Sunday, March 10, 2019

The Shrinking Middle Class

I read an article once that said one third of middle class children slip out of the middle class and end up in bad financial circumstances.  I  have seen that happen.  I ran across a nice article by Charles Hugh Smith, Honey, I Shrunk the Middle Class: Perhaps 1/3 of Households Qualify.  I lifted this chart from it:
The illustration indicates that in 1971 the majority of families were in the middle class, but that is not the case in 2015.  If you look at the numbers,  the middle class actually grew in size, but the upper and lower economic classes grew more proportionally.  The fraction of families in the middle class is no longer the majority, but the number of families in the middle class still grew.  This shows how numbers can be interpreted in opposite ways.  The middle class is shrinking!  The middle class is growing!  Both statements are true, depending on your criteria.

The analysis by Mr. Smith is worth your time.  He also wrote another article worth your time and consideration: What Killed the Middle Class?    If we want our kids to be successful, we need to define success; we need to have a good idea of what it means to be in the middle class and what threatens our children staying in the middle class.


Saturday, February 23, 2019

Inflation in Postage Stamps: Knowing the Formula

The price of a first class postage stamp has in the past gone up a penny or two at a time.  The current increase, just started, was a five cent jump:  from 50 to 55 cents per stamp.  Ouch!  I scratched my head and asked myself, "Wasn't the price a nickel when I was a kid?"  Looking at the History of United States postage rates on Wikipedia, I could see that in 1963 the price was indeed five cents.  I threw the numbers into a hand held calculator and failed to find the aggregate inflation rate.  You cannot just stuff these numbers into hand held a calculator, you have to use the precise formula.  You begin by writing out the compound interest formula and then solving it for the interest rate. As money in a bank increases with compound interest, so the value of money shrinks with the compound inflation.  Here is the formula for compound interest.

Interest in a bank or certificate of deposit compounds monthly, which is why the variable "n" is in the formula.  We will use an aggregate yearly inflation rate, so n = 1 in the equation above.  We have
A = P ( 1 + r ) **t
We started out in 1963 with P = $ 0.05.  We ended up in 2019 with A = $ 0.55.  From 1963 to 2019 is t = 56.   We solve this equation for "r" using algebra.
1 + r = 10.0 ** (log10(A/P) / t)

As I mentioned in an early post,  Calculating Inflation with a Practical Example, August 19, 2018, you can solve this with the Python IDLE GUI, but you have to import the math library first.  Then to find the inflation rate, "r", we subtract 1 and multiply by 100 to get it into percentage.  Division gives us  ($ 0.55 / $ 0.05) = 11.0.  Plugging the numbers into the formula in Python gives
>>> import math
>>> 10.0 ** (math.log10(11.0) /56.0)
>>> ( 1.043749542065121 - 1.0) * 100
This means the aggregate inflation rate for postage stamps has been 4.375% from 1963 to 2019, and the cost of postage went up eleven fold.  Back in my August post I calculated that science fiction books went up at rate of 4.22% over this time span for a ten fold increase in the price of paper-back books.  We again that 4% inflation over 50 years drives up costs by a factor of 10.  That is horrible for our children and grand children.  We have been experiencing 4% inflation over our lifetime, with spikes that  have been very high, like in the 1980's under Jimmy Carter.

The Fed Lies to Us

The Federal Reserve has been telling us that contemporary inflation has been about 1% and they wanted to raise it to 2%, but the Fed lying to us because it excludes food and energy prices from the number they quote to us.  From this article:  The U.S. Lies About Inflation, we have these statements:
  • The government-issued consumer price index (CPI) is showing that "core inflation" – which includes prices for all items except food and energy – was up only 1% from last year.
  • By excluding food and energy prices, as volatile as they may be, the CPI fails to convey the pain that rising prices are inflicting on American households. Indeed, the true rate of inflation could be closer to 12%.
  • The CPI is a joke. Every American knows that in reality inflation is far higher than the CPI tells us based on what they feel in their wallets every day.
  • Our research suggests inflation is really running between 9% and 12%, which is more commensurate with what we all feel in our wallets every day.
From this article, Adler: "The Fed's Been Lying About Inflation; It's Frighteningly High", May 18, 2018, we have this statement:  "... the fact is that we really have more – much more – inflation than they’re telling us."

What Should We Do?

We should talk to each other about inflation.  We should talk to our congressmen about inflation.  We need to get inflation and the national debt under control, otherwise we will ruin the lives of our children and grand children.


Sunday, February 17, 2019

Are You in the Top 1 Percent?

