GameStop and the 'financialization' of the economy
The recent GameStop flap has made some Americans think the stock market might just be rigged. It's also caused some to wonder about the relation between the financial sector and the overall economy, including the creative real economy that produces stuff that people actually use, like apparel, consumer electronics, cars, food, etc. Back in 2015 at Forbes, Mike Collins wrote:
A new word has emerged in the lexicon of the new economy — financialization — defined as the "growing scale and profitability of the finance sector at the expense of the rest of the economy and the shrinking regulation of its rules and returns." The success or failure of the financial sector has had serious effect on the rest of the economy and most of its returns have gone to the wealthy[.] ... The emphasis was no longer on making things — it was making money from money. At the same time the manufacturing industry fell from 30% of GDP in 1950 to 10% in 2010. The finance industry swelled as the rest of the economy weakened. The disproportionate growth of finance diverted income from labor to capital. Wall Street profits rose from less than 10% in 1982 to 40% of all corporate profits by 2003.
The growth (and warping) of the financial sector is due in part to the greater number of folks who have waded into the market. And these new traders don't even need a broker; if they have a computer and a modem, they can make trades themselves from home in their jammies. But more sobering than the hike in the number of players is the increased complexity of financial instruments, like credit default swaps; derivatives; options; and, in the case of GameStop, shorts. These exotic instruments are not for the casual investor. Jacob Silverman calls them "baroque." On Jan. 27 at the New Republic, Silverman wrote:
The financialization of the U.S. economy over the last 40 years has been a disaster for most Americans — bringing income inequality, recessions, a housing crisis, and the impression, probably justified, that the economy simply doesn't work for them. It is indeed a giant casino, and like any casino, it's rigged to the benefit of the operators and their partners. No wonder watching hedge funds scramble to cover their positions brings out a perverse pleasure in small-time day traders and socialists alike.
So the word is "financialization," and our concern with it is what it's doing to the greater economy and to the middle and working classes. An interesting observer of this phenomenon is anarcho-capitalist Doug Casey; author of 1980's celebrated Crisis Investing: Opportunities and Profits in the Coming Great Depression. (The only other reference to Casey at American Thinker seems to have been back in 2011.)
Over the last four months, Matthew Smith has been conducting a series of video chats with Casey called "Doug Casey's Take." There are now 77 episodes that cover a wide range of subjects, and the ones I've seen are quite enjoyable. Although these videos are just two guys talking, the "production values" are very good; they're a split-screen, as Casey is talking from South America. The video of interest here is "The GameStop REBELLION" (episode #76), also below.
Smith spends the first 2.5 minutes concisely laying out the GameStop mess and then gives the floor to Casey, who immediately launches into a little history of the ramping up of trading volume:
What it's a sign of, actually, this immense amount of trading, is the financialization of the U.S. economy. And how did that happen? It came to be because of all the money being printed by the Federal Reserve. And it's basically all gone into the financial markets.
But this video is not just about the Fed; it's about the nature of our so-called financial markets, how they affect the economy, and what it's doing to the world. Although Casey looks to have a few decades on his young interlocutor, these guys have a beautiful rapport with each other. Smith is an excellent and an urbane interviewer. I think you'll find this video interesting, edifying, and at times fun:
Jon N. Hall of ULTRACON OPINION is a programmer from Kansas City.