Going Out on the Long Tail

Have you ever heard of the "long tail"?

The long tail is a concept that was introduced back in 2004 by Chris Anderson, who argued that the future of entertainment, and by extension, all business, lies in developing millions of niche markets rather than just a handful of mega-markets. By focusing on capturing the revenues that might otherwise be lost in these millions of niche markets, businesses - and especially Internet-based businesses - can realize larger profits than they could by focusing on selling just a handful of products - the same products sold in large numbers by their competition.

We're going to really put that concept to the test today, because as part of a major shift away from markets and politics and toward really obscure and unexplored topics, as we're going out on the long tail after the consumers of bird perches!

It just so happens that there's a math equation that can help bird owners determine the right size of a perch for their pet birds, which can help them avoid foot-related health issues and their costs:

Larry Nemetz, DVM, an avian-only vet in Southern California, once assumed that all birds within the same species would naturally have the same-sized feet — until he noticed another pattern emerging. "I started seeing a lot of soreness and arthritis in my patients, and wondered what was going on."

Two months of data collection later, he compared results on a spreadsheet and saw the truth — every patient he saw, even ones of the same bird species, had different-sized feet. That meant they all had specific perching needs. Were they on the wrong-sized perch?

That got him thinking further. "How could we come up with a guideline for perch sizes if species alone couldn't tell us anything?" Nemetz, it turns out, was in agreement with other avian experts: A bird's foot should wrap 75 percent around a perch for optimal comfort.

"We're looking for the best, long-term perching figure for pet birds. This may differ from how wild parrots roost, but for our purposes a 65- to 75-percent wraparound figure is ideal." This factors in elements such as secure gripping and foot stress.

So here's the potential long tail opportunity for us. Bird owners who care about their birds will be out seeking to improve their comfort and health by obtaining the right-sized perch for their pets. They might come across the same Bird Channel article in their internet searches as we did in seeking out a wildly obscure topic to take on.

That same search then should turn up the tool we're featuring in this post, which makes it easy to find out what size perches they should buy for their birds. All they would need to do is to enter the indicated information below, and our tool will return the results they need:

Bird Foot Size
Input Data	Values
Length of Bird's Foot [in millimeters]

Approximate Diameter of Perch
Calculated Results	Values
Bird Perch Diameter [millimeters]
Bird Perch Diameter [inches]

If you're accessing this article from a site that republishes our RSS news feed, please click here to access a fully functional version of this tool at our site.

We'll next point to Amazon's section on bird perches so the more serious shopping for a particular-sized perch can get underway.

So will our long tail marketing strategy really work? The only way to find out if it really does is for bird owners to buy correctly sized bird perches for their birds through the links on our site! Go for it bird people!...

Image Credit: Avianweb

Previously on Political Calculations

• Astros to Reject American League Transfer - Join SEC Instead


• Identity of Political Calculations "Ironman" Revealed


• No April Fools Today


• InstaPundit Acquires Political Calculations

An Elephant and Three Blindfolded Wise Men

Let's start today's post about where stock prices are headed by retelling an old Indian fable:

Three wise men were blindfolded and led one at a time into a room where an elephant stood. Each was asked to discern what was in the room without removing his blindfold. The first, upon touching the elephant's trunk, concluded a "snake" was in the room. The second, upon contacting a leg, concluded a "tree" was in the room. The third, upon grasping the tail, concluded a "rope" was in the room. All were surprised to discover the elephant once their blindfolds were removed.

We thought it might be fun to illustrate just what the modern equivalent of those three wise men "see" as they attempt to describe what's going on in the stock market with the charts that we've developed over the last several years to analyze stock prices, as described in a recent article from the Reuters news agency.

Odds of a pullback are increasing, with the market in slightly overbought territory, said Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston.

"I do suspect the closing of the earnings season will lead to at least a pause and possibly a pullback," Zaro said. The S&P 500 could shave 3 to 5 percent between now and early April, he said.

It would seem that Bruce Zaro is a blindfolded wise man who feels the market's potential for mean reversion, such as might happen if volatility in stock prices could be described by statistically normal distribution that might be observed in something that looks like a control chart:

Here, having the most recent data be below the mean trend would suggest a rising market as stocks would be "underbought", while being above the mean trend would suggest that stock prices are "overbought" and are increasingly likely to either stall out or fall in the future.

