It's doing that thing again...

Every few years I think to myself: here we go again: Bitcoin is doing that thing where the price goes up, news stories get written about how the Bitcoin price is at an all-time high, more people get excited about it because the price is going up, driving it even higher, making more people excited...

... until something bad happens or speculators get bored and decide to cash out and buy something else they think will be The Thing.

I'm thinking that's happening right now. And I think it will happen again in a few years; I'm not sure the Bitcoin price will ever be stable if it just functions as a place to park I-don't-know-what-to-spend-it-on-right-now wealth.

Thirteen years ago, when one BTC was selling for under a dollar, I said:

"There's a small possibility that in 50 years Bitcoin replaces the dollar as the world's reserve currency."

Today I think I'd say "significant possibility." And I think there is a pretty high chance some cryptocurrency or basket of cryptocurrencies replaces the US dollar as the world's reserve currency in the next forty years.

It is time to smile

For the first time in several years I dipped my toe into Amherst politics. I zoomed into the February meeting of the Health Board, to encourage them to drop the indoor mask mandate.

And part of what I said ended up in the local newspaper. I don't want anybody to think just because I think the costs of the current mask mandate outweigh the benefits that I'm anti-vax or that personal freedom always trumps public health, so here's more of what I think.

I wrote this email to the Amherst public health director a few weeks ago:

The Omicron wave of the pandemic is cresting (and has already peaked in many parts of the world), and happily we haven't seen our health systems overwhelmed-- it seems clear now that Omicron is less severe than previous variants, especially for people like me who are fully boosted.

Amherst was early to impose masking and other mandates, and that was the right thing to do at the time. I'm writing to encourage you to be early again-- it is time to eliminate all of the "non-pharmaceutical intervention" mandates, as has been done recently in the Netherlands, Denmark, and the UK.

I think the message to the public should now be: get vaccinated and boosted. Wear a mask if you have symptoms (masks help prevent colds and flu, too!). But otherwise get on with your life-- smile and hug and go out to dinner.

Thanks for all your work during the pandemic, I hope that your jobs get a lot easier in the next few months as the pandemic turns into an endemic disease we learn to live with and (hopefully!) life gets closer to normal.

...and got a very nice response, encouraging me to comment at the Health Board meeting.

I'll expand on the point I made at that meeting: I think there are several things the health department and board of health should consider doing (and I apologize in advance if I'm mansplaining stuff that y'all have already considered in previous meetings over the last couple of years).

Indoor air quality is something we take for granted, but shouldn't. Masking rules for restaurants where patrons sit down and then eat without a mask are just plain "pandemic theater," at best giving people a false sense of security. Fresh air (or HEPA filtration) mandates would be more effective, less onerous, and probably less controversial, and could be enforced via monitoring with an inexpensive CO2-level monitor (CO2 levels are a good proxy for air quality in indoor spaces).

High-quality (N95-or-better) mask mandates make a lot of sense in places where there are lots of vulnerable people, like nursing homes or hospitals. They probably make sense every winter, when diseases like the flu or pneumonia are common.

My son's college implemented wastewater monitoring for COVID for the wastewater coming out of every dorm on campus. When a dorm turned positive, they started testing everybody in the dorm and were very effective at controlling outbreaks. I could imagine a similar program for Amherst, with wastewater monitoring of different neighborhoods and notification of residents when communicable diseases (maybe note just COVID) are detected. "We have detected high levels of the Zetacron COVID variant in your neighborhood, we encourage you to zap yourself with a Zetacron booster nasal spray if you haven't boosted yourself in the last few months" would be a spiffy use of my tax money.

Dancing Outside

There is a small-ish group of older people near me who are getting together outside to dance for a couple of hours. They stay at least six feet apart, but most of them don't wear masks.

My initial reaction is: are they insane? Don't they know there is a pandemic going on??????

But maybe they're not insane; maybe the exercise and mental health benefits outweigh the risk. A few days ago I stumbled across some tools that let me do a rough back-of-the-envelope on the size of the risks, and I think we should encourage a lot more physically-distanced outdoor dancing (and singing and yoga and drumming and whatever else makes people happy).

Here's how I figure it:

If there are twenty people getting together to dance, there is about a one percent chance one or more of them have COVID-19 and are infectious but don't have symptoms. That's based the current infection rate of Hampshire County, Massachusetts (where I live) and calculated by this Coronavirus Risk tool.

If somebody is infected, what are the chances they'll spread it to somebody else in the group?

Assuming they all stay at least six feet apart so they're not breathing directly on each other (no large-droplet transmission of the virus), I can use a handy spreadsheet created by a chemistry professor who is an expert on air pollution to get an order-of-magnitude estimate for that risk. That is another one percent chance.

So the chances that somebody in the group catches COVID is the one percent chance somebody is infected, multiplied by the one-percent chance the infection spreads. Or a one in ten-thousand chance for somebody in the group to catch it, or one-in-190,000 individual chance.

Those are very small risks. To put those numbers in perspective, the average 75-year-old male in the US has about a one in ten-thousand chance of dying on any given day.

If you live in a county with a high infection rate... the risk will be much higher (e.g. in George County Mississippi right now the risk would be 1-in-300 somebody in the group would get infected). If you live in Mississippi, you should stay home as much as possible until infection rates fall.

If it is a larger group getting together... the risk would be much higher. Smaller group, much smaller risk.

Dance inside... higher risk, depending on the size of the space and how much fresh or sanitized air flows through it.

So, unless you live in a place where the virus is raging: go outside. Do something with a few other people; keep your distance, and be happy.

Tax Big Spenders

The US federal tax system is terrible. It is inefficient, complicated and unfair.

How about we replace it all with something simple and fair, like this:

Impose a national luxury tax on all goods and services that cost more than $100. Define "luxury" as "costs more than the median sales price of similar goods or services," and calculate the tax based on the difference in the sales price and that median price.

For example, according to Google the median new car price in the US is $37,876. Let say the national luxury tax was 20% and you buy a new car that cost $35,000. You'd owe nothing.

Your rich cousin Betty buys a loaded Range Rover for $137,876? she'd owe $20,000 in luxury taxes (twenty percent of $100,000).

Want to avoid paying taxes? Easy, don't spend your money on expensive stuff. Drive a reliable car, don't spend money on fancy jewelry or 80-year-old scotch or extravagant vacations.

Taxing higher-than-normal spending seems to me to be the least offensive form of taxation. We would be encouraging people to live more frugally, and discouraging them from playing expensive, wasteful status-seeking games. I'm not naive-- rich people would still buy vacation houses and million-dollar supercars to show off their wealth, and plenty of middle-class people would occasionally buy their spouses a fancy diamond necklace for Christmas. They'd just have to pay extra.

Businesses would have to calculate and collect the tax, but that shouldn't be terribly difficult. State sales taxes already require that businesses figure out if what they are selling is taxable or not; asking them to report on what they're selling, for how much (to establish the list of median prices and make sure they're collecting the right amount of tax) isn't much of a stretch. And we already have extensive lists of product categories that are used to assess tariffs when products are imported.

It seems to me both people on the left and people on the right might go for this kind of tax. Lefties should like that it is progressive-- poor people don't buy fancy stuff, so they should end up paying no taxes. Righties should like that it is simple and transparent; the amount you pay will be right there in plain sight when you buy something. No sneaky payroll tax deductions, filling out forms on April 15th or huge IRS bureaucracy interpreting thousands of pages of tax law.

Maybe handle death taxes the same way; if you leave more than the median inheritance to your children, tax the amount over the median. Yes, I know that could be double taxation (the kids might pay again if they spend the money on expensive crap), but it seems fair to me. I'm not a fan of spoiled rich kids who never have to work because their great-grandfather was a brilliant businessman.

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.

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.

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