Finance, Insurance, And Real Estate Research Articles

Finance Capitalism versus Industrial Capitalism: The Rentier Resurgence and Takeover

Marx and many of his less radical contemporary reformers saw the historical role of industrial capitalism as being to clear away the legacy of feudalism—the landlords, bankers, and monopolists extracting economic rent without producing real value. However, that reform movement failed. Today, the finance, insurance, and real estate (FIRE) sector has regained control of government, creating neo-rentier economies. The aim of this postindustrial finance capitalism is the opposite of industrial capitalism as known to nineteenth-century economists: it seeks wealth primarily through the extraction of economic rent, not industrial capital formation. Tax favoritism for real estate, privatization of oil and mineral extraction, and banking and infrastructure monopolies add to the cost of living and doing business. Labor is increasingly exploited by bank debt, student debt, and credit card debt while housing and other prices are inflated on credit, leaving less income to spend on goods and services as economies suffer debt deflation. Today’s new Cold War is a fight to internationalize this rentier capitalism by globally privatizing and financializing transportation, education, health care, prisons and policing, the post office and communications, and other sectors that formerly were kept in the public domain. In Western economies, such privatizations have reversed the drive of industrial capitalism. In addition to monopoly prices for privatized services, financial managers are cannibalizing industry by leveraging debt and high-dividend payouts to increase stock prices. JEL Classification: B26, N20, B51

Super bowl participation and the local economy: Evidence from the stock market

AbstractThis paper assesses the impact of a home team's participation in a major sporting event—the Super Bowl—on the local economy. Our identification strategy is to compare the winning and losing cities of the National Football League (NFL) conference championship games under the assumption of similar pre‐trends. We use the stock market performance of public companies headquartered in these cities to capture the changing prospects of local economies attributable to Super Bowl participation. The exogenous variation in football game outcomes allows for a straightforward difference‐in‐differences approach to identify the causal effect. We show that the post‐event trends in winning and losing cities diverge despite their similar trends before the end of the regular season. Our empirical results indicate that winning the NFL conference championship game, thus the opportunity to compete in the Super Bowl, has a positive, significant effect on the local economy, particularly the manufacturing and FIRE (finance, insurance, and real estate) sectors. A similar analysis of winning the Super Bowl, however, finds no further significant effect on the local economy.

A Case of Financial Writing: Jay McInerney's Brightness Falls and the Hermeneutic of the New Economy

Abstract Since the mid-1970s, New York City has been a hub for the rise to dominance and consolidation of the FIRE (finance, insurance, and real estate) industry. This transition from an older regime of industrial manufacturing to a new regime of finance, real estate, and risk-mediated transactions has resulted into new socio-spatial and cultural formations. New York fiction itself has tackled these changes, and an extraordinary exemplar of such literature is Jay McInerney's Brightness Falls (1992). The present article is the outcome of interdisciplinary “field work” that combines analyses of fictional, nonfictional, and critical writing, archival research, geographical, cultural, and political theories. More specifically, this fine-grained critique of the novel and its satellite writings deals with the emerging relationship between the arts and the new FIRE economy, manifest through relations of power in the market place, with consequences upon authorial and publishing practices, rhetoric, and the discourses of everyday life.

Lessons Learned from Businesses to Ensure Community Level Recovery in a Postdisaster Period: Case from Adapazari, Turkey

AbstractThis study argues that businesses, as principal units of both the economy and the urban environment, show different performances in the postdisaster period that in turn affect the community-level recovery. To this end, the paper examines the long-term recovery process of businesses through empirical research in Adapazari, Turkey, which was greatly challenged by the 1999 earthquake. A total of 232 respondent firms there were selected through stratified random sampling. Data were gathered via questionnaire designed to identify the factors that determined their success during the recovery process. It is hypothesized that the recovery performance of businesses is affected by a number of factors that are categorized thus: internal factors, response capacity, and the extent of damage within the business recovery model. The findings of the study indicate that business recovery is associated positively with operating in the finance, insurance, and real estate (FIRE) sector, but negatively correlated with ...

How Risky Are Recessions for Top Earners?

