Monday, 19 March 2018

Stocks vs. flows... Billionaire edition

Regular readers will know that one of my pet peeves is the media not knowing the difference between stocks and flows. Here's the latest example, from Paul Little in yesterday's New Zealand Herald:
From memory the income sections in the Census didn't include a $1,000,000,000 or more a year bracket, so if the results ever come in they won't tell us how many billionaires are in the population.
The Census won't tell us how many billionaires there are, because the Census question asks about income (a flow, because it is an amount that is paid to you over time) and billionaires are defined by their net wealth (a stock, because it is a total that is measured at a single point in time). If a person has a billion dollars in net wealth in cash, and invests it in a low-yield term deposit earning 2 percent per year (after tax), they'll be earning $20 million per year (ignoring compounding interest). But they would still be a billionaire.

Looking for people with a billion-dollar annual income is a bit of a lost cause. There are no CEOs earning that much (top earners are in the low hundreds of millions - see here or here), no sports stars earning that much (top earners are in the mid tens of millions - see here), and no celebrities earning that much (see here, although dead celebrities may be earning more - the late Michael Jackson's earnings peaked at $825 million, according to Guinness). I imagine that some of the highest-wealth entrepreneurs will be earning a billion dollars plus per year, but most of their earnings are on paper, and if we're counting paper changes in wealth as income, then some of them have negative income so far this year.

So, I wonder who Paul Little thinks would fill out the box in the Census claiming an income of $1,000,000,000 or more?

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