Meanwhile, I would note that the Sveriges Riksbank itself deserves some kind of prize for ability to get people to call its economics prize “the Nobel Prize.” Real Nobel Prizes are prizes awarded according to the endowment that Alfred Nobel set up. There are, of course, lots of other prizes in the world set up by other people. One such prize is this economics prize that the Swedish Central Bank decided to give out. But only the Swedish Central Bank prize has succeeded in convincing people that it should be referred to as a “Nobel Prize” despite having no connection to Alfred Nobel or his prizes. Impressive work and yet another example of the impressively high-performing public sector institutions that make the Swedish social model work.
The nature of wealthThe world confused financial assets with real ones
If a pizza is cut into eight instead of four slices, there is no more food to eat. If everyone sitting at the table is given shares in the pizza and the share price rises from $1 to $2, the meal will still be no bigger.
A rise in share prices that is caused by a rerating does not make us richer in aggregate, unless that rerating represents an accurate prediction about an improvement in an economy’s long-term growth rate.
Thinking about wealth in this way is also useful when assessing rescue packages for the economy. Will these policies boost the amount of goods and services the economy produces in the long run, or will they have consequences that actually restrict economic activity?
Central banks have repeatedly intervened to rescue financial markets, or paper wealth, over the past 20 years. But have they propped up prices at levels that simply do not reflect the long-term fundamentals?
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