I saw progressives on TV this week railing against "the 1%."  What does that mean?  The top 1% percentile for income is $434,454.80.  There are entire neighborhoods in Plano that fit into that category, but the median household income in Plano is $79,234. I would say many of the people of Plano fall into the 50 to 99th percentiles of income.  Here is a chart of income distribution.  Click on it to see it enlarged.
The graph is United States Household Income Brackets and Percentiles in 2018, Feb. 16, 2018, from the Don’t Quit Your Day Job (DQYDB) blog.  It is a great web page, I recommend looking it over.

How can we know there are people with this income in Plano?  The recommended price for a house is 2 to 2.5 times your gross yearly income.    2 times and 2.5 times the 1% cutoff income is
$434,454 * 2.0 =  $ 868,908
$434,454 * 2.5 = $1,086,135
The most expensive house in Plano at this time is $6,399,000.  The lower end of the top 10 homes in Plano is $2,375,000.  This indicates there are people in Plano with incomes exceeding the cutoff for the 1%.

Who are the 1%?  They are our neighbors.  There is a wide distribution of financial success in Plano.  I see no reason to resent some of our neighbors being more financially successful.  I find contemporary politics disturbingly divisive.  I think the children of Plano should get the education that enables them to pursue a spot in the top 1% of  income if that is what they desire.  There is nothing wrong with working hard and succeeding.


Sunday, December 9, 2018

Chess and Aquaman

There was a nice article in the 12/9/2018 Sunday New York Times, page ST-8, Aquaman’s Nemesis gets a Chess Lesson by Max Berlinger.  The actor who plays Mantra, Yahya Abdul-Mateen II, likes chess.  Besides being an actor, he has a bachelor’s degree in architecture from the University of California, Berkeley.  He worked as a city planner in San Francisco until he got laid off. 

Now that he is a successful actor, and has time and money to spare, he is taking chess lessons from Douglas Miller in Manhattan.  When he asked the chess teacher how he could improve faster, the chess teacher was reported telling hem he needed to study chess theory.  “Most theory is endgame, and that’s the deepest part of chess. You can easily get a piece to any position on the board, but you have to know how to use it and exploit it.”  The teacher then recommended My System by Aron Nimzowitsch.  I have to disagree a bit here. 

My System is jumping into the deep end of the pool.  It is not the first book a beginner reads.  Better as a first book is The Game of Chess by Siegbert Tarrasch because it has chapters on the opening, the middle-game and the end-game.  Both My System and The Game of Chess have chapters of representative games, however, for beginners the best collection of games to study is The Most Instructive Games of Chess Ever Played: 62 Masterpieces of Chess Strategy by Irving Chernev.  The games actually are selected as examples to show some of the points from My System, that is why the games are called masterpieces of chess strategy.  My System is about chess strategy.

New Ideas in Chess by Larry Evans conceptualizes chess goals as time, space, force, and pawn structure.  He uses about 200 chess positions as teaching examples.  An older player at my high school chess club lent me his copy of this book and reading it improved my play.  It helped me to improve and it will help other beginners to improve.  A beginner needs theory and examples.

Chess offers a life time of enjoyment if you are willing to spend some time in learning the game.  Chess also has the benefit of improving scholastic achievement in young people.  The Canadians have been promoting chess in their schools for a long time.  Here in Plano the Ed Gurukul school, which offers educational enrichment, promotes chess for improved academic achievement.  The Ed Gurukul school offers chess lessons and sponsors the Plano Chess Club, which holds chess tournaments.  How wonderful we have a resource like Ed Gurukul in Plano. 


PS:  I mentioned Ed Gurukul in a previous article, The Secret to Success in the Suburbs, January 2011.  I am glad this school is continuing to serve our community.

Sunday, October 21, 2018

What is Happening with Apartments in Plano?

There has been a big push by developers to build apartments in Plano.  The problem for the citizens of Plano is that the new apartments are ugly and crowded.  In the past the city leadership in Plano worked to keep Plano an attractive town where we are happy to live.  Under Mayor LaRosiliere the town of Plano is turning ugly.  Let me give you examples.  Here are a few photos of a typical older apartment complex in Plano.

What you see above is an apartment complex set back from the street.  There are trees, bushes, and grass between the apartments and the street.  The apartments are two stories tall and largely hidden by trees.  Now we look at a new complex.

Here you see the new apartment complex is four stories tall instead of two stories.  The apartment complex goes out to the street, without a buffer zone of trees and bushes.  The new apartments being built in Plano are ugly.  Instead of an attractive place for people to live in beauty and serenity, we now have people-warehouses.  There is no dignity in living in giant box like this.  The builders are packing in more than twice as many people per square foot of real estate by building large, ugly boxes to store the unfortunate souls trapped in these soul-killing monstrosities.

