Income-based model versus asset-based model

[Americano]

Here's a (IMO because its written in layman terms) decent article on what the US and UK face in their nightmare switch from traditional income based economic growth to targeted inflation of assets (derivatives):

http://www.atimes.com/atimes/Global_Economy/KE22Dj02.html

[Michael]

Here's a (IMO because its written in layman terms) decent article on what the US and UK face in their nightmare switch from traditional income based economic growth to targeted inflation of assets (derivatives):

http://www.atimes.com/atimes/Global_Economy/KE22Dj02.html

Yes, an excellent article - thanks for sharing that. :)

I have a few comments to make though.

I think the author over-reaches by attacking the idea of the traditional boom and bust cycle. That's still out there even if this particular bust is fundamentally different. Indeed, I'd argue that the 'asset-inflation' cycle has its roots in the attempt to eliminate recessions in the first place with near zero (real) interest rate policies in 1991/92 and again 2000/01 - and now again in 2008/09.

As for the US housing market, I just read today at Calculated Risk (blog) that first-time homebuyers normally make up about 10% of the housing markets, 10% are speculators and 80% are homeowners that are selling one house to buy a larger one or for moving. However, as the linked article here notes, 50% of the present house-buying market (mostly forclosure resales) are first time homebuyers. That's still a sign of market weakness and/or a sign of maturity in a falling market, not a 'bottom'. First-timers are attracted to 'dirt-cheap' not necessarily 'good value'. The real value buyers are the absent ones and that means prices are still expected to fall.

As for the central theme of the article, the 'income vs asset' model, I agree entirely. One point I'd make is that the US and UK are not alone or unique here and again, I think the author over-reaches with that point. It detracts from the general argument itself (which is strong) to attach all these extra arguments that are very weak and can be disputed.

For example, I'd say the USA and UK are merely the most advanced on the trend (as they are with most new 'trends' in capitalist techniques). All the other Western economies have been playing the exact same game, only on smaller scales, with perhaps less scope and variety (and even less transparency). Ireland, Iceland, Spain, Estonia, Latvia, Poland and Hungary have all been playing at the same 'asset-model-inflation' finance operations almost as much as US & UK in the last round.

France, Germany, Netherlands and Canada as well of course, but much less so than all the others mentioned. In these last cases, the securitization process was mostly prevented from getting out of hand by government regulators.

Overall though, I agree entirely with the general argument of the article - that the 'asset-based' model that has become apparent in US and UK seems destined to cause serious long-term damage. That was precisely my own argument against the bank-bailout scheme. I've been arguing that it is the financial sector itself that is the 'bubble' at the core here.

[Americano]

I think the inflated asset model has already caused long-term damage, unless one believes proclamations by Helicopter Ben and Wall Street economists of US economic recovery happening in the latter half of 2009. I just don't see any strengths in the US economy capable of actually reversing the decline other than more funny numbers created by ongoing public debt facilitation, yet another debt bubble.

[Daktoria]

The funny thing about the asset-based model is that it's exactly what the Austrian and Chicago schools have warned about yet the government wants to turn around and use Keynesian spending methods to fix it all. :ummm:

We're not a manufacturing economy, and we don't have the means to revive manufacturing here due to the abundance of low cost and high expertise alternatives abroad. Yes, we have a technological edge, but since we're so willing to sell our education at such cheap prices to foreigners while expecting very little in return to contribute to our national interests, it's only a matter of time before we lose this technological edge forever.

What we need to do (and should have prepared for by the time the Cold War ended) is expand our investment expertise such that the working class would transition into an investment class that invested abroad in foreign ventures. Take it as a neoliberal/mercantilist hybrid if you want, the only way we will be able to hold onto our paramount standard of living is if we acquire new sources of wealth which can support our level of consumption. For two decades we've heard that our savings have been getting drained in order to support a consumption based economy, and if we continue to behave as a pig that eats bacon, it won't take long until we become infected with some sort of economic hoof and mouth.

BTW, I'm yet to hear of any serious prophets of gloom and doom that Stroupe refers to in the beginning. Does anyone know of any?

