Punish the Short, and Spinach

For the short, I refer, of course, to the short seller. Most, by now will be aware of Gamestop as a company. It makes and sells videogames, and its share price was something like $US19 before a certain hedge fund decided to short it.

First, to understand how a short works. The shorter borrows shares and has to pay some sort of fee to persuade the owner to lend. The shorter then sells the stock, and at a later stage has to repurchase, to return the “borrow”. You can make a lot this way if you handle enough stock, but also lose a lot, and to load it in your favour the short should involve a very large amount of stock. When that floods the market with unattractive stock, the price tumbles because who wants to buy so much? Then, the critical step: many other reef-fish who hold the stock panic and sell. This is needed because if nobody did anything, the price would go back up, and maybe higher when the repurchase was needed. The short works only because it persuades others it is time to sell and take a loss. If it works, shorter rubs hands and gets seriously richer, however when things go wrong, the loss is unlimited because the repurchase is required. 

So, the hedge fund bet big on Gamestop, and expected the soft market to fall, the reef-fish to try to cash out, and the hedgie to make big. Not much risk, because how could such a feeble company’s stock rise in price? Actually, fairly easily, but to understand that, we have to consider a relatively new phenomenon: the low-cost stock-trading platform. Once upon a time stock had to be purchased in packages of so many, and because bits of paper had to change hands, you usually had to find a buyer and seller prepared to trade the same number. If stock were in units of a dollar, not a significant problem, but some stock now come in units that cost a hundred dollars, which would put stock trading in the hands of the rich. But now we no longer deal with bits of paper; it is all handled electronically. That allows the low-cost trader into the scene, where people can even put up $10 and purchase a fraction of a unit share.

Now we see what went wrong, at least for the hedge fund. A huge number of gamers heard about this and plunged in, purchasing stock. This action from so many pumped up the price by factor of 20 in the middle of the short. These guys were not there to make money; they were there to punish the hedge fund for messing with the company that made their favourite games. They could all well afford to lose $10. Now, how much the hedge fund lost depends on how much stock they were betting with. Thus if they thought they would make a large amount of money if the stock price was depressed by a dollar, see what the loss is when you multiply that amount by 380.

There has since been a big commotion, urging the authorities to stop this “market manipulation”. After all you have to protect the rich on Wall Street. If they get it right, they win big; if they get it wrong, “Bail me out!” appears to be the cry, then if they are bailed out they pay themselves big bonuses for being so clever and continue on their previous ways. Perhaps I should add, I have no problem with short selling. It is a bet, BUT there must be the condition that if the bet loses, the loser pays, not someone else. As for market manipulation, where is the manipulation in advice to “buy this now” and give reasons why? What is different from the average financial advice from the big boys? It is quite reasonable, in my opinion, to buy stock in a company that makes a product you like to avoid it being taken over by some pirate company, be broken up and the assets sold off just to make someone a lot of money. If you are prepared to lose money to keep a company alive, what is wrong with that? They protest too much.

There is another problem with the protests by Wall St.: where does the shorter borrow the stock from in the first place? The easiest source is these new platforms. When the ordinary guy buys such stock, it is the platform that actually possesses it, and the platform can make more money lending it out. Without the small platforms it may not be that easy to purchase enough stock to be worth the effort, so these platforms are needed by Wall St. Regulating the small platforms just to favour Wall St will be very messy.Finally, something totally different. I came across an item in a newspaper that started with, “Spinach sends email”. You might guess this is wrong. What happened was it turns out spinach is surprisingly sensitive to certain soil contaminants, including certain nitrogen oxides. What happened was a camera detected the change and sent an electronic alert. But wait, there’s more. One of the proposed uses was that spinach could detect landmines. Yeah, right. I can just see everyone walking over land, digging it over, then planting spinach to see if there is a landmine below. They would probably know when they started walking over the ground while preparing it.

2021 Underway

Here I am, refreshed with our pleasant summer, starting again another year. I hope I am entertaining, and that you all enjoyed your Christmas period.

In New Zealand, the New Year period tends to be when so many people are away on holiday, the reason being that if you are going away, you get more value for the leave you have to take from your job by adding in the statutory holidays. Accordingly, the news media tends to run on very reduced staff numbers, after all journalists have to have holidays too, not a lot happens locally, and often if something happens offshore it does not matter if it is ignored because it will usually be forgotten when life starts again later.

