Can the odious Robert Reich perform simple arithmetic?

My favorite economics writer, Tim Worstall, gives the odious Robert Reich a well deserved drubbing.

Robert Reich takes to the pages of The Guardian today to tell us all that it would be a great idea if all retail stores just paid their workforces more. This may or may not actually be true but what I want to point to is the seeming ignorance even of basic arithmetic that the piece reveals.

First, Timmy starts with the basic accounting flaws in Reich’s arguments. Flaws that all leftists conveniently skip over while making their boilerplate arguments.

I’ll not comment on his views about inequality: that’s politics and not my remit. I want to look just at the numbers he uses.

At the peak of its power and influence in the 1950s, the United Auto Workers could claim a significant portion of GM’s earnings for its members. Walmart’s employees, by contrast, have no union to represent them. So, they’ve had no means of getting much of the corporation’s earnings.

Walmart earned $16bn last year (it just reported a 9% increase in earnings in the third quarter of 2012, to $3.6bn), the lion’s share of which went, instead, to Walmart’s shareholders

A little bit of basic accounting would be nice here. Earnings are, of course, the amount that goes to shareholders after the employees have been paid. So it isn’t, indeed cannot be, true that the “lion’s share” of earnings went to the shareholders. Earnings are what the shareholders get.

And if you want to do it a little differently, to talk about gross earnings, that amount before the employees get paid, then let me assure you that WalMart’s wages bill is rather larger than the profits the shareholders earn. So it’s most certainly not the lion’s share that way either.

Remember, if you have a 401k retirement investment, you are a “shareholder.”

Reich moves on trying to make the point that the family of Walmart’s founder earned on their Walmart stock was more than the combined earnings of the bottom 40% of American workers.

Timmy breaks down the arithmetic of how Reich’s statement makes no sense.

What? I mean, what?

There’s a couple of ways you can take “earned on their stock”. We might think of capital appreciation on it. The Waltons as a whole own just under half the company, the company is worth some $200, $220 billion at present, the share price has risen 15 to 18% or so this past year. So, to be generous, a little over the top, we might say they’ve had a capital gain of perhaps $20 billion?

Or the dividend yield is around and about 2% or so: so they got $2 billion in dividends perhaps? Very inaccurate numbers, yes indeed they are. But they are of the right order of magnitude. We’re in the couple of billion to a couple of tens of billions sort of region for the Walton family earnings from the family company this year.

So what do the bottom 40% of all American workers earn then? One number is that the bottom 40% of households earn $25k or so each. Say, 130 million households (about right, again, all these are very rough numbers) gives us 130 million x 0.4 x 25k….umm, $1.3 trillion? OK, OK, so perhaps it’s only workers, not households. What’s the median earnings in the bottom 40%? $10,000 a year? 130 million workers, 40% of them at $10k? That’s still over $500 billion.

I’ll agree that I sometimes don’t understand the world, have been known to make the most wondrous gaffes. But I’m deeply unconvinced that $2 billion or $20 billion is in fact a larger number than $500 billion or $1.3 trillion. I might even go so far as to say that that very thought is an expression of deep innumeracy.

Great points.

The problem with leftist economists like Robert Reich, Thomas Friedman and Paul Krugman is they are committed leftists first and economists second.

They use their credentials and supposed influence to advance the cause. Even worse, they are very comfortable doing this. They know as leftists, they are sheltered from media criticism and academia will laud them with more praise and accolades for their supposed ‘work.’