Wealth
When I read article titles like this (”45 percent of world’s wealth destroyed: Blackstone CEO”), I wonder what these people mean by “wealth”. For example, people in a neighbourhood (say 50 people) get together and decide to pass a house back and forth between them, ratcheting up the value of the house by $50,000 each time. “Pretty soon,” reason the neighbours, “all our houses will be worth millions more!” Multiply $1,000,000 by 50 houses, and you have “created” $50M in wealth. I think the destruction of this sort of wealth is what the person quoted above is referring to.
I think a more useful definition of wealth would refer to something tangible. I have an orchard, and it reliably produces a large bounty of fruit - so I might have peach wealth. Or I have a nice home in a good part of the world, so I have habitation wealth. And so on.
For the most part, what hasn’t happened is the destruction of this sort of real wealth (yet, anyway). What has happened is the destruction of fake wealth - wealth that never really existed in the first place, but that some people thought existed.
16. March 2009 at 04:47
I don’t really think that the “real”/”fake” wealth distinction that you try to make can be made to work. As an individual, you can choose how you value things, so that peach wealth might have an inherent value to you, but, for a society in a market economy, market prices are the only reasonable measure of total wealth. (Since I know it fills you with joy, I’ll quote Marx here: “All wealth is social.”)
An insurance company or a bank provides a vital service to an advanced capitalist society. While it functions, the company is worth a lot. When it ceases to, it no longer is. In the transition, wealth is destroyed.
The real problem with articles like the one you cited is that they’re simply not true. Perhaps the stock market has lost half its value in the last year or so, but the stock market is only one part of the total economy. When I last checked these figures, about two years ago, the bond market was about the same size, at least in the US. I’m not sure how the bond market has done, but I highly doubt that its fallen anywhere near 50%. Similarly, in the US, both markets are significantly smaller than the housing market. There’s been falls in the housing market too, but, overall, they’ve been much less than 50%.
16. March 2009 at 06:00
First, I agree that insurance companies and banks provide important services. They can amplify other activity which can create more “real” wealth.
Having said that, market prices are simply marginal individual evaluations of (some sort of) value … this is why you can get such sharp changes in market valuation. Since I’m skeptical of the “rationality of markets” in many cases, I’m skeptical of using market prices as “the only reasonable measure” or wealth. When you get “bubbles”, the whole point is that people are not buying based on good information (mania) or long-term assessment (flippers). Often, little of this has to do with an accurate read of the value of the things being bought or sold in the market in a traditional sense (associated with what I call real wealth above).
23. March 2009 at 09:49
[...] in mind is the concept of company “fundamentals” (associated with what I have called “real wealth”). If you think of markets as Mel Gibson-not-on-medication, you will avoid rapid oscillations of [...]