45 Percent of the World's Wealth

When I think of wealth destruction, I think of fires, floods, wars, and hurricanes. Steven Scharzman of Blackstone said “Between 40 and 45 percent of the world’s wealth has been destroyed in little less than a year and a half." Given that you'd think a meteor struck Earth or something of that scale.

The most relevant concern is the real wealth that has been destroyed. Paul Graham tells us, "Wealth is the fundamental thing. Wealth is stuff we want: food, clothes, houses, cars, gadgets, travel to interesting places, and so on. " Nominal dollars are not irrelevant altogether. If you have a mortgage, it is still due on the nominal amount you agreed to pay. Negative equity may induce people to stop paying their mortgage and the property will have to be foreclosed upon. This situation can result in inefficiencies as a result the destruction of real wealth.

I agree that some real wealth could have declined through:

• Depreciation in excess of gross investment. Left alone, wealth will decay and continual investments must be made to maintain that wealth.
• Inefficiencies in the transfer process from debtor to creditor where the collateral is damaged through poor maintenance or malice.

I certainly agree that the pace of wealth creation is slowed and that there may even be some wealth destruction, but I doubt that it 45 percent of all wealth in the world.

The fact that people paid too much for assets a few years ago, and that now the assets are worth much less does not mean real wealth is reduced. I suspect this wealth that Schwarzman talks about is from on 1s and 0s on a computer system. Your house is not any less of a house now because it would sell for a third less dollars. The 3 bedrooms, 2000 square feet, 2 car garage, granite countertops, etc. are still there for your use.

I doubt that 45 percent of the world's wealth has been destroyed with most buildings still standing that were there 2 years ago, airplanes still taking you where you want to go, and your computer accessing a global network that is better than ever.