What a shame that after so many years of careful stewardship we end up with a mayor who chooses to uglify our beautiful town.  The higher density also adds too much traffic to our streets.   Then there is the increase of taxes on us all by a city government run amok.  You might look at the website of the Plano Citizen's Coalition to keep track of the problems we  in Plano are experiencing with our failed city government.

Monday, September 3, 2018

Life is Not Fair, Part 3 - the Pump and Dump

The August 6, 2018 print edition of the Wall Street Journal had an article, Crypto 'Pump and Dumps' Distort Trading by Paul Vigna and Shane Shifflett on page B1.  The article described how groups of people on the internet drive up the price of various cryptocurrencies in order to sell quickly for quick profit.  The authors described the operation of an internet group called Big Pump Signal.  The article printed charts showing the price over a day of four cryptocurrencies.  You could see the price spike up and then drop.  Occasionally the profitable time for selling is very short.  A person who is lucky in timing trades during a pump and dump can make money if he gets out before the price crashes.

This was an informative and valuable article, but the WSJ did not put it into its electronic edition.  You really must get the paper edition to understand what is happening in the economy because valuable information is cut from the digital version.  Remember that this paper is in many libraries.

You can google Big Pump Signal to find more information.  I found a video on YouTube:
"Big Pump Signal" Crypto Group Review - WARNING: VERY RISKY!

Variations of "pump and dump" happen outside of cryptocurrencies, so this is an investment pitfall your children should know about. You can google "pump and dump" to learn more.


Sunday, August 19, 2018

Calculating Inflation with a Practical Example

Everyone needs to know how to calculate inflation.  Here is how, with a practical example.  I have an old copy of Glory Road by Robert Heinlein from 1963 priced at $1.75.  Wow!  Today that book sells for $16.99.  To calculate the inflation that drives a book from $1.75 to $17 dollars we set up this equation after calculating (2018 - 1963) = 55:
1.75 ( 1 + x)**55 = 17.0
To solve with python, you first do "import math" into the IDLE GUI.

>>> import math
Here is the solution to the equation.  We all remember algebra, right?
>>> 10.0 ** ( math.log10(17.0 / 1.75) / 55.0)
So 1.0422 is 1 + x, meaning the inflation rate for this book is 4.22% over 55 years.
The average inflation rate is presumed to be 3% as I stated in "Teaching Our Children About Investments" (July 29, 2018), but it is 4% for this book.

Going from $1.75 to $17 is about a 10 fold increase.  I saw this in my lifetime.  I was buying stuff in 1963.  You have to teach your kids that everything they buy today will cost at least ten times more when they are older.  You have to teach them that inflation is a threat to them and their future.  Think about it.  If you have a big basket of groceries and you pay $200.00, like I have done, that same basket of groceries will cost your children $2,000.00 in their lifetime.  It might be 50 years later, but  it is coming like the sunrise if we cannot cannot drop inflation back to about one percent.

Inflation is a hidden tax imposed on us by our own government.  Milton Friedman said in "Money Mischief: Episodes in Monetary History," that, “Inflation is always and everywhere a monetary phenomenon.”  That is a fancy way of saying the government does it to us because it sets monetary policy and controls the money supply.

We all should be getting after our elected officials about inflation and deficit spending.  The mass media, like television news, distracts us away from what is important to us with what I would call "circus sideshows."  They have been running an anti-Trump circus sideshow for about two years now.  They have lost their minds.  Our TV news media are much like Emperor Nero fiddling while Rome burned.

We need to stay focused on what is important to our families and our future.  We should be talking more about inflation among us parents and with our children.
Look at the huge difference between 4% and 2% inflation over our adult life time, which I will call 60 years, which is age 25 to age 85.  (Below is a cut and paste from the Python IDLE GUI)
>>> 1.04 ** 60
>>> 1.02 ** 60
This shows prices going up by a factor of 10 with 4% inflation.  That is horrible.  Going up by a factor of 3 is more manageable, which is with a 2% inflation rate.  If we know a bad storm is coming, most people take prudent action.  You either prepare your house to withstand the storm or you evacuate if the storm is too dangerous.  Sometimes people ignore a coming storm and they die.  The future can be dangerous.  Just because the dangers of inflation are in the future is no reason to ignore the dangers.


PS: I use the Python IDLE GUI as calculator.  You type in an equation and hit the carriage return and you get the answer.  You can install Python by using Google and following instructions.  But that does not give you a useful shortcut on your computer desktop for IDLE.   Here is an article I wrote on how to create a shortcut for IDLE:
An IDLE Shortcut After Installing Python  June 30, 2018