Monday, June 01, 2020

Big Picture Fed-onomics

The Federal Reserve and US Treasury have been busy this year creating US dollars out of thin air. Trillions of them.

More money, less stuff to buy because of the pandemic should equal higher prices as those dollars chase stuff to buy, right?

Well... that is exactly what the Fed hopes will happen. It hasn't happened yet because the "velocity of money" (how quickly money gets spent again after it is received) fell off a cliff, as people went into lockdown, lost their jobs, and try to make whatever money they have last until things get back to normal. Money is being shoveled into the system... and is piling up as bank reserves:

That trillion dollar spike at the end is March and April.
Can dollars pile up someplace other than bank accounts? I dunno-- if you know, please leave a comment. I'm writing this blog post to organize my thoughts and so you can tell me what I'm getting wrong.

Here is my incomplete mental model of how the money creation machine works; for example,  for a 'helicopter drop' :

Congress decides everybody gets $1,200. The US Treasury gets the dollars by trading promises to pay the money back in the future (treasury bonds). Who is lending their hard-earned dollars to the US government in exchange for a really low interest rate? Mostly it is the Federal Reserve, "lending" brand new dollars created out of thin air:
4 trillion in March, April, May
So, the Fed creates dollars, exchanges them for Treasury bonds, the Treasury sends dollars to people in lockdown, and they "save them in their bank accounts" -- which really means they exchange the dollars for a promise from the bank that they can withdraw them later.

Normally the bank turns around and lends out most of those dollars so they can be spent again (increasing monetary velocity) but right now they are piling up as 'excess reserves'. The Fed pays 0.1% interest on reserves; I dunno why, I guess to make bankers even richer than they already are? (That's a cheap shot on my part; if inflation is 0.3%, they're actually losing 0.2% a year on those reserves). Banks could lend it all out; the reserve requirement was dropped to zero percent, which seems insane to me but I'm a programmer and not a monetary expert.

So inflation is low right now. Probably. It is hard to measure accurately in normal times, but really hard right now because everything changed in mid-March. People suddenly stopped buying bowling shoes and started buying a lot more face masks, so the typical 'basket of goods' economists use to measure price inflation suddenly isn't actually what the typical person is buying.

But what happens when we conquer (or learn to live with) the virus and people spend more and banks go back to lending? Will we get super high inflation then?

I dunno. The Fed can slow down bank lending by requiring them to hold more reserves. Although I gather a lot of lending is happening in the "shadow banking system" which doesn't have reserve requirements, so maybe that would just move a lot of activity out of traditional banks.

If inflation ramps up the Fed could directly drain trillions of dollars out of the system by selling the "securities held outright"-- mostly Treasury bonds, with some mortgage-backed securities leftover from the 2008 financial crisis. That is 6 trillion dollars at current market prices.

Higher inflation means the price of those low-interest-rate securities has to go down, and selling them will even further depress the price. Somebody smarter than me has probably estimated how many dollars the Fed can actually destroy by trading all that stuff (and making the dollars they get disappear), but maybe those trillions won't be enough to keep inflation in check.

Higher inflation, plus the Fed selling all those old Treasury Bonds at a discount should mean the Treasury will have to offer higher interest rates on new bonds, meaning more of the budget goes to paying interest on the debt.

Which politicians won't like. Maybe the Feds lose their minds, bow to political pressure and keep buying bonds, "sterilizing" the debt, leading to more inflation (and eventually hyperinflation if the cycle isn't broken). I don't think that is likely to happen in the US, but I'm a programmer, not a monetary expert. I'm hedging my bets and keeping my wealth mostly in inflation-immune assets, like bowling shoes and hand sanitizer.

Saturday, February 22, 2020

Five 2030 Predictions

I think all of these have a more-than-50%-chance of happening, but I am probably overconfident:
  1. COVID-19 will kill more than 25 million people worldwide by 2030. I really hope I'm wrong and an effective, cheap vaccine is available soon.
  2.  More than one US state will default on their public employee pension obligations by 2030. Underfunded pensions are a chronic problem; I might be wrong and strong economic growth might push the day of reckoning past 2030. Or maybe COVID-19 will kill enough retirees to make the accounting work out (but I doubt it; the cost of dealing with lots of sick people is likely to strain government budgets at all levels).
  3. Polyamory and a push for state-sanctioned polyamorous marriage will be a big "culture war" issue during the 2020s.
  4. At least one country's central bank will issue a blockchain-based digital currency that will have a 'market cap' of more than 100 billion dollars by 2030.
  5. A woman will be US president before 2030.
UPDATE: I asked my Twitter followers what they thought; here are the poll results:
  1. 27% agreed with me(2,121 votes)
  2. 76% agreed (487 votes)
  3. 31% agreed (1,000 votes)
  4. 72% agreed (1,227 votes)
  5. 43% agreed (877 votes)
If my Twitter followers are right, I'll get two of five right.

