Welcome to Money for the rest of us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it.

I'm your host David Stein. Today is episode 458. It's titled

Dissecting Stock Returns Financial Engineering or Genuine Growth. I recently

read an article by column columnist and associate editor of the Financial Times,

Rana Faruhr. She used a phrase I hadn't seen before,

financialized growth.

We've discussed financialization in the past,

which is the increasing role of financial motives

and markets, financial actors in

domestic and international economies and that's from a definitions from

Gerald Epstein but I hadn't really put that word financialization with the word growth.

Haruhar referenced a paper that came out last summer by principal economist at the Federal Reserve, Michael Smoyanksky.

The papers titled The End of an Era,

the coming long-run slowdown in corporate profit growth and stock returns.

He's predicting stock returns are going to be lower

because the returns were boosted

by an element of financialization, namely lower tax rates and lower interest rates.

And we'll take a look to see, is that financialized growth?

If the growth, in this case corporate profits was due to lower

interest rates or lower tax rates. In the paper Smoyangsee writes from from 1989 to 2019, the S&P 500 Index grew at an impressive real

rate of 5.5% per year, excluding dividends. During the same period, the U.S. economy grew at a real

GDP growth rate, GDP being in the measure of the value that output produced, it grew at 2.5% per year.

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