My two cents’ worth

Before the Great Recession hit, in 2008, I dabbled in the stock market. Not very successfully: I though I had scored a coup when I sold Netflix in 2007 after a 15% gain (my stock would have appreciated forty-fold if I still had it). But I thought I would try — nearly everyone did.

Once I realized that the financial advisers to whom I had been paying a fee, win or lose, did not provide any more wisdom than tossing a coin, I decided to do my investing online, and I opened an account at Charles Schwab. When I got rid of the stock I had held (mostly at a loss) I opened what was billed as a “high-yield” savings account. The label stuck to the account as the yield dropped. Meanwhile I noticed that there were online banks paying considerably higher interest. So I closed my Schwab accounts, or thought that I had.

It turned out that, at the time I closed the accounts, there was some accrued interest that had not yet been paid into the account. The amount? $0.02. Yes, two cents. And I received a check for that amount.

I didn’t bother depositing the check but kept it around as a novelty. I didn’t think it would matter.

But matter it did. Since the check had not been cashed in 180 days, I received a letter telling me that it had expired, and, in a separate envelope, another check.

In the interest of not wasting paper and ink, I will deposit this one.

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More I squared

This a continuation of my musings about insurance incompetence, which I call I². In the first post on the subject I discussed Social Security. This issue has by now been resolved; the undue (post-mortem) payments to my mother’s bank account have been deducted by the Treasury.

Now I come to my experiences with private insurers occasioned by my mother’s recent death. First, the health plan.

I phoned the healthcare-insurance carrier to inform them of her passing four days after it happened, and after a wait on hold for a reasonable length of time I reached a representative, who took my information and assured me that it would be taken care of. When I saw, a couple of days later, that her bank account was billed for a premium payment, I assumed that this was to cover the previous month, and gave the matter no further thought.

A month later, though, there was another premium deduction. By now it was January, and when I called again the wait on hold was an hour. When I finally reached someone to talk to, she seemed to know nothing of the cancellation, and said that she would put me on a brief hold to discuss the matter with someone. After twenty additional minutes I gave up.

I used my mother’s data to set up online access to her insurance account, and found that it was still active.

I phoned again a few days later — again, with a long wait — and this time reached someone who did see a record of my original call. This time I was told that a cancellation takes 30 business days to take effect. That, I calculated, would be some time in late January. When that date came around, I checked again, and again found “active.”

Another phone call, another long wait. This time I got apologies for an overly busy staff, and was asked to wait another couple of weeks.

I checked again today, and the account is still active. However, this is the time of the month when deductions have been taken, and so far there has not been one. Maybe there is hope for a refund at some point..

Note, also, a big difference: while the government giveth but is slow to take away, the private sector taketh away but is slow to give back.

I squared

A couple of years ago I published a post titled I, meaning not the subjective first-person singular pronoun but an abbreviation of “incompetence.” I focused on the California Department of Transportation, and mentioned in passing the CIA and FBI, where I interpreted the I in the abbreviations as just that.

My discussion in that post was based on observation, not personal experience. But since my mother died, two months ago, I have had the opportunity of experiencing institutional incompetence first-hand, and specifically with respect to institutions dealing with insurance of one kind or another. I’m therefore calling this post I², for Insurance Incompetence.

There were three institutions that gave me this opportunity, one governmental and two private. The governmental one is, of course, the Social Security Administration (SSA), and this is the one I will discuss today.

On January 28 I received this letter, addressed to my mother:

Now, my mother died last December 3, and, since I was told by both her social worker and the funeral director that the mortuary would inform SSA of her death, I didn’t think that I needed to bother doing so, until, some time in early January, I noticed that a Social Security payment had been credited to her account. I immediately called SSA, and when I finally reached a representative, I was told that they had not been notified of her death, but that it would be registered right away. So, imagine my surprise at receiving the letter, sent about three weeks after that.

