04/14/2012 11:01 am ET

Wall Street More Expensive, No More Efficient Today Than A Century Ago

Wall Street is making more money than ever, but it's that's not because it's getting the job done much better.

The financial system of today is just as good at transferring money from savers to borrowers as it was in 1910, according to research from New York University economist Thomas Philippon. In fact, the Wall Street of 1900 was producing loans, bonds and stocks just as well as the finance industry of 2010 -- and doing it more cheaply when considering cost per dollar of assets.

Philippon notes that all of this inefficiency is true of today's Wall Street "despite its fast computers and credit derivatives," which might seem strange given how most other industries typically react to advancements in technology. Hint: they usually get more efficient, and their services cheaper.

As Timothy Noah of the New Republic notes, citing Philippon's data: "Wal-Mart uses technology to increase sales volume, but the more it does so the more it drives down profit margins -- its own and everybody else's."

So why has Wall Street gotten so inefficient, flying in the face of market theory? Philippon offers one possible reason: Technological advancements have actually increased trading activity, which makes more money for Wall Street, but doesn't do anything for its efficiency.

Philippon's latest findings echo his earlier research. Wall Street wastes an estimated $280 billion per year, according to a paper from Philippon published last year. But despite the inefficiency, the industry doubled in size between 1980 and 2010.

What's more, the financial services sector is now bigger than it was before the financial crisis. Wall Street accounts for 8.4 percent of America's gross domestic product, a greater share than in 2006 and one of the biggest percentages in history.