Even before the end of February, Coronavirus had wiped approximately $5 trillion US off of the global stock market. Through March, trillions of dollars more in value were lost. GDP is falling precipitously, and there has been a massive spike in joblessness, as evidenced by the surge in EI claims.
The federal government anticipates that around 4 million Canadians will apply for a relief fund that helps workers whose incomes have been cut as a result of COVID-19.
Amidst the massive losses, here’s an economic question worth pondering: what is the main source of wealth in the modern economy? The answer, perhaps more visible recently, is that wealth – our ability to access the comfortable standards of living we enjoy today – relies primarily on having other people in the economy.
What is the main source of wealth in the modern economy?
For one example, take people who like to have food cooked and served to them, their dishes taken away, and their table cleaned for them. (In other words, dining out.) Their standard of living is suddenly lower, because restaurants are closed. Similarly, people who want to have their teeth cleaned are also made poorer, because dentists have been ordered not to provide non-essential services.
“Ultimately,” notes economist Don Boudreaux, “our wealth consists chiefly in the ongoing willingness and ability of millions of strangers to work for us daily. Any obstacle to large numbers of people performing their daily jobs means hardship for us all.”
This is a point COVID-19 well illustrates. Even the richest members of society are right now unable to eat out or get their teeth cleaned. They also can’t send their children to school or take them to the theatre.
"Our wealth consists chiefly in the ongoing willingness and ability of millions of strangers to work for us daily."
To the extent that their wealth and standards of living are measured by access to restaurant meals, non-essential dental services, good schools for their children, and so on, stock portfolios and bank accounts don’t do them much good by themselves. Their wealth and standards of living rely instead on other people in the economy.
The importance of people in order to make a society wealthy and productive is perhaps best shown in Leonard E. Read’s famous essay, I, Pencil, first published in 1958.
A wooden pencil is a cheap and ordinary product. Right now, wooden #2 HB pencils can be bought from Wal-Mart at $1.98 for a package of 24, which works out to about eight cents per pencil. The stunning point made in Read’s essay: nobody in the world knows how to make a pencil.
They would have to know how to precisely fashion the wood into the correct shape, manufacture the little piece of metal that attaches the pencil to the eraser, mine the raw materials needed to produce that little piece of metal in the first place, mine the graphite for the lead, produce the eraser, and so on.
Dropped alone on a deserted island with all the necessary natural resources, even the smartest person in the world would be unlikely to be able to produce, in his or her entire lifetime, one of those wooden pencils from Wal-Mart at $1.98 for a package of 24. Even if he or she had piles of cash, they’d have to do without one.
The smartest person in the world would be unable to produce, in his or her entire lifetime, a wooden pencil.
In the modern economy, it’s the ability to trade with other people that’s the real source of wealth.
Hopefully, out of the pandemic will come a greater appreciation of the importance of doctors, chefs, accountants, truck drivers, teachers, car mechanics, pencil manufacturers, and everyone else in maintaining and improving the prosperity and standards of living we enjoy today.
Matthew Lau is an economics writer. His columns have appeared in newspapers and online publications across Canada.
SWIM ON:
- Matthew Lau last wrote about the move to ban disposable plastic bags, which has suddenly become topical again.
- Every night at 7:00 pm, shout, make noise, and otherwise let healthcare workers know you appreciate what they're doing, says Jody Vance.
- Your daily dose of non-Coronavirus content: UNDRIP will have a particular impact on BC's forestry sector - but the good news, says Carol Anne Hilton, is much of the industry was already moving in the right direction.
