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Abstract
The 2008 collapse of the world financial system, while proximately linked to the housing bubble and risk-laden mortgage backed securities, was a consequence of the financialization of the U.S. economy since the 1970s. This article examines the institutional and income dynamics associated with the financialization of the U.S. economy, advancing a sociological explanation of income shifts into the finance sector. Complementary developments include banking deregulation, finance industry concentration, increased size and scope of institutional investors, the shareholder value movement, and dominance of the neoliberal policy model. As a result, we estimate that between 5.8 and 6.6 trillion dollars were transferred to the finance sector since 1980. We conclude that understanding inequality dynamics requires attention to market institutions and politics.
Keywords
income inequality, financialization, market, neoliberalism, institution
I think everybody a few years ago got caught up in the idea that the markets are selfcorrecting and self-disciplined, and that the people in Wall Street will do a better job protecting the financial system than the regulators would. I do think the S.E.C, got diverted by that philosophy. - Mary Shapiro, Chair, Securities and Exchange Commission 2010
We examine the institutional processes that facilitated the financialization of the U.S. economy and its implications for income distribution. The great recession of 2008 to 2010 focused attention on the role of finance in destabilizing the global economy, but scholars have paid little attention to the long-term redistribution of income produced by financialization. The 2008 collapse of global finance is commonly attributed to the collapse of a speculative U.S. real estate investment bubble (e.g., Fligstein and Goldstein 2010; Lewis 2010). This account, while proximately reasonable, misses the historical and institutional developments that facilitated financialization of the U.S. economy. It is these longer term institutional transformations that provided the yeast for the latest investment bubble; these transformations are unlikely to dissolve simply because this particular bubble has popped.
We first describe financialization, proposing that at its core it is a system of income redistribution. We borrow rent theory from the study of social stratification to help explain this redistribution. We advance rent theory by stressing the importance of an institutional analysis of markets to understand the processes generating income rents. In doing so, we incorporate a multi-actor view of...