Image by Lo Lo.
Recently released GDP numbers for 2024 show that Wall Street’s excesses cost Americans $1.51 Trillion last year. Instead of looking for inefficiency and bloat in government the Trump Musk duo should look at ‘the market,’ because that is where we are getting ripped off.
The market, the Finance and Insurance portion of GDP, accounted for 7.4% of GDP ($2.164.2 Bil) in 2024; up .2% from 2023. Meaning It cost more for the market to operate because it grew faster than the overall economy. In 1972 the last year before our free markets regime began when we abandoned the last vestiges of fixed exchange rates and let the market sort out, Finance and Insurance accounted for 4.2% of GDP. In other words, the market portion of GDP has increased 3.2% (7.4% – 4.2%) relative to the overall economy since 1972. The value of 3.2% of GDP in 2024 was $934 Bil. So bloat in the market cost us close to a trillion dollars last year.
Look at it this way. A dollar, $1, spent by Finance and Insurance in 1972 generated $24.04 of GDP. By 2024 a dollar, $1, spent by Finance and Insurance in 2024 generated $13.48 of GDP. With such a dramatic decline in productivity and rise in inefficiency is it any wonder why market participants are eager to deregulate and limit government oversight?
No doubt market participants will cry foul and point to actions such as financialization whereby the market has taken over a larger role in the economy. To what ends? Is securitization, the process of converting financial assets such as loans into tradeable securities creating anything new? No. Do derivatives that allow for leveraged speculation, increase trading activity and supposedly make the market more efficient create anything new? No. Derivatives, whose value is derived from another security were almost nonexistent in 1972. By June of 2023 non-exchange traded derivatives had an estimated notional value (the face value of the underlying instrument it is derived from) globally of $715 Trillion (6/23 BIS). The fact is that derivatives have been behind just about every recent financial crisis ; 1987 stock market crash (portfolio insurance), 1998 LTCM (excess leverage), 2008 (mortgage-backed securities)… Financialization, securitization, privatization, derivatives and excessive trading are nothing but the churning of our country’s savings.
Finance and Insurance has a privileged role in the economy. It acts as a medium between savers and borrowers to facilitate the economy; savers are paid for their savings and borrowers get capital to help their businesses grow. It also acts as a medium for the Federal Reserve (Fed) to operate in financial markets. The Fed is able to conduct monetary policy by buying and selling government bonds through the market. In a way giving the market the first look at its policy and arguably giving the market a say in its distribution. While the Fed acts through banks and not the market overall, the walls separating banking, brokerage and insurance had been eroding for some time and were set in stone with Financial Services Modernization Act of 1999.
The growing inefficiency of the market runs counter to the 47% improvement in productivity overall since 1972; odd since it has greatly benefitted from telecommunications and computing advances. Had Finance and Insurance similarly been 47% more efficient its GDP contribution would have fallen to 2.2% of GDP. So our beginning base of 4.2% of GDP should have fallen by 2% (4.2% – 2.2%). The value of 2% of GDP in 2024 was $584 Bil.
Adding the excess costs together, the surge in the size of Finance and Insurance relative to GDP since 1972 (3.2%) $934 Bil., with the lost productivity (2%) of $584 Bil., we get $1,518 Bil. for 2024. Then there is 2023, 2022…. 1973.
The market is wildly inefficient and flawed. The unfortunate thing is that we have built a world around it; in doing so we have built a world on a lie.
Over the last fifty years our free market regime has robbed us of tens of trillions of dollars. Trump’s demonizing of government, is part of a longer trend began with Reagan’s claim that government was the problem and wailing away about welfare queens. It is just another ploy to divert our attention from the heist that is happening right in front of us.
NOTES
GDP numbers are from the BEA’s ‘Gross Domestic Product (Third Estimate), Corporate Profits, and GDP by Industry, 4th Quarter and Year 2024’, Table 14, Page 21.
Historical GDP numbers are from FI’ GDP contribution/Total GDP, $51.5B/$1238.3B=4.158%. Per Table 1. Value Added by Industry Group for Selected Yea, Gross Domestic Product by Industry for 1947–86 https://apps.bea.gov/scb/pdf/2005/12December/1205_GDP-NAICS.pdf
In 1972 total factor productivity was 72.701 in 2024 it was 106.847. 106.847/72.701 =’s 1.46967 or 47%. You find actual numbers at Historical Total Factor Productivity. (Note clicking on this link will download the file). Here is the link: Top line is total factor productivity.
Regarding the cost per dollar spent versus GDP gained. Total GDP/Finance and Insurance. For 1972, $1238.3B/$$51.5B =‘s $24.04. For 2024 $29184.9B/$2164.2B =’s $13.48.
Wall Street has benefitted more than most industries from technological change since the 1970’s. One of the top three According to AI, “Since the 1970s, telecommunications and computing have revolutionized industries like finance, media, entertainment, and e-commerce, enabling global connectivity, digital content distribution, and new business models. “
The post Wall Street Bilked Us Again For Another $1.5 Trillion In 2024 appeared first on CounterPunch.org.
This content originally appeared on CounterPunch.org and was authored by Madis Senner.