Pretty much everyone knows the western world is experiencing one of the worst recoveries on record.  This is quite evident when looking at the incredibly long time it took for employment to get back to where it was in 2008, by the tentative growth in GDP, by the weakness in wage inflation, by the stubbornly high unemployment rates, and by the inexplicably low central bank target rates.

In terms of politics, the weak recovery is one of the many reasons a majority of the American public is tired of the sitting Democratic president. With general frustration with the rate of the current economic recovery, one might ask – could the weak recovery have something to do with finance?

The simple answer to this simple question is surely yes.  The financial world affects large swaths of the business world, including the price of credit, the price of money, expectations formation, and the divvying up of risk, to name just a few.

Given the importance of the financial world to the economy as a whole, one way to inspect how well the financial sector is doing is looking at employment in the industry.

Financial Employment – by President

The figure shows the percentage growth in employment in the financial industry by president.  The horizontal axis is the number of months into the given presidency. Perhaps unsurprisingly, financial employment under President Obama is the worst in at least the past 60 years, with total financial employment still 1.2 percent below where it was in January 2008.

Financial employment performed the best under presidents Reagan and Eisenhower, with industry employment up over 27 percent during both individuals’ presidencies.  Financial industry employment also performed relatively well under presidents Truman and Clinton at 21 and 18 percent respectively.

One last interesting note is that there’s appears to be a long-term trend towards slower overall growth in the financial industry’s employment practice.  This is evident when noticing that the bottom four performing presidencies have been the past four presidents.  It, of course, doesn’t explain or excuse the lackluster jobs recovery in the financial industry under President Obama’s watch, but it does point to the fact that there are some underlying trends eating away at employment growth in the financial sector.  Unsurprisingly, the same trend is generally present in the overall employment figures, although to a much less noticeable extent.

Total Financial Employment Change by President, 1948 to Today

What’s contributing to the slow financial industry recovery under President Obama?

Interestingly, professional labor market observers can point to at least a couple policy actions that are at least partially to blame for the poor employment recovery in the financial sector.

First, Dodd-Frank.  The latest political fireball lobbed at the financial industry has caused financial firms to rethink their role in commodity trading and other “politically sensitive” activities.  Second, banks are preparing for Basel III capital requirements and other banking regulations, which certainly put downward pressure on the profitability of certain activities. Both of these are Obama Administration initiatives.

Overall, when looking at employment in the financial industry by presidency, the current Obama Administration comes out on bottom, with presidents Reagan and Eisenhower on top.  Among the factors driving the poor recovery in financial industry employment are two policy decisions – Dodd-Frank and Basel III.


Anyone who follows the private equity/venture capital world knows that political entities attempt to recruit business startups.  Over the past few years, leaders in various areas, including New York, Utah, and other traditionally less important areas, have promoted the growth of their startup scene – and their efforts are being rewarded.

What Do the Numbers Show?

Price Waterhouse Coopers has a report on total venture capital investments since 1995.  Total investments peaked in the first quarter of 2000 at about $28 billion.  Following the peak, the technology boom bottomed out in the first quarter of 2003 at about $4 billion.  After bottoming, venture capital investments doubled to about $8 billion in the fourth quarter of 2007 (the doubling doesn’t look that big when the technology boom is included in the graphic). The housing bust knocked off $4 billion, reaching a trough in the first quarter of 2009 at a little below $4 billion.

Since bottoming in 2009, venture capital investments have accelerated again, growing to a little less than $6 billion in the first quarter of 2013, and since, expanding to a projected $10 billion in the second quarter of 2014.

vc deals by year

Slicing the Numbers by State

Let’s take a look at the data since 1995.  The kings of venture capital world are located in California.  Far behind, in second and third places, are businesses headquartered in Massachusetts and New York.  A comparison of how venture capital rankings have changed by year by state follows the line plot.

Perhaps surprisingly, there’s been some big shifting since 1995 among those states not in the top 4 (California, Massachusetts, New York, and Texas), with the biggest change occurring in Utah.  The startup scene in Utah has grown from a ranking of 27th in 1995 to 6th today.  The rise of Utah is amazing given that the population in Utah is less than 1 percent of the total population in the U.S.

Among the states with deterioration in ranking are Kentucky, Louisiana, South Carolina, Tennessee, and New Jersey, which include some of the biggest decliners.

vc deals by year by statevc rankings by year

Startup Scene Growth Since Start of Recovery (after 2009)

On top, again, by a far margin, are startups headquartered in California, at over $72 billion from the first quarter of 2009 to the first quarter of 2014. In second place are startups located in Massachusetts at about $15 billion. Rounding out the top five are New York ($10 billion), Texas ($6 billion), and Washington ($4 billion).

At the other end of the spectrum, businesses headquartered in Alaska (PwC has $0), Wyoming ($11 million), Mississippi ($14 million), Hawaii ($23 million), and West Virginia ($25 million) have seen little growth in venture capital investments since 2009.

cumulative vc investments by year by state


Overall, venture capital investments continue to grow during the economic recovery.  Perhaps surprisingly, when slicing the growth in venture capital investments by state, the recovery has largely been dominated by investments in firms located in California, Massachusetts, New York, and Texas.

Although the numbers show firms in California, Massachusetts, New York, and Texas dominating the venture capital world, some areas show significant gains over the years, including, for example, Utah.  The home of the 2002 Olympics has seen venture capital within its borders expand from a rank of 27 in 1995 to a rank of 6 in 2013.  On the other end, venture capital investment in states such as South Carolina or New Jersey has lost ground over the past 15 years.


