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What is the net worth of the world? We are always told that the global economy is wealthier now than it ever has been before. Sure, we have persistent issues like widening inequality, the environmental trade-offs we made to achieve that wealth, and the mounting debt that could undermine it. But to punctuate all of these issues, economists are always still quick to highlight that the economy is wealthier today than it ever has been before. But exactly how wealthy is that? Well, the simple answer, or at least the best answer we have, is about $600 trillion US, or about $75,000 per person on average for every last man, woman, and child on Earth. That is four times more
wealthy than we were back in the year 2000, with our collective wealth almost doubling over just the past 10 years alone. This is especially impressive since over the same time, global GDP has increased by a comparatively modest 40%. And not to spoil too much just yet, but that alone is some cause for concern. I would go ahead and hazard a guess that a majority of you watching do not feel twice as wealthy today as you did 10 years ago. Even ignoring the issue of inequality entirely, we may actually be getting too rich too quickly in too many un ideal ways. If the value of someone's land doubles, they are technically twice as wealthy. But are they really two times better off? Beyond even something
like a housing crisis, these bulges in wealth creation can actually be quite detrimental to genuine economic prosperity. So working out the net worth of the world may just sound like a fun little thought experiment. But tracking this wealth may actually end up being just as if not more important than measured like GDP for assessing the true health of the global economy. So why don't we look at this statistic more often? What is our current global wealth actually made up of? And finally, are we building the right kind of wealth? At its core, wealth isn't really money. Money is just a scoreboard. Actual wealth is value. And every time somebody pays you for a good or a service, value
is created on both sides of that transaction. These exchanges are as old as civilization itself. But the infrastructure that lets ordinary people participate in them as sellers, not just buyers, is newer than you'd think. And a lot of that is down to today's sponsor, Shopify. Shopify is an all-in-one commerce platform that collapses the time from idea to first sale down to basically nothing. You build a fully functional online store in minutes and sell on your own site across your social channels or in person or managed from a single dashboard. And with their new tool, Sidekick, you can enhance your product photography, descriptions, and sales analytics, all with just simple
written language. Which means you're getting what a properly staffed retail operation looked like not that long ago. As a rough measure of how much value that's actually creating, Shopify has contributed $490.5 billion to global GDP. That's nearly the entire GDP of Argentina. So, if you've got something of value to offer the world, go to shopify.com/economicsexplained to get started or click the link in our description. If you're a regular listener, you're probably familiar with many of the indicators we use to discuss the health of an economy. Unemployment rates, CPI and PPI, to measure inflation and trade balances, and the most popular GDP or gross domestic product. GDP, as the name
implies, is a measurement of the total monetary value of goods and services produced in a given country over a specific period of time. It's normally calculated using an expenditure approach, simply adding up all the money spent on purchasing finished goods or services. The actual formula is the sum of consumption, investment, government spending, and net exports. It's popular because it's a simple proxy to measure the economic output and implied health of a country's economy. Countries that produce more are generally considered better off and to have a higher standard of living. But what typically is referenced most is comparative growth. When GDP is growing year-over-year, businesses are producing and likely hiring more. And in turn, people are
making more and spending more. All good signs of a humming economy. But when GDP declines year-over-year, you get the opposite. And when it does so for more than two consecutive quarters, you get a recession. Spending and investment are shrinking, employment declines, and consumer spending dries up. Now that we've covered what GDP is, let's touch quickly on what it's not. For one, it's not all-encompassing. Unpaid work and black market activities are not included because there is no exchange of payment, or it's not tracked because it's illegal. This means that not all productivity is captured. For example, a business hiring someone to paint their new office would be included in GDP.
