It is incredibly important that the world becomes a lot wealthier. The greater household wealth becomes, the more financially resilient and stable our society becomes. As shown on the previous page, this individual financial resilience is vital to keep the dominoes from tumbling.
So, how does society become wealthier? Simple: we simply start investing instead of spending. Let’s look at some examples:
Buying a McDonald’s “Happy meal” is a form of spending. You take your $4 to McDonald’s, exchange it for some junk food which you immediately devour. You have therefore simply transferred $4 from yourself to McDonald’s and have not made the world any richer whatsoever. On the other hand, if you have saved for a long time and decide to build yourself a $200000 home, you pay the people who build it $200000, but get to keep the $200000 home for many more decades. Thus, the builders have now become $200000 richer while you have not lost anything and, as a whole, society has just become richer.
It is therefore clear that, in order for society to become wealthier, we have to produce things with lasting value. Interestingly, when you bought the Happy Meal, the world was also richer for the few minutes before you started eating. But as you munched away, this newly created value disappeared from the world and therefore did not make society any richer. This is just as true for something like a car – the only difference being that the car will lose its value over a few years as opposed to the burger which loses its value over a few minutes.
Nope, the things that we need to make society wealthier are those that keep their value for decades or even increase in value. These are things such as real estate, industry and productive enterprise. The more of these things there are, the greater the wealth of society and the greater our financial resilience becomes.
Of course care should be taken that we only invest in assets that we actually plan to use. The danger of ignoring this simple principle was well illustrated by the 2008 housing bubble. People bought houses with no intention of actually living in them long term, but rather to keep them for a year while the price is rising and then selling them at a profit. Because of this short-sighted greed, we built many more houses than we could actually use and the natural result is that close to 20 million American homes now stand empty, representing a gigantic malinvestment of roughly $4 trillion.
The good news is that there is one class of long term assets that we all desperately need in absolutely gigantic quantities: green infrastructure. The amount of green infrastructure we have to develop and construct in order to build for ourselves a sustainable future is truly staggering, and so is the potential for wealth creation in this area. If private individuals can be convinced to invest in green infrastructure such as home solar water heaters, highly efficient cars and locally grown whole foods or green enterprise such as the companies providing these products, we will create wealth as never before. And the really good news is that this wealth creation will actually contribute to sustainability instead of subtracting from it.
And then we come to perhaps the most important point of all: such intelligent investments are the only way in which we can get the cost of living to start decreasing again. Let’s take a brief look at how this works.