Loading ...They had that problem the last time they believed in free markets.
At the end of the 1920s, the US was a ponzi scheme of inflated asset prices.
The use of neoclassical economics and the belief in free markets, made them think that inflated asset prices represented real wealth accumulation.
1929 – Wakey, wakey time
In the 1930s, they pondered over where all that wealth had gone to in 1929 and realised inflating asset prices doesn’t create real wealth, they came up with the GDP measure to track real wealth creation in the economy.
The transfer of existing assets, like stocks and real estate, doesn’t create real wealth and therefore does not add to GDP. The real wealth creation in the economy is measured by GDP.
Real wealth creation involves real work, producing new goods and services in the economy.
Inflated asset prices aren’t real wealth, and this can disappear almost over-night, as it did in 1929 and 2008.