This year, not so. Two things have happened.  We have to let New Zealanders come home, where they go into managed isolation quarantine. While there is no community transmission of SARS-CoV-2 currently, the managed isolation places are getting almost 20 cases a day, including cases of the new virulent UK strain and the South African strain. These viruses certainly move fast, and it shows that people overseas are not really taking it seriously. So far, it is contained here, but I have this horrible feeling a breakout is almost inevitable. I hope that wherever you, my readers, are, you manage to keep virus-free.

However, the bigger news here was the remarkable scenes at the US Capitol. It seemed to me almost unbelievable that this was happening. Apparently there were many entries on Facebook and other social media sites effectively organizing this and one might have thought that someone like the NSA might have picked up these signs of trouble and arranged for better law enforcement.

In my opinion, this was not, as some seem to assert, a coup, an insurrection, or anything of the sort. It was a bunch of louts behaving really badly and the proper response is to properly enforce the law and prosecute said louts. Of course, the President’s twittering did not exactly help the situation. It is hard to see his strategy there, or even if he had one. Presumably he wanted to keep his political presence alive during the Biden years, to ensure that Biden had the sort of trouble he had, and since the Congress is lost to him, he had to find an alternative. What he chose, in my opinion, resulted in his shooting himself in the foot.

If we think a little more about strategy, what can the Republican Party do right now to get the best from this situation? The Democrats seem determined to make the most of this, and seemingly are determined to impeach Trump for a second time, and hope that enough Republicans will vote in favour in the Senate. Whether they will is debatable, because to do so would give the Democrats huge publicity. That still leaves what to do? As a writer, I have to formulate plots so I wrote the following last Sunday. As can be seen, the Republicans thought differently.

So, my suggested strategy starting last Monday: approach Trump and suggest he resign, thus giving Pence a few days as President. The advantages are:

(a)  For Trump, Pence will pardon him for whatever falls out from his Presidency. This starves the Democrats of political oxygen, Trump gets personal freedom and is able to stand in the primaries again in 2024 if he so wished. That should be enough to persuade Trump to comply. The alternative is the Republicans promise to convict him in the Senate, he will leave in disgrace and he will not run again. He hopefully would comply, but someone with congenital holes in feet may not. 

(b)  For Pence, be President, albeit for no more than a week, and maybe only a couple of days. He goes into history books as the shortest term President, but equally, perhaps the most productive per unit time.

(c)  For the party and for Pence: by getting Trump to resign and pardon him, it starves the Democrats of “political oxygen”. The statement made during the pardon is it is done because it is the only way to start healing the nation. Who can argue with that really? Many won’t like it, but so what? The alternative is continued bitter political fighting at the expense of the nation.

(d) For the Party and the Nation: Pence orders the military to assist with distribution and vaccination. There are apparently difficulties getting people vaccinated because there are not enough people able to do it and the vaccines are not always where they are needed. The military must have available logistics and health workers. This also starves Biden of his first “easy win”.

(e)  To harpoon the Democrats, pardon Assange from extradition. The liberal or progressive parts of the Democrats cannot object and makes the Republicans look good on freedom of speech, which is what they claim they want.Easy, isn’t it? Isn’t it??? My guess, at the time of writing, none of this will happen. More missed opportunities. And (added before posting) about the only thing I got right, I think, was that guess. What will happen now is anybody’s guess, and as you can see, anybody guesses better than me

Do You Feel Lucky, Punk?

One line from a Clint Eastwood movie, but somehow appropriate as the world faces a sequence of crises, so much so that Physics World thought of it and I have followed suit and report some of the more distressing thoughts as the season for jollity approaches. When I was young, the biggest threat to civilization was considered to be nuclear war. We have avoided that, and it seemed as if that was under control, yet the most powerful country in the world has pulled out of treaties and appears to be developing new weapons. Not encouraging.

The biggest problem this year, the SARS-CoV-2 virus, looks like it is being dealt with as vaccines are now coming available. That was a record production of a vaccine, which shows we can respond to crises in a most rapid fashion. Or does it? Actually, these vaccines did not start from scratch. There have been previous potential outbreaks of dangerous coronaviruses that did not spread, and the pharmaceutical companies had been doing vaccine research for coronaviruses for some time. Yes, this was a new virus, so some new work was required, but the general methodology was established, and the companies would have had good expectations of what would work safely. The companies were prepared. The question now is, how well prepared are we for other disasters?

