Bruce Bartlett has an interesting article out recently on the “financialization” of the American economy and the implications of that for long-term growth and income inequality. This is an extension of other work of his discussing the declining share of labor income in America.
I don’t have much to add to these arguments—I agreed with most everything Bartlett said, and I think that the declining share of labor income in America is a big deal, and, to the extent that financialization contributes, we should do our best to mitigate it/reverse the trend.
The point I’d like to make is more meta—there are a fair number of medium-term economic issues related to our long-term growth trend and income inequality that have been pushed by the wayside the last 5 years—issues that we would like to address but that aren’t causing enormous amounts of harm right now. Given our employment situation over the last 5 years, I think that is appropriate as these medium-term issues are probably easier to solve in an economy at full employment. However, beyond the fact that our inability to get back to full employment has destroyed millions of lives (and negatively impacted tens of millions more by depressing wages and starting salaries—losses that, if history is any guide, take a decade to make up), the fact that we can’t even solve the low-hanging fruit of getting our economy back to full employment does not bode well for solving more intractable medium-term issues (that have less obvious solutions). Depressing.