Financial profits relative to non-financial profits rose three to fivefold by the late 1990s.

Evidence

Since the flaws of these two measures are symmetrical and offsetting, we can be confident that the true, unobserved ratio of financial to non-financial profits lies somewhere in between the two measures. In Figure 7, I report both corporate profits and corporate cash flow as upper and lower bounds for financialization, respectively. A 5-year moving average is shown with the annual data; an upwards trend in the ratio is consistent with greater degrees of financialization. On either measure, the ratio is relatively stable in the 1950s and 1960s but becomes more volatile beginning in the 1970s.The ratio increases gradually in the 1970s,followed by a sharp upward surge during the ‘deal decade’ of the 1980s. The ratio then retreats somewhat in the first half of the 1990s, but subsequently recovers and supersedes even the soaring levels of the previous decade by the end of the 1990s. At its highest point at the end of the period, the ratio ranges (depending on which measure one follows) from approximately three to five times the levels typical of the 1950s and 1960s. — Greta R. Krippner, The Financialization of the American…, 75

Categorization

• DEEPTHINKING: The symmetry of two offsetting measurement biases to bracket an unobservable true value is an elegant methodological move worth sitting with, and the resulting trend line is the empirical core of the field.
• ADDENDUM: The surge during the ‘deal decade’ of the 1980s resonates with the ritual-sacrifice essay’s framing of how modes of extraction and value-taking reorganize across periods.
• XREF: connects to: Nonfinancial firms’ portfolio income relative to cash flow surged by the late 1980s — Greta R. Krippner, The Financialization of the American…, 56; Nonfinance firms increasingly derived income from financial markets — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 18; Major nonfinancial corporations shifted their earnings toward financial operations — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 45

Related

• Nonfinancial firms’ portfolio income relative to cash flow surged by the late 1980s (similarity 0.89)
• Financialization can be measured by comparing non-financial firms’ portfolio income to their cash flow. (similarity 0.89)
• Nonfinance firms increasingly derived income from financial markets (similarity 0.88)
• Financialization comprises both finance-sector dominance and nonfinance firms’ financial investing. (similarity 0.84)
• Nearly 40% of S&P 500 earnings came from financial activities by 2000 (similarity 0.83)
• Financialization must be measured by profit generation, not employment or output (similarity 0.83)
• Financialization is measured as the ratio of financial receipts to business receipts. (similarity 0.83)
• Depreciation allowances bias both profit and cash-flow measures of financialization in opposite directions. (similarity 0.82)
• Financialization does not measurably raise firm profits or financial-asset productivity. (similarity 0.82)
• Measuring profits rather than employment reveals financialization as the dominant economic trend (similarity 0.81)
• Financialization cannot be reduced to stock market developments. (similarity 0.81)
• Stagnating growth plus deregulation pushed firms from production into financial investment (similarity 0.80)
• Major nonfinancial corporations shifted their earnings toward financial operations (similarity 0.80)
• Measuring finance’s rise by profits misleads if grouped under services. (similarity 0.80)
• Greta R. Krippner — The Financialization of the American Economy (similarity 0.80)

Broader Connections

• Nonfinance firms increasingly derived income from financial markets #expands (0.85) — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 18
• Nonfinancial firms’ portfolio income relative to cash flow surged by the late 1980s #corroborates (0.82) — Greta R. Krippner, The Financialization of the American…, 56
• Major nonfinancial corporations shifted their earnings toward financial operations #expands (0.80) — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 45