Español

Thinking 2020

Written by Pablo González and Pedro Nonay trying to understand Covid 19’s consequences.

Entry 4 – covid 19

April 15, 2020

As on previous occasions, I begin with comments on contributions received from friends who are readers of these entries:

• Bear hibernation: 
  
  A friend tells me that he thinks of this as the hibernation of the bear: to sleep, and to spend the minimum amount of fat (economic resources) in the meantime. When we come out, there will be time to hunt (produce) to replenish fat.
  
  It’s certainly descriptive enough. And it may work for those who have enough fat (as happens to bears, although some die along the way). The problem is that those who have enough fat, but not much, will not die from it (maybe from the disease, but not from the economy), and when they get out they will not be able to produce, nor buy. They will only be able to “encourage revolutions” from the logical anger. And those who come out in good conditions, may not have buyers for what they produce.

• Plastics, climate change, etc:
  
  Another friend reminds me that, before Covid 19, there was an obsession to do away with plastics. Now there is an obsession with making gowns for healthcare workers out of plastic – how would we make them if plastic bags had been eliminated?
  
  He also talks about all the investments previously planned to stop climate change. He wonders whether it will make sense to spend money on that after the crisis, or whether it would be better to allocate it to urgent needs.
  
  The underlying idea is that we were spending money on “nonsense” (there are many more, and even more nonsense than those in the examples). And that now it is time to focus on serious things.
  
  I believe it is true that we must urgently focus spending on what is useful. But I also believe that climate change is not nonsense, but rather a threat even more serious than Covid 19. However, although it is big, it is not imminent (a little yes, but not so much). In short, I think we have a little time to spend money on the urgent, and then go back to thinking about climate change and such things.

I now continue with the “story”.

Important sign of new times. Apple and Google team up.

I guess you have all read the recent news that Apple and Google have entered into a partnership to create or facilitate apps that manage big data to help disease management. 

What they are looking for is to have traceability of people’s physical contacts and their health status. Thus, when someone has just discovered their illness, it is possible to inform the app, and investigate with whom they have been in close proximity in the past two weeks. Then, the same tool can warn these people of the risk, recommending them to be confined to avoid further infections.

It is no news that these apps are potentially useful. In fact, almost every country and organization is working on theirs (even I, humbly, am related to one of them).

What happens is that, for these tools to work, they need to have a very large number of users. If the majority of people do not have the app, the physical contact will not be recorded, nor will it be possible to warn many people of the risk.

That is where the importance of this alliance lies. Even if the USA made their own (and very good) app, it’s rare that more than 50% of Americans (and almost none of the rest) would download it. However, Apple and Google together can do something very different (not what they have stated, but they may have plans not fully communicated, in fact I think that’s what’s going on). They can change their operating system to make the app part of the operating system, i.e. mandatory for anyone who wants to use the phone (almost 100% of humanity). 

If they do so, the tool will be truly useful. 

There are conversations, as we are reading a lot these days, about the problems of privacy, freedom, and such things, which are no small matter, but which are acceptable if our risk of becoming ill is minimized. Although it is a far from elementary debate, haven’t we accepted great loss of freedom of movement by confinement as a lesser evil? And wouldn’t it be a lesser loss if we have to be confined for only 15 days after the app alerts us of risky contact?

But I have not yet seen conversations about something that I think is a very important new development: the change in world power.

The truth is that, if Apple and Google end up doing that, they will demonstrate that they alone are capable of providing a much better solution than all the governments put together. And the inhabitants of the planet will be able to see clearly who is bothering with ineffective laws (governments), and who is providing solutions (without spending tax money).

This will be a huge threat to the credibility and power of governments. And, when governments don’t have the data, their power will diminish even more. And, … future useful new ways of using data will only be in the hands of the “new bosses” (the same will be true for the risks of misuse).

