Gift link to an article in today’s NYT. Curiously, when I read it a few hours ago the title was “How Capitalists Destroyed Capitalism” (at least that’s how I best remember it.) When I went looking for it again the headline has changed to “The Finance Industry is a Grift. Let’s Start Treating It That Way”
The piece is written by the Chief Economist at a Conservative Think Tank (American Compass), and both liberal and conservative mantras and heroes come in for scorn. I have to say it’s one of the most interesting and insightful pieces I’ve read in recent months.
It begins with a humorous - and explanatory - walk through a song in “Mary Poppins”, and proceeds from there to shred the current “financialization” of everything, to the detriment of, well, what capitalism used to do, which is to build things and make life better.
Now it’s often used to strip assets, defranchise actual builders of things in favor of rent seeking, and widen the economic gaps on which our society is based.
I hope you read it, it’s really that good.
If you’ve taken an economics course — or if you at least enjoy classic family movies — you probably remember the scene: Young Jane and Michael Banks have come to visit the bank where their father works. When the bank’s chairman, Mr. Dawes Sr., snatches Michael’s tuppence, the boy shouts: “Give it back! Gimme back my money!” Overhearing the kerfuffle, a customer assumes the institution is refusing to return a customer’s deposit. Next thing you know, the bank run is on.The incident nicely eases economics students into both the complex plumbing of the financial system and the important and unpredictable role of human psychology in markets. But it’s the preceding scene we care about here. That’s the one where the old bankers sing to Michael that instead of spending his tuppence, he should give it to the bank to “invest as propriety demands” in “railways through Africa” and “dams across the Nile.”
“Tell them about the ships!” Dawes shouts to his fellow bankers. “Fleets of ocean greyhounds … majestic self-amortizing canals … plantations of ripening tea, all from tuppence, prudently, thriftily, frugally, invested in the, to be specific, in the Dawes Tomes Mousley Grubbs Fidelity Fiduciary Bank.”
Not the catchiest song, but a compelling account of the economic engine that powered the British Empire and financed modernity: real, honest-to-goodness banking. People gave their savings to bankers. The bankers invested the capital, creating actual productive assets in the real world. Those useful endeavors generated profits, a portion of which were returned to the bankers, who paid some as interest and kept some for themselves, well earned for their consolidation and productive allocation of resources.
Since Mary Poppins’s day, the financial sector as a whole — investment banks, hedge funds, private equity firms, cryptocurrency platforms and all the rest of it — has exploded as a share of the United States’ gross domestic product. It now claims the highest share of corporate profits and attracts the highest share of top talent from top schools, in part by offering the highest compensation. But actual business investment has declined, to an average of 2.9 percent of G.D.P. over the past decade from 5.2 percent in the 1960s, when the film was released.
