Teri Bernstein, MBA, CPA has been teaching full time in the Business Department of Santa Monica College since 1985. Prior to that, she worked in Internal Audit and Special Financial Projects for the 1984 Los Angeles Olympics, CBS, Inc., and Coopers & Lybrand. She attended the University of Michigan and Wayne State University.
Napkin Finance on Inflation. Here is the VIDEO
Inflation is a worry discussed in many business news stories about the Fed and interest rates. But what exactly is inflation, and why might it be bad? "Inflation is the increase in the general prices of goods and services. It is measured as an annual percentage increase. A healthy economy aims for a 2% inflation rate" (from the text at the link below).
Inflation goes up if there is an increase in the amount of money in circulation, or in disposable income. Also, if a raw material (like a precious metal used in mobile phone production) has a price increase, it will cause a price increase in the product and have a further "domino effect." The central bank of any country can also manipulate interest rates for other reasons, and influence the inflation rate in the process.
As of the end of June 2017, the annual inflation rate in the U.S. was 1.6%. To put this in context, "the inflation rate in the United States averaged 3.28% from 1914 until 2017."
Source: "Inflation," Napkin Finance, November 11, 2016.
More than one stand-up comic has asked something like, "How many of you have recently had to update Adobe Flash on your laptop?....Really? Have they still not gotten all of the bugs out of it yet?" The reminders to update Adobe Flash are famously annoying. But Adobe Flash--once a requirement for watching streaming media on your PC--is no longer state-of-the-art. The updates are lame attempts to try to keep up.
According to the Marketplace podcast linked below, "... technology advanced. HTML5, an advanced version of HTML, took over as a more efficient and safe model. Flash has holes that make it vulnerable to cyber attacks. And sites built with Flash generally take longer to load."
These factors and others contributed to Adobe's decision to no longer support the Flash product after 2020. Meanwhile, it is being phased out of browsers and compatibility with operating systems.
Source: "Goodbye, Flash," by Ben Johnson and Kristin Schwab with Lindsey Turentine, Marketplace: American Public Media, July 27, 2017.
image from The Tap Blog
The International Monetary Fund (IMF) has changed its estimates of U.S. economic growth as measured by the gross domestic product (GDP). The estimates have declined. As of April, 2017, the IMF estimated 2.3% growth this year, and 2.5% next year. Now, in July, the IMF is saying 2.1% Meanwhile, the Trump administration has based its plans on growth of 3%.
Looking at the percentage amounts is not alarming. However, if a news outlet chose to make this sound more scandalous, they could choose another way of accurately presenting this information: by calculating the percentage change in the estimate, and quoting that. (The percentage change calculation is the difference in the two levels divided by the amount of the first level.) The following statements accurately represent the same information using this different way of framing the situation:
It remains to be seen what the actual GDP of the U.S. is for this year and next. Nevertheless, being mindful of the way that meaning can be manipulated by presentation is an important skill to master whenever information is presented.
photo of first edition of this text
Source: "The IMF downgrades the U.S. economy, and that's bad news for the Trump administration," by Sabri Ben-Achour, Marketplace: American Public Media, June 24, 2017.
Procrastination sometimes feels good in the moment, but it can cause problems for oneself and for others in the long run. It can really make you look bad--as well as annoy others--at work. We all do it at least sometimes. And there are myriad reasons for it. But procrastination can become a habit--separated from any underlying reasons or causes. So sometimes using techniques that are related to habit-changing techniques can help.
New York Times columnist Tim Herrera wrote about procrastination in his newsletter Smarter Living a few weeks ago. He received a lot of helpful hints from readers with various perspectives on how they tackle procrastination themselves. He shared some of those tips in a follow-up column:
I have to trick myself all the time to get things done by any self-imposed deadline:
Source: "Your Best Tips For Beating Procrastination," by Tim Herrera, New York Times, July 23, 2017.
Although there are many pejorative terms for a person who changes their mind (wishy-washy, flip-flopper--sometimes even prevaricator), re-thinking an issue can actually be a brave thing to do. Sometimes research can change one's mind--the podcast cites a study measuring emergency room use by the uninsured and by poor people who had Medicaid insurance. The result was the opposite of the hypothesis.
Sometimes other people's reasoning can help a person change their viewpoint. Kal Turnbull started the Reddit site Change My View. The site has over 300,000 members, has been active for four years, and has been the subject of several academic studies. Turnbull set up several rules for the site, since he did not want the comments to degenerate into rants and rages. Here are the rules (items in quotes are from the podcast, but the website delineates these rules as well):
The unique thing about this site is that its rules shift status away from sarcasm, humor, or ganging-up--and onto convincing logic. Status has to have substance.
The podcast also addresses another individual who changed his mind about copyright law--after raising $19 million for a Digital Rights Management software company.