Monday, April 01, 2019

Can we stop with the nit-picking?

I made the mistake of checking Facebook this Monday morning, so I feel like ranting a tiny bit:

Hey liberals, can you please stop nit-picking Fox News? Yes, somebody screwed up and put up a graphic for a little while saying "Three Mexican Countries" when they meant "Three South American Countries."

Hey conservatives, can you please stop nit-picking Alexandria Ocasio-Cortez? Yes, she seemed to get the timing of FDR's death and the passing of the 22nd amendment (limiting presidents to two terms) wrong.

I'm starting to consciously use reactions to little nit-picky stuff like this as yet another litmus test for people or news sources I should ignore.

All Fools have still an Itching to deride

-- Alexander Pope, An Essay on Criticism

Friday, March 16, 2018

Precautionary Principle Problems

Google gives a good definition of the precautionary principle:
pre·cau·tion·ar·y prin·ci·ple noun 
The principle that the introduction of a new product or process whose ultimate effects are disputed or unknown should be resisted. It has mainly been used to prohibit the importation of genetically modified organisms and food.
It is easy to imagine Very Bad Things that might happen if we ignore the precautionary principle. For example, what if somebody uses gene-editing technology to produce a super-virus that wipes out all human life?

What if genetically modified corn runs amok and spreads uncontrollably? Or maybe GMO foods cause cancer and we just haven't noticed yet.

How about machine learning: what if future super-smart machines decide us humans are unnecessary and decide it is logical to get rid of us?

Scary! Why not be safe and just ban all that research until we understand the possible consequences better?

Well... because Very Bad Things might happen if we do that.

What if an incredibly deadly variation of the Spanish Flu wipes out 99% of human life, but researchers could have saved us if they had more advanced gene-editing techniques?

What if we all starve to death because climate change wipes out all our crops, but researchers could have saved us with geo-engineering or climate-change-resistant GMO crops?

Or maybe super-smart machines will save us (and them) from some world-ending disaster we aren't smart enough to see coming-- asteroids or angry aliens or albino alligator attacks (that's just the a's!).

I don't know how to evaluate the far-future likelihood of machine intelligence or CRISPR destroying everything we value, versus the likelihood they save us from destruction. I don't think anybody knows. Maybe hyper-intelligent man/machine cyborgs will eventually be smart enough to run the numbers and figure it out, but until then I'm going to ignore people who use one side of the precautionary principle to argue against technologies they oppose.

Monday, November 07, 2016

Politics and traditional public schools are inseparable

Here in Amherst there are two education-related questions on the ballot.

The first is a state-wide question on whether or not to allow more charter schools. If I were to believe my Facebook feed, if it passes it would mean the End of Public Schools As We Know Them. My Facebook feed is wrong; allowing more charter schools will have a tiny short-term effect on the public education system. It might have a big long-term effect, but I bet parents will make much bigger changes to the way their kids get educated long before then. The second question on the Amherst ballot is a plan to replace two of our public elementary schools with one brand-new building. Judging from the lawn signs in my neighborhood, there is a lot of controversy over that plan, and I doubt it will pass.

I have sympathy for the school committee; no matter what plan they propose, they won't please everybody. The only way to please everybody would be to have half a dozen different, mostly independent schools in town and let parents and kids and teachers decide on which was best for them.

... which, from a ten-thousand-foot level, looks a lot like public charter schools ...

This is where somebody on the school committee or school administration tells me that's completely unworkable, because busing and six different principals and special education and duplicate facilities and administration.

And how our local public school system really isn't one-size-fits-all, there's a diversity of educational opportunities available inside the public school system (and I should know that-- I've got two kids at Amherst Regional High School).

And how the Massachusetts school system is one of the best in the world-- and Amherst is one of the best in the state. Why mess with a great thing, or question the judgement of people who have done such a great job so far?

Here's where I get philosophical. It seems to me there are two ways we can get what we want from other people in this world:

1) Competition. We can "vote with our feet" -- every time I choose which restaurant to eat at or which shoes to buy I'm casting a vote.

2) Politics. We can vote for or against things we like or don't like, and can try to convince a majority of our neighbors to vote with us.

Traditional public schools force us into politics-- we vote for who we want on the school committee, and vote on big decisions like how we're going to replace our old, obsolete school buildings.

Maybe there are good reasons to keep doing things that way, or maybe we're just stuck with the system we have because changing from a politics-driven system to a competition-driven system would be too disruptive and painful.

But if you're part of the traditional, politics-driven system, you shouldn't complain about passionate public debates or imply that everybody should just trust you because you're the experts (or are listening to the experts). That's just the way majority-wins systems work.

