The World Added $35 in Wealth for Every $1 of Net New Investment
Three quarters of the gain since 2000 came from marking up old assets, while output rose much more slowly.
Economics Explained · Why Is the World In So Much DebtThe world is, on paper, spectacularly rich. Global net worth is about $600 trillion, or about $75,000 per person worldwide. That is quadruple the amount in 2000 and almost double the amount from 10 years ago, while yearly economic output, measured by gross domestic product, rose only about 40% over the same stretch.
If that wealth came from building more productive things, like factories, tools, and software that help workers make more, output should have kept pace or even pulled ahead. When an investment makes people more productive, incomes rise along with asset values. Instead, net worth has pulled far ahead of income and now stands roughly one-half above its long-term level when compared with income.
The breakdown explains why. About 75% of the growth in net worth since 2000 has come from higher prices for assets we already owned, rather than from adding new productive assets. General inflation, where all prices drift higher and money buys less, explains only part of that repricing. It made up just under two-fifths of the increase in prices. The rest was assets getting more expensive in real terms, with no matching increase in the economy's ability to produce more value.
Put as a ratio of growth, the increase in wealth over the past 25 years was roughly 35 times the increase in net investment. Wealth grew largely because old assets were marked up, not mostly because we added new productive capacity.
The takeaway is that much of the new riches is valuation, not production. If prices did the work on the way up, prices can undo it on the way down.
Questions people ask
Doesn't inflation alone explain why assets cost more?
Only partly. General inflation makes up just under two-fifths of the rise in asset prices since 2000. The rest was assets rising faster than inflation, so their real prices went up without a matching rise in the ability to produce more.
What counts as productive investment here?
It is spending on equipment, buildings, and software, minus what existing assets lose each year through wear and age. That spending can help workers and businesses make more in the future. Buying an existing house at a higher price does not count, because nothing new was built.
If wealth is mostly higher prices, can it just disappear?
The paper value can fall sharply if many sellers rush out and buyers pull back. Because assets are valued at the price of the last sale, similar assets are marked down even if nothing physical changed. That drop still hurts when households and governments borrowed against those values and must cut spending or sell.