Source: "Episode 780: On Second Thought," by Jacob Goldstein and Kenny Malone, NPR: Planet Money, July 17, 2017. [transcript]
chart from thrillist.com
Airline frequent flyer miles are a currency that is always undergoing a process of devaluation. While a traveler is busy saving up miles for a big trip...the number of miles that it will take to fly for free is almost always going up. Frequent flyers often rack up miles while traveling for employers--who may or may not require employees to use their miles toward future business trips. Those with a high number of miles should always use the miles whenever possible, because of the way they lose value over time.
Mark Orlowski of the Sustainable Endowments Institute is a frequent flyer with some advice for those with smaller balances in their frequent flyer accounts: "...generally speaking, if you can get at least about two pennies per point in value from redeeming your miles instead of paying cash, I would encourage you to consider redeeming your miles unless you're saving them for a very special trip."
However, as you may see from the chart above (and on other charts at that link), the value of frequent flyer miles is often far less.
It is also interesting to note how companies account for frequent flyer miles. According to Brian J. Franklin at frontiertutoring.com:
"Major U.S. airlines employ one of two methods to account for the liabilities they incur when issuing mileage credits to traveling passengers. The Deferred Revenue Method recognizes a liability for the fair value of the outstanding mileage credits (with “fair value” defined under International Financial Reporting Standards (IFRS) as “the amount for which the award credits could be sold separately”). The Incremental Cost Method recognizes a liability for the marginal cost of providing air transportation to eligible award passengers (i.e. the cost of taxes, fuel, food, etc. to fly one additional passenger on a seat that otherwise would have been empty—generally a nominal amount)."
Source: "When you should use your miles and when you should pay cash," by Sabri Ben-Achour, Marketplace: American Public Media, July 19, 2017.
It is summer, and the weather is hotter than ever in many places. Does that mean that a person working in an office can wear shorts to work without committing a social and career faux pas? Hmmm...
Print and online journalism during a recent Fashion Week featured male runway models clad in suits that consisted of short pants rather than slacks. These outfits looked much like the formal wear for male members of the British Royal Family who are under 10 years of age. I could also imagine news anchors getting away with this type of work-wear fashion statement. Their legs are hidden behind those impressive desks! Nevertheless, the idea of shorts at work was addressed in a recent Marketplace segment.
Alison Green, an office expert at AskaManager.org, fielded this and other clothing-appropriateness questions for Marketplace listeners. Her answer regarding shorts was: "... probably not. Even if your office is business casual, you can't really wear shorts in a professional environment."
Source: "Are Shorts Now Office-Appropriate? Let's ask a Manager," by Lizzie O'Leary, Marketplace: American Public Media, July 14, 2017.
We're a little late, but the fourth World Emoji Day was celebrated earlier this week--on July 17, 2017. To celebrate, Apple's Tim Cook tweeted a preview of upcoming emoji additions to Apple software. But does an emoji really belong in a business communication?
According to a recent survey by Cotap, Inc., 78% of respondents had used emoji in a professional setting. The "happy face" was the emoji of choice for 64% of those surveyed. I've found that the "thumbs up" emoji to signify agreement or solidify an appointment usually enhances rather than detracts from the tone of both business and personal communications.
There are, however, business netiquette issues that may arise with emoji use:
Individuals often either love or hate emoji use. I'm with the "love emoji" group. I frequently use emoji to write whole texts for my adult children to decipher. Alas, however, I have also been known to use the Comic Sans Serif font, so my opinion on matters of visual tone in business communications probably cannot be trusted...
Source: "Even your manager thinks it's OK to use emoji at work," by Jana Kasperkevic, Marketplace: American Public Media, July 17, 2017.
R&D investment 3/3
Life does imitate art...if you consider the TV series "Silicon Valley" art. The technological breakthrough made at the end of Season 1 by the fictional company Pied Piper was "middle-out" compression, which allowed data to be more compressed without loss of integrity than ever before.
Now Lepton, an image compressor, has been developed by Dropbox: "Lepton reduces the file size of JPEG-encoded images (and that’s most of them) by as much as 22 percent, yet without losing a single bit of the original. How is this possible? Middle-out."
Those words sound familiar to viewers of Silicon Valley. But it is not surprising that there has been real-life progress in this arena. Compression increases speed (which most users want). But compression often means sacrificing detail (for an example, try enlarging a picture that has been saved and sent as a "small" file). Programs that retain detail for audio, video or photo files would feel a perceived market need.
The video above demonstrates how data compression applies to the field of gene-mapping. The mass-monetizing of individual genome information is in its infancy (e.g. 23andMe)
Of course, the fictionalized world is one step ahead of middle out compression (Silicon Valley, Season 4).
Source: "Dropbox's Lepton lossless image compression really uses a 'middle-out' algorithm," by Devin Coldewey, Techcrunch, July 14, 2016.
