Remarkably Dumb Journalism

While my post has little to do with Soviet military history, this does touch on Poland and on Harvard, so I can claim some relevance to the region and to higher education.

CNN Money this morning had the latest example of a remarkably stupid journalistic trope that never seems to die: that “Company X is worth more than Country Y.” In this particular case, it’s the claim that Apple is worth more than Poland, based on the idea that Apple’s market capitalization is greater than Poland’s Gross National Product. Both come to about $500 billion at the current Polish exchange rate, though Poland’s almost 50% better off if we use purchasing power parity.

Gregg Easterbook of ESPN likes doing the same thing for higher education, noting that Harvard, or rather Harvard’s endowment, is worth more than Kenya, or more than Iceland and Honduras combined.

Here’s the basic problem: comparing GDP to market capitalization or to endowment confuses what a what a country PRODUCES, the goods and services it makes, with what a company is WORTH, or what it would cost to buy it. Those are two entirely different concepts: comparing GDP to market capitalization or endowment is like comparing apples and apple trees. Take a bond: it might produce $5 in income a year, but cost $100 to buy.

The stock market says Apple is worth about $500 billion. So let’s see what we think Poland might actually be worth. Put another way, what would it cost to buy Poland? All these calculations are rough, back-of-the-envelope figures, but I think they illustrate the point.

Why don’t we start with industrial plant? An IMF working paper by Doyle, Kuijs, and Jiang puts Poland’s capital stock as of 2000 at about 200% of GDP, which would suggest that buying all the capital goods of Polish businesses would cost us about $1000billion.

Now agriculture. Poland’s largely agricultural: 40-50% of its land is farmland. Let’s say 40% of Poland’s 300,000 square kilometers is productive farmland, in order to be conservative. That makes 120,000 square kilometers, or 12,000,000 hectares. Let’s go with a conservative valuation of $4000 per hectare. That gives us $50billion for Polish farmland. That’s a substantial bargain, the result of legal obstacles to foreign ownership.

What about real estate? Poland’s got about 12 million households. Let’s take conservative estimates of a value of $1000 per square meter for residential real estate, and average property size of 60 square meters. That gives us $720billion for housing stock alone, not counting commercial property.

So leaving out all the malls and office buildings going up in Warsaw, and all those cows and pigs in the Polish countryside, we find it would cost at least $1770 billion to buy Poland, making it worth at least three times as much as Apple.

My question is why professional financial journalists make basic mistakes like this.

2 Responses to “Remarkably Dumb Journalism”

  1. Boris Lvin says:

    Smae comparison could be done the other way round: you can “recalculate” Apple’s “product” to be compared to Poland’s product (roughly approximated as GDP). So, the “product” of Apple would be basically its net income (profit and taxes, the latter to be an equivalent of the government component of the GDP) plus labor compensation. According to wikipedia ( its 2011 net income was $34 bln. It had employed about 60,000 people; assume that average labor costs were $200,000 per year (definitely an exaggeration), so this component will be $12 bln. Now, GDP is “gross” in that it includes depreciation, so we have to add some estimate of Apple’s depreciation. In 2010 it was about $ 1 bln. To sum up, Apple’s GDP will be something about $50 bln. Which is huge, but still ten times less than that of Poland.

  2. Jim Washington says:

    The lack of basic knowledge of the economic system and economic history among journalists who write on the subject is appalling. One can almost give the general electorate a pass because the state of a true liberal education has become so bleak. The media serves up a diet that is beyond propaganda. I was an Army Propaganda Officer for a few years and remember that one of the principles was that propaganda has to have at least a kernel of truth.

    A current example is the looming sequester – an impending disaster on a par with the Black Death according to what one is bombarded with by politician and media alike. How less than $50 Billion(of the $85 Billion bandied about only around $48 Billion affects the current fiscal year) reduction in an increase (not a reduction in discrete dollars of current outlay) in a total expenditure of $3.8 trillion and a GDP of $16 trillion – the equivalent of a rounding error – can cause the promised devastation totally escapes all human reason.

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