How sensitive to business cycles are the earnings of top earners? And, how does the business cycle sensitivity of top earners vary by industry? We use a confidential dataset on earnings histories of US males from the Social Security Administration. On average, individuals in the top 1 percent of the earnings distribution are slightly more cyclical than the population average. But there are large differences across sectors; top earners in Finance, Insurance, and Real Estate (FIRE) and Construction face substantial business cycle volatility, whereas those in Services (who make up 40 percent of individuals in the top 1 percent) have earnings that are less cyclical than the average worker.

Veblen’s Institutionalist Elaboration of Rent Theory

As the heirs to classical political economy and the German historical school, the American institutionalists retained rent theory and its corollary idea of unearned income. More than any other institutionalist, Thorstein Veblen emphasized the dynamics of banks financing real estate speculation and Wall Street maneuvering to organize monopolies and trusts. Yet despite the popularity of his writings with the reading public, his contribution has remained isolated from the academic mainstream, and he did not leave behind a “school.”Veblen criticized academic economists for having fallen subject to “trained incapacity” as a result of being turned into factotums to defend rentier interests. Business schools were painting an unrealistic happy-face picture of the economy, teaching financial techniques but leaving out of account the need to reform the economy’s practices and institutions.In emphasizing how financial “predation” was hijacking the economy’s technological potential, Veblen’s vision was as materialist and culturally broad as that of the Marxists, and as dismissive of the status quo. Technological innovation was reducing costs but breeding monopolies as the finance, insurance, and real estate (FIRE) sectors joined forces to create a financial symbiosis cemented by political-insider dealings — and a trivialization of economic theory as it seeks to avoid dealing with society’s failure to achieve its technological potential. The fruits of rising productivity were used to finance robber barons who had no better use of their wealth than to reduce great artworks to the status of ownership trophies and achieve leisure-class status by funding business schools and colleges to promote a self-congratulatory but deceptive portrayal of their wealth-grabbing behavior.

Trade and Payments Theory in a Financialized Economy

Ricardian trade theory was based on the cost of labor at a time when grain and other consumer goods accounted for most subsistence spending. But today’s budgets are dominated by payments to the finance, insurance, and real estate (FIRE) sector and to newly privatized monopolies. This has made FIRE the determining factor in trade competitiveness.The major elements in US family budgets are housing (with prices bid up on credit), debt service, and health insurance - and wage withholding for financializing Social Security and Medicare. Industrial firms also have been financialized, using debt leverage to increase their return on equity. The effect is for interest to increase as a proportion of cash flow (earnings before interest, taxes, depreciation, and amortization, or EBITDA). Corporate raiders pay their high-interest bondholders, while financial managers also are using EBITDA for stock buybacks to increase share prices (and hence the value of their stock options).Shifting taxes off property and onto employment and retail sales spurs the financialization of family and business budgets as tax cuts on property are capitalized into higher bank loans. Payments to government agencies for taxes and presaving for Social Security and Medicare absorb another 30 percent of family budgets. These transfer payments to the FIRE sector and government agencies have transformed international cost structures, absorbing roughly 75 percent of US family budgets. This helps explain the deteriorating US industrial trade balance as the economy has become financialized.

From Marx to Goldman Sachs: The Fictions of Fictitious Capital, and the Financialization of Industry

Classical economists developed the labour theory of value to isolate economic rent, which they defined as the excess of market price and income over the socially necessary cost of production (value ultimately reducible to the cost of labour). A free market was one free of such ‘unearned’ income – a market in which prices reflected actual necessary costs of production or, in the case of public services and basic infrastructure, would be subsidized in order to make economies more competitive. Most reformers accordingly urged – and expected – land, monopolies and banking privileges to be nationalized, or at least to have their free-lunch income taxed away. In keeping with his materialist view of history, Marx expected banking to be subordinated to the needs of industrial capitalism. Equity investment – followed by public ownership of the means of production under socialism – seemed likely to replace the interest-extracting ‘usury capital’ inherited from antiquity and feudal times: debts mounting up at compound interest in excess of the means to pay, culminating in crises marked by bank runs and property foreclosures. But as matters have turned out, the rentier interests mounted a counter-Enlightenment to undermine the reforms that promised to liberate society from special privilege. Instead of promoting capital investment in an alliance with industry and government, financial planners have sponsored a travesty of free markets. Realizing that income not taxed is free to be capitalized, bought and sold on credit, and paid out as interest, bankers have formed an alliance between finance, insurance and real estate (FIRE) to free land rent and monopoly rent (as well as debt-leveraged ‘capital’ gains) from taxation. The result is that today's economy is burdened with property and financial claims that Marx and other critics deemed ‘fictitious’ – a proliferation of financial overhead in the form of interest and dividends, fees and commissions, exorbitant management salaries, bonuses and stock options, and ‘capital’ gains (mainly debt-leveraged land-price gains). And to cap matters, new financial modes of exploiting labour have been innovated, headed by pension-fund capitalism and privatization of Social Security. As economic planning has passed from government to the financial sector, the alternative to public price regulation and progressive taxation is debt peonage.

