What You Need to Know Right Now About the Metaverse 

Part I: Timmy and the Metaverse 

Timmy agreed to be homeschooled last year, but his parents couldn’t get the 15-year-old to do the work. As a punishment, his father pulled him from his baseball team. Timmy didn’t seem to care, so his father imposed additionalsanctions: No more outings with friends. His TV was removed from his bedroom. And his collection of vintage comic books was put in storage. Timmy didn’t object to any of this. But when his father tried to take away his cellphone, he refused to comply.

These days, Timmy spends virtually every waking hour on his cellphone. He’s out of school. He doesn’t play catch with his father anymore. His social life, such as it is, exists online.

Timmy’s father is worried. “His body is still here,” he says. “But his mind is somewhere else.”

It’s true. Timmy’s body remains in the physical universe, but his mind is no longer a citizen of the country he was born in, or even of the world at large. Timmy’s mind lives in the Metaverse.

In the Metaverse, Timmy can be an adventurer, a warrior, and a rock star – all on the same day. He can go to work as a stock broker, build and decorate his house, develop and profit from a farm, manage a professional sports team, even compete in mixed martial arts.

His Metaverse is not lonely. It is populated with fellow denizens – some avatars of his real-life friends, others beings of his own creation. He can play with them, fight with them, have sex with them, and kill them – all from the safety of his bedroom.

Everyone Is Doing It 

For his 9th birthday party, Cathy Hackl’s son didn’t ask for favors for his friends or themed decorations. Instead, Ms. Hackl told Time magazine, he asked if they could hold the party on Roblox. On Roblox, a digital platform that allows users to play free games and generate new activities of their own, Hackl’s son and his friends would attend the party as their virtual avatars.

“They hung out and played and they went to other different games together,” she said. “Just because it happens in a virtual space doesn’t make it less real. It’s very real to my son.”

 Everyone Is Talking About It 

Several years ago, some of the investment analysts we publish began writing about a development in technology they called the Metaverse. As they described it then, it was going to be the future of virtual reality games. And it was going to be big. The clunky video games of the past were fast evolving to a point where the experience of such games would be indistinguishable from experiences in the physical world.

If you have paid any attention to these sorts of games recently, you know how prescient those analysts were. The animation is natural. The visuals are in 3 dimensions. The audio is lifelike. It is very easy to get lost in them.

And refinements are occurring at the speed of light. It feels like we are just a few years away from fully formed virtual experiences covering all five senses. It’s no longer just about video and audio. It’s about smell and touch and feeling.

Why Facebook Changed Its Name 

I’m sure you’ve read that Facebook recently changed its name to Meta. In an amazing display of bravado, Mark Zuckerman and his team decided to make the change to overtly announce its vision of its future.

Facebook was an amazing business that grew into a behemoth of social media. As Zuckerman sees it – and I don’t doubt it – Meta will be more than that. Much, much more.

In explaining how they chose the new name, Zuckerman defined the Metaverse as a technology to “make everything in life – from business to entertainment and mostly to human communication – easier and more efficient.”

That’s one way of putting it. I’d put it differently.

The term was coined by Neal Stephenson in his 1992 sci-fi novel Snow Crash – a portmanteau of “meta” and “universe.” In the novel, humans use digital avatars of themselves to interact with each other in a three-dimensional virtual space (the Metaverse) that exists outside of the real world.

Thus, the Metaverse is a parallel universe that exists digitally for each individual that lives within it. It is Facebook and Instagram and Roblox put together. It is online chatting and texting, gambling, sports, research, education, book clubs, discussion groups, travel blogs, chat groups, online dating, and every other form of social interaction one can think of, including sex.

The Metaverse is the inclusion and synchronization of all of these into an interactive universe of digital communities, each of which is controlled by a pantheon of digital gods.

And Mark Zuckerberg is one of those gods.

Part II: The Metaverse as a Virtual Country 

I think of the Metaverse as a federation of digital nation-states. But to simplify the metaphor, let’s consider just one Metaverse: the Metaverse of Meta, what Facebook is fast becoming.

As a digital nation-state, Facebook/Meta is far along in its development. In terms of population, it is already the largest nation in the world with 2.9 billion users. In terms of GDP, it’s nowhere near number one, but it’s not doing badly. With advertising revenues of $27.2 billion and total revenues of $86 billion, it is tiny compared to the US and China. But it is larger than 98 other countries, including Oman, Luxembourg, Croatia, Jordan, Belarus, and Iceland.

There is a reason that Facebook (and the other major digital nations, such as Apple, Alphabet, and Microsoft) are growing so fast.

From the citizen’s point of view, a country is a place where one lives. From the government’s point of view, a country is a place full of citizens that must be given certain products and services, and also taxed and controlled.

When I began thinking about it this way, one thing became shockingly clear. In all the important ways, digital countries are superior to real ones. They are better at doing what they must do and better at doing what they want to do.

They are better at providing the goods and services a government provides. They are better at taxing their citizens. And they are better at controlling them.

The primary purpose of a nation-state is to provide protection for its citizens in terms of their lives, liberties, and property. A secondary responsibility that many governments have taken on is to provide some form of happiness – or, at least, the right to the “pursuit of happiness.”