The most spectacular crisis, from a visual point of view, might be an equivalent to the Carrington event. This occurred in 1859, and corresponded to the sun throwing something like 100 million tonne of hydrogen plasma at us. This was spectacular visually; the northern lights were seen as far south as Colombia. Unfortunately, fast moving charged particles cause huge magnetic pulses that in turn induce serious current in electrical conductors. Back then, telegraph lines took on a life of their own. Now, think of all the conductors in our electrical distribution systems? Electric grids would be in real trouble as transformers burn out. Satellites would have their circuits fried, although the rubbish factor may be eased since the atmosphere would swell up and hopefully bring them down. So, how well prepared are we for this? How many spare transformers, etc, are there where we could get the electric systems going again? If the electric supplies ceased, what would be the effect? In short, we don’t know, we are unprepared, and one day we shall find out, but what are the politicians doing about it? How many politicians even care about what is not immediately in front of them?

We have made some preparation for a potential asteroid collision, in that we are studying and cataloguing asteroid trajectories. For any extinction events we shall have plenty of warning, and time to avoid the collision. Further, our space technology has been developed to the extent that avoiding this collision is plausible.

Politicians are now making noises about climate change, and are putting in place some things that will slow the production of greenhouse gases, but to what extent? Have they done the numbers? I have posted previously that the switch to electric vehicles may not be the long-term saviour some think when you integrate the gases over enough time, and include the gases emitted in making the vehicles, the batteries and the electricity. Nevertheless, it could be a step in the right direction if we worked out how to recycle and rebuild the batteries, and were prepared to pay the price of doing so. The problem is, recycling the batteries per vehicle will produce materials worth a few hundred dollars and probably cost thousands to do it. The obvious way around this is to put the appropriate cost of recovery on the batteries when sold, but that would make the electric vehicle so expensive nobody would buy them. As it is, how many realize they will have to replace the batteries in, say, eight years? How much research is being done into replacements? Take biofuels. Most research has been done by companies, and they have opted for the easiest research, and not that which is most likely to produce the largest supply of fuel. By focusing on ethanol from corn, which even blind Fred can see is not a good idea, it fouls the concept for authorities. How much research has been done into geoengineering? Not a lot. How much preparation has been made to ameliorate the effects of increased temperatures? Again, not a lot. The politicians make many speeches about how things will be OK by 2050, but seem remarkably unwilling to do the hard work now.

The Poor in a Democracy

One issue that is finally coming to public notice is the issue of inequality. When the virus started to make an impression, Jeff Bezos’ net wealth increased by tens of billions of dollars and that was effectively a free result of the increased significance of Amazon. Yes, Bezos did very well to set it up and he deserves a life of wealth, but that much? At the same time, a very large number of small businesses around the world were going bankrupt, workers were being fired, and in lands of plenty, very large numbers of people cannot afford a proper place to live, they struggle to buy enough food and electricity, and their children are hampered because they do not have the money to use internet technology for their learning. 

Let’s forget the virus. Before that, if the nation’s GDP went up, the lower incomes remained stationary; if there was a recession, the poor’s net wealth, if they had any, gets obliterated, and if they get sick they are in real trouble. The State makes policies that favour the rich, the bankers, and so on, and it is the poor who pay for it. How does this happen in a democracy? That it happens is shown by India, the world’s largest democracy. It is now a middle-income country, according to statistics, but it has the world’s largest number of extreme poor and the third largest number of billionaires.

A recent article on democracy in the journal Science used water as an example of 

a resource in limited supply. Suppose there is just enough for everyone to drink and wash. Now the rich can pay for huge private swimming pools so they make political donations, they get their water, and the poor get rationed through water meters and charging. The costs are trivial for the rich, but the poor cannot pay for the cost of the meter and the bureaucracy associated with charging and have enough income left over to pay for children’s education. So why did this situation occur? Essentially because the politicians permit it. The simple answer would be to ban swimming pools, but the rich will never permit that, and their power lies in the fact they fund the politicians’ election programs. There may be sufficient voters to have the overall power, but they cannot organise that advantage.

Further, politicians and parties become weaker if information flows improve. One of the first things you find out about governments is they seldom come clear with what they are doing. Politicians make grandiose generalized statements that sound good, but seldom show what is really occurring with any accuracy. That comment is sparked by the fact that New Zealand is having an election soon, and one thing that happens is there are TV slots in which senior politicians are asked questions from the public. Very seldom is a question answered properly. If you think that is just New Zealand, consider the debate (??) between Trump and Biden last night. Trust me, the NZ debates shine very brightly compared with that chaotic fiasco.

