Tag Archives: Wealth

An ambitious project to measure the wealth of nations shows how GDP is a deceptive gauge of progress

By Eshe Nelson, Dan Kopf – Is gross domestic product a sufficient measure of an economy’s health?

Many argue that GDP, which counts the sum of the goods and services produced by a nation, fails to reflect a population’s well-being, because it accounts for neither distribution of income nor extractive effects such as pollution.

Wealth includes all assets, which means human capital (the value of earnings over a person’s lifetime), natural capital (energy, minerals, agricultural land), produced capital (machinery, buildings, urban land), and net foreign assets.

Assessing an economy by GDP instead of wealth is like looking exclusively at a company’s income statements without considering the assets on its balance sheet. A company can make its income look good for a short time by liquidating assets, but over the long run this will reduce the firm’s productive capacity and other means of generating income in the future.

The same applies to a country. GDP “does not reflect depreciation and depletion of assets, whether investment and accumulation of wealth are keeping pace with population growth, or whether the mix of assets is consistent with a country’s development goals,” the report states. more>

The real Adam Smith

By Paul Sagar – If you’ve heard of one economist, it’s likely to be Adam Smith. He’s the best-known of all economists, and is typically hailed as the founding father of the dismal science itself.

As he put it in The Wealth of Nations: ‘People of the same trade seldom meet together, even for merriment and diversion but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.’

The merchants had spent centuries securing their position of unfair advantage. In particular, they had invented and propagated the doctrine of ‘the balance of trade’, and had succeeded in elevating it into the received wisdom of the age.

The basic idea was that each nation’s wealth consisted in the amount of gold that it held. Playing on this idea, the merchants claimed that, in order to get rich, a nation had to export as much, and import as little, as possible, thus maintaining a ‘favorable’ balance. They then presented themselves as servants of the public by offering to run state-backed monopolies that would limit the inflow, and maximize the outflow, of goods, and therefore of gold.

But as Smith’s lengthy analysis showed, this was pure hokum: what were needed instead were open trading arrangements, so that productivity could increase generally, and collective wealth would grow for the benefit of all.

When he argued that markets worked remarkably efficiently – because, although each individual ‘intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention’ – this was an appeal to free individuals from the constraints imposed upon them by the monopolies that the merchants had established, and were using state power to uphold. The invisible hand was originally invoked not to draw attention to the problem of state intervention, but of state capture. more>

Most ‘Wealth’ Isn’t the Result of Hard Work. It Has Been Accumulated by Being Idle and Unproductive.

By Laurie Macfarlane – One of the basic claims of capitalism is that people are rewarded in line with their effort and productivity. Another is that the economy is not a zero sum game. The beauty of a capitalist economy, we are told, is that people who work hard can get rich without making others poorer.

But how does this stack up in modern Britain, the birthplace of capitalism and many of its early theorists?

In Britain, we have yet to confront the truth about the trillions of pounds of wealth amassed through the housing market in recent decades: this wealth has come straight out of the pockets of those who don’t own property.

When the value of a house goes up, the total productive capacity of the economy is unchanged because nothing new has been produced: it merely constitutes an increase in the value of the land underneath. We have known since the days of Adam Smith and David Ricardo that land is not a source of wealth but of economic rent — a means of extracting wealth from others. Or as Joseph Stiglitz puts it “getting a larger share of the pie rather than increasing the size of the pie”. The truth is that much of the wealth accumulated in recent decades has been gained at the expense of those who will see more of their incomes eaten up by higher rents and larger mortgage payments. This wealth hasn’t been ‘created’ – it has been stolen from future generations.

Misleading accounting and irresponsible economics have provided cover for this heist. The government’s national accounts record house price growth as new wealth, ignoring the cost it imposes on others in society – particularly young people and those yet to be born. Economists still hail house price inflation as a sign of economic strength.

Most of today’s ‘wealth’ isn’t the result of entrepreneurialism and hard work – it has been accumulated by being idle and unproductive. more>

Citizens’ Wealth Fund To Tackle Inequality

By Stewart Lansley – The 20th century trend to greater wealth equality is now in reverse. Wealth is much more unequally distributed than incomes. Capital ownership is even more concentrated—so much for a share owning democracy.

Because of such concentration, the considerable returns from wealth (in dividends, rent and interest) accrue disproportionally to the already rich. The more wealth booms at the top, the more it undermines the life chances of those left out of the party. Moreover, because of rolling privatization, wealth is increasingly privately owned. Today, the public holds only a little over a tenth of total wealth, well down on the post-war decades.

Tackling these issues requires some big policy shifts. First, the level of taxation on wealth needs to rise. Wealth is hugely undertaxed compared with income: the combined revenue from existing capital taxes accounts for less than one per cent of total economic output. To spread capital ownership, we need to expand the role of alternative business models—from partnerships to co-operatives—which distribute economic gains more equally. more> https://goo.gl/RuUSFz

Insanely Concentrated Wealth Is Strangling Our Prosperity

Today’s mountains of wealth throttle the very engine of wealth creation itself.

By Steve Roth – In 1976 the richest people had $35 million each (in 2014 dollars). In 2014 they had $420 million each — a twelvefold increase. You can be sure it’s gotten even more extreme since then.

These people could spend $20 million every year and they’d still just keep getting richer, forever, even if they did absolutely nothing except choose some index funds, watch their balances grow, and shop for a new yacht for their eight-year-old.

