The object shown is a governor for an engine. This device was invented by James Watt for use with his steam engine, and has been applied, in one form or another, ever since. It allowed the engine’s use in applications where precise speed control was essential, notably textile manufacturing, and was an invention of great economic and conceptual importance.
It strikes me that the role played by the legal profession and the financial industry is analogous to the role of an engine governor. Like the governor, law and finance are control systems; they are essential enablers and regulators of the activities of the rest of the economy. But also like the governor, the percentage of total system resources that they themselves consume should be reasonably small.
What would we think of a governor that scarfed up 30% of the horsepower of the engine that it was serving? Most likely, we would conclude that it was either poorly designed or inadequately maintained, or both.
There is no question that the legal and financial industries are both vital. Contracts must be drafted, disputes must be adjudicated, and capital must be allocated effectively. But the numbers of people in these industries, and the share of national income devoted to their compensation–along with related expenses such as buildings and computer systems–is perhaps excessive.
1)Would you agree that the legal and finance industries presently represent a more-than-optimal share of the overall economy?
2)If so, what factors have led to this situation? In particular, to what extent is it a function of market failure versus a result of unwise government policy?
3)What, if anything, should be done to correct the situation?