Tuesday, June 18, 2024

"Greedflation" Math Gets an F

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4 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff calmly shreds the latest left-wing accusations of food “greedflation”... with simple math.

Lately the “greedflation” crowd (i.e. anyone who doesn’t realize inflating the money supply by 44% in two years causes inflation) has resorted to some homespun “evidence” that greedy companies are responsible for jacking up food prices in particular on American consumers.

The attached meme about General Mills is an example the Correspondent came across posted by someone trolling a free market page.

Of course none of the quoted statistics, all designed to shock readers into thinking General Mills is greedy—dividend payments, stock buybacks, CEO pay, and net income, all of which happen every year regardless of whether annual inflation is 1% or 9%—have anything to do with whether or not inflation is impacting the company’s cost and pricing structures.

Well fortunately the Correspondent has a few decades worth of experience with something the greedflationists have evidently never looked at in their lives: publicly traded companies’ SEC filed finances.

In less than 60 seconds the Correspondent retrieved General Mills’ most recent SEC-filed annual report, the 10-K. 

The company’s consolidated income statement is at this link on page 42.


Generally accepted accounting principles lay out very simply how much General Mills, or any company for that matter, is charging customers (“net sales” or “revenues”) against how much they’re paying to procure the final product they sell to the same customers (“cost of sales” or “cost of merchandise”):

FY2021 Net Sales: $18.1B
FY2023 Net Sales: $20.1B ( +11.0%)

FY2021 Cost of Sales: $11.7B
FY2023 Cost of Sales: $13.5B ( +15.4%)

Yes that’s right, during the two worst years of America’s recent inflation General Mills had to pay 15.4% more for the goods they sold their customers, but they only charged 11.0% more.

In other words, their wholesale costs rose faster than their revenues and their gross profit margins shrank.

(On a side note, companies have additional costs they must pay out of gross profits that whittle their bottom line down to a smaller net profit. A list of those other costs, and why they aren’t a good gauge for measuring the effects of inflation, is available at the end of this article.)

Also two weeks ago a Cautious Optimism reader/commenter made a similar comment about the greed of grocery stores driving food prices higher.

The accusation was that “Kroger’s profits have risen 49% since 2021 and Publix’s profits are up 45% since 2022.”

Now the identity of the commenter is not important here, and even if it was in error (it was) civil discourse still helps us all arrive closer to the truth, even when social media tries to censor it.

But once again simply checking Kroger and Publix’s SEC-filed financial statements we can get to the heart of whether “corporate greed” is to blame.

Kroger FY2023 10-K, page 56


Publix FY2023 10-K, page 20


For Kroger:

FY2021 Net Sales: $137.9B
FY2023 Net Sales: $150.0B ( +8.8%)

FY2021 Cost of Sales: $107.5B
FY2023 Cost of Sales: $116.7B ( +8.6%)

So Kroger’s gross margin was virtually unchanged and hardly “49% higher.”

(For the record Kroger’s gross margin rose 1/6th of one percentage point in two years)

Now for full disclosure, Kroger’s “net profit” rose more sharply. Still not “49% higher” but net income did rise from $1.66 billion to $2.16 billion or up 30%.

But there’s more, and much more important, full disclosure: 

FY2021’s net results were depressed by Kroger’s one-time unrealized $821 million loss on its portfolio of investment securities. And FY2023’s net results were inflated by Kroger’s one-time unrealized $151 million gain on its same portfolio of securities, none of which have anything to do with price-gouging or greedflation.

So backing out the volatile movements of its securities portfolio, something Wall Street analysts do regularly, Kroger’s core business net income actually *fell* by 19% from FY2021 to FY2023 ($2.48B down to $2.01B).

The Correspondent suspects the commenter wasn’t aware of the standardized accounting and probably saw the “Kroger’s profit was up 49%” shock number on an ignorant left-leaning meme somewhere, or even less reliably from MSNBC.

Lastly there’s Publix’s 10-K finances.

The Correspondent thought it odd that Kroger’s alleged profit gain was “since 2021” but Publix’s was only “since 2022,” and his suspicions about cherry-picking years to manipulate a desired result proved warranted. 

