The October report of the Consumer Price Index (CPI), published by the Bureau of Labor Statistics, showed an increase of one tenth of one percent in the general price level from August to September.

Publishing a monthly index provides several ways to look at price changes and inflation. The monthly CPI can be compared with the previous month or with the CPI for the 12 months just ended. Comparing the current index with the index from 12 months ago allows a monthly update for annual inflation.

Prices in the composite CPI for all items are down 1.3 percent for the 12 months ending in September 2009. It is the seventh month of decline beginning in March 2009.

Inflation vs. Deflation

When Americans think of price changes they usually think of inflation. They want to know what percentage prices are rising because millions of Americans have lived their entire lives without a single month of deflation; that is until March 2009.

The current drop in the general price level disguises price changes by expenditure categories. Even though the general price level has dropped, relative price changes suggest the CPI for all items is not as relevant as it was in the 1960's and 1970's.

In the current deflation, a drop in housing prices has dragged the index down since last spring. Housing makes up the biggest component in the index, reflecting the importance of housing in family and household budgets.

Moderating gasoline prices from their 2008 highs and a leveling off of food prices also worked to turn the index down. Food prices, which were increasing at 5 to 6 percent annual rates through 2008, show a zero annual inflation rate for the 12 months ending in September.

In contrast, education and health care continue to have price increases well above general inflation rates of the last two decades. Annual inflation in education remains over 5 percent through 2009, but July 2001 was the last month for education to have 12 months of price increases below 5 percent.

Even though the recent inflation rates in medical care are 2 to 3 percent, inflation rates were 8 and 9 percent during the 1990's and continue to be two to three times general inflation rates.

The New Look of Inflation

The new look of inflation creates new problems for policy.

Normally, inflation calls for restricting credit and cuts in spending, especially government spending, but a recession like the current one calls for expansion in credit and new government spending to restore housing and consumer markets.

In an often quoted statement, former Vice President Dick Cheney told his colleagues that "deficits don't matter." It is an odd statement for a Republican, since federal deficits have always been associated with inflation and policies of expansion, especially expanding federal spending.

There is a kernel of truth in his statement, but I would revise it to say that deficits don't necessarily mean inflation. It is time to manage the economy for full employment and pay less attention to inflation.

Since Mr. Cheney believes deficits don't matter maybe, he could be the one to get the word out.

I have heard people say that the director/general manager/CEO/boss should have a higher salary than the people he or she manages. It may not be a universal thought, but in America, high wages carry prestige, which many agree brings authority.

Economists commonly reject any idea that your wage depends on prestige or confers authority. In the economist's tool chest, wages depend on productivity. High productivity means high wages and vice versa.

For doctors, productivity means important skills that can only be learned over a long period of time (typically 10 years). The years of medical training are a personal investment, not only because Americans pay their medical school tuition and finance their own education, but because the skills belong to the individual and can be transferred between employers.

Personnel vs. Personal Investments

A personnel investment is different than a personal investment. Personnel investment is training paid for by an employer. Training typically runs for weeks or months with orientation to specific employer needs.

Employers are reluctant to pay for long-term, general training because the skills and benefits belong to the individual that can be moved to other employers.

In a society where individuals pay for their own post-secondary education, wages must reflect the time and money for investment if we expect people to have skills.

We don't want doctors to be paid low wages because they would not have the ability or willingness to make the investment to learn what we want them to learn.

Shouldn't Pilots Be Paid to Keep Us Safe?

Late last spring, I clipped an article highlighting this issue ("Panel on Fatal Crash Looks at Pilots' Pay, Commutes" Washington Post, May 14, 2009).

The article details the efforts of executives at Colgan Air to defend the low pay of their pilots following the worst airline accident in 7 years. The co-pilot, age 24, earned "about $16,200" and commuted by air from Seattle to Newark, New Jersey to go to work.

Colgan officials justified the low salary and long commute by saying, "Pilots are told what they pay scales are. Our pay scales are within the industry standard."

The Bureau of Labor Statistics reports a median national wage of $111,680 for an occupation titled Airline Pilots, Co-pilots, and Flight Engineers.

