	Why Occupy Wall Street? The Occupy Wall Street demonstrations that began in September 2011 do not put forward any single set of grievances or demands. According to the protestors, the 1% are thought to have too much wealth and power and to have interests in conflict with the economic well-being of the rest of the country. The 1% vs. 99% critique, while it may mean different things to different people, suggests a set of propositions about the role of financial services in the economy, including the following:
that the financial industry is now an excessive consumer of human and financial capital that could be more efficiently employed in the production of real goods and services; that exorbitant compensation of Wall Street traders (1) exacerbates income inequality and (2) encourages excessive risk-taking, which ultimately penalizes taxpayers, who must not only pay for bailouts of failed banks, but also suffer higher unemployment and slower economic growth during and after recessions that are worsened by financial crises; that complex new financial instruments and short-term speculative trading strategies have made a few individuals very wealthy, but have made the financial system, upon which all consumers and businesses depend, less stable; and that the industry has grown beyond its natural function of intermediation, or channeling savings from households to productive business investment, and has become a kind of self-enclosed casino. This report presents excerpts of political statements about the costs and benefits of finance and examples of recent economic research that points to aspects of financial activity that may not be beneficial to the real economy. The report does not attempt a comprehensive survey of the relevant political or economic literature, but provides a reminder of the historical debates that have shaped congressional oversight of financial institutions and markets. Congressional oversight of financial markets and institutions normally focuses on particular issues, rather than normative evaluations of the whole industry, but history suggests that questions about the value of certain financial activities to those who do not profit from them directly are not far below the surface. (The authors, like others who study this area, use credit to the private sector as a proxy for the size of the financial sector and of a country's financial development.) point to two possible mechanisms to explain how a large financial system could be a drag on economic growth. Decades before the financial crisis, Nobel Prize-winning economist James Tobin expressed similar concerns that "we are throwing more and more of our resources, including the cream of our youth, into financial activities remote from the production of goods and services, into activities that generate high private rewards disproportionate to their social productivity." Costs of Financial Crises

Recent research by Carmen Reinhart and Kenneth Rogoff describes the cost that society bears when financial instability leads to a financial crisis. Experience of the crisis has shifted popular views of the financial sector and provides part of the impetus for anti-Wall Street demonstrations. The research summarized in this report may represent the beginning of a revaluation of the role of finance in the economy, but, in the words of Nobel Prize-winning Economist Robert Solow, "no blanket statement is possible."
Wall Street and Main Street—the financial system and the real economy of goods and services—are bound together. If businesses large and small had to fund investment projects out of their own pockets, society would be significantly poorer. The financial system aggregates the savings of millions of households and allocates them to the most productive uses. The importance and value of this function are almost universally acknowledged and are axiomatic in market economics.
Nevertheless, the benefits of certain forms of financial intermediation to the real economy are not always apparent. American politics has a demonstrated history of attacks on Wall Street and financiers whose great personal fortunes appear disproportionate to their contribution to national prosperity. This tradition, which goes back at least to Thomas Jefferson, accuses high finance of siphoning off resources that could be better used elsewhere. A recurrent critique is that "swapping pieces of paper" is not only less useful than, but morally inferior to, actual production of goods and services, and that great concentrations of wealth represent a threat to democratic values. For all their lack of a unified, coherent program, the Occupy Wall Street protestors can be seen as the latest in a long series of anti-financial sector critiques.
This report presents examples of political statements about the fundamental costs and benefits of finance and recent economic research that points to aspects of financial activity that may not be advantageous to the real economy. The report does not attempt a comprehensive survey of either literature, but provides a reminder of the breadth of the historical debates that have shaped congressional oversight of financial institutions and markets.
Some of the political remarks excerpted here strike the theme of conflict between the real economy and the paper profits derived from financial speculation, and include claims that the temptations of the latter draw resources away from the former, or that speculators misappropriate the rewards that would otherwise accrue to hardworking businessmen, farmers, and wage earners.
Apart from the normative judgments of political and populist outcry, economists have expanded on prior research that focused on finance's contribution to economic development to study whether an excessively large and complex financial system could be a drag on a country's economic growth. Among the questions raised are the following:
When the volume of financial activity passes a certain threshold, does it have the potential to lower the rate or destabilize the pattern of growth? Do incentives to ignore long-term risks in search of short-term profits produce financial instability, leading to crises that may trigger deep recessions? Do the complex products of financial innovation yield any significant benefits to the real economy, or simply new opportunities for speculation? and Does growing income inequality, driven in part by financial sector compensation, have negative implications for the economy?
The research summarized in this report may represent the beginning of a revaluation of the role of finance in the economy, but much difficult work remains to be done before general statements can be formulated. This report, which will not be updated, attempts to show that the basic questions raised by Occupy Wall Street about the value of certain forms of financial activity are not new.