Why the Shift from Production to Speculation?

By Arthur MacEwan | May/June 2014

Dear Dr. Dollar:

Why has our economy switched so greatly away from manufacturing that produces real goods and services that provide real value and towards speculative, financial activity—everything from mergers and acquisitions to derivatives, off-shore tax shelters, and other scams?
—Glen W. Spielbauer, Dallas, Tex.

The rising role of finance has certainly had all of these impacts (the “scams” you mention). Also, the switch to finance was at the center of the housing bubble, the collapse of the bubble, and the onset of the Great Recession. The switch to finance, however, was not a switch of the economy as a whole; that is, financial firms do not account for a growing share of output (GDP) or employment. The long-term decline in manufacturing has been balanced by the expansion of “services that provide real value”—education and health care, for example.