Income Dynamics, Economic Rents, and the Financialization of the U.S. Economy
Abstract
The 2008 collapse of the world financial system, while proximately linked to the housing bubble and risk-laden mortgage backed securities, was a consequence of the financialization of the U.S. economy since the 1970s. This article examines the institutional and income dynamics associated with the financialization of the U.S. economy, advancing a sociological explanation of income shifts into the finance sector. Complementary developments include banking deregulation, finance industry concentration, increased size and scope of institutional investors, the shareholder value movement, and dominance of the neoliberal policy model. As a result, we estimate that between 5.8 and 6.6 trillion dollars were transferred to the finance sector since 1980. We conclude that understanding inequality dynamics requires attention to market institutions and politics.
Get full access to this article
View all access and purchase options for this article.
References
Baran Paul A., Sweezy Paul M. 1966. Monopoly Capital: An Essay on the American Economic and Social Order. New York: Monthly Review Press.
Burt Ronald S. 1983. Corporate Profits and Cooptation: Networks of Market Constraints and Directorate Ties in the American Economy. New York: Academic Press.
Crotty James. 2005. “The Neoliberal Paradox: The Impact of Destructive Product Market Competition and ‘Modern’ Financial Markets on Nonfinancial Corporate Performance in the Neoliberal Era.” Pp. 77–110 in Financialization in the World Economy, edited by Epstein G. A. Northampton, MA: Edward Elgar.
Crotty James. 2009. “The Bonus-Driven ‘Rainmaker’ Financial Firm: How These Firms Enrich Top Employees, Destroy Shareholder Value and Create Systemic Financial Instability.” University of Massachusetts, PERI Working Paper 209.
Davis Gerald. 2009. Managed by the Markets: How Finance Reshaped America. New York: Oxford University Press.
Dobbin Frank, Jung Jiwook. 2011. “The Misapplication of Mr. Michael Jensen: How Agency Theory Brought Down the Economy and Why it Might Again.” Pp. 29–64 in Markets on Trial: The Economic Sociology of the U.S. Financial Crisis: Part A, Research in the Sociology of Organizations, Vol. 30B, edited by Lounsbury M., Hirsch P. M. Bingley, UK: Emerald.
Dobbin Frank, Zorn Dirk. 2005. “Corporate Malfeasance and the Myth of Shareholder Value.” Political Power and Social Theory 17:179–98.
Epstein Gerald A., Jayadev Arjun. 2005. “The Rise of the Rentier Incomes in OECD Countries: Financialization, Central Bank Solidarity and Labor Solidarity.” Pp. 46–74 in Financialization in the World Economy, edited by Epstein G. A. Northampton, MA: Edward Elgar.
Fligstein Neil. 2001. The Architecture of Markets. Princeton, NJ: Princeton University Press.
Fligstein Neil, Goldstein Adam. 2010. “The Anatomy of the Mortgage Securitization Crisis.” Pp. 57–89 in Markets on Trial: The Economic Sociology of the U.S. Financial Crisis: Part A, Research in the Sociology of Organizations, Vol. 30A, edited by Lounsbury M., Hirsch P. M. Bingley, UK: Emerald.
Fligstein Neil, Shin Taekjin. 2007. “Shareholder Value and the Transformation of the U.S. Economy, 1984–2000.” Sociological Forum 22:399–424.
Fourcade-Gourinchas Marion, Babb Sarah L. 2002. “The Rebirth of the Liberal Creed: Paths to Neoliberalism in Four Countries.” American Journal of Sociology 108:533–79.
Guillén Mauro F., Suaréz Sandra. 2010. “The Global Crisis of 2007–2009: Markets, Politics, and Organizations.” Pp. 257–79 in Markets on Trial: The Economic Sociology of the U.S. Financial Crisis: Part A, Research in the Sociology of Organizations, Vol. 30A, edited by Lounsbury M., Hirsch P. M. Bingley, UK: Emerald.
