While Cass is on target in pointing to the waste and abuse in the financial sector, the big question is where is the rest of the economics profession? Supposedly, eliminating waste and corruption was the mantra of “free trade” neo-liberals. But the massive waste and corruption in the financial sector is easy for anyone with clear eyes to see. - Dean Baker
Everyone who reads this publication knows what needs to get built. More grid transmission. More nuclear plants. More housing. More automated industrial capacity. The policy conversation has gotten good at identifying the demand side: permitting reform, regulatory overhaul, federal lending, emergency declarations. All essential, all should continue.
What almost nobody talks about is the supply side of capital. Scratch that, a lot of critics keeps talking about how YIMBYs, industrial policy wonks, and the rest don’t have a clue how to finance their proposals (despite the mountain of literature saying otherwise). That capital exists. There is roughly $6 trillion of it, sitting in American public pension funds, currently being allocated in a way that serves nobody.
Oren Cass’s recent New York Times column describes an American financial sector that has stopped fueling the real economy and started consuming it. Dean Baker, writing at the Center for Economic and Policy Research, endorsed Cass’s diagnosis and added a complementary set of regulatory reform proposals. Both focus on constraining finance: transaction taxes, bankruptcy reform, cultural stigma. Neither addresses where the capital should go instead, or why the largest pool of patient capital in the American economy is the right place to start.
A conservative populist and a progressive labor economist who has called finance a cancer on the economy, arriving at the same diagnosis. I think that’s interesting, especially given how much the capital question matters for everything I care about.
Share
A note on the economics profession’s credibility problem
Part of why people mistrust economics, is the fact that most people see only one side of the profession. The side whose’s public voice applies its skepticism selectively and has an incredibly poor track record both in economics and in finance. Larry Summers warned against “moral hazard lectures” and demanded SVB depositors be made whole immediately in 2023, months after calling student loan relief inflationary and unfair. Moral hazard for borrowers, bailouts for banks. Not lost on the public.
The convergence myth
The countries that followed the more “orthodox” development playbook didn’t converge with rich ones, despite the “advocacy” of that side of the profession. The country that built the world’s largest development bank, directed state capital into infrastructure at a third the cost, and added more industrial robots in 2023 than the rest of the world combined did. China’s state-directed industrial policy accounts for roughly three-quarters of the global decline in extreme poverty over four decades. David Oks noted that the three economists who announced a “new era of unconditional convergence” in 2021 came back in late 2025 to say they were wrong: once Chinese growth slowed, poor-country growth collapsed because there was no durable capital accumulation underneath it. Mozambique’s per capita growth fell from 5.2% to 0.3%, Zambia from 3.5% to 0.3%.
... continue reading