The line is always moving.
The world has become a lot wealthier in the last two decades, but the distribution of wealth has shifted drastically, with China surpassing the United States as the richest nation in the world, according to a new global financial data from McKinsey & Co., initially reported by Bloomberg.
The world is changing, fast. And, with Space Barons like Musk and Bezos increasingly touted as leaders in the tech industry, science and engineering are becoming more tethered to financial activity than ever before.
The richest 10% of households are only getting richer
The research arm of consultants working in McKinsey & Co. analyzed the balance sheets of ten different countries that, combined, comprise 60% of the world’s total income. “We are now wealthier than we have ever been,” said Jan Mischke, a McKinsey partner, in the Bloomberg report. The world’s net worth rose to an unprecedented $514 trillion in 2020, from an earlier net worth of $156 trillion in 2000, with China taking the largest single share: nearly one-third of the world’s income. China’s wealth launched to $120 trillion, from its previous $7 trillion in 2000 — an unspeakably colossal growth from its days before joining the World Trade Organization, which accelerated its rise to power, according to the report.
The U.S., meanwhile, has experienced muted increases in property prices, but nearly doubled its net worth over the same period, to $90 trillion. China and the U.S. are the largest economies in the world, but the lion’s share of the world’s wealth is held by the richest 10% of households. And they’re only getting richer, according to the report. The McKinsey report also said 68% of the global net worth is tied up in real estate, but it also included machinery, infrastructure, equipment, and, although comprising a much smaller portion, intangible goods like patents and intellectual property.
The worst-case scenario could see one-third of global wealth erased
Not included in the global wealth assessment are financial assets, since they are balanced by liabilities. For example, corporate bonds held by a specific investor are still comparable to an I-owe-you from that company. But the sharp rise in net worth in the last two decades has surged beyond the increase in global gross domestic product (GDP), thanks in large part to ballooning property prices, which the report says is the result of declining interest rates. It also concluded that asset prices had risen to nearly 50% higher than their long-run average, compared to income. And that could lead some to question the sustainability of the modern boom in wealth.
“Net worth via price increases above and beyond inflation is questionable in so many ways,” said Mischke, in the Bloomberg report. “It comes with all kinds of side effects.” Indeed, rising real estate prices can push most people out of the real estate market, bringing us closer to a substantial financial crisis like the one that struck the U.S. in 2008, post-housing-bubble crisis. And this could also happen to China, especially in the case of the debt of property developers like China Evergrande Group. The report adds that the best solution for these world-historical bumps would be for the world’s wealth to reach more productive investments capable of meaningfully expanding global GDP. But if the worst-case obtains, asset prices might collapse, causing up to one-third of global wealth to vanish as the bottom line drops back to match world income. These are interesting times specifically because the richest people in the world are getting far richer than any have before, with the poorest beginning to suffer more in leading countries in ways not seen for at least half a century.