Political Calculations
Unexpectedly Intriguing!
February 21, 2017
Sugary Drinks - Source: National Institute of Health - https://directorsblog.nih.gov/2012/11/13/weighing-in-on-sugary-drinks/

On 1 January 2017, the city of Philadelphia's new tax on the sale of sweetened beverages went into effect. Imposed on bottled and canned soft drinks made with either natural or artificial sweeteners, including those that add virtually no calories to the beverages being sweetened, the tax is aimed at reducing the incidence of obesity among Philadelphia's population, which the city claims to be a public health crisis.

Official revenue figures and updated obesity statistics from the city for the tax's first weeks in force are still pending, but Bloomberg has gotten a sense of how effective the tax has been at curbing sweetened soft drink purchases within Philadelphia's city limits from the retailers and distributors who fulfill the demand of the city's residents for the products.

Philadelphia’s six-week-old tax on sweetened beverages is already taking a toll on drink distributors and grocers, with some reporting sales drops of as much as 50 percent.

Canada Dry Delaware Valley -- a local distributor of Canada Dry Ginger Ale, Sunkist, A&W Root Beer, Arizona Iced Tea and Vita Coco -- said business fell 45 percent in Philadelphia in the first five weeks of 2017, compared with the same period last year. Total revenue at Brown's Super Stores, which operates 12 ShopRite and Fresh Grocer supermarkets, fell 15 percent at its six retailers in the city.

"In 30 years of business, there's never been a circumstance in which we've ever had a sales decline of any significant amount," said Jeff Brown, chief executive officer of Brown's Super Stores. "I would describe the impact as nothing less than devastating."

With sales having declined by that magnitude in its month and a half in effect, it's a safe bet that the city of Philadelphia will not be seeing the $91 million in revenue from having imposed the tax on the city's soft drink consumers that it was counting upon to fund the city's expanded prekindergarten programs, park improvements and to pay for the very generous raise that the city granted to municipal union employees shortly after the city council passed the soda tax.

The city's tax amounts to a 1.5 cents-per-ounce surcharge on top of what was the regular retail price for the bottled and canned regular or diet beverages sweetened with sugar or with a number of sugar substitutes, regardless of their relative effects on the health of consumers. A 12-ounce can would have its cost increased by 18 cents, while a 2-liter container would see its cost to retailers increase by over $1.00, which is as much as the retailers might have charged consumers for a 2-liter container of soda pop before the new tax was imposed.

Although directly levied on distributors, a significant share of Philadelphia's soda tax is passed through to consumers, just as the economics of tax incidence would suggest.

The higher taxes are drying up the distributors' business, with negative impacts on their ability to keep employees on their payrolls:

Canada Dry Delaware Valley Chief Operating Officer Bob Brockway said he expects his business will decline by at least a third over the course of the year. He distributes more than 20 percent of all soft drinks in Philadelphia market. Even though retailers just outside the city limits have gotten a sales bump, that increase isn't enough to offset the drop in Philadelphia. Brockway said he'll have to lay off 30 of his 165 employees in the area in March. Depending on summer sales, the layoffs will probably continue, he said....

At Brown's stores, many of which were established in places previously designated as food deserts, beverage sales are down 50 percent. Jeff Brown said he’s had to cut 5,000 to 6,000 hours of employment per week, the equivalent of about 280 jobs. Beverages are the biggest category in a grocery store, he said, with 4,000 products. When consumers drive outside the city to find cheaper prices, Brown said he's losing the non-beverage portion of their carts as well.

The city of Philadelphia could have avoided this situation if its leaders had been more honest in their rationale for imposing the tax, where if the city's leaders were truthful about their desire to address the public health crisis of obesity that they claim justifies the tax, they would have levied it across a wide range of products that share similar sweetened calorie content as the sweetened soft drinks they chose to tax, minimizing the effective tax rate to consumers.

They would then have dedicated the proceeds from that tax to funding to the city's public health programs to specifically address obesity related health concerns.

Ideally, they would also have acted to proportionately reduce other city sales taxes so that the total tax burden on people in the community where they apply remains unchanged. Otherwise, the impact of the new tax would be highly regressive in disproportionately impacting low income earners.