Just about everyone that follows politics and economics knows that businesses in the United States dominated the world economy in the 1980s and 1990s.  Really, American-based businesses have been king of the business world since World War II.  That dominance has loudly come to an end.

Unsurprisingly, the end of American dominance of the world’s economies is not evenly distributed, with American manufacturing the worst hit, while such industries as professional services and finance still quite dominant.  The question here is – how long can the financial system of the United States continue to dominate the financial markets of the world?


First, here’s some history on what’s happened globally with American economic dominance since 1980.  The following is the percentage share of measured global economic output by nation.

Share of GDP1980

In 1980, the businesses based in the U.S. were the unquestioned kings of the global economic landscape, accounting for over one-fourth of all measured economic output according to International Monetary Fund (IMF) data.  Far behind in second place were businesses based out of Japan at about 9 percent.

From 1980 to 1990 not much changed.  In fact, the share of the world’s measured economic output became a little more concentrated in the hands of the Americans and Japanese at about 35 percent compared to 34 percent in 1980.

Share of GDP1990

Fast forward to 2000.  From 1990 to 2000, some changes start to appear, with the emergence of China and India-based businesses starting to be globally competitive.  In 2000, business in the U.S. was still far and away the biggest of “big business” countries, accounting for about 24 percent of measured global output, although business in China had grown to 7 percent of global output and India-based businesses accounted for about 4 percent of global output.

Share of GDP2000

Current View

Moving to today – the following shows what the world’s economy looks like in 2014.  Notice anything interesting?  The rise of businesses in China and India.  From 2000 to 2014 (estimated), the share of global output accounted for by businesses headquartered in China or India had doubled from 11 percent in 2000 to 22 percent in 2014.

Share of GDP2014

Now, for an even more sobering look, fast forward to the IMF’s 2019 projection, presented below.  By 2019, IMF economists anticipate businesses in China to surpass the United States, making economic output out of China the largest in the world, surpassing the United States for the first time since 1872.

Perhaps even more interesting, the IMF anticipates economic output in China and India to surpass output out of the U.S. and Japan by an astonishing 2.5 percent.  The 2.5 percent is only 0.2 percent below the size of the Russian economy!

Future of the U.S. Financial System

With this as the backdrop, how long can the U.S. financial system continue to be the envy of the world? The answer to this question, of course, depends on many factors, including the role of the dollar in American trade, the competitiveness of U.S. stock exchanges, the role and power of the U.S. military, government regulation, confidence in American finance, and a few others.

One potential answer is – the decline has already started.  Take a look at the following graphic showing the growth in employment in the financial industry by business cycle from peak to peak.  The label for each line represents the year in which a peak occurred.

Financial Employment from Peak

The figure clearly shows that the recent financial crisis is the worst on record for financial industry employment, still about 5 percent below its peak, whereas most industries are quite close to being back to their previous peak.  Hopefully this graphic is not indicative of the end of American financial dominance, but one never really knows until it’s already happened.

Overall, businesses in the U.S. don’t dominate the global economic landscape anymore.  How long can American finance continue to be the king of the financial world?  It is, of course, anyone’s guess, although there’s reason to believe that American financiers should start thinking long and hard about their future role in the global financial system.


Why Are Venture Capitalists So Interested in Education?

June 16, 2014

Innovation in the education area may have a bright future after all, at least if one judges it by the exponential growth in venture capital interest. Overall, data out of Pitchbook indicate strong growth in deal activity and the total invested capital in U.S.-based education startups over the past ten years. Total invested capital has grown […]

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Is Politics Dominating Central Banks Now?

June 2, 2014

The practice of central banking involves a good deal of guesswork on behalf of economists.  When one combines economists’ guesswork with interested elected representatives, one gets a fascinating dynamic whereby there’s a constant push and pull on monetary policy.  There was a time, not long ago, when economists fiercely defended the idea of a politically […]

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How Has Financial Employment Performed Over the Past 11 Business Cycles?

May 19, 2014

Most everyone has seen the following chart of employment change from peak to peak for the past 11 business cycles. (Some analysts choose to ignore the 1943 recession for shock reasons, essentially making 2008 look the least appealing of them all.) The label for each line represents the year in which the recession started; the vertical […]

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The Story Liberals Don’t Want You to Hear

May 5, 2014

Since the onset of the economic crisis in late 2007, liberals and conservatives (and economists with like-minded leanings) have been ferociously debating two issues – inflation and debt.  On inflation, liberals generally argue that inflation wasn’t an issue.  By arguing such, liberals were able to claim that the best way to deal with the economic […]

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Private Equity and Carried Interest

April 21, 2014

Carried interest continues to be a topic of discussion among certain elected officials.  The Obama Administration’s 2015 budget recommendations included a proposal to tax gains from carried interest at the personal income tax rate as opposed to the current capital gains tax rate. If Congress went along with the Obama Administration’s tax increase proposal, the tax […]

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Is Financial Employment Correlated with High Minimum Wage Laws?

April 7, 2014

With minimum wage laws a topic of policy discussion recently, this article asks the question –is there a correlation between higher minimum wage rates and financial employment by state? The main theory is that states with financial centers may get pressure from the public to increase the minimum wage above what elected officials experience in […]

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Hours per Week and Annual Pay – Who is on Top?

March 24, 2014

Individuals in the private equity industry work a lot.  They also make a lot for those long hours. If one divided working individuals into 10 hour groups – meaning some percentage of individuals work 40 to 49 hours per week and some individuals work say 80 to 89 hours per week – which hour group […]

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