Nevertheless, when the word inequality was raised here, it got swiftly deflected. A recent question related to the effect of low interest rates. Strictly speaking, our government has no say in these – they are set by the Reserve Bank, but nevertheless the argument produced was that lower interest rates means less is paid on mortgages, and hence the poor get the benefit of easier accommodation, with money left over to buy food, etc. 

Yeah, right! Lower interest rates tends to lead to an increase in house prices. First, those with money see less return on bank deposits so take the money to buy assets. Accordingly, you get a booming house market and stock markets have record highs, even though thanks to the virus, businesses are not necessarily doing better business. That means house prices rise, so anyone buying simply pays a similar fraction of their income to the bank in interest, but their capital debt is higher. Because house prices rise, rent rises. The poor have just as little money to spend, or even less, business does not turn over better, while the rich stock up on assets, and probably work out ways to get tax relief for them. Thus lower interest rates are yet again another way to transfer wealth from the poor to the rich. Those who have houses tend to benefit, but they are not the poor.

We also have parties promising lower taxes. The poor would get enough to buy the odd extra loaf of bread a week, while the rich get serious increases because these tax reductions tend to be proportional to the tax. Rent/housing costs increase and that extra loaf of bread is gobbled up by the bankers, plus a lot more. Worse, we have quantitative easing. Either that has to be paid back (and that will not be paid by the rich, even though they are the only ones to benefit) or it will inflate the currency, at which time again the poor lose because the rich have their wealth tied up in assets. If you don’t believe the rich don’t pay tax, see the recent fuss over a certain Donald Trump.So why do the poor put up with this? There seem to me to be two reasons. The first is the poor cannot get themselves organised. They tend to be the ones who don’t vote. They say no party cares about them, but if they are not going to turn up and vote, guess why the parties concentrate on those who will vote. Another interesting point is that parties that nominally favour the poor usually have politicians who are quite wealthy. Getting elected by the poor might be easy, but getting nominated for a party with any show is hideously difficult. Parties pick candidates that will be trouble-free. Donors must not be upset. Which ends up with getting politicians whose major skill lies in getting elected. Asking them then to do something creative, as opposed to doing what the lobbyists want, is too much. Asking for a conscience is just plain silly. It ain’t goin’ to happen any time soon.

We Need Facts, not Fake News

Some time ago I wrote a post entitled “Conspiracies and Fake News” (https://ianmillerblog.wordpress.com/2020/02/19/conspiracies-and-fake-news/) and needless to say, I have not succeeded in stopping it. However, it seems to me this is a real problem for changing public policy or getting people to comply with the new policy. To be effective, policy needs to be based on facts, not on what someone would like it to be or fears it might be, or worse, doesn’t even care but feels the need to be seen to say something. Recently, our TV news has had about four different quotes of President Trump saying New Zealand is in a crisis regarding COVID – 19. I don’t want to give the impression it is like Utopia here; it isn’t, and we have our problems but we have a population of five million and so far the total deaths come to 22. Take your own country and multiply that 22 by your population in millions and divide by five. I think you will find we are doing some things right, and our current problems are almost certainly because the quarantine restrictions for returning citizens were too kind. Most obeyed the rules, but there were a very small percentage who did not. Here, the policy did not recognize the fact that some people are totally irresponsible. A few days ago someone who knew he had the virus broke out and went to a local supermarket for something. You cannot run a quarantine like that, and that selfish oaf will have made things much worse for future entrants.

But for me, the worst things are those who spout what can only be termed “fake news”. One lot of people, particularly young people, argue the virus is just like a mild cold. Well, fact check. Mild colds do not kill 800,000 people in a little over half a year. It is true that for the young it seems to be not very hazardous, but for the older people it is serious. Why? Here, understanding of causes might be desirable. Part of the reason may lie in angiotensin-converting enzymes, of which for the present there are two important ones: ACE1 and ACE2. These modulate the effects of angiotensin II (ANG II) that increases blood pressure and inflammation, which in turn leads to various tissue injury. The elderly tend to have more ANG II, which leads to higher blood pressure, etc. ACE2 mitigates the pathological effects of ANG II by breaking it down. However, ANG II does have useful effects, and so the body has ACE1, which leads to an increase in ANG II. If you are wondering where this is going, I apologise, but now to the virus, SARS-Cov-2; it binds to the ACE2 receptors as a way of getting into the cells and stops its action. As a result, ACE1 is busy stimulating ANG II, and too much of that leads to cell scarring, etc. As partial good news, ACE inhibitors, used to treat high blood pressure, block the activity of ACE1, and so may help stop the bad effects of the SARS virus. As to why the young are less affected, they seem to have fewer ACE sites. (The very young also have lower levels of androgens, which stimulate viral reproduction.) The reason I have gone on a little on this is because as you learn the facts, it becomes a little easier to see how this virus might be defeated. You win by logically applying true facts.

Another objection I have heard is the flu is worse, and I heard one assertion that in the 2018 season it killed 1.5 million. The CDC website says the figures are not yet in, but the biggest earlier figure was a little under 800,000 infected sufficiently to be hospitalized. On request for where the 1.5 million came from, no reply. It appears some figures are made up. Another figure that gets bandied around is the infection fatality rate. This is cited as extremely low. How? Because the number of infected are estimated. You can estimate anything you like! However, if the number of harmless infections and hence those with immunity were true, the virus problem would be over. It isn’t.

Some other bad news. First, masks don’t make much difference, then suddenly, yes they do and everyone should wear one. How did this situation arise? In the absence of tests, and hence facts, various people have expressed opinions. Here, you have to ask what you are trying to defend from. If you are trying to defend against coarse droplets any mask will do, but if you want to defend against an aerosol you need something more sophisticated, and it has to fit properly. On the other hand, a mask will not make the situation worse, so from mathematics if you don’t know, wear one and hope.Perhaps the worst news: vaccines are bad. Apparently someone made up the claim that vaccines have mercury in them, or aluminium nanoparticles. There are even claims that vaccines will contain nanobots that allow the authorities to keep track of you. The fact that these do not exist (application of energy conservation laws will indicate a minor problem with them) and if they did, someone in the vaccine business would object is no problem for these near paranoid rumourmongers. If someone knows that such pollutants occur, why don’t they take the samples to the authorities so the perpetrators will get long jail sentences. Oh, didn’t you know the government is out to get you? They are encouraging this to kill off citizens. That is the most ridiculous balderdash out. OK, Putin appears to have ordered specific attacks on people like the Skripals, but besides being incompetent, that is not general, and Western governments would not do that, and if they tried they would be exposed. However, it leaves the question, how can society survive if this sort of nonsense and non-critical thinking continues?

How We Got to Our Current Economic Problems

A little while ago, Nature (582, 461) ventured an item on our economic problem, and it is of interest to reflect on this. Most economic presentations, especially those that concern politicians, involve microeconomics: what happens to individual, families, businesses, etc. That is natural because that is where the votes lie, and to some extent it is what politicians can control. The main point of the Nature article revolved around macroeconomics, which involves cross-border capital flows, the role and behaviour of central bankers, the role of global financial markets, and the role of the US Federal Reserve, which, despite its grandiose name is actually not a government owned or controlled institution. The owners of the Federal Reserve are effectively members of the plutocratic class that own the economies.

In 1944, Franklin D Roosevelt decided to make some attempt at fixing the macroeconomic situation and he invited qualified experts to set up a useful system to form an international financial system that represented the needs of diverse geographical regions with diverse economies. Of considerable interest, bankers and financiers were barred, as Roosevelt did not trust them to put aside their own interests. FDR understood them very well. The result was the Bretton Woods system, named after where the procedures were devised. This arguably worked well, although I have little doubt it could be criticized.

In 1971 Richard Nixon dismantled that system and replaced it with, er, not much. A special place arose for the US dollar, which, because the US economy was so large that no single transaction would appear on the overall “balance sheet”, this was the only real currency that was considered to be stable. The idea was, if there were anything resembling an idea, let the market rule. A subsidiary idea was (although this was never openly stated) it gave a special position to the Federal Reserve, who could print what they felt like printing. The market is the proper place for fixing the price of things that are traded according to available supply and demand, and each of those is free of external constraints. The concept is, if something is in short supply, the price rises and new suppliers enter the market. However, if a cartel can control supply, say, as with OPEC in the 1970s, price rises get out of hand, but great profits are made by the cartel. Currencies can be open to manipulation. The very rich can withhold to raise the price and sell at huge profits when more is needed to settle other trading. You see a large number of very rich people who got that way by trading currencies, generally through inside knowledge of what is going on in the broader market. However, that trading does not create anything of value; it merely skims from those who do, so such trading is little better than a bunch of parasites who also precipitate the financial crises we seem to have gone through since 1971. Of course, on the other side of the argument, the value of a nation’s currency should not be set by politicians with other agendas, because long-term, only too many suffer.

