It has been a while since I have posted on one of my pet hates - journalists invalidly comparing stocks and flows (for example, see this post), like wealth (a stock) and income (a flow), or total assets (a stock) and total revenue (a flow). Researchers are also not immune to this problem (see this post, for example). The latest example comes from this article in The Conversation yesterday, by Ray Moynihan (Bond University):
Just weeks before the first COVID-19 cases emerged, Gallup published its latest poll on America’s views about business. At the bottom of the list of 25 sectors was the pharmaceutical industry. Below advertising. Below oil and gas. Below the banks.
The pandemic and the new vaccines have of course turned that reputation around, but let’s not forget why the pharmaceutical industry’s credibility sank so low.
Or how the industry got so big. One company, Johnson & Johnson, is currently worth around US$450 billion. About the same as the economy of Norway.
No. No. No. Moynihan has written some important articles and books (including Sex, Lies and Pharmaceuticals, which I reviewed here). However, on this point he is on shaky ground.
Johnson & Johnson is not worth the same as the economy of Norway. The size of an economy (as measured by GDP) is a flow of resources for a single year. Johnson & Johnson's market capitalisation is a stock (a measure of its total value), not a flow for a single year. They are not directly comparable. A valid comparison would be between the GDP of some country and Johnson & Johnson's profits (or, even better, its 'value added'). Add this to the (long) list of journalistic economic literacy fails.
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