Income Dynamics, Economic Rents, and the Financialization of the U.S. Economy

Abstract

The 2008 collapse of the world financial system, while proximately linked to the housing bubble and risk-laden mortgage backed securities, was a consequence of the financialization of the U.S. economy since the 1970s. This article examines the institutional and income dynamics associated with the financialization of the U.S. economy, advancing a sociological explanation of income shifts into the finance sector. Complementary developments include banking deregulation, finance industry concentration, increased size and scope of institutional investors, the shareholder value movement, and dominance of the neoliberal policy model. As a result, we estimate that between 5.8 and 6.6 trillion dollars were transferred to the finance sector since 1980. We conclude that understanding inequality dynamics requires attention to market institutions and politics.

Financialization Is Marketization! A Study of the Respective Impacts of Various Dimensions of Financialization on the Increase in Global Inequality

“…This means that the increase in inequality is due not only to the increase in the share of the financial sector in total profits but, moreover, to the increase in the share of finance in total wages. This result contrasts with those of Tomaskovic-Devey and Lin (2011), who show for the United States that two-thirds of the increase in the financial rent results from higher financial profits.…”

The Rise of the Super-Rich

“…The government's failure to regulate innovations in the financial sector reflects policy drift that facilitated the proliferation of financial asset bubbles (Hacker and Pierson 2010). Scholars have long noted the rising dominance of the financial sector (Foster and Magdoff 2009;Krippner 2011;Tomaskovic-Devey and Lin 2011), and our study demonstrates its connection to the concentration of income.…”

“…Probably the most important is the financialization of the economy and the performance of financial markets (Epstein and Jayadev 2005;Foster and Magdoff 2009;Henwood 1997;Krippner 2011). This is likely important for explaining the rise of the superrich because of the shift of income and profits toward the financial sector (Dumenil and Levy 2004;Tomaskovic-Devey and Lin 2011) and the fact that ownership of stocks and other securities are highly concentrated among top wealth holders (Kennickell 2009). 6 Looking at various rankings of top income earners, much of the new money since the early 1980s has been accrued from the financial sector (Foster and Holleman 2010;Henwood 1997;Kaplan and Rauh 2010), supplanting the once dominant oil and gas sector.…”

“…7 After the precipitous drop in stock prices in 2000, the next bubble occurred in real estate. As a result, the financial sector saw a vast increase in the mortgage market and securitization of home mortgages into mortgage backed securities that could be bundled and traded as derivatives (Johnson and Kwak 2010;Tomaskovic-Devey and Lin 2011). Given the concentration of stock and bond ownership among the wealthiest income units, prices of stocks and homes should disproportionately benefit the richest 1 percent.…”

Shareholder Value and Workforce Downsizing, 1981–2006

“…In pursuit of greater returns, institutional investors have begun to challenge corporate management and have brought about a new paradigm for how firms should be run, based on the notion that the sole goal of publiclytraded companies is to maximize returns to shareholders (Fligstein and Markowitz 1993 determine whose interests should be given priority (Dobbin and Dowd 2000;Fligstein 1990;. 2 The rise of the shareholder-value paradigm in the 1980s in particular has had profound implications for class dynamics in the American workplace-for example, an unequal distribution of power and wealth between owners and workers in favor of the former (Fligstein and Shin 2004;Tomaskovic-Devey and Lin 2011).…”