Counterparties: The American growth divide
Welcome to the Counterparties email. The sign-up page is here, itâs just a matter of checking a box if youâre already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.
The worldâs plutocrats are currently heading to a more âdynamically resilientâ — and possibly more complacentÂ – Davos. Donât expect much introspection, and definitely donât expect much debate on the hard-to-define âvalue of financeâ.
At the DLD Conference in Munich today, Peter Thiel had an interesting take on the rise of financial services. Americaâs 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 theyâve 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.
Thielâs 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 Postâs Suzy Khimm writes. Along the way, regulators have missed 37% of their rulemaking deadlines. Itâs 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.
Thielâs theory also helps explain why todayâs reforms arenât likely to change financeâs 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 Rubinâs twenty years of âextraordinary proximity to political powerâ. — Ben Walsh
On to todayâs 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