Thursday, January 18, 2018

"Non-financial" in name only

Nonfinancial corporate businesses -- the ones that produce and service real output -- own financial as well as non-financial assets. Back in the 1950s and '60s, their financial assets were a bit less than a quarter of all their assets. Today, financial assets are a bit less than half their assets. The financial share has doubled.

Graph #1: Financial Assets as a Percent of Total Assets, for Non-Financial Corporations
The financial share of assets ran low in the 1950s, then increased gradually until the early 1980s. Thereafter, the financial share increased rapidly until the 2001 recession, when it appears to have hit a hard upper limit.

The change from slow increase to rapid increase suggests that the change was induced by a change in policy, perhaps tax policy, in the early 1980s.

The fact that the graph shows unrelenting increase suggests that the asset holders prefer financial to non-financial assets. Perhaps the returns are higher for financial assets. Perhaps the returns are lower but the convenience of not having to produce physical output adds value to returns from financial assets. Either way, as the graph shows, financial assets have increased as a share of all assets of nonfinancial corporate business.

Dirk Bezemer and Michael Hudson:
The financial sector does not produce goods or even “real” wealth. And to the extent that it produces services, much of this serves to redirect revenues to rentiers, not to generate wages and profits.

Like the financial sector, the financial assets of non-financial corporations do not produce goods or "real" wealth, and largely serve to redirect revenues away from wages and profits.

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