Wal-Mart does not save families $3,100 a year

By Felix Salmon
November 10, 2009
Jim Ledbetter, it's very easy to avoid getting into idiotic arguments with Dennis Kneale on CNBC: just stop going on CNBC. But at the same time, it's worth pushing back much more on the ludicrous claim that Wal-Mart saves the average American family $3,100 a year:

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Jim Ledbetter, it’s very easy to avoid getting into idiotic arguments with Dennis Kneale on CNBC: just stop going on CNBC. But at the same time, it’s worth pushing back much more on the ludicrous claim that Wal-Mart saves the average American family $3,100 a year:

Beginning in 2005, Wal-Mart commissioned the research firm Global Insight to produce a report measuring the impact of Wal-Mart on the overall American economy. Its methodology is, of course, open to debate, but the study tested 26 markets and measured the impact of a variety of economic factors on prices, going back to 1985. Not surprisingly, the study found that the widespread existence of Wal-Mart dating back to 1985 has resulted in about a 3 percent reduction of prices (3.6 percent in the most recent study, which is where the $3,100 figure comes from).

Ledbetter responds:

I don’t reject that finding. But it doesn’t mean that Wal-Mart is the only, or even the largest, economic force responsible for lower prices. As you would guess, the study also measured the impact on prices of many things that have little to do with Wal-Mart: energy costs, population growth, and unemployment. As I read the study, those factors combined are responsible for 89 percent of price variation. Wal-Mart and other factors are crumbs by comparison.

He should reject the finding. Because it’s only Ledbetter himself — and CNBC — who is saying that Wal-Mart is claiming to save the average American family $3,100 a year. If you look closely at the report, it never actually says that*. Instead, Global Insight talks about measuring the “cumulative price impact” of Wal-Mart since 1985. If the average American family has saved $3,100 over that time, that’s about $129 a year, not $3,100. Big difference.

Here’s the CNBC screengrab:

walmart.tiff

If Wal-Mart were honest, they would have phoned up CNBC and said that the bit about $3,100 a year was completely untrue, by a factor of 24 (the number of years since 1985, which is the base year from which the cumulative savings are being calculated). But of course they didn’t. Which is just another reason not to give them the Nobel peace prize.

*Update: It turns out that Wal-Mart itself is making the claim that it saves the average family $3,100 a year. Astonishing. How can they possibly justify saying this, when their own report says that the figure is cumulative, not annual?

Update 2: OK, this is getting a bit confusing. Various readers are saying that the savings are being claimed to be $3,100 per year, and that they’re growing by about $120 a year. Can you really subtract this year’s consumer expenditures from 1985′s consumer expenditures and call it an annual savings, even though the year you’re subtracting from was 24 years ago? That seems to be the claim.

Update 3: I think this is worth clarifying a bit further. Wal-Mart seems to be saying that the average family spends about $86,100 per year (which itself seems dubious to me) and that were it not for the cumulative effect of Wal-Mart’s low prices over the past 24 years, those expenditures would in fact be $3,100 higher, at $89,200. Or something along those lines. But does that mean an annual savings of $3,100 a year? Not really. According to the report, Wal-Mart reduces consumer price inflation by about 0.15% annually. So if the average family spends $86,100 this year, then next year its expenditure will be about $129 lower thanks to Wal-Mart. That’s what I consider to be an annual savings. Not $3,100.

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