In this chart, which picks up the major trend that has existed in the U.S. stock market since the QE 2.0 bubble popped in late July 2011, we see that stock prices are in what Bruce Zaro describes as "slightly overbought territory". The 3-5% "shave" he predicts by the end of March would represent a little over a one-standard deviation decline in stock prices, which would be a move from the central black trend line to the light-gray dashed line immediately below it.

Next, let's see what another blindfolded wise man discerns as he examines the stock market:

At the same time, other analysts say, the market has not shown significant signs of slowing, including a break below 15- and 30-day moving averages.

Such moves would be needed to show that momentum is slowing or that the market is at risk of a correction, said Todd Salamone, director of research for Schaeffer's Investment Research in Cincinnati, Ohio. The S&P 500's 14-day moving average is at 1,511 while the 30-day is at 1,494. The index closed Friday at 1,519.

Todd Salamone is what we would describe as a "momentum" guy. Unlike a practitioner of momentum trading, which is really a kind of crowd-following/crowd-anticipating investment strategy, Salamone believes in the physical force of inertia, which is a way of saying that once stock prices get onto a particular trajectory, they'll stay on it!

All you have to do to see that prediction on our chart above is to draw an imaginary line from a point at the bottom of the most recent short-term trend up through the most recent data point for stock prices. And then on out as far as you dare dream. Kind of like Chuck Prince's dance party investment strategy, because what can possibly go wrong so long as you don't see stock prices suddenly dip below the moving line average shown on the chart?...

Let's get one last take on the current state of the stock market from the Reuters article:

The S&P 500 has been trading near five-year highs, and it notched its highest level since November 2007 this week. But the gains have pushed the benchmark index almost as far as it is likely to go in the near term, with strong resistance hovering around 1,525 and 1,540, one analyst said.

As a result, the index is set to move sideways, said Dave Chojnacki, market technician at Street One Financial in Huntington Valley, Pennsylvania. "We just don't have the volume or the catalyst right now" to go above those levels, he said.

Dave Chojnacki is described as a market technician, which means he is a practitioner of technical analysis. Here's how Investopedia explains that black art:

Technical analysts believe that the historical performance of stocks and markets are indications of future performance.

In a shopping mall, a fundamental analyst would go to each store, study the product that was being sold, and then decide whether to buy it or not. By contrast, a technical analyst would sit on a bench in the mall and watch people go into the stores. Disregarding the intrinsic value of the products in the store, the technical analyst's decision would be based on the patterns or activity of people going into each store.

In essence, what he is saying as he senses the stock market today is that because investors have never gone shopping for stocks much above the 1,525 and 1,540 level for the S&P 500 before, they're resistant to go shop for them above that level now.

But then, he goes on to say something actually interesting - he loosely perceives that some sort of physics might be involved, as he doesn't find any forces that might drive stock prices higher as he surveys the market's current environment.

The two comments together would seem to describe how stock prices might behave given the lack of upward room to move that is indicated by the current changes in the growth rates of stock prices and dividends per share driving them as the gap between them narrows in our chart below, if only the analyst knew of the relationship between the two!:

The only perspective that's missing from the Reuters article is the consideration of a steep decline for stock prices once we get past the near term. We guess they couldn't find a fourth wise man to blindfold before going to press....

Teens, Young Adults and President Obama's Minimum Wage

What effect might President Obama's 2013 State of the Union address proposal to increase the U.S. federal minimum wage from $7.25 per hour to $9.00 per hour have upon teens and young adults?

That question is especially relevant because teens and young adults between Age 15 and 24 represent approximately half of all minimum wage earners in the United States, not to mention making up a disproportionate share of individuals who earn wages just above that level.

To find out, we tapped the U.S. Census Bureau's detailed income data for the Age 15-24 population that it collected in 1995, when the U.S. federal minimum wage was $4.25 per hour, so we can see what effect raising the minimum wage to today's $7.25 per hour had on this age group through the data the Census Bureau collected in 2012 [1].

Our first chart adds up all the income earned by individuals between the ages of 15 and 24 in the United States in both 1994 and 2011 [2], both in originally reported values and in terms of constant 2011 U.S. dollars:

This result is pretty remarkable. In nominal terms, the aggregate income earned by all 15-24 year olds in 1994 adds up to more than $236.8 billion, while the aggregate income of those Age 15-24 in 2011 adds up to over $358.8 billion. But when we adjust for the effect of inflation, we see that the total amount of money paid out to 15-24 year olds in each year is almost identical!