It may be a sign of new times and new trends: the power structure of governments is obsolete and ineffective. The same goes for the concept of country and borders (if internet, and virus, and pollution, and … are not stopped by borders, is there any use in their existence?).

It seems that someone capable of providing global and effective solutions will be the winner of this battle. And it may be that, little by little, we will be handing over power to those “someones”.

A minor example (compared to Apple and Google) is what happened in Spain with the face masks: Inditex proved to be much more effective than the government. And more than a few have called for handing over the reins of government to Amancio Ortega. 

Another slightly older example (less than a year old) was Facebook’s declaration of interest in developing its digital currency (its own bitcoin, which they called Libra). The truth is that governments got “scared”, and put all possible obstacles. The matter is at a standstill, but the trend is clear.

If this trend materializes, the result will be that global governance of the relevant things will be in the hands of a set of global companies and organizations. Each with its share of power. For example, Apple with the above, WHO with the control of health (by the way, Trump’s anger today with WHO is just another indication of the fear they have of losing power), and so on with other things (UN, World Bank, …).

It would remain in the hands of the “old public administrations” the most local things, such as the police for conventional crimes, the maintenance of transport infrastructures, water, …, as well as the “local identities”, such as deciding the patron saint of the town, the regional costumes and dances, or the date of the “diada” and its yellow ribbons (very important things for many fools). Of course, such decisions would be of local scope, smaller than the current countries.

In short, I believe that we are facing a global coup d’état. Although they will try to do it little by little, and without being very noticeable. In fact, it was already happening, or wasn’t the battle for 5G a bit of the same thing?

Here I remember an old conversation: an Administration (country) has to have the geographical size in which its subjects interact. Because, if the subjects interact too much with the outside, the famous externalities represent a too relevant percentage of the GDP, and this GDP information is no longer controllable, so it is also no longer useful. Moreover, the country cannot impose its laws on other countries to implement the strategies it has decided on its GDP.

Therefore, either we go to global administration (but without central government, but different government for each issue), or we go to countries more closed to communication between them (and cancelling internet, and assuming that viruses will do a lot of damage, and …). That is, global government, or middle age (I exaggerate, but not that much).

I digress here to talk about the reaction measures to these threats by the “old administrations”. As they clearly see the threat to their power, they try to defend themselves in every way they can think of (it is still a war).

For now, the best defense tool they have found is to try to unite with them the masses of their regions (to use the subconscious of the people as a defensive barrier against the enemy). The central idea is: what is ours is the good thing. The outsiders know nothing and are dangerous. It is necessary to avoid contact with them, and even to marginalize them.

This tool leads us to local populisms, to racism, to the struggle of religions, … All these things are very much on the rise.

A paradigmatic example of this is Catalonia. To maintain and increase the power of the regional administration (the chiringuito for the distribution of four cronies), they need to convince many fools that what is really essential in life is to have their own language, to wear yellow ribbons, to eat butifarra, … And, the truth is that they have convinced them. So it is not so clear the winner of this new war (the big one, not the one of Catalonia, which is as minor as their arguments).

Money is a lie (albeit a very useful one).

At a time when there is so much talk about QE, and about increasing the balance sheets of central banks, with such talk they are hiding the underlying truth: they are hitting the banknote printing machine without any support for it.

That brings to mind the concept of money. Even over and above all economic theories, and whether such action will lead to hyperinflation, …

As is well known, there are three conditions that something must have to be considered “money”. It has to be “store of value”, “unit of account”, and “instrument of payment”.

As for the store of value, if they keep hitting the banknote printing press for too long, won’t there come a time when we will be afraid to hold our savings in that currency? In fact, some folks are already expressing that fear. When that time comes, maybe the euro, or the dollar, will cease to be a store of value, so it will cease to be money.

As a unit of account, if, because of the printing of many new banknotes, the price of things changes constantly, we will have to be all the time imagining what it gives us a banknote for every day. And it will cease to be a good unit of account.

As a payment instrument, if no one wants to have their savings in that currency, they will not accept it as payment for what that person has produced and we want to buy.

