A while back, there was a story about how Americans vastly overestimate how many people in the USA are homosexual. According to Gallup polls in 2011, Americans estimated that 25% of the people in America were homosexual. In 2015, it was 23%. The actual number is about 3%. So it’s very clear that Americans can have wildly inaccurate perceptions about reality. Why are Americans so wrong? I think it’s because they see a lot of gay people in high profile areas, particularly in the entertainment industry.
I thought about this failure to perceive reality when I saw a story about how much profit Americans think that corporations make. My guess was that the average corporation makes about 5-10% profit margin. I know this because I used to buy and sell stocks regularly and that’s one of the numbers I would look at. Most Americans own stocks, so I thought they most Americans would know the number as well. But it turns out that American perceptions of corporate profits are wildly off the mark.
When a random sample of American adults were asked the question “Just a rough guess, what percent profit on each dollar of sales do you think the average company makes after taxes?” for the Reason-Rupe poll in May 2013, the average response was 36%! That response was very close to historical results from the polling organization ORC International polls for a slightly different, but related question: What percent profit on each dollar of sales do you think the average manufacturer makes after taxes? Responses to that question in 9 different polls between 1971 and 1987 ranged from 28% to 37% and averaged 31.6%.
How do the public’s estimates of corporate profit margins compare to reality? Not surprisingly they are off by a huge margin. According to this NYU Stern database for more than 7,000 US companies (updated in January 2018) in many different industries, the average profit margin is 7.9% for all companies and 6.9% for more than 6,000 companies excluding financials (see chart above).
[…]“Big Oil” companies make a lot of profits, right? Well, that industry (Integrated Oil/Gas) had a below-average profit margin of 5.6% in the most recent period analyzed, and separately, the Production and Exploration Oil/Gas industry is losing money, reflected in a -6.6% profit margin. For the general retail sector, the average profit margin is only 2.3% and for the grocery and food retail industry, it’s even lower at only 1.6%. And evil Walmart only made a 2.1% profit margin in 2017 (first three quarters) which is less than the industry average for general retail, possibly because grocery sales now make up more than half of Walmart’s revenue and profit margins are lower on food than general retail.
Sometimes, the government makes MORE from the sale of goods or services than the company that does ALL the work:
Interestingly, Walmart’s profit margin of 2.1% is actually less than one-third of the 6.5% the average state/local government takes of each dollar of Walmart’s retail sales for sales taxes. Think about it – for every $100 in sales for Walmart, the state/local governments get an average of $6.50 in sales taxes (and as much as $10.12 in Louisiana and $9.45 in Tennessee, see data here), while Walmart gets only $2.10 in after-tax profits!
I think that Americans are getting their false anti-corporation views from listening to the mainstream media. The mainstream media is overwhelmingly leftist according to recent studies of their political donations. I think that the anti-corporate views of the average American comes from their uncritical consumption of mainstream media propaganda. They think they are getting objective news reporting, but what they’re really getting is socialist propaganda.
Here is a short little video that explains more about profit margins, and what would happen if a socialist like Bernie Sanders were put in charge of a corporation:
If you’d like to help with this problem of anti-business economic illiteracy, please watch the video and share it, or share the AEI article, which contains the video. America will be a better country when Americans have accurate, informed beliefs about important issues.
I’m very interested in how economic policy in different times and places affects the ability of Christians to carry out their Christian life plans. What economic policies should Christians support in order to be able to carry out their lives? Do Christians need to eat? Do they need to be safe from criminals? Do they need to be able to work or run a business without violating their consciences? Can a Christian be as charitable when he cannot even feed himself or his family?
When I talk to young evangelicals, they seem to be pretty in lockstep with the left on policies like raising the minimum wage, having government take over health care, environmental regulations on private sector energy companies to stop global warming, etc.
So, it’s worth it to look at how things work in places where socialism is actually being tried.
Here is an article from March 2013 from the radically leftist Slate. The headline is “Hugo Chavez’s economic miracle: The Venezuelan leader was often marginalized as a radical. But his brand of socialism achieved real economic gains”. The author is “a senior writer for the International Business Times”.
Chavez became the bugaboo of American politics because his full-throated advocacy of socialism and redistributionism at once represented a fundamental critique of neoliberal economics, and also delivered some indisputably positive results. Indeed, as shown by some of the most significant indicators, Chavez racked up an economic record that a legacy-obsessed American president could only dream of achieving.
What did Chavez do, precisely, that caused the Venezuelan economic to boom? Well, he nationalized private industry and redistributed wealth from job creators and entrepreneurs to the poor.
As The Week correctly put it, while “Chavez’s policies of redistribution and nationalization of oil assets endeared him to Venezuela’s working class” and produced many laudable results, the country’s “oil-centric economy has taken away resources from other areas that are badly in need of development.”