Hacker Jacob S., Pierson Paul. 2010. “Winner-Take-All Politics: Public Policy, Political Organization, and the Precipitous Rise of Top Incomes in the United States.” Politics & Society 38:152–204.
Harvey David. 2005. A Brief History of Neoliberalism. New York: Oxford University Press.
Harvey David. 2010. The Enigma of Capital and the Crisis of Capitalism. New York: Oxford University Press.
Ho Karen. 2009. Liquidated: An Ethnography of Wall Street. Durham, NC: Duke University Press.
Jensen Michael C., Meckling William H. 1976. “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.” Journal of Financial Economics 3:305–360.
Kalleberg Arne L., Wallace Michael, Althauser Robert. 1981. “Economic Segmentation, Worker Power and Income Inequality.” American Journal of Sociology 87:651–81.
Kenworthy Lane. 2010. “Business Political Capacity and the Top-Heavy Rise in Income Inequality: How Large an Impact?” Politics & Society 38:255–65.
King Miriam, Ruggles Steven, Alexander J. Trent, Flood Sarah, Genadek Katie, Schroeder Matthew B., Trampe Brandon, Vick Rebecca. 2010. Integrated Public Use Microdata Series, Current Population Survey: Version 3.0. [Machine-readable database]. Minneapolis: University of Minnesota.
Krier Dan. 2005. Speculative Management: Stock Market Power and Corporate Change. New York: SUNY Press.
Krippner Greta. 2005. “The Financialization of the American Economy.” Socio-Economic Review 3:173–208.
Krippner Greta. 2010. “The Political Economy of Financial Exuberance.” Pp. 141–73 in Markets on Trial: The Economic Sociology of the U.S. Financial Crisis: Part A, Research in the Sociology of Organizations, Vol. 30B, edited by Lounsbury M., Hirsch P. M. Bingley, UK: Emerald.
Krippner Greta. 2011. Capitalizing on Crisis: The Political Origins of the Rise of Finance. Cambridge, MA: Harvard University Press.
Lewis Michael. 2010. The Big Short: Inside the Doomsday Machine. New York: Norton.
Miller Seymour M., Tomaskovic-Devey Donald. 1983. Recapitalizing America: Alternatives to the Corporate Distortion of National Policy. New York: Routledge & Kegan Paul.
Morgan Stephen L., McKerrow Mark W. 2004. “Social Class, Rent Destruction, and the Earnings of Black and White Men, 1982–2000.” Research in Social Stratification and Mobility 21:215–51.
Orhangazi Özgür. 2008. Financialization and the US Economy. Northampton, MA: Edward Elgar.
Oyer Paul. 2008. “The Making of an Investment Banker: Stock Market Shocks, Career Choice, and Lifetime Income.” Journal of Finance 63:2601–2627.
Parkin Frank. 1979. Marxism and Class Theory: A Bourgeois Critique. New York: Columbia University Press.
Philippon Thomas, Reshef Ariell. 2009. “Wages and Human Capital in the U.S. Financial Industry: 1909–2006.” NBER Working Paper 14644.
Prasad Monica. 2006. The Politics of Free Markets: The Rise of Neoliberal Economic Policies in Britain, France, Germany, and the United States. Chicago: University of Chicago Press.
Prechel Harland, Morris Theresa. 2010. “The Effects of Organizational and Political Embeddedness on Financial Malfeasance in the Largest U.S. Corporations: Dependence, Incentives, and Opportunities.” American Sociological Review 75:331–54.
Rauh Joshua D., Kaplan Stephen N. 2010. “Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?” Review of Financial Studies 23:1004–1050.
Roemer John. 1982. A General Theory of Exploitation and Class. Cambridge, MA: Harvard University Press.
Roth Louise Marie. 2004. “Engendering Inequality: Processes of Sex Segregation on Wall Street.” Sociological Forum 19:203–229.
Sakamoto Arthur, Kim ChangHwan. 2010. “Is Rising Earnings Inequality Associated with Increased Exploitation?: Evidence for U.S. Manufacturing Industries, 1971–1996.” Sociological Perspectives 53:19–43.
