Who is Rich?
How do we know which nations are rich? Normally, we use metrics like GDP, GDP per capita etc. By many metrics the west and developed countries are rich. But are they really rich? I am not sure.
How we decide which nations are "rich?" You know how we usually look at things like GDP or GDP per capita? By those metrics, developed countries—like the U.S., Germany, or Japan—are considered wealthy. But are they really rich? I'm not so sure.
Here's why.
So, typically, we measure wealth at a single point in time. The idea is that there's this ideal "basket" of goods and services that the richest nations should have access to—things like top-notch healthcare, reliable electricity, cars, and other comforts. We look at how much a nation earns, how much it needs to spend to get that basket, and the difference is supposed to tell us how rich it is. But that's not the full story.
Let me give you an example to explain what I mean. Imagine a nation where everyone is chronically ill. The median income there is, say, 100 units. But because of their health issues, they need 110 units to get by—10 units for basic needs and 100 units for medications. Now, compare that to other nations where people earn just 20 units but are healthy. Those nations only need 10 units for their needs, so they can save the other 10.
On paper, the first nation might look richer because it has higher income. But in reality, the healthy nations are better off—they're saving money, while the sick nation is borrowing just to keep up. To me, the savers are rich.
A nation of savers is in a much stronger position than a nation of borrowers. If you're saving, you have the flexibility to cut back on non-essentials—like comfort goods—if times get tough. But if you're borrowing, it's a slippery slope. You might lose your job, which means less money for both necessities and comforts, and then it's harder to pay back what you owe. It's tough to turn that around.
I feel like, at any given time, a nation should aim to be a net saver. Sure, during big investment phases—like building infrastructure—savings might be low, but they should still be positive. A nation of savers is just more resilient.
Now, here's another angle: assets.
It's not just about how much a nation earns, but also what it owns—and, more importantly, who owns it. The dispersion of assets within a country matters a lot. Imagine two countries: one where a few people own most of the assets, and another where assets are spread out more evenly among households. To me, the second country feels richer because more people have a stake in the wealth. Median household asset ownership is a better measure than just looking at averages.
And not all assets are the same. I'm talking about income-generating assets—like savings accounts, stocks that pay dividends, or rental properties where the rent covers the mortgage. Those make a nation richer. But stuff like TVs, personal computers used for gaming, or cars you drive for fun? Those are consumption goods. They should be treated as expenses, not assets.
So, a nation with higher net assets—total assets minus debt—at the median level is truly rich. It's not just about having a lot of stuff; it's about having the right kind of stuff (assets and goods), spread out fairly, and being able to save rather than borrow.
And this is important because…
This question goes to the heart of the new economic and social order that is emerging.
The rich nations will be lucrative markets, preferred consumers and their preferences will matter more. Companies and service providers will pay attention to these nations and their rich citizens.
Conversely, the poorer nations will start working to make the products and services to supply to these rich countries. They will “earn” from supplying to the rich countries.
The rich countries will have to step up to help with global challenges - climate change, poverty, pandemics and many other issues.
So now...
The question is who are the rich nations?