The deceptive wealth of nations

This weeks Economist has an article about a report from the United Nations on calculating the wealth of nations.

At least this report recognizes that natural resources are as important as  infrastructure and human capital  but are they all of equal importance?

The article says “A country can lose $100 billion-worth of pastureland, gain $100 billion-worth of skills and be no worse off than before.”

The problem with this statement is that if a country loses $ 100-billion worth of pastureland it probably will not be able produce as much food as before and some of its people may starve regardless of how many skills they have acquired.  The same applies to energy and mineral resources.

Another concern is that the value of natural resources is based on current prices which are based on current supply and demand.  Current prices may not take into account stocks and future shortages.

I have a problem with the idea that economic activity produces wealth.  What economic activity really does is to use up our resource base and is actually decreasing out wealth.  Infrastructure and skills allow us to use up resources more quickly.

While this report is valuable in that it focuses attention on the components of wealth it may be deceptive.  If natural resources are more important than infrastructure and human capital, it is telling us we are doing well when we are not.


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One Response

  1. The Economist often writes drivel. I frequently take them to task for it.

    In this case the analysis ignored the ‘relative option value’ of the pasture land compared to the skill set. In a highly competitive world where technological skills can be rapidly transferred, the potentail risk inherent in the skill set is far less than that inherent in the pasture land (which cannot get up and walk away and will be there and useful tomorrw).

    Thus if the skill set and the pasture land have thesame value today, taking into account their potential future value brought back to the present value, and comparing their risks, the low risk pasture land is far more valuable. (And no the market does not do this effectively at present).

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