Yes, as suspected Publix had a $1.262 billion one-time loss on its 2022 securities portfolio which artificially depressed its net income, providing the perfect platform for an impressive “gain” in 2023. Further boosting the "gain" was Publix's investment loss swung to an $863 million gain a year later.

But once you back out all those volatile one-time securities portfolio movements Publix’s net income also fell by 16% from 2022 to 2023 ($4.18B down to $3.49B).

And looking again at Publix’s much more meaningful gross metrics across two full years we get:

FY2021 Net Sales: $48.0B
FY2023 Net Sales: $57.1B (+18.9%)

FY2021 Cost of Sales: $34.8B
FY2023 Cost of Sales: $42.1B (+21.0%)

Publix’s cost of merchandise also rose faster than the prices they charged.

BTW Kroger’s 2023 final net income (adjusting for securities gains/losses) generated a net profit margin of 1.3%. Publix’s was 6.1%.

Publix seems to have a higher-margin business model, but neither company’s net margin is a portrait of “greed,” especially when considering liberal favorites Google, Facebook, and Netflix—all three of whom have lobbied the federal government heavily for favorable Net Neutrality regulations—enjoyed FY2023 net profit margins of 24.0%, 29.0%, and 16.0% respectively.

(links to their 10-K financials available on request)

Now the Correspondent is sure that if some greedflation loon turns over enough rocks he might find a consumer company or two out there among hundreds that really have expanded gross margins nicely in the last two years. After all, in any given period some companies are growing margins while others are narrowing.

But the larger point is that of the three consumer companies the Left has chosen to accuse online of massive greed, which in turn they blame for rising food prices, all three are a giant fail when analyzing what the greedflationists seem to have no clue about: standard corporate accounting. The Correspondent suspects if one looks at a larger number of other retail grocers and food companies, most will show similar results.

Because as Milton Friedman settled decades ago, but which most leftists refuse to learn from:

“Inflation is always and everywhere a monetary phenomenon…”

…and (in his words) inflation is not caused by “greedy businessmen” or “grasping trade unionists” or “spendthrift consumers” because…

“None of these groups possesses a printing press on which it can turn out those multi-colored pieces of paper you call money.”
(Comment from the Economics Correspondent regarding additional corporate costs):

After gross profit companies typically subtract additional costs:

-Selling, general, and administrative
-Research and development
-Depreciation and amortization
-Interest expense
-Onetime gains and losses on asset sales and investments
-Corporate income tax

Most of these metrics, and the net income that results once they are all accounted for, are typically unreliable for measuring the impact of inflation on a company’s finances because they are highly variable from year to year.

For example interest expense can rise rapidly if a company takes on new debt one year, or if it refinances at a higher interest rate. It can fall rapidly if a company pays off its debt or rolls over debt to a lower interest rate.

SG&A expense can rise or fall rapidly one year to the next if a company decides to undertake a new marketing campaign or wind down an old one.

Depreciation and amortization can rise rapidly if a company buys a lot of capital assets and suddenly has new depreciation to log.

Income tax expense can vary wildly if a company defers taxes by a year or two.

There are other examples but you get the idea.

For measuring “greedflation” there are no better metrics than topline net sales/revenues and topline gross cost of sales.

Friday, June 14, 2024

2023: San Francisco Shoppers Finding Human Waste in Downtown Mall Elevators

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"Shoppers are getting a foul surprise."
-KGO Channel 7 San Francisco

"Must've been those San Francisco white supremacists again."
-Cautious Optimism Left Coast Correspondent

Admittedly this story is a year old, but the Left Coast Correspondent has visited this downtown mall many times and it's an absolutely beautiful building.


Not only is the mall now 90% vacant, an eerie ghost town inside, but evidently some locals have found the privacy of its elevators a convenient place to pay fertile tribute to San Francisco's successful left-progressive policies.

San Francisco Mayor London Breed, who defunded the police in 2020 and is now backpedaling to keep her job in November, has proposed tearing down the mall and replacing it with a soccer stadium.

At least the local tribute will be better for grass than elevator flooring.

