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marmar

(76,985 posts)
Sat Jul 5, 2014, 10:42 AM Jul 2014

Why the Shift from Production to Speculation?

from Dollars & Sense:


Why the Shift from Production to Speculation?
BY ARTHUR MACEWAN | MAY/JUNE 2014


Dear Dr. Dollar:

Why has our economy switched so greatly away from manufacturing that produces real goods and services that provide real value and towards speculative, financial activity—everything from mergers and acquisitions to derivatives, off-shore tax shelters, and other scams?

—Glen W. Spielbauer, Dallas, Tex.


The rising role of finance has certainly had all of these impacts (the “scams” you mention). Also, the switch to finance was at the center of the housing bubble, the collapse of the bubble, and the onset of the Great Recession. The switch to finance, however, was not a switch of the economy as a whole; that is, financial firms do not account for a growing share of output (GDP) or employment. The long-term decline in manufacturing has been balanced by the expansion of “services that provide real value”—education and health care, for example.

The switch to finance is a switch in terms of where profits are being obtained and, along with the profits, very high salaries. In the late 1960s, profits of financial firms accounted, on average, for less than 14% of all U.S. corporate profits. In the years 2000 to 2012, financial firms were taking in 30% of corporate profits. In 2004, they peaked at 42.5% of corporate profits. (See graph.) Financial firms’ profits, however, have been volatile: In 2008 their share plummeted to only 10.2%. The 2004 and 2008 figures represent the highest and lowest shares of corporate profits obtained by the financial industry since at least 1965. Since 2008, the financial share has risen back up to over 27%.

Profits of Financial Firms, Percent of All Corporate Profits, 1965–2012


Several factors, intertwined with one another, account for the rise of financial profits. One factor has been the generally slow growth of the U.S. economy since the 1960s. Slower growth reduced the opportunities within the United States for profitable investments in real production. So firms and people with money shifted towards financial investments.

At the same time as the economy was growing less rapidly, a larger share of income was being captured by people with high incomes—apparent in both the greater income inequality among households and the smaller share of income going to labor as opposed to capital (i.e., profits, rent, and other forms of property income). So as opportunities for profits from real investment were poor, firms and wealthy people had more money to invest. ...................(more)

The complete piece is at: http://www.dollarsandsense.org/archives/2014/0514macewan.html


10 replies = new reply since forum marked as read
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Why the Shift from Production to Speculation? (Original Post) marmar Jul 2014 OP
Three words: Brigid Jul 2014 #1
Bingo. moondust Jul 2014 #5
Tax laws House of Roberts Jul 2014 #2
b/c it's legalized stealing -- that's why the shift from production to "speculation" nashville_brook Jul 2014 #3
We're a species that does not enjoy limits The2ndWheel Jul 2014 #4
the brokers took over the government, and their allies therein (in all parties--and not just in US) MisterP Jul 2014 #6
It's pretty simple from a Marxist perspective.... socialist_n_TN Jul 2014 #7
He who controls the money gets the money (nt) muriel_volestrangler Jul 2014 #8
Excellent thread. Thanks Populist_Prole Jul 2014 #9
du rec. xchrom Jul 2014 #10

moondust

(19,917 posts)
5. Bingo.
Sat Jul 5, 2014, 11:33 AM
Jul 2014

Richer faster! Richer faster! Richer faster!

It's a gold rush!!!

To Hell with broad-based prosperity!!!!




Oh, and to some degree saturated markets for material goods.

House of Roberts

(5,122 posts)
2. Tax laws
Sat Jul 5, 2014, 10:53 AM
Jul 2014

We tax 'sit on your ass' income lower than 'get out there and make something' income. Think Mitt Romney for the former.

We could also tariff cheap-made foreign products like we used to do.

nashville_brook

(20,958 posts)
3. b/c it's legalized stealing -- that's why the shift from production to "speculation"
Sat Jul 5, 2014, 11:10 AM
Jul 2014

my god, we saw in the S&L crisis, the dot.com bubble, and the housing bubble. there's not one breath of difference b/c we never prosecuted the criminals or changed the rules of the game.

the robbery will continue until we get leadership willing to reign it in. period.