Since the letter gave me the direct line of Mrs. X, I called it as soon as I could. Of course I got her voicemail, and left a message to call me back (which the outgoing message promised to do “as soon as possible”). There was no callback, so I called again the next day, and this time I got her. When I identified myself there was no acknowledgment of my message, and, once again, I was told that there was no record of her death. Would I please fax a copy of her death certificate? After I did that I was assured that there would be no more payments, and that the surplus payment would be deducted by the Treasury.

Guess what? Today another payment appeared in my mother’s account.

Next time: private insurers.

Cities

A little over a year ago I published a post in which I proposed a simple rule for comparing the prices of things across the years.  I call it the “one-hundred rule” because it postulates that, at least since about 1900, prices — in US dollars — have been increasing a hundredfold in 100 years. It corresponds to an annual inflation rate of 4.73%, and also means that prices double every 15 years. I have found that it works quite well for such disparate products and services as postage, coffee, hamburgers, hotel rooms, cars (at least from the time that they were in general use) and even houses in rural England (with reference to Downton Abbey).

Some products or services, however, cannot be compared over a long time span.  As I noted in the post, the price of a Model T Ford automobile dropped considerably in the decade after its introduction, as car ownership gradually became the norm, and the formula works only from the later point in time (1925).   Similarly, a telephone call nowadays is a very different process from what it was half a century ago.

And while the formula works reasonably well with respect to broadly based housing costs, it fails spectacularly when it comes to housing in cities. A personal example: in 1966 (exactly half a century ago) my then-wife and I bought a small house in Berkeley (California) for $16,900 and sold it six years later for $22,300. This is a factor of 1.32, and 1.0473⁶ = 100^0.06 = 1.32 — perfect! But according to the rule the price should now be ten times what we paid, that is, around $170,000. Instead, it is estimated at between $700,000 and $800,000. Yikes!

What has happened is that city living in early-21st-century America is not what it was in mid-20th century, and though the house is physically the same (there is no record of any expansion), it no longer represents the same thing. In the 1950s and 1960s middle-class Americas, on the whole, didn’t like living in cities. The very rich, of course, had their mansions and town houses as well as their country homes, but the middle class opted for something in between, which was the suburbs. The Bay Area Rapid Transit (BART) system, which was designed in the 1950s and built in the 1960s, reflects the attitude of the time: what it does is connect the urban core that includes downtown San Francisco, Oakland and Berkeley (where the University of California is located) with the suburbs (including those that are within the legal city limits); what it does not do is facilitate movement among various parts of the metropolitan area that don’t happen to lie along the lines going through downtown Oakland and San Francisco.It is, in other words, not a metro like those in other big cities around the world, but a commuter railroad comparable to the RER in France, the S-Bahn in Germany or the Cercanías in  Spain, with the big difference that the European systems are integrated with their countries’ mainline railroad networks, including high-speed trains, while BART is not integrated with anything; it doesn’t even use standard railroad gauge.

The absence of a true metro makes Bay Area living more cumbersome and more dependent on driving.  (While Washington has something called Metro, it’s also a radial system like BART.)

The change from a time when “inner city” was a pejorative to the present situation, when it is desirable enough to have caused a hyperinflation in urban housing costs (except in places like Detroit), may have occurred some time around the 1980s, when air travel got cheaper and more Americans traveled to Europe, discovering the tree-lined boulevards with bicycle lanes, the sidewalk cafés (hitherto banned in the US for supposed health reasons) and other pleasures of city living, which were then brought back here. But, as a result of planning decisions made in an earlier age, convenient public transportation is not one of them.

Realistic money

Last Sunday, in the latest Downtown Abbey episode shown in the United States, Mrs. Patmore revealed that she had come into some money, with which she was going to buy a house in nearby small town or village (whose name, like Cervantes, I don’t want to remember, since it’s probably just as fictitious as Downton). And how much money was that? £300.

Well, I wondered, what does that mean in today’s pounds?