Having it done by volunteers would not, despite the productive outcome being the same. It also takes no account of the wear and tear or depreciation of assets used in production, a real economic cost. More importantly though, GDP is not a measure of wealth or a country's net worth. It is simply a measure of economic flows or activity. Think of it like this. If you're a productive member of society and have a high-paying job making $200,000 a year, your personal GDP looks great. You're being paid for your production at work, your spending, and you're likely getting a raise every year. If you were a country, you'd be a humming economy. But your personal GDP is essentially a summary of your payubs
and spending at the end of the year. It tells us nothing of your actual financial position other than the fact that you are producing and consuming. If you have no savings or worse are in debt, things aren't as good as your income and spending would imply. I imagine you can begin to see the limitations of this metric. Put on your investor cap for a minute. Public companies, those you can buy shares of on a stock exchange, keep meticulous accounting records that are audited and released as financial statements for public viewing. They are the income statement, the balance sheet or net worth statement, and a cash flow statement. All three are interconnected and feed into each other in various ways. Now, if we were to analyze a company's suitability as an investment,
would simply looking at the income statement suffice? I would argue, as I'm sure many investors would, that seeing what a company earns and spends without knowing what it owns, saves, and owes offers little to no insight into the actual value of the business. In fact, the world's most famous investor, Warren Buffett, often notes that he spends more time looking at balance sheets than income statements. And that's because a balance sheet reveals the true net worth and underlying financial strength of a business. In the context of understanding the global economy, GDP is most similar to looking at a company's income statement. And that's all we've been referencing. To get a real understanding of a nation's or the
world's economic health, we need to be looking at its balance sheet. We need to know its net worth. So, if it's so obvious, why don't we? Well, first, tracking GDP is a pretty straightforward process because it's based on transactions, and conveniently, transactions leave an easy to follow paper trail. governments can simply add up the receipts and get a fairly accurate picture of their country's GDP. In contrast, looking at global net worth through the lens of a consolidated balance sheet is much more complex. While many nations have kept national accounts throughout history, serious global adoption of a standardized system for national accounting didn't really take hold until the 1990s. And even
still, the standards are constantly being updated and revised. And where GDP is measured in easily tracked transactions, determining a global net worth is based on valuations. And valuations are often based on a collection of assumptions and educated guesses. Think about it like this. If you buy a fleet of new trucks, it's pretty simple to account for the value of the transaction and to record it in GDP. But what are a nation's natural resources, its intellectual property, or more recently, its AI models worth? What is a property worth if there's no recent market exchange? These are just a few of the complexities that come with building a national balance sheet. Expound that out across the globe and you find
yourself trying to consolidate data developed according to varying methods of measurements in different countries into a standardized set of statistics that make sense. It's like trying to fit a square peg into a round hole. But it isn't for a lack of effort. The internationally accepted system of national accounts is a robust guide for doing so. But even still, its valuation methodologies are a collection of hierarchies and tier lists that simply often end with a best guess when all else fails. And it constantly requires updating. The bottom line is determining the net worth of the world requires a lot of statistitians, economists, and researchers doing a lot of work.
Political preference is also probably at play here. GDP is a popular, relatively easy to understand metric to point to as a talking point about the economy. Discussions of net worth and wealth statistics, on the other hand, open a whole can of worms many politicians would probably prefer to avoid. And until recently, growth in GDP did serve as a pretty good proxy for wealth increases. Net worth and GDP have historically moved in sync on a global level, but since the year 2000, the two growth rates have diverged. In 2020, global net worth peaked at 6.1 times GDP, up nearly 50% from its long-term historical average before settling in at
about 5.4 times today, far outpacing the world's modest GDP growth over the same time frame. And it is primarily being driven by increases in asset prices. So, what exactly is going on here? Well, to try and figure that out, we have to understand what the world's wealth is actually made up of. To build our global balance sheet, we start by adding up our assets. Here, global wealth is split into three main buckets. Financial assets and liabilities held by financial corporations, financial assets, and liabilities held by households, governments, and non-financial corporations, and non-financial or real assets. Together, these assets add up to over 1.7 quadrillion. Now, normally we would add up and subtract liabilities to
