Monday, October 31, 2016

Hating the Rich

Maybe hating is too strong a word for it.  Maybe being angry or envious is a better description of what’s happening and what various politicians and organizations are vigorously promoting.  But since those same organizations and advocacy groups freely use the words “hate” and “haters,” it’s probably not completely unfair.  In this case the hating is not only selective, but also difficult to justify.

Here is a graphic that has been going around on social media.  It shows the total compensation of health insurance company CEOs.  The caption and comments imply that this is the reason for the sharp increase in Obamacare (ACA) premiums for 2017.  Let’s take one example and see what’s going on.

Let's not quibble over the fact that the information is three years old or that they calculate daily pay based on 341 days in a year.  If these folks have moved on, they were likely replaced by others who were equally well compensated.  Instead take the first gentleman, Joseph Swedish as representative.

He is the CEO of WellPoint, which operates Blue Cross Blue Shield plans in 14 states.  Here is some information from a CNBC report from 2014.  “The company had 37.5 million members at the end of the quarter, up 2 million members from a year earlier.”  Apparently he is doing a good job of growing the company and meeting analysts’ expectations.  But is his pay driving up premiums?

Take the $17 million shown above and divide by the number of customers, 37.5 million, and get 45 cents per customer.  Divide that by 12 to calculate the effect on monthly premiums and we find that if he were paid nothing, each customer might see a 3.8-cent reduction in monthly premiums – 3.8 cents!  (By saving this up for 10 years each customer could afford one trip to Starbucks.)

Maybe it’s the fact that the government forces us to buy health insurance that causes such a negative opinion of these CEOs.  By contrast, we never seem to get upset about the amount paid to the Disney CEO or star athletes.  We never hear people complaining that the ticket prices would be lower if their favorite quarterback made less money.  We give these people our money freely, even line up to do it, in return for a limited amount of entertainment and they also get rich.

Look at the recent Desert Trip concert in Palm Springs.  Most of the 75,000 tickets were gone in less than five hours, with the good seats going for $1599 each.  The promoter is expected to gross $160 million for the three-day event, while paying the headliners up to $7 million each (for showing up and playing for a few hours).  The LA Times reports that these rock stars from the sixties continue to do very well for themselves.  “Since 2000, the Rolling Stones have grossed more than $1.1 billion with their periodic tours, according to Pollstar, the concert-industry-tracking publication. [Paul]  McCartney has racked up $761 million, [Pink Floyd’s Roger] Waters has pulled in $592 million, followed by [Bob] Dylan ($293 million), the Who ($200 million) and [Neil] Young ($153 million).”

We love to hate those one-percenters, the people making a lot more money than we do, but the outrage is selective.  When it’s Mick Jagger, Bob Dylan, Lady Gaga, Peyton Manning, Rory McIlroy, George Clooney, Tom Cruise, or Oprah, then it’s OK.  Making almost $50,000 a day is very impressive, but it pales in comparison to $500,000 - $750,000 for a single speech.  We love the ones who perform for us and hate the ones who help us pay our doctor bills.  Objections to the rich are both very selective and difficult to justify.

Friday, October 28, 2016

Looking For Hope

Last week I wrote an essay called We Are All Doomed, about the apparent inability of Americans to recognize the discrepancies between their words and their actions or to see the connection between those actions and predictable consequences causing them to make the same mistakes over and over.  It was a pretty pessimistic piece of prose.

But that is not my usual tone.  I really do try to hold out hope.  So when I saw the partial headline:  “DUNKIN' DONUTS: People aren't buying doughnuts because…”, my first thought was very encouraging.  Great, people are laying off the donuts due to a rational concern for their health.  They are not obsessing about gluten or organics or artificial ingredients; they are concerned about something real – donuts = calories!  With so many Americans overweight, a downturn in donut sales is good news.  It shows responsibility, a willingness to take some action to correct the situation, and discipline, the ability to forego the temporary pleasures of today in return for a healthier tomorrow.  It also shows some perspective, properly classifying drive-thru donuts and coffee as a luxury.

With this in mind, I followed the link to read the full story.  The full headline on the Business Insider website was, “DUNKIN' DONUTS: People aren't buying doughnuts because they're worried about the election.”  That doesn’t make sense.  You would of think donuts as comfort food.  They should sell more if people feel under stress.

Upon further reading, I found that it was common these days for CEOs to blame the election for financial shortfalls.  In fact the news was not so bad for Dunkin’.  They reported profits and US same-store sales higher than analysts’ expectations, but total revenue was lower.  And they will not open as many new stores this year as originally planned.  More donuts were sold, but not enough donuts to make management happy.  This supports my comfort-food theory better than the election excuse, but it’s not unusual for CEOs to take credit for good news while blaming some outside force for falling short – looking good in a strong economy and pointing fingers in a poor one, for example.

In this case, the CEO blamed “changes in gas prices, changes in food stamp regulations, and…the presidential election."  Taken one at a time: 

First, this graph from the US Energy Information Administration (EIA) shows gas prices lower this year than several prior years.

Second, it is hard to believe that such a significant portion of their business came from food stamp recipients to affect their overall results.  But if new regulations discouraged people who are having trouble feeding their families from buying donuts, that’s not necessarily a bad thing.

Finally, “last year, researchers at Princeton and Chicago found that election uncertainty affects consumers' outlook, but not their immediate spending.”

That’s three strikes for the CEO, but unfortunately, not much support for my original hope that responsibility, discipline and perspective are making a comeback based on information from the quick-service donut business.