[Michael]

The funny thing about the asset-based model is that it's exactly what the Austrian and Chicago schools have warned about yet the government wants to turn around and use Keynesian spending methods to fix it all. :ummm:

Seems like the "Chicago" set supported the bailout. No real surprise there.

I'd associate the whole of the 'asset-model' (and all the deregulatory actions needed to drive it) with the Chicago-set.

We're not a manufacturing economy, and we don't have the means to revive manufacturing here due to the abundance of low cost and high expertise alternatives abroad.
That the US is not a manufacturing economy ANYMORE is simply a function of US political policy choices.

Btw, Germany and Canada both drive their economies based on high value exports - with the export trade being the largest single component of each economy. Both Germany and Canada (for example) are high wage countries with higher taxes and (arguably) higher standards of living than the USA.

The decline of US manufacturing was a decision of US politics, not something inevitable, predestined or preordained.

Indeed, I'd say the lack of a universal healthcare policy is one of the main nails in the coffin of US manufacturing. That's a policy decision, not fate.

Yes, we have a technological edge, but since we're so willing to sell our education at such cheap prices to foreigners while expecting very little in return to contribute to our national interests, it's only a matter of time before we lose this technological edge forever.
Does the US have a technology edge at all? Patent filings don't seem to bear this out.

US doesn't get much bang for all the billions of Government funded R&D. Good for private profits though.

What we need to do (and should have prepared for by the time the Cold War ended) is expand our investment expertise such that the working class would transition into an investment class that invested abroad in foreign ventures. Take it as a neoliberal/mercantilist hybrid if you want, the only way we will be able to hold onto our paramount standard of living is if we acquire new sources of wealth which can support our level of consumption. For two decades we've heard that our savings have been getting drained in order to support a consumption based economy, and if we continue to behave as a pig that eats bacon, it won't take long until we become infected with some sort of economic hoof and mouth.
Asset-appreciation isn't a viable method of wealth creation. That's the point of the main article.

Assets don't appreciate by themselves. That usually requires some artifice, limits, barriers, subsidies or incentives to make that happen.

And even if assets appreciate, there's nothing stopping them from 'un-appreciating'. Thus, assets are a fool's way of getting rich. If you are lucky, it works.

[Americano]

The funny thing about the asset-based model is that it's exactly what the Austrian and Chicago schools have warned about yet the government wants to turn around and use Keynesian spending methods to fix it all. :ummm:

Politically it's the only option available for elected officials in a democracy. To tighten the belt and immediately plunge the standard of living for 25-35% of the population, the bottom tier, would invite ugly civil unrest. What the government IMO is doing is providing a cushion for the fall to avoid the abrupt change of any kind despised by the citizenry.

We're not a manufacturing economy, and we don't have the means to revive manufacturing here due to the abundance of low cost and high expertise alternatives abroad. Yes, we have a technological edge, but since we're so willing to sell our education at such cheap prices to foreigners while expecting very little in return to contribute to our national interests, it's only a matter of time before we lose this technological edge forever.

Labor COGS and expertise has again migrated, something the US general public understandably finds difficult to accept and that's a direct threat to their standard of living. We are a declining empire.

What we need to do (and should have prepared for by the time the Cold War ended) is expand our investment expertise such that the working class would transition into an investment class that invested abroad in foreign ventures. Take it as a neoliberal/mercantilist hybrid if you want, the only way we will be able to hold onto our paramount standard of living is if we acquire new sources of wealth which can support our level of consumption. For two decades we've heard that our savings have been getting drained in order to support a consumption based economy, and if we continue to behave as a pig that eats bacon, it won't take long until we become infected with some sort of economic hoof and mouth.

I don't think an entire nation the size of the US was ever capable of transitioning the working class into an investment class.

BTW, I'm yet to hear of any serious prophets of gloom and doom that Stroupe refers to in the beginning. Does anyone know of any?

I attended a private luncheon in the early 1980s where Paul Volcker, at the time reappointed by Reagan as Fed Chief, was the guest speaker. His closing words (the American public is eventually going to have to learn to live with less) still stick in my mind.

[Americano]

Seems like the "Chicago" set supported the bailout. No real surprise there.

I'd associate the whole of the 'asset-model' (and all the deregulatory actions needed to drive it) with the Chicago-set.