In a sense, it is almost as if the employers of U.S. teens only have a fixed amount of revenue that they can use to pay them.

Next, we determined what the minimum wage for 1994, 2011 and the President Obama's proposed minimum wage in 2013 would be in terms of constant 2011 U.S. dollars:

Here, we find that although the U.S. federal minimum wage has grown by 70.6% from 1994's $4.25 per hour to 2011's $7.25 per hour, in inflation-adjusted dollars, it has really only increased by 12.4%, from $6.45 constant 2011 U.S. dollars in 1994 to $7.25 per hour today.

Meanwhile, President Obama's proposed increase to $9.00 per hour would represent a raw increase of 24.1%, which works out to be a 21.7% increase (to $8.82 in constant 2011 U.S. dollars) after we adjust for inflation.

In our next chart, we answer a hypothetical question by dividing the aggregate income of all 15-24 year olds in the U.S. by dividing it by the minimum wage for each year: how many equivalent hours of work would it take to earn all the aggregate income earned by all individuals Age 15-24 in each year if it was all earned at the federal minimum wage that applied in each year?

This is where that remarkable result we illustrated earlier comes into play. Because the employers of 15 to 24 year old Americans don't have any more money available in real terms to pay their workers than they did in 1994, an increase in the minimum wage forces a reduction in the number of hours in which those Age 15-24 can be employed below their 1994 level.

In the chart above, we see that the 12.4% real increase in the minimum wage from 1994 to 2011 results in an 11.2% reduction in the number of hours that U.S. employers had available for teens and young adults to work. If President Obama's 21.7% real increase in the minimum wage were to go into effect today, the fixed amount of money that the employers of teens and young adults have available would reduce the number of equivalent minimum wage hours by 17.8% below the 2011 figure.

We should also note that the number of hours shown for each year in our chart above would represent the hypothetical maximum number of hours that U.S. employers would have available for all teens and young adults to work. Teens and young adults who earn more than the minimum wage would reduce the amount of money and hours available for those who earn less than they do, forcing many out of the job market altogether. The more who make more than the minimum wage, the more who will be locked out from even being able to be employed.

So how did that 12.4% real increase in the federal minimum wage play out in real life for 15-24 year olds in the United States? Our final chart shows the changes in the number of teens and young adults both with and without income in 1994 and 2011:

Here, we should first note that the population of 15-24 year olds in the United States increased by 6,823,000, from 36,294,000 in 1994 to 43,117,000 in 2011.

With that noted, we find that there are some 1,012,000 fewer teens and young adults with incomes in 2011 than there were in 1994, as the number of income earning teens and young adults fell from 27,026,000 to 26,014,000. Meanwhile, the number of teens and young adults without incomes skyrocketed by 7,835,000, rising from 9,268,000 in 1994 to 17,103,000 in 2011.

That 84.5% increase in the number of teens and young adults without any kind of measurable income in 2011 should not be surprising, given that over 89% of teens and young adults who do have incomes earned more than the federal minimum wage in this year - that high figure means that most of the impact will be felt by teens who are blocked by the minimum wage from entering the job market. In this case, that includes the entire increase in the teen population from 1994 to 2011. Remember our point about the "more who make more" than the minimum wage above!

In the absence of real economic growth boosting the revenues for the employers of teens and young adults, which would be what is needed to effectively counteract this effect, we can expect the same scenario to play out if President Obama's proposed minimum wage ever goes into effect.

In an upcoming post, we'll take on how much of a deadweight loss that would be imposed on the economy for just Age 15-24 year olds by implementing President Obama's poorly considered proposal. In the meantime, see the comments here for more insight on the outcomes that this proposal would really achieve.

Notes

[1] We selected 1995 because the U.S. Census Bureau only makes detailed income data for that year easily available in a digital-friendly format). We selected 2012 because it is the most recent year.

[2] The U.S. Census Bureau collects in March of each year, so its reported income figures really apply for the previous year, which is why we've indicated 1994 and 2011 in our charts.

[3] We've deliberately introduced a flaw in our analysis above (not the math, mind you!), so it conforms with how President Obama and many of his supporters see the world - we think that they should really have to explain why they are out to hurt teens and young adults so much if what they believe about income inequality is really true.

