Groucho — I'm feeling pretty grouchy myself, and agree with most of what you have to say. I don't think that "anglo-american's future lies in debt pushing", though.

I think Americans (and other "rich countries") are actually quite capable of producing more value than they consume, and trading goods or services rather than debt for imports. Poorly structured, manipulable, and manipulated capital markets have made production of tradables appear to be unnecessarily, and have unduly inflated the apparent value of, say, homes and quantitative finance. I don't think Americans are unconditionally doomed to face declining living standards. Americans will face declining living standards (beyond short term dislocations) only if we don't get our stuff together and our incentives straight. If we do, real economic growth, rather than leveraged fairy tales, can still carry us forward.

Groucho — I don't think we disagree very much. Commodities are always and everywhere a bum rap. Economic dependence on any few commodities, as either and import or an export, is a prescription for bad things. I see anglo-american countries reindustrializing, in a capital-intensive rather than labor-intensive way, and employing human resources in a much more efficient and carefully directed way than traditional mass-laborer/mass-consumption-based industrial nations. We do excel at credit creation, and we excel at Hollywood too, but in neither case are our advantages sustainable, particularly with regard to extracting exorbitant rents for our services.

A "consumer-industrial policy" would not be my first choice for how to get things moving, though my first choices may be too airy-fairy, and in this real world it might not be such a bad option. Still, my distrust of "wise government" makes me very wary. I think our capital markets are simply poorly designed, that in 30 years we will look back on today's hyperquantitative finance like we now look back upon Ptolemeic astronomy: elaborately technical, but fundamentally misguided. Capital markets are information systems. Our capital markets mix up so much signal and noise, in easily observable and easily fixable ways, that they create hugely distorted incentives. Our capital markets' regulators are captured by industries that occupy privileged positions with respect to existing flawed markets, that enjoy hidden government subsidies, and that profit off of foolish gamblers drawn to volatility. Our markets are poorly designed, and they will stay that way until it is impossible to ignore. Which I think will be soon. And then, we'll have some opportunities. Instead of exhorting China to be just like us (dumb), we can innovate ourselves, and create markets that allocate capital and minimize, rather than manufacture, uncertainty. Once we get our incentives straight, I think we can work miracles. Just imagine if we'd put all the energy and smarts we've put into hedge funds, option grants, and McMansions into actually making stuff and doing things locals and foreigners alike would actually pay for! Americans are very capable, it's just that we've been rewarded for doing idiotic things, and so that's what we have done. As the economists like to say, incentives matter.