Counterparties: The American growth divide
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The worldâ€™s plutocrats are currently heading to a more â€śdynamically resilientâ€ť — and possibly more complacentÂ – Davos. Donâ€™t expect much introspection, and definitely donâ€™t expect much debate on the hard-to-define â€śvalue of financeâ€ť.
At the DLD Conference in Munich today, Peter Thiel had an interesting take on the rise of financial services. Americaâ€™s past 80 years, he said, can be divided into two periods: From 1933 to 1973, real incomes rose 350%; from 1973 to 2013, they rose just 20%. While Americans have remained optimistic about economic growth, Thiel thinks theyâ€™ve become uncertain about its sources. That uncertainty, Thiel says, drives Americans to try to benefit from the economic value of others rather than creating it themselves. Because of this, investing in markets generally takes priority over funding specific businesses.
Thielâ€™s theory of how America prefers to take risks may help explain why the financial reform has been so slow. Washington has been working on finalizing the Dodd-Frank financial reform laws for four years, and it will be another four before we know if it worked, the Washington Postâ€™s Suzy Khimm writes. Along the way, regulators have missed 37% of their rulemaking deadlines. Itâ€™s not that the sweeping Dodd-Frank bill has been delayed in full — Jared Bernstein notes that the Consumer Financial Protection Board is thankfully up and running. But the wait to see the Volcker Rule, in particular, will be a long one, Dan Primack writes: Goldman Sachs has gotten around the rule by simply waiting for it to be finalized.
Thielâ€™s theory also helps explain why todayâ€™s reforms arenâ€™t likely to change financeâ€™s role in the economy, and why the white-collar service sector more broadly is a larger and larger part of GDP. It also provides a structural rationale for Bob Rubinâ€™s twenty years of â€śextraordinary proximity to political powerâ€ť. — Ben Walsh
On to todayâ€™s links:
The case for deficit optimism – Ezra Klein
A conman faked a career as an economist and became an adviser to the World Bank – Independent
Inequality is holding back America’s economic growth – Joseph Stiglitz
Yes, you can have full employment “based on purchases of yachts, luxury cars, and the services of personal trainers” – Paul Krugman
Why financial markets are inefficient – Roger E.A. Farmer