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Raising the Price of Pizza 10 to 14 cents. . .

by Bill aka run75441

Raising the Price of Pizza 10 to 14 cents. . .

Will pizza and food prices really have to increase to cover healthcare costs for the mostly young employees of the Olive Garden’s, Denny’s, and Papa John’s restaurants?

A 10 to 14 cents increase per pizza is being proposed by Papa Johns’ to pay for the PPACA. At the same time, Papa John’s is advertising a 2 million-pizza giveaway with the help of Peyton Manning “Two Million Free Pizzas” (must be a freebie?). Not sure myself how I might decide to account for the cost; but, here is a try; free pizza for 2 million NFL fans to increase sales, . . . cut employee hours to avoid the PPACA and keep the price, . . . raise prices 10 to 14 cents per pizza to have healthcare insurance for the restaurant staff, . . . or maybe a kind of half cheese/half sausage combo. . . healthcare and free pizzas with Peyton Manning promoting the social responsibility of Papa John’s?

Maggie Mahar at The Health Beat Blog “Can US Businesses Afford Obamacare?” points to an interesting article by John Padua of Managed Care Matters discussing who bears the healthcare reform cost if restaurant owners opt out while Forbes Caleb Melby runs the numbers and questions the increased costs suggested by Papa’s John’s CEO “Papa John’s Obamacare Math” .

The issue(s): The Affordable Care Act dictates that full-time employees (30 hours or more per week) at companies with more than 50 workers need to be provided health insurance. CEO John Schnatter has further claimed that some employers will cut employee hours to avoid providing them with healthcare.

The Cost: John Schnatter estimates that Obamacare will end up costing his company $5-8 million annually.

The Price Increase: 10 to 14 cents per pizza

Checking John Schnatter’s Math: Last year, Papa John’s International captured $1.218 billion in revenue. Total operating expenses were $1.131 billion. If Schnatter’s math is accurate (Obamacare will cost his company $5-8 million more annually), then new regulation translates into a .4% to .7% expense increase. It is difficult to set that ratio against the proposed pie increase and across all sizes given size and topping differentials, but many of their large specialty pizzas run for $16. Remarkably, a 10-14 cent increase on a $16 pizza falls in a comparable range of .6% to .9%; but, the cost transference becomes less equitable if you are looking at medium pizzas which run closer to $12, meaning a .8% to 1.15% price increase.

Lets say that Papa John’s sells exactly half medium/half large specialty pizzas. Averaging the ranges for both sizes, then averaging that product yields a .86% price increase — well outside the range of what Schnatter says Obamacare will cost him.

So how much would prices go up, under these 50/50 conditions, if they were to fairly reflect the increased cost of doing business onset by Obamacare? Roughly 3.4 to 4.6 cents a pie.

3.4 to 4.6 cents does not seem like such a huge increase to bear by either customer or the business and if the advertising is done right; it might prove more positive than giving away 2 million freebie pizzas during the NFL season . . . a little like Schooner Tuna in the movie “Mr. Mom,we are in this together for the long haul.'” What customer would not buy into this?

The Issue(s): From the annals of I made this; “Everyone is looking for a way ‘not‘ to provide insurance for their employees. It is essentially a huge tax on all us business people,” declares Denny’s RREMC Franchise Owner CEO John Metz on Fox News. To offset costs further, John adds; “he also will slash most of the staff’s time to fewer than 30 hours per week” to start January 2014.

Talk about giving a long notice for plant closures to employees. What happens if franchise owner sidesteps the insurance provision of the PPACA and cuts hours to fewer than 30? John Padua of Managed Care Matters says the cost falls back on the US citizenry, employees, and customers of these restaurants.

If companies do not provide insurance for low-paid workers, we taxpayers have to. That is the way Obamacare works; folks with incomes below 400% of the FPL can get subsidized coverage. If restaurants cut workers’ hours so as not to insure employees, all of us taxpayers get to pay for their health insurance. These companies are avoiding their responsibility and increasing our tax burden. “The Cost of Obamacare -14 cents per pizza”

The Cost: Maggie Mahar raises the question in her “Can They Afford It???” post. Metz employs 1,200 associates at his Denny’s RREMC franchise. Taking the extreme case of all 1200 employees going into the state exchange and being subsidized up to 400% of FPL; by slashing everyone’s hours to 28, Metz avoids the $2,000 penalty (~$2.34 million in total) for those going into the state exchange.

