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Why Has Finance Grown so Exponentially in the Last 30 Years?

I think it’s interesting how people constantly discuss the rise of finance in the US economy, but rarely seem to discuss the causes.  I see this all over the place with charts showing the financial sector relative to the rest of the economy or Wall Street pay relative to the rest of society.  The conclusions are always the same – we need to do something about this terrible rise, but no one seems to quite put their finger on the cause and effect….

Anyhow, I was thinking about this and the cause and effect appears to be rather simple.  As a wealthy nation we obsess over people who can grow and protect that wealth.  As a society, we idolize or dream about becoming the next great hedge fund manager or the next Warren Buffett.  And we open day trading ETrade accounts, contribute to 401Ks, obsess over our “investment” accounts, etc.  In other words, the rise of financial capitalism is in large part thanks to the rise of demand for financial capitalism.  I find it ironic how Keynesians are always the ones pointing out how the rise of financial capitalism is detrimental when its the demand coming from many of these Keynesians who have contributed directly to the rise of finance capitalism.

Personally, I think it’s sad that we value finance so much more highly than many other industries, but that’s just my personal opinion.   That said, I also think the demonizing of Wall Street is often overdone and hypocritical.  This reminds me of the people who complain about government spending, but when polled about government spending do not want any of THEIR benefits reduced.   But let’s get real.  We have met the enemy and he is us….

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