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I'm watching a video that claims that 40% of the US economy is made up by the financial sector. It then goes on to talk about the Financial crisis of 2008, so I would assume it's referring to pre-crisis levels. Is that true?

  • "40% of the US economy" sounds rather vague anyway. How would it be measured? – David Thornley May 1 '11 at 16:35
  • Around 3:05 in the video - no source – Henry May 1 '11 at 17:18
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    As I understand it, the claim was that the financial sector made of 40% of the earnings of the S&P 500 companies (a subset of the U.S. economy), not the whole U.S. economy. This would include the "captive" finance operations of "industrial" companies like GE Capital and GMAC. (I can't find the figures prove or disprove this, however. – Tom Au Sep 20 '11 at 16:37
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The most standard way of looking at how much of the economy any given entity comprises is to compare the value of its production to the Gross Domestic Product (GDP) of the country for the same time period. From this perspective saying that the financial sector accounts for 40% of the economy would seem to be far overblown. This NYU study includes a comparison of the size of the financial sector to GDP right up to the finiancial crisis, and the financial sector maxes out at about 8% of GDP.

financial sector as GDP

The video by postcarboninstitute doesn't give any hint as to what metric they are using, but the most likely one I could come up with with is that companies in the financial sector made up 40% of all corporate profits in the years before 2008. The problem is that corporate profits are not "the economy" -- in fact all corporate profits last year amounted to about $1.6 trillion (I couldn't find numbers that were Q4, but it probably won't change much), while the total annual GDP was close to $14 trillion.

None of this is to make a judgement on whether or not this is a good state of affairs, but postcarboninstitute should have probably phrased that statistic differently for the sake of clarity.

  • +1 wish I could upvote more for the clear distinction between share of GDP and profit. – matt_black Feb 23 '12 at 16:50
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No, the 40% figure is not true.

These figures from the Bureau of Economic Analysis in the US Department of Commerce suggest that in each year over the last decade the finance and insurance industry made up about 7.2%-8.4% of GDP ("value added" is the technical term) and 4.5% of employment.

Widening this to finance, insurance, real estate, rental, and leasing gives between 19%-22% of GDP and about 6% of employment.

More tables here if anyone is interested.

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