This is an interesting (and rather dense) column reflecting on the dynamics behind the sluggish productivity growth after the 2008 financial crisis, that focuses on the relationship between financial booms and the misallocation of labor.
But what if, in addition to the persistent – but not structural – hole in aggregate demand a financial bust inevitably generates, a key part of the true story has less to do with the level of aggregate demand than with its composition and impact on the structure of supply? What if what some see as a rather disappointing pre-crisis US growth performance despite a strong financial boom was actually disappointing, in part, precisely because of that boom? What if the protracted post-crisis weakness reflects in no small measure the difficulties in correcting the resource misallocations that accumulated during the previous financial boom and emerged once a financial crisis subsequently broke out?
This is indeed what we conclude by examining the experience of 21 advanced economies over the last 40 years (Borio et al. 2015). The hitherto unsuspected villain in this story is the misallocation of resources – in our case, labour – during the credit boom and its long post-crisis shadow. More generally, the findings support the view that the disappointing developments we have been witnessing may be the result of a major financial boom and bust that has left long-lasting scars on the economic tissue (e.g. BIS 2014, Borio 2014, Borio and Disyatat 2014, Rogoff 2015) rather than the reflection of a structural, deep-seated weakness in aggregate demand.
The research seems to be looking specifically at the misallocation of labor at the general level, particularly in the over-emphasis on construction work that happens during financial booms. But might this analysis also extend to the potential misallocation of labor at the “higher” levels of the economy, where capitalist planning takes place? That is to say, can this analysis be extended to reveal that financial booms have sucked up skilled and educated workers into Wall Street, at the expense of “real” productive spaces like engineering firms, biotechnology companies, etc.?
This is hardly a novel argument; for example, see this article from Washington Post a couple of years ago about the financial industry being “a black hole for our best and brightest”, that references research on how a bloated financial sector is dragging down the rest of the economy and sucking up skilled labor into an industry increasingly defined by parasitism over production or coordination.
All of this might also point to an emergent feedback loop in contemporary capitalism: as growth and productivity stagnates, a parasitic financial sector increasingly dominates capital accumulation (and by extension, the political system), which further drags down the rest of the economy, and dipping in and out of crisis increasingly frequently. I would assume Marxist economists like Richard Wolff or Michael Roberts have good insight on this matter.