The Price Increase: 5% surcharge to all meals in 40 Denny’s in Georgia, Florida and Virginia. (note: I wonder how that will appear on the bill?)

Checking The Math: The CBO (which forever appears to be anti-healthcare reform) found in a recent study, 2014 comprehensive healthcare insurance could be had at $3,400 for an employee up to 30 years of age and single. Understanding we are not talking about writing off Metz’s employee expenses from his corporate income tax yet and knowing the PPACA requires an employer to pay 65% of the employee’s healthcare insurance, the $3,400 per person (down from a projected $6,700 without the PPACA) now becomes $2,210 per person.

Denny’s franchise owner Metz is angry with Obama, the PPACA, and his employees. Granted, the example is as much an extreme as Metz’s knee jerk reactions and posturing; but, it points to the overall fallacy in the too-much-healthcare- cost is a drag on my business argument. Both of these entrepreneurs did take grief for their stances. Denny’s CEO John Miller did call john Metz to discuss his stance and John Schnatter has been called out in various blogs and is the subject of multiple boycotts.

Much of this sounds like sour grapes starting with SCOTUS affirming the PPACA and is carryover from the re-election of Barack Obama to the Presidency. Some have protested the validity of the PPACA claiming it was immoral to force business owners to pay for employee healthcare insurance. In an email exchange, John Paduca answers:

“In response to your query as to when it became an employers’ responsibility to provide health insurance, that would have occurred when PPACA was passed, signed into law, and upheld by the Supreme Court. Laws run this country, not morals. If ‘morals’ did, we never would have invaded Iraq or water-boarded prisoners or interned Japanese Americans or overturned legitimate governments in Africa and Central America or supported the Shah of Iran. ‘Morals’ are personal; laws are societal.”

Maybe it is just Republicans having to cancel their airline tickets to Boston for the celebration on November 7th which has placed both Johns in a bad mood. Or could it be pent up anger with the very people who elected Barack to The White House for a second term? You know, those 47 percenters who might make up the bulk of the restaurant workers.

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SOCIAL SECURITY…Sweet Reasonableness and Fact Checkers

by Dale Coberly

Sweet Reasonableness
and Fact Checkers

Apparently the Big Liars are getting worried about the fact that “Social Security has nothing to do with the deficit.” There have been a flurry of little Big Liars “proving” that in fact SS is a contributor to the Deficit. I am going to try to point out the hidden lie in a couple of these articles, beginning with the most dangerous.
Glenn Kessler ( Washington Post ) sets himself up to be The Fact Checker for the Washington Post. The trouble is, of course, that in this world every liar begins by claiming himself to be the Fountain of Truth and offers to explain things to the little people who wouldn’t be expected to know without his kind guidance and protection. The Devil, they say, can appear in the guise of a Franciscan monk when it suits his purposes.
And Kessler adopts Sweet Reasonableness for his schtick today. Why not? It works for Lyndsay Graham.
“Senator Durbin,” he tells us, says “Social Security has added not one penny to the deficit.”

Kessler explains how he previously “evaluated” similar statements and “rated” them, “true but false.” Can’t get any more fair and balanced than that. But Kessler is worried that this “true but false” statement will lead readers to forget that “Social Security’s a long term issue that can’t be deferred.” I hope you notice how we are gently being led into the swamp. Most Washington Post readers will not notice. These are, after all, the people who took on mortgages they couldn’t afford because “house prices can only go up.” And of course were blamed for their foolishness later by the very people who sold them the mortgages.

Update: Also see Jamie Galbraith
explains why the WaPo’s so called fact checkers is wrong as well, in addition criticizing “sensible liberal” takes on middle class and what works.

But Kessler doesn’t “mean to pick on Durbin since plenty of Democrats in recent days have made similar comments.”

