There's an exciting online debate hosted by the Economist. It's about financial innovation: "Does financial innovation boost economic growth?"
I voted yes, of course. I expressed the following view:
"Financial innovations decreases transactions costs so that the financial sector becomes more efficient in transferring funds from those who have funds but do not have productive use of it to those who do not have funds but have productive use of it. Therefore, financial innovation leads to economic productivity and growth.
The problem comes in when individuals or groups take advantage of financial innovation to seek personal gain without regard to the negative effects--adverse selection and moral hazard problems. And this is the sad thing because this is the nature of the market. That is why regulations are crucial in making sure that financial innovations are run the way they are supposed to run.
Do not blame financial innovation. Blame people who take advantage of financial innovation for personal gain. Blame lack of regulation if these people do succeed in taking advantage of financial innovation and causing financial crisis left and right."
By the way, it's not just true for the U.S. or any developed nation. Financial innovation is widely beneficial in some developing countries as well. Check out the recent publication by the Asian Development Bank.
So what do you think? Share your views, join the Economist debate.