get to the world's net worth. And we can. The financial liabilities of the world add up to $1.11 trillion in IUS, but we don't really need to. That's because, well, since the world only lends to the world, every single debt is just someone else's asset. Now, typically when we hear the word liabilities, we think debt. And in that context, $1.11 quadrillion in total liabilities sounds extreme. But in the context of financial accounting, every financial asset has an offsetting liability. These liabilities include much more than traditional debt, which as of 2024 actually sits at around 2.9 times global GDP, or roughly $322 trillion, which is obviously still a lot of money, but not quite into the 15 digits yet. These financial liabilities
include everything from pensions to really simple stuff like money held in deposit with a bank. That bank holds on to the cash which is an asset but ultimately it does owe it to its depositors which is a liability. If we strip away all this financial technicality though these instruments are ultimately just accounting tools to keep track of who owns what portion of the world's real assets. While individuals and households would rightfully consider their financial assets of stock and bonds in calculating their net worth on a global scale all the world's loans, bonds and bank deposits eventually net to zero. So the net worth of the real world is really just the value of our real assets or about $600 trillion. The fact that we
have almost two times that amount tied up in paper assets to represent this real wealth is kind of part of the problem. Real assets are the tangible and intangible things that act as true stores of value or as inputs for production. It includes all of the things we make, houses, infrastructure, and intellectual property and the valuable things we claim like land, minerals, and even rights to exploit naturally occurring stores like fisheries or woodlands. Surprisingly, despite all the hoopla about AI models and technological advancements, real estate still accounts for over 2/3 of all real assets. Think of that. Nearly 70% of all of humanity's cumulative wealth is simply the structures we've built and the land we live on. The
remaining third is made up of everything else. Despite living in the age of technology and information, things like intellectual property and developed software actually account for less than 5% of the world's wealth. It is important to note though that despite not making the cut as actual wealth due to some quirky nuances of accounting on a global scale, the financial assets and liabilities on our global balance sheet do play an important role. While real assets are the capital that allow us to generate wealth and invest in greater capacities to generate more wealth, the financial buckets of the balance sheet in practice are what actually make it all possible through the shifting and
transferring of risk and finances between parties to facilitate that investment. Take the development and purchase of a new home for example. In this scenario, a bank issues a mortgage to a household to purchase a newly built home. It's the creation of financial assets and liabilities using consumer banking deposits and a mortgage loan that allow for the movement of funds that make the purchase of a real asset, the home, and its pass through value in income to the home builder possible. But more on this later. Now that we know what wealth is, who actually owns it all? If we are valuing the world as we would a public corporation, who are the shareholders? Households. Households
account for roughly 95% of total wealth ownership in the world and consequently much of the gain over the past two decades. Heading into 2025, households had a net worth of 539 trillion, up nearly 400 trillion from 25 years ago. They hold this wealth via two roughly equal avenues, owning real assets, primarily residential real estate, and indirectly through financial assets such as stocks, bonds, and deposits. Despite netting out on a global scale, individuals and households rightfully consider financial assets as a component of net worth. This is because through financial assets, households actually hold claim on the wealth generated by the rest of the economy. You might
assume that corporations would fit somewhere into the breakdown of wealth ownership in the world. But you'd be wrong. In fact, corporations do not actually own wealth. Yes, they technically occupy buildings and operate machinery, but those real assets are matched by financial liabilities on their corporate balance sheets, the debt they owe, and the equity they issue. Ultimately, corporations are owned by shareholders, and those shareholders are primarily households. Now, the majority of the world's wealth being held by households is a good thing. It's a pillar of personal economic stability and a sharing of the world's prosperity.
Ultimately, the world is made up of households, and households consist of real people. However, distribution of household wealth in the world remains heavily skewed. It is by no means equal. In 2024, the top 1% of global households accounted for more than 20% of all wealth. In the United States, it's even worse with the top 1% holding 35% of total wealth, or the equivalent of 5% of global wealth. Despite having a real per capita wealth of $470,000, far above the global per capita of 75,000, the bottom 50% of US households only have $9,000 in wealth per person. That's technically worse off than the bottom 50% in China, while the top 1% enjoy a staggering $16.4 million each. While extreme, the US is not alone. The
top 1% of the world's most advanced economies own somewhere around 25% of the wealth in their respective nations. And the problem with wealth is that as asset values outpace economic growth, the exact divergence we are exploring here, those who own the assets become wealthier, further entrenching the existing inequality. The rest is held by governments and pretty much includes your typical public sector properties, infrastructure, public land, and natural resources. But like households, not all government balance sheets are created equal. If you're a regular viewer, you've heard your fair share about governments and their debt. And lucky for you, you get to hear about it again