Well, what happened next?
Consider this long and detailed article from the left-leaning The Atlantic. I can only quote part of it, but you really need to read this to understand what happens when country attacks all the people who were creating wealth and jobs with regulations, taxes, price controls and property seizure.
In the last two years Venezuela has experienced the kind of implosion that hardly ever occurs in a middle-income country like it outside of war. Mortality rates are skyrocketing; one public service after another is collapsing; triple-digit inflation has left more than 70 percent of the population in poverty; an unmanageable crime wave keeps people locked indoors at night; shoppers have to stand in line for hours to buy food; babies die in large numbers for lack of simple, inexpensive medicines and equipment in hospitals, as do the elderly and those suffering from chronic illnesses.
But why? It’s not that the country lacked money. Sitting atop the world’s largest reserves of oil at the tail end of a frenzied oil boom, the government led first by Chavez and, since 2013, by Maduro, received over a trillion dollars in oil revenues over the last 17 years. It faced virtually no institutional constraints on how to spend that unprecedented bonanza. It’s true that oil prices have since fallen—a risk many people foresaw, and one that the government made no provision for—but that can hardly explain what’s happened: Venezuela’s garish implosion began well before the price of oil plummeted. Back in 2014, when oil was still trading north of $100 per barrel, Venezuelans were already facing acute shortages of basic things like bread or toiletries.
The real culprit is chavismo, the ruling philosophy named for Chavez and carried forward by Maduro, and its truly breathtaking propensity for mismanagement(the government plowed state money arbitrarily into foolish investments);institutional destruction (as Chavez and then Maduro became more authoritarian and crippled the country’s democratic institutions); nonsense policy-making (like price and currency controls); and plain thievery (as corruption has proliferated among unaccountable officials and their friends and families).
A case in point is the price controls, which have expanded to apply to more and more goods: food and vital medicines, yes, but also car batteries, essential medical services, deodorant, diapers, and, of course, toilet paper. The ostensible goal was to check inflation and keep goods affordable for the poor, but anyone with a basic grasp of economics could have foreseen the consequences: When prices are set below production costs, sellers can’t afford to keep the shelves stocked. Official prices are low, but it’s a mirage: The products have disappeared.
When a state is in the process of collapse, dimensions of decay feed back on each other in an intractable cycle. Populist giveaways, for example, have fed the country’s ruinous flirtation with hyperinflation; the International Monetary Fund now projects that prices will rise by 720 percent this year and 2,200 percent in 2017. The government virtually gives away gasoline for free, even after having raised the price earlier this year. As a result of this and similar policies, the state is chronically short of funds, forced to print ever more money to finance its spending. Consumers, flush with cash and chasing a dwindling supply of goods, are caught in an inflationary spiral.
The rest of the article has horrifying details about what socialism really means: businesses shut down, shortages of food and medicine, government waste, skyrocketing crime, failing education system, Zika epidemic, water rationing, blackouts, and so on.
There was even an article this weekend in the radically leftist New York Times about the horrifying conditions of hospitals in Venezuela:
By morning, three newborns were already dead.
The day had begun with the usual hazards: chronic shortages of antibiotics, intravenous solutions, even food. Then a blackout swept over the city, shutting down the respirators in the maternity ward.
Doctors kept ailing infants alive by pumping air into their lungs by hand for hours. By nightfall, four more newborns had died.
“The death of a baby is our daily bread,” said Dr. Osleidy Camejo, a surgeon in the nation’s capital, Caracas, referring to the toll from Venezuela’s collapsing hospitals.
The economic crisis in this country has exploded into a public health emergency, claiming the lives of untold numbers of Venezuelans. It is just part of a larger unraveling here that has become so widespread it has prompted President Nicolás Maduro to impose a state of emergency and has raised fears of a government collapse.
Hospital wards have become crucibles where the forces tearing apart Venezuela have converged. Gloves and soap have vanished from some hospitals. Cancer medicines are often found only on the black market. There is so little electricity that the government works only two days a week to save what energy is left.
At the University of the Andes Hospital in the mountain city of Mérida, there was not enough water to wash blood from the operating table. Doctors preparing for surgery cleaned their hands with bottles of seltzer water.
“It is like something from the 19th century,” said Dr. Christian Pino, a surgeon at the hospital.
The figures are devastating. The rate of death among babies under a month old increased more than a hundredfold in public hospitals run by the Health Ministry, to just over 2 percent in 2015 from 0.02 percent in 2012, according to a government report provided by lawmakers.
The rate of death among new mothers in those hospitals increased by almost five times in the same period, according to the report.
Here in the Caribbean port town of Barcelona, two premature infants died recently on the way to the main public clinic because the ambulance had no oxygen tanks. The hospital has no fully functioning X-ray or kidney dialysismachines because they broke down long ago. And because there are no open beds, some patients lie on the floor in pools of their own blood.