Watch more on KGO News below.

Tuesday, June 11, 2024

A Political and Economic History of China, Part 22: The Boxer Rebellion of 1900

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6 MIN READ - As part of his continuing history of China series, the Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff discusses a seminal upheaval during the last years of its last dynasty.

Western troops defend Beijing's diplomatic
legations from the Boxer siege
As the turn of the 20th century arrived China’s hopelessly corrupt Qing dynasty, which had ruled the country for 256 years, was in the twilight of its power. China was backwards, its economy, military, and institutions decades behind the western powers and Japan. The country was run by the reactionary, xenophobic, and corrupt Empress Dowager Cixi, and the periphery of the empire had been carved up by the likes of Great Britain, France, Germany, Russia, and Japan.

Against this backdrop a bizarre and unlikely uprising would make history: the Boxer Rebellion.

Full disclosure: the Economics Correspondent has never been that enamored with the Boxer Rebellion of 1900, but the incident has fascinated historians for over a century and Hollywood even produced a 1963 film about it starring Charlton Heston, Ava Gardner, and David Niven (“55 Days at Peking”). So regardless of the Correspondent’s lukewarm interest in the subject, the Boxer Rebellion is viewed as a major historical event and warrants a column.


Of the many Chinese secret societies that emerged in the 19th century, a peculiar one known as the “Society of Righteous and Harmonious Fists” would soon gain international notoriety. This society, better known as the Boxers due to their practice of martial arts, was nearly unique in that it was dedicated not to overthrowing the Qing dynasty but instead expelling all foreigners from China.

For decades the “unequal treaties” that had ceded Chinese territory to the western powers and established western trading ports, the growing presence of westerners and their strange clothing and strange culture, legal extraterritoriality for westerners, and in particular the construction of western churches on Chinese soil all became points of resentment among the Chinese population at large. Even as a modest 100,000 Chinese had converted to Christianity, baseless rumors began circulating of Christians kidnapping Chinese babies for sacrifice rituals and even ending their ceremonies by eating the babies themselves.

By 1899 Boxer organizations began agitating for openly attacking westerners and destroying western property with the goal of driving foreigners out of China completely.

The Empress Dowager Cixi, when briefed on the growing numbers and belligerence of Boxers across China, hesitated to either suppress or support them.

Given her initial hands-off policy, Boxer aggressiveness increased and erupted into nationwide violence by 1900. Chinese Christian converts were attacked and killed by the thousands. Churches were burned down and dozens of westerners beheaded. The Boxer slogan justifying it all was “Support the Qing government and exterminate the foreigners!”


Soon the violence spread to the capital city of Beijing. 

Cixi, watching from her balcony in the Forbidden City, could barely contain her pleasure at the sight of smoke billowing from western churches and the sounds of chaos emanating from the surrounding city. Cixi always hated the presence of westerners in China but until now had been powerless to evict them. Seeing the Boxers as a means of finally ridding herself of the westerners she threw her full support behind the rebellion, urging the Boxers to expel the barbarians once and for all and declaring:

”The Boxers… …are men of the people… …When these troubles are over we intend to bestow on them special marks of our favor. Let these people’s soldiers still continue, with united hearts and utmost efforts, to repel aggression and prove their loyalty, without failing, to the end.”

The Boxers also claimed that their martial arts calisthenics made them impervious to western bullets.

To demonstrate their magical powers one of Cixi’s generals lined several Boxers against a wall in the Forbidden City, and when shot with rifles the Boxers predictably crumpled and died. Then, in a fatal application of the no true Scotsman fallacy, the general explained that “they must not have been real Boxers” or “the true Boxers will return from the dead and fight the foreign devils.” 

So the rebellion continued, culminating in a Boxer siege of the Beijing Legation Quarter that housed the diplomatic offices of ten western countries plus Japan.

Meanwhile the western powers, hearing reports of tens of thousands of Chinese Christians, hundreds of westerners, and dozens of priests and nuns being killed in Beijing alone, unified to defeat the Boxers and relieve the Legation Quarter from its siege. Eight nations, some of which were adversaries, joined forces to form the “Eight Nation Alliance” representing Britain, France, the United States, German Empire, Austria-Hungary, Italy, Russia and Japan.