If the city government was then successful in reducing consumption of these products through the tax, the costs of the public health problems related to their consumption will also go down and they would be able to easily get by without the tax revenue from that source, without any impact to their ability to provide other city government services.

On the other hand, if they're not successful in reducing people's consumption of these products, then they'll have the source of revenue they need to address the public health problem they claim to be the justification for the tax.

But if the politicians advancing the tax use any part of the money they collect through the tax for some other reason, which is exactly what they've done in Philadelphia, they should stop claiming that the tax was for the purpose of addressing a legitimate public health concern and admit that it was all really a ruse to cram through the greater spending they desired.

Previously on Political Calculations

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February 20, 2017

In Week 3 of February 2017, we closed out our five-week long prediction of the range into which the S&P 500 would close on each trading day from 5 January 2017 through 14 February 2017. The final results are presented in the following chart.

Alternative Futures - S&P 500 - 2017Q1 - Standard Model - Snapshot on 2017-02-17

This is second time that we've attempted the feat with our "connect the dots" approach for coping with the periods where we know in advance that the accuracy of our standard forecasting model will be negatively impacted by the echo effect of past volatility, which arises as a result of our model's use of historic stock prices as the base reference points from which we project future stock prices. As with that previous attempt, stock prices generally fell within our specifically projected range (actually, this time they all fell entirely within the predicted range, whereas back in 2016-Q4, they dropped just outside our projected range on two trading days during that previous prediction period).

It will be another couple of week's before the echoes of past volatility will once again prompt us to attempt another override prediction, but until then, our standard model's forecast will stand - to read that forecast in the chart above, you just need to determine how far forward in time investors are looking as they go about making their current day investment decisions, then identify the range that coincides with that point on the investment horizon.

As best as we can tell right now, they're focusing on either 2017-Q1 or 2017-Q2, for which our dividend futures-based forecasting model doesn't make much distinction. That observation is based in part on the market-driving news headlines that came out during Week 3 of February 2017.

Monday, 13 February 2017
Tuesday, 14 February 2017
Wednesday, 15 February 2017
Thursday, 16 February 2017
Friday, 17 February 2017

The Big Picture's Barry Ritholtz spelled out the pluses and minuses in the news for the U.S. economy in the trading week ending on Friday, 17 February 2017.

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February 17, 2017

Two years ago, Ramiro Gómez created a map that says as much about civilization as photographs of the lights from cities at night from space: a map of all the pubs in the United Kingdom and in Ireland.

Ramiro Gómez: Britain and Ireland, Drawn from Pubs

A little over two years later, computer scientists from the University of Waterloo in Canada have managed to connect all the dots that fall within the United Kingdom, as they used an algorithm they developed to solve a unique version of the "traveling salesman problem", to connect the dots in the shortest amount of distance without repeating any stop.

The result, of course, can only be described as the world's most epic pub crawl....

University of Waterloo: UK 24727: A shortest-possible walking tour through the pubs of the United Kingdom - all line version

HT: Frank Jacobs.

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February 16, 2017

Mark Bertolini is the CEO of Aetna (NYSE: AET). Yesterday, he gave an extended interview with the WSJ's Dennis Berman on the topic of the future of health care, in which he made big news by describing the Affordable Care Act (ACA), which is more popularly known as Obamacare, by saying that "it is in a death spiral."

But the part of his comments that really stood out to us came just after the 14-minute mark of the interview, where he said:

You know that mathematics education in the United States is working when someone says, let's see, I'm going to pay this much premium, I've got a $6,000 deductible, the average deductible across the country is $3,600 dollars, it's up 15% this year alone, right, and when I go to the doctor I'm going to pay cash, nobody anticipates spending a day in the hospital or going to the doctor more than once... so premium, plus deductible, plus paying cash... why do I do this? I'll just pay the penalty and move on.

We here at Political Calculations have been happy to help provide Americans with that particular mathematics education since 17 September 2013, when we introduced our tool "ObamaCare: Should You Pay the Premium or the Tax?" (a 2017 version is also available), in which we made the kind of personal finance math described by Bertolini easy to do for any American with an Internet connection.

So, in a way of speaking, we're the solution to the game of Clue featuring the all-but-confirmed death of Obamacare: it was Political Calculations, on the Internet, with Math!

That said, we do have some thoughts on how to address the situation that Bertolini describes as the result of the adverse selection that has drawn in the sickest Americans eligible for Obamacare while driving out the healthiest Americans. In our view, that outcome will be exceptionally valuable in making good on the failed promise of Obamacare to provide people with pre-existing conditions with the ability to obtain affordable health insurance coverage. Unlike the other failed Obamacare promise that "if you like your health care plan, you can keep it", we think it may be possible to make that kind of health insurance portability a reality, so long as it can be separated from the all the other, excessively wasteful baggage of the Affordable Care Act.

If you want a teaser, we think that the solution to that issue is not subsidized health insurance, but rather reinsurance, which is an idea that we'll explore more at a later date.

In the meantime, if you'd like to see what else Aetna's CEO had to say on about the future of health care, here's the WSJ's full video of the 50-minute interview, but we'll warn you in advance that it starts off with over four and a half minutes of some especially awful background music before it gets going.

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February 15, 2017

For the sixth month in a row, the exports of soybeans from the U.S. to China led to a year-over-year surge in the exchange rate adjusted growth rate of trade between the two countries. The following chart shows the spike in the growth rate of U.S. exports to China through the end of 2016, which closely resembles the previous spike in 2013 that was also driven by the mass export of that year's bumper crop in soybeans.

Year Over Year Growth Rate of Exchange Rate Adjusted U.S.-China Trade in Goods and Services, January 1986 - December 2016

At the same time, the year over year growth rate of goods imported by the U.S. from China continued to rise into positive territory, suggesting growing strength in the U.S. economy.

Focusing on U.S. soybean exports again, the following chart shows our estimates of the volume of monthly exports of soybeans from the U.S. to China for each month of 2016 with respect to the amount of soybeans exported during those months in previous years.

Estimated Bushels of Soybeans Exported from the United States to China per Month, January 2012 to December 2016

In real terms, or rather, the terms of the quantity of U.S. soybean exports, 2016 is the best year on record, with the greatest contribution coming in the third quarter of 2016. The conditions that led to that outcome must be considered to be unique however, in that the world's second largest exporter of soybeans, Brazil, experienced a drought that reduced that nation's crop yields, which prompted China to turn to the U.S. market earlier in the year to fulfill a significant portion of their demand.

At the same time, thanks to nearly ideal growing conditions, the U.S. had a bumper crop of soybeans available to export - the largest since 2014.

Combined, those two factors delivered a real boost to the U.S. economy from the export of soybeans to China in the third and fourth quarters of 2016, with the third quarter benefiting more from the unique circumstances that made those increased exports possible.

Looking forward, we can expect the economic growth that will likely be reported in the first quarter of 2017 to be somewhat pale by comparison, since U.S. soybean exports will no longer be a significant contributor to economic growth. And given those unique circumstances, it is unlikely that the U.S. will see a similar year-over-year spike in exports to China when 2017's soybean export season comes around in the second half of 2017.

Data Sources

Board of Governors of the Federal Reserve System. China / U.S. Foreign Exchange Rate. G.5 Foreign Exchange Rates. Accessed 7 February 2017.

U.S. Census Bureau. Trade in Goods with China. Accessed 7 February 2017.

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February 14, 2017

Honk If You Hate the IRS - Source: Real Clear Markets Like lots of Americans, President Donald Trump hates the hassles involved with filing and paying personal income taxes. But unlike lots of Americans, he's in a position where he is going to exercise some influence over the issue.

But why should he have all the fun?

When it comes to making personal income taxes easy, not much comes close to the flat tax, where we've made it possible for you to develop your own hypothetical personal income tax system for the entire United States. All you need to do is set the tax rate and enter the value for an individual tax credit into our tool below, and we'll figure out how well your personal income tax plan would mean for both you and the country if the U.S. Congress went along with it! [If you're accessing this article on a site that republishes our RSS news feed, please click here to access a working version on our site.]


Flat Tax Data
Input Data Values
Flat Income Tax Rate [%]
Value of One Individual Tax Credit [$]
Your Household's Tax Data
Your Household's Total Money Income [$]
Number of Individuals Covered on Your Tax Return

How Well Would You Do With Your Flat Tax?
Calculated Results Values
Your Basic Income Tax, Before Tax Credits
Your Tax Credits
Do You Owe, Or Will You Get a Refund?
Amount of Taxes You Owe, Or...
Amount of Your Refund
Your Effective Income Tax Rate and After Tax Income
Your Effective Income Tax Rate (After Tax Credits)
Your After Tax Income

We put your personal results first, but since our tool is also about seeing what your flat income tax scenario would mean for the country, we've also figured out how much money the U.S. government would collect through your plan and compared it to what it actually did collect in the 2010 tax year. Why 2010? Two reasons: first, we had the nation's income distribution data for that year right at our fingertips, and second, because in many ways, the economy of that year qualifies as having been in a moderate recession, with job losses continuing well into the year as millions of Americans continued to experience elevated levels of unemployment from job losses that occurred in the severe recession years of 2008 and 2009.

In years with strong economic growth, it's easy for a government to rack up lots of revenue from the taxes it imposes, but the real fiscal test of any tax system is how it performs when times are tough, which can put the solvency of fiscally-strained governments at risk. Even in the United States (just ask California or Illinois)!

How Well Would the Federal Government Do With Your Flat Tax?
Estimated Results Values
Aggregate Total Money Income
Aggregate Income Taxes, Before Tax Credits
Aggregate Total Tax Credits
How Much Money Would the Government Collect?
Estimated Results With Your Flat Tax Actual Income Tax
Aggregate Income Taxes, After All Tax Credits
... as a Percent of GDP

If you've run the tool with our default data, you've found that we've nearly matched the U.S. government's actual personal income tax collections without much straining.

But maybe the better question is would President Trump go along with such a simple flat tax plan, considering that what he proposed during the campaign was so different. Not that proposal means much at this point other than that the President will indeed seek to cut taxes, because with Trump, many of his proposals are more often than not just the opening bid for a big negotiation.

One last thing. The U.S. already has, for all practical purposes, a flat tax of 35%, where the rate is set that high to account for all the games that U.S. politicians have played with the tax code over the years at the behest of their most influential donors and their desire to buy lots of votes through popular tax deductions, exemptions, credits and eligibility for various welfare benefits. Regardless of how much income you have, that works out to be the average effective marginal tax rate that people across the entire income spectrum pay.

Since we're in for a negotiation, we might as well know where we stand today so we know if the deal that's offered is a good one!

About the Tool

We used our model of the 2010 aggregate distribution of household total money income for the U.S. in generating the "how would the federal government do with your flat tax?" portion of the tool, along with the U.S. GDP and the IRS' count of the number of exemptions reported on tax forms for 2010.

The rest was just simple math! (Trust us - you should see how the IRS does quadratic equations!)

Data Sources

White House Office of Management and Budget. Budget of the United States Government: Historical Tables Fiscal Year 2012. Table 2.1 - Receipts by Source: 1934-2016. [Excel Spreadsheet]. 14 February 2011. Accessed 28 September 2011.

Bureau of Economic Analysis. National Income and Product Account Tables. Table 1.1.5 Gross Domestic Product for 2010. [Online Application]. Accessed 13 February 2017.

Internal Revenue Service. Selected Income and Tax Items for Selected Years (in Current and Constant Dollars). Individual Complete Report (Publication 1304), Table A, 1990-2010. [Excel Spreadsheet]. Accessed 13 February 2017.

Image Credit: RealClearMarkets.




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February 13, 2017

The big story for the S&P 500 in Week 2 of February 2017 is the same story that has now been percolating for weeks: the U.S. stock market's prolonged streak of unusually low levels of volatility, where the market hasn't fallen by at least 1% of its previous day's closing value for 82 trading days. How unusual is that? Statistician Salil Mehta has provided some historical context :

Since its founding in 1950, the S&P 500 has clocked nearly 17 thousand trading days, of which there have been only 22 other “no 1% drop” streaks, which also endured at least 81 trading days. The previous one was pre-financial crisis in 2006, and that lasted 94 days.

One percent is a significant number where the day-to-day movement of stock prices, because that's approximately the magnitude of the standard deviation for the day-to-day volatility of stock prices over all that time.

That's for the day-to-day changes in the market's closing values. Over the last 40 days, the entire intraday range of trading for the S&P 500 has fallen within one percent of its previous day's closing value.

And yet, even with so little day-to-day movement, the daily closing value of the S&P 500 has somehow continued to manage to fall within the range we forecast back in the first week of 2017.

Alternative Futures - S&P 500 - 2017Q1 - Standard Model with Connected Dots Between 2016-12-29 and 2017-02-14 for 2017Q2 Trajectory - Snapshot on 2017-02-10

Meanwhile, here are the main headlines that caught our attention during the second week of February 2017 for their market moving potential, or lack thereof.

Monday, 6 February 2017
Tuesday, 7 February 2017
Wednesday, 8 February 2017
Thursday, 9 February 2017
Friday, 10 February 2017

At The Big Picture, Barry Ritholtz summarizes the positives and negatives for the U.S. economy and markets for the trading week ending on Friday, 10 February 2017.

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February 10, 2017

Have you ever had one of those days when the wrong person came to call at the wrong time?

You know what we mean. You've had a long, difficult day, and after you've finally managed to just get settled in your favorite chair to relax, the doorbell suddenly rings. Or there's an insistent knock at your door. Or even worse, both of those things happen, there's a short pause, and then they repeat, so you *have* to get up to make it stop.

When you get to the door, instead of it being that special delivery of a major award, you're saddened to discover that there's someone there that you have absolutely no desire to interact with. Like a pest control "specialist" who just happened to be in the neighborhood to do a job, but has plenty of time to wander from house to house soliciting new business.

Or maybe they want to sell you magazine subscriptions. Or legal services. Or roofing repairs. Wouldn't it be nice if you could employ your own special form of pest control to keep such unwanted solicitations at bay?

That's where Harold Mathis' invention of the Anti-Intrusion Mat might come in handy. Awarded U.S. Patent #8,760,839 in 2014, the invention's abstract describes what an anti-intrusion mat is and how it might be used:

An anti-intrusion mat preferably includes a floor mat; a power source, a high current generator and a plurality of electrodes. Such an arrangement may enable the device to be infused with an electrically charged current. In this manner, users may be able to effectively disarm and disable a would-be intruder before they gain entry into a home. The floor mat may be fabricated of a durable, rubberized material and include an attractive border fashioned from functional yet aesthetically pleasing Berber carpeting. The plurality of electrodes may be interwoven into the rubberized center portion of the floor mat where the perpetrator may likely be standing, to release electroshock currents when activated. Such an electroshock current may result in neuromuscular incapacitation to the perpetrator. The device may further be equipped with a handy remote control device to discreetly activate the electrodes.

Maybe our favorite part of that description is that the mat might be made from "aesthetically pleasing Berber carpet" - the perpetrator at your door would never see it coming!

Of course, no patent is complete without illustration, so below, you can find both the control device you can use to activate electroshock currents, and also what we'll describe as a functional and aesthetically pleasing "unwelcome mat."

U.S. Patent No. 8,760,839 - Figures 1 and 2

The patent goes on to describe how and where the mat might be employed:

There are several significant benefits and advantages associated with the anti-intrusion mat. As a non-limiting example, the device may provide homeowners with a simple and effective means of preventing a possible home invasion. Offering enhanced alarm reinforcement, the device may sufficiently strengthen an entryway into the home. In this manner, even if a homeowner is fooled into cracking open a door for a visitor with nefarious intentions, the device may be immediately activated, so that the criminal goes no further. As they are more susceptible to attack from a younger, stronger assailant, seniors may more effectively defend their homes with installation of the device. While the home invasion scenario has been the primary focus of this report, the device may also benefit a vast array of businesses. Strategically placed at doorways or even in front of a checkout counter, such a device may allow proprietors to completely disable a crook holding them up at gunpoint, or thwart the escape of a thief. In this manner, the device may handily prevent loss of life as well as loss of property.

Use and application of the anti-intrusion mat would be very simple and straightforward. First, the user may place the mat directly in front of one's doorway, either inside or outside of the home. For added security, those who have more than one way into their house may wish to employ additional units. Should the user find himself/herself in a situation where an intruder attempts to push the door in on them, or should any unauthorized attempt be made, the device may be activated via the user's remote control device. As a result, the intruder may be immediately stopped in his tracks, as the taser-like electrical currents completely incapacitate him. While halting a crime before it occurs, the device may also buy the user time to notify police.

