Charles Hugh Smith – The Millennial Generation, if we’re to believe various polls, aspires to either make boatloads of money on Wall Street, or secure a can’t-be-fired job in the government. Given the dominance of finance and an economic backdrop of rising insecurity, these are rational choices.

But all those Millennials hoping to work for Goldman Sachs does raise a question:when did playing financial games become so much more profitable than producing goods and services?

And that raises another question: is the dominance of the FIRE sectors (finance, insurance, real estate) permanent or cyclical?

Let’s turn to some charts for answers. The first is a look at the finance and insurance sectors’ share of the gross domestic product (GDP). The sectors’s share reached 4% of GDP in the stock market bubble of 1929 and the echo bubble in the mid-1930s.

It took 40 years for finance and insurance to exceed the highs of the Roaring 20s bubble.

In the 40 years since the early 1970s, finance and insurance have doubled their share of the GDP. Note that since GDP has expanded many times over since 1935, the nominal size of financial services has soared.

Next, let’s look at productivity–the engine of all wealth creation–at least in an economy that incentivizes producing goods and services.

It turns out productivity growth collapsed after the oil shock of the early 1970s. But as I note on the chart, it wasn’t just the oil shock: the low-hanging fruit of productivity gains generated by mechanization and new technologies had been picked, and the satiation of basic consumer demands led to a post-industrial economy focused more on the profits to be reaped by extending credit so consumers could buy more than their incomes would otherwise allow.
The early 1970s also saw the end of the gold standard and the advent of fiat currencies.  Continue reading . . .

SF Source Of Two Minds  April 2015