Or we can let the bubble implode under its own weight and have a plan ready to clean house when the dust settles.
Thanks to recency bias, we tend to think the world has always been more or less as it is today. Tectonic shifts beneath the veneer of everyday life escape us unless we make a concerted effort to peel back the veneer of normalcy.
For example, consider the rise of finance as the dominant force in our socio-economic / political status quo. Statistics give us a rough picture of the dominance:
Money: Sound and Unsound
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In 2023, the finance, insurance, real estate, rental, and leasing industry contributed 20.7% to the United States’ gross domestic product (GDP). This is higher than the long-term average of 7.29%. In 1947, the finance industry made up only 10% of non-farm business profits. By 2010, the finance industry made up 50% of non-farm business profits.
The chart below of non-bank financial institutions’ assets as a percentage of GDP (Gross Domestic Product) tells the story: prior to the era of financialization, non-bank financial institutions’ assets trundled along for decades at around 40% of GDP. Recall that “non-bank financial institutions” is shorthand for the mechanisms of financialization, which is the globalized commoditization of everything into a tradable financial instrument.
Labor, capital, risk, currencies, commodities, income streams, real-world assets–everything is converted into a financial doppelganger that can be arbitraged and traded for profit. The actual use-value is no longer the “value” being “created;” the “value” is “created” by generating an entirely abstract financial shadow cast by the collateral of the real world.
This transmogrification of the global economy into a fully financialized shadow-world took off in the early 1980s when financiers were first given access to unlimited credit and the other tools of financialization. Non-bank financial institutions’ assets soon soared from 40% of GDP to 140% of GDP, and in the final blow-off phase of hyper-financialization that we’re experiencing now, these assets are 200% of GDP– five times the pre-financialization era levels that were deemed “widespread prosperity” (the Trente Glorieuses, the 30 glorious years of shared prosperity from 1945 to 1975).
The wealth generated by financialization and hyper-financialization isn’t shared; it’s concentrated in the hands of those with access to credit and and the other tools of financialization, currently epitomized by private equity.
This excerpt from a post on promarket.org illuminates the reality that financialization isn’t cost-free to the economy:
The Politically Incorr...
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“Epstein and Montecino argue that the total cost of the financial system is comprised of rents, misallocation costs, and the costs of the 2008 crisis. Such costs can be divided into two types: transfers and inefficiencies. When combined together, Epstein and Montecino estimate that they total to $688bn a year, or 4 percent of GDP. Cumulatively, from 1990 to 2023, this number would add up to $22.7 trillion.”
Adjusted for inflation, this sum totals $30.2 trillion in today’s dollars–larger than America’s entire GDP of $27 trillion.
The larger point is that an economy that’s dependent on the distortions of financialization for its “growth” and profits is not a stable system; the gross imbalances generated by the distortions undermine its stability, and the system collapses under its own weight once the imbalances destabilize society and the real-world economy.