In all of these areas, the Metaverse is more comprehensive and more efficient than physical nation-states.

Let’s take a look at why I say this.

How Meta Is Meta? 

In the Metaverse, you have not only the right to life, but to the life of your choosing. You can be a doctor, lawyer, farmer, or rock star. You can be six-foot-four or four-foot-six. You can change your race or your gender with the click of a button.

Plus, your right to life isn’t limited to a single life. You can rise from the dead. You can also live duplicate lives sequentially or simultaneously.

In the Metaverse, you have the right to acquire as many digital goods and services as you want. You can be rich. You can be famous. And perhaps most importantly, you can enjoy the love and admiration of everyone in your digital nation-state.

You can have all these things because, as a citizen of the Metaverse, you can design your own life experience.

 If the Metaverse is better for its denizens, it is equally better for its governors.

What does a government want from its citizens? Two things, primarily. It wants obedience to its laws and regulations. And it wants the ability to tax them.

The Metaverse satisfies both of these needs well and efficiently.

Let’s look at taxes.

Taxation in the Metaverse 

 In the US and other nation-states, you have to pay income tax on the money you earn, property tax if you own a home, and – if Elizbeth Warren has her way – a wealth tax if you have wealth.

These taxes are mandatory.

In the Metaverse, the only tax you pay is a sales and usage tax on the products and services you buy in the Metaverse. Individual taxation, in other words, is voluntary. And for many experiences, such as games and gaming, you have options. You can pay with money or you can pay with time.

In either case, there is no way to avoid paying what you owe. Every transaction in the Metaverse is tracked and sent to the cloud and recorded on the blockchain.

Business and property taxes exist in the Metaverse, but they, too, are optional. As a citizen of MetaLand, you don’t have to have a business. Nor do you have to own property. But if you do, you pay a fee for that. That fee is also tracked and sent to the cloud and recorded on the blockchain.

In short, the taxation system of the Metaverse is superior to the tax system of the US (or any other nation-state) because it is both voluntary and impossible to evade. It is easy and unobjectionable for the private citizen and 100% efficient for the government.

Law and Order 

In the physical universe, it is possible to reduce your taxes through myriad tax code loopholes (if you have the right lawyers and accountants). It is also possible to cheat on your taxes. But if you get caught, you are likely to end up in jail.

Likewise, in the physical universe, there’s the risk of punishment if you engage in any other kind of criminal activity – from cheating your customers to abusing your spouse to rape and murder.

In the physical universe, order is possible only when the government has the capacity to enforce its laws. And that enforcement is only possible with coercion. The threat of punishment (sometimes extreme punishment) for citizens that break the law is reasonably effective at deterring crime, but it is far from perfect. Not only does crime continue, the fact that the government allows itself to use physical force puts it always in danger of being overthrown.

But in the Metaverse, there is no need to resort to the threat of punishment to enforce the law.

The digital nation-state has no need to intervene in the physical lives of its citizens because it cares nothing about their physical lives. The only thing that matters to digital nation-states is the digital attention of its citizens. When they act improperly, they can be punished by temporary or permanent banishment. No guns. No breaking down doors. No bloodshed.

And 100% compliance.

In Summary 

The digital nation-state is better than the physical nation-state both for the citizens and for the government. And because everything is or seems to be voluntary, the digital nation-state can exist without fear of rebellion or revolution.

The Metaverse is not a fantasy. Nor is it a prediction. It is already here, today. It is where Timmy, and Cathy Hackl’s son, and many of their friends live. It is where millions more people their age are living every day.

Whether in virtual reality (VR), augmented reality (AR), or simply on a screen, the promise of the Metaverse is to allow a greater overlap of our digital and physical lives in wealth, socialization, productivity, shopping, and entertainment.

These two worlds are already interwoven, no headset required. Think about the Uber app telling you via location data how far away the car is. Think about how Netflix gauges what you’ve watched before to make suggestions. Think about how the LiDAR scanner on newer iPhones can take a 3D scan of your surroundings. At its core, the Metaverse (also known to many as “web3”) is an evolution of our current internet.

“You’ve got your goggles on, 10 years from now, but they’re just a pair of sunglasses that happens to have the ability to bring you into the Metaverse experience,” says John Riccitiello, CEO of Unity Technologies, maker of a video game engine that is increasingly used to develop immersive experiences on other platforms. “You’re walking by a restaurant, you look at it, the menu pops up. What your friends have said about it pops up.”

Yes, you heard it here first. The Metaverse is here. And it’s here to stay. It is not a part of our world. It is its own separate world. And it’s a world that is, in most ways, preferable to be a part of. Metaverses like Meta or Apple or Google will eventually be richer and more powerful than nation-states. Zuckerman understands that. So do his fellow meta-gods. They are doing their best to keep us distracted by talking about customer experience. That’s not the goal. The goal is universal, voluntary domination.

I’ll have more fun thoughts – such as why the Metaverse will result in a drastic decrease in human population – in upcoming blog posts. Stay tuned!