Now, if only some inventor out there would come up with an automated armed drone to pursue and deliver additional taser-like electrical currents to the perpetrator if the unwelcome mat fails to deliver sufficient electrical shocks for them to experience neuromuscular incapacitation on your doorstep, we'll finally have a home security system for the twenty-first century!

Other Stuff We Can't Believe Really Exists

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February 8, 2017

In December 2016, despite average 30 year mortgage rates jumping to 4.2%, the highest they've been since April 2014, preliminary median and average new home sale prices would appear to have almost set new records.

Median and Average Monthly U.S. New Home Sale Prices, January 2000 through December 2016

Almost, but not quite. The first estimate of the median new home sale price in the U.S. came in at $322,500, which falls just $1,200 shy of the just finalized record of $323,700 that was set in September 2016.

Meanwhile, the first estimate of the average new home sale price in the U.S. was recorded to be $384,000, which ties the all-time record that was set back in October 2014.

Based on our previous analysis of how previous new home sale prices have been revised from their first through their fourth and final estimate, we think that there is about an 89% chance that when the estimates for December 2016 are finalized three months from now, they will set new record highs.

The curious thing is that will come after they have experienced a 50% chance of being revised downward in their next estimate, which will be reported a month from now!

Data Source

U.S. Census Bureau. Median and Average Sales Prices of New Homes Sold in the United States. [Excel Spreadsheet]. Accessed 7 February 2017.

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The national dividend is an alternative way to measure of the economic well being of a nation's people. Originally conceived by Irving Fisher back in 1906, it was one of three concepts that were proposed for that purpose, where the two competing proposals were subsequently developed over the following decades into what we know today as Gross Domestic Product.

Irving Fisher's concept fell by the wayside because of the difficulty in collecting the data on the goods and services consumed by American households needed to make it into an effective real-time measurement of their consumption. It wasn't until the 1980s that the Census Bureau began regularly collecting consumption data for U.S. households, and then it wasn't until 2015 that we realized that we could make Fisher's concept of a consumption-based measure of the economic well-being of American households a reality.

With that introduction now out of the way, we can now update the U.S.' national dividend through the end of 2016.

Monthly U.S. National Dividend, January 2000 through December 2016

In 2016, we see that in nominal terms, the national dividend was flat for the first six months of the year, which then ticked up through November 2016 to reach its peak of just above $7.5 trillion, before turning back down again in December 2016.

But after adjusting for inflation, we see that 2016 was a rough one for American households, as their well-being declined from January 2016 through the middle of the year, before beginning to recover with the final outcome of being collectively no better off at the end of the year than they were at the beginning.

All that is a big reason why we now have a President Trump instead of another President Clinton. Politicians would benefit by paying more attention to the measure of the national dividend than they do to GDP.

References

Chand, Smriti. National Income: Definition, Concepts and Methods of Measuring National Income. [Online Article]. Accessed 14 March 2015.

Kennedy, M. Maria John. Macroeconomic Theory. [Online Text]. 2011. Accessed 15 March 2015.

Political Calculations. Modeling U.S. Households Since 1900. 8 February 2013.

Sentier Research. Household Income Trends: December 2016. [PDF Document]. 2 February 2017. [Note: We have converted all the older inflation-adjusted values presented in this source to be in terms of their original, nominal values (a.k.a. "current U.S. dollars") for use in approximating the national dividend.]

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Total Average Annual Expenditures. 1984-2015. [Online Database]. Accessed 7 February 2017.

U.S. Bureau of Labor Statistics. Consumer Price Index - All Urban Consumers (CPI-U), All Items, All Cities, Non-Seasonally Adjusted. CPI Detailed Report Tables. Table 24. [Online Database]. Accessed 7 February 2017.

Previously on Political Calculations

The following posts will take you through our work in developing Irving Fisher's national dividend concept into an alternative method for assessing the relative economic well being of American households.

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February 7, 2017

For the 15 years spanning January 2004 through December 2016, the population of 16-19 year olds in California has ranged from 2,055,000 to a high of 2,286,000 in July 2009 back down to an estimated 2,075,000 in December 2016.

The following chart illustrates the size of California's teen labor force and the number who had jobs over the last 15 years.

California Teen (Age 16-19) Labor Force and Total Employed, Trailing Twelve Month Average, January 2004 - December 2016

The last 8 years haven't been particularly good ones if you're a teen in California who wants a job. After collapsing from January 2008 through September 2010, there was precious little growth for teen jobs in the Golden State until January 2015.