There was a time, not too long ago, when airline pilots were almost universally trained by the military at public expense. When they left military service to find commercial jobs, the airlines knew they were hiring thoroughly trained pilots.

The time has passed when airlines can rely on finding applicants trained by the military, but if airlines pay for military style pilot training, they know their pilots can leave and go elsewhere. The weak financial incentive for airlines to pay for pilot training puts the burden on individuals who now find it necessary to pay for their own training.

Much of the incentive for individuals depends on the wage they can earn. Becoming a well-trained pilot requires an early investment of time, money and lost wages. A salary of $16,200 will not pay for that investment.

We want pilots to make more than $16,200, but not because we want them to have prestige. We want them to make more because our safety depends on it.

As we've talked about in the past, the best indicator to determine your current financial status is your net worth.

If you want to manage your money like the rich, worry more about your net worth than your salary. As professional athletes have taught us, just because you make a lot of money doesn't mean that you're on the right track to financial success.

By calculating your net worth, you'll have a complete picture of your finances and know whether or not you're going in the right (or wrong) direction.

But while it's important to know your net worth, it may not be the best idea to track it everyday — even if account aggregators make it easy to do.

So, I want to know: how often do you calculate your net worth?

Answer the poll below and then let me know why in a comment.

Why do we make bad decisions, even when we know they're bad?

Emotions play a big role in how we think and act around money, and for the most part, they're negative influences. That's why automation is so important if you're looking to grow your net worth.

Flexo at Consumerism Commentary goes even further, laying out 3 reasons why investors in particular make poor decisions.

1. recency effect
2. confirmation bias
3. losing money is painful

Want to get started on the path to complete financial automation? Download the free 3-day copy of Automatic Finances now!

If you find yourself putting your financial life back together, whether it's from a layoff, poor investment choices, or you're struggling to pay the bills, you need a personal recovery. The Mint Blog highlights a story from AskMen.com offering a 7-Step Financial Recovery Plan.

Finally this week — though we rarely talk about technology outside of online banking and account aggregation, My Money Blog has a post on Ways to Save Money With Google Voice.

The service — which I use — offers you one phone number to manage all your numbers, with forwarding, voicemails as MP3s (and transcribed) and a boatload of other features.

As we continue with week 6 of Money Management by Personal Finance Bloggers, let's take a look at the habits of My Journey to Millions.

Previous interviews: The Amateur Financier, Poorer Than You, Budgets are $exy, Blunt Money, Mighty Bargain Hunter, Financial Freak Show, PT Money, Moolanomy, No Debt Plan, ToughMoneyLove and Gen X Finance.

How do you spend: cash, debit or credit?
Debit. I was a big credit card guy until I realized that I was just spending because it wasn't real. I can't handle cash if its in my pocket I spend it. Period.

Do you bank online? How about use a financial aggregator (Mint, Wesabe, Yodlee, etc.)?
I check my online banking 3 to 5 times a day, its a real problem, but I don't use any aggregator. It isn't that I don't trust them, its that I get more information by going to the source (i.e. Chase)

What recurring bills do you have set on autopay?
Utilities, Cable, Cell phone.

How are your finances automated?
Direct pay, tons of ING subaccounts pulling, the autopays mentioend above.

Do you write checks? If so, how often?
Yes, at least 3 a month for maintenance dues, and various other bills such as auto that won't apply extra to principal unless it is in check form.

Where do you stash your short-term savings?
ING ING ING!

Want to find out more about My Journey to Millions? Check him out at http://www.myjourneytomillions.com/, follow him on Twitter @mjtm and subscribe to his RSS feed.

Welcome to week 6 of Money Management by Personal Finance Bloggers! First up, we chatted with Roger of The Amateur Financier.

Previous interviews: Poorer Than You, Budgets are $exy, Blunt Money, Mighty Bargain Hunter, Financial Freak Show, PT Money, Moolanomy, No Debt Plan, ToughMoneyLove and Gen X Finance.

How do you spend: cash, debit or credit?
Mostly credit, for the same reason most other people have given: reward money! I do use cash regularly for smaller purchases though, as when I go out to eat at a fast food place.

Do you bank online? How about use a financial aggregator (Mint, Wesabe, Yodlee, etc.)?
I do bank online; with the exception of keeping a single off-line bank account so I can withdraw cash or write checks as the need arises, I do all of my money management online. I have tried to use Mint in the past, but it seems easier (and safer) to just keep track of my finances independently.

What recurring bills do you have set on autopay?
Several of them, including health insurance (at least, until my policy with my new company kicks in) and my credit card bills. I still use checks to pay for some of them, though.

How are your finances automated?
My paycheck is direct deposited, a series of automated transfers moves the money where it is needed, and most of my creditors automatically withdraw the needed fees. If I could build a robot to cover my shifts for me, I might be able to get my entire financial life running on atuo-pilot.

Do you write checks? If so, how often?
About once or twice each week, including a monthly rent check as well as a weekly check to my church for my contribution. Also, an occasional check for places that won't accept my credit cards or as a gift to family or friends.

Where do you stash your short-term savings?
I have a few online bank accounts specifically devoted to savings, including my most prominent one with SmartyPig. I used to keep some extra funds in my money market fund with Vanguard, but the interest rates as of late have barely been above zero, so I've been neglecting that place for my savings.

Want to find out more about The Amateur Financier? Check him out at http://www.theamateurfinancier.com/blog/, follow him on Twitter @amateurfinance and subscribe to his RSS feed.

The minimum wage went up to $7.25 an hour on July 24th, a 10.7% increase over last year, as the last of a three-year planned increase passed by Congress. Since inflation is reported at 3.8% for the year the real wage — actual buying power of the minimum wage — went up for 2009.

The Bureau of Labor Statistics publishes wage ranges by occupation as part of its occupational employment survey and, although the median wage is often quoted in the popular press, there are wage ranges published that include the 10th, 25th, 75th and 90th percentile wages by occupation.

For example, the 2008 data shows there are 3.5 million people nationwide employed as cashiers, with a 10th percentile wage of $6.88. That means that 10%, or 350,000 jobs, have wages equal to or less than $6.88 an hour.

The 2008 data shows cashier and 30 other occupations with 18 million jobs that have 10th percentile wages of $7.25 or less, which means 1.8 million of the total can expect a boost in pay.

Higher-Wage Jobs Affected by the Minimum Wage

Business tends to oppose any increase in the minimum wage and economists predict in sinister tones that higher minimum wages lead to falling employment, hurting those who are supposed to be helped.

However, the tendency to use less labor at higher wages is universal and not confined to just minimum wage jobs.

For example, the Bureau of Labor Statistics reports managerial jobs in decline with a drop from just over 8 million to barely 6 million in 2008. Engineering managers are down by nearly 70 thousand as median wages went steadily up reaching $115,000 in 2008.

Economizing on highly paid engineering managers puts engineers in surplus as long as we expect former engineering managers to be looking for engineering work in related occupations.

Most engineering specialties like civil engineering and mechanical engineering have median wages in the mid $70's. Engineering technician jobs have median wages in the $40's.

Civil and mechanical engineering jobs are up with some of the unemployed engineering managers adding to the supply of labor, but we can't be sure who got the engineering jobs. If it is former engineering managers, it will certainly mean a pay cut for them.

It could be an engineer who was working as a lower paid engineering technician. If that is the case it will mean a pay raise for them. It could also be a college graduate in engineering who was working in a minimum wage job. If that is the case it will mean a pay raise for them.

The Job Markets Adjust to a Higher Minimum Wage

Economists tend to ignore what is happening in high wage job markets when they predict changes from a higher minimum wage.

A higher minimum wage can eliminate jobs, but that does not relegate the people who had them to endless unemployment, or even to lower wages. That is because changes in job markets create surplus labor in many occupations in other wage ranges, high and low.

This July 24th, Secretary of Labor Hilda L. Solis was quoted as saying, "This administration is committed to improving the lives of working families across the nation, and the increase in the minimum wage is another important step in the right direction."

Politicians usually exaggerate their good deeds. It is not enough increase to be the important step she says, but it is in the right direction.

Now that the Dow Jones has topped the 10,000 mark, everyone has an opinion on what this means for the state of the economy and whether or not we're recovering from the recession.

Obviously, the stock market is not the only indicator of how the economy is performing, but it can be a strong psychological factor in the decisions people make — from spending to investing to saving.

