IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/101063.html
   My bibliography  Save this paper

Финансиалиация Усиливает Неравенство И Заводит Экономику В Тупик
[Financialization increases inequality and leads economy to a dead end]

Author

Listed:
  • Yashin, Pete

Abstract

Modern capitalists multiply their income and wealth largely due to revaluation of the financial assets, which often has no roots in the real sector of the economy. The assets’ market price may exceed the corresponding liabilities of their issuers. Such excessive part of the assets’ value is not secured by anything; it forms an unsecured component of their owners’ wealth. This unsecured component is one of the main reasons for the observed wealth-to-income growth. We have shown that the increase in unsecured wealth necessarily increases inequality. So, the large wealth-to-income ratio indicates inequality strengthening. The rising inequality leads to the impoverishment of the poorest households and inhibition of economic growth. This is facilitated by an imbalance between the total savings and investment which unsecured income causes. A part of the capitalists' huge savings is absorbed by the unsecured growth in the financial assets’ value and do not materialize as capital investments. In fine, the consequence of financialization is the growth of unsecured income and wealth, which entail the rising inequality due to the outstripping growth of the largest fortunes. This causes an imbalance in economic growth and drives the economy into a dead end.

Suggested Citation

  • Yashin, Pete, 2020. "Финансиалиация Усиливает Неравенство И Заводит Экономику В Тупик [Financialization increases inequality and leads economy to a dead end]," MPRA Paper 101063, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:101063
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/101063/1/MPRA_paper_101063.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Joseph E. Stiglitz, 2015. "New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part I. The Wealth Residual," NBER Working Papers 21189, National Bureau of Economic Research, Inc.
    2. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    3. Thomas Piketty & Gabriel Zucman, 2014. "Capital is Back: Wealth-Income Ratios in Rich Countries 1700–2010," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(3), pages 1255-1310.
    4. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
    5. Galbraith, James K., 2012. "Inequality and Instability: A Study of the World Economy Just Before the Great Crisis," OUP Catalogue, Oxford University Press, number 9780199855650.
    6. Yashin, Pete, 2020. "Law of conservation of real wealth and rising inequality," MPRA Paper 99308, University Library of Munich, Germany.
    7. Milanovic, Branko, 2015. "Increasing capital income share and its effect on personal income inequality," MPRA Paper 67661, University Library of Munich, Germany.
    8. Tobin, James, 1982. "Money and Finance in the Macroeconomic Process," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(2), pages 171-204, May.
    9. Joseph E. Stiglitz, 2015. "New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part II: Equilibrium Wealth Distributions," NBER Working Papers 21190, National Bureau of Economic Research, Inc.
    10. Jean-Paul Fitoussi & Francesco Saraceno, 2009. "How Deep is a Crisis? Policy Responses and Structural Factors Behind Diverging Performances," Documents de Travail de l'OFCE 2009-31, Observatoire Francais des Conjonctures Economiques (OFCE).
    11. Dirk Bezemer & Michael Hudson, 2016. "Finance Is Not the Economy: Reviving the Conceptual Distinction," Journal of Economic Issues, Taylor & Francis Journals, vol. 50(3), pages 745-768, July.
    12. L. Randall Wray & Mathew Forstater (ed.), 2006. "Money, Financial Instability and Stabilization Policy," Books, Edward Elgar Publishing, number 3902.
    13. Joseph E. Stiglitz, 2015. "New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part IV: Land and Credit," NBER Working Papers 21192, National Bureau of Economic Research, Inc.
    14. Luigi L. Pasinetti, 1962. "Rate of Profit and Income Distribution in Relation to the Rate of Economic Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 29(4), pages 267-279.
    15. F. A. Lutz, 1961. "The Theory of Capital," International Economic Association Series, Palgrave Macmillan, number 978-1-349-08452-4 edited by D. C. Hague, December.
