Carpe Diem

Consumer Surplus on EBAY = $19 Billion in 2007

From today’s NY Times: Winners of eBay auctions typically pay not the highest amount they bid but the second highest amount, plus the bidding increment of that auction. In other words, there is a gap between what they pay and what they are willing to pay – a “consumer surplus” whose size eBay has never revealed, since the company does not share data on the highest bids.

Researchers at the University of Maryland and the Indian School of Business have now quantified the consumer surplus by using a sniping agent called Cniper to track 4,500 eBay auctions in 2003 and 2004. By using the sniper software, the researchers could track the highest bids and measure the difference with the winning bid – an average of $4, or 30% savings on the average $14 eBay auction.

Writing in an upcoming issue of Information Systems Research, the researchers report that eBay buyers saved more than $7 billion in 2003 and $8.4 billion in 2004. Extrapolating from their data, they project that consumers saved $19 billion on eBay last year.
Carpe Diem

Earnings for Most Major Banks Forecast Up in 2008

A recent post reported that every major U.S. commercial bank was profitable last year. An anonymous commenter reported some 2008 earnings per share (EPS) estimates for some of the banks listed in the post. That comment inspired the table above (click to enlarge), which shows 2007 EPS (actual) and 2008 EPS estimates for 17 of the largest U.S. commercial and investment banks.


Conclusions:

1. Merrill Lynch is the only major investment bank to report negative earnings in 2007, and all other banks above were profitable last year. For 2008, $5.22 EPS is forecast for Merrill Lynch.

2. For 2008, all 17 banks are expected to be profitable, and EPS for 12 out of 17 banks are expected to increase from 2007.
EPS Source: Yahoo! Finance
Carpe Diem

Retirement Assets Reach Record High Levels, in Both Dollars and As A Share of Household Assets

According to the most recent report (December 2007) on the U.S. retirement market through the second quarter of 2007 from the Investment Company Institute, the national association of U.S. investment companies including mutual funds, closed-end funds, and exchange-traded funds:

1. Total U.S. retirement assets climbed to $17.4 trillion at the end of the second quarter of 2007, up from $16.7 trillion at the end of the first quarter of 2007 (see top chart above, click to enlarge).

2. Retirement savings now account for almost 40% of all household financial assets in the United States (see bottom chart).

Conclusions:

1. As much retirement wealth was created in the last 5 years since 2002 (almost $7 trillion) as was created in the entire history of the country through 1995, when retirement wealth reached $7 trillion for the first time.

2. Retirement assets now account for nearly 40% of all U.S. household financial assets, or about twice the percentage of 20% in the mid-1980s, and more than three times the 12% share in the mid-1970s.

3. Household assets in the form of real estate have probably become much LESS important over time as retirement assets have grown in value, and real estate now accounts for a maximum of 60% of household assets, compared to a maximum of 80% during the S&L crisis and 88% during the 1970s.

Bottom Line: Not only have retirement assets reached record levels, but as I wrote in a previous post recently, household wealth has increased by almost $20 trillion in the last five years ($7 trillion due to retirement assets increasing), and the average American household now owns about $528,000 worth of stuff (assets, real estate, etc.), free and clear of any debt! In 2002, average net household wealth was about $370,000, and today it’s more than half a million dollars. Therefore, in just the last five years we’ve become more than a third richer (+43%), which is truly amazing!

Further, real estate assets represent a smaller share of all household assets than any time in history, which could be a reason why the economy can absorb the subprime crisis.

Carpe Diem

Health Care Rx: Market-Based Solutions

San Francisco Chronicle: With health care emerging as a chief domestic issue in the 2008 presidential race, the various candidates are pitching numerous platforms designed to reduce costs and broaden coverage. The proposals of all three Democratic candidates call for universal coverage, citing an estimated 47 million uninsured people in the United States.

Meanwhile, the private sector is quietly but consistently delivering an increasing number of market-based, affordable healthcare solutions, I have posted about many already. Here are a few more:

1. Early Solutions Clinics: “We see you now, we treat you well, we charge you less.” Six clinics are now open in SE Michigan inside Meijer stores (similar to Super Wal-Mart). From its website:

Early Solutions Clinics are a no-appointment-needed health care clinic that offers basic services for a fraction of the cost and reduces patient waiting time. Our board-certified nurse practitioners will provide you with quick access to quality medical diagnosis and treatment under the direction of on-call physicians. In addition, all of our clinics are affiliated with hospitals nearby should you require advanced care.

Our clinics are open seven days a week, 364 days a year (closed on Christmas) in an effort to help you seek treatment at a time that is convenient for you. Hours: M – F 9 a.m. – 8 p.m., Sat 9 a.m. – 5 p.m. and Sun 12p.m. – 5 p.m. and most services cost $49.

2. Carol.com, a website that will allow people to “buy” on an à-la-carte basis the medical services they want done. From its website:

For the first time in the history of health care, everything you need to know to compare doctors, prices, locations, credentials and availability is in one place. In the Web-based marketplace, consumers can compare diagnostic imaging packages such as MRI and CT scans, annual physical, dental and eye exams and the costs of physician-recommended services such as mammography or physical rehabilitation.

From an article in today’s Twin Cities Star Tribune:

Its creators want to do for health care what Travelocity did for airline tickets.
Carol’s creators are riding the leading edge of a wave of change headed toward consumers just as questions about how to cure the nation’s chronic health care crisis are resounding from the corner cafe to the presidential campaign trail.
Carpe Diem

Top 1% of Taxpayers Pay Almost 40% of All Taxes

The chart above (click to enlarge) is from the most recent study on income tax shares from the Joint Economic Committee of Congress, which reported that:

1. The share of total federal income taxes paid by the top 1% of tax filers increased to 39.38% in 2005 (most recent year available), while the tax share of the top 5% climbed to 59.67%. The income tax share of the top half rose to 96.93%, according to recent Internal Revenue Service (IRS) data. The tax shares are the highest on record for these groups in comparable IRS data going back to 1986.


2. The share of adjusted gross income generated by the top 1% increased to 21.20% in 2005, relative to a level of 20.81% reached during the height of the stock market bubble in 2000 (when the income tax share of the top 1% was 37.42%). Although the income share of the top 1% is similar in 2000 and 2005, the income tax share was about two percentage points higher in 2005.


3. Between 1992 and 2000, the top one percent’s share of income jumped from 14.23% to 20.81%, an increase of nearly 7 percentage points, before slipping in 2001 and 2002. These data show that the most significant increases in this income share occurred in the 1990s, not in more recent years.

Carpe Diem

Share of Taxes Paid By the Rich After 4 Tax Cuts

The graph above shows the share of personal income taxes paid by the top one-half percent of earners from 1960 to 2001. During this period, there were 4 major reductions in marginal tax rates.

1. The Kennedy-Johnson tax cut reduced the top rate from 91% in 1963 to 70% in 1965, and the share of personal income tax paid by the top one-half percent of earners rose from 16% to 18%.

2. The Reagan tax rates in the 1980s lowered the top rate from 70% to 50% and then to 30%, and the share of taxes paid by these earners rose from 14% to 22% of the total.

3. In 1997, the tax rate on income from capital gains was cut from 28% to 20%, and this rate reduction was accompanied by a substantial increase in revenues collected from capital gains taxes and personal income taxes collected from high-income taxpayers. In fact, capital gain taxes roughly doubled from $66 billion in 1996 (the last year before the tax cut) to $129 billion in 2000, when these earners paid 31% of all taxes collected.

Source: “Economics: Private and Public Choice, by Gwartney, Stroup, Sobel and Macpherson, 11th Edition”