Financial sector growth makes a 'Black Monday' darker for many Americans

The gyration also touched far more people than similar incidents in decades past. Thanks to what some experts call “financialization," or the growing encroachment of the financial sector into public and private life, Americans have seen their fates become far more closely intertwined with the day-to-day vicissitudes of the stock market.

A white paper on financialization, published last month by the liberal-leaning Roosevelt Institute, describes the sector’s creep into other spheres of society as “the securitization of public life.” Since the mid-1980s, private financial instruments have taken on some of the functions previously left to the public sector and other more stable institutions, according to the paper.

“When it comes to security in old age, people no longer depend on their companies for pensions, or on the state for Social Security, but rather on their own 401(k)s,” wrote Roosevelt Institute fellow Mike Konczal and Program Manager Nell Abernathy. “Higher education is no longer a state responsibility, or provided collectively, but instead a private, individual investment in ‘human capital’ that one makes with debt contracts, like a miniature corporation."

The rise of the 401(k) plan and other defined-contribution retirement programs has made a growing share of Americans depend on rising stock prices for their long-term financial security. That carries some serious risks, particularly for those investors who are already more economically vulnerable, Konczal told Al Jazeera. 

“It leaves people at the mercy of these financial market gyrations,” he said.

Those gyrations are less likely to harm attentive, knowledgeable, resource-rich investors. Wealthier investors have an advantage because they can outsource management of their financial assets to professionals.

Financialization doesn’t just affect the economic security of many Americans, according to University of Michigan sociologist Jerry Davis; it also has a profound psychological impact on those who find their retirement and other benefits tied to the stock market. Many people may feel like they have more at stake than they really do during a dip in the market such as the one that occurred Monday, he said.

“Even though they don’t have that much invested, it really changes the way, symbolically, they think about themselves,” Davis said. “People see themselves as investors even though their home or their value as laborers have a much bigger impact on their net present value."

That shift in thinking may even nudge the political orientation of many Americans. A 2007 study co-authored by Davis found “a consistent positive relationship between stockownership and identifying as a Republican."

The centrality of financial markets to the American economy also distorts how business leaders behave, according to Wally Turbeville, a senior fellow at the think tank Demos. He said the situation leaves CEOs scrambling to appease major shareholders in the short term, at the expense of long-term investments in things like research and job growth. Democratic presidential frontrunner Hillary Clinton has disparagingly described the drive toward short-term stock growth as “quarterly capitalism."

“CEOs are really performing what their shareholders want, which is to get the very, very short-term share value up so it responds to the needs of investment managers, traders, and Wall Street generally,” Turbeville said. “I think that’s by far the strongest effect of what financialization does in terms of jobs and incomes."