That the US is not a manufacturing economy ANYMORE is simply a function of US political policy choices.

Btw, Germany and Canada both drive their economies based on high value exports - with the export trade being the largest single component of each economy. Both Germany and Canada (for example) are high wage countries with higher taxes and (arguably) higher standards of living than the USA.

The decline of US manufacturing was a decision of US politics, not something inevitable, predestined or preordained.

Indeed, I'd say the lack of a universal healthcare policy is one of the main nails in the coffin of US manufacturing. That's a policy decision, not fate.


Does the US have a technology edge at all? Patent filings don't seem to bear this out.

US doesn't get much bang for all the billions of Government funded R&D. Good for private profits though.


Asset-appreciation isn't a viable method of wealth creation. That's the point of the main article.

Assets don't appreciate by themselves. That usually requires some artifice, limits, barriers, subsidies or incentives to make that happen.

And even if assets appreciate, there's nothing stopping them from 'un-appreciating'. Thus, assets are a fool's way of getting rich. If you are lucky, it works.

Thanks to political pressure, suspension of the fair market value FASB ruling has left the financial community still holding toxic assets which were engineered into derivatives carrying a false value that's anyone's guess. Calling that wealth takes a real dodo or Wall Street con man. As the treasury gang has discovered in trying to peddle US debt, there are no takers with US property values still plummeting while foreclosures continue to rise, both at historically record rates.

[Michael]

Btw, Greece famously sold education to her 'replacement' as Mediterranean hegemon in Rome.

And Britain famously sold education to her 'replacement' as hegemon in the USA.

Now USA is selling education to her 'replacement' as hegemon in China.

The more things change, the more they stay the same. Just the scale gets bigger.

[Americano]

Btw, Greece famously sold education to her 'replacement' as Mediterranean hegemon in Rome.

And Britain famously sold education to her 'replacement' as hegemon in the USA.

Now USA is selling education to her 'replacement' as hegemon in China.

The more things change, the more they stay the same. Just the scale gets bigger.

Ah, you're not buying the 'this is just part of the plan to make (insert empire/country and plan segment) even stronger?

[Daktoria]

Seems like the "Chicago" set supported the bailout. No real surprise there.

I'd associate the whole of the 'asset-model' (and all the deregulatory actions needed to drive it) with the Chicago-set.

Eh? (http://www.bloomberg.com/apps/news?sid=a3GVhIHGyWRM&pid=20601109) Dec. 23 (Bloomberg) -- John Cochrane (http://search.bloomberg.com/search?q=John+Cochrane&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) was steaming as word of U.S. Treasury Secretary Henry Paulson (http://search.bloomberg.com/search?q=Henry+Paulson&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1)’s plan to buy $700 billion in troubled mortgage assets rippled across the University of Chicago (http://www.uchicago.edu/) in September.
Cochrane had been teaching at the bastion of free-market economics for 14 years and this struck at everything that he -- and the school -- stood for.
“We all wandered the hallway thinking, How could this possibly make sense?” says Cochrane, 51, recalling his incredulity at Paulson’s attempt to prop up the mortgage industry and the banks that had precipitated the housing market’s boom and bust.
During a lunch held on a balcony with a view of Rockefeller Memorial Chapel, Cochrane, son-in-law of Chicago efficient-market theorist Eugene Fama (http://search.bloomberg.com/search?q=Eugene+Fama&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), and some colleagues made their stand.
They wrote a petition attacking Paulson’s proposal, sent it to economists nationwide and collected 230 signatures. Republican Senator Richard Shelby of Alabama waved the document (http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm) as he scorned the rescue. When Congress rejected it on Sept. 29, Cochrane fired off congratulatory e-mails.
The victory was short-lived. Lawmakers approved the plan four days later, swayed by what Cochrane calls a pinata of pork-barrel amendments.
“We should have a recession,” Cochrane said in November, speaking to students and investors in a conference room that looks out on Lake Michigan. “People who spend their lives pounding nails in Nevada need something else to do.”
The matter of deregulation is that the market pays when it does stupid things, and the government, as having primarily macroeconomic national interests, shouldn't do anything besides strictly enforce the law in order to remain economically neutral among citizens. Responsible traditions will be forged and revised, imbued into consuming patterns and business practices, and markets will avoid the same mistakes as long as they remember past lessons.

