The Rise of Finance and the Fall of Business

Two of the biggest business news events of the moment—GM’s ignition switch scandal and the hoopla over Michael Lewis’ new book about high frequency traders—actually have roots in the same issue: the financialization of America. This is a topic I’ve been fascinated with for some time. As finance and financial thinking have grown more and more dominant in our business landscape over the last several decades, you are seeing all sort of systemic problems, from the triumph of the bean counters over the engineers at GM to the rise of trading that enriches only the trader, rather than society. I feel strongly that the financialization of American business is leading to short term thinking and a huge variety of problems—everything from the focus on share-buybacks over R & D spending in so many Fortune 500 companies, to the fact that we have a tax code that treats gains from short term trading the same way it does those from long term holdings. I can only conclude that this is a trend that will continue. The latest Bureau of Economic Analysis numbers out earlier this year show that finance as a percentage of our economy is once again creeping back up. NYT columnist Joe Nocera and I discussed this and more on this week’s episode of WNYC’s Money Talking, here: