Resources

Here you will find resources tagged "wealth"

Academic Article

Introduction to Wealth

Wealth is a stock, not a flow. The country with the highest flow of GDP in a particular year is not necessarily the richest country. The richest country has the highest capital stock, whether endowed or accumulated, implying a higher potential for future income and consumption. This should be obvious, yet concepts of wealth are often poorly understood or ignored. Many countries do not maintain adequate wealth accounts; those that do would admit that a great deal of work on national accounts remains to be completed. This is remarkable: investors would not accept corporate balance sheets of a quality akin to those of many countries. However, with progress on wealth accounting, including the accounting of natural wealth, this situation may be set to change, enabling the rate at which nations are becoming richer or poorer per capita to undergo popular examination. A focus on wealth, and changes in wealth, would lead to attention on investment in important assets and to sharper attention on sustainability. This paper, and this issue of the Review as a whole, provides an examination of wealth, its definition, constituent parts, geographical distribution, and change over time, and provides policy guidance on accounting and management. We also explore the degree to which successful wealth management may even make us happier.

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Academic Article

Wealth and happiness

Does wealth accumulation impact subjective well-being? Within a country, household wealth has been shown to improve individual well-being by providing a safety net of protection against negative income shocks, by allowing current and expected consumption flows, and by its potential use as a collateral. At the aggregate level, direct evidence about the relationship between national wealth and happiness is almost non-existent, owing to data limitations and statistical identification problems. However, aggregate wealth impacts well-being indirectly, via positive channels, such as institutional quality and improvement in health, life expectancy, and education. Wealth also brings about nega- tive environmental degradations and other damages. The stock of accumulated wealth is also likely to affect happiness indirectly, via its influence on the rate of GDP growth, because both the level of income flows and the rate of income growth have been shown to be factors of higher well-being.

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Academic Article

Taking natural capital seriously

The paper sets out a pragmatic case for preserving the aggregate level of natural capital, in the face of the declines in biodiversity and the rising population, and major increases in consumption that economic growth will bring in this century. The accounting framework to achieving this objective is considered, focused on the role of asset registers. Particular attention is paid to renewable assets at risk of falling below critical thresholds. These assets are key components of the balance sheet. Capital maintenance expenditures are required to maintain the value of assets intact, since renewable natural assets should not be depreciated, but rather treated as assets in perpetuity. Within the aggregate, substitutions with other forms of capital are permitted, but only if there is compensation for any detriment to natural capital. Offsetting is one mechanism for achieving this compensation. The case for enhancing the aggregate is considered, and the paper shows how a broader national plan over a generation could contribute to the policy objective of leaving the next generation with a richer endowment of natural capital. The policy instruments for embedding natural capital into public policy are reviewed.

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Academic Article

Wealth and sustainability

For economists in 1974, it was a live question whether the exhaustion of natural resources, such as oil, would necessarily lead to the decline of economic activity. Solow showed that constant levels of consumption could be sustained in the face of exhaustibility if there is sufficient substitutability between produced and natural factors of production. Hartwick then proved that underpinning this result is a saving rule—set investment in produced capital equal to the value of resource depletion at each point in time. A large literature has shown that a comprehensive measure of the change in real wealth—net saving—plays a central role in determining whether current well-being can be sustained. In particular, current declines in real wealth signal that future well-being will also decline, a result that has been confirmed empirically using data for developing countries. Changes in wealth and sustain- ability are therefore joined at the hip. The current composition of wealth serves to define the policy challenges that countries face in achieving sustainable development. If substitution possibilities are limited between natural and other factors of production, as one might expect, then technical progress is a necessary complement to policies for sustainability.

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