While the Wall Street Journal focused on worried investors, I want to know what you think about the Dow hitting 10,000. Does it matter? Is it the beginning of another bubble? Or is the economy really showing signs of life?

So: what does the Dow 10,000 mean?

Answer the poll below and then let me know why in a comment.

Once primarily a tool of shady penny stocks, the reverse stock split has become a favorite of exchange-listed financial companies during the chaos of the past year.

A reverse split reduces the total float of common shares while maintaining the same total market cap, mashing the stock price of multiple shares into the price of one super-share.

Late last year, the UK's Royal Bank of Scotland, one of the most tempest-tossed non-US banks severely weakened from exposure to the US mortgage market, fell below $1 a share at one point. This led to the decision to undertake a 1:20 reverse split.

Earlier this month, Arlington Asset Investment Corp. (formerly Friedman, Billings and Ramsay) also undertook a 1:20 reverse stock split.

In the case of the Royal Bank of Scotland, a 94-cent stock became an $18.85 stock. For Arlington Asset Investment Corp., a $0.66 stock became a $13.20 stock.

Reverse Splits Don't Create Any Value

Reverse splits may not totally destroy shareholder value, but they certainly don't create it either.

For a start, there's zero value created for existing investors. If you bought 10,000 shares of RBS when they were worth 94-cents each, after the reverse split you then owned 500 shares worth $18.85. Up front at least, there is little difference, since the book value of your shares are $9,425 either way.

I would even argue that investors have lost value, since by having their volume of stock cut by 20, they've lost the potential for gains that can be made from small movements in share price multiplied by a large block of stock.

A Higher Price Doesn't Mean Better Shape

Reverse splits only delay the inevitable: decline, delisting, and becoming destitute.

A company's fundamentals have in no way improved, despite a share price that's 20 times higher than it was pre-reverse-split.

If the company is still troubled, a reverse split just gives the share price a higher roof to plunge from. Today, RBS is trading at $15.51, which is equivalent to 77 cents pre-split. At $13.21, AI's pre-reverse split is equal to 66-cents, slightly up from the 50 cents it was trading at previously.

Of course, if as an uninformed investor you jumped in to RBS after the split and bought 10,000 shares at $18, God help you. Then again, you could argue that worrying about reverse-splits is irrelevant, since buying beleaguered financial services companies is a more risky activity than value investors should be engaged in.

But that's a whole other topic.

Although the week ended with the Dow Jones under 10,000, when it passed the mark on Wednesday, I sent out this tweet:

The Dow is over 10,000. Let's party like it's October 2008!

Of course, I was joking, but it is a significant milestone — at least for day traders, who often react only to perceived events.

According to the Wall Street Journal, the Dow at 10,000 has investors worried, perhaps — this time — because enough people aren't worried.

Back at the market lows in March, I warned about "efficient market hypnosis" — the way the falling market hypnotized some investors into believing the world was coming to an end. The same logic holds now. Just because the Dow is back at 10000 doesn't mean our economic problems are somehow behind us.

For buy-and-hold investors who practice dollar-cost averaging, hitting 10,000 doesn't mean that much. I wouldn't fret about it, one way or the other.

I didn't catch Time magazine's article about 401(k)s, but it has both Trent at The Simple Dollar and the folks at Vanguard responding negatively.

At the Vanguard blog, Steve Utkus calls it Bad facts, bad story:

One phrase captures the spirit of the cover story: 401(k)s are a “lousy idea, a financial flop.” And that was perhaps the high moment of the article! I have read Time over the years and have enjoyed its presentation of national and world events. Yet this article is emblematic of the uneven, at times unfair, coverage of 401(k)s during the market decline.

Trent says that the problem isn't 401(k)s — it's that people aren't taking enough responsibility for their actions. "In the end, the investors who suffered a disastrous, life-altering 2008 in their 401(k) accounts were either contributing too little and essentially gambling with it or they didn’t bother to learn or understand how investing works."

Finally this week — closing costs. Did you know my home state of Maryland, where I bought a house this year, has the highest closing costs in the country? It's crazy how much cheaper they can be in different parts of the nation. MarketWatch breaks down the numbers.