By Marc Jampole
I’m beginning to wonder if not being good at business math is a requirement for getting a regular column on the editorial pages of the Wall Street Journal. Time and time again, columnists use fallacious quantitative reasoning to build their case. Whether overestimating the impact of the minimum wage on overall employment, supporting the laughable illogical Laffer Curve, not recognizing the economic boon that alternative fuels and environmental regulation will bring or underestimating the costs of war, the rightwing often plays fast and fancy with numbers.
It’s so much in their nature to lie with numbers, that rightwing pundits do it even when they don’t have to take. Take, for example, Daniel Henninger’s excoriation of the leading candidate for the Republican nomination for president in an article titled “Trump Among the Canaries.” I don’t agree with Henninger on many things, but he is correct when he says that the Donald “has been floating in an inch-deep pool of policy and shows no inclination to expand his pre-existing knowledge of anything.”
One great point that Henninger makes is that Trump’s proposed 45% tariff on goods imported from China is unrealistic and will harm the U.S. economy. But then he displays some of the stupidest thinking with numbers I’ve read this year when he writes: “Wal-Mart has 1.4 million employees in stores filled with foreign-made consumer goods. With a 45% price increase, many won’t be working for long.”
Does Henninger really believe that a 45% increase in the tariff paid to import Chinese goods into the United States will lead to a 45% increase in prices? If he does, he’s an unsophisticated fool with so little experience in the business world that he should not be writing for a business newspaper or commenting on economic matters.
The cost of merchandise is not the only factor that goes into the price that people pay at Walmart, or anywhere else. There is also transportation (a factor that will now be reduced substantially over the short term as soon as the merchandiser has unwound the long-term gas contracts it entered into when oil prices were much higher), store and warehouse space and equipment, labor costs, marketing and advertising, insurance, information technology, legal, other administrative costs and the cost of borrowing. And let’s not forget about profit. When costs go up, businesses always have the option of eating the additional expenditure and making slightly less money.
It would be great if we knew exactly how much Walmart pays for the merchandise it sells. Unfortunately, Walmart lumps what it pays for merchandise into a line in its annual financials that also includes “the cost of transportation to the Company’s distribution facilities, stores and clubs from suppliers, the cost of transportation from the Company’s distribution facilities to the stores, clubs and customers and the cost of warehousing for the Sam’s Club segment and import distribution centers.” That number is just under 76% of revenue. If the cost of product were half this number and Walmart insisted on maintaining its healthy profit margin, a 45% increase in the tariff would result in 17% increase in store prices. Still steep, but not the 45% increase in prices that Henninger threatens will occur.
Henninger would have had a good point, even if he didn’t present a misleading picture. But it seems to be encoded into the DNA of rightwing pundits to manipulate numbers and do bad math.
Forgetting about factors in an economic analysis is something that Trump himself does, most egregiously when he claims that he made good business deals when he took three business entities into bankruptcy. The number the Donald forgets, of course, is the hundreds of millions of dollars of losses incurred by investors. His bragging about his billions in assets neglects the fact that a passive investor would be worth twice as much as Trump is after his three decades of businesses deals.
In truth, Trump has been an unsuccessful business person. And with his seemingly unsophisticated understanding of simple pricing matters, it looks as if Henninger would be just as bad as Trump if he had to quit his sinecure at the WSJ and get a real job.