Eddy Elfenbein, writing on Crossing Wall Street, gives Forbes magazine his economic illiteracy prize for comparing the net worth of the richest individuals to the gross domestic product of countries.
Elfenbein writes, “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.”
Read more here.