Mega-events, Local Economies, and Global Status: What Happened before the 2008 Olympics in Beijing and the 2010 World Expo in Shanghai

Mega-events such as the World Cup and the Olympics have been used for economic development, urban transformation and global status enhancement. Beijing and Shanghai embraced these purposes when they won the bids for the 2008 Olympics and the 2010 World Expo respectively. This article examines the pre-event economic changes in Beijing and Shanghai that are associated with their pursuit of mega-events. Changes in a group of economic indicators are tracked from 1997 to 2006. It was found that after winning the bids for the Olympics and the World Expo, Beijing and Shanghai experienced greater growth in construction and tourism, a speeding-up in economic development and restructuring, and an improvement in physical infrastructure. However, the enhancement of global exposure was not accompanied by growth in foreign trade and in the finance, insurance and real estate (FIRE) industries. The empirical analyses place the mega-events in large economic contexts and provide a base for future post-event studies.

EMPIRICAL IMPACT OF PUBLIC INFRASTRUCTURE ON THE JAPANESE ECONOMY*

We study the impact of public capital investment on individual sectors of the Japanese economy using time-series data for the period of 1970–1998. We employ a production function approach and also estimate a dynamic VAR/ECM model. We find significant differences in the employment effects, output effects and private investment effects across sectors. Public capital investment has a positive effect on employment in the finance, insurance and real estate (FIRE), manufacturing, construction and utilities sectors; on private investment in the FIRE, agriculture, transportation, trade and services sectors; and on output in the mining, FIRE, trade and manufacturing sectors.

The contours of stratification in service-oriented economies

Theorists argue that service economies have relatively high inequality because dichotomies have developed between manufacturing and service industries, and between knowledge-intensive and labor-intensive service industries. Researchers, however, have not adequately tested hypotheses arising from this theory. We overcome this weakness by examining, hierarchically, the effects of service industry employment and the size of Finance, Insurance and Real Estate (FIRE) industries on individuals’ income in metropolitan statistical areas. Using the 2002 Current Population Survey, we find that dichotomies exist among industries in the service economy that help generate high incomes among upper-echelon occupations, particularly in the knowledge-intensive services and manufacturing industries. These incomes, however, are not available to laborers and service workers. Furthermore, we find that FIRE industry size impacts the wages of managers and service workers in more complicated ways than previously theorized. These findings help clarify the contours of stratification in the contemporary service-oriented economy.

Firm Location in a Polycentric City: The Effects of Taxes and Agglomeration Economies on Location Decisions

The authors explore the determinants of firm location in a polycentric city with the aid of data for the Houston region. Firm location is modeled in a discrete-choice framework, with eight employment centers and outlying areas used as possible choices. Agglomerative and dispersive forces are explicitly treated, as are taxes and other characteristics that vary over space. The findings suggest that property taxes have large deterrent effects on firm locations for the four industrial groups analyzed here: oil and gas; manufacturing; finance, insurance and real estate (FIRE); and services. When agglomeration economies are present, they are weaker than the tax effects and are positive for only the FIRE and services industrial groups.

The Changing Occupational Structure of Large Metropolitan Areas: Implications for the High School Educated

ABSTRACT:This article examines employment trends in broad occupational categories during the 1986 to 1999 period for a group of 50 large United States metropolitan areas. After describing the secular trends, I estimate a cross-sectional model to quantify the effects of local industry mix and labor-saving technology on the occupational employment distribution in these urban areas. Despite quite heterogeneous occupational employment distributions among the 50 MSAs, I find a strikingly uniform decline in the share of mid-skilled administrative support and precision production, craft and repair occupations appropriate for high school graduates and growth in the share of high-skilled managerial and professional occupations, suggesting skill and wage polarization. The regression analysis indicates that the share of mid-skilled employment in large metropolitan areas is positively associated with the output shares of the durable manufacturing and finance, insurance and real estate (FIRE) industries and negatively associated with the introduction of labor-saving technologies in these industries. I conclude by reviewing local policy initiatives that may improve labor market outcomes for high school graduates.

