A conservative economist just published the most widely-read critique of financialization in years. His diagnosis is devastating — and incomplete.
Last week, Oren Cass of American Compass published a sprawling essay in The New York Times arguing that the finance industry is, essentially, a grift. He marshaled compelling evidence: Goldman Sachs lends less than 2% of its assets to operating businesses. Business investment has fallen from 5.2% of GDP in the 1960s to 2.9% today. Private equity underperforms the S&P 500 over every meaningful time horizon. Seventy to ninety percent of mergers destroy value. Intel, Boeing, and GE cannibalized themselves through stock buybacks while foreign competitors ate their lunch.
As someone who co-founded an investment firm in 2007 on the premise that capital allocation should serve intrinsic value creation rather than parasitic extraction, I found myself nodding vigorously through much of it. I’ve been making a version of this argument for nearly two decades, and it’s significant that a prominent conservative economist is now saying it plainly in the Times.
So let me be clear about where we agree: financialization — the transformation of financial markets and transactions into ends unto themselves, disconnected from productive enterprise — is corrosive. It hollows out businesses, strips communities, concentrates wealth, and misdirects not only capital but also the most ambitious talent in America toward activities that produce nothing of durable value. Cass is right that we should stop calling it “investing” when no investing occurs. He’s right that the emperor has no clothes.
But Cass’s essay suffers from two fundamental blind spots that prevent him from seeing the full picture — and from offering a credible path forward.
Extraction Doesn’t Require a Trading Desk
Cass draws a clean line between parasitic finance and productive industry. But his framework treats all tangible production as inherently superior to financial engineering, and that’s sloppy economics. An incumbent business model propped up by hundreds of billions in annual subsidies, externalizing its true costs onto public balance sheets, isn’t real productive enterprise — it’s a different flavor of the same Wall Street extraction Cass decries. The meaningful distinction isn’t so much between finance and industry. It’s between activities that create intrinsic and durable economic value and those that extract it, regardless of whether the extraction runs through a Bloomberg terminal or a pipeline.
Shaming Won’t Build What’s Next
Cass’s prescriptions are entirely defensive: regulate risky financial activities, ban stock buybacks, impose transaction taxes, shame young people out of taking jobs at Blackstone. Some of these are reasonable enough. But notice what’s missing: any affirmative vision for where capital should go.
This is where Next Economics parts company with Cass most sharply. We don’t just need to stop the bleeding. We need an investment thesis for building what comes next.
Here it is: the largest economic opportunity in human history is solving the systemic risks that threaten civilizational stability — climate disruption, resource degradation, human disease burdens, and structural inequality. The companies doing this work aren’t virtue signaling. They’re delivering superior economics right now, because the solutions to systemic risks are, by definition, exponentially more productive than the systems they replace. That’s not idealism. It’s cost-curve analysis.
Solar and wind are the cheapest electricity sources ever deployed by humanity. Electrified transport is mechanically simpler, cheaper to maintain, and more efficient than combustion. Precision medicine, advanced materials, sustainable agriculture, next-generation semiconductors — these aren’t ESG screen passes. They’re the foundation of what we call the Next Economy, and they represent the modern equivalent of Cass’s beloved “railways through Africa” — except oriented toward building rather than extracting.
Cass wants to return to the mid-twentieth century, when engineers earned as much as financiers and capital funded tangible enterprise. I understand the appeal. But the answer isn’t restoration. It’s construction. The economy that produced broad-based prosperity in the postwar era also produced the systemic risks we now face. We need something genuinely new. As that wild haired old scientist put it, “We cannot solve our problems with the same thinking we used when we created them.”
The Finance We Actually Need
Here’s the irony Cass doesn’t address: his essay appeared in the Times the same week that record Wall Street bonuses were announced, and at the same time that traditional ESG has become so captured by incumbents that MSCI gives higher ESG ratings to oil majors than to many of the most innovative companies on earth. ESG, as conventionally practiced, is itself a form of financialization — a layer of fees and ratings and indices that creates the appearance of responsible capital allocation while changing almost nothing about where money actually flows.
But the solution to bad finance isn’t no finance. It’s good finance. The Dawes bank model that Cass romanticizes — consolidate savings, allocate to productive enterprise, share returns — is precisely what thoughtful active managers can do when they understand which enterprises are genuinely productive for the next fifty years, not just the next quarter.
That requires an investment framework oriented not toward backward-looking benchmarks and index composition, but toward forward-looking analysis of which companies are building durable competitive advantages by solving real problems. It requires understanding that “best use of capital” cannot be defined purely by short-term financial return — not because we should sacrifice returns, but because the highest long-term returns will come from companies whose products and services are gaining market share by being more productive and competitive, and providing what the world increasingly and urgently needs.
The Convergence That Matters
There’s something genuinely important happening when a conservative economist publishes a 3,300-word broadside against financialization in the New York Times and it becomes the most-discussed opinion piece of the week. It means the intellectual ground is shifting.
Cass is right that this isn’t a left-right issue. The parasitic extraction he describes harms workers and communities across the political spectrum. But the path forward requires more than critique and regulation. It requires a new theory of productive investment — one that recognizes that the systemic risks financialization ignores are also the systemic opportunities that the next generation of great companies will be built to solve. Financialization is what happens when capital has nowhere productive to go and invents games to play with itself. The cure isn’t to put capital in a cage. It’s to show it where the future is being built and let the invisible hand do what it was always supposed to do.
Garvin Jabusch is Co-Founder and Chief Investment Officer of Green Alpha Advisors, which has managed Next Economy portfolios since 2007.
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