Gathering 54 warships the Alliance landed approximately 19,000 troops in Tianjin who fought their way to Beijing. Killing thousands of Boxers and Qing army regulars along the way, the combined western armies reached the capital a month later to relieve the Legation Quarter which had successfully held out.

With the tide turning against the rebellion Cixi about-faced, declaring the Boxers had risen up without authority and the Qing government had done everything in its powers to protect foreigners. In letters to the governments of France, Germany, and the United States she portrayed herself as a victim of circumstance, opposed to the raucous Boxers whose violence had spread beyond her ability to control:

”We have repeatedly issued edicts to protect the Ministers of the different countries. We have also ordered the missionaries in the various provinces to be protected.”

Then Cixi and the imperial court fled Beijing. As they left the prisoner emperor Guanxgu’s favorite concubine Zhen, who Cixi had always hated, pleaded with her to stay in the capital to help negotiate with the western powers. Enraged, Cixi ordered the palace eunuchs to throw Concubine Zhen down a water well where she drowned. The Correspondent has visited “The Well of Concubine Zhen” in the Forbidden City along with the exhibit telling her tragic tale.

Cixi and her officials retreated deep into the western province of Shaanxi to hide from the allied armies. Only later, when she learned the allied retribution would not fall upon her personally, did Cixi return to the Forbidden City, thanking the western powers for saving both her and China from the unruly Boxers.


As with so many previous western conflicts, the Chinese defeat produced another unequal treaty. However, unlike the others China was not required to cede territory this time (although Russia had used the opportunity to seize the all-weather port of Dalian, know then as Port Arthur) but the Qing government was required to make another huge indemnity payment to all the allied powers.

The United States received a large payment of $30 million, but Secretary of State John Hay argued the reparations were too large. President Theodore Roosevelt, understanding he lacked constitutional authority to forgive debt either for foreign governments or 35-year old college grads with useless degrees, convinced Congress to return $10.8 million to China but, given the Qing government’s reputation for corruption, under the condition the money be spent to found a new, modern learning institution: Qinghua University in Beijing (Wade-Giles: Tsinghua).

Today Qinghua is arguably the most prestigious university in China and accepts only the highest echelon of students.

The Economics Correspondent has wondered if the top young minds of China are even aware that the elite school they attend was financed by the United States’ refusal to accept such a large payment during China's “century of humiliation” at the hands of the West.

Not having visited Qinghua while in Beijing but checking Qinghua’s website, specifically the “About” and “History” pages, there is no mention of American funding on either the English or Chinese language sites, only the following passage:

”Tsinghua University was established in 1911, originally under the name ‘Tsing Hua Imperial College’. The school was renamed ‘Tsing Hua College’ in 1912. The university section was founded in 1925. The name ‘National Tsing Hua University’ was adopted in 1928.”

Omitting any positive role for the United States is consistent with the propaganda strategy the Correspondent mentioned in a previous column on the ruins of Beijing’s Old Summer Palace: the CCP’s primary objective is to maintain as large a popular reservoir of animosity and resentment as possible towards western countries. Disclosing that the United States paid for the founding of China’s most prestigious university, all for the betterment of its younger generation and the nation’s modernization, counteracts that goal so it comes as no surprise that such an essential part of Qinghua’s history has been stricken from the school’s webpage.

Tuesday, June 4, 2024

A Political and Economic History of China, Part 21: The Empress Dowager Cixi and the Qing dynasty’s closing years (1861-1908)

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7 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff examines the Empress Dowager who ruled China for nearly the last fifty years of the Qing dynasty's ultimate decline.

After the feeble Xianfeng emperor died age 30 in 1861, China would be ruled (officially) by three more emperors ending with the Qing dynasty’s collapse.

However none of the three ever wielded real power since all throughout China was actually ruled by Xianfeng’s widowed concubine… who was also mother of the heir to the throne.

