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Reasons for optimism – wealth

Summary:
Some commentators suppose that following the Financial Crisis of 2008 and the current worldwide pandemic that world output will never regain its previous levels, and that people in the future will have a lower standard of living than their predecessors did. Others allege that such increases in wealth as have happened have been concentrated in the hands of the super-rich, leaving poorer people worse off.Neither of these somewhat pessimistic views appear to be justified. Periodic shocks such as the Financial Crisis and the pandemic happen from time to time. They provide a shake-up and a reallocation of capital and resources. Some businesses go to the wall, but they free up space into which new business can move. The wealth-creating process picks up the slack, and new products and processes

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Some commentators suppose that following the Financial Crisis of 2008 and the current worldwide pandemic that world output will never regain its previous levels, and that people in the future will have a lower standard of living than their predecessors did. Others allege that such increases in wealth as have happened have been concentrated in the hands of the super-rich, leaving poorer people worse off.

Neither of these somewhat pessimistic views appear to be justified. Periodic shocks such as the Financial Crisis and the pandemic happen from time to time. They provide a shake-up and a reallocation of capital and resources. Some businesses go to the wall, but they free up space into which new business can move. The wealth-creating process picks up the slack, and new products and processes are introduced to take the place of those no longer viable. The explosive growth of firms such as Uber and Airbnb and the value they have brought into the lives of millions both occurred after the Financial Crisis.

The pandemic has accelerated trends that were already evident before it. Lockdowns have led to an upsurge in buying goods online and having them delivered. They have also led to a huge increase in the numbers working from home. The likelihood is high that after the pandemic is over people will resume the habit of shopping in person, though it is unlikely that online purchases will go down to their pre-virus levels.

 People will undoubtedly return to offices, though there will be more home working than there was previously. The economy will adjust. More high street retailers will probably join the ranks of those which have already closed, but the vacated premises will be put to other uses. Some of them will probably be converted into apartments to help redress the housing shortage brought about by current planning laws.

The UK economy has shown over the last 150 years or more an average growth of about 1.5 - 2.0% annually. This includes the various shocks and crises that it has gone though, including the 1930s slump. We grow richer because innovations raise productivity and enable us to buy things more cheaply in terms of the man-hours it takes to afford them.

The notion that this new wealth flows exclusively to the super-rich is incorrect. True, the likes of Jeff Bezos, Tim Cook and Elon Musk become billionaires, but they do so by adding value to the lives of billions of people and making them better off as well. Amazon makes people richer by selling them goods online at prices lower than high street ones. Apple makes the money we spend buy far more valuable goods than the same money would have bought only a few years ago. Elon Musk made online payment safer with PayPal, and has since made a Tesla electric car into an affordable, high quality product. They have all become richer by making others richer.

The world has not passed “peak wealth,” leaving children to be poorer than their parents were. On the contrary, wealth will continue to be created. The economy will adjust to changing circumstances, as it has done before. The prediction that people worldwide will be wealthier in the future than they were in the past is not just optimistic. It is realistic.

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