The Changing World of Work: Financialization, Income and Security
The Millennial Generation, if we’re to believe various polls, aspires to either make boatloads of money on Wall Street, or secure a can’t-be-fired job in the government. Given the dominance of finance and an economic backdrop of rising insecurity, these are rational choices.
But all those Millennials hoping to work for Goldman Sachs does raise a question: when did playing financial games become so much more profitable than producing goods and services?
And that raises another question: is the dominance of the FIRE sectors (finance, insurance, real estate) permanent or cyclical?
In the 40 years since the early 1970s, finance and insurance have doubled their share of the GDP. Note that since GDP has expanded many times over since 1935, the nominal size of financial services has soared.
Financialization really only took off, however, in the early 1980s. Broadly speaking, financialization is the substitution of debt for income and the commoditification of debt into financial instruments that could be sold globally, leveraged and hedged with derivatives.
Another way to describe the same dynamic is: financialization results when leverage and information asymmetry replace innovation and productive investment as the source of wealth creation.