This is not happening because of capitalism and the greedy rich. It is happening because of hatred and persecution of entrepreneurs and job creating private businesses. But, if you read books on economic policy like “The Spirit Level”, which is written by socialists, countries like Venezuela that have lower income inequality have lower infant mortality, lower crime rates and better health care. Socialism works great in academia, not so well in a North Korean work camp.
It’s not just Venezuela. This article from Investors Business Daily covers how well socialism is going in countries like France, Brazil and Argentina. It never works.
Now, in most churches, pastors are more concerned with making people feel good so that the coins continue to fall into the offering plate. Therefore, they carefully stay clear of topics like economics, business and entrepreneurship. The question that we need to ask ourselves is this: how easy is it for you to live out a Christian life in a country where poverty, crime, and government suppression of free speech and religious liberty are rampant? Shouldn’t part of being a Christian mean voting for public policies that actually help poor people have opportunities, children in broken homes and victims of crime, instead of just embracing what sounds nice and makes us feel good?
In case I need to be clearer, I mean that Christians who embrace socialism are taking us down the road to serfdom because of their ignorance of economics. And it’s not just the Democrats. Christians who support Donald Trump are embracing import tariffs, opposing free trade, raising taxes, raising the minimum wage, government seizing private property, and so on. That’s socialism, too. And we won’t escape the consequences of our economic ignorance anymore than the well-meaning Venezuelan voters did when they elected their strong man to rescue them.
This story from CBS Marketwatch looks at the only period of Trump’s career for which we have the numbers.
[T]he only part of his business track record for which we have the full picture shows that Trump wasn’t a successful executive but an absolute catastrophe.
For 10 years between 1995 and 2005, Donald Trump ran Trump Hotels & Casino Resorts — and he did it so badly and incompetently that it collapsed into Chapter 11 bankruptcy. His stockholders were almost entirely wiped out, losing a staggering 89% of their money. The company actually lost money every single year. In total it racked up more than $600 million in net losses over that period.
Trump was chairman of the board throughout the entire time, and CEO as well for about half of it.
Meanwhile, over the same period, all his competitors were enjoying an enormous boom. Take a look at our chart.
While Trump was running Trump Hotels & Casino Resorts into the ground, the Dow Jones index of gambling stocks — the index that Trump himself cited in public filings as his best benchmark — soared 160%. Investors in Harrah’s saw their stake go up by nearly 150%. MGM MGM, -2.56% quintupled. These people were making out like bandits.
Donald Trump ran the worst performing casino company on the stock market. This isn’t a matter of “opinion.” This isn’t speculation or politics. It’s a matter of plain fact.
However, one person associated with Trump Hotels & Casino Resorts did make money:
Donald J. Trump.
A review of the company’s public filings show that over that period, while his ordinary investors were getting hosed, Trump himself was siphoning millions out of Trump Hotels & Casino Resorts through salary, “bonuses” — yes, really — and cozy “service agreements” or side deals with his private corporations.
Here’s the chart with the info from Trump’s public filings:
You can read more about his four bankruptcies on CNN Money, too.
Here’s a look at Trump’s bankruptcy track record.
1. Trump Taj Mahal, 1991
To come up with the funds he needed, he sold a 282-foot yacht, as well as the Trump Shuttle, the airline he operated at the time that flew between Washington, D.C., New York and Boston, according to media reports at the time. He had to give up half of his ownership stake in the Trump Taj Mahal, but he did retain control of the property. His largest creditor was financier Carl Icahn, who held $400 million in bonds. Now Icahn is Trump’s pick for Treasury secretary should he be elected.
2. Trump Castle Associates, 1992
In less than a year he was back in bankruptcy court for his other Atlantic City casinos. This bankruptcy included the Trump Plaza Hotel in New York, the Trump Plaza Hotel and Casino in Atlantic City as well as the Trump Castle Casino Resort. He gave up half his interest in the New York Plaza to Citibank, but retained his stake in the casinos.
3. Trump Hotel & Casino Resorts, 2004
Trump didn’t go back to bankruptcy court again until November 2004, when he filed to shed debt at his various Atlantic City casinos and a riverboat in Indiana. It was another quick trip through bankruptcy court; the company shed $500 million in debt and emerged from bankruptcy the following May. Trump turned over majority control of the company to his bondholders but remained the largest single shareholder, and he once again kept control of the casinos.
4. Trump Entertainment Resorts, 2009
His most recent bankruptcy came in 2009, after the company missed a $53.1 million bond payment. That was pretty much the end of the road for Trump in Atlantic City. While his name remained on three casinos, he resigned from the board and gave up his remaining stake in the company.