No wonder we are in trouble, or “What is Wealth?”

When the man in charge of the soundness of our money supply (Governor of the Reserve Bank, Dr Allan Bollard – PhD in Economics no less) goes to the “Jobs Summit” and comes out saying such headline grabbing rubbish (namely that the current global recession is the “biggest destruction of global wealth ever”), it is no wonder we are in trouble. Yes, he may well be correct that the nominal dollar value of the assets “destroyed” is the greatest ever.  It may even be that the nominal dollar value of assets “destroyed” is the greatest ever in relation to the size of global GDP. But really, what does that mean?

Let us remember that the vast majority of this “wealth” that has been “destroyed” was the gigantic (even that word doesn’t seem big enough) speculative bubble of derivative-based financial “assets”.  It was “created”, essentially, by a whole lot of banks and financial institutions selling “paper” assets (hell, not even paper – electronic computer entries) to each other at ever increasing prices. That those “assets” were growing at a rate far faster than the global economy should have been a Big Shiny Obvious Red Warning Light to all the experts. That was, after all, one of the lessons from the Asian Economic Crisis of the late 1990s…not to mention almost every other financial crisis in history.

Dr Bollard estimated that around the world the amount of wealth destroyed included $2 trillion in credit, $30 trillion in equity markets, $4 trillion in housing and $3 trillion in lost output. (NZPA via stuff.co.nz)

A societies’ real wealth lies in its productive capacities – these are determined by the skills and health of the workforce, the technologies available for use, the real (embodied) capital available to work with, the quality of land and ecosystems and social relationships, and not by the beans we use to count that wealth…surely we all remember the lesson of the story of Midas?

What then, does it really mean to talk of  “destruction”? It has a real meaning for people who have “done the right thing” and saved for their future, only to find the over-inflated “assets” they purchased are now not worth much. It has a real meaning in that the mess the banks and financial institutions have got themselves in is now making it harder for businesses to acess the normal lines credit they need to do business. It has a real meaning in as much as the uncertainty makes it harder for even good investments to go ahead.

But all those real effects are side-effects of financial disruption and dysfunction that has been a long-time coming and that has been presided over by a lot of well-paid monetary “experts”.

The real tasks we need to face are not to “rescue” a fundamentally dysfunctional monetary-economic system and restore its operation, but rather to rescue productive activity and to reinvent our economic system so that it develops real, sustainable wealth.

The phrase makes me cringe, but I have to agree – we need “A Green New Deal” (see New Economics Foundation (U.K.), and Green Party of Aotearoa New Zealand for some suggestions).

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