September 25, 2014
Wealth: Personal vs. National
By Dennis Sevakis
If you were stranded on an island in the middle of the Pacific with a couple of tons of gold bars, would you be wealthy? Would you feel wealthy? Having a shortwave (solar powered, of course) might make for a more affirmative answer to the question, but the ability to communicate would then be more fundamental to your wealth than the gold.
I started doing thought experiments such as this while contemplating the question: “What is Wealth”? Gargantuan trade deficits claimed by economic pundits to be of little or no consequence to Americans, Bush II era fiscal folly, and the abandonment of U.S. manufacturing by multinational corporations led me on this esoteric pursuit in search of an answer.
The short answer: The capacity to produce goods and provide services.
The longer answer regarding a nation’s wealth includes natural resources, climate, infrastructure, a skilled workforce, et cetera. Or, as Wikipedia so graciously noted:
The United Nations definition of inclusive wealth is a monetary measure which includes the sum of natural, human and physical assets. Natural capital includes land, forests, fossil fuels, and minerals. Human capital is the population’s education and skills. Physical (or “manufactured”) capital includes such things as machinery, buildings, and infrastructure.
Now, that’s not so complicated, is it? Things get complicated because most persons, whether intentionally or mistakenly, conflate personal and national wealth. Bank balances, income, and the market value of one’s assets are how we gauge personal wealth. However, that is not national wealth, the pie we divide up with our monetary accounting, money merely being a claim against those national assets.
Today’s economic travails seem primarily a result of confusing national wealth with personal wealth. What’s good for the personal goose is not necessarily good for the national gander. Nor vice versa. Asset prices are not “wealth”; the stock market could drop 50% tomorrow and our current capacity to produce goods and provide services would essentially be unaffected.
What’s been done to the United Sates over the past fifty years or so, longer if you wish to quibble, is that we have dissipated or stunted our national wealth through a number of mechanisms. We’ve let our natural resources lie fallow through excessive environmental regulation. Infrastructure is left to crumble. Consumption is financed through debt rather than income. Multinationals have invested in productive and research capacity overseas rather than domestically. We’ve given away, sold, or permitted much of our commercial and military technology to be stolen. Our educational institutions have been corrupted and stunted at all levels with political correctness and a repudiation of Western history. Culturally we have, as the late Senator Daniel Patrick Moynihan so eloquently put it, defined decency down.
Wealth can be created. However, doing so takes time. It is a laborious and intensive process. Financial markets do not create wealth. They merely move it around through redistribution or inflation. But they do it quickly. That is the attraction.
We’ve done a good job of killing the gander.
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