Oren Cass, the chief economist at the conservative populist think tank American Compass, is completely on the money in his New York Times column attacking the financial sector. The financial sector is a massive source of waste and corruption, which has grown like a cancer on the economy over the last half century.

Just to get some orientation: Finance is essential to the economy, which I’m sure Cass would never dispute. We need the financial sector to carry through transactions and to allocate capital. But finance is not an end product like housing or education, which directly provide benefits to people. For end goods and services, we can somewhat crudely say “more is better.”

Instead, finance is an intermediate good, like trucking. In both cases the sectors are essential to the economy, but we want them to be as small as possible, so we are not wasting resources. If the trucking sector had quintupled relative to the size of the economy over the last five decades, as has finance by some measures, there would be no problem recognizing it as inefficient. But with finance, the leadership of both political parties seems just fine with the enormous waste in the sector.

Cass has a great set of proposals for downsizing finance which I will expand upon a bit. First a modest financial transactions tax, like the sales tax most of us pay when we buy food or shoes, is a great place to start. A tax of 0.1 percent on the purchase or sale of a share of stock is not going to harm the ability of companies to raise capital in financial markets.

Even this small tax will discourage a huge amount of pointless trading, while having no negative impact on companies’ ability to raise money in financial markets. It would also raise a substantial amount of revenue. A tax of this size, with scaled taxes on bonds and derivatives, could raise around $160 billion a year or 0.5 percent of GDP. That’s 60 percent more than what we spend on food stamps each year. And this money would come almost exclusively at the expense of excessive trading, not out of the pockets of investors.

Next it would be great to cut down on abuses by private equity firms. A great start would be changing bankruptcy law so that private equity firms are responsible for the liabilities of the companies they control and push into bankruptcy. Companies controlled by private equity firms go bankrupt at ten times the rate of other companies. Bankruptcy should not be a path towards increasing profits.

Public pension funds should also be forced to disclose the terms of their contracts with private equity firms, as well as their returns. There is considerable evidence that these pension systems are throwing money in the garbage with the fees they pay private equity companies. There is a similar story with university endowments and hedge funds. The vast sums wasted with these fees are concealed by the secrecy of these contracts.   

Workers also waste tens of billions annually in paying excessive fees on retirement accounts. This can be drastically reduced if all employers offered workers the option to pay into a low-cost publicly managed fund, similar to the federal employees’ Thrift Saving Plan.

We should also get rid of the carried interest tax deduction. It makes no sense to allow private equity and hedge fund partners to hide their pay as capital gains, thereby cutting their tax rate almost in half.

It also would be good to revitalize the Consumer Financial Protection Bureau. This isn’t just about helping the victims of scams. From an economic standpoint, it is a huge waste to give highly educated lawyers and accountants incentives to develop complicated schemes for ripping off customers. If consumer protection laws were seriously enforced, with real penalties, fewer companies would look for profits in this direction. 

Also cutting down on the possibilities for tax gaming would reduce the resources devoted to this entirely wasteful industry. A simple way to do this would be to replace the corporate income tax with a grant of non-voting shares. This would mean that if we’re targeted a 25 percent corporate tax rate, we require companies to turn over an amount of non-voting stock equal to 25 percent of total shares. These shares would be treated like any other shares with dividends and buybacks but would not get a vote. This would mean that the only way a company could cheat the government out of its tax payments is if it also cheated its shareholders.

While Cass is on target in pointing to the waste and abuse in the financial sector, the big question is where is the rest of the economics profession? Supposedly, eliminating waste and corruption was the mantra of “free trade” neo-liberals. But the massive waste and corruption in the financial sector is easy for anyone with clear eyes to see. 

Yet nearly all the great economists involved in public policy debates managed to miss it. Maybe it has something to do with the fact that the autoworkers and textile workers who lost their jobs to trade have less money to pay economists than Wall Street bankers and hedge fund types, but I’m just spit balling here.