It was no accident that the Empress Dowager Cixi gained and held onto power for 47 years. She used considerable ambition, intelligence, cunning, and ruthlessness to secure her position as supreme ruler. She also skillfully manipulated the circumstances and often resorted to illegality to hold it.

She was also very bad for China, something we’ll get to in a moment, and it’s no accident that the final decline of the Qing dynasty coincided with her reign.

But first let’s get the question of her name out of the way.

“Cixi” is one of only a handful of unintuitive pinyin pronunciations and a rare case where the old Wade-Giles romanization system is more accurate than pinyin. 

In Wade-Giles, her name is spelled “Tzu Hsi,” a better match.

Either way, the pronunciation is “tsuh shee” because the letters “ci” in pinyin are pronounced “tsuh” and “xi” is pronounced like the current CCP president, Xi Jinping; or “shee.”

Cixi was born a lesser noblewoman from a minor Manchu clan in 1835. Her first lucky break was an imperial order: report to the Forbidden City as a candidate in the selection process for the Xianfeng emperor’s empress and concubines.

The “matching” was an arranged marriage process, with the “arrangers” being court astrologers who used the stars and other propitious signs to make their selections.

Cixi didn’t fare too well, selected only concubine of the fifth rank, far below the empress and several levels of upper concubines. Her younger sister fared worse, selected as a concubine for one of the Xianfeng emperor’s half-brothers.

Even at an early age, observers noted that Cixi was highly intelligent with a strong will and ambition, and it didn’t take long before the emperor was calling on her evening company repeatedly (recorded in the book of concubine “visits” that matched subsequent pregnancies with likely dates of conception). 

Although it has never been proven, rumors swirled within the Forbidden City that Cixi bribed palace eunuchs to mention her favorably to the emperor.

However what is definitely known is the emperor enjoyed Cixi’s company since, unlike the empress and other concubines, she could converse fluently with him about politics, foreign affairs, and economics after their intimate activities were over.

Then Cixi’s really big break came. She gave birth to the emperor's first son which instantly elevated her status. Being mother of the heir to the throne, Cixi was now outranked only by the empress herself who had little head for politics and affairs of state.

During the Taiping Rebellion Xianfeng fled the Forbidden City to his autumn hunting resort where he fell into depression and drank himself to death. Cixi brought Xianfeng’s young son to his deathbed and made sure he proclaimed the boy next emperor. She had also long been plotting with high-ranking Qing officials, building a coalition of allies within the imperial court.

With the emperor now dead, Cixi left the lengthy funeral rituals a few days early, returning to the Forbidden City while the highest ranking regents completed the ceremony. Several days later when the officials entered Beijing they were surprised to learn Cixi and her allies had plotted a coup, fabricating trumped up accusations of treason leading to several of their executions.

She then declared her five-year old son the new Tongzhi emperor, but as he was too young to rule she conveniently appointed herself and Xianfeng’s widowed empress as co-regents. Of course the widowed empress was completely in over her head with affairs of state and deferred to her “co-regent,” an outcome Cixi had undoubtedly plotted from the beginning.

As the Tongzhi emperor entered his teens he gained a reputation for debauchery, drink, and visiting brothels. There were even rumors of opium use. He contracted smallpox at age 23 and died before producing an heir. 

Again, unconfirmed rumors swirled that Cixi had introduced her own son to the hedonistic lifestyle and encouraged his indulgence in the hope that he would die before having a son of his own. A male heir would have transferred power away from Cixi in favor of the new boy emperor’s mother.

And so Cixi continued with a pattern that would repeat itself to the end of her life: devising ways to strip young male emperors of power before they could produce heirs and replace them with another powerless boy emperor.

In 1875 Cixi selected her nephew (her younger sister’s son) as the Guangxu emperor, an illegal act itself that defied centuries of Qing tradition, but it kept real power in her hands.

Guangxu neither adopted hedonism nor contracted smallpox and once he came of age attempted to exert imperial power with a massive modernization/reform movement. Cixi staunchly opposed the reform movement but Guangxu made things easy for her, for the young emperor was actually quite naïve in trying to change all of China in 100 days which made him many enemies in the Qing government.