This market rules system has led to much greater world trade, it has raised the living standards of many, but in the western world it has done this by permitting the very rich to become ridiculously more wealthy while punishing what we can loosely call the working class. Manufacturing has been shipped to the lowest cost labour, and the multinationals from a limited number of countries built manufacturing complexes, often with very little regard to the health of the local population. Pollution occurred at levels that would be totally unacceptable in the countries where the companies have headquarters. I recall driving through Cubatão, which is just inland from Santos in Brazil, one evening in the mid 1980s. One chemical plant was pouring out clouds of white stuff, which I provisionally guessed was phthalic anhydride. The health effects of this sort of pollution on the locals were terrible, there was no excuse for this, but because general safety and pollution control was absent, the product would be cheaper. So the net result was that a surprising amount of manufacturing fled the West to places that did not care, while workers in the West joined the unemployment queues.

Thus fortunes for the very rich increased dramatically, but at the expense of the not so rich, many of whom became the new poor. The real money was made by bankers, and as they grew richer, not by doing traditional banking but by selling financial “products”. After the 2007-2008 crisis, you might think things improved, but no, the world is still flooded with junk bonds, leveraged loans, and huge debt. You might have expected the US Federal Reserve to act responsibly and limit the potential for excess credit, but after 2009, why, no, they allowed the private credit market to expand to $US 9 trillion. Since a certain virus struck, the Federal Reserve has made a massive cash injection, but where has this gone? Largely to bail out what the Nature article calls “Monetary chicanery”. In short, the bankers pass go and again collect 200 billion.The question then is, can markets provide affordable health care, affordable housing, affordable higher education, security in times of crisis? I leave you to find your own answers, but I suspect the answer will often be no. Then there is the question, what will happen to all this created money? So far it is sitting harmlessly on ledgers, but what happens if enough of the rich decide to cash out at the same time? Who saves the poor, and the innocent? This is a system that needs fixing, but where do you find the fixers? Not from those who have the resources to fix it because they are the major beneficiaries.

After Lockdown, Now What?

A number of countries are emerging from lockdown and New Zealand is in the select group in which there are very few new cases, and indeed we have days in which no new cases are recorded. Now comes the damage. The Economist ran an article that summarized what happened in China following the release of lockdown. Rides on public transport are down by a third, restaurants have 40% fewer clients, and hotel stays are a third of normal. Bankruptcies may be up to 20%. People are still wary, either of the virus or their wallet.

It is one thing to open shops, but another thing to get people to go to them and buy stuff. If the disease is still around, while some will take the risk, many others will not, although on this front, in NZ shops initially had huge days. It is not totally bad for those shops that can last the distance because for many things provided people have the money, they will still buy the same amount, other than, perhaps luxury consumables. However, the question then is, will they still have money? Different countries will have different problems here. Apparently in Europe a fifth of the labor force are in special schemes where the state pays their wages, but that presumably, cannot go on indefinitely. In NZ, after a week following lockdown, the jury is still out. People are working, but are they becoming wary?

In New Zealand, the State offered wage assistance to companies that had their income reduced by 30% due to the lockdown, which was a lot, but a number of companies, including the airlines, shed a lot of staff because it was obvious they were not going to operate at anywhere near their previous level. Airlines create a rather unusual situation: pilots rightly earn a lot of money, so would they be prepared to share work with another pilot, each at half-pay? The company keeps pilots on its books for when things improve, and most importantly for the pilots, they keep their minimum required flying hours up to date. That approach won’t work for low-paid workers. But then airlines may not have much work anyway. Here, there has to be social distancing. The passengers may at last get reasonable leg room (Yay!) but either ticket prices increase sharply or the airline realizes there is no point in losing money with half-full planes through social distancing.  The simplest way to raise ticket prices is to cut out the “specials”, so designed to fill aircraft. If the expensive ones with a small markup still sell, the airline may remain viable. So what should the pilots do? The question then comes down to predicting the future.

Herein lies the problem: most people will have choices, and those who more correctly accommodate themselves to whatever happens prosper. Those who make unfortunate choices, or worse, bad choices, will suffer. Governments also have choices, and they tend to be influenced by the next election, which in our case is this year. Propping up zombie companies is bad for the economy, but mass unemployment is bad for votes. What will happen? The pandemic will uncover some scabs in our society. Here, half of our deaths came from badly run rest homes. My guess is the biggest economic price will be paid by the poor, or the small business owner who is joining the poor. Furthermore, governments may still not be able to stem the downturn. In New Zealand, the Government announced a big spend-up in infrastructure, and shortly afterwards the biggest construction and civil engineering company shed 10% of its staff.