Ah, see how fair we are being. Can’t blame Durbin, because all the Democrats are doing it.

But Kessler “remains troubled.. given the further decline in Social Security’s finances in the past year.” Note we get this “further decline” as an established fact that we don’t have to question. We will not even be given time to ask whether this “fact” bears on the question of SS contribution to the deficit. Remember, that’s where we started.

And of course, more sweet reasonableness: “we do not think this is a slamdunk falsehood as some people believe, but it is certainly worth revisiting”… in order to convince you dear reader that while it is not false, this “talking point” is not true. See, we are just saving you from being misled by that fast talker over there.
Then Kessler gives us a list of “facts,” which are true enough to establish his credibility as a fair truth checker. While he leads us ever so gently by the hand to his disturbing conclusion: You see, all that money coming into Social Security from interest on the Trust Funds “is simply paid with new Treasury Bonds.”
Leading to the inevitable conclusion that SS does indeed increase the deficit. You see, if you borrow money and you have to pay it back, that “increases your deficit.”

I hope… without hope… that what is wrong with this is obvious to the (my) reader. But just in case: paying back money you owe does not increase your debt. It decreases it. Even if you borrow money to pay back the money you owe someone else, you do NOT increase your deficit… you just exchange one debt for another. And in any case… the person you borrowed from did NOT increase your deficit. YOU did. And if you try telling him you are not going to pay him back because that would increase your debt… he may send the boys around to break your knees. And you would deserve it.

But Kessler regards this as “a matter of Theology.” I guess it is, some people regard paying their debts as something like Thou Shalt Not Steal. Others, like Kessler, regard not paying your debts… especially if they are owed to old ladies who can’t break your knees… as simply “good business practice.”
And of course, my debt is her fault because she lent me the money.

But, he says, some say “this is just paper shuffling among different parts of the U.S. government.” Those people who paid into the Trust Fund to pay in advance for their own retirement “benefits” don’t exist. The government is some kind of Monolithic “person” that only owes money to itself. The “government” has no relationship of trust whatsoever to the people it calls “citizens” or “taxpayers.” It’s theology: “the government giveth and the government taketh away.” or in this case, the “government borrows and the government stiffs the people it borrowed from.” We are not expected to notice that the government borrowed from workers to give tax breaks to the rich, and that not paying back the workers will save the poor hard working job creators from the indignity of paying back what they borrowed (through the government they paid for). Or, heaven forbid, that the money the United States of America borrowed had nothing to do with creating, or protecting, “our” ability to make more money in the (now present) future so we could afford to pay back what “we” borrowed. Nah, that would sound too much like the “government behaving like a business.”
Kessler says, oh so reasonably, “What matters is whether Social Security is generating enough money to pay for its bills on its own. The plain fact [we are, after all, fact checkers] is that it is not.”

This is a lie. It is in fact a damned lie. Social Security “generated” the money to pay for its bills on its own. It lent a temporary excess of that money, those taxes, to The United States of America. Kessler says that Social Security cannot cash its bonds to pay for its bills… because that would, you see, force the United States of America to find some money to pay its full faith and credit obligations with. And we all know the United States of America is broke, flat busted. Where would The United States of America find that kind of money?

See, “White House budget documents… show that … Social Security outlays exceed Social Security payroll taxes, thus boosting the bottom line federal deficit.” Well I would not want to accuse the White House of keeping two sets of books, but if you refuse to count the money Social Security already collected in payroll taxes and saved for just such a recession as we have today… and can say with a straight face that “outlays exceed taxes” while pretending the interest on previous taxes does not exist… you are a goddamn liar.
You want to watch out for damned liars who call themselves Fact Checkers and lead you with sweet reasonableness to your own destruction.

[Kessler hints at, but sweetly does not go into, the “fact” that the payroll tax holiday causes Social Security to contribute to the deficit. This is also a lie, but more subtle. It is not Social Security contributing to the deficit. It is the tax “holiday.” The tax holiday is NOT Social Security. It is the opposite of Social Security. In fact it might best be understood as what would happen if the Liars succeed in cutting Social Security. At some point people will not have enough SS benefits to live. At that point the Congress may have to pay “welfare” to those people out of the general fund (the deficit). Will they then blame Social Security for causing the deficit? Of course they will. Because the “fact checkers” will have taught them they can say any damn thing they please, and the people won’t be able to do anything about it.]

