UMass Economist’s Lecture Ponders ‘When Big Is Too Big’

AMHERST — UMass economist Gerald Epstein will offer a new take on restructuring the financial sector as part of his Distinguished Faculty Lecture on Tuesday, March 24, titled “When Big Is Too Big: Do the Financial System’s Social Benefits Justify Its Size?” The third in this year’s Distinguished Faculty Lecture Series, Epstein’s talk begins at 4 p.m. in the Goodell Building’s Bernie Dallas Room. Following his talk, he will receive the Chancellor’s Medal, the highest recognition given for service to the campus.

Epstein will assert that, by virtually any measure, the financial sector has grown spectacularly over the last several decades while failing to promote social well-being. By 2006, financial-sector profits constituted a full 40% of total domestic profits in the U.S. Epstein will argue that, in light of the financial crisis of 2008, the growth of speculative activity in the financial sector has become a continuing threat to the economy’s financial stability.

His research shows that, in the pre-war period, the financial sector did a reasonably effective job in filling a range of socially beneficial roles — including channeling resources into productive investment, providing mechanisms for households to transfer income over time, and helping families and businesses to reduce risk — but that, since the 1980s, financial-sector activity has failed to provide these critical services and, instead, has generated huge profits for the sector itself.

Among the policies Epstein will propose to reduce the volume of speculative trading are taxes on financial transactions, increasing required reserves to offset financial investments gone sour, limiting risk-taking behavior by large financial firms getting public support, and increasing support for “finance without financiers” through credit unions, cooperative banks, and public banks.

Epstein is co-director of the Political Economy Research Institute at UMass Amherst, and was awarded the Chancellor’s Award for Outstanding Accomplishments in Research and Creativity in 2012. His work with graduate student Jessica Carrick-Hagenbarth on conflicts of interest facing academic financial economists who consult for the financial industry was widely reported and helped inspire the adoption of a code of conduct on these issues by the American Economics Assoc. He is currently at work on a book analyzing the appropriate size and functioning of the financial sector, under a grant from the Institute for New Economic Thinking.

A graduate of Swarthmore College who earned a master’s degree in public policy degree and a Ph.D. in economics at Princeton, Epstein taught at Williams College and at the New School for Social Research before joining the UMass Amherst faculty in 1987.

The final lecture in the 2014-15 Distinguished Faculty Lecture Series will be presented on Monday, April 13, as Margaret Riley of the Biology department addresses “Rethinking the Antibiotic Arsenal: New Strategies for the Age of the Microbiome.”