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The basic argument in favor of financial engineering is that it allocates risk more effectively and thereby increases capital formation.  Which is good.  Or would be, anyway, if that’s what happened.  Via Ezra, however, Adam Posen and Marc Hinterschweiger take a look at the growth of credit derivatives over the past decade and conclude that it didn’t:

Clearly, growth in new financial products has outpaced fixed capital formation both globally and in the United States by a large margin. This has been especially true since 2006, when investment stagnated, but derivatives continued to grow at a rapid rate. There only seems to be a weak link, if any, between the growth of the newest complex — and now proven dangerous if not toxic — financial products and real corporate investment.

I would just add one other observation to this: the latest and greatest conservative argument for repealing the estate tax is that it would promote capital formation.  Without an estate tax, rich people will be motivated to earn more money instead of frivolously spending it, and heirs will get nice big chunks of capital to invest in America.  As usual with right-wing economic theorizing, it’s sort of vaguely plausible sounding, and the conservatives pushing it have some nice charts along with a bunch of equations filled with Greek letters to back them up.  But then, so did the Wall Street rocket scientists, didn’t they?  In the event, though, that turned out to be a self-serving argument.  Even trillions of dollars in derivatives didn’t have a noticeable effect.

So then, what are the odds that a change in the estate tax amounting to a few billion dollars will have a serious effect on capital formation either?  Slim.  And what are the odds that this is just another self-serving argument?  That’s an exercise for the reader.

WHO DOESN’T LOVE A POSITIVE STORY—OR TWO?

“Great journalism really does make a difference in this world: it can even save kids.”

That’s what a civil rights lawyer wrote to Julia Lurie, the day after her major investigation into a psychiatric hospital chain that uses foster children as “cash cows” published, letting her know he was using her findings that same day in a hearing to keep a child out of one of the facilities we investigated.

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Like another story about Mother Jones’ real-world impact.

This one, a multiyear investigation, published in 2021, exposed conditions in sugar work camps in the Dominican Republic owned by Central Romana—the conglomerate behind brands like C&H and Domino, whose product ends up in our Hershey bars and other sweets. A year ago, the Biden administration banned sugar imports from Central Romana. And just recently, we learned of a previously undisclosed investigation from the Department of Homeland Security, looking into working conditions at Central Romana. How big of a deal is this?

“This could be the first time a corporation would be held criminally liable for forced labor in their own supply chains,” according to a retired special agent we talked to.

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And it is only because Mother Jones is funded primarily by donations from readers that we can mount ambitious, yearlong—or more—investigations like these two stories that are making waves.

About that: It’s unfathomably hard in the news business right now, and we came up about $28,000 short during our recent fall fundraising campaign. We simply have to make that up soon to avoid falling further behind than can be made up for, or needing to somehow trim $1 million from our budget, like happened last year.

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WHO DOESN’T LOVE A POSITIVE STORY—OR TWO?

“Great journalism really does make a difference in this world: it can even save kids.”

That’s what a civil rights lawyer wrote to Julia Lurie, the day after her major investigation into a psychiatric hospital chain that uses foster children as “cash cows” published, letting her know he was using her findings that same day in a hearing to keep a child out of one of the facilities we investigated.

That’s awesome. As is the fact that Julia, who spent a full year reporting this challenging story, promptly heard from a Senate committee that will use her work in their own investigation of Universal Health Services. There’s no doubt her revelations will continue to have a big impact in the months and years to come.

Like another story about Mother Jones’ real-world impact.

This one, a multiyear investigation, published in 2021, exposed conditions in sugar work camps in the Dominican Republic owned by Central Romana—the conglomerate behind brands like C&H and Domino, whose product ends up in our Hershey bars and other sweets. A year ago, the Biden administration banned sugar imports from Central Romana. And just recently, we learned of a previously undisclosed investigation from the Department of Homeland Security, looking into working conditions at Central Romana. How big of a deal is this?

“This could be the first time a corporation would be held criminally liable for forced labor in their own supply chains,” according to a retired special agent we talked to.

Wow.

And it is only because Mother Jones is funded primarily by donations from readers that we can mount ambitious, yearlong—or more—investigations like these two stories that are making waves.

About that: It’s unfathomably hard in the news business right now, and we came up about $28,000 short during our recent fall fundraising campaign. We simply have to make that up soon to avoid falling further behind than can be made up for, or needing to somehow trim $1 million from our budget, like happened last year.

If you can, please support the reporting you get from Mother Jones—that exists to make a difference, not a profit—with a donation of any amount today. We need more donations than normal to come in from this specific blurb to help close our funding gap before it gets any bigger.

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