2015 turned out to be a boon for the hiring of teens, which suddenly stalled out in January 2016. After holding flat for several months, the number of employed teens in California rose slightly in the latter half of 2016, before once again stalling out and beginning to decline slightly in the last months of the year. As of December 2016, the trailing 12 month average number of employed teens in California stood at 478,000, some 120,000 fewer than the 598,000 that had jobs back in January 2004, when California's population of Age 16-19 year olds was just slightly higher than the population of teens in the state in December 2016.

By contrast, the following chart shows the size of California's non-teen labor force and total number of employed people Age 20 and higher.

California Non-Teen (Age 20+) Labor Force and Total Employed, Trailing Twelve Month Average, January 2004 - December 2016

Californians Age 20 and older have experienced a very different job market than California's teens have over the last 8 years. There are many contributing factors that account for that situation, two of which are indicated on the charts above.

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February 6, 2017

For a stock market that is verging on setting record highs, the action of stock prices during the first week of February 2017 was almost anything but exciting!

For proof of that proposition, check out the trajectory of stock prices against the backdrop of the path we first predicted they would follow five weeks ago.

Alternative Futures - S&P 500 - 2017Q14 - Standard Model with Connected Dots Between Trajectory for Investors Focused on 2017Q2 Between 29 December 2016 and 14 February 2017 - Snapshot on 03 February 2017

Over the last several weeks, we can see that the closing value of the S&P 500 has been slowly stair-stepping upward, where the index hasn't shown much volatility. For us however, the trajectory that it has taken continues to fall within the range we forecast back in the first week of January 2017.

That forecast path assumes that investors would remain focused on 2017-Q2 in setting stock prices, which seems to have held through the Fed's January 2017 meeting. This quarter coincides with the expected timing of the Fed's next hike in short term interest rates, which is why we believe investors are collectively focused upon it in making their current day trading decisions.

Looking ahead, for our forecast to continue to hold, the S&P 500 will need to show some upward movement. The next two weeks will hopefully be more interesting than the last five!

Looking backwards again, here are the headlines that stood out to us for what they indicate about the future expectations of investors, along some notes we made during Week 1 of February 2017.

Monday, 30 January 2017
Tuesday, 31 January 2017
Wednesday, 1 February 2017
Thursday, 2 February 2017
Friday, 3 February 2017

For the bigger picture, Barry Ritholtz summarized the positives and negatives for the U.S. economy and markets for the trading week ending on 3 February 2017.

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February 3, 2017

If you've ever lived where winter snows are something more than a short term event, where you've had to put snow chains on your tires to have enough traction to drive around on snow or ice-covered roads, you'll appreciate Czech inventor Petr Gross' invention that can provide that kind of function without anywhere near the same level of effort to install and use. Via Core77, here's Reuters' video report on the hubcap attachments that can replace snow chains.

Now, if you've never lived where winter storms are something more than a short term event, the following video from the British Columbia Ministry of Transportation on how to safely install snow chains on your car's tires demonstrates just how much labor Petr Gross' invention can save:

Now, just imagine trying to do all that at sub-freezing temperatures with a bitingly cold wind chill, and you'll have a real appreciation for why Petr Gross' modern makeover of the snow chain concept may be a big deal!

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February 2, 2017

In January 2017, the number of publicly-traded U.S. firms that declared that they would be cutting their cash dividend payments to their shareholders fell from the 59 that were reported in December 2016 to a level of 47.

While that figure is still elevated well above the level that is consistent with some degree of contraction occurring within the U.S. economy, it also represents a decline from the year ago figure of 55, which had come as part of a rising trend for dividend cuts that resulted from the economic distress unleashed by the sustained collapse of oil prices on the U.S. oil and gas industry, which lasted from July 2014 through February 2016.

Number of Public U.S. Companies Posting Decreasing Dividends, January 2004 through January 2017

Today, some elements of that distress is still lingering in the U.S. oil sector, where oil prices have somewhat recovered and have stabilized, but the effect of rising interest rates is also taking a toll. Finance-oriented firms and other interest-rate sensitive entities such as mortgage-related Real Estate Investment Trusts (mREIT) have become more common in the count of companies that have announced dividend cuts over the last 16 months, as the Federal Reserve has frequently threatened and occasionally acted to drive up short term interest rates in the U.S. during that time.

