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I mean if it used to be a very large pile of US currency then yes, it definitely had a lot of value that was apparently destroyed.
by CPLX 3y ago
I mean if it used to be a very large pile of US currency then yes, it definitely had a lot of value that was apparently destroyed.
- fallingknife 3y agoLosing money doesn't destroy wealth. It just transfers it from one place to another.
- CPLX 3y agoNot really. For example there’s a pretty noticeable difference in the amount of wealth a society will have if they choose to build 890,721 intricate snowmen on the island of Manhattan instead of housing, power plants, and infrastructure.
- tourmalinetaco 3y agoI don’t know, I’d say those snow sculptors are pretty wealthy there!
- CPLX 3y agoIn the absence of some sort of external means of support they are dead.
- uoaei 3y agoYou seem to be consistently conflating potential value with real value, but potential value is and always will be a red herring, so it's important to distinguish them and treat them each separately.
- CPLX 3y agoReal value can be destroyed. Dollars can be printed, planes can crash. Crops can grow, or rot. The effort of humans can be deployed wastefuliy, like making snowmen, or not, like planting crops and building shelter. Wealth represents an assessment of the value to humans of existing resources and it can go up and down based on the decisions of how to allocate that wealth. There’s absolutely no controversy whatsoever about this concept despite your desire to not acknowledge it.
- uoaei 3y agoYour response confuses me given my comment. What is your definition of "conflate"?
- shuntress 3y agoPotential future wealth is not "destroyed" when we take actions which do not achieve that potential.
- CPLX 3y agoYes but present wealth is destroyed when resources are deployed unproductively. This concept isn’t particularly subtle or arguable. If you have a lot of food and you are wealthy and then you let it spoil you’re less wealthy. Nobody else got that wealth (assuming you don’t count the microbes) and absent another source of resources then you are also dead.
- bluepizza 3y agoOpportunity cost is a very interesting concept. As you mention, if the wealth doesn't exist, it cannot possibly be destroyed. Why would anyone "leave money on the table" though? Glutting the wealth creation is not fundamentally destructive - what if a specific location cannot actually sustain high production levels because their housing supply, energy supply, or talent supply is insufficient? What if unfettered growth will lead to a collapse that destroys a lot more value than the potential future wealth destroyed? What if a company heavily invests in business and retail construction and a global pandemic happens? Wealth creation is impossible to separate from public policy. For Manhattan to exist, a large amount of money had to be poured into its fundamental blocks.
- deleted 3y ago[deleted]
- gchamonlive 3y agoIf wealth is not destroyed but transferred, where does it go after an earthquake?
- Hamuko 3y agoConstruction companies?
- kibwen 3y ago'The parable of the broken window was introduced by French economist Frédéric Bastiat in his 1850 essay "That Which We See and That Which We Do Not See" ("Ce qu'on voit et ce qu'on ne voit pas") to illustrate why destruction, and the money spent to recover from destruction, is not actually a net benefit to society.' https://en.m.wikipedia.org/wiki/Parable_of_the_broken_window https://en.m.wikipedia.org/wiki/Parable_of_the_broken_window
- bluepizza 3y agoFive years in University and never heard of this essay, not even in passing! Thanks for sharing.
- bluepizza 3y agoWhat if there is no reconstruction? Not every catastrophe is a catalyst for reconstruction. If a house is destroyed in a fire, it loses its value as a house. Now you have the value of the land, which will be offset by the cost of clearing it. So the value of the land is below market. The asset has depreciated. Large scale construction tends to be very good for the economy because it both increases economic activity (construction is expensive, and a lot of people get paid to do a lot of labor in the whole chain, from lamps to concrete to engineers to meal makers), and sets infrastructure that will be used by highly productive companies (white collar offices) to make a lot of money. But there is no value transfer from rubble to construction companies. That asset owner took a hit.
- joosters 3y ago
- bluepizza 3y agoIf you buy a stock for 100 dollars, and due to a series of bad results which led to price adjustments, the stock is now worth 1 dollar, you lost 99 dollars. Nobody else picked up those 99 dollars. Asset depreciation is a fundamental concept that you should be familiar with, as it influences several aspects of your personal finance: https://www.investopedia.com/terms/d/depreciation.asp https://www.investopedia.com/terms/d/depreciation.asp
- UncleEntity 3y ago> Nobody else picked up those 99 dollars. Except the person who sold the stock for $100.
- bluepizza 3y agoPerson A holds 1 stock, valued at 100. Person A sells 1 stock to person B. Now Person A holds 100 in cash, and 0 in assets. Person B now holds 0 in cash, and 100 in assets. Fast forward 5 years. The stock price has crashed to 1 dollar. Person A still holds 100 in cash and 0 in assets. Person B holds 0 in cash, and 1 in assets. There was no transfer of 99 dollars back from Person B to Person A. Person A's holdings were invariant because they don't own the stock anymore. The losses brunt by Person B were not transferred to anybody else. Money doesn't travel back in time.
- mannykannot 3y ago> Money doesn't travel back in time. Correct - the transfer happened when you bought the stock. What you have lost is the expectation of getting it back (or at least the expectation of getting it back today.)
- deleted 3y ago[deleted]
- emacsen 3y agoUnrelated to this is the distinction between money and wealth. The challenge for a company like Weework is that it's hard to identify what wealth they generate- at least for me. In other words, what are they making (goods) or doing (services) that provides value to the world (wealth). I suppose they'd say that their core value is making it easy to rent space quickly. This is certainly providing some value, but I hardly think it's one that's heavily differentiated. I bring this up because the conflation of money and wealth is so often what gets people in trouble. Decoupling the two lets us examine what the value of a company is, at its core.
- yowzadave 3y agoIf I buy a cattle farm, and then the cows all die, where did the wealth go?
- lxgr 3y ago"Losing money" is not the same thing as destruction of value.
- sokoloff 3y agoIt never was a large pile of US currency (at least nowhere near as large as the peak of last_price * shares_outstanding would suggest). If you today form a company having 1 billion and 1 shares and I agree to buy 1 share from you for a dollar, you aren’t a billionaire.
- CPLX 3y agoYes but if you buy the shares from me for $22 billion, as happened here, that’s a little different.
- uoaei 3y agoYeah, finance can be messy for those who just get into it at the smaller to medium scales but who only have some experience in analyzing investments at the micro scales without really understanding the macro scale economics behind it. If the stock market responds to sales by spooking investors who then sell at lower prices, then the market cap was always a scam. Exchange value of the collection of stock shares for the shareholders is actually not last_price * outstanding_shares but a much smaller amount that exponentially decreases as people sell out. The use value for the company too is not represented by market cap because short term speculators aren't going to be around long enough to allow you to realize those investments as assets, and anyway there's a large contingent of shareholders who either don't understand or don't agree on company leadership's decisions, so the true value is much lower than depicted. It's basic economics. Value is what can be done with the set of assets and the collective beliefs held about them, not the projection of such from some pseudo-equilibrium state. However, big finance depends on you either believing their falsehoods or getting out quick enough that the grift is completed so that average Joes are left holding the bag. They're not on your side, so why continue playing by their rules?