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America's capital markets
The United States has about 4% of the world's population, 25% of the world's economy, and 50% of the world's capital markets. Finance is a critical piece of that exceptionalism. The country set up institutions to keep markets working: the Federal Reserve in 1913, the SEC in the 1930s, and the Commodity Futures Trading Commission, among others. They have mostly stayed focused on public goods like access, transparency, fairness, and competition.
Bigger, but not better
The bigger economy is certain. A better economy is a separate question, because the wealth and income inequality is far higher. Inequality leads to polarization, and many political scientists study the relationship between the two.
The same financial system that built that strength is the one funding the AI boom, and potentially bubble, that the US is living through now.
Why was the Federal Reserve created in 1913?
The Panic of 1907 sent banks across the country into crisis, and J.P. Morgan personally organized a rescue because no central bank existed to lend in an emergency. Congress then set up the National Monetary Commission in 1908 to study the problem. President Woodrow Wilson signed the Federal Reserve Act in December 1913. The act created a system of regional Reserve Banks overseen by a board in Washington.
Why was the SEC created in the 1930s?
The 1929 stock market crash and the years of losses that followed shook public confidence in how securities were sold and traded. Congress passed the Securities Act of 1933, which required companies selling stock to disclose information to investors. The Securities Exchange Act of 1934 created the Securities and Exchange Commission to enforce those rules. Joseph P. Kennedy became its first chairman.
How are inequality and polarization linked?
Political scientists Nolan McCarty, Keith Poole, and Howard Rosenthal documented in their book Polarized America that the gap between parties in Congress and income inequality have both widened since the 1970s. Their data tracked the two trends moving together over several decades. Researchers have proposed several explanations for the pattern, including immigration, changes in the economy, and the shifting makeup of the parties. The authors presented the link as a correlation they sought to explain.
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