Norway’s Sovereign Wealth Fund Is the Size of the Mexico's Entire Economy | Hacker News Reader

Norway’s Sovereign Wealth Fund Is the Size of the Mexico's Entire Economy

thesoundingline.com

38 pointsFour_Star20 comments

Open articleView on HN

This is a stupid comparison. It is comparing flow vs. storage. This is comparing Joules to Watts. It isn't even wrong.

The Mexican economy generates $1 trillion of value per year.

The Norway Sovereign Wealth fund has $1 trillion in capital.

Over the past 2 years, it seems that Norway's fund generated an average return of about 10% a year.

That means Norway's fund is "equivalent" to a $100 billion GDP country, about 1/10th of Mexico.

Sadly this stock/flow confusion is rampant in economic thinking...

Why do people keep comparing assets ($) to GDP ($/year)?

If you want to compare the two, 1 year isn't a reasonable term. You can convert a rate into a current asset value by multiplying by a P/E ratio, anywhere from 10 to 20 these days.

One way to compare would be to say that all of Norway could earn as much money, just sitting on ass all day, every day, as 3% (safe withdrawal rate) of Mexico, working 43 hours a week (actual stat from OECD).

Alternately, compare to a country with lower GDP.

"Norway (5.3M people) makes as much sitting on its investments as Latvia (2M people) earns working 36.5 hours per week."

This has the advantage of comparing a Scandinavian country with a Baltic nation, with cultural and geographic proximity.

News media love to do this on a personal level too. Every month CBC runs a story about how Canadians' household debt (mostly mortgages) is 170% of their disposable income.

It isn't completely meaningless to compare these, but the units need to be right: Rather than "170%" (which scares people because it's more than 100%!) we should say that household debt is equal to 20 months of disposable income.

But that is the same thing, which isn't the case in the article.

The distance from LA to New York is bigger than 2000mph!

Yeah, I'm genuinely surprised and sad when I see posts like these make it to Hacker News, it just show how ignorant most people are about fundamentals of economics.

More like 20 to 30 in recent years (or even more if you look at indexes of smaller companies such as the Russell 2000)

Norway's Sovereign Wealth Fund has as much capital stock as the total flow of Mexico's Entire Economy. Obviously Mexico has a heck of a lot more capital stock which is required to create such a large economic flow.

This is kind of a bad comparison to make since they're comparing the value of Norway's fund versus the output of Mexico's economy (which would be more like revenue in the context of a company/investment).

These types comparisons are made all the time make no sense.

ITT Edit... lots of people complaining about the comparison (like me).

And the UK spent its oil wealth on tax cuts...now the oil has gone and retired people are richer. Woop

The current Norwegian Government is doing pretty much the same...

The capital stock of Mexico is estimated at $6.5T (2011 dollars, 2014 estimate)[1]. This is probably a better point of comparison.

[1]: https://fred.stlouisfed.org/series/RKNANPMXA666NRUG

This compares stocks to flows, which is incorrect and useless. Article dismissed.

I find this stat far more fascinating:

> $190,000 for every one of Norway’s 5.2 million citizens

yes. very interesting. it turns out that Norway is very unusual, on a per capita basis, among governments that have such funds:

https://en.wikipedia.org/wiki/Sovereign_wealth_fund#Largest_...

The 4 China related/controlled funds add up to over 2 Trillion.

They've got 265x the population, though.

Reply on news.ycombinator.com