R&D Opportunities, part 2/3
Investment in research and development to fulfill a need or solve a problem is one way to strike it rich while actually producing a product. The inspiration for today's blog comes from a (fictional) Nordic Noir TV series. In its English-language version it is called "Follow the Money," but the show in Danish is "Bedrag," which translates as "Deception."
The 10-part first season tells the story of a fictional Danish company called Energreen (not to be confused with real life companies that also use this name). Its primary business seems to be ocean-based installations of wind energy, but it appears to be branching out into solar energy. Their solar investments are timed to take advantage of insider information relating to a government contract...but in fact constitute a profit-taking financial move to push up the price of solar stock in the short term.
Other shady matters (drawing the attention of law enforcement) include:
It is the transportation of energy without loss of power that is the R&D problem that relates to real-life needs and investment opportunities. But the greed and ethical compromises of the story make it an entertaining way to get a perspective on business problems of all kinds--financing, personnel management, managerial obligations, the interface with politics, motivation, and stresses related to "getting ahead."
Source: "Follow the Money" created by Jeppe Gjervig Gram, Jannik Tai Mosholt, and Anders Frithiof August, produced by Danish Radio, original European release January 1, 2016.
image from Rockford Register Star blogs
What global warming contributor is going to get worse and why?
Air conditioning becomes increasingly important as the world gets warmer (whether or not you believe the warming is cyclical in nature or caused by humans). Scientists correlate greenhouse gas levels with warming global temperatures. They also note the following about the compounds that are currently required for refrigeration and air conditioning:
"Hydrofluorocarbons, or HFCs, account for about 1 percent of global greenhouse gas emissions, but they can be thousands of times as potent than carbon dioxide and may account for up to 19 percent of emissions by 2050 if their manufacture continues unchecked."
In addition, as third world economies blossom (in Africa, Southeast Asia, India, the Middle East), the demand for air conditioning and refrigeration is growing. Therefore...whoever solves the problem of sustainable refrigerants that do not cause global warming will be RICH. They will command a market that is large and growing. Population increases, temperature increases, and demand for a/c as a necessity rather than a luxury all point to a big reward for whoever solves the science of sustainable refrigerants.
Source: "If you fix this, you fix a big piece of the climate puzzle," by Lisa Friedman, New York Times, July 13, 2017. (Note: you have to make a choice in the initial quiz question to open the article.)
image from knowyourmeme.com; image by Eric Edelman 2011
As an illustration in a previous blog about the value of intangible or small-market assets (May 2017), I mentioned the Oxford Comma. Its use is illustrated above and defined at the link. Its business importance became apparent in a recent lawsuit involving the Oakhurst dairy drivers in Maine, where state contract law said that overtime did not have to be paid for:
The canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of:
The key point here is that there is no comma after shipment and before the word "or" in the series of activities. The company interpreted the list as ending with the final activity being the "distribution" of the listed items, so they thought that the drivers were excluded from the requirement to pay overtime.
The drivers' union and the appellate court disagreed. They read the list as ending with the activity "packing" (...for shipment OR distribution of...). So anyone doing the separate activity of shipping would be paid overtime. My guess is that English teachers across the land would also agree that the parallel construction of the list of activities, which all end in "ing," would further suggest the interpretation that the last activity was "packing."
This omitted comma may seem like a small item, but the cost was $10 million in overtime owed to the drivers.
Source: "Take That, AP Style! Court of Law Rules the Oxford Comma Necessary," by Kelly Gurnett, The Write Life, April 10, 2017.
graphic is from the "Dynamism in Retreat" EIG paper
"...For the first time on record in 2009, after the Great Recession, we saw the birth rate of firms, the startup rate, cross below the death rate of firms. That had never happened before, even in a single year, and it happened for three consecutive years in 2009, 2010 and 2011. And the hole that we dug was deep enough such that in 2014, which is the latest year the data is available, we had fewer total firms in the economy than we had in 2007, even though the economy itself has grown by more than a trillion in GDP." said John Lettieri of the Economic Innovation Group (EIG) commenting on a recent study. The study measured "dynamism" in business, which includes:
Contrary to commonly held beliefs, the United States is not experiencing historically high job turnover or a bump in entrepreneurial activity. The following chart (also from EIG) illustrates more clearly the point that Lettieri was making in the quote above:
An effect of this stagnation in business liveliness is that "The country has entered a new period of incumbents, in which markets are concentrated, competition is weak, and profits are sky high." (EIG). In the words of John Lettieri:
"That's a big deal, because the downstream impact of a missing generation of what we roughly estimate is a million missing firms that should have been born during that period is really profound when you think about the labor market implications, the competition implications within industries, the wage growth implications."
