I got an education today. I was always under the impression that GDP (Gross Domestic Product) was the value of all the goods and services produced within a country in a single year. Apparently I was wrong. Or I have a fundamental misunderstanding of how many things are valued, bought, and sold.  Where did I receive this lesson in economics? From Forbes.com, of course.

Countries Billionaires Could Buy
Friday Oct. 2, 2009
by Keren Blankfeld
Forbes.com

First lets just think about how much money the billionaires mentioned in this article actually have.
Bill Gates = $50 billion
Warren Buffet = $40 billion
Donald Bren = $12 billion

But this is net worth not cash holdings. If you want to buy something you typically need cash. So lets say Bill Gates wants to go buy something worth $50 billion dollars. He goes to his broker and says he wants to sell it all and buy a $50 billion dollar castle in China and retire. Well unfortunately word of this sale of gets out at the same time as rumors that Windows has been copying files and sending them to Chinese intelligence officials. The massive offloading of shares by Bill Gates gives credence to these rumors and Bill ends up selling his shares for a much lower price than the $25.00 of today. He might get about $5  billion instead of $50 billion. Even without the Chinese rumors if Bill Gates sold his 719 million shares of Microsoft on a whim the glut of shares on the market would do just watch economics 101 teaches. Supply of shares being sold goes up, the price goes down. (Of course that is given that demand stays the same, but if Bill Gates was bailing on Microsoft people would probably think something was wrong and demand would decrease and price would drop even more.)

Basically I’m just saying that Bill Gates doesn’t have access to $50 billion dollars. Neither does Warren Buffet or Donald Bren. The value they are given is based largely on shares of some company or other.  (Bren is a little different, his is a privately held company, but lets not get this too complicated or I’ll have to start talking about “well, what is a dollar anyway?”) Those shares have value based on figures like cash flows, dividends, earnings, and fancy financial talk. Basically it is valued on the idea that it will return money in the future.

Now what is GDP? Well it is a yearly figure based on the value of all the goods and services bought and sold in the country. There are more fancy figures like with intermediate goods and final goods and lots more technical stuff. But essentially it is the total value of the production of a country in a single year.

According to the Forbes.com article Bill Gates can buy Costa Rica, Warren Buffet can buy North Korea, and Donald Bren can buy Haiti. The only problem with this little assertion in the article so appropriate named “Countries Billionaires Could Buy” is that no one will sell a country for the value of what it produces in one year. That’s a 100% return on an investment per year. No one is going to sell you something that makes $100 per year for $100. If you’re lucky they might sell it to you for $1000.

I’m just saying, these people couldn’t buy those countries. That doesn’t make sense. Even if they could get the cash equal to their net worth, they couldn’t buy a country for its single year GDP. To get from net worth to the purchasing price of an economy you have to take a lot more steps than are given in the article. But maybe it is me that has it all wrong. Or maybe I just entirely missed the point about the article. I don’t write for Forbes so this is very likely the case.

Lets look at the author first to try to determine where this enlightened view of value might come from. 9 of 14 articles found by Ms. Blankfeld have the key words “billionaire”, “heiress”, or “richest” in the title if you search Forbes.com. Sounds more like a personal interest/gossip writer about rich people. Maybe we should go easy one her though. Her first article listed is about divorce and shortly thereafter her name changes from Karen Blankfeld Schultz to Karen Blankfeld. Maybe related, maybe not. But then she makes a lot more money than me so really I don’t have much grounds to attack from. Lets just say she wrote a silly article. Just like I’m doing right now.