Jun 12 2013

Financialisation as a cause of economic malaise. The Finance Curse, by other names

Posted by: Nick Shaxson in: Thoughts

That’s the title of a new article on the New York Times’ Economix blog, which is an case study in what happens when an economy, such as the United States’, sees financial services grow above its optimal size. It tallies extremely closely with our Finance Curse analysis. It contains references to research I wish I’d inserted into the analysis, such as one by Ozgur Orhangazi (whom I interviewed for an earlier story,) which has found that, as Bartlett explains:

“Investment in the real sector of the economy falls when financialization rises. Moreover, rising fees paid by nonfinancial corporations to financial markets have reduced internal funds available for investment, shortened their planning horizon and increased uncertainty.”

The new article is subscription-free, concise, well explained, and generally well worth reading.

2 comments so far

Franklin Scrase 6th June, 2013 8.52 am

It would be interesting to see comparable research for the UK, both the expansion of financialisation by sector as % GDP value added and its relative impact on productive investment and income distribution. It would also be interesting to understand the extent that tax avoidance has played in facilitating financialisation. There is clearly a link, but a sound measure of the significance and a sound mechanistic explanation would be useful. Lastly, it would be interesting to have a measure of the impact of finacialisation on the ability of pension funds to meet their long term obligations, looking at the impacts on productive investment, labour and social and physical infrastructure. Getting these things pinned down is going to be essential to driving reform.

Nick Shaxson 6th June, 2013 10.49 am

Excellent questions. And I intend to look at these soon – though it will be at least a year before I’m able to say anything sensible on this, I think.

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