Sorensen Aage B. 1996. “The Structural Basis of Stratification.” American Journal of Sociology 101:1333–65.
Sorensen Aage B. 2000. “Toward a Sounder Basis for Class Analysis.” American Journal of Sociology 105:1523–58.
Stockhammer Engelbert. 2004. “Financialisation and the Slowdown of Accumulation.” Cambridge Journal of Economics 28:719–41.
Sum Andrew, Tobar Paulo, with McLaughlin Joseph, Palma Sheila. 2008. “The Great Divergence: Real-Wage Growth of All Workers Versus Finance Workers.” Challenge 51:57–79.
Tilly Charles. 1998. Durable Inequality. Berkeley: University of California Press.
Tomaskovic-Devey Donald, McKinley John B. 1981. “Bailing Out the Banks: The United States and Private International Debt.” Social Policy 11:8–17.
Tomaskovic-Devey Donald, Skaggs Sheryl. 1999. “Workplace Gender and Racial Composition and Productivity: An Establishment Level Test of the Statistical Discrimination Hypothesis.” Work & Occupations 26:422–45.
Useem Michael. 1983. The Inner Circle: Large Corporations and the Rise of Business Political Activity in the U.S. and U.K. New York: Oxford University Press.
Useem Michael. 1993. Executive Defense: Shareholder Power and Corporate Reorganization. Cambridge, MA: Harvard University Press.
Vogel David. 1989. Fluctuating Fortunes: The Political Power of Business in America. New York: Basic Books.
Weeden Kim A. 2002. “Why Do Some Occupations Earn More Than Others? Social Closure and Earnings Inequality in the United States.” American Journal of Sociology 108:55–101.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
- asr414827_media_ab.pdf
- 41.26 KB
- asr414827_online_supplement.pdf
- 178.52 KB
- asr414827_spanish_ab.pdf
- 72.58 KB
Cite article
Cite article
Cite article
OR
Download to reference manager
If you have citation software installed, you can download article citation data to the citation manager of your choice
Information, rights and permissions
Information
Published In
Article first published online: July 10, 2011
Issue published: August 2011
Keywords
Authors
Metrics and citations
Metrics
Journals metrics
This article was published in American Sociological Review.
View All Journal MetricsArticle usage*
Total views and downloads: 3944
*Article usage tracking started in December 2016
Altmetric
See the impact this article is making through the number of times it’s been read, and the Altmetric Score.
Learn more about the Altmetric Scores
Articles citing this one
Receive email alerts when this article is cited
Web of Science: 206 view articles Opens in new tab
Crossref: 221
- Neoliberalism and Labor's Long Decline: Financialization, Precaritization, and Union Density in the American States, 1964-2023
- Does foreign demand affect corporate financialization? Some evidence from China
- The wages of investor power: shareholder exploitation in Europe
- Public Debt and the Income Share of the Top One Percent: The Italian Case, 1974–2019
- Elite embeddedness: the rise of financiers on university boards as parallel social organizations
- Global Financial Shocks and American Elites: Income and Wealth of the One Percent in the United States, 1989 to 2022
- Taxes on top incomes and financialisation
- The distribution of privately held business assets in the United States
- Inequality through digitalization: investigation of mediating and moderating mechanisms
- Does employee ownership promote workers’ wealth accumulation? the case of stock options
- View More
Figures and tables
Figures & Media
Tables
View Options
Access options
If you have access to journal content via a personal subscription, university, library, employer or society, select from the options below:
I am signed in as:
View my profileSign out
I can access personal subscriptions, purchases, paired institutional access and free tools such as favourite journals, email alerts and saved searches.
loading institutional access options
ASA members can access this journal content using society membership credentials.
ASA members can access this journal content using society membership credentials.
Alternatively, view purchase options below:
Purchase 24 hour online access to view and download content.
Access journal content via a DeepDyve subscription or find out more about this option.
