Where Wealth Comes From

Since I believe that Wealth is the uber-metric...

(If pressed, I'd say something like like the geometric mean of the mean, median & modal PPP-adjusted annual income)

There's an important question as to where wealth comes from.

Grok and Klunk owned 2 clubs and 2 rocks, and died at 24

A random Grok today has a 97 inch flatscreen TV, 3 cars, and a 3000 square foot house that they live in with a wife and one kid and lives until 80.

Where did the difference come from?

There are huge numbers of questions as to the prior causes...

de Soto argues that effective property rights is the KEY feature.

Matt Ridley argues for trade as the motivator.

Deirdre McCloskey argues very interestingly for the ethics of commerce.

Gregory Clark argues for IQ.

All of these are interesting hypotheses, and all likely have portions of truth in them.

But That's not my question. My question is...what are the proximate causes of wealth?

In super-short version, I'm familiar with only 2.

1. Accumulation of practical knowledge. As per Paul Romer, wealth is fundamentally about aggregated know-how.
2. Trade. As per all of economics, I am wealthier because I can teach the nice folks at Dell to write enterprise Java, and the nice folks at Dell can, in exchange, give me a computer.

What then decreases wealth? Interfering with trade, and interfering with accumulation of practical knowledge. If I were going to summarize the 3 great evils that are holding 1st world people back from becoming much wealthier today it would be:

1. Trade restrictions
2. Government regulation of industries which prevent low-cost new entrants. Finance, Education, Law, and Medicine are especially bad here.
3. Intellectual property law.

I can't say which one of them is the greatest evil...but between the 3, they eat more than half (I've seen 7/8 estimated) of the potential wealth available to 1st worlders.

Trade restrictions are pernicious not just because they increase the cost of buying things...but because ALSO they decrease total economic activity substantially. Simple economic explanation here, detailing all the costs to the country imposing a tariff. The modern economist who has most strongly argued for the theoretical possibililty of Tariffs being positive-valued for an economy is Paul Krugman (whose work on related topics earned him a Nobel prize), and his commentary on the topic says that in real life, the situation doesn't come up where a tariff isn't a substantial BAD for the country imposing it.

Intellectual property is bad because ANY good artist knows that "good artists borrow and great artists steal." Idea combination is no different in this than art...but in the modern world, it has become illegal to even borrow practical innovations.

And regulation, contra the normally intelligent Robert Reich, is the other problem. Regulation is a way of increasing the cost of entering a field, and increasing the cost of doing something new. Basically, every regulation ever written is wealth-destroying. Occasionally, one might find a redeeming feature...but mostly it's a way of destroying wealth.

This all relies on the FACT that most innovation comes in the form of unpredictable disruptive influences, which are not predictable (in any useful fashion) by anyone.

Wealth comes from new, disruptive ideas, implemented, and then traded. Both IP Law and Regulation actively prevent the implementation of new disruptive ideas, and trade restrictions both massively increase the costs and decrease the potential benefits.