Once she had secured enough opposition to the reforms Cixi accused the young emperor of treason, staged a coup, and had him placed under house arrest where he remained until the end of his short life.

In her final years Cixi, realizing her own mortality was near, elevated another boy to emperor in 1908, the three year old Puyi who was made famous by the 1987 movie “The Last Emperor.” The Guangxu emperor died the night before Puyi was named successor and Cixi died the next day.

It’s no coincidence that Guangxu died right before Cixi. The reported symptoms, which included violent vomiting spells and blue skin color, were consistent with poisoning. A 21st century forensic study of his remains found arsenic levels 2,000 times higher than normal in his body.

Cixi had plenty of motive to order Guangxu's murder, for when she died he would finally be free from house arrest, assume the throne again, and carry out the ambitious reforms that she had so strongly opposed. Poisoning him right before she died guaranteed he wouldn’t get the chance.


On policy, Cixi was generally horrible for China. A staunch reactionary who viewed all foreigners as inferior and who wished to expel as many from China as possible, Cixi rejected most attempts to modernize the country, supremely confident in her belief that the inherent superiority of Manchu/Chinese culture alone could overcome all economic and military challenges posed by the foreign powers.

Cixi did have a few foresighted advisers who, through years of persistent but careful advice, convinced her to adopt a few modest reforms (the most famous being the “Self Strengthening Movement”), but she always cut them short of achieving their final goals, keeping China hopelessly behind the outside world.

Perhaps the most famous example was government funds allocated for modernizing the military. Cixi, as corrupt as she was cunning, diverted a great deal of the money to her Summer Palace resort where she built a giant “marble boat,” actually a pavilion made of wood painted to look like marble, but with fancy glass and underwater contraptions that cost a small fortune. The “boat,” which didn’t really float, was built to entertain guests and throw lavish parties, depriving the real navy of badly needed funds.

Ironically just one year later the Qing Navy was routed by the Imperial Japanese Navy at the Battle of Yalu River (actually in the Sea of Japan at the mouth of the river). After several key land defeats Qing China was forced to cede yet more territory at the Treaty of Shimonoseki (1895), this time to Japan: the Korean peninsula, Taiwan, and the Liaodong peninsula in Manchuria, although France, Germany, and Russia intervened to reverse the ceding of Liaodong.

Japan would go on to colonize and administer Korea and Taiwan until the end of World War II.

And it wasn’t just Japan that continued carving up China during Cixi’s reign. Germany got in on the action and wrestled away the peninsular province of Shandong which contains the capital city of Qingdao.

On a side note Qingdao, when romanized using Wade-Giles, is also spelled “Tsingtao” which might look familiar to some CO beer enthusiasts.

When the Germans occupied Shandong they noticed there were no beer brewing facilities around so, being Germans, they quickly built their own in the provincial capital of Qingdao: the same Tsingtao beer that some CO readers might drink today. More than a century later Tsingtao is a publicly traded company on the Hong Kong Stock Exchange whose major shareowners include, ironically enough, Japanese-owned Asahi Breweries, the Chinese government, and for a while Anheuser-Busch.

France also fought a brief war with China in the 1880’s over disputed territory in Vietnam. Although victory was slower in coming, France was finally awarded the territory which ultimately led to its expansion and complete colonization of Vietnam.

All throughout Cixi’s years in power China fell further and further behind the West, Russia, and Japan while she stymied her advisers’ efforts to modernize the country. China was slowly carved up by foreign powers which grabbed more and more of its territory, mostly on its periphery.

Historians have made some comparisons between Cixi’s reign and that of Queen Victoria: two female monarchs in an age where women rarely wielded power, both sovereigns of major world powers. Victoria sat on the throne from 1837 to 1901 (63 years) and Cixi from 1861 to 1908 (47 years).

But that’s about where the similarities end. 

Victoria deferred to representative parliamentary government which in turn embraced global trade, mass industrialization, new technologies, and forged the British Empire into a global hegemon. Cixi held singular power and with it tried to close China off from the world, overseeing the accelerating decline of what was once a great power.

In the next chapter we’ll discuss the final end of the Qing dynasty, right after the notorious Boxer Rebellion.