Wednesday, February 25, 2015

Vampire Squids

They sucked out all the money.
“The health of the financial system might matter less for the real economy than it once did,” writes J.W. Mason, an assistant professor of economics at John Jay College who wrote the paper, "because finance is no longer an instrument for getting money into productive businesses, but for getting money out of them."

If it holds up, that has some pretty serious implications for how the Federal Reserve should go about tending the "real economy" in the future.

Here’s the data at the center of the report: In the 1960s, 40 percent of earnings and borrowing used to go into investment. In the 1980s, that figure fell to less than 10 percent, and hasn’t risen since. Instead of investment, borrowing is now closely correlated with shareholder payouts, which have nearly doubled as a share of corporate assets since the 1980s.
In other words, finance has been a drag on rather than a booster of wealth in the real economy since before someone my age would have even opened his first bank account.  Still, for whatever reason, we're supposed to keep playing the game.  Why?

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