but they are much, much more expensive.
I would have mentioned Paul Volcker’s opinion that the only financial innovation useful to the country in the last 20 years is the ATM, but at the time of this debate he hadn’t made that compelling point.
Investment management is a privileged profession — not just for being paid X-times what you're really worth to society, but from the standpoint of longevity. If you're good, and you at least give the impression that you still have most of your faculties, you can literally hang around forever.
Previous posts about Jeremy Grantham are available here.