If you’re thinking that they “deserve” all that wealth, and all that income just for owning stuff, because they’re “makers,” think again: between 50% and 70% of U.S. household wealth is “earned” the old-fashioned way (cue John Houseman voice): it’s inherited.

American households’ total wealth is about $95 trillion. That’s more than three-quarters of a million dollars for every American household. But roughly 50% of households have zero or negative wealth. more> https://goo.gl/7xjgHf

The geography of desperation in America

By Carol Graham, Sergio Pinto, and John Juneau II – America today is as divided as it has ever been, in terms of incomes and opportunities, politics, and, perhaps most importantly, hopes and dreams.

Hope matters.

As our earlier work shows, individuals who do not believe in their futures are much less likely to invest in them—as in education, health, and job training. This increases the odds of America becoming even more unequal in the future. These divisions are corrosive to our society, our polity, our civic discourse, and to our health.

There are high costs to falling behind—and losing hope—in a very wealthy society that prides itself on being a meritocracy (even though the reality is far from the reputation). The starkest marker of these costs is the increase in premature mortality among significant sectors of our society—due to preventable deaths such as suicide, opioid, and other drug overdoses, and heart, liver, and lung diseases.

These deaths are most prevalent among uneducated middle-aged whites in rural areas, but the latest (2015) data show increased prevalence across a wider range of ages, races, and places. more> https://goo.gl/a3478E

Wealth managers are the driving force behind global inequality

BOOK REVIEW

Capital Without Borders, Author: Brooke Harrington.

By Aamna Mohdin – In researching the book, Harrington traveled to 18 countries, interviewed 65 wealth managers, and even trained as one herself to better understand how tax avoidance works. In an interview last week with the Nation, she said although tax evasion would exist even without wealth managers, they have massively accelerated the trend. Tax dodging couldn’t happen “on the grand scale that we are seeing today without expert intervention,” she said.

“There’s a certain group of well-to-do people who don’t want to be subject to the laws that bind the rest of us,” she said. “With the help of wealth managers, they put themselves above the nation-state system by changing passports at will, having multiple residences, and bouncing around strategically to ensure that no national laws apply to them.” more> https://goo.gl/fzaAqJ

The Left And Science In LaLaLand?

By Wolfgang Kowalsky – How did we get into that situation?

First, a fading consensus, not only on Europe but also on the liberal form of representative democracy, is not a totally new trend. It is an incremental, not an underground movement with some disruptive events above the surface.

It started half a century ago when some so-called New Philosophers – and in parallel a so-called New Right – saw the light of day and developed a hegemonic strategy based on the ideas of Italian Marxist philosopher Antonio Gramsci. Together, the New Philosophers and the New Right had much more impact than expected.

The struggle between different political concepts which is the foundation of liberal democracies is superposed by the trend to use the political battle to push for limiting democracy, which is presented as too bureaucratic, too dominated by compromises and endless discussions. The justification behind this trend is to simplify complex issues, to avoid long discussions and to facilitate recourse to immediate action along the line of ‘Promises made, promises kept’ – tactic to cement hegemony over one’s own clientèle.

The question is why the oversimplification and the denial of complex correlations gets more and more support. more> https://goo.gl/nFQFZw

You Might Have Earned It, But Don’t Forget That Your Wealth Came from Society

BOOK REVIEW

An Inquiry into the Nature and Causes of the Wealth of Nations, Author: Adam Smith.
The Theory of Moral Sentiments, Author: Adam Smith.
The Wealth of Humans, Author: Ryan Avent.

By Ryan Avent – The wealth of humanity is limited by our ability to produce goods and services of value. The production of goods and services of value increasingly rests on the collection, processing and management of information. There is no value without the knowledge of what can be produced, what ought to be produced, and how it can be produced most effectively.

It is the information-processing structures of firms, cities, nations, and other institutions of human society that gather that information, and sort it, and turn it into the production that enriches people around the world. The wealth of humans is societal.

But the distribution of that wealth doesn’t rest on markets or on social perceptions of who deserves what but on the ability of the powerful to use their power to retain whatever of the value society generates that they can.

That is not a radical statement. People take what they can take, and it is only the interplay of countervailing forces and the tolerance of the masses that limits that impulse – that works to create institutions that limit that impulse. more> https://goo.gl/kZbREa

Was There Ever a Time When so Few People Controlled so Much Wealth?

By Eoin Flaherty – It would be foolish to pretend that wealth inequality is a product of the liberal capitalism of the past couple of hundred years. Peppered throughout recorded history are examples of exceptional wealth deriving from the spoils of empire and warfare – the Roman emperor Caesar Augustus is thought to have controlled the equivalent of $4.6 trillion – one fifth of the total wealth of the empire. The richest man in history, according to Time magazine was Mansa Musa, the king of Timbuktu – who ruled from 1280 to 1337 when his kingdom was the biggest producer of gold in the world. His wealth, says Time, is beyond calculation: “richer than anyone could describe”.

Economist Thomas Piketty points out that much wealth in classical literature seems to derive from rent-generating property in the hands of a limited number of people.

But today, our fractional reserve banking systems mean that much of our money supply does not exist in physical form. Paper money is just a small portion of a bank’s balance sheet, with liabilities in the form of debt constituting much of the remainder. more> http://goo.gl/gFPdPh