Productivity—the value that each worker creates in the economy, which, along with demographics, is basically the driver of economic progress—declines in markets with rapidly expanding financial sectors. What’s more, the industries most likely to suffer are those, like advanced manufacturing, that are most critical for long-term growth and jobs. That’s because finance would rather invest in areas like real estate and construction, which are far less productive but offer quicker, more reliable short-term gains (as well as collateral that can be sold in crisis or securitized in boom times).
In 1984, the Nobel Prize–winning economist James Tobin, a former member of Kennedy’s Council of Economic Advisers and mentor to current Fed chair Janet Yellen, gave a talk on the “casino aspect of our financial markets,” in which he lamented both the trend of financialization and the way in which technology was facilitating it, rather than actually strengthening the economy as a whole. “I confess to an uneasy Physiocratic suspicion…that we are throwing more and more of our resources, including the cream of our youth, into financial activities remote from the production of goods and services, into activities that generate high private rewards disproportionate to their social productivity,” he said. “I suspect that the immense power of the computer is being harnessed to this ‘paper economy,’ not to do the same transactions more economically but to balloon the quantity and variety of financial exchanges. For this reason perhaps, high technology has so far yielded disappointing results in economy-wide productivity.”
The start of the 1980s, personal savings as a percentage of GDP was about 12 percent; by 1999 it had free-fallen to near 2 percent, as people took on second mortgages, home equity loans, more credit card debt, and other kinds of personal credit lines to fuel consumption.
==Makers and Takers: The Rise of Finance and the Fall of American Business (Foroohar, Rana)
US productivity slips for first time in three decades. Productivity is set to fall in the US for the first time in more than three decades, raising the prospect of persistent wage stagnation and the risk of a further populist backlash.Research by the Conference Board, a US think-tank, also shows the rate of productivity growth sliding behind the feeble rates in other advanced economies, with gross domestic product per hour projected to drop by 0.2 per cent this year.