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
>>> ( 1.043749542065121 - 1.0) * 100
4.374954206512105
>>>
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.

Robert

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.

Robert

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. 

Robert

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.

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.

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!
https://www.youtube.com/watch?v=8lv9w5B5kVk

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.

Robert

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)
1.0422044542587574
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
10.519627408052855
>>> 1.02 ** 60
3.2810307883654146
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.

Robert

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

Life is Not Fair, Part 2 - Salesmen Get Swindled

How Salesmen Get Swindled

Selling is a talent; selling is a skill.  Selling is vital to companies because not every product sells itself.  Some people might think that the sales profession is inherently dishonest, which is untrue.  Sales is a hard job and a difficult job, but there is nothing inherently dishonest about it.  What people might not realize is that salesmen are frequently swindled by their management.

Territory Reduction

One of the ways a salesperson gets swindled is by having the sales territory reduced.  If a salesman makes more money than his manager, the manager can get jealous and take business away from a successful salesman in order to cut his pay.  Consider the unfairness of this action.  As a salesman you develop a territory and cultivate regular customers.  Then the fruits of your labor are taken away and given to someone else.  One of my neighbors once told me this happened to him.  This is pretty common.

Ewing Marion Kauffman was one of the wealthiest men in Missouri.  He started Marion Laboratories, a pharmaceutical company.  Marion Labs merged with Merrell Dow in 1989, which was then bought out by Marion Roussel Hoechst for $7.1 billion in 1995.

The reason Ewing Kauffman started his business was that he was a successful salesman with a pharmaceutical company, but got swindled.  His company cut his sales territory because Kauffman was so successful that he was making more money than the president of the company. He decided not to look for another job. Instead, he made his own mark on the pharmaceutical industry by starting his own company and doing things his way.

In the book Father, Son & Co.by Thomas J. Watson, Jr., Watson Junior describes how he started his career at IBM by becoming salesman of the year.  His father, Watson Senior, who ran the company, knew of a salesman who had scored a big sale.  The father took the sales territory away from the salesman who worked that territory and gave the territory to his son.  So Watson Junior became salesman of the year without lifting a finger.  Indeed, life is not fair.

Commission Reduction

I remember a story about Circuit City, the bankrupt and defunct consumer electronics store.  At one store a salesman called in for a special meeting before the store opened could see all the top salesmen were called in for the same meeting.  He thought they were going to get some special reward.  The reward they got for their hard was to get fired.  The company decided to cut their commissions, thought the best salesmen would be unhappy about reduced commissions, so Circuit City fired them -- their best salesmen.  The expression, "cut your nose off to spite your face," comes to mind.  Greed and stupidity are boundless.  This story was printed many years ago in the Wall Street Journal.

One former salesman told me directly that after a banner year of sales where he hit all his targets he expected a huge bonus and instead was fired because the owner of the company could not bare to part with the bonus he had promised the salesman.  That is a commission reduction down to zero!

It is incredible to imagine that a salesman would be punished for being a good salesman, but that is greed at work -- the greed of a business owner or a sales manager. 

If your child goes into sales, your child must understand that salesmen do get cheated.  I have only scratched the surface of the unfairness salespeople face.

Robert

PS:  Everyone should know that Ewing Kauffman started the Ewing Marion Kauffman Foundation to promote entrepreneurship.  Also, the book Father, Son & Co. is an excellent book.  I recommend it.