The2ndWheel

(7,947 posts)
4. We're a species that does not enjoy limits
Sat Jul 5, 2014, 11:32 AM
Jul 2014

Trading pigs and chickens, to gold, to paper money, to digits on a screen.

We get more and more abstract as time goes by. Less to do with the physical body, and more to do with the mind.

MisterP

(23,730 posts)
6. the brokers took over the government, and their allies therein (in all parties--and not just in US)
Sat Jul 5, 2014, 02:54 PM
Jul 2014

rebuilt the economy to suit them, so you get asymptotic markets decoupled from actual value produced, flat wages, economic vapor lock, and other problems far, far deeper than any boom-and-bust cycle: remember, the Reagan administration admitted in 1981 that trickle-down was just to give the economy back to the wealthy after Hoover and FDR stole it from them, and not to improve the economy

the Fordist model was unsustainable, cripplingly dependent on gas remaining under 50 cents, and so ideological it was quite dangerous (remember, they would gladly commit a hundred million Silkwoods if it was for Progress And The Greater Good)--but the new fincancier-and-rentier model is far, far worse than anything conceived before

you can even see the split in suburbs: pre-1980 'burbs may be a cookie-cutter, sprawling Ponzi scheme full of paranoid, pesticide-spraying Wallace voters cycling from strip ball to bowling alley--but there's room to play, the houses were actually DESIGNED by someone and invited you outside of the walls), and frankly the neighborhoods can look beautiful as the sun sets and the stars come out; the postwar houses are still around and doing moderately well, in fact, and they'll be the burbs left standing at $500/barrel

80s, 90s, and 00s are all close-packed, steroidal, isolated, flat-walled, hunchbacked, two- or three-storied McMansion messes with a useless strip of garden you can't grow a tree in; they lack both character and the ability to acquire it; there's no place to play or unwind outdoors, and the kids are driven from school to soccer to Chipotle without ever seeing a schoolbus or even a curb: they're "machines for living," and not good ones since they're already starting to sag and crack on the inside; but again these houses are built as investments, not living-spaces, and they're mere investments to the developers as well--and once these overleveraged, unwalkable near-row-houses implode (the new burbs are still 25-33% foreclosed, and full of unemployment and drugs) the developer can just sit on the land as everyone moves closer to work/shops/freeways--thus profiting at both ends; even the mortgages were declared inflation-proof and gambled upon

everything problematic about suburbia has been bloated and hypertrophied past recognition because the markets are given full rein without regard to the sheer materiality of land and house: they're intended to be bought with borrowed money and then resold, transitory places on your way elsewhere; suburbia in fact has ceased to offer privacy, light, air, or yards

it's frankly part of the US's uglification: the bottom-liners took over and even airline seats and service shrank; just as back in the 90s we thought that the Spice Girls were the worst thing the music machine could do to us, so in the 40s we thought Levittown was the lowest we could sink; something may've gone out of the country with Reagan's inauguration--but there's no reason we can't fight!

http://bigthink.com/strange-maps/571-the-great-indoors-or-childhoods-end
http://www.dailymail.co.uk/news/article-462091/How-children-lost-right-roam-generations.html
http://en.wikipedia.org/wiki/Trick-or-treating#Trunk-or-Treat

socialist_n_TN

(11,481 posts)
7. It's pretty simple from a Marxist perspective....
Sat Jul 5, 2014, 03:07 PM
Jul 2014

The rate of profit falls in the productive sectors, so as far as reinvestment goes, the profit that IS made finds it's own level. And that level is the highest rate of return and that's in the rentier sector. IOW, making money off of money pays off better than making things.

This will hold true until they bring down labor costs (remember they ALWAYS tell us that labor costs are their biggest hindrance to making profit) to the point where they can make MORE by reinvesting in the productive sector than they can by reinvesting in the financial sector.

Welcome to capitalism.

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