Philippon's Theory

Philippon's Theory suggests that the quality and productivity of financial services can decline when the financial industry becomes too large or complex. As finance expands and consolidates, it may focus more on internal activities, like trading or managing assets, rather than providing useful services to the real economy—such as financing productive businesses or supporting innovation. This shift can lead to increased costs, reduced efficiency, and a distorted allocation of resources, ultimately harming economic growth. In essence, Philippon warns that an overly dominant or bloated financial sector might undermine its own purpose and the broader economy's health.