Wednesday, May 5, 2010

History of the US economy over past three decades

I haven't read 13 Bankers, the highly acclaimed book by Simon Johnson and James Kwak, but am looking forward to reading it. In the meantime, Huffington Post carries an excellent summary by James Kwak, who draws on four graphics to explain much of what was wrong with the direction of the US economy over the past three decades.

1. Financialization of the economy as the real corporate profits of the financial sector went ballistic since 1980

2. The average annual compensation in the banking sector (in real, inflation-adjusted terms) took off almost vertiginuosly in the eighties.

3. This "financialization" can be largely attributed to the dramatic de-regulation of the US financial markets. As James Kwak writes, the graph speaks for itself.

4. The consequence of all this has been a spurt in returns from economies of scale and a spectacular growth in the size of American banks, resulting in the "too-big-to-fail" problem.

Update 1 (9/5/2010)
Scott Winship overlays, the trend line showing the share of income received by the top one percent (the black line)(from Saez and Pikketty) on the deregulation chart in Sl No 3 and finds striking similarity.

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