Predatory Financialization: Understanding Inequality: Part V – Paul Krugman/Stone Center
Key points:
- After 1980 the U.S. economy experienced a surge in financialization — defined both by the fact that it was devoting much more of GDP to finance and by an increased role of the financial industry in business decisions more generally
- There is little evidence that this financialization was good for overall economic performance. It looks more predatory than productive
- Financialization directly contributed to rising inequality via the very high incomes earned by the financial elite
- Financialization also contributed indirectly to inequality by inducing the widespread breach of implicit contracts that had previously softened corporations’ focus on profits and only profits. In addition, it directly increased inequality through the financial crisis of 2008-2009, in which subprime mortgages were marketed to low- and middle-income home buyers.