Mike Wolf

The usual analysis of government debt compares debt to GDP.  But when you analyze an individual or a company’s debt you first compare it to their assets.

This article in the Economist, “The Real Wealth of Nations,” makes the point: “Gauging an economy by its GDP is like judging a company by its quarterly profits, without ever peeking at its balance-sheet.”

We are constantly reminded of the US National debt, which now stands at around. But what’s the value of the National asset? Or national wealth, as it’s usually termed.

Examining various wealth estimates, we can see:

1. National wealth much larger than national debt.
2. National wealth is growing faster than the national debt.

Size and allocation of National Debt

This Forbes article, from earlier this year, says the debt is $18.2 trillion.  They make it $154, 161 per taxpayer. The “US National Debt Clock” site allocates debt per citizen, and makes each citizen’s share $56,489.  

Size and allocation of National Assets (Wealth)

This Wikipedia article includes a graph of net worth of US households from 1945 to 2009.

Here you can see clearly the exponential rate of growth of this form of wealth.

But that’s not the whole story. The nation’s roads, tunnels, airports and other infrastructure are a form of wealth, not accounted for as part of household income. Federal and state governments own large swaths of land and mineral and other natural resources, also not accounted for.  And there are other forms of wealth, less tangible as well.

The Economist article reports an estimate of the the United States “Inclusive Wealth” made in 2008 at $118 trillion. Inclusive Wealth includes physical, capital (machinery, buildings, infrastructure and so on); human capital (the population’s education and skills); and natural capital (including land, forests, fossil fuels and minerals). That’s a better estimate, but I think it still understates total wealth.

A more recent report, with a refined methodology gives the wealth of the United States at $143 trillion. But I think that’s low, too. Much of the world’s wealth is not owned by any individual or any nation: it’s the value of knowledge.

The entire electronics industry, for example, is based on knowledge of physics that is not owned by any individual, corporation or nation. Take that knowledge away and progress stops. Take the fruits of that knowledge away and the whole industry collapses, and with it modern civilization.

The ability to communicate is based on knowledge of knowledge. What’s that worth? Clearly it’s worth something. People have spent untold hours developing and refining language. But its value doesn’t appear in any personal or national accounts.

Conclusions

We can argue about the correct value of the total wealth of the United States, and we can argue about my speculative inclusion of knowledge. But even if we take conservative estimates of wealth that can be measured in dollars, it’s clear national wealth is far north of the National Debt.

At the end of World War 2 the national debt was about $250 billion. In the intervening years, the debt has grown by nearly 18 trillion. But national household wealth has grown to nearly 84 trillion  according to this article by Reuters.

For further investigation:

1. What is the growth in US national wealth — by any of the available measure?
2. Does the “inclusive wealth” measure stand up to scrutiny?
3. Is debt really the problem it’s claimed to be. I’ve made the case that it is not, but are there holes in the argument that I don’t see?
4. Is there something wrong with  the way debt is growing and wealth is being captured?
5. Are there other forms of wealth that are not being captured, even by the inclusive wealth measure. I think there are.

Politifact is rating the Republican candidates on their truthyness.

They’ve also done the same for Hillary Clinton and Bernie Sanders, links at the bottom.

Out of 53 statements by Kasich, 16 were rated as mostly false, flat-out false, or liar, liar, pants on fire.

John Kasich

Donald Trump

Proposition: Some parts of intellectual property law not only do not support the purpose outlined in the US Constitution “to promote the progress of science and the useful arts,” but in some cases actually slow progress.

Note: I don’t think this proposition is true in all fields and in all cases, but I don’t think that its opposite: that protection of intellectual property leads to more progress and more innovation is true, either.

Here’s some reference material.

From the constitution:

The Congress shall have power … To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries;

For more, see this Wikipedia article.

Wikipedia article on Societal value of patents. It’s tagged as possibly biased. It links to this  article: “The tragedy of the anticommons, the flip side of the better known “Tragedy of the commons.” The original Harvard Business Review on “Tragedy of the Anticommons” is here.

Here’s an article that addresses the question and says that the market is the arbiter. And one in Forbes. A couple of views in the Wall Street Journal.

This Quora topic “Is the protection of intellectual property beneficial for society or is it a selfish behaviour?” summarizes some of the academic research on the question.

Apropos of health care this past week someone pointed out that “Monopoly retards innovation, constrains supply, raises prices.”

That’s the core of an argument against intellectual property protection. IP protection, both in the form of copyright and patent, grants a limited term monopoly to the IP owner. This argument is fleshed out in a 2008 book published by Cambridge University Press with the provocative title “Against Intellectual Monopoly.” The book was written by two academics Michele Boldrin and David Levine, and consistent with their principles the entire book can be found online here. What I’ve read of it (not a lot) is pretty well reasoned and supported.

This sounds like a kind of a lefty position, but there seems to be a thread of libertarian thought that supports these arguments, though with some reservations. This is a review of the book on the blog of The Mises Institute, hardly a bastion of progressivism.

Chapter 9 here, specifically addresses the pharmaceutical industry, which we discussed at our last meeting.

It seems to me that there is a fundamental difference between intellectual property protection under copyright and under patent. In the case of copyright, an innovator has created something that did not exist before the creation. Patents, on the other hand, are a matter of discovery, not creation. One discovers that combining this and that in a particular way produces a result. Anyone who discovered the same combination would have gotten the same result.

But all slopes are slippery. Even though artistic creations are unique, none are created in a vacuum. A popular treatment is: Everything is a remix. Lawrence Lessig of Harvard gives a TED talk here on how IP Laws are stifling creativity.