Wealth and the recovery

People are confused with what wealth is which is one of the problems our economy is in such a mess.

Money definitely isn't wealth since people had wealth before money and money wasn't invented to create wealth but as a catalyst for increasing wealth through practicality.

Today's humans live a vastly more complex life than those from earlier times which seems to have confused people about things such as wealth.

Humans need and therefore seek water, food, safety, and shelter for themselves and their family.

Earth was vastly under utilised by humans but it took incomprehensible generations and numbers of humans to unlock the secrets, the most famous being when humans became the first and only animals so far to create and use fire. Today, humans have unlocked energy within atoms for wealth. Better road building techniques meant more land could be used for growing food. Television meant people could learn more about the world more cheaply. Doctors keep people farming when they may have died from a bad infection. Mobile phones cut fuel usage when people knew when someone wouldn't be in with a text. Water proof fabrics allowed people to pick food in bad weather. Finding coal meant machinery could run more cheaply so children in a family could learn more about our world and maybe become scientists. All examples of wealth. We didn't get wealthier by spending more, we got wealthier and more prosperous precisely because we found ways of spending less on the things we need by rewarding only people who provided our needs in the most efficient ways.

A house is an example of a valuable asset since it provides warmth, shelter, and safety. But a house is a very poor example of wealth creation. Once built it only depreciates since its roof will eventually leak etc.

In the last decade we've had a house price boom the likes of which the world has never seen before. It's still not clear how it will play out (partly because of current government intervention) but some aspects are obvious.

A market bubble is where you can hoard a fortune purely on the basis that other people believe the same. The rapid price increase and subsequent profits as more and more people pile in seem almost infinite as more and more witness success simply by entering the market. It would all be fine if people accepted the losses (bear the cost of negative equity etc.) with the profits but there's a strong tendency right now to privatise profits and socialise the losses.

The problem is our whole economy was strongly corrupted by this despite warnings by some rational people that the government were merely trying to grow GDP numbers in the short term. Whole sections of our economy were dedicated to this method of living. Some people made more money from property than their salary. Indeed many people made it their salary (buy-to-let landlords on interest only mortgages). The government even borrowed too relying on maintained future tax revenues and paid for an extra million students to go to university often to do courses that were of dubious value to society. I don't even need to mention the bloated unproductive state sector which is often a drain on wealth.

A stable society is one where people are rewarded proportionally for their contributions to wealth. A new medicine allowing an ill worker to return to being productive or a supermarket who has cut its costs by using more efficient trucks. Millions of people were making money from being non-productive and even borrowing against the "guaranteed" future income from this method of living. The wrong people were rewarded. I'm happy for people to get rich by selling food cheaper than ever yet Tesco are vilified and a property boom demanded.

Low interest rates (an enabler for the house price boom) were a double-whammy as they made saving money for surviving when the tough times eventually came even more difficult. People can survive recessions a lot easier with savings.

Working and investing in businesses is a good example of creating wealth. Business workers are rewarded for their efficiency in enabling people to eat and buy tools to enable them to build places of safety. Somewhere in the layers of human activity everything has to be reflected in real wealth. By running an economy off bubbling house prices and borrowing against them we are rewarding people for non-productivity.

The UK Labour party promised us they'd put growth as the priority using more borrowed money. It would only be a recovery to what has been before. The recession is the costs we all have to bear to redirect our efforts towards productivity. We can't let the new government do the same.

A tool shop owner who once sold spades for people to grow potatoes was corrupted by short term profits into swapping the limited space he had in his shop to selling tools like steam wallpaper strippers for people lavishly renovating their home paid for by the money profits of the property bubble. It's not that steam wallpaper removers shouldn't exist at all, it's that our economy was corrupted far too much in the direction of such consumerism.

As the short term profits come to an end it dawns on the the tool shop owner that he is stuck with too many items which don't feed people or keep them safe at night. The time he spends clearing out non-productive stock he paid for with his time is his own personal recession. This multiplied over the population is our country's recession. He was corrupted down this path. The owner could borrow more money and market more heavily and eventually sell some steam wallpaper removers but the problem remains but now even worse since he'll be non-wealth-creating even longer plus the interest. He's finding it harder to put food on the table because his customers are finding it hard to do the same because they've been living off something that does not have a basis in actually putting food onto people's tables.

Governments are trying their hardest to prop up the property market to hold on as long as possible to the status quo of high property prices and delay this recession. The tool shop owner can't be productive with his current stock no matter how much he wants it to be.

The government is also trying to get those not responsible for the recession to pay. Those that gained without merit should be the ones to pay. Savers are being punished with low interest rates and their pounds diluted with quantitative easing (otherwise known as printing money).

We need this recession. We don't want a recovery to what went before. Delaying it will only hurt more. We want a transition from an economy based on being rewarded simply for taking out a mortgage (and the parts of the economy that "benefited" from this) to creating wealth which can't happen until people adapt which is exactly what the recession is. A recession will focus people's efforts into feeding and securing their families. The alternative is delaying a worse recession.