In other words, the risk of the dollar and the euro ceasing to be “money” (even though governments say they are) is no joke.

In reality, what are the dollar or the euro today? Little more than pieces of paper in which people trust that others will accept them in exchange for their goods and services. But that trust is rather weak. And, … what is that paper worth if there is no trust?

History is full of examples in which a coin lost its character of “money”. And, as in the match game: whoever was caught in the circumstance with small pieces of paper in his hand was burned. In Spain, almost all of us have heard our grandparents talk about what happened to the money of the Republic at the end of the war.

The truth is that, although there are other ways for a money to cease to be money, one of the most classic ones is the one associated with a great change of power (the new power implants its new money). And, …, I have already said before that I believe that we are facing a war for the change of power.

If this implementation of a new money were to take place, we would be facing an opportunity to approach what some people propose as the necessary “great reset”. But, there would be huge technical-legal problems with the many contracts in force referenced to the “old money”. And many people would lose a lot. There would be so many that a “rescue” would have to be made for them (more than anything else, so that they would not start a revolution and take the power away from the one who has just taken it). Although there is a possibility of doing it without revolution and with a change of power: that nobody is completely ruined, but that there is something similar to a massive change of social classes: many old rich become new poor, and vice versa (something like that happened in Spain after the civil war).

The problem is that we do not know if this loss of money concept is going to happen with our currencies. Much less do we know when it will happen, if at all. But we do know that the circumstances are so exceptional (because of the great crisis, because of the change of power, because of the many QE, …) that they force us to at least think about the possibility of it happening.

Perfect protection against this risk is impossible. It would be necessary to:

• Not having anything on paper money. Neither in your pocket, nor in the bank. In other words, have everything in “things of real value”.

• If you have something in banks, do not do it in banks with balance sheets full of “shit” (mainly public debt), because they will go bankrupt.

• Not having any signed contract referenced to that currency that will cease to be money. Neither credits, nor amounts pending payment/collection for the delivery of goods or services, …

• In addition to having our valuables in non-seizable assets, or in safe jurisdictions.

However, partial protections can be applied, which may help somewhat:

• Exchange some small pieces of paper money for things of relatively clear value (gold, diamonds, art, land -this with its many nuances-).

• Playing with several different coins, in the hope that they do not have problems all on the same day (hope not so clear). Or that not all coins have problems (this is a little clearer, but it is not, for me, which one is saved).

• Playing with different jurisdictions, just in case different local laws apply to the disappearance of that currency.

• Review our contracts and see in which of them we lose more with the disappearance of the currency (e.g., if one of them says that we will deliver something of great value, and they will give us these worthless papers). In such cases, we will have to try to modify the contract, or at least accelerate the delivery of the good in order to be in time to exchange the papers for something else. The opposite case is the reverse, in which we would try to get something of value by handing over our papers.

In general, the problem is that, unless we accept barter, we need to use something like money to organize exchanges of goods and services. And, even if we were to accept barter, we might not have anything that the supermarket guy would be interested in on the day we need to buy (more than likely).

This reminds me of an interesting concept: our savings money is nothing more than an archive of hours worked by us (or by our elders, in the case of inheritances), and not spent, nor exchanged for anything yet. We have it available to exchange those hours of work for something that interests us in the future. 

So where and how do we archive our hours worked in the past. We certainly don’t want them stolen from us.

All of the above makes me think a lot about Bitcoin and other cryptocurrencies. They solve very well the unseizable thing, and making QE impossible. The ability to spend it anywhere is also quite well solved (there are already many cards that allow us to pay with our bitcoins and the counterparty to charge in local currency, so he does not need to “believe” in the Bitcoin, in fact, he does not even know that we have paid him with bitcoins). But, other problems are not yet solved, such as high volatility, nor sufficient trust. It is quite a risky decision. Although it can be an option for small percentages of the money.

It will continue, …