> A larger share of *profits* goes to the financial sector than in the past.
> That does not mean a larger share of *productive resources* has been
> shifted into the financial sector. The chart I posted shows that that has
> not happened -- if anything the opposite has happened.
Here's my conjecture:
The tremendous expansion in financial profits (as a share of all corporate profits) since the early 1980s (more remarkable in the light of stagnant/declining fixed investment and employment from the mid/late 1980s on, as shown in Seth's graph) -- was due largely to sectoral rents made possible by the banking deregulation pursued in earnest after the 1978's Supreme Court ruling on usury laws.
The rents were made possible by the privatization of corporate short-run portfolio management risk/opportunity that the banking deregulation entailed. Most (or at least a very significant chunk) of the profits came from switching back and forth between noninsured and insured short-term deposits in order to circumvent Glass-Steagall. (The finance profit boom in finance predated the repeal of Glass-Steagall, which reinforces my conjecture. The repeal of the gutted-out law just crowned their achievement.)
It was a phenomenon analogous (and causally connected) to the boom of forex financial profits after Bretton Woods fell apart in 1973. I believe that Wall Street smelled the blood and went after domestic banking deregulation using the rents that fell on their laps as a result of the privatization of forex risk/opportunity due to the collapse of Bretton Woods.