{{one source, date=January 2012
The asset-based economy is a post-industrial
macroeconomic
Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output/ GDP ...
state of
capitalism
Capitalism is an economic system based on the private ownership of the means of production and their use for the purpose of obtaining profit. This socioeconomic system has developed historically through several stages and is defined by ...
in which growth is based largely on appreciation of equity assets, typically
financial instruments
Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership, interest in an entity or a contractual right to receive or deliver in the form ...
such as
stocks
Stocks are feet and hand restraining devices that were used as a form of corporal punishment and public humiliation. The use of stocks is seen as early as Ancient Greece, where they are described as being in use in Solon's law code. The law de ...
, as well as real estate.
The term has been applied, often in a derogatory sense, to the economic conditions in the
United States
The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...
in the 2000s, during the recovery from the bursting of the
dot-com bubble
The dot-com bubble (or dot-com boom) was a stock market bubble that ballooned during the late-1990s and peaked on Friday, March 10, 2000. This period of market growth coincided with the widespread adoption of the World Wide Web and the Interne ...
.
Overview
In an asset-based economy,
manufacturing
Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of the
secondary sector of the economy. The term may refer ...
, as well as perhaps services, no longer provide the engine for growth. Rather the appreciation of assets leads to an increased net worth among individuals which, in the direct sense, can serve as collateral for borrowing, which in turn creates greater
demand
In economics, demand is the quantity of a goods, good that consumers are willing and able to purchase at various prices during a given time. In economics "demand" for a commodity is not the same thing as "desire" for it. It refers to both the desi ...
for goods and services. Proponents of the model often advocate reduction of
tax
A tax is a mandatory financial charge or levy imposed on an individual or legal entity by a governmental organization to support government spending and public expenditures collectively or to regulate and reduce negative externalities. Tax co ...
rates in order to stimulate greater demand for assets, which in turn raises asset prices yielding even greater equity.
Critics of the asset-based economy contend that it is highly flawed because it depends on the continuation of low
interest rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...
s to stimulate the borrowing that will finance the purchase of assets at a rate sufficient to sustain the upward trend in asset prices. Thus, they reason, the model is highly vulnerable to the perhaps inevitable decreases in the real estate and financial markets.
Defenders of the model argue that the asset-based model need not be a permanent condition, but can be viewed as a stop-gap measure until demand for goods and services increases enough to sustain growth without low interest rates.
See also
*
New Economy
The New Economy refers to the ongoing development of the American economic system. It evolved from the notions of the classical economy via the transition from a manufacturing-based economy to a service-based economy, and has been driven by ...
*
Deindustrialization
Deindustrialization is a process of social and economic change caused by the removal or reduction of industrial capacity or activity in a country or region, especially of heavy industry or manufacturing industry.
There are different interpr ...