Financialization: What It Is and Why It Matters

Thomas Palley

Working Papers from Political Economy Research Institute, University of Massachusetts at Amherst

Abstract: Financialization is a process whereby financial markets, financial institutions and financial elites gain greater influence over economic policy and economic outcomes. Financialization transforms the functioning of economic system at both the macro and micro levels. Its principal impacts are to (1) elevate the significance of the financial sector relative to the real sector; (2) transfer income from the real sector to the financial sector; and (3) increase income inequality and contribute to wage stagnation. There are reasons to believe that financialization may render the economy prone to risk of debt-deflation and prolonged recession. Financialization operates through three different conduits: changes in the structure and operation of financial markets; changes in the behavior of non-financial corporations, and changes in economic policy. Countering financialization calls for a multi-faceted agenda that (1) restores policy control over financial markets, (2) challenges the neo-liberal economic policy paradigm encouraged by financialization, (3) makes corporations responsive to interests of stakeholders other than just financial markets, and (4) reforms the political process so as to diminish the influence of corporations and wealthy elites.

Keywords: Financialization; neo-liberal policy; deregulation; debt; financial fragility (search for similar items in EconPapers)
JEL-codes: B50 E44 E60 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (133)

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Related works:
Chapter: Financialization: What It Is and Why It Matters (2013)
Working Paper: Financialization: What it is and Why it Matters (2008)
Working Paper: Financialization: What It Is and Why It Matters (2007)
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