WHAT THE GRAPH IS TELLING US

Specifically, the graph in the previous post shows that since sometime in the 1980s financial assets in the U.S. economy have grown faster than U.S. Gross Domestic Product. The beginning of this faster growth by financial assets coincided with the proliferation of computers. The Information Age is a term often applied to our computer-dependent society, and a variety of sources suggest the 1970-90 time frame as the beginning of the Information Age.

Thus one might conclude that the acceleration in the growth of financial assets over the last 20 years has been due to computers and is a byproduct of the Information Age. How have computers accelerated the growth of financial assets? First, computers facilitated the construction of complex, multi-layered financial products. Where there had once been a one-to-one ratio between a tangible asset--such as a house--and an intangible asset--in the case of the house, the mortgage held by a financial institution--there now could be a one-to-many ratio. The financial institution holding the mortgage could combine it with other mortgages to produce another financial asset, which could be sold to investors or other financial institutions, who could repeat the process. The total amount of financial assets grew faster than the amount of tangible assets supporting them.

The second way computers might have accelerated the growth of financial assets is similar but does not involve such an obvious pyramiding effect. Computers exponentially increased both the ability to create new financial assets and to process existing financial assets. The sheer increase in speed may have resulted in an increase in quantity.

But the graph suggests not just that the accelerated growth of financial assets to 2007 was a byproduct of the Information Age. What has transpired since? A financial debacle. So the graph suggests this causation trail: computers, accelerated growth of financial assets, financial debacle.

In other words, it's all the fault of computers.