12-02-2009, 11:10 AM
I think you have to look at average quality of life rather than comparing sums of cash.
If everyone in the world was given $1,000,000, all it would really mean is that $1,000,000 isn't worth very much anymore because everyone would have it. Similarly, if we dug up a bunch of gold and handed everyone in the world one gold brick, all it would really mean is that gold isn't worth much because everyone has a bunch of it. It wouldn't make you rich, it would just make gold into the new copper.
What you'd have to look at is quality of life. If everyone in the world goes from living in a shack to living in a mansion, then in terms of wealth, mansions are the new shacks (and the wealthy would be living in castles and palaces and looking down on the plebes in their mansions). Relative wealth didn't change but overall quality of life improved.
I wish I was rich enough to do more in real estate. While the real estate market can crash in terms of relative wealth vis a vis what I paid for it, a house is still worth a house. It represents a certain quality of life and a nice house is going to be an improvement for enough people out there that regardless of what happens with the dollar or the stock market, I will have this thing that represents a real quality of life improvement over what a lot of other people have. It may one day only be worth $20 but it will still be worth twice as much as the single occupancy condos down the street.
"Things", I think, can make good investments because ultimately they represent work. Here's a thing that represents 500 hours of work. Maybe you paid $40,000 for it. Well the economy crashes and now it's worth $400, but it still represents 500 hours of work and you can trade it for something else that represents 500 hours of work, regardless of what happened to the dollar value.
So with that in mind, I tend to like "things" -- houses and gold are good things. Whatever happens to gold, it will always represent an amount of work. Stocks and savings accounts and other intangible items that are basically based on the current value of money seem like more dubious ways to go, long term. A house or a pile of gold is a thing that's always going to be worth the value of a thing, but 1000 shares in EMC seems to me like an intangible value where you are simply gambling -- the gamble is that you can cash out and turn it into a thing before you lose it. It's not real value until you get it out of the stock market and turn it into a thing.
(And real estate is still a pretty nice thing, if you've got the money and time for it. People will pay rent to live on your property but they won't pay rent to look at your gold.)
If everyone in the world was given $1,000,000, all it would really mean is that $1,000,000 isn't worth very much anymore because everyone would have it. Similarly, if we dug up a bunch of gold and handed everyone in the world one gold brick, all it would really mean is that gold isn't worth much because everyone has a bunch of it. It wouldn't make you rich, it would just make gold into the new copper.
What you'd have to look at is quality of life. If everyone in the world goes from living in a shack to living in a mansion, then in terms of wealth, mansions are the new shacks (and the wealthy would be living in castles and palaces and looking down on the plebes in their mansions). Relative wealth didn't change but overall quality of life improved.
I wish I was rich enough to do more in real estate. While the real estate market can crash in terms of relative wealth vis a vis what I paid for it, a house is still worth a house. It represents a certain quality of life and a nice house is going to be an improvement for enough people out there that regardless of what happens with the dollar or the stock market, I will have this thing that represents a real quality of life improvement over what a lot of other people have. It may one day only be worth $20 but it will still be worth twice as much as the single occupancy condos down the street.
"Things", I think, can make good investments because ultimately they represent work. Here's a thing that represents 500 hours of work. Maybe you paid $40,000 for it. Well the economy crashes and now it's worth $400, but it still represents 500 hours of work and you can trade it for something else that represents 500 hours of work, regardless of what happened to the dollar value.
So with that in mind, I tend to like "things" -- houses and gold are good things. Whatever happens to gold, it will always represent an amount of work. Stocks and savings accounts and other intangible items that are basically based on the current value of money seem like more dubious ways to go, long term. A house or a pile of gold is a thing that's always going to be worth the value of a thing, but 1000 shares in EMC seems to me like an intangible value where you are simply gambling -- the gamble is that you can cash out and turn it into a thing before you lose it. It's not real value until you get it out of the stock market and turn it into a thing.
(And real estate is still a pretty nice thing, if you've got the money and time for it. People will pay rent to live on your property but they won't pay rent to look at your gold.)