Reading the business section this morning I was greeted with this headline: Consumer-Price Report Propels Dow Up.  From the article:

The Labor Department’s report that consumer prices advanced 0.2
percent in April after rising 0.3 percent in March seemed to alleviate
investors’ worries that the recent surge in energy costs would force
prices throughout the economy to spike higher. The moderation in prices
comes despite the largest jump in food prices in 18 years.

Wall Street has been concerned that higher food and energy costs are
cutting into consumers’ ability to spend. Any pullback is an unnerving
prospect for investors because consumer spending accounts for more than
two-thirds of U.S. economic activity.

Marc Pado, the U.S. market strategist for Cantor Fitzgerald, said
that the tame consumer-prices reading, along with recent figures on
productivity, indicate that businesses are swallowing some of the
rising costs they face and not passing all of them to consumers.

I love people who take the long view.  Right next to the "good news" article was the following headline: Price of Gas Exceeds $3.75.  In that article energy analysts predict that we could see $4.00 gas within weeks.  I wonder how the CPI might look next month or the month after?

But of course the CPI itself is rather flawed according to this article by Kevin Phillips.  It seems that our friends working in DC have been monkeying with the numbers for decades:

Nothing, however, can match the tortured evolution of the
third key number, the somewhat misnamed Consumer Price Index. Government
economists themselves admit that the revisions during the Clinton years worked
to reduce the current inflation figures by more than a percentage point, but the
overall distortion has been considerably more severe. Just the 1983
manipulation, which substituted "owner equivalent rent" for
home-ownership costs, served to understate or reduce inflation during the recent
housing boom by 3 to 4 percentage points. Moreover, since the 1990s, the CPI has
been subjected to three other adjustments, all downward and all dubious: product
substitution (if flank steak gets too expensive, people are assumed to shift to
hamburger, but nobody is assumed to move up to filet mignon), geometric
weighting (goods and services in which costs are rising most rapidly get a lower
weighting for a presumed reduction in consumption), and, most bizarrely, hedonic
adjustment, an unusual computation by which additional quality is attributed to
a product or service.

The hedonic adjustment, in particular, is as hard to estimate
as it is to take seriously. (That it was launched during the tenure of the Oval
Office’s preeminent hedonist, William Jefferson Clinton, only adds to the
absurdity.) No small part of the condemnation must lie in the timing. If quality
improvements are to be counted, that count should have begun in the 1950s and
1960s, when such products and services as air-conditioning, air travel, and
automatic transmissions—and these are just the A’s!—improved consumer
satisfaction to a comparable or greater degree than have more recent
innovations. That the change was made only in the late Nineties shrieks of
politics and opportunism, not integrity of measurement. Most of the time,
hedonic adjustment is used to reduce the effective cost of goods, which in turn
reduces the stated rate of inflation. Reversing the theory, however, the
declining quality of goods or services should adjust effective prices and
thereby add to inflation, but that side of the equation generally goes missing.
"All in all," Williams points out, "if you were to peel back
changes that were made in the CPI going back to the Carter years, you’d see that
the CPI would now be 3.5 percent to 4 percent higher"—meaning that,
because of lost CPI increases, Social Security checks would be 70 percent
greater than they currently are. (Emphasis mine)

It should come as no surprise to anyone who looks at their annual Social Security report that by the time someone my age (42) gets to retirement age we might be able to squeak out four cups of coffee at Starbucks with our monthly checks.  But that’s assuming we’ll be able to retire before the age of 80.  Let’s not forget that when Social Security was created the average life expectancy was much lower so they really didn’t expect many people to draw on their Social Security for very long, if at all.  Now many folks are living long enough that they could go to college and earn five degrees after they retired if they wanted to. 

When you think about it the average wage earner has been getting hosed for years.  How many times did people get just "cost of living" increases to their wages?  Every year that happens and the employer uses the governments artificially low numbers to determine the increase the wage earners get screwed.  And just as compound interest has an amazing effect on investments the loss of those wage increases actually grows when you calculate the lost opportunity to earn interest on those dollars if they were saved or invested.  Of course that further diminishes the potential retirement income for workers.