What happens to globalization? What most people do not realize is how interconnected the world economy is. As an example, Boeing assembles aircraft, but the parts come from a wide-ranging source. For a Rolls Royce motor, it too will depend on parts from a wide range of sources. If any of these sources break down because of the pandemic, there will be a problem. Equally, with a great reduction in international flights, maybe Boeing will stop buying when it can’t sell. Widespread unemployment could cascade out. Meanwhile, selected industries will clamour to their governments for bail-outs. There will be a cry for protectionism, without realizing how much “local” industry depends on elsewhere.The odd thing is, we now have a rather unique chance to shape the future. Can we do it sensibly? And what, really, is sensible? And how do you prevent the spoils, such as they are, going to the already super rich?

Government bails them out, but then what?

In New Zealand, I am far from certain that anyone knows what to do when our lockdown ends. The economist thinks that the money supply will fix all things and reserve bank has done what it has not done before: embarked on quantitative easing, Many other governments have done the same and the world will be awash with money. Is this a solution? It is supposed to compensate for the lockdown Two questions: is the lockdown worth it, and is the money supply the answer? To the first question, here the answer appears to be so, if you value lives. After two weeks of lockdown, the number of new cases per day were clearly falling, and by Good Friday the number of new cases had dropped to almost a third of their peak. They continue to drop and the day before this post, there were only 20 new cases. However, if we look at the price, our Treasury Department has predicted the best case is something like 10% unemployment, and if the lockdown lasts significantly longer than the four weeks, unemployment may hit 26%.

To the second question, the jury is out. Around the world, Governments think yes. The US Congress has prepared a gigantic fiscal stimulus of $2 trillion, which is roughly 10% of GDP. Some European countries have made credit guarantees worth as much as 15% of GDP to stop a cascade of defaults. New Zealand is rather fortunate because its national debt was only about 28% of GDP prior to the virus. Some predict the stimulus may reach 22% of GDP, but it has room to move before reaching the heights of some other countries. However, it is far from clear that it will successfully prevent a raft of defaults.

First, defaults always happen. In the OECD about 8% of businesses go bust each year, while 10% of the workforce lose their jobs. Of course, since economies have been expanding there was an equal or greater creation of business and jobs before this virus. That won’t happen post virus. Take restaurants as an example. Restaurants closing down may well re-open under new management, without the old debt, and not so many workers. That may not happen post-virus because people under financial strain or fear that unemployment might be imminent will not eat out, and the tourists, who have to eat out, will not be here. Therein lies the problem. If people fear there will be a slump, there will be; such fear is self-fulfilling. 

There will be changes, and some may be guided by the virus problem. Some businesses will cut costs by specializing in home delivery, and they should be doing that now because first in that performs well probably wins. For manufacturing, the relief of the lockdown may well retain heavy restrictions, such as expecting people to devise a way for working so they remain two meters away from others. That requires significant investment to do this. Will it be worth it? It seriously raises costs, so will people buy the more expensive products? But will this happen? The basic problem for small business is that it is almost a waste of time planning until the government makes its future laws and regulations clear, and once stated, sticks to them. I have run a small business since 1986, and the one thing that has always made things difficult is a change of rules. You get to know how to operate in one set of rules, but when those change the small business has too many things for too few people to do, and a successful small business is light on management. The owner tends to do everything, and I found new regulations to be a complete pest.

Meanwhile, the governments of the world have some interesting choices. Historically, when governments intervene, they seldom let things go back to where they were. If governments get used to regulating, will they let go? If you prefer to leave it to market forces, will that lead to greater wealth for all? As I heard one man say on the radio today, those with money will be looking to buy up assets, i.e. company shares that have become somewhat undervalued. Unfortunately, while that makes some richer, it does nothing for the general public.All of which raises the question, what should they do? That depends on what is required to get out of the slump. The obvious answer is to start additional businesses to replace what has failed, but how do you do that? One of the things that is critically required is money, but while that is necessary, it is not sufficient.  Throwing money at such things is usually a waste. A business needs three basics: technology (more broadly, how to make whatever you are selling), the ability to sell whatever you are making, and management, which is essentially getting the best us of your money, staff, and other assets. Only a very moderate number of people are skilled in even one of those, very few can handle two, and nobody can cover all three well. This is why so many small businesses fail. And that raises the possibility that what governments need to do is to somehow bring the required people together. And that is something with which governments have no experience.

