Erik Hurst Explains the Dangers of Re-Regulation of the Financial Sector

An extremely worthwhile read by guest blogger over at Freakonomics, Erik Hurst. Hurst is a regular co-author of Kerwin Charles, whose work I am more familiar with, and I didn't realize til reading Wolfers introduction that Hurst was mainly a macroeconomist. I think he must write a lot about income and expenditure patterns, and specifically racial inequities, when he does do his micro work as that's the main things I've seen by him. Anyhow, this is more of an explanation of how the financial sector works, and why it is an important part of the overall macroeconomy. The short answer is that it bridges private savings with private investment, and it's private investment ultimately that drives income growth via increased total factor productivity (ie, more output per worker and more output per unit of capital, etc.). Increased regulation of banks that limits banking activity inadvertently limits economic growth, since growth is tied so closely to the ability to access private savings. Read the whole thing, though - don't take my word for it.

Here, too, is a working paper with Charles on home ownership and the black/white income gap. Written in 2001, and still unpublished, it might be an interesting read in light of the total collapse of the housing sector, and potentially the financial sector too.