Posts Tagged ‘america’

Wealth vs. Prosperity

Saturday, January 19th, 2008

Americans — and especially English-language media — commonly confuse wealth with prosperity. A primer:

  • Prosperity is how much you make. Wealth is how much you have.
  • Prosperity is revenue. Wealth is assets minus liabilities.
  • Prosperity is what America has (high GDP per capita). Wealth is what America doesn’t have (we’re a net debtor, i.e. negative equity).

Once you make this distinction clearly in your mind, you see the error everywhere. For example, consider this Reuters article about subprime lending in expensive neighborhoods. Reuters mistakenly refers to overleveraged owners of expensive homes as “wealthy.” This is obviously wrong, since the source of their problem is insufficient equity, i.e. insufficient wealth. They are prosperous, but spendy, and hence not wealthy enough to stay in their homes.

Discovering a reasoning error is often enough to change behavior. If the wealth/prosperity distinction were clearly understood by more Americans, we would grow rapidly wealthier. China’s government and citizenry understand the distinction, which is a big reason they are advancing so fast.