Erratum

Dr. Sowell engages in a bit of voodoo economics here, I fear.

A supermarket can prosper with one cent of clear profit on each dollar of sales because that dollar comes back to be re—used again and again in the course of a year.

If the inventory of a supermarket sells out in two weeks, that one cent comes back 26 times in the course of a year. This means that a penny of profit on a dollar from each sale becomes more than a quarter on a dollar annually.

I know of no supermarket company that makes $0.25 per dollar of sales on an annual basis.

Does he have any understanding at all of P&L's and balance sheets?
For an economist this is a serious faux pas.

Dennis Sevakis   8 24 06

Thomas Lifson adds:

I think Dr. Sowell must have been misapplying the concept of the velocity of money. He's absolutely wrong here in a literal sense. If he had rephrased and said "that penny on a  dollar will come back 26 times in the course of a year, so a low margin is compensated for by high volume," he would have been correct.

For a man this brilliant, I am willing to cut a lot of slack. I just wish his editor had caught the error.

Dr. Sowell engages in a bit of voodoo economics here, I fear.

A supermarket can prosper with one cent of clear profit on each dollar of sales because that dollar comes back to be re—used again and again in the course of a year.

If the inventory of a supermarket sells out in two weeks, that one cent comes back 26 times in the course of a year. This means that a penny of profit on a dollar from each sale becomes more than a quarter on a dollar annually.

I know of no supermarket company that makes $0.25 per dollar of sales on an annual basis.

Does he have any understanding at all of P&L's and balance sheets?
For an economist this is a serious faux pas.

Dennis Sevakis   8 24 06

Thomas Lifson adds:

I think Dr. Sowell must have been misapplying the concept of the velocity of money. He's absolutely wrong here in a literal sense. If he had rephrased and said "that penny on a  dollar will come back 26 times in the course of a year, so a low margin is compensated for by high volume," he would have been correct.

For a man this brilliant, I am willing to cut a lot of slack. I just wish his editor had caught the error.