FINANCIALIZATION IS A MAJOR U.S. PROBLEM
A DOLLAR EARNED IN RESEARCH MAKES THE ECONOMY $5 BETTER OFF
A DOLLAR EARNED IN FINANCE MAKES THE ECONOMY 60 CENTS WORSE OFF
I have long known and argued that the American Business Model is broken—or deeply flawed, to use a less emotive phrase—but there is surprisingly little discussion about it.
Here, I am strongly critical of President Obama and his economic team for not raising this issue and using the bully pulpit to wake up We The People—if, indeed, that is possible.
Currently, we seem to be in mass denial, politically supine, and wedded to the economic status quo—even while that economic system is making most of us poorer year by year.
The information is out there—and most people are painfully aware of their own circumstances—but there seems to be no mass concern or populist movement probably because neither the media nor the politicians want to talk about it (with the exception of Senator Elizabeth Warren).
The lack of sustained mass media outrage is deeply concerning. It is hard not to form the view that this inaction is deliberate and stems from the ownership and structure of our media.
It makes you appreciate how Hitler got into power—and recall that he was elected. If a democracy ceases to be genuinely interactive—in the sense of our politicians genuinely representing the people—and the media don’t do their job or are muzzled by their owners—then truly bad things can happen—and they are.
Fortunately, the Washington Post is publishing a major series on this mess—and perhaps that will have some impact. Kudos to Jeff Bezos.
The following is an extract from the Washington Post The full piece is well worth reading.
Wall Street is expanding, and the economy is worse off for it.
Written by Jim Tankersley
Photos by Bonnie Jo Mount
Produced by Emily Yount, Dwuan June
Published on December 16, 2014
There’s a prominent theory among some economists and policymakers that says the big problem with the American economy is that a lot of Americans don’t have the talent to compete in today’s global marketplace. While it’s true that the country would be better off if more workers had more training — particularly low-skilled, low-income workers — that theory misses a crucial, damaging development of the past several decades.
It misses how much the economy has suffered at the hands of some of its most skilled, most talented workers, who followed escalating pay onto Wall Street — and away from more economically and socially valuable uses of their talents.
The financial industry has doubled in size as a share of the economy in the past 50 years, but it hasn’t gotten any better at its core job: getting money from investors who have it to companies who will use it to generate growth, profit and jobs. There are many ways to quantify how that financial growth-without-improvement hurts the economy.
In 2012, economists at the International Monetary Fund analyzed data across years and countries and concluded that in some countries, including America, the financial sector had grown so large that it was slowing economic growth. Using a different methodology, the most prominent researcher on the size and economic value of Wall Street, a New York University economist named Thomas Philippon, estimates that the United States is sinking nearly $300 billion too much annually into finance.
Perhaps most starkly put, economists from Harvard University and the University of Chicago wrote in a recent paper that every dollar a worker earns in a research field spills over to make the economy $5 better off. Every dollar a similar worker earns in finance comes with a drain, making the economy 60 cents worse off.
It’s not that finance is inherently bad — on the contrary, a well-functioning financial system is critical to a market economy. The problem is, America’s financial system has grown much larger than it should have, based on how well the industry performs.
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