What's really going on here

[rose-colored-coolaid]

I found on MSN Careers.

According to their survey, "81 percent of 18- to 25-year-olds said getting rich is either the most important or the second-most important goal in their lives".

Let me repeat. 81% thought getting rich was their primary life goal.

81%

I posted this before on a different thread, but here's . In short, society goes through different cycles, and one of those cycles occurs when nobody cares any longer about creating wealth. They just want to acquire wealth.

Which brings me to a point, what is wealth? Really, fundamentally what is wealth? At it's basic level (think barter society), wealth is only created when something is made or repaired or grown. Corn has worth. It can be traded for something else material based on simple economics. So does an automobile, a chair, and a light bulb.

But some would have you believe that every transaction that occurs is wealth creation. Let's be clear here, that is flat out false. If I (barter system again) trade corn that I grow for a massage, no wealth is created. I have received a service, which I may value more than the material wealth. The person providing that service has acquired some material wealth, but no new wealth is created. It is simply a transaction of wealth. What if I borrow money for something and pay back with interest? The interest payments are not wealth creation, only wealth transfer.

Let me bring this back to the housing bubble. Very little wealth was created. The only activities that created wealth were houses/condos being built, and upgrades people made. That's it. Which leads me to a speculation. I believe that if someone had good tabs on total housing value in 2001, the mean value of new housing at that time, and then if we made up an estimate of average housing upgrades over the last 6 years, you could probably figure out exactly how much housing wealth was actually created in that time. Then if you took the federal numbers for total housing assets, subtracted new construction and upgrades, you would know almost exactly what the US market is actually worth.

I'm not sure how to do this, but I don't know if we even need to, because the thought experiment makes it pretty clear what kind of numbers we would see (I think).

[Alan]

A simple trade can create wealth if it increases the overall utility/value.



Optimal resource allocation is just as important for wealth creation as resource transformation.

Here is a fun question: What happens when you apply diminishing utility returns to money?

[rose-colored-coolaid]

Alan, can we agree to disagree here...sort of. I agree a simple trade increases utility (I'm making cars and can only drive one at a time. So I might as well trade the extras for food or shelter or something).

But I'm arguing that wealth and utility are different things. Wealth creation is related directly to the amount of effort it takes to produce something. If I have to mine for ore, refine it, build a factory, then put my ore through the factory I'm adding a lot of wealth if I creating something useful from the item. If I pull a stick off a tree and say it's a walking stick, I'm not creating much wealth at all.

So yeah, utility is great too. And let's spread things around to maximize utility. But I'm distinguishing wealth and value here. Good comment though.

[Alan]

I think wealth is a desciption of the amount of utility one has.

A person who allocations resources in a way that increases utility may be able take a portion of the increase in utility. That is what eBay does. My argument is that trading, or more importantly organizing trades, can be just as useful in wealth creation as mining ore, refining it, and turning it into a tool.

Although I suppose one difference is that resource transformation can create utility without trade. I can catch a fish and eat it without trading anything. If no one creates anything then there is nothing to trade.

Resource allocation scales better as a business model than manufacturing.

There is probably an economic term for what you are describing, but I don't know what it is.

Some goods that are produced do not provide utility directly. Few peopole directly use tools (like a hammer), but tools are used to create things that people do directly value (like building a house with a hammer or planting food with a plow). Tools can also be used to create more tools. I think that the creation of more tools is what grows the economy because it increases our capacity to create goods we are directly interested in. Directly consumed goods often leave the economy.

The real trick to personal wealth creation is to find a cycle that creates value and syphon off a little bit of the surplus on each cycle. If it scales well without too much work then you are golden. I think that most existing cycles like this are already being tapped out so you really have to create your own. Creating a cycle like this is very good for the economy and someone who is smart enough and can work hard enough to do it deserves the personal wealth they can get from it.

But then this is all just a theory. At this point I'm still trying to figure out one of the cycles.

[SeattleMoose]

[rose-colored-coolaid]

[explorer]

[rose-colored-coolaid]

That was more or less my point, and I think that was Alan's.

Cheers.