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Links Worth Noting: Stealth (Class) Warfare

by Linda Beale

Links Worth Noting: Stealth (Class) Warfare

Paul Krugman, Class Wars of 2012, New York Times (Nov. 30, 2012).

When Mitt Romney disparaged ordinary Americans, it was visible, obvious, and clearly an indication of the lack of esteem he held for ordinary Americans. The same arrogance is at work in the class warfare that the radical right is waging against the social programs that have been partof the great stabilization of the middle class and a singular pathway to a more sustainable lifestyle for those who are underprivileged in America–Social Security, Medicare, and Medicaid.

The drumbeat for “fiscal cliff” worries continues to build in the media. The right wants us to think that they are worried about future generations facing mountains of debt. They aren’t. The right wants us to think that they are worried that the only way to combat skyrocketing health care costs is by cutting back on benefits for ordinary Americans. They aren’t, and it isn’t. The right wants us to think that the wealthy have sacrificed already and are truly noble if they bear even minimal tax increases from the expiration of the Bush tax cuts. They haven’t and they aren’t. The right wants the progressives to roll over and play dead, so they can insist that they have the good of the country at heart when they demand cuts to infrastructure spending and cuts to “entitlements” as a condition for petty little increases in the taxes of the ultra rich who have greedily sucked up all the juice in the economy for forty years. We won’t.

Readers may think this blog has become a broken record of arguments for higher taxes–at least on the wealthy, at least through the removal of the preferential capital gains rate–and holding firm on protecting Social Security, Medicare, Medicaid. Maybe so. But we must continue to speak out until those we elected to lead the country act like they heard the prevailing sentiment of the election: we want more taxes on the upper class; we want an economy that is stimulated by government spending when private spending won’t do it; we want a sustainable economy that distributes resources more equitably and not a winner-take-all economy that allows those with monetary power to dictate the lifestyles of the rest of us.

Krugman is, as usual, correct. What they can’t get by buying an election the rich will try to get by lobbying and pretending to worry about the fiscal cliff. Let them try. Progressives in Congress should start talking, on any available outlet, about “going over the cliff” because it really isn’t so bad. It will free us once and for all of the ridiculous Bush tax cuts and allow us to undertake thinking about the tax code without that “status quo” hanging over our head like the sword of Damocles. And we can pass some really decent tax cuts for the lower income quintiles at the first of the year, without having to deal yet again with the “extenders” on the table. We can reform corporate tax–getting rid of loopholes; getting rid of the transfer pricing games–without lowering rates. And we can deal with the sequester in reasonable ways. What should we spend on and why. Let the rest go. We would finally begin the process of lowering the expectations of the military-industrial complex.

The following are excerpts from Krugman’s piece.

The important thing to understand now is that while the election is over, the class war isn’t. The same people who bet big on Mr. Romney, and lost, are now trying to win by stealth — in the name of fiscal responsibility — the ground they failed to gain in an open election.
Consider, as a prime example, the push to raise the retirement age, the age of eligibility for Medicare, or both. This is only reasonable, we’re told — after all, life expectancy has risen, so shouldn’t we all retire later? In reality, however, it would be a hugely regressive policy change, imposing severe burdens on lower- and middle-income Americans while barely affecting the wealthy. Why? First of all, the increase in life expectancy is concentrated among the affluent; why should janitors have to retire later because lawyers are living longer? Second, both Social Security and Medicare are much more important, relative to income, to less-affluent Americans, so delaying their availability would be a far more severe hit to ordinary families than to the top 1 percent.
[A]ny proposal to avoid a rate increase is, whatever its proponents may say, a proposal that we let the 1 percent off the hook and shift the burden, one way or another, to the middle class or the poor.
The point is that the class war is still on, this time with an added dose of deception. And this, in turn, means that you need to look very closely at any proposals coming from the usual suspects, even — or rather especially — if the proposal is being represented as a bipartisan, common-sense solution. In particular, whenever some deficit-scold group talks about “shared sacrifice,” you need to ask, sacrifice relative to what?
America’s top-down class warriors lost big in the election, but now they’re trying to use the pretense of concern about the deficit to snatch victory from the jaws of defeat. Let’s not let them pull it off.