    16. Joseph E. Stiglitz, 2015. "New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part III: Life Cycle Savings vs. Inherited Savings," NBER Working Papers 21191, National Bureau of Economic Research, Inc.
    17. Nicholas Kaldor, 1961. "Capital Accumulation and Economic Growth," International Economic Association Series, in: D. C. Hague (ed.), The Theory of Capital, chapter 0, pages 177-222, Palgrave Macmillan.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yashin, Pete, 2020. "Financialization increases inequality and leads economy to a dead end," MPRA Paper 101061, University Library of Munich, Germany.
    2. Mattauch, Linus & Klenert, David & Stiglitz, Joseph E. & Edenhofer, Ottmar, 2022. "Overcoming wealth inequality by capital taxes that finance public investment," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 383-395.
    3. Fischer, Thomas, 2017. "Thomas Piketty and the rate of time preference," Journal of Economic Dynamics and Control, Elsevier, vol. 77(C), pages 111-133.
    4. Soon Ryoo, 2018. "Top income shares and aggregate wealth-income ratio in a two-class corporate economy [Growth and distribution in heterodox models with managers and financiers]," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 42(3), pages 699-728.
    5. Yashin, Pete, 2020. "Закон Сохранения Реального Богатства И Рост Неравенства [Law of conservation of real wealth and rising inequality]," MPRA Paper 99274, University Library of Munich, Germany.
    6. Palagi, Elisa & Napoletano, Mauro & Roventini, Andrea & Gaffard, Jean-Luc, 2023. "An agent-based model of trickle-up growth and income inequality," Economic Modelling, Elsevier, vol. 129(C).
    7. Berman, Yonatan & Shapira, Yoash, 2017. "Revisiting r>g—The asymptotic dynamics of wealth inequality," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 467(C), pages 562-572.
    8. Lee, Jangyoun, 2021. "Behind rising inequality and falling growth," Journal of Macroeconomics, Elsevier, vol. 70(C).
    9. Yashin, Pete, 2020. "Law of conservation of real wealth and rising inequality," MPRA Paper 99308, University Library of Munich, Germany.
    10. Odran Bonnet & Guillaume Flamerie de La Chapelle & Alain Trannoy & Etienne Wasmer, 2019. "Secular Trends in Wealth and Heterogeneous Capital: Land is Back... and Should Be Taxed," Working Papers hal-03570837, HAL.
    11. Luigi L. Pasinetti, 2000. "Critique of the neoclassical theory of growth and distribution," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 53(215), pages 383-431.
    12. Carpantier, Jean-Francois & Olivera, Javier & Van Kerm, Philippe, 2018. "Macroprudential policy and household wealth inequality," Journal of International Money and Finance, Elsevier, vol. 85(C), pages 262-277.
    13. Odran Bonnet & Guillaume Flamerie de la Chapelle & Alain Trannoy & Etienne Wasmer, 2019. "Secular trends in Wealth and Heterogeneous Capital: Land is back...and should be taxed," SciencePo Working papers hal-03541411, HAL.
    14. Bonnet, Odran & Chapelle, Guillaume & Trannoy, Alain & Wasmer, Etienne, 2021. "Land is back, it should be taxed, it can be taxed," European Economic Review, Elsevier, vol. 134(C).
    15. Binder, Carola, 2019. "Inequality and the inflation tax," Journal of Macroeconomics, Elsevier, vol. 61(C), pages 1-1.
    16. Joseph E. Stiglitz, 2016. "The Theory of Credit and Macro-economic Stability," NBER Working Papers 22837, National Bureau of Economic Research, Inc.
    17. Gaël Giraud & Matheus GRASSELLI, 2017. "The macrodynamics of household debt, growth, and inequality," Working Paper c15af656-d7a4-485c-867f-5, Agence française de développement.
    18. D'Orazio, Paola, 2019. "Income inequality, consumer debt, and prudential regulation: An agent-based approach to study the emergence of crises and financial instability," Economic Modelling, Elsevier, vol. 82(C), pages 308-331.
    19. Luigi Bonatti, 2017. "Land, Housing, Growth and Inequality," DEM Working Papers 2017/01, Department of Economics and Management.
    20. Joseph E. Stiglitz, 2017. "Macro-economic Management in an Electronic Credit/Financial System," NBER Working Papers 23032, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    New stylized facts; wealth residuals; unearned income; unsecured wealth;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • G01 - Financial Economics - - General - - - Financial Crises

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:101063. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.