Lecturing birds how to fly
The October 2013 Credit Suisse Global Wealth Databook contains lots of comparitive charts on recent national and global changes in wealth. This one shows the change in household wealth between 2012 and 2013. The authors point out that since 2000, Canadian per capita wealth has been rising at about 3.7% Y/Y after discounting for exchange rates.
Relative to the U.S. Canada has a more equal wealth distribution with both a smaller percentage of people with less than US$10,000 and a larger percentage with wealth above US$100,000 and the Canadian wealthy account for 3% of the top 1% of global wealth holders, despite having only 0.5% of the world’s population. So far so good.
But look at the inset chart of the Canadian Trade Balance; since the pit of gloom in March 2009 the advances in wealth measures are at the expense of Canadian export production. We are not producing and selling stuff to other nations as our main activity.
As Credit Suisse points out; financial assets account for more than half of household wealth and so with fire sale credit available, Canadians have been deriving their wealth by consuming on margin fueled by their cohort bidding up financial asset prices. Indeed this wealth created by consumption is subject to all the agents continuing to agree on rising valuations. There is no room for depreciation in the model.
The plan might have looked good on a policy paper, but capital flight is not anchored to a national border and as it becomes more concentrated in fewer hands, it can very quickly flow towards markets that are deemed more exploitable. As Nassim Taleb conjects:
We have the illusion that the world functions thanks to programmed design, university research, and bureaucratic funding, but there is compelling—very compelling—evidence to show that this is an illusion, the illusion I call lecturing birds how to fly. Nassim Taleb "Antifragile: Things That Gain from Disorder"
History, Charts & Curated Readings
"Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement; and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it." George Santayana Vol. I, Reason in Common Sense
"History, real solemn history, I cannot be interested in.... I read it a little as a duty; but it tells me nothing that does not either vex or weary me. The quarrels of popes and kings, with wars and pestilences in every page; the men all so good for nothing, and hardly any women at all - it is very tiresome." Jane Austen spoken by Catherine Morland in 'Northanger Abbey'