
How the rise of finance has warped our values - petethomas
https://www.washingtonpost.com/news/in-theory/wp/2016/04/22/how-the-rise-of-finance-has-warped-our-values/
======
fanzhang
Imprecise thinking abound. The author starts with talking about the problem of
big banks (fair enough) and then descends into longing for a command economy
[1].

The author laments borrowing money to pay dividends, but the two are net-zero
activities (investors are just shuffling their investment from stocks to
bonds).

The author finally argues that real investment has fallen since the mid-
century. This is not true in a real dollar sense [2]. As a share of GDP
though, investment has fallen from the 1950s because we are no longer rushing
to build up capital destroyed in WWII. As noted by Paul Graham [3] and more
technically by economist Robert Solow [4], it was the decades surrounding WWII
that was the exception and not the rule.

Finally, the finance sector has already been retreating as of circa 2005 [5].
The predicate of the article may then no longer be true. If it is, would the
author agree we're seeing less issues and more social justice now than in
2005?

There are many precise, carefully thought-out treatments of inequality or the
problems of financialization out there. I count Philippon's and Piketty's
research among them. But this article seems to move in fuzzy concept space
between "finance has gone up" and "we don't have a caring command economy".

I wish the author spelled out his thinking more clearly. It sounds like it
would be an interesting argument if made well.

[1] "The state becomes submerged and hidden from our everyday lives, working
through elaborate and blunted market mechanisms rather than helping citizens
directly."

[2]
[https://research.stlouisfed.org/fred2/series/GPDIC96](https://research.stlouisfed.org/fred2/series/GPDIC96)

[3] [http://paulgraham.com/ineq.html](http://paulgraham.com/ineq.html)

[4] [https://newrepublic.com/article/117429/capital-twenty-
first-...](https://newrepublic.com/article/117429/capital-twenty-first-
century-thomas-piketty-reviewed)

[5] Figure 5 of
[http://pages.stern.nyu.edu/~tphilipp/papers/Finance_Efficien...](http://pages.stern.nyu.edu/~tphilipp/papers/Finance_Efficiency.pdf)
Incidentially, Philippon's graph is used by the Wikipedia article on
"financialization" but cut off at the 2005 peak to make it look like an
unrestrained explosion upwards.

------
mdorazio
I agree with the premise of the article, but what is a practical solution? The
financial industry arises naturally from the time-value of money combined with
human greed. Every time something like Dodd-Frank comes along to try and put a
damper on things, people find a way around it or else redirect profiteering in
another direction (like the stock buybacks we've been seeing).

~~~
eli_gottlieb
> The financial industry arises naturally from the time-value of money
> combined with human greed.

Well, no. There are very definite regulatory changes that _allowed_ bigger
banks to eat smaller banks, for instance. I still remember how my parents
opened my first savings bank at a bank that was regional to Northern New
Jersey, which was then later eaten by something I don't remember, than by Bank
of America. Likewise, the whole "mortgage tranche" fiasco happened because we
_allowed_ loan originators to sell off the ownership of loans to other
parties, rather than having to eat the lunch they'd made for themselves with
their own levels of risk-taking.

~~~
autokad
selling loans wasn't ever a problem, and I'm not aware of any time in recent
history it wasn't allowed.

the problem was that companies were allowed to buy insurance against bad loans
they didnt even make, and insurers were allowed to sell more of that insurance
than they had capital to back them up.

so when a person defaulted on their home, the homeowner lost, the bank lost,
the insurer lost, and the company who bought the near garentee win insurance
also lost. capital flows froze, then companies who needed liquidity lost, and
losses just kept chaining.

------
astazangasta
I think this reverses causality; our values were carefully eroded by right
wing think tanks and so on pushing free market ideology. Deregulation
resulted, along with financialization.

~~~
vixen99
Generalized claptrap. You merely use cliches like 'free market ideology' which
unless you give a specific example could mean just about anything. By the way,
which right wing think tanks advised governments to take on borrowing to the
insane levels that some have? The house will come tumbling down one day. As
for 'financialization'. What does that mean? It certainly sounds terrible and
we should stop it immediately.