The Hidden Choreography of a Compelling (and Very Profitable) Marketing Tool 

“Advertising is fundamentally persuasion and persuasion is not a science, but an art.” – William Bernbach

As a consultant to one of the world’s largest digital publishing networks, I’ve had the opportunity to see the interview-tisement develop gradually over the years, from the crude and amateurish efforts that were common 10 and 15 years ago to the kind that turn ordinary books into NYT bestsellers… make instant celebrities out of college professors, pastry chefs, and fitness teachers… and result in tens of millions of dollars in sales for the expert lucky enough to be endorsed by Oprah Winfrey.

As with the direct-marketing copy that you’re familiar with – whether you’re writing it yourself or working with a copywriter – the script for the interview must achieve credibility on several levels. Not only for the guru and the product you are selling, but (very important) for the host himself. And the way you establish his credibility is to have him play the role of skeptic – in a moderate, reasonable, likable way. If he is not likable (both to the guru and to the audience), the interview is not pleasant to watch. It becomes emotionally complicated, and the message is lost. (This is the big secret that Howard Stern learned in his journey from shock jock to perhaps the best interviewer in America.)

Introducing the Guru 

You begin with the host on camera, speaking directly to the audience. He is holding research reports in his hand, which he will refer to a bit in introducing the guru, and perhaps later in the interview.

The introduction should initially be about the guru’s credibility, not track record. When it is all about track record, it becomes obvious to the audience that they are about to watch a con job. So the host begins with whatever you have about the guru that is universally recognized as credible… a good educational pedigree, a prior position with a prestigious post, a mention of publications, etc. After announcing the guru’s formal credentials, the host mentions the new idea/ system/ whatever that the guru has been invited to talk about. And he describes it in a way that is relevant, arresting, credible (again), and offers an indirect promise of some kind.

At this point, the host might take a look at his research reports and read a few things about performance and perhaps a few testimonials.

Until now, the host is NOT at all skeptical. There is no reason for him to be. He could evince the slightest gesture or the smallest comment of skepticism when he mentions a hard-to-believe performance claim, but that is all. His job during the introduction is not to confront the guru, but to give the audience a reason to think, “Wow, this is going to be interesting!”

The First Impression 

The introduction ends with the host welcoming the guru to the show. He does this by turning away from the camera to where the guru is seated.

(Note: Until now, the camera has been on the host only. This is important. The guru should not be seen until the entire introduction is completed.)

In response to being welcomed to the show, the guru smiles and says, “Thank you.” And maybe, “Happy to be here.” He does NOT start acting like a cheesy infomercial guest, barking, “I’m really excited to be here… I have so much I want to say” crap. The goal here is for the audience to see him as modest, likable, and approachable.

And, by the way, this is the protocol of every good and serious TV interview program that exists. Check for yourself if you do not believe me. Even if the guru is Tony Robbins, you will see that when he is interviewed he does this simple smile-and thank-you bit.

The First 2 Questions 

This is where the host begins the transition to intelligent, skeptical interviewer, acting as the representative of the audience, including the most skeptical of them.

That said, his first question should be only moderately skeptical. So it could, for example, be about some hard-to-believe statistic from the guru’s track record. But posed in a way that does not really challenge.

And in response to the undeniably amazing statistic that the host has just mentioned, the guru says something self-effacing, like, “Yeah, I got lucky that time.”

The host gives the guru a glance, saying, “Okay, you’re being modest” – and asks another such question.

This time, the guru admits that there must be something he’s done that is more than just luck. But he still makes an effort at modesty, presenting as someone who’s not looking to be in the spotlight. He’s there simply to answer questions about his new idea/ system/ whatever.

The Real Interview 

The guru has proven himself to be honest and likeable and confident of his abilities… so now the real interview begins, and the tougher questions are asked.

How the guru answers these more challenging questions is of upmost importance. He should not appear to be reading marketing copy on a prompter. He should not look/ act like he is trying to sell anything. Rather, he is earnestly trying to explain how his idea/ system/ whatever works. He’s undeniably excited about it, because it is genuinely good and smart. His answers are carefully posed. He lets the facts speak for themselves.

A very powerful element of this portion of the interview is the “factual correction.” In posing what he thinks are tough questions, the host makes a statement that is incorrect. In correcting the error, the guru is kind and paternal, demonstrating once again his natural modesty and trustworthiness, but also his superior knowledge of the subject at hand.

During the course of the interview, there should be two or three such corrections, each one adding to the credibility of the guru and his brilliant idea/ system/ whatever.

And now, there’s a subtle change in the host. He has lost his skepticism. His questions now come from his genuine interest in and excitement about the idea/ system/ whatever – and the conversation flows quickly and with exuberance.

The False Close and the Real Close

The penultimate portion of the interview begins with the host (and the audience he’s representing) becoming a true believer. (“How can we get in on this?” he asks.) This is equivalent to the false close in a DM promo. The benefits are repeated and the offer is presented – but only matter-of-factly – by the guru. There is no need to pitch the product hard. The believers are believers.

Now, the extra bonuses and benefits are introduced and we get the “call to action.” Reading from a piece of paper that was given to him, the host might say, “According to your chief of marketing, audience members that want to take advantage of this today will be given…”

The guