Financialization: Causes, Inequality Consequences, and Policy Implications
Donald Tomaskovic-Devey and Ken-Hou. 2014. "Financialization: Causes, Inequality Consequences, and Policy Implications." North Carolina Banking Institute Journal. Volume 18
28 Pages Posted: 3 Mar 2014
Date Written: March 2, 2014
The U.S. is now a financialized economy, where the financial sector and its priorities have become increasingly dominant in all aspects of the economy. We focus on financialization is a process of income redistribution with two faces. The first face is one of rent seeking by an increasingly concentrated and politically influential finance sector. This rent seeking has been successful, leading to the pooling of profits and income in the finance sector. The second face is a shift in behavior of non-finance firms away from production and non-financial services and toward financial investments and services. This shift has had both strategic and normative components and has reduced the bargaining power of labor and the centrality of production. As a consequence, financialization of the non-finance sector has led to lower employment, income transfers to executives and capital owners, and increased inequality among workers. We discuss the policy implications of these consequences at the end of this Article.
Keywords: financialization, financial services, main street, income distributions, systemic risk
JEL Classification: D21, D31, E22, E24, E44, E50
Suggested Citation: Suggested Citation