Friday, December 30, 2011

A Hundred Years of Multitude

As the year runs its course, I thought it might be time for a bit of reflection on the longer term. A maxim around here is that demography is fate, therefore this Malthusian reflection. This was the year of various “springs,” beginning with the Arab one. To this have been added others, more or less energetic, including our own Occupy movements, the early signs of exuberance in Russia, and even a village-sized eruption in China. Barely noticed—because, around here, Africa is barely noticed—have been the altogether obscenely violent upheavals on that continent. They don’t look like springs, but, in this humble opinion, they are of the same root and branch.


I bring here world population figures from 1950 through 2050: a hundred years of population growth. These data are the series published by our own Census Bureau (link), which is the most complete and, in its projections, closely matches other people’s. My graph is by decades so that I can display interesting decade-to-decade changes. For the record, the 2011 data say that world population is 6.946 billion, representing an increase of 77.5 million since this time last year, prominently shown on the graphic.

I note here that world population increased nearly three-fold (precisely 2.7 fold) 1950-2010. In the next fifty years we’ll add more than 2.5 billion more people. In recent decades we have been adding three-quarters of a billion per decade. The add-odds, based on these projections, will diminish.

Malthus was ahead of his time. It has pleased technology hawks to belittle his projections as they glowed in the heat of oil, approval, and prosperity. But the future, it seems, will manifest another reality: unbelievable masses of humanity engaged in celebrating the joys of a Global Spring beneath a few pathetic windmills with blades frozen for lack of maintenance.

But there is a silver lining here, however hard to see. If the purpose of being human is something other than grabbing all the gusto that we can, what this great demographic thunderstorm predicts is a return, in time, to the fundamentals.

Wednesday, December 28, 2011

Retail Mysteries

The holiday sales season is of great importance to retail. We hear that every year. The National Retail Federation provides some rationales. The Federation reports that in 2010 19.4 percent of all retail sales took place in the holiday season, which season they define as the 61 days of November and December. For many retailers, that season accounts for somewhere between 25 to 40 percent of revenues.

Now arithmetic tells us that 61 days are 16.7 percent of the year. Therefore if 19.4 percent of sales fall into this period, the holidays represent a 2.7 percent jump over average. That seems a rather small amount until we consider some of the mysteries of retail. That mystery hides in the fact that the number of products sold is very large—but number regularly purchased is a small fraction of these.

I came across these interesting facts published by Focused Management, Inc. (link). Looking only at the grocery segment, a typical supermarket carries 22,000 items. Of a quarter of these, thus 5,500, the stores sell fewer than one unit per month. And 8 percent (7,260) represent 85 percent of all sales.

Let me stay with groceries a moment longer to develop the nature of this mystery—or paradox. In retail turnover is the key to profitability; it reduces the carrying costs per unit of time. Therefore the slow moving items, that 72 percent of all items carried, costs much more to carry—but having them is what increases patronage. Reaching always for low-hanging fruit, retail consultants perpetually urge their customers to rid themselves of slow-moving items. To be sure, small grocers, exploiting convenience, do that routinely. But they are small precisely because they do not carry all of the items a supermarket does. And with a smaller customer base and lower volume, they have to charge higher prices.

It strikes me now that the ratios we encounter in grocery stories must be even more pronounced for those who sell general merchandise we don’t consume on a daily basis. This would suggest that their profit margins are even lower—and the surge in holiday demand is therefore even more welcome. Profits are reached after a sufficiently large volume pays for all costs first.

Herewith a comparison of a big general merchandiser (Kmart/Sears) and a big grocer (Kroger). The data come from the two companies’ 10-K reports:

Retail Examples. In million dollars or percent.
Sears Holdings (Sears/Kmart)
Revenues
Net Profits
Net as %
2007
50,703
826
1.63
2008
46,770
53
0.11
2009
44,043
253
0.57
2010
43,326
133
0.31
Kroger
Revenues
Net Profits
Net as %
2008
76,148
1,250
1.64
2009
76,733
70
0.09
2010
82,189
1,116
1.36

What this tells me is that retail profit margins are quite low for those who carry a range of merchandise—as do these two retailers—but those based on staples recover more rapidly from a total meltdown than those who carry the less absolutely necessary merchandise. Kroger’s very low profit percentage in 2009 was due to a goodwill write-down linked to one of its elements, Ralphs. Had that unusual charge not been levied, Kroger’s margin would have been 1.54 percent in 2009. The savvy reader may also fault me for using Sears/Kmart as an example; that merged entity has been suffering for a while. But it is difficult, these days, to find a big general merchandiser who is not also selling groceries…

Tuesday, December 27, 2011

Independence? Fund Yourself!