Perhaps the best way to describe the state of the U.S. economy is that it may finally beginning to emerge from a sustained period of microrecession, where although substantial portions of the economy were clearly in contraction for a prolonged period of time, that distress was limited enough in both scale and scope for the overall U.S. economy to avoid experiencing similar contractionary conditions.

Data Sources

Standard & Poor. Monthly Dividend Action Report. [Excel Spreadsheet]. Accessed 1 February 2017.

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February 1, 2017

Once upon a time, we ran a marathon because it was 'on the way'. And when we were done, we drank a TortiXXa beer for the exact same reason.

Since then, we don't always drink beer, but when we do and it's there, we drink TortiXXa. The finest beer brewed in Mexico with the distilled essence of a single Merciless Pepper of Quetzalacatenango smuggled out from Guatemala in each batch, it is much like Canada's lower alcohol version of Labatt's Blue in being a beer that has been brewed in its home country solely for export to the United States.

As consumers of a beer whose production is as much steeped in myth and legend as our own bar tabs, we were greatly saddened to learn of President Trump's potential plan to impose a 20% tariff on imports such as TortiXXa to Los Estados Unidos from Mexico to fund the building of a wall. Saddened because we realized that we, as American consumers of TortiXXa, would also be paying the tariff.

But how much of the tariff would we pay? Fortunately, Tim Haab, a fellow connoisseur of TortiXXa beer, sketched the following supply and demand curve diagram on the back of a bar coaster to sort it all out.

Tim Haab: Supply and Demand Curve, Before and After Tariff, Tax Incidence of Tariff Paid Between U.S. Consumers and Mexico

It takes numbers to tell how much of the still-to-be-defined import tariff either U.S. consumers or Mexico might pay, so we've supplied some in the following tool based on what we know of the unique supply and demand for TortiXXa beer. If you're reading this article on a site that republishes our RSS news feed, please click here to access a working version of the tool on our site.

Supply and Demand Chart Data (Considering the Effect of a Tariff)
Input Data Values
Unit Price of Item Before the Tariff
Quantity of Items Sold Before the Tariff
Import Tariff Tax Rate [%]
Projected Quantity Demanded of Items Sold After the Tariff
Unit Price of Item After Tariff Based on Quantity Demanded

Tax Incidence of Import Tariff
Calculated Results Values
Projected Taxes Collected from Import Tariff
Portion of Tariff Paid by U.S. Consumers
Portion of Tariff Paid by Mexico

In this example, we find that the amount of tariff paid is about equally split between U.S. consumers and Mexico, which is to say that Mexico would only be paying for half of the President Trump's proposed border wall. U.S. consumers would be paying for the other half. How much U.S. consumers would actually pay through an import tariff will depend upon the individual supply and demand curves for the thousands of goods that Mexico exports to the U.S.

Perhaps a greater concern for Mexico however is that the reduced quantities of goods demanded by U.S. consumers as a result of the tariff would cause their economy to shrink as a result. There is a deadweight loss to both U.S. consumers (through the loss of consumer surplus) and to Mexico (through the loss of the producer surplus), where each country's share of the total deadweight loss would be similar to their relative shares for paying the import tariff.

While a clear negative factor from an economic perspective, especially for where beer production for U.S. consumers in Mexico is concerned, it may provide a surprising environmental benefit for one Mexican community, even though it would come at the cost of less economic activity.

A brewery satisfying Americans’ thirst for Mexican beers such as Corona is sucking so much water from wells in an arid region near the US border that it has left one municipality bone dry, according to a local mayor.

“WE HAVE NO WATER FOR HUMAN CONSUMPTION,” Mayor Leoncio Martínez Sánchez of the municipality of Zaragoza, wrote in single-sentence letter to Coahuila state governor Rubén Moreira.

Zaragoza is currently suffering through water shortages so severe “there’s barely a drop of water when you open the tap”, Martínez told the Guardian....

Mexico has become one of the world’s biggest beer exporters over the past two decades – and the United States now imports more beer from Mexico than all other countries combined.

Fortunately, the production of TortiXXa is not affected by such factors. Stay thirsty, mis amigos!

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