Finance, or Management, or Administration, or any other group of men handing pieces of paper to one another, is valuable to the extent it increases the ability of everyone else to create things of value. And only to that extent. There’s great value in making accurate decisions about where excess capital would be best used. There’s very little value in simply sloshing money around and skimming a bit off for yourself. Statistics tell us most mutual fund managers can’t beat the average – so what exactly are they contributing to earn their salary?

Or take insurance. An insurance company that can effectively pool low-probability/high-impact risk for a large group of people is doing something useful. An insurance company that just acts as a (horribly incompetent) additional billing agency for my family doctor is not.

Wretchard’s 41% figure is astonishing. If you are looking over the prospectus for a company you are considering investing in, one prudent number to look for is the “G&A Expense.” General and Administrative. That’s the management overhead of the company. It should be pretty small – ideally less than 6 or 8%. Small G&A means an efficiently run company. Large G&A means a company with lots of incompetent managers who need hordes of assistants to get anything done. Or else execs who are plundering the company. You can bet that a compnay with a 41% G&A will sooner or later be eaten for lunch by more efficient competitors. To avoid that, the company needs to lay off large segments of it’s bureacracy and fire several execs and middle managers.

The profits of our financial sector (plus the government sector) are our national “G&A” and it indicates we are way, way overstaffed in that area.