Monday, August 16, 2010

A New American Model

It has become almost trendy for news commentators to note the end of the American Way - optimism, courage, ambition, faith in the system, etc. The old model is flawed: it is about time it ended. The old model is based on debt for consumption, for financing businesses and government and for investing in assets. This model has built in limits - how much debt can be serviced by an asset or individual across an economic cycle.

The reality is that creating wealth is hard work and may take a lifetime. Saving, building, investing, growing - these are ideas that take time in any normal economic system, even one with low taxes. The new American model will reflect these ideas but only after we have paid down debt to sustainable levels, including government debt. This means a new tax policy that actually generates the necessary receipts from the wealthy. There is no getting around this - the wealthy have the assets and income and they have access to the resources to create additional wealth.

We will need both political parties to recognize that we cannot return to the old system. There is a grieving process in there, as ideology changes and practical minds come to the fore. This kind of political change takes time, but the American economy isn't going anywhere: we have the time. The only part of the American Model that will stay intact is the ability to adjust.


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