So here’s what you should know:

• Fudging numbers always catches up to you, whether you’re a business, a country or even a despot.  The separation between actual inflation and reported inflation has been on a widely diverging track for too long and at some point reality will have to set in.  For instance if you used pre-1983 criteria to calculate inflation this year it would be 12% vs. the reported 4%.  At some point people are going to demand that the numbers match their daily reality and when they do it’s going to be ugly.
• If you’re under 55, are an average middle class earner and play by the rules I wouldn’t count on being able to retire comfortably until you’re at or past 70.   Inflation is going to eat your fixed income alive and with the problems in the financial institutions the growth opportunities for funds aren’t looking good for the near future.
• Don’t go totally "Chicken Little" here.  Things don’t look good for people in my generation partly because of demographics.  That evil, massive "Boomer generation" is already starting to retire and they are going to eat a disproportionate piece of the retirement pie.  If they’d die at the same age their parents and grandparents did, and if their generation of leaders hadn’t monkeyed around with the numbers so much then we wouldn’t be in this position, but they won’t and they did so here we are.  We still have time to fix things for our children, the so-called "Millenials" but we better start doing something fast or they’ll be hosed too.
• Another reason to not completely lose hope is that Americans have historically shown an ability to adapt.  For instance one driver of our current difficulties is higher fuel costs which impact other costs like food and goods because it costs more to bring them to market.  On the flip side higher fuel prices mean that there’s now an economic incentive for the development of alternate fuel sources.  So energy companies will invest in developing alternative fuel which will result in short term development costs, but those will be partially offset by new jobs created and eventually will lead to lower energy prices as more supply is created.  In other words we might someday look back and say "Remember when gas was just $3.50 a gallon" but not in a longing way because we’d switched to a hydrogen car years before, the same cars developed by the once struggling GM that now dominates the market in "alternative fuel" vehicles.
• Yes, I’m a "glass half full" kind of guy.
• You should never forget that old saying, "There’s lies, damn lies and statistics."
• If you want to see what goes into calculating the CPI the Bureau of Labor Statistics’ FAQ page for the CPI is here.

Today I’m starting an irregular feature called "Things You Should Know" which exhibits two things: my conceit that I think I might know things that you should know, and my laziness in not committing myself to writing this thing on a set schedule.  All of these posts will be filed under…"Things You Should Know".  Brilliant, huh?

Twitter
You may not have heard of this little texting doo-dad, but the tech
geeks have been using it for a good while now and I’m thinking it might
be ready to go mainstream.  In a nutshell here’s what it is:  it’s a
service that allows people to follow (subscribe to) things you text.
You set up a free account on Twitter, you send text messages (called
Tweets) to it and then the people that follow you get it sent to them.
If they don’t want to receive it by text they can also follow you on
their Twitter web page. 

People that follow you also have to be Twitter subscribers, which I
thought would kill the idea, but it’s really starting to be used in
interesting ways by folks and I do believe that people are beginning to
learn how to use it effectively.  I signed up for it a year ago and
then promptly forgot about it, but when I started following people I
really respect (Rex Hammock, Fred Wilson) and saw how they use it to
send out updates on things of interest I was hooked.

For average folks I think the most effective use would be as an easy
update service for groups.  For instance I could set up a Twitter
account for my family, so when something comes up that I want all of
them to know about I simply have to "tweet" it once and they all get
the info.  So if I’m going to be held up in a meeting longer than I
expected and won’t be home until late I can unobtrusively text,
"meeting’s going long, will be home at 11" one time and my kids and
wife will get it.

Of course I’m sure that if kids start really using this then we’ll
see all kinds of applications that our adult minds would never dream
up. FYI, you can see my Tweets in the box on the upper right corner of
my blog or at www.twitter.com/jlowder

Why you need to know: I guess you really don’t if you don’t care about how people are starting to communicate in this wired world, but again I’m conceited in thinking I know what’s important to know.

