Welcome to Econ Talk, part of the Library of Economics and Liberty. I'm your host Russ

Roberts of George Mason University and Stanford University's Hoover Institution.

Our website is econtalk.org where you can subscribe, find other episodes, comment on

this podcast, and find links to other information related to today's conversation.

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This week's podcast is a little out of the ordinary. Last month, March of 2009, a reporter

Robert Polly called me to talk about wealth, growth, and inflation. He asked a lot of

interesting questions, fundamental questions. Where did the wealth go when our houses became

less valuable? What causes growth? How do price changes affect our measures of wealth

and our well-being? The conversation went on for quite some time, and I thought it would

make a good episode of econtalk with Polly asking the questions while I try to give the answers.

So with Robert Polly's permission, I'm sharing our conversation. I hope you enjoy it.

As an econ doofus, when I start hearing these terms that are especially widely used these

days about the destruction of wealth, it immediately raises a question in my mind. I kind

of thought that the total wealth in a system, if wealth is based on things like the labor

force and on capital in the form of equipment and factories and infrastructure and knowledge,

and then also money, actual currency, and things like that, all those things have pretty

much remained the same from those days before the recession started, till now, and yet

supposedly aggregate wealth has shrunk. How does that make sense? Isn't wealth conserved?

Let me ask you, first of all, does that question even make sense to someone who's been studying

economics as long as you have? I think it's a good question. I think it

compuses a lot of people, probably including some economists, and it's not an easy thing

...