A telling story in the New York Times. On the front page yet. The headline pulls its punches, but still, the story is there. The headline is:

Israel TV Station’s Troubles Reflect a Larger Political Battleground

Israel’s Chanel 10 television evidently published stories about Netanyahu’s travels to Europe as an elected official with his wife. Rich friends paid all of his bills, and Chanel 10 put these bills on the screen in news reports. Netanyahu was an elected official then and not yet prime minister. He travelled first class. The NYT describes his hotel suites as “baronial.” The friends-paid expenses included dry-cleaning bills for Madam Netanyahu’s clothes. So?

So what if Netanyahu had generous rich friends? Well, we have a case here of Caesar’s wife or, at minimum, Caesar’s wife’s dry-cleaning bills. Interested in clear language, such a situation makes for problem in drawing up clear definitions of what words like “corruption” mean, but that’s my problem. Chanel 10’s problem is that it is now on the brink of financial collapse. It owes money to a public regulatory body that, in turn, is controlled by the Parliament. The agency intended to extend the loan’s repayment schedule, but a Parliamentary committee nixed that generous offer. The moral of that story?

Well, Arsen, time to eat crow. Always have favored state-subsidized television. But, alas that has its problems too. Want independence? Fund yourself. But self-funding often means selling your soul to advertisers—because TV simply costs too much to spread that cost to individual contributions by subscribers. The snake in the paradise of Journalism and the People’s Right to Know and all that—as the snake in every other paradise—is money. You have to have lots of your own. And even then, if Caesar is powerful enough, somebody will testify under oath, persuaded by some politbureau or other, to send you one way to Gulag.

It ain’t easy. No way, José. Heaven will help us, but it’ll take a while.

Friday, December 23, 2011

The New America Indeed

We spent about an hour in a Dollar Store yesterday, a rare event, and came out with a bill for $17.41—meaning that we must have bought 15 items; the rest is tax. Later that day Brigitte heard a news story. It said that two kinds of outlets had done splendidly of late: dollar stores and luxury outlets. I went on a search this morning to find the story. I found it on Investors.com (link). It was in a section titled The New America. Indeed, I thought. Indeed.

The article cites data from the International Council of Shopping Centers. Average store-sales Q4 to Q4, 2010 to 2011, stood at 4.9 percent. Luxury folks averaged 8.1, dollar stores above 5 percent. The International Council talks about a barbell-shaped spending pattern. Nice image that. The middle of that barbell is the thin part where, presumably, most people still live. But I must tell you:  What we saw in this Dollar Store was quite amazing. To be sure, we saw lots and lots of junk not worth even 50 cents. But we saw lots of stuff at a dollar that elsewhere sells for $3 or $4. The place was thick with people. I fell to examining their faces—and concluded that all those present in that store were most intelligent-looking. I avoided mirrors lest I lower that high average.

Wednesday, December 21, 2011

Taxes: a GDP Perspective

Reader russel, commenting on the last post, inspired another look at taxes and social security contributions. russel pointed to a graphic (link) showing that income taxes paid are 8 percent of GDP and essentially flat. What follows is a slightly different take on this same subject sticking to the 1960-2010 time frame. My data show all taxes paid (somewhat higher than federal income taxes alone) and also charts contributions made to “government social insurance,” to use the Bureau of Economic Analysis’ phrasing. I presume that it includes both Social Security and Medicare Contributions. Here is the graphic:

The total personal taxes paid averages, in this 51 year period, 11.9 percent of GDP. The trend line of the data is ever-so-slight up. The trend of social insurance contributions, which averaged 7.2 percent for the period, is strongly ascendant, but that may be due to the fact that the Medicare program passed in 1965.

I am again showing the top marginal tax rate for the period. It appears to have no influence on the trend of total personal taxes paid.  Recessions, booms, and busts, however, do show an influence. Booms and busts? Well, the biggest rise in tax collections as percent of GDP came during the dot-com boom, the biggest drop in the dot-com bust. And the next up-then-down is the housing bubble.