References

U.S. Census Bureau. Current Population Reports. Consumer Income. Series P60-189. Table: PINC-01. Selected Characteristics of Persons 15 Years and Over,By Total Money Income in 1994, Work Experience in 1994 and Sex (Numbers in thousands). September 1995.

U.S. Census Bureau. Current Population Survey. 2012 Annual Social and Economic Supplement. Table: PINC-01.Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 2011, Work Experience in 2011, Race, Hispanic Origin, and Sex, Total Work Experience, Both Sexes, All Races. [Excel Spreadsheet]. September 2012.

Sahr, Robert. Inflation Conversion Factors for Years 1774 to Estimated 2022. [PDF Document].

White House: Happy Days Are Here Again!

After offering our own updated GDP forecast for the second and third quarters of 2012 earlier this morning, we were looking over the White House's 27 July 2012 Mid-Session Review for the budget of the U.S. government, and specifically at Table 2, where the White House forecasts that the average GDP growth rate for the calendar year of 2012 will be 2.6%.

Taking into account that the annualized GDP growth rate for the first quarter of 2012 was just recorded on the same date of 27 July 2012 to be 2.0% and that the first indication for the real growth rate of GDP in the second quarter was 1.5%, to hit that 2.6% mark, the White House apparently believes that economic growth in the U.S. will surge to reach an average annualized growth rate of 3.5% in both the third and fourth quarters of 2012.

Since we're now one month into the third quarter of 2012, clearly, this means that the White House believes that happy days are here again!

The Poison Pill

On 23 December 2011, the Republican party majority in the U.S. House of Representatives caved in on its opposition to President Obama and the Democratic party majority in the Senate's proposal to provide a two-month long extension for the President's payroll tax cut.

Here, the percentage that individuals must pay in their taxes that support Social Security was maintained at 4.2% through the end of February 2012, after which, the rate is set to rise back up to the 6.2% level it had been for the two decades from 1990 through 2010.

With President Obama's State of the Union address scheduled for tonight, there is little doubt that he will seek to extend the payroll tax cut through the end of the year, which will have to be supported by increased deficit spending in order to pay out benefits to today's SOcial Security recipients, which will increase the national debt as the program is set to continue running more deeply in the red.

Given the political damage from the collapse of the Republican's political strategy in December 2011, it seems unlikely that the party's senior leaders will seek to oppose the President's payroll tax cut again. They might be able to get some traction by letting the payroll tax cut expire by cutting federal income (and withholding tax) rates, however that would depend upon the President and Senate Democrats to go along, which seems even more unlikely given their late-year political victory.

If that outcome is not really possible then, perhaps the best strategy that congressional Republicans might follow would be to allow the President and Senate Democrats to have another small victory, but one that would cost them dearly in the November 2012 elections.

It's often said that "people vote their pocketbooks", meaning that economic conditions have a lot to do with the choices people make at the ballot box. For example, if conditions are stable, good, or improving, then it would be more likely that incumbent politicians, such as the President and many Senate Democrats, will hold onto the offices that they hold so dear.

But if conditions are bad or worsening, then they would be more likely to be voted out of office.

The trick then would be to give them the bill they want, but with one key addition - a "poison pill" that they cannot resist ingesting, one that seems like a good idea to them, but that would have the effect of sealing their fate through the damage it might cause to the economy.

It would also have to be something that would have a relatively small effect, because if it works, you'd only want a relatively small mess to have to clean up pretty easily.

To that end, we would suggest raising the federal minimum wage in the U.S. to $8.00 per hour, with the increase taking effect in April 2012.

Even with a growing economy, the amount of that increase would enough to decrease the number of jobs that might otherwise exist in the U.S. economy by roughly 300,000. Since it takes roughly six months for the full effect of a change in the minimum wage to take hold in the economy, that would put the greatest job loss in October 2012, just ahead of the 6 November 2012 election.

Better still, the action would not leave any real political fingerprints, as the reduction in jobs would mostly be in the form of jobs not being created, where the most affected would be teens and young adults, who can have their unemployment more easily concealed since their attendance at school would keep them from being counted as being part of the U.S. workforce.

It's an intriguing idea. And it's very unlikely that the President and Senate Democrats would even consider resisting it, given their beliefs! We wonder if any U.S. politicians have ever tried doing it before....

