Weekly Economic Report
The wealth of nations is not measured by the value of their GDP. That only tells the value of the production created by employing the nation’s assets. The value of the assets is the nation’s true wealth. That includes physical capital, like equipment, structures, and raw land -- and the human capital of skills and knowledge. Most importantly, the wealth of a nation includes its system of government as tax laws and other regulation – no matter how determined – affect the efficiency with which assets of all kinds can be utilized. Owners of assets benefit not only from the value of their production – GDP or income – but from the ability to sell them to others who feel (sometimes incorrectly) that they can employ them even more efficiently. Capital gains from the appreciated value of existing assets do not appear anywhere in the GDP accounts. Yet, income earners determine their level of consumption based not just on their current ability to produce – but on the expected value of their assets (including labor) in the future. Owners of the most desirable assets – or those who incorrectly assess their future value – can spend more than their current income through the sale of assets or by borrowing against them creating debt. At the national level, this excess of consumption is called a trade deficit.