As for how the Chicago school supported the asset based model, you'll have to explain that one to me since the Chicago school was at the forefront of noticing how savings draining for a consumption economy is destined to crash (which is common sense anyway since you can't live off past savings forever).

That the US is not a manufacturing economy ANYMORE is simply a function of US political policy choices.

Btw, Germany and Canada both drive their economies based on high value exports - with the export trade being the largest single component of each economy. Both Germany and Canada (for example) are high wage countries with higher taxes and (arguably) higher standards of living than the USA.

The decline of US manufacturing was a decision of US politics, not something inevitable, predestined or preordained.

Indeed, I'd say the lack of a universal healthcare policy is one of the main nails in the coffin of US manufacturing. That's a policy decision, not fate.Well the U.S. does export almost 3x as much as Canada, so the problem isn't an export problem, heh. (https://www.cia.gov/library/publications/the-world-factbook/rankorder/2078rank.html)

The problem is that we have a trade deficit that can't offset a budget deficit due to how we consume so much.

Regarding health care, that's one of two issues I'm starting to avoid in discussion because there's a million different opinions out there which make a million different claims supporting the issue for anyone who wants to make an empirical appeal to authority. All I know is that a utilitarian cost basis of morality is a great slippery slope for encouraging euthanasia, abortion, and letting the government decide all of your other lifestyle preferences just because certain ones are deemed more healthy than others by some government approved study looked over by a bunch of bureaucrats.

The other issue happens to be legalization of marijuana (figures, right?).

Does the US have a technology edge at all? Patent filings don't seem to bear this out.

US doesn't get much bang for all the billions of Government funded R&D. Good for private profits though.According to this it does. (http://www.intracen.org/tradstat/sitc3-3d/er842.htm) (I've resorted the data by 2005 export values here if you want to check it out. (http://spreadsheets.google.com/pub?key=rSQ3CoOh1FTeJy6Gdf0_jZw&output=html))

Asset-appreciation isn't a viable method of wealth creation. That's the point of the main article.

Assets don't appreciate by themselves. That usually requires some artifice, limits, barriers, subsidies or incentives to make that happen.

And even if assets appreciate, there's nothing stopping them from 'un-appreciating'. Thus, assets are a fool's way of getting rich. If you are lucky, it works.Right, so by taking available liquidity in domestic capital accounts and shifting it to foreign current accounts, we can continue generating income without relying on useless asset price inflation. The problem is most people don't have a clue how to do this or know the right people abroad to get involved, so it becomes a huge pain the neck, education and networking which takes time to establish and should definitely be done now if ever en masse.

[Daktoria]

To elaborate on the standard of living difference, Canada's exports per capita are over 3x America's exports per capita. (http://www.nationmaster.com/graph/eco_exp_percap-economy-exports-per-capita) However, America's GDP PPP per capita is 19.5% larger (http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capita) despite Canada being 1.8% better in HDI (http://en.wikipedia.org/wiki/List_of_countries_by_Human_Development_Index) in light of Canada being 28.7% less unequal in GINI (http://en.wikipedia.org/wiki/List_of_countries_by_income_equality)

In other words, the average American has more purchasing power than the average Canadian despite how Canada ranks marginally higher in average standard of living and significantly higher in income equality. Even when accounting for health care costs (http://www.infoplease.com/ipa/A0934556.html):

U.S.: $46,859 - 6,096 = $40,763
Canada: $39,183 - 3,173 = $36,010
($40,763-36,010)/$36,010 = 13.2% Difference

Nevermind taxes (Budget Revenue (http://www.photius.com/rankings/economy/budget_revenues_2008_0.html)/Population (http://en.wikipedia.org/wiki/List_of_countries_by_population)= Average Taxes):

U.S.: $2,568,000,000,000/306,513,000 = $8378.11
Canada: $565,800,000,000/33,664,000 = $16807.27

U.S.: $40,763 - 8378.11 = $32,384.89
Canada: $36,010 - 16807.27 = $19,202.73
($32,384.89 - 19,202.73)/$19,202.73 = 68.65% difference

Yeah, it's that big. When I divided by American GDP PPP adjusted for health care costs and taxes, it still came out as 40.70% (not that you would do this because you're comparing the difference of the larger to the smaller, not the smaller's proportion of the larger).