cross posted with ataxingmatter   11/30/12

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Modeling the Price Mechanism: Simulation and The Problem of Time

Today’s New York Times article on rapid online repricing by holiday retailers depicts a retail world starting to approach the “flash-trading” status of financial markets:

Amazon dropped its price on the game, Dance Central 3, to $24.99 on Thanksgiving Day, matching Best Buy’s “doorbuster” special, and went to $15 once Walmart stores offered the game at that lower price. Amazon then brought the price up, down, down again, up and up again — in all, seven price changes in seven days.


The parrying could be seen with a Nintendo game, Mario Kart DS.

A week before Thanksgiving, the retailers’ prices varied, with Amazon selling it at $29.17, Walmart at $40.88, and Target at $33.99, according to Dynamite Data. Through Thanksgiving, as Target kept the price stable, Walmart changed prices six times, and Amazon five. On Thanksgiving itself, Walmart marked down the price to its advertised $29.96, which Amazon matched.

This made me think about a Greg Hannsgen post from last May on the Levy Economics Institute’s Multiplier Effect blog, a post I’ve been meaning to write about. It looks at the pricing mechanism based on how fast prices change/adjust.

The especially interesting thing about this post: It uses a dynamic simulation model to display the effects of slower and faster price adjustments, and lets you run the model yourself, right on the page, by moving a slider to change the speed of price adjustment and watch the results. (You need to install a browser plug-in from Wolfram, which only worked for me in Firefox under Mac OS X 10.6.8; it failed in Chrome.)

The gist:

You wonder what will happen when markets finally start working. How about, for example, a market that changes prices and wages quickly in response to fluctuations in demand? …

The pathway shown in the figure just below is followed by public production, capacity utilization, and the markup.

As you move the lever to the right, you are increasing a parameter that controls the speed at which the markup changes in response to high or low levels of customer demand.

What happens as the speed parameter is increased is that the economy’s pathway gradually changes until there is a relatively sudden vertical jump in the middle and much higher markup levels at the end—which means a bigger total rise in capital’s share.


The next pathway is the one followed by a second group of three variables during the same simulation. This second group includes: money, the government deficit (surpluses are negative numbers in this figure), and the employment rate (total work hours divided by total hours supplied).

when the lever is all the way to the right, the pathway begins with an outward spiral, leading to a new inward spiral, and finally an employment “crash” of sorts that occurs as the center of the second spiral is reached. This occurs after the markup has reached very high levels, as seen in the earlier diagram.

That’s a pretty amazing set of conclusions that I don’t think could ever have emerged from mainstream economic modeling techniques. You’ll notice that equilibrium, in particular, is a decidedly problematic concept here. It only seems to emerge when things have gone off the rails and hit the edge of the known world — not in those comfortable middle grounds so fondly envisioned by mainstream models.

I am making no claims of validity for this model’s assumptions, techniques, or conclusions (though I find the conclusions fascinating and plausible) — that’s beyond me. What I want to talk about is the validity of this class or type of dynamic simulation model compared to those commonly employed in “textbook” economic analysis.

In particular it makes me think about some recent posts and comments by Nick Rowe that are (bless him) teaching posts at least partially in response to my constantly demonstrated inability to properly grasp those standard approaches. (No: I’m not being ironic.)

Nick laid out the textbook understanding of the pricing mechanism based on marginal cost of production with wonderful clarity and broad insight here. I want to suggest that the explanation’s key feature is its use of “short-term” and “long-term.” It’s all about time.

But looking at the figures above — which model time fluidly and continuously (realistically?) as opposed to depicting it in two vaguely defined “chunks” — I want to ask whether Nick’s explanation, and the models employed in that explanation, are sufficient (or even proper) to grasp the processes playing out in the marketplace. Could they predict the effects that we see above? Is that type of depiction and prediction even within their inherent realm of capability?