today. But only briefly, I promise. In the US and UK, the governments have a significant negative net worth despite their nation's overall ownership of wealth because they have high levels of public debt in comparison to their public assets. China, on the other hand, has a large government net worth nearly equal to that of its households. This is because unlike its Western counterparts, the Chinese government owns large amounts of land and massive equity in state-owned enterprises. As we've already discussed, on the global scale, every dollar of debt is simply someone else's asset. This creates an observable dynamic between nations that we can think of as savers versus spenders. When
a country consumes and invests more than it saves domestically, that capital has to come from somewhere. And in this case, it comes from the net saver nations. This is particularly impactful and most visible in the United States. Because the US runs persistent federal budget deficits, it needs to issue debt to fund its spending. And that debt in the form of US treasuries attracts capital from the nets saver nations like Canada, Germany, and Japan. Fortunately for the US, treasuries are considered the world's most risk-free asset, and there is, at least for now, no shortage of foreign savers looking to deploy their excess cash. Add the fact that the US economy and stock market are the
favored investment destination of the world, there is a major and consistent inflow of savings from abroad flowing into US bonds and equities. While this helps drive investment into productive assets in the US, it also has an impact on interest rates, driving them down and subsequently driving up asset valuations. Speaking of valuations, if wealth growth is far outpacing GDP growth, what exactly is driving this recent spike? Well, economically speaking, the best way to grow wealth is through value creation. Taking iron ore and processing it into the metals used to make a machine that allows the transformation of more raw materials into finished goods faster and more efficiently than before. Take for example a man hired to dig holes. At
first, he uses his bare hands. He's paid based on his output, but he's not very efficient. It takes him a full day to dig one hole, and he earns $10. So he decides to take his hard-earned money and invests it in buying a shovel. His wealth has technically increased by the price of the shovel, an asset, but more importantly so has his productivity. In the time it used to take him to dig a hole by hand, now he can dig three. This is a silly oversimplification of the process, but whether talking about this man or the global economy, the point remains the same. In our simple example, that $10 shovel actually increased the man's personal GDP by three times as much. If we were increasing wealth by
investing in productive assets or shovels in this case, we would expect productivity measured by GDP to keep pace or even accelerate beyond wealth growth. But that's not what's happening. In fact, it's quite the opposite. Net worth has increased at a far greater pace than GDP, particularly over the last two decades, and now sits 50% higher relative to income than its historical norms. And the vast majority of growth on the global balance sheet is in non-productive assets. Our global wealth is growing but it is not being invested in value producing assets. The reality is that the valuation of our existing assets is skyrocketing but our ability to produce more value is not.
Simply put, price increases are what is driving our growing net worth. A staggering 75% of net worth growth since 2000 has been driven by price increases. And it's not simply inflation. Inflation only actually accounted for roughly 38% of the price growth over that same period. more than 1/3 was simply paper wealth creation and investment only accounted for 28%. This divergence between price-driven wealth increases and that driven by investments is problematic for a number of reasons. For one, if asset prices continue to outpace GDP and income growth, people need to dedicate more and more of their budgets to buying these stores of wealth, things like housing, and have less money left over to invest in productive assets
because they can barely meet their monthly mortgage payments. And this becomes a bit of a self-reinforcing cycle. As non-productive asset valuations have soared, the gains they provide in excess of inflation are on par with or at times outpacing operating returns of productive assets. This creates an incentive for investors to chase asset appreciation returns in the form of equities and real estate over real economic investments. In fact, the price of housing, the primary allocation of household net worth, has tripled since 2000 and sits well beyond the historical norm with no signs of coming down. Prolonged periods of low or near 0% interest rates have done us no favors here. Low savings yields have sent
households seeking returns in equities to outpace inflation and low costs of borrowing have allowed them to take on massive mortgages to outbid competitors in tight housing markets. Coincidentally, or more likely not, those low interest rates started in 2001, as did this divergence between net worth and GDP. But if income growth isn't keeping pace with asset prices, something needs to fill the gap. And you guessed it, it's debt. For every $1 of investment, we are generating $2 of debt. We've got to pay for those houses somehow. And yet again, we run into the dilemma of where scarce dollars end up. For every extra dollar that goes into