~~~
astazangasta
Financialization means the fraction of GDP in the finance sector. You can
graph it.
[https://en.m.wikipedia.org/wiki/Financialization](https://en.m.wikipedia.org/wiki/Financialization)

Free market ideology means stuff peddled by CEI, Heritage, Grover Norquist -
tax the rich less, deregulate, fight unions. This doesn't seem especially
nonspecific to me.

Also, spending as fraction of GDP hasn't changed that much over time. What has
changed is interest rates, which leads to debt accumulation.

------
mcnamaratw
Buyback mania isn't necessarily good for shareholders. Paying too much for
share buybacks is as bad as paying too much for anything else.* And,
empirically, buyback mania tends to be strongest when share prices are high.
By contrast in early 2009, when the US stock market was a great deal, buybacks
were rare.

To be fair, though, overpriced buybacks do benefit investors who have warrants
or options.

\-----------------------------

*Unless you happen to get lucky and time the market. Very few people can do that repeatably.

~~~
autokad
i happen to despise stock buybacks. if the company cant think of anything left
in the world to invest in, i'd much rather have it as a one time dividend -
even if less tax advantaged.

~~~
mcnamaratw
I tend to agree right now. In the past when stocks have traded at 24 times
earnings, it hasn't ended well.

But when shares are cheap, you're missing out if they don't do a buyback. Late
2008/early 2009 was an easy time to make good buyback purchases.

------
ilaksh
The answer is not a command economy or giving more control to a state that has
a monopoly on force.

The big issue is centralization. Technologies that facilitate decentralization
can help combat the negative effects of centralization. Better technology
integration into society in general is also necessary.

Look at things like Bitcoin or Ethereum, decentralized autonomous
organizations, etc. We have and can continue to develop better ways to
cooperatively regulate our society while avoiding concentration of power and
allowing systems to evolve freely.

Money is very powerful but it's a type of technology that needs to be updated.

------
macawfish
Money itself warps our sense of value.

------
qj4714
The article is arguing for more government intervention in the economy which I
would argue is exactly what has led to this form of crony capitalism. What is
the answer to 'to big to fail'? Failure. But the problem is that the
government made a decision decades ago to bail out Chrysler, and the Fed cut
rates in 98 and after to bail out the markets. The we had QE1, QE2, ZIRP,
etc...All of these GOVERNMENT policies have created a massive excessive of
capital in the system and creates all kinds of temptations to do share
buybacks and boost dividends. Verizon workers are covered by unions, which are
supposed to ensure their workers get a fair wage.

This article is paint by numbers economics designed to whitewash all the
problems caused by the gov't and demonize corporations for taking advantage of
a situation the gov't created.

~~~
unclebucknasty
Your comment started appropriately in that it acknowledges crony capitalism.
Then it strangely diverts to decrying the government as if it alone created
problems that corporations simply (and innocently) exploit.

You had it right at the beginning. It's the fusion of government with
corporations that's the problem. Corporations manipulate and influence
government for their benefit, not the other way around.

~~~
qj4714
What standard would you hold corporations to?

~~~
unclebucknasty
Well, that's my point: corporations and government are inseparable. It's
useless to treat them otherwise, which makes questions such as yours
misleading.

Likewise, treating corporations as hapless beneficiaries of some sort of
bumbling government largesse is disingenuous. It's the deliberate co-opting of
government by corporate interests that is the problem.

------
tonybaroneee
Which country has an economy that most closely resembles the ideals of this
article would you say?

I would want to move there.

------
dbcurtis
Summary: Some people have different values from me and I don't like it. They
should be forced to change their values so that I am not challenged.

~~~
nipponese
Additionally, if we hand over all our earnings to the government, they'll
always spread wealth equally and eliminate scarcity from the planet.

