Social Value of Wall Street

Prof. Mankiw's blog is providing fertile ground this AM. I am amused at the career advice seeker gnashing his/her teeth over the perceived low-social value of investment managers. Prof. Mankiw gives a fine argument in favor of the social value of investment managers, elucidating the basic contribution of properly functioning capital markets, as a Smithian invisble hand, in promoting efficiency and optimal allocation of resources.

On the off chance that said career advice seeker makes his/her way to this blog, let me add Edmund Phelps's nod to those who make the wheels of the capital markets turn:

"The textbook capitalism of Schumpeter and Hayek means opening up the economy to new industries, opening industries to start-up companies, and opening existing companies to new owners and new managers. It is inseparable from an adequate degree of competition." (Read more here.)

Those new owners and new managers that Phelps speaks of are precisely the private equity firms, hedge funds, and corporate investors, like Buffett's Berkshire Hathaway, that are being raked over the coals in the halls of Congress these days. We are in a golden age of robust capital markets activity, and the unemployment rate is historically low. The two are not unrelated. That's pretty decent social value if you ask me.