By Tim Courtney, Chief Investment Officer

Discussions about the magnitude of wealth generated by stock markets, home values and other assets like cryptocurrencies have been getting louder in recent years. At the center of these discussions are questions about how much of today’s wealth is real—viable, durable and backed by actual economic value creation—and how much is backed by nothing more than current sentiment and newly created dollars.

On the positive side, unemployment remains low¹ and Gross Domestic Product (GDP) has stayed positive² as average household net worth keeps moving higher.³ And, with people feeling more confident, naturally their spending has remained high. On the other hand, household debt levels and defaults continue to rise⁴ and housing affordability is a major problem.⁵ Having some economic measures showing strength while others show weakness is normal and part of the “noise” inherent in markets and economies. But one measure has been a good indicator of economic health and supportive of durable wealth: productivity.

In The Wealth of Nations (1776), Adam Smith challenged the idea that a country’s economic future would be determined by how much gold or current wealth it held.⁶ He pointed to countries like Spain, which amassed enormous amounts of gold from its colonies but couldn’t retain the wealth because the economy wasn’t productive enough. Smith argued that durable wealth comes from what a nation produces and how efficiently its people work. After all, we’ve seen some of our biggest leaps forward when U.S. productivity surged.⁷

Productivity has been helped by many tools: canals, trains, telephones, automobiles, computers and the internet, for example. Better output created a foundation for more and longer lasting wealth. The challenge today is that productivity growth has been stuck. We have been hovering around 1 to 2% productivity growth per year over the last several decades,⁸ well below the gains that fueled the economic strength and wealth of the twentieth century. Work itself has been declining, with labor force participation sitting around 62% today, roughly where it was in the 1970s.⁸ This was before many women entered the workforce and drove participation close to 70% in 2000 before our current decline started.⁸

Ultimately, we will see if artificial intelligence (AI) can be the next tool that increases productivity. Even if many AI names are unprofitable and unable to recoup their massive spending,⁹ like many companies tied to the internet boom were unable to in the early 2000s, the tool will remain and could help boost productivity closer to the current level of inflation (3%).

As long-term investors we want to see either productivity rise or inflation fall to better hedge long-term risks to wealth. If you have any questions please reach out to your Exencial advisor.

Sources 

1. U.S. Bureau of Labor Statistics (1/7/26) – State Employment and Unemployment Summary
2. Bureau of Economic Analysis (12/23/25) – Gross Domestic Product, 3rd Quarter 2025 (Initial Estimate) and Corporate Profits (Preliminary)
3. Federal Reserve Board (6/30/25) – Financial Accounts of the United States - Z.1
4. Federal Reserve Bank of New York (data as of 12/12/25) – Household Debt and Credit Report
5. CBS News (11/19/25) – America's Deepening Affordability Crisis Summed Up in 5 Charts
6. Adam Smith Institute (data as of 12/11/25) – The Wealth of Nations
7. Congressional Research Service (9/9/25) – Productivity Growth: Trends and Policy Issues
8. Federal Reserve Bank of St. Louis (11/20/25) – Labor Force Participation Rate
9. Fortune (11/26/25) – OpenAI Won’t Make Money by 2030 and Still Needs to Come Up with Another $207 Billion to Power Its Growth Plans, HSBC Estimates

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