[lbo-talk] Fitch and Brenner

SA s11131978 at gmail.com
Sat Feb 21 00:33:39 PST 2009


Yann Morvan wrote:


> According to Matthew Nichter, Gerard Dumenil (mentioned earlier) doesn't
> agree with you:
>
> 'One of the authors’ most provocative findings regarding
> "financialization" is that the expansion of financial activity has
> retarded capital accumulation (the growth rate of the fixed
> capital stock).

Whether or not this is true, it's the opposite of the argument I'm disputing. Fitch is saying the decline of capital accumulation (due to waning profitability) caused an expansion of financial markets (as an alternative investment outlet). This says that Wall Street induced the real economy to slow capital accumulation. This argument, whether it's true or not, at least isn't a logical impossibility. The financial markets can potentially affect accumulation rates through the price signals they generate.


> In both the U.S. and Europe, non-financial corporations’
> investment in plant and equipment continues to be funded overwhelmingly
> through profits generated by their own non-financial production
> activities.

This is definitely true - and full credit to Doug for having pointed to it 13 years ago in _Wall Street_. But this is not the same argument either. This means that in the aggregate, the real economy doesn't need that much help from the financial sector to fund investment. It doesn't say that the financial markets drain investment from the real economy.

It should also be noted that most real investment is carried out by big, successful corporations. By definition, such firms don't need much external finance since they generate a lot of internal profit. It's smaller, newer firms that need finance to survive, and while they don't add up to a big proportion of real investment, they're important systemically because, guess what - all those big, successful corporations that don't need finance were once young, small firms that did need finance.


> Very little capital invested in the financial sector is
> ultimately routed to the non-financial sector, and non-financial firms’
> own financial operations contribute virtually nothing to their productive
> capacity. In this respect, finance functions as a parasitic drain on the
> “real” economy.'
Can someone please explain which resources finance has parasitically "drained" from the real economy? I've already provided numbers showing that finance has not drained energy, manufactured goods, services, or labor from the real economy. What resources are we talking about then? It's weird to me that I've ended up appearing to defend finance, when I'm the one who wrote on the list not long ago that the elephantization of finance is one of the worst developments of the past 30 years. But everyone needs to understand that that elephantization does *not* entail the draining of any real resources from the real economy - it's a question of a huge expansion of ("fictional") balance sheets and a resulting shift in *distribution* toward employees and shareholders of financial companies - not a shift in the consumption of society's resources.

Let's please inject some reality into this idea that the real economy has been limping along, starved of investment. Why should we care if there's been underinvestment in the real economy? Presumably because that would slow down productivity growth. Here's overall productivity growth by decade, followed by manufacturing productivity growth by decade. Please, please someone tell me at what point the real economy started getting starved by finance.

nonfarm business productivity 1950s 2.1% 1960s 2.7% 1970s 1.7% 1980s 1.6% 1990s 2.0% 2000-07 2.4%

MFG productivity 1950's 2.8% 1960's 3.3% 1970's 2.3% 1980's 3.7% 1990's 4.6% 2000-2007 3.6%

SA



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