It’s Not Good When Teachers are Luddites
My Mom sent me a link to a video on YouTube that was created back in 2006.  The video was created by some folks in Colorado for a local school in order that they might understand what they need to teach their kids to succeed in the 21st century.  Much of the video highlights the exponential change occurring in our world, and it does an excellent job of pointing out how different things will be in the near future.  Towards the end the video points out that students throughout the world, including in the USA, are now collaborating on projects.  Utilizing the internet kids in Bangladesh, Australia, and the US work together on projects much the same way that kids have collaborated in classrooms for generations.  The last part of the video asks viewers to contact their schools’ principals, school boards and elected officials to let it be known that we need to make sure our kids are connected to this new global communication grid are being armed with the tools to be able to use it, and educated so that they understand it.

Here’s the rub: most of the teachers I’ve encountered are resistant to new technology.  I suspect it’s for a variety of reasons.  Some don’t want to take the time to learn it, some are afraid that their students will know more than them and thus their position of authority will be compromised and most are given little incentive to learn this stuff by their supervisors. 

Here’s an anecdotal piece of evidence: our kids’ school system gives all of our teachers their own "sites" which they can use as they please.  The minority of my kids’ teachers use it for what I think is its most useful purpose: posting that day’s homework on the calendar for parents to see.  Full disclosure: we didn’t even realize that was available until one of our kids started missing lots of assignments and his teacher pointed out that we could see what he’d been assigned by date on her web page.  We then looked on all the other pages and found only one other teacher using it.  Why wouldn’t this be required by the administration?

I should also point out that it’s not all the teachers’ fault.  Many of them are dealing with information systems that are antiquated, poorly designed and often overly centralized. In other words they’re living life like it’s still 1993 instead of 2008.  This is unacceptable.  With the ubiquity of cheap, easy to use tools available these days a decent IT department could provide cutting edge solutions at a pittance if they so desired.  Hard work?  You betcha.  Worth it?  Absolutely.  Expensive?  Relative to other infrastructure costs, hardly.

Why you need to know:  Our kids are hosed if they aren’t given the means to live in a highly networked world where they are as likely to be working with a peer in China or India as they are with their neighbor. If they aren’t intimately familiar with modern, online collaboration tools then they will be at an inherent disadvantage as they begin their adult lives.  This probably won’t be a problem for college graduates, but what of the 70% who won’t go to college?  If you think there’s a gap between the haves and have nots now, just see what happens in 20 years if we don’t deal with this now.

If You Have Sensitive Info on Your Laptop, Don’t Cross a U.S. Border
From Wired’s Threat Level blog:

Federal agents at the border do not need any reason to search
through travelers’ laptops, cell phones or digital cameras for evidence
of crimes, a federal appeals court ruled Monday, extending the
government’s power to look through belongings like suitcases at the
border to electronics.

The unanimous three-judge decision reverses a lower court finding that digital devices were "an extension of our own memory" and thus too personal
to allow the government to search them without cause. Instead, the
earlier ruling said, Customs agents would need some reasonable and
articulable suspicion a crime had occurred in order to search a
traveler’s laptop.

Why you need to know: Do you really want the same people who see potential disaster in every container over 4 ounces to be looking at your personal financial data, or your business data?

New Jersey Court is First to Rule that Online Users Have Inherent Privacy Rights
From NJ.com:

The unanimous seven-member court held that police do have
the right to seek a user’s private information when
investigating a crime involving a computer, but must follow
legal procedures. The court said authorities do not have to
warn a suspect that they have a grand jury subpoena to
obtain the information.

Writing for the court, Chief Justice Stuart Rabner said:
"We now hold that citizens have a reasonable
expectation of privacy protected by Article I … of the New
Jersey Constitution, in the subscriber information they
provide to Internet service providers — just as New Jersey
citizens have a privacy interest in their bank records
stored by banks and telephone billing records kept by phone
companies."

Why you need to know: Well, it highlights how low privacy expectations are for everyone outside of NJ right now.  In other words, if you don’t want the world to know that you have bizarre fetishes then it’s a good idea to avoid sites geared towards those fetishes.  And your MySpace page?  Fuggetaboutit.