Can wealth have really been destroyed if it never really existed?
“Between 40 and 45 percent of the world’s wealth has been destroyed in little less than a year and a half (*)
I don’t see this as wealth destruction. Fundamentally, people have realised that wealth they thought existed doesn’t exist. House prices will not be as high in 20 years as they thought, the value of capital is not as high as the firm owner expected.
Realising this, firms and households are cutting back expenditure – they have spent too much on the past, by borrowing on wealth that would never appear.
The fear is that households and firms will over-react. They may suddenly believe that their wealth level is lower than it really is, and they may buckle down too much.
Ultimately, what the author of that quote is arguing about it is an issue of expectations – not of “wealth creation or destruction”. Once we realise this, it becomes obvious that trying to “increase wealth levels” by arbitrarily throwing money at people isn’t the answer – managing expectations is the answer. Maybe …