“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."