The Financialization of America: Who Gets to Build Wealth?

Apr 7

I. What Changed

For Americans a lot feels very expensive right now; housing, rent, groceries, and interest rates all seem inflated from the incomes that households earn. The common explanation for these price increases is inflation, but that only tells part of the story. What is happening today reflects a longer-running, structural shift in how the US economy functions.

In my current read Homer’s Iliad, Achilles is offered a choice: a long comfortable life of obscurity, or a short life of glory as a warrior that would be remembered. The American economy has made a version of that same trade, choosing financial returns and shareholder primacy over stability and structure. Over the past forty years, the US has moved away from a rules-based system built around production, wages, and output and toward one driven by finance, markets, and assets. The results is an economy where asset prices have grown far faster than incomes, turning affordability into a mainstream, structural issue rather than a temporary one.

II. The Old System – Stability, Growth, and How it ended:

In the decades after WW2, the US operated under a different economic structure, one founded on the pillars of production, national output, and broad growth. But what made it work was not just undeniable manufacturing strength, but also the set of financial walls that kept capital anchored in the domestic economy.

Real GDP grew at 3.9% annually from 1946 to 1969, median family income nearly doubled between 1949 and 1969, growing in the ten years after the war as much as it had in the previous 50 years combined. Homeownership rose from 43.6% in 1940 to nearly 65% by 1970, and in the 1950s, the lowest income families saw their incomes grow faster than the top 5%. Growth was broad-based, homeownership widely available, and jobs abundant as the golden age of the US came into fruition. The system was deliberately built to keep capital anchored in the domestic economy, as the Bretton Woods agreement permitted capital controls and the Glass-Steagall act separated commercial and investment banking to reduce speculative action among consolidated firms. Additionally, the GI Bill of 1944 put the principle of broad homeownership into practice, as 2.4 million returning soldiers secured home loans with no down payment between 1944 and 1952 and contributed to the suburbanization of the United States. Adam Smith realized in the Wealth of Nations that a country’s wealth lies in production and labor not in speculative financial instruments.

While the system produced broad prosperity that had never been seen before in modern history, there were constraints which are worth mentioning. The broader model also depended on American global dominance that was never going to last. The US was the main creditor of the world as Europe and Asia were in ruins, revealing itself through the Marshall Plan which helped rebuild post-war Europe. But as these countries rebuilt and competition intensified, growth and productivity slowed, and by the 1970s inflation climbed, Bretton Woods collapsed, and stagflation destroyed the old structure. Capital has also been able to move much faster as technology and financial transactions have developed, replacing the old system of slow-moving, deliberate economic planning.

III. The New Economy

The response to the Stagflation of the 1970s reshaped the American economy, as the Federal Reserve broke inflation through the “Volker Shock” which sharply increased interest rates to nearly 20% in the early 1980s. Capital controls were removed and currencies were changed to the free-floating fiat system. Glass-Steagall was also steadily reduced through regulatory changes before its formal repeal in 1999. Global trade accelerated, and the finance sector’s share of GDP grew from 2.8% in 1950 to 4.9% in 1980, which then accelerated to nearly 8% by the mid-2000s. By 2010, finance accounted for 50% of all US corporate profits, up from 10% in 1947. Shareholder primacy replaced long-term capital investment and production as the organizing function of the corporate mission. Reform through ERISA in 1974 set the stage for 401(k)s, tying retirement to market performance, so Americans were no longer just workers, they became participants in global financial markets.

Despite this the gains were real, financialization allowed for faster capital formation, expanded large-scale entrepreneurship, and powered the technology and services sector in ways that have never been seen before. The modern economy is more robust, dynamic, wealthier, and innovative. But the same system changed who captured this growth, for millions of Americans, the lived experience has been rising costs and lower access.