Solving the Biggest Civil Rights Crisis of 2012

Welcome to 2012! We're kicking off the new year by solving the biggest civil rights crisis in America today, at least according to the United States Department of Justice: the racial disparity in the percentage of individuals without current photo identification needed for voting in South Carolina!

The editorialists of the Wall Street Journal were a bit taken aback by the apparent priorities of the U.S. DOJ:

Eric Holder must be amazed that President Obama was elected and he could become Attorney General. That's a fair inference after the Attorney General last Friday blocked South Carolina's voter ID law on grounds that it would hurt minorities. What a political abuse of law.

In a letter to South Carolina's government, Assistant Attorney General for Civil Rights Thomas Perez called the state law—which would require voters to present one of five forms of photo ID at the polls—a violation of Section 5 of the 1965 Voting Rights Act. Overall, he noted, 8.4% of the state's registered white voters lack current photo ID, compared to 10% of nonwhite voters.

This is the yawning chasm the Justice Department is now using to justify the unprecedented federal intrusion into state election law, and the first denial of a "pre-clearance" Voting Rights request since 1994.

According to the 2010 U.S. Census, 66.2% of South Carolina's 4,625,364 entire population were racially classified as being "White alone", while 27.9% were racially classified as being "Black or African American alone", who make up the lion's share of the state's "non-white" population. We will assume these percentages hold for the state's voting age population, which would put the number of individuals Age 18 or older at 3,544,890.

Simple multiplication then tells us that there are approximately 2,346,717 "whites" and 989,024 "blacks" of voting age in South Carolina.

Using Assistant Attorney General Thomas Perez' figures, we can now estimate the number of each racial subset of South Carolina's voting population that he claims lacks current photo identification. For whites, that works out to be 201,818 individuals, while for blacks, the number estimated to not have current photo identification is 98,902, bringing the combined total of current photo-ID-less potential voters to 300,720.

These figures assume that 100% of the state's voting age population is registered to vote. In reality, an estimated 65.6% of South Carolina's voting age population actually voted in the 2008 election, which suggests that the actual number of registered voters in the state who might be affected by not having a current photo ID will be nearly one-third smaller than our figures suggest. We'll assume the 100% figure for our remaining calculations however, because they would represent a worst-case scenario.

Using those larger numbers then, all it would take to make the percentage of blacks without current photo IDs be equal to the percentage of whites without current photo IDs to achieve Assistant Attorney General Thomas Perez' vision of perfect racial equality is for 13,846 blacks to take the simple action of renewing the photo IDs they have previously been issued by the state of South Carolina, and which have since expired.

After all, common sense tells us that individuals who have previously been able to obtain valid state-issued photo identification should have a pretty simple time doing so again. Apparently, the state's Department of Motor Vehicles will even pick you up and drive you to their office for the sake of getting you a valid and current photo ID to support your desire to vote in the last days to register ahead of an election!

Going back to the numbers, South Carolina's Department of Elections reports that 240,000 state voters lacked current ID cards as of October 2011. The state's Department of Motor Vehicles has indicated that 200,000 of those represent a combination of individuals whose existing photo IDs have expired (most often), or who have moved to other states, or who have passed away.

For those who haven't moved to other states or died, perhaps the easiest solution for obtaining a current photo ID would be to follow the directions provided by South Carolina's Department of Motor Vehicles for renewing their expired driver's license to make them current.

And to help "nudge" them in the right direction, we would recommend that Assistant Attorney General Thomas Perez take steps to prevent these particular individuals from doing things like boarding aircraft, buying alcohol, tobacco or firearms, depositing a check at a bank, applying for a loan, or voting in a union election, to name just a few ways the government might use its power to compel such people to eliminate the specific racial disparity of which he is so concerned.

At least then, perhaps Assistant Attorney General Thomas Perez will feel like he is achieving something meaningful in his career!

Data Sources and References

U.S. Census Bureau. 2010 Census Data. Accessed 2 January 2012.

File, Thom and Crissey, Sarah. Voting and Registration in the Election of November 2008. Current Population Reports. U.S. Census Bureau. May 2010.

Howden, Lindsay M. and Meyer, Julie A. Age and Sex Composition: 2010. 2010 Census Briefs. May 2011.

Wall Street Journal. Holder's Racial Politics. 30 December 2011.