Is the US rejecting 'financialization'?

Probably not, but we might be making a dent.

According to Bard College School of Economics, financialization is a “process whereby financial markets, financial institutions, and financial elites gain greater influence over economic policy and economic outcomes.”

Sound familiar? Part of this is a natural process — the US has a staggering amount of wealth: $151 trillion as of 2024, and about 50% of that wealth is financial (i.e. stocks, mutual funds, 401ks, pensions, etc.). Therefore, as that value grows, it only makes sense that a growing portion of the economy would be devoted to managing that paper wealth. In the late 1980s, about 32% of wealth was financial; today, 50% of wealth is financial.

Interestingly, it seems that the federal government’s “book value” has trended towards financial assets, as well. Government tangible assets (buildings, structures, military bases and equipment, etc.) used to be valued at over 40% of GDP, but that number has shrunk to less than 17%. Conversely, government financial assets used to be less than 15% of GDP, but that number has grown to nearly 25%. This trend really accelerated after the 2008 financial crisis.

So is this trend starting to change? Maybe! Many have written on the explosion in manufacturing spending. Industrial policy is back in a big way thanks to landmark legislation like the 2021 Infrastructure Investment & Jobs Act, the 2022 CHIPS and Science Act, and the 2022 Inflation Reduction Act.

These laws should add enormous amounts of tangible-good producing capacity to the economy (I say should because it’s still a big question if government can actually deliver). But, as more capital, intellect, and energy is devoted “real” stuff, it is reasonable to expect that less resources are devoted to financial services. The long trend towards financialization might be bending back towards healthier levels.

Sorry, Davis Clarke. But maybe your spreadsheets can be put to better use elsewhere.