Profitability trends in the era of financialization: Notes on the U.S. economy

Abstract

This article considers the evolution of financialization in the U.S. economy by examining the profitability and the volume of profits of the financial sector relative to general profitability and total profits in the economy. It is shown that financial profitability rose strongly from the early 1980s to the early 2000s. Similarly, the volume of financial profits reached extraordinary levels in the early 2000s. These phenomena occurred while interest rates and the net interest margin of banks were on a downward trend and, broadly speaking, reflect financial expropriation in the U.S. economy. The great crisis of 2007–2009 has acted as a threshold point beyond which both the profitability and the volume of profits of the financial sector have not recovered to previous levels. It is possible, but not certain, that a rebalancing of the productive and the financial sectors is under way in the financialized U.S. economy.

Notes

Notes

1 The literature on financialization has become enormous in recent years, and it is not the purpose of the present article to review it. Useful discussions can be found in Krippner (2005), Lapavitsas (2013), Lapavitsas and Mendieta-Muñoz (2018), and van der Zwan (2014).

2 For a general discussion of the rate of profit of banking capital relative to the general rate of profit, see Itoh and Lapavitsas (1999, Chapter 4).

3 In the next section, further insight into these factors is offered in connection with the volume of financial relative to the volume of total profit (but not between the respective rates of profit).

4 For a discussion of Hilferding’s concept see Lapavitsas (2013).

5 It is crucial to remember, nonetheless, that the figures capture neither the financial profits made by the nonfinancial sector nor those deriving from capital gains, and should also be treated with caution.