Yes, Hannsgen’s model employs some textbook constructs, but it deploys them in a model that is structurally, qualitatively different from “comparative static” textbook models. Maybe the modeling technique is the message. Or at least, the proper modeling technique is a necessary condition for imparting an accurate and useful message.

Reading Nick’s posts and those of other smart econobloggers and -commenters, I am constantly astounded at his (their) apparent ability to intuitively comprehend and mentally manipulate multidimensional (and multiconceptual) interplays that leave me flummoxed. But I still wonder: is that ability sufficient for Nick to representatively model, in his head — to intuitively understand — the complex interplay of factors at work? His frequent comments about holding one factor constant, and the importance and difficulty of simultanaeity in our thinking, suggest that the answer might be no.

When you add a minimum wage to a free-economy model, is he able to simulate, in his head, all the possibly resultant pathways through the multidimensional space of prices, labor inputs, capital inputs, and output quantities (not to mention redistribution feedback effects, or utility-related factors), all over time — a space where no factors are held constant?

Yes, I’m questioning Nick’s quantitative ability given the models employed to do this kind of simulation in his head. (Suggesting: it’s not just me!, though there is certainly a matter of degree.) But as a result, and also, I’m questioning the qualitative ability of those models as employed to enable such understanding in our limited minds (notably, mine).

As I said recently, science is about really understanding how things work — telling a convincing causative story — not (just) predicting what will (might) happen. (At the extreme, you could say that prediction is only useful for scientists as a test of understanding.) The textbook models seem to provide some predictive power, but you gotta wonder how much of that is false positives. And given that question, you have to ask how well they really “explain” how economies work — how much true understanding they provide.

In other words — back to my apparently congenital inability to really internalize and understand the textbook models — it’s not my fault! (Yes: now I am being ironic.)

All this raises one big question for me: why aren’t mainstream economists all over these kinds of dynamic simulation models? Why do we only see them at the fringes, in work by “heterodox” outsiders like Hannsgen and Keen, and in the ever-about-to-emerge work promised by the guys at the Santa Fe Institute? Why aren’t big, and (within limits) out-of-the-box thinkers like Nick, Scott Sumner, Tyler Cowen, etc. — people who show every indication of really wanting to understand — fascinated by the possibilities of this type of modeling? In the weather and climate business, textbook economic modeling techniques would be laughed out of the room. Are not economies of a similar complex, dynamic, emergent type with weather and climate systems — arguably even more so, and more complex, because economies include the game-theory grist of conscious intentions and expectations (about other people’s intentions and expectations)?

I recently corresponded with a econ Phd candidate who really wanted to work with and build such models for his thesis. He reported that everything about the institutional and intellectual structure of academic economics militated against his doing so. “Just grab a data set, build a model and pull some regressions, call it good and head for the tenure track.”

You don’t have to read Kuhn or Marx to wonder whether this isn’t the result of 1. the irresistible intellectual gravitational pull of institutionally sanctioned models however obviously flawed (miasma, phlogiston, epicycles, equilibrium), and 2. the undeniable (inherent?) effectiveness of existing textbook economic models and modeling techniques in perpetuating and amplifying the established power structures and (increasingly) unequal distribution of income and wealth — wealth that actively seeks to perpetuate and expand itself via institutional structures like universities. (No names, just initials: Mercatus Center.)

I’m not imputing moral corruption here (except perhaps institutional). I both prefer and tend to believe that most of us try to do right, “as God gives us to see the right.” Rather, I tend toward the quite plausible institutional explanation laid out so nicely by Chomsky in Manufacturing Consent. In my words: institutions that are dependent on, are part and parcel of, those larger structures of power and wealth, only hire and promote people who already — perhaps by their very nature — see “right” right. (Or right “right.”)

And who knows? They might be right. Maybe my personal incentive is just to show (myself?) how smart I am relative to the mainstream institutions. But based on the Aha! moments of intuitive understanding that I experience when I see and explore models like Hannsgen’s, I tend to doubt whether that’s the only thing at play.

Cross-posted at Asymptosis.

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