When a news story recounts a monetary transaction that took place in the past, there is usually a parenthetical note saying “x in today’s dollars”. But, according the website MeasuringWorth, there are quite a few ways of calculating the relative worth of money over the years, ranging from the Consumer Price Index (CPI) in the US and the Retail Price Index (RPI) in the UK — the most commonly used measure, often called the “real price” — to the GDP per capita index (called the “income value”), with several others in between. Of course standards of living have varied greatly over the years, and some things that may have been a luxury in the past are now within almost everybody’s reach. MeasuringWorth gives the example of the Ford Model T, which was introduced in 1909 at the price of $850 and would cost almost two years’ wages of a typical worker. By 1925, however, the price was $290, and car ownership was beginning to be the norm in the US. For this price, the 2012 values “range from $3,800 (the real price) to $19,000 (the income value).” Obviously, it’s the latter one that is much closer the price of a new entry-level car, even if the car bears little resemblance to the Model T. In 2015, a Ford Fiesta is advertised at around $15,000 to $16,000 but the actual price, with everything included, is around $18,000 to $19,000. Now the ratio of 18,500 to 290 is very nearly 64, and a 64-fold increase over 90 years is equivalent to a doubling every 15 years, since 2015 − 1925 = 90 = 6 × 15, and 64 = 2⁶.

For some time I have found the rule of a doubling every 15 years to be a handy guide to a realistic (not “real” in economists’ terms) measure of inflation. Going back to the time when I became an adult, about 60 years ago, I remember that a first-class postage stamp was 3 cents and a cup of coffee 10 to 15. Today first-class postage is $0.49 and a cup of brewed coffee (except in specialty cafés) ranges from $1.50 to $2.50. Now 60 = 4 × 15 and 2⁴ = 16. Note that this factor works quite well for both coffee and postage.

For the last three decades, the Big Mac Index has been a popular measure for synchronic purchasing-power comparison between currencies. But it can also be used diachronically within a given currency. The Big Mac was introduced by McDonald’s in 1967 in a few locations at $0.55, but by 1970 it was popular worldwide, and cost an average of $0.60 in the US. Today it is said to average $4.80 — a factor of 8. Now 2015 − 1970 = 45 = 3 × 15, and  2³ = 8. Bingo!

Doubling in 15 years corresponds to an annual inflation rate of about 4.73% (since 2^1/15  = 1.0473). But this rate also means that the value of money decreases by a factor of 10 over 50 years (since 1.0473⁵⁰ ≈ 10), and by a factor of 100 over 100 years. This last is a convenient, easy-to-remember result, and I like to call my formula the one-hundred rule.

For other time periods the following results hold: 1.6 over 10 years; 2.5 over 20 years; 6.35 (6 can be used, since this is not an exact measure) over 40 years; and 40 over 80 years.

The rule I have described applies, of course, only to the US dollar, which for at least the last century has been the global hallmark of monetary stability. In countries with fluctuating currencies prices for most commodities are usually set in dollars (even in countries nominally hostile to the US, such as Cuba and Iran) and converted to the local currency on a day-by-day basis. What about the pound sterling, then?

The simplest way to deal with the problem of non-dollar currencies is to convert to dollars according to the rates of the comparison years. Until 1940 the pound held fairly steady at $4.86. Now it’s at $1.50. Since the episode takes place in 1924 or 1925, we have to multiply the 90-year inflation factor of 64 by 4.86/1.50 = 3.24, getting around 200 (there is no point in using anything but round numbers). This means that Mrs. Patmore’s £300 is now worth around £60,000. Is it possible to get a three-bedroom house in a North Yorkshire village for about that amount?

Here’s what I found on Zoopla after searching for 3-bedroom houses in North Yorkshire and discounting Middlesbrough, a big city where the real-estate market seems to be depressed:

Skelton-in-Cleveland is, according to Wikipedia, a small town rather than a village, but with a population of around 6,000 it’s close enough. I rest my case.