paying down debt, there is one less available for productive investment. All of that is to say that more and more money is paying down debt or chasing wealth generation and asset price appreciation and not flowing into productive assets. And GDP simply can't keep up if investment in productive assets aren't being prioritized. The thing is households rarely actually directly invest productive tools themselves. They buy shares in companies that buy the tools. Through this lens, we can essentially think of companies themselves as productive machines. So by investing in companies, households are investing in productive assets by proxy. But a company's enterprise value or its value on the stock market is always greater than a sum of the assets it
owns. That's because companies are more than the physical machinery they own. They are a business made up of a corporate culture, industry expertise, brand power, and more. These intangible assets don't always show up on a balance sheet, and when they do, they are rarely fully valued. What's more is that when you buy a share of a company on the stock market, you are buying the rights to a share of its future profits, not just its current assets. And the price you pay is a premium multiple that reflects an anticipation of those future profits and their potential growth. In hot stock markets like the United States, however, enterprise valuations of publicly traded companies have
entirely detached from their underlying asset or book values. In fact, the total value of US corporate equity liabilities far exceeds the value of the assets they own, even excluding their debt, by 1.8 times. So, if equity valuations are being pushed higher and higher, there are obviously more than enough people willing to invest in productive companies. So, where is the increase in productivity? Well, people are buying shares in companies. A record 58% of US households are participating in the capital markets primarily through equities, and they hold a lot of them, roughly 38% of the total market. And while individual investments and retirement contributions have created a near constant inflow of new money into
the equity market to the tune of $753 billion in 2025, there has been an even bigger buyer, corporations themselves. In the 12 months ending September 2025, corporations purchased a staggering $1,020 trillion of their own shares, up 11% from the year prior. So households are piling money into corporations as a seeming proxy for productive investment. But rather than reinvesting their profits into real tools to improve productivity, those same corporations are just buying back their own shares and are just bidding up the price of their already inflated stock. All in the name of shareholder return. And while valid on paper at least, that shareholder return is part of the problem. Wealth is increasing wealth,
not productivity. And that brings us to another problem. Most of the time, people equate wealth with cash. But they are not one and the same. Under the global accounting rules we discussed earlier, assets on national balance sheets are valued at current market prices or via indices that account for them. This means wealth is largely determined by the last price something sold at. You'll often see headlines noting trillions of dollars added or lost in the stock market. But the reality is a trillion dollars didn't go anywhere. It wasn't pulled out. In fact, it wasn't even real to begin with. That's because it isn't money. It is a valuation on paper. Stocks are valued by applying the last transacted price across all current shareholdings. So,
the value of your investments can go up and down on a daily basis at the whims of the market sentiment when the underlying business value didn't actually change at all. Think of it like this. You have a collection of 10 shiny rocks. One day, one of your friends walks by and offers you $1 for one of your rocks. You sell it and now your friend has one and you are left with nine. Using market pricing logic, combined, the collection of rocks is worth a total value of $10. You have $9 of wealth and your friend has one. Some time goes by and a passer by sees you and your friend standing there with your rocks and they want in. They make the same offer, $1 for one rock, but neither of you wants to sell. So, they up the
ante and offer you $2 for one rock. You happily accept. Now, based on the most recent transaction price, you have eight rocks that are worth $16 in total, and you've got $3 in your pocket. That's great. You actually have less tangible assets, but they are suddenly worth more. And your friend is happy, too. His $1 in rocks is now $2. It doubled in value and so did his wealth. The rock market is ripping. It gained $20 of value in a single day. But nothing about the rocks or the people that hold them actually changed. They are still the same rocks. Silly story, but hopefully you get the gist of it. Valuation and wealth are not based on cash. They are an assumed worth based on the latest
market transactions. So, while it might be the best current means of applying a standardized valuation, there's a whole host of problems. Take equities as an example. Hopefully, our little story about rocks can help you see how stock market bubbles and crashes can happen without any major underlying changes in the businesses being bought and sold. Someone could theoretically gain or lose millions in wealth without actually doing anything by simply sitting on their shares while others bid up the prices or sell in a panic. It's a bit nonsensical. And as such, a major influencing factor in the pricing of assets is the amount of money available. With more money pouring into the system, especially following COVID, as
governments issued things like stimulus checks and central banks embarked on massive quantitative easing programs, more households suddenly had more cash to pay for the same assets, pushing up asset prices and global net worth without any real tangible value actually being created. If you were wondering how the world created $35 of new wealth for every $1 of net new investment in the last 25 years, well, there's your answer. But now, as of late, nations and economies have been grappling with the after effects of loose monetary policy and low interest rates, inflation, and as such, central banks have had to raise interest rates, and many have started to actively shrink their balance sheets