The Dynamic Adjustment Process of Firm Entry and Exit in Manufacturing and Finance, Insurance, and Real Estate

This article examines the dynamic adjustment process of firm entry and exit in manufacturing and finance, insurance, and real estate (FIRE). The object is to extend our knowledge of firm dynamics to include firm exit as well as nonmanufacturing firms. This interindustry comparison of firm dynamics uses a unique longitudinal firm-level data set containing over 13,000 firms. I report three main findings. First, in both industries firm entry is characterized by a decline in the first two moments of the growth rate distribution and by a rise in the first two moments of the relative firm size distribution as firms age. Second, in both industries firm exit is characterized by falling mean growth rates and mean relative firm size for a number of periods prior to exit. Third, relative to FIRE, firm entry and exit in manufacturing is a longer process and involves larger adjustments in relative firm size.

THE CHANGING METROPOLITAN STRUCTURE OF ATLANTA, GEORGIA: LOCATIONS OF FUNCTIONS AND REGIONAL STRUCTURE IN A MULTINUCLEATED URBAN AREA

The study of suburban downtowns in the past has emphasized the emergence of multinucleation in urban structure and the growing independence of multiple urban realms. The purpose of this study is to develop a framework to identify and compare the employment profiles of each downtown in a metropolitan area, including the CBD. Using data on retail employment, services, and finance, insurance, and real estate (FIRE), the four downtowns that exist in the Atlanta region are examined, together with scattered-site employment. This study suggests that downtowns, rather than existing as independent urban realms, are mutually interdependent based on work-trip commuting patterns, shopping behavior, and traffic flows in general, all of which increasingly are automobile based. Mass transit ridership suffers from its primary focus on radial services to and from the CBD and poor service levels to other downtowns and to scattered employment sites.

The Location of Foreign Direct Investment in Finance, Insurance and Real Estate in the United States

ABSTRACTThis study examines the spatial distribution of foreign direct investment (FDI) in finance, insurance, and real estate (FIRE) in the United States. A set of locational determinants is selected from the literature on the location of U.S. service industries to explain the pattern of foreign service firms' direct investment activity in the United States. These determinants are the agglomeration of domestic producer services, the share of metropolitan population, the value of commercial and industrial property, and population growth. The effects of these factors are also found to vary across U.S. regions. For example, an increase in the value of land parcels positively influenced the growth of FDI in the South. However, the effect of a rise in land value detracted foreign investment in the Northcentral region. Such findings necessitate future research on FDI in the nonmanufacturing sector at disaggregated spatial scales in order to understand the impact of FDI on local economies.

THE CORPORATE ROLE OF LARGE METROPOLITAN AREAS IN THE UNITED STATES

ABSTRACTThis study has three purposes. The first is to determine, for the 30 largest U.S. metropolitan areas in 1980. the relationship among population size, the number of major corporations headquartered in these centers, and the number of subsidiaries located there. The expectation is that there will be positive relationships in all cases. Second, this study, based on variations in the relationships examined above, sets forth a corporate classification of the 30 metropolitan areas and identifies common characteristics and locations among six categories of centers. Finally, using the six‐fold classification of centers, metropolitan employment growth between 1980 and 1986 is analyzed, especially job growth in services and in finance, insurance, and real estate (FIRE). The six‐fold classification proves useful in understanding employment growth in these 30 centers during the 1980s and, with modifications, perhaps beyond.

Modeling Sectoral Economic Activity at the SMSA Level: Finance, Insurance, and Real Estate

This paper presents an econometric model of finance, insurance, and real estate (FIRE) sectoral economic activity and proves the feasibility and desirability of increased disaggregation and detail in modeling regional economic activity. Regional econometric forecasting models in the future will require substantial regional variation. The approach taken in this paper is to assume that the local industrial complexion, regional regulatory framework, and geographical endowments require special attention.