Posted by
Andrews on Friday, February 13, 2009 7:06:55 PM
Peggy Noonan, with whom I agree on many things political, not all but many, has given me a perfect example of bad economics writing. Now, I don't know if it is because she lacks direct experience with the retail world, or perhaps because she was trying to make some point and simply ignored the truth, but whatever the reason, her arguments completely misstate the case.
In her
most recent opinion piece in the WSJ, she talks on and on about New York shop closures, declining sales, and then makes the following dismal comment:
Not all the news is bad—there's a new department store coming in—but
people don't close up shop when the immediate future is promising.
And that is where I part company with Ms. Noonan.
Now allow me a small disclaimer. While I chastise Ms. Noonan for not understanding the realities of business ownership, I myself have never been an owner. However, I have worked, in the capacity of bartender, shoe salesman, stock boy, and others for small companies. I even once sold lots for a cemetery, and that too is more like a small business than not, though the upfront cost is incredibly high. And in all of my jobs, I had pretty close contact with the owners, and knew quite a bit of the day to day concerns, so while lacking direct ownership experience, in the past I had a lot of experience at second hand.
So, what precisely is wrong with her analysis?
The main problem is the assumption that closing in retail is a matter of choice. Many retail businesses, especially in NYC with its excess of regulations and worker "protections", and its extortionately high rent, allows a slender profit margin at best. That is why there is so much turnover in businesses. Nor is it unique to NYC, many cities experience the same phenomenon in their pricier districts, businesses expect location to equate to larger profits and end up folding due to costs.
So, when the times turn sour, it is not a choice made because they foresee bad times ahead, it is often a matter of necessity. Especially now that loans are harder to obtain, many businesses facing losses find that they cannot obtain any additional funds, and so must close their doors. They simply have no choice.
So, while the closures certainly say something about our economy, and the lack of funding sources available, they really tell us nothing about future prospects. Retail shops are a poor bellwether. Even in good times, retail closures are legion. A far better indicator is when well capitalized large scale enterprises start to downsize traditionally profitable enterprises.
Then again, strolling the industrial park doesn't allow for such stirring, New York-centric prose, so I suppose retail was the only option she had.
Spell Check comment: I noticed an oddity. Firefox's spell checker accepts "bellwether", but not "bell wether" or "wether" on its own. But where do they think the term "bellwether" originates? A wether is a castrated male sheep. Hence "bellwether" as a sheep with a bell affixed, used to lead a herd. If there is not something called a "wether", then why would we have a word such as "bellwether"?