through quantitative tightening. The money supply is starting to shrink. In the current dynamic of global balance sheets, that's a precarious situation to be in. If sentiment shifts and people suddenly attempt to cash out on their paper wealth on mass by selling their investments into an environment where money is tighter, well, now you have a scenario where more assets are chasing fewer dollars and the global economy risks entering a balance sheet reset. Remember, because asset prices are tied to market values and those values are determined by the last transacted price. A rush to sell causes market prices to plummet, vaporizing trillions of dollars in paper wealth as balance sheets assets
are revalued at drastically lowered prices. And for balance sheets burdened by debt, many households and governments could suddenly find themselves underwater on their obligations. And worse, as asset prices drop, already elevated loan to value ratios spike, forcing households and governments to painfully leverage, selling more assets, and cutting back on spending to prioritize paying down debt. Think post 1990 Japan. A deep recession, massive asset price corrections, and a period of stagnation. It's not pretty. So, how can it be avoided? Well, the most optimal way is by accelerating productivity. By accelerating GDP growth faster than asset and debt values, real economies can catch up to their inflated balance sheets and reach a healthier
equilibrium. And coincidentally, the world is kind of positioned to pivot into this outcome. The AI boom has led to a massive investment cycle, particularly in the US. Over the last 15 years, investments in R&D and capital expenditures by the largest tech companies have increased by 19 times with no signs of slowing down. And if we're lucky, this investment in AI might turn out to be the answer to our productivity problems. That is, unless Claude steals all our jobs in the meantime. But for now, it needs to be more structural than that. If we want a healthy, growing economy, we need to disincentivize households from simply hoarding unproductive assets and driving up their valuations with debt. Think about how we handle cash in our economy.
Most central banks actually target a healthy amount of inflation around 2%. Why? Well, to incentivize individuals to invest their cash to put it to productive use in the economy with a 2% inflation rate, keeping your cash under the mattress for 10 years will erase 18% of its purchasing power. That's a pretty good disincentive to not do that. Now, we need a similar tool for unproductive assets. There are a few options and they revolve around taxes. Now, in this scenario, we aren't talking about taxes to fill the budgetary gaps of irresponsible governments. Here, we are talking about incentives. In economics, you get more of what you subsidize and less of what you tax. Unfortunately,
this basic premise is often lost on policy makers. But back to the point, one option is land value taxes. First and foremost, taxing empty land would inherently incentivize one to develop it to put it to productive use. But there's a secondary effect here as well. Right now, most of the world implements some version of this through property taxes. But the problem is property taxes are based on land and the property you build on it. Contrary to the goal, that actually disincentivizes development. With land value taxes, you get the reverse effect. Taxes remain the same in lie of whatever you build on it, thereby incentivizing you to develop more, not less. Along those same lines are things
like vacant property levies for unoccupied residences and second homes that are pushing up prices in already tight housing markets. Considering that the majority of wealth generation is coming in the form of housing, this makes sense. More investors are buying more houses in hopes of cashing out on simple price appreciation without putting it to any productive use in the meantime. Then we have the wealth tax. And this seems to be quite controversial. If you're in the United States, you're likely familiar with California's ongoing efforts. And if you're from France, you are likely familiar with recently repealed Impo Solidarity or Solidarity Tax on wealth. Though it was replaced by a more targeted wealth tax on property. Part of the problem is the world's patchwork
policies that enable the billionaire flight from nations and states with wealth taxes. But here we're discussing a global problem, not a nation specific one. Yet the core premise of the tax remains the same. If these assets are generating ongoing value, then these small taxes shouldn't really matter. It's a simple cost of doing business. On the other hand, if the value of the assets are entirely tied up in eventually being able to account for them at a higher price, well then a wealth tax is a problem. But that's the point. It's not about revenue. It's about incentives. If your capital is tied up in an asset that is actually costing you money instead of making it, then you will be more incentivized to
invest it productively. With a simple tax, we can encourage the world's holders of unproductive wealth to seek returns through investment, the same way inflation pushes people to invest their cash. And just maybe, we can kickstart our economic production enough to catch up to our global net worth and avoid the problems that come if we don't. After all, if the majority of that $600 trillion is just paper wealth, are we actually any wealthier today than we were 20 years ago? Thanks for watching, mate. Bye.
