Why do we keep experiencing bubbles, booms, and busts? It has become so routine, analysts are looking on the horizon for the next bubble - and bust. The reason why this cycle seems to be happening more often is simple: it is getting harder and harder to create wealth by producing things that use material resources. Resources are becoming more expensive and their supplies less reliable. It is much easier to make money by gambling on what might happen to the resource supplies and the companies that use them, than it is to make money by investing in the companies creating useful products that generate real benefits for people.
We now have a vast segment of the financial products industry engaged purely in speculative trading. While money changes hands with increasing frequency and GDP rises, no real value is added. When I say "value," I mean actual benefits that enhance people's wellbeing. Billions of dollars are circulating without creating wealth.
Remember, wealth is ultimately about security, not money or GDP. It is the ability to survive for a longer period into the future under a wider range of conditions. In real estate, wealth is not about an artificially inflated home price. It is about the benefits that a home provides: security, safety, comfort, sanitation, and tools to manage risks, meet your needs, and survive. It is about the home's functions.
As long as resource supplies needed for making products contract while demand for them grows, the frequency and intensity of bubbles and busts will only worsen. But there is a simple alternative to this economic cul-de-sac. The future is about delivering more benefits with much less mass. In a crowded and resource constrained world, this is how value will be defined.
Businesses need to deliver much more wealth, or benefits to people, with fewer tons of resources. Governments need to set policies that encourage resource performance. Businesses that improve resource performance in their products and operations will reap more revenue with a lower cost of sales and will gain a competitive advantage. They will also enhance their brand and asset value. As byproducts, they will reduce environmental impacts and associated risks, as well as contribute to improving the national trade balance, controlling inflation, nurturing development, and reducing global conflict over control of resource reserves and distribution. This is a sustainable strategy, both for businesses and for our collective future.