Economics Fail: Forbes Edition

Congratulations Forbes, you’re today’s winner of our economic illiteracy prize! Boy, this one is a doozy. They ran a remarkably silly article titled Countries Billionaires Could Buy. Here’s a typical brain-hurting passage:

Castles in France. Islands in the Caribbean. Private jets. With a collective $1.27 trillion at their disposal, the members of The Forbes 400 could buy almost anything.
How about a country? A quick glance at the CIA Fact Book suggests the individual fortunes of many Forbes 400 members are as big as some of the world’s economies.
Bill Gates, America’s richest man with a net worth of $50 billion, has a personal balance sheet larger than the gross domestic product (GDP) of 140 countries, including Costa Rica, El Salvador, Bolivia and Uruguay. The Microsoft visionary’s nest egg is just short of the GDP of Tanzania and Burma.

Yes, they’re confusing net worth with GDP.
Ok class, turn to page 208 of N. Gregory Mankiw’s Principle of Macroeconomics for a definition of gross domestic product:

Gross domestic product (GDP) is the market value of all final goods and services produced within a country in a given period of time.

In other words, net worth = stuff you have; GDP = stuff you make. It’s like confusing the price of the stock with its earnings.
The net worth of a country is far larger than what it produces in a single year. Not only is Costa Rica wealthier than Bill Gates, it’s a lot wealthier. Furthermore, the comparison between a western billionaire to a developing country is heavily skewed due to the Penn Effect.

Posted by on October 8th, 2009 at 7:37 am


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