Anyway, we all know the saying, "There's lies, there's damn lies, and there's statistics." Well I think this vindicates more than anything why I can't stand empirical proof, eh Mike? :drink:

[Daktoria]

Politically it's the only option available for elected officials in a democracy. To tighten the belt and immediately plunge the standard of living for 25-35% of the population, the bottom tier, would invite ugly civil unrest. What the government IMO is doing is providing a cushion for the fall to avoid the abrupt change of any kind despised by the citizenry.



Labor COGS and expertise has again migrated, something the US general public understandably finds difficult to accept and that's a direct threat to their standard of living. We are a declining empire.



I don't think an entire nation the size of the US was ever capable of transitioning the working class into an investment class.



I attended a private luncheon in the early 1980s where Paul Volcker, at the time reappointed by Reagan as Fed Chief, was the guest speaker. His closing words (the American public is eventually going to have to learn to live with less) still stick in my mind.

Assuming that civil unrest wasn't a priority, what do you think we should do?

By investment class, I mean exposing the working class to management, marketing, and accounting techniques which would help them freelance their expertise abroad as foreman and department heads on foreign projects. America still bears an extensive educational edge despite how our youth public education system is miserable and we educate foreigners in our universities for far less than they deserve without reciprocating promises. If the government co-opted with foreign governments to establish joint venture embassy programs for connecting small businesses, there'd be an awful lot of opportunities at hand.

[Americano]

Assuming that civil unrest wasn't a priority, what do you think we should do?

Idle speculation? Tighten the belt immediately, dump the financial sector gene pool in chlorine and make the inevitable drop in standard of living to avoid ruining the currency.

By investment class, I mean exposing the working class to management, marketing, and accounting techniques which would help them freelance their expertise abroad as foreman and department heads on foreign projects. America still bears an extensive educational edge despite how our youth public education system is miserable and we educate foreigners in our universities for far less than they deserve without reciprocating promises. If the government co-opted with foreign governments to establish joint venture embassy programs for connecting small businesses, there'd be an awful lot of opportunities at hand.

Still far too large a gap between US standard of living/perceived income requirements and developing nations for that to be feasible.

[Michael]

... dump the financial sector gene pool in chlorine ...

Could you be a bit more specific about how you might like to achieve this result (in reality)?

I consider the question to be relevant and serious since we are both in general agreement that it is a desirable policy to see the US banking/financial sector reduced in comparative size to the rest of the US economy.

[Americano]

Could you be a bit more specific about how you might like to achieve this result (in reality)?

I consider the question to be relevant and serious since we are both in general agreement that it is a desirable policy to see the US banking/financial sector reduced in comparative size to the rest of the US economy.

A return to fair market value of assets for book purposes would thin things out nicely and restructuring of Fed requirements to define only commercial, not investment banks as due FDIC and capital protection. The 'financial services' label has allowed growth from speculative leverage to engulf virtually every facet of the US financial structure with the roller coaster results normally expected from speculation. Which is the easy way to transfer risk from private to public hands while the private sector reaps the rewards.

[Michael]

To elaborate on the standard of living difference, Canada's exports per capita are over 3x America's exports per capita. (http://www.nationmaster.com/graph/eco_exp_percap-economy-exports-per-capita) However, America's GDP PPP per capita is 19.5% larger (http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capita) despite Canada being 1.8% better in HDI (http://en.wikipedia.org/wiki/List_of_countries_by_Human_Development_Index) in light of Canada being 28.7% less unequal in GINI (http://en.wikipedia.org/wiki/List_of_countries_by_income_equality)

In other words, the average American has more purchasing power than the average Canadian despite how Canada ranks marginally higher in average standard of living and significantly higher in income equality. Even when accounting for health care costs (http://www.infoplease.com/ipa/A0934556.html):

U.S.: $46,859 - 6,096 = $40,763
Canada: $39,183 - 3,173 = $36,010
($40,763-36,010)/$36,010 = 13.2% Difference

