Financial Roulette – America Loses

Twenty percent of the American economy is the financial sector, the largest proportion in all of history.

For most of American history, banking was a vital part of economic growth. Bank loans provided the capital for small businesses and government to build factories, stores, highways and other public works. This is no longer the bank’s major function. While bank lending is still a critical part of the function of banks as far as the welfare of the nation is concerned, the profits are elsewhere.

It is hardcore speculation, casino capitalism, where the real money is made. This is not wealth creation, it is more similar to the board game, monopoly, you try to make money speculating on property although in the modern sense this is more likely stocks, mutual funds, derivatives, etc. This is not a benefit to the economy. It is a drag and a danger to the larger economy. When the financial sector loses, the taxpayer picks up the losses, while taxpayers share nothing in the winnings. This is because the nation insures deposits and because changes in the law in 1999 allows banks to speculate with these federally insured funds – Corporate welfare on a scale of trillions of dollars.

This gambling has far reaching societal effects. Those who benefit from this no way to lose game make more and more money while those who insure them against loss make less and less.

From the New York Times Article – Scrutinizing the Elite, Whether They Like It or Not

Olivier Godechot, a French academic on the sociology panel, presented research that quantified just how skewed the increase in wealth at the very top has become. Mr. Godechot, a researcher at the National Center for Scientific Research in France, said that two professions — finance and business services — accounted for almost all of the increase in income inequality.

Professor Godechot has put his finger on it. Our society has focused, fixated on finance as the only mode of economic growth. Everything else from services to manufacturing are poor relations whose share in the wealth and even the concern of the government continues to dwindle.

Because of these changes we have an enormous inequality of income in the United States. From wikipedia

Americans have the highest income inequality in the rich world and over the past 20–30 years Americans have also experienced the greatest increase in income inequality among rich nations. The more detailed the data we can use to observe this change, the more skewed the change appears to be… the majority of large gains are indeed at the top of the distribution.

The big incomes in America are strongly aligned with the world of finance. So, many of the great incomes in the United States are associated with a socially negative activity that not only produces no value to the large economy but actively endangers the economy through its taxpayer guaranteed bets.

It this wasn’t bad enough, hundreds of thousands of graduates from the most expensive and prestigious universities in the United States pursue careers in this field often starting at a quarter of a million dollars in annual salary, a massive diversion of talent from every other field of endeavor. So, our focus on finance weakens the nation and diverts its future leadership into the same unproductive path resulting in further devastating losses to society as a whole.

What can be done? Well, we could consider making things. We could make actual products in this country, televisions, stereos, building materials, etc. We could base our economy on things of value. We could rise in morality and ethics to a point where the idea of making money by financial speculation becomes an abomination to any upright citizen with even a smattering of civic conscience.

We will do it. Either by choice or by necessity.

You see, the financial way of making money, this casino capitalism, when applied to a society as large is a disaster that unfolds over the years. It hollows out a society diverting the money that would have built manufacturing and countless other useful investment, diverting the young from useful and productive enterprise and diverting the attention of society away from the important endeavors of life and nation building and into a life of profit based on speculation. Why work, when you can gamble with other people’s money?

When this cardboard edifice falls, once again we will find virtue in the making of value.

James Pilant