My conclusion is that tax rate shifts reflect the relative power of the various classes in the United States and act to distribute the wealth now in one direction, sometimes in another. When we do not feel a genuine threat—I’m thinking of communism now—the distribution is from bottom to the top. Oh, Stalin! Where are you when we really need you!
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The data I am using comes from the BEA using the facility located here. Following links from there, I used Table 2.1 for Personal Income and Its Disposition and Table 1.1.5 for Gross Domestic Product.

Tuesday, December 20, 2011

Taxes in Some Perspective

With the payroll tax cut shenanigans now provided to give us holiday entertainment, I thought I would add some perspective on taxes over a 50-year period. We’ll start with total revenues collected by the Internal Revenue Service in graphic form, showing various tax categories as percent of total IRS revenues in 1970, 1980, 1990, 2000, and 2010:



What I’m showing here is business and individual income taxes, the employment tax deducted from wages, estate taxes, and excise taxes. Excise taxes are levied on alcohol, tobacco, telephone services, and transportation fuels. Not shown are gift taxes; they’ve amounted to maximally 0.2 percent of total in each of these years, most recently, in 2010, 0.1 percent of total IRS revenues. These data are from Table 6 of the 2010 IRS Data Book.

Note here the importance of individual income taxes. They amount to more than half of all revenues right up to 2010, and in that year they represented 49.6 percent of total. Note that all categories show a drop in share of total except employment or payroll taxes. These have been climbing. The interesting aspect of that is that employment taxes are categorical. They constitute Social Security and Medicare Contributions.

Income tax totals, while they are interesting in showing their importance, do not show changes in tax rate. Therefore I next show the top marginal tax rate next, going back to 1960:



What this graphic shows is that the top tax rate has dropped from a 1960 peak of 91 percent to 35 percent. That last rate, in 2011, was levied on all income exceeding $379,150 for a married couple filing jointly. You might say that that number is where wealth really begins. Now some will say that a rate of 35 percent on income above $379,150 is not comparable to a rate of 91 percent in 1960—because of inflation. Indeed, that is true. That sum, in 1960, would have been $52,095. And the 1960 tax rate on that amount was 62 percent. I obtained the data shown from the Tax Foundation (link).

I am providing, below, a tabulation of the data used in this last graphic. Years not shown had the same rate as the last year actually shown. Thus in the period 1961-1963, the rate was also 91 percent on all income exceeding $400,000.


Year

%
On income of more than ($):

Year

%
On income of more than ($):
1960
91
400,000
1995
39.6
256,500
1964
77
400,000
1996
39.6
263,750
1965
70
200,000
1997
39.6
271,050
1970
70
200,000
1998
39.6
278,450
1977
70
203,200
1999
39.6
283,150
1979
70
215,400
2000
39.6
288,350
1980
70
215,400
2001
39.1
297,350
1982
50
85,600
2002
38.6
307,050
1983
50
109,400
2003
35
311,950
1984
50
162,400
2004
35
319,100
1985
50
169,020
2005
35
326,450
1986
50
175,250
2006
35
336,550
1987
38.5
90,000
2007
35
349,700
1988
28
29,750
2008
35
357,700
1990
28
32,450
2009
35
372,950
1991
31
82,150
2010
35
373,650
1992
31
86,500
2011
35
379,150
1993
39.6
250,000




My purpose in showing such data? I’m interested in looking at the proposition that cutting taxes on the wealthy increases jobs—because it is the rich who create jobs. Well, here are some early indicators. The following table shows increase in employment, December to December in four decades:

Decade
Tax rate change in %
Employment change %
1960-1970
-23.1
31.7
1970-1980
0.0
28.5
1980-1990
-60.0
20.0
1990-2000
41.4
21.4
2000-2010
-11.6
-1.7

Here the tax rate change is from the first to the last year. The employment change is from  December to December, thus in the first line, 12/1960 to 12/1970. What this tabulation tells me is that top tax rates may have nothing whatsoever to do with employment increase or decline. We’ve had the largest increase in employment in a period where the marginal rate went from 91 to 70 percent. In the 1970-1980 decade, when the top rate was at 70 percent, we still had high growth in jobs. When rates dropped from 70 to 28 percent, the biggest drop ever, we added the fewest jobs—but did much better in the next decade when taxes increased from 28 to 39.6 percent. And in the last decade, when our taxes dropped again, from 39.6 to 35 percent, we actually lost job in absolute count.

It feels better to know something than not to. In any case, the notion that giving the wealthy more dollars to spend will result in job creation is certainly a big canard.