I like competition-driven systems better, maybe because I like to avoid unnecessary conflict. I'm a live-and-let-live kind of guy, if you want to send your kids to "West Point Prep" because you think the discipline will be good for them, more power to you.

Thursday, April 30, 2015

How much recreation is too much?

On monday night Town Meeting decided to amend the budget to double the recreation subsidy given to low income families, from about $100,000 per year to $200,000 per year. Apparently, funds were running out half-way through the year. There are roughly 1,000 low-income kids in Amherst, so if they all participate in LSSE programs we'll be giving each $200 worth of swimming or sports or after-school-programs.

I don't know how to think about that. Is $200-per-kid-per-year enough? Too much? Just right? I'm sure there are families that can't afford even a heavily subsidized rec fee. And there are probably families too proud to accept a subsidy; maybe LSSE programs for kids should be free to everybody, so nobody need feel embarrassed asking for the subsidy.

And how should Town Meeting members weigh spending $200,000 per year on increasing recreational opportunities versus fixing potholes or hiring more police?

If we gave lower-income families a choice between getting either a $200 subsidy for LSSE programs or getting $200 in cash, I think most would take the cash. There is probably some Massachusetts law preventing Towns from giving people cash grants, but it seems to me it would be better to empower parents to make decisions like "should I spend money on a math tutor or swim lessons or brake pads for the car."

A lot of our social safety net seems like micromanagement to me. I wonder if that is mostly due to progressives who think of the State as a "nurturing mother" with a duty to take care of each of her children's needs ("gotta be sure to provide environmentally friendly housing and nutritious food and liberal education and healthy recreation and...").

Or if it is due to conservatives who think of the State as a "strict father" with a duty to prevent or punish his children's bad decisions ("can't just give cash, they might spend it on Bad Things").

Probably both. So I expect I'll spend a lot more time sitting in Town Meeting listening to heartfelt appeals to increase recreation opportunities for children by increase subsidies for LSSE or increase safety for children by hiring more police or firefighters or increase education for children by hiring more teachers or increase the health of children by giving benefits to part-time Town employees.

In the grand scheme of things, I suppose that's not so bad-- it would be worse if Amherst was spending money to bomb someplace far away "to benefit future generations of children."

Wednesday, April 02, 2014

Are kids really safer in schools?

A couple of comments on my last post challenge my assertion that "Kids are much safer in school than any other place."

I admit, I was lazy, I didn't do any research to back up that statement; I'm parroting Lenore at Free Range Kids, who I trust because I've followed her blog for years and she is always rational and data-driven. And maybe "much safer" and "any other place" are exaggerations; probably kids are just as safe or maybe even safer when they're at home, sleeping in their beds at night (or maybe not, because I'm pretty sure domestic violence is a lot more common than school violence).

But it got me to thinking: how would I go about proving or disproving that kids are safer in school than anyplace else?

I'm a skeptic, and I'm very aware of all the ways we can fool ourselves into "proving" something that we already believe. So if I had the time to research safety in schools, here's how I'd go about it:

First, I'd try to get more specific about what I mean by "safe" -- really, I mean "safe from physical harm." I'm not going to wade into a debate about whether our kids are being developmentally stunted or mentally harmed in school.

Then, I'd find a data source (or, ideally, two or three) that I trust that tracks statistics on deaths or injuries. I'm sure there are databases that keep track of emergency room admissions by age, time, etc.

Before I looked at any of the data, I'd decide what to look for. Any large dataset can be sliced and diced a million ways, and 5% of those ways will give you statistically significant (but meaningless) results.

In the "are schools the safest place for kids to be" case, I'd look at the injury/death rate for school-aged kids during school hours, and compare it against the injury/death rate at other times: weekdays during non-school hours, and weekends.

But that's not quite enough-- maybe the middle-of-the-day school hours are just safer in general. So I'd also look at injury/death rates for kids who are too young for school, to try to isolate the "in school" versus "not in school" factor.

To really do it right, I'd hire a statistician to run a regression over the data (or would take that statistics class I'm always thinking I should get around to taking...). But before doing all that, I'd run a Google Scholar search to see if anybody's already done the hard work.

A couple of minutes of searching "school safety" turned up a bunch of studies that focus JUST on violence in schools, but also "The Inherent Limits of Predicting School Violence"which says:
... violent deaths are a rare event, with less than 1% of the homicides and suicides among school-age children occurring in or around school grounds (Kachur et al., 1996). Moreover, the rate of violent crimes committed by juveniles remains low during the school day, but it spikes at the close of the school day and declines throughout the evening hours (Snyder and Sickmund, 1999), indicating that school hours are probably the safest time of the day for adolescents.
I didn't find any contradictory evidence, so short of crunching the numbers myself (which I'm not going to take the time to do), I'm going to stick with "kids are safer in school."