Nevermind taxes (Budget Revenue (http://www.photius.com/rankings/economy/budget_revenues_2008_0.html)/Population (http://en.wikipedia.org/wiki/List_of_countries_by_population)= Average Taxes):

U.S.: $2,568,000,000,000/306,513,000 = $8378.11
Canada: $565,800,000,000/33,664,000 = $16807.27

U.S.: $40,763 - 8378.11 = $32,384.89
Canada: $36,010 - 16807.27 = $19,202.73
($32,384.89 - 19,202.73)/$19,202.73 = 68.65% difference

Yeah, it's that big. When I divided by American GDP PPP adjusted for health care costs and taxes, it still came out as 40.70% (not that you would do this because you're comparing the difference of the larger to the smaller, not the smaller's proportion of the larger).

Anyway, we all know the saying, "There's lies, there's damn lies, and there's statistics." Well I think this vindicates more than anything why I can't stand empirical proof, eh Mike? :drink:

My point is not to get into a statistical pissing match over which country is better. I think that's a fool's game.

My key point stands. Canada and Germany have standards of living that are highly comparable to the USA, yet Canada and Germany have export dependent economies (and high wages). This point is meant to shoot down your assertion that the USA can't possibly export anything because only low-wage 3rd world countries can do the export thing. That US doesn't export much is a function of public policy, not an inherent property of markets.

Btw, direct comparison of federal tax collection isn't always accurate - in Canada (for example) the federal government controls almost all of the taxation authority in the country and then tranfers vast sums to the Provinces in order to fund education, healthcare and municipal programs. Essentially, the federal government collects taxes on behalf of the Provinces. This does not occur in the USA to the same extent where individual states levy their own tax systems. Therefore one should use 'gross' taxes for comparison purposes here.

Indeed, that would show the tax differential between Canada and USA is slightly smaller than your figures suggest, but there's no dispute that every country in the western world has a higher tax rate than the USA.

Indeed, that just underscores my general argument here - the USA ought to be in the best position of all western nations to export given that they have a comparative advantage of low-taxes in comparison with EVERY trade competitor in the first world.

[Michael]

Eh? (http://www.bloomberg.com/apps/news?sid=a3GVhIHGyWRM&pid=20601109) Dec. 23 (Bloomberg) -- John Cochrane (http://search.bloomberg.com/search?q=John+Cochrane&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) was steaming as word of U.S. Treasury Secretary Henry Paulson (http://search.bloomberg.com/search?q=Henry+Paulson&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1)’s plan to buy $700 billion in troubled mortgage assets rippled across the University of Chicago (http://www.uchicago.edu/) in September.
Cochrane had been teaching at the bastion of free-market economics for 14 years and this struck at everything that he -- and the school -- stood for.
“We all wandered the hallway thinking, How could this possibly make sense?” says Cochrane, 51, recalling his incredulity at Paulson’s attempt to prop up the mortgage industry and the banks that had precipitated the housing market’s boom and bust.
During a lunch held on a balcony with a view of Rockefeller Memorial Chapel, Cochrane, son-in-law of Chicago efficient-market theorist Eugene Fama (http://search.bloomberg.com/search?q=Eugene+Fama&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), and some colleagues made their stand.
They wrote a petition attacking Paulson’s proposal, sent it to economists nationwide and collected 230 signatures. Republican Senator Richard Shelby of Alabama waved the document (http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm) as he scorned the rescue. When Congress rejected it on Sept. 29, Cochrane fired off congratulatory e-mails.
The victory was short-lived. Lawmakers approved the plan four days later, swayed by what Cochrane calls a pinata of pork-barrel amendments.
“We should have a recession,” Cochrane said in November, speaking to students and investors in a conference room that looks out on Lake Michigan. “People who spend their lives pounding nails in Nevada need something else to do.”
The matter of deregulation is that the market pays when it does stupid things, and the government, as having primarily macroeconomic national interests, shouldn't do anything besides strictly enforce the law in order to remain economically neutral among citizens. Responsible traditions will be forged and revised, imbued into consuming patterns and business practices, and markets will avoid the same mistakes as long as they remember past lessons.
Greenspan, who claims to follow 'Chicago school' was in full support of the bailout. One can always find and cite an academic economist to oppose anything on any topic.