Chief Justice John Roberts was the commencement speaker at his son's ninth grade graduation from Cardigan Mountain School this past May. His speech followed some of the conventions of commencement addresses, but differed in one significant way.
First, the ways in which the speech was the same included perspective, advice, planned humor, and quotations from others. The perspective he offered was to recognize and reign in the privileged situation in which the boarding school graduates found themselves. One thing he advised students to do was to write a real (on paper!) note to someone once a week. He made at least two jokes. He cited Bob Dylan at length.
The unusual wish he had for the graduates was "bad luck," or to find themselves in situations in which they would be treated unfairly. Maybe including something unusual is also a convention of commencement speeches.
Most of us in our working or personal lives have at least a few "opportunities" to speak in public. Reading and listening to this straightforward speech given by the Chief Justice can serve as an example of how to communicate with dignity...as well as offer substantive information.
Source: "'I wish you bad luck.' Read Supreme Court Justice John Roberts' Unconventional Commencement Speech to his Son's Graduating Class," by Katie Reilly, Time Magazine, July 5, 2017.
BEST WATCHED WITH THE SOUND TURNED OFF:
Buzz Aldrin is a former NASA astronaut and engineer. He was one of the first men to land on the moon. I admit, I have not listened to the soundtrack that accompanies the video above, but I am guessing that Aldrin disagrees vehemently with what the speaker has to say about an arena in Aldrin's area of expertise.
Because of Aldrin's positional authority as an astronaut, he has the standing and knowledge to express an opinion, though he may not have chosen a conventional avenue to do so. The popularity of the video may indicate that many are feeling Aldrin's pain, and are taking his side.
The situation would be very different, however, if a probationary employee was exhibiting the body language we can observe in the video. What if you were a manager and a subordinate in your department was reacting similarly to Aldrin while listening to a speaker from your company's senior management? What might be your reaction?
Business etiquette and diplomacy have unwritten rules about how to behave in formal public appearances. The parameters address:
The principle underlying these rules is respect for others. Not everyone holds that these rules are important, but it is better to know what is expected so that one can choose whether or not to comply, rather that to behave inappropriately out of ignorance.
Source: "Buzz Aldrin's Face..." via YouTube, July 2, 2017.
Oreo blueberry pie cookies; image from article linked below
I don't think that anyone in Oreo product development has heard the adage "If it ain't broke, don't fix it." Admittedly, this opinion comes from a fan of the original Oreo cookie, which can be taken apart and customized by individual customers without messing with the flavor and colors. Previous cookie variations have included the Double Stuf (extra filling) and Thin Oreos. But Oreo now has more than 20 varieties. Some cookies are golden rather than chocolate, but the flavor variations inside show considerable creativity.
Oreo fireworks cookie; image by Tony Cenicola for NYT
The two-toned filling variations take advantage of consumer tendencies to pull apart the cookie before eating it.
The Jelly Donut Oreo from the NYT article
Seasonal Oreo cookies have even extended to the loved (and hated) springtime Peeps:
image from Walmart via People magazine
I wonder if any of the variations will live up to the Oreo ad line "Milk's favorite cookie."[note: "Oreo" and "Peeps" are trademarked names]
Source: "Oreo finds a sweet spot between novelty and nostalgia. But how does it taste?" by Tejal Rao, New York Times, July 3, 2017.
an Uber receipt in New York State
As you may be able to see in the receipt above, New York State sales tax is charged on Uber rides...but the amount is taken out of the driver's pay, rather than paid as an add-on tax by the customer. Most of us understand the concept of this add-on tax. When we buy a piece of clothing for $80, we pay an additional amount on top of that in sales tax. When we rent a car, sales and other taxes are added on and paid by the consumer.
It is possible that Uber could have created a contract where the driver was clearly supposed to be paying state sales tax for the customer. However, because Uber clearly delineates state taxes as an add-on, customer paid item in other states, this was not the arrangement Uber had mad with its drivers. Here is a receipt from Nevada:
The state tax amount is listed as a "3% Transportation Recovery Charge."
When trips start in New York and end in another state, no NY state sales tax is due under state law. But the base fare is not reduced when no tax is due, which indicates that the tax is NOT, in fact, included in the base fare.
This issue is currently in litigation. Uber did not comment for the NYT article, but I would like to know why they are not settling this case straightaway.
Source: "How Uber's Tax Calculation May Have Cost Drivers Hundreds of Millions," by Noam Scheiber, with Kimberley McGee, New York Times, July 4, 2017.
Again, this year, National Public Radio's Planet Money podcast is offering an internship. It is a paid, 40-hour per week position in New York City. An applicant must either be a current student, or someone who graduated after September 11th, 2016. These additional qualifications are also needed:
The deadline to apply is July 16, 2017. More details can be found at NPR Jobs.
Source: "Come Intern At Planet Money," NPR: Planet Money, June 30, 2017.