The Financialization of the US Economy Should Terrify All Americans

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from 21st Century Wire:

Wall Street road sign with the New York Stock Exchange bearing American flags visible in the background. (Photo: Alex Proimos. Source: Wikicommons)

Hossein Askari
The Globe Post

Although academics have nuanced definitions of financialization, it boils down to the financial sector – such as banks, credit card businesses, and insurance companies – becoming an increasingly larger part of the overall economy. Financialization enriches a select few at the majority’s expense and should terrify all Americans.

The financial sector produces no goods that can be consumed, such as food, clothing, or medicine. As a result, an expanding financial sector without the matching growth of the “real” economic sector transforms productive economic activities to the business of a casino, using real resources but producing no tangible output.

Even more, a rapidly growing financial sector is stoked by borrowed money or debt, something that has historically been the catalyst for financial crises, recessions, and even depressions. If unchecked, the financial sector’s increasing prominence will, in time, damage the real economy and the social fabric of the United States.

Role of Financial Sector

The financial sector sits between savers and borrowers: it takes money from savers and channels those funds those who want to borrow, such as businesses and projects.

The performance of the financial sector depends on how well it carries out two tasks: providing savers with the range of financial instruments they want and channeling savings to the most productive areas, namely, projects with the highest rate of return.

This then supports the growth of the real economy that produces goods and services that can be consumed or invested in, creating high paying jobs and overall prosperity in the process.

Performance of Financial Sector

The financial industry plays an essential role in creating a balanced and high performing economy that includes growth, low unemployment and inflation, stability, and a manageable level of national debt to protect future generations.

Since 1980, the relative size of the American financial sector has about doubled in the overall economy. Now the question is, has the U.S. economy’s real performance increased since then?
In the 1950s and 1960s, the average real annual economic growth rate was above 4 percent, but since 2009, it has been below 2 percent. From 1946 to 1973, real median household income surged 74 percent, but the numbers have not risen significantly for nearly 40 years.

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