IV. The Affordability Divide

The clearest evidence of growing affordability concerns that I have previously highlighted is housing, which is a foundational part to US prosperity and the American dream. In 1985, the median US home costed roughly 3.5 times the median household income. By 2023, the gap has climbed to 5.3 and in major coastal markets, that gap exceeds 10. Between 1985 and 2023, median home prices rose 408% in nominal terms while median household income rose 241%. The median age of a first-time homebuyer has reached almost 40 years old, and it now takes an average of 7 years to save for a 20% down payment which was double what it was pre-pandemic. Housing did not just get more expensive, it became a financial asset, appreciating not because of what people earn but because of the competition in the market. Regarding wages and productivity, the Economic Policy Institute finds that from 1974 to 2025 productivity has grown almost 3 times as much as hourly pay. Finally, total outstanding credit card balances have risen from under $500 billion dollars in 1999 to just under $1.3 Trillion dollars in 2025, reflecting the growing financial strain on households, and interest-based burden some people hold.

John Adams wrote that “the moment the idea is admitted into society that property is not as sacred as the law of God, and there is not a force of law and public justice to protect it, anarchy and tyranny commence.” His point cuts both toward the public and private sectors, a society that fails to protect property rights loses stability, but one where ownership becomes exclusive loses the broad-based participation that sustains our representative government. The affordability divide is not just an economic problem, but a civic one for the survival of our nation.

V. So, Where to?

America did not simply become more expensive but became more financialized and while that is not necessarily a bad thing, the path forward remains a balanced, pragmatic approach. It does not require dismantling markets, but it requires asking a harder question. How do we build a realist economy in today’s globalized world, where American growth reaches more Americans?

On housing, the most direct way is to expand supply, this includes zoning reform, higher-density constructing in metro areas and can easily be passed in state legislatures and the Federal government. Due to the laws of supply and demand, more homes built means more homes for people to buy which means downward pressure on prices. Expanding first-generation homebuyer programs (GI Bill 2.0), down payment assistance plans, and introducing FHSAs (First-Time Homeowner Saving Accounts) for young-Americans can help bridge the gap while long-term capital allocation and supply catch up.

Regarding wages, the most real approach to connect productivity to compensation would be to expand profit-sharing models for employees, end the ESHI tax exclusion to increase take-home pay, and decrease the income and property tax burden on lower-middle to middle-class households.

On the financial structure itself, it is not about ending the system or reforming it but tweaking federal policy for employees and consumers, as well as households so the participation in wealth creation can help everyone. This includes expanding classroom financial literacy courses in middle schools and high schools, expanding the Trump Investment accounts for newborns, advertising 529s for all households, and reforming HSAs to include all insurance classes.

As James Madison understood, good institutions do not emerge from good intentions alone, if so, men would be angels. These systems require deliberate designs, and for the economic system of the US understanding the shift is the first step.

For young Americans especially, the stakes are enormous, our generation entering the economy today faces home prices five times their income, student debt their parents never inherited, and a retirement system that requires intelligent market participation. While we will continue the American dream, the structure we currently have was not built for us. But the structure can be adjusted to expand access, reward hard-work, and create wealth never before imaginable with technological capabilities.

Congressional Research Service — "The Glass-Steagall Act: A Legal and Policy Analysis" (2016)

Federal Reserve History — "Banking Act of 1933 (Glass-Steagall)"

Economic Opportunity Institute — "The Lost Decade of the American Middle Class"

Federal Reserve Bank of St. Louis (FRED) — Real Median Family Income in the United States

CBPP — "A Guide to Statistics on Historical Trends in Income Inequality" (2024)

Richmond Fed — "A Look Back at Financial Repression" (2021)

HUD User — "A History of the Rise of Homeownership in the United States" (2025)

Centre for Public Impact — "The US GI Bill: The New Deal for Veterans"

Greenwood & Scharfstein — "The Growth of Finance," Journal of Economic Perspectives (2013)

The Century Foundation — "How the Financial Sector Consumed America's Economic Growth"

Visual Capitalist — American Income vs. Home Prices, 1985–2025

Statista — Median House Price vs. Median Income in the U.S. (1985–2023)