My principle critique here is the role the Chicago school played in creating the conditions for the crisis, not necessarily the response. The response is just big bandaids and prayers to re-inflate a bubble - no real ideology there at all, just faith.

As for how the Chicago school supported the asset based model, you'll have to explain that one to me since the Chicago school was at the forefront of noticing how savings draining for a consumption economy is destined to crash (which is common sense anyway since you can't live off past savings forever).

Well the U.S. does export almost 3x as much as Canada, so the problem isn't an export problem, heh. (https://www.cia.gov/library/publications/the-world-factbook/rankorder/2078rank.html)
US economy is ten times larger. Ergo, comparatively speaking, the US exports only one-third as much as a proportion of their economy.

High imports and low exports has been long identified as a problem causing the US balance of payments deficit, which was a contributing factor in the financial crisis (and a key component of the 'asset-based' model).

The problem is that we have a trade deficit that can't offset a budget deficit due to how we consume so much.
That's a function of US public policy over the years, not an inherent property of high wage first world economies.

Regarding health care, that's one of two issues I'm starting to avoid in discussion because there's a million different opinions out there which make a million different claims supporting the issue for anyone who wants to make an empirical appeal to authority. All I know is that a utilitarian cost basis of morality is a great slippery slope for encouraging euthanasia, abortion, and letting the government decide all of your other lifestyle preferences just because certain ones are deemed more healthy than others by some government approved study looked over by a bunch of bureaucrats.
Oddly enough, none of the countries that have this type of public policy has had problems in this area.

In Canada (for example) the Government itself is the primary (and most aggressive) opponent of legalizing assisted suicide and euthanasia - which are generally supported by the citizenry.

The other issue happens to be legalization of marijuana (figures, right?).
No suprise at all. These are two policy areas where conservatives don't have compelling arguments to make. Gay rights is another one I'd add.

The only tactic available to opponents here is fearmongering and that's tiresome and not intellectually respectable. I've seen many conservatives back away from opposition to gay rights, legalized marijuana and universal healthcare issues due to the intellectual weakness of the arguments against (and the moral power of the arguments in favor). Not all conservatives of course, just some.

In contrast, I've never seen any advocate of gay rights, legalized marijuana or universal healthcare ever back away from the issue. If anything, these arguments get stronger over time as increased collection of data tends to show the wisdom of these policies.

According to this it does. (http://www.intracen.org/tradstat/sitc3-3d/er842.htm) (I've resorted the data by 2005 export values here if you want to check it out. (http://spreadsheets.google.com/pub?key=rSQ3CoOh1FTeJy6Gdf0_jZw&output=html))
This doesn't show that the US gets good bang for their buck in R&D spending. It just shows that what little the US exports is ususally fairly high tech (no surprise there at all - Germany's list is very impressively heavy in high tech or heavy engineering products).

Right, so by taking available liquidity in domestic capital accounts and shifting it to foreign current accounts, we can continue generating income without relying on useless asset price inflation. The problem is most people don't have a clue how to do this or know the right people abroad to get involved, so it becomes a huge pain the neck, education and networking which takes time to establish and should definitely be done now if ever en masse.
I have no objection to education and networking. That sounds like a good policy.

But that can't change the fact that asset-inflation is not a sustainable method of generating wealth.

And this policy didn't just spontaneously occur. US dependence upon asset-inflation for creating wealth was a consciously chosen government policy that took many years (if not decades) to create. Switching back will probably take just as long. That's no excuse not to do it though.

[Americano]

But that can't change the fact that asset-inflation is not a sustainable method of generating wealth.

And this policy didn't just spontaneously occur. US dependence upon asset-inflation for creating wealth was a consciously chosen government policy that took many years (if not decades) to create. Switching back will probably take just as long. That's no excuse not to do it though.

There may not be any choice.

[Michael]

Here's an article from Brad DeLong critiquing Richard Posner's new book.

I'm posting it here because Posner is indeed a very influential figure within the "Chicago School" and he essentially admits that the rationality thesis is critical or core element to the philosophy of the Chicago School.

http://www.theweek.com/article/index/97134/The_Chicago_School_is_eclipsed