Ebook discount

From April 13 – 20, A Face on Cydonia,  the first in a series, will be discounted to 99c/99p on Amazon. In 2129, Fiona Bolton has her life before her. She is a world expert in sonic viewing with a corporation-funded University chair, but when her husband protests against that corporation she finds herself recording his murder. She wants justice.

Jonathon Munro so wants to be important in a corporation, but he has no talent that should be needed by any corporation, until he finds himself in a position to help a senior conceal a murder. If he wishes to advance he must ditch his girlfriend, Sharon Galloway, who is developing a special digging device. Meanwhile, there is growing pressure to explain why, on a TV program, a battered butte on Mars morphed into the classical face and winked. Grigori Timoshenko forms an expedition to settle this “face” for once and for all. He needs Fiona to image the interior of the rock, he needs Sharon and her digger, and he gets Jonathon anyway. With hidden agendas, a party in with members hating each other, the gloss of visiting another planet soon wears thin. A story of corruption, greed, murder, the maverick, the nature of Mars, and with the problem of why would an alien race be interested in such a disparate party. Book 1 of the First Contact trilogy.

The Virus Strikes

By now it is impossible to be unaware of the presence of a certain coronavirus (SARS-Cov-2, causing COVID-19) that is sweeping around the world. (Wouldn’t it be better if some nit-pickers could stop changing the name and do something more constructive to deal with it?) Unfortunately, the time for containment has passed. It may have been that the only chance was early on in Wuhan because China can do things to stop the personal lack of consideration of others; the possibility of 5 years in a Chinese jail would inhibit most from personal stupidity, but the authorities did not get started quickly enough. This, in turn, may have been because the officials in Wuhan did no alert Beijing until it was impossible for Beijing not to notice. That golden opportunity was missed.

In New Zealand, we started with a law passed by which all people coming into the country had to self-isolate for two weeks. Within about two days a small number had been arrested for breaking that rule. In Wellington here we had someone fly in from Brisbane. He had been tested in Brisbane, but would he wait for the test results? No, he felt he wasn’t sick (so why was he tested?) Did he stay isolated until the test results? Of course not. When you are that self-centred, you do not suddenly become responsible. Wellington now has the second most cases in the country.

There was one woman who arrived in Auckland from overseas and was feeling ill.  At this stage she was advised to self-isolate but the law requiring her to had yet to come into play. So what did she do? She convinced herself she wasn’t so ill after all, so she flew to Palmerston North, where she discovered that maybe she really was sick so she flew back to Auckland. The net result of this is we shall get some idea of how easily this virus really does spread. So far, Palmerston North has three cases, but if there is an inexplicable surge over the next few days, we shall find out something. If, on the other hand, there are no such cases, we may be able to breathe a little easier. (It is not just the people sitting close on the aircraft; recall how people behave prior to boarding, during boarding, collecting luggage, and if using public transport, getting to and from the airport.)

While we were relying on voluntary compliance, the virus was actively spreading. The government has now required a complete lockdown, going out only for essential services. Will that work? In principle, if everyone on the entire planet stayed home for a month, all would be well. Those who had it would have to recover, but the virus would run out of people to transmit to. Simple? The problem there lies in everyone doing it at the same time. In the West, people want freedom of movement. Asking them to give this up seems to be beyond them. In New Zealand this might work. The police and if necessary the military are there to enforce it, and China appears to have shown this can work. We shall see.

As for me, I am self-isolating, only going out for groceries, but in my case, because I am retired it is no big deal. My day-time job used to be to do chemical research on contract for companies wanting to develop new products. That work has dried up completely. When potential clients are having problems staying open and paying their wages, research is the first to be stopped. As it happens, I was approached to write a chapter for an academic book on hydroliquefaction of algae, so writing that will keep me occupied. Searching the scientific literature can be done on-line these days.

The main tactic is not to get close to people. However, there is also the problem that the virus may land on something and you touch it. Staying at home is fine, but you still have to get groceries, and some people have to work.  Hand washing is important, but if you touch something after washing hands, that wash does nothing for what follows. The virus on the hand does no damage, but how often do you touch your face? What I intend to do is make a blocking gel to smear on my hands when visiting the supermarket. Two functions are desirable. One is to kill viruses. The second is to make the virus immobilized on the gel, like flies on flypaper. The coronavirus has a “crown” of protein so something that binds protein is called for. I won’t know for sure it works, but one advantage is that while I cannot get it tested for efficiency, I can back my own theoretical ability for myself.So, keep well, everyone. If all goes will and we all cooperate, this will pass. Finally, good luck all.