Thomas I. Palley: Financialisation: What it is and why it matters

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Financialisation: What it is and why it matters

31 pp.
4.60 EUR
(March 2009)

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In “Financialization: what it is and why it matters” Thomas Palley argues that financialisation is a process whereby financial markets, financial institutions and financial elites gain greater influence over economic policy and economic outcomes. Financialisation transforms the functioning of the economic system at both the macro and the micro level. According to his view, the principal impacts of financialisation 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. Additionally, there are reasons to believe that financialisation may render the economy prone to risks of debt-deflation and prolonged recession. Financialisation operates through three different conduits: (1) changes in the structure and operation of financial markets; (2) changes in the behaviour of nonfinancial corporations, and (3) changes in economic policy. Finally, Palley argues that countering financialisation calls for a multi-faceted agenda that (1) restores policy control over financial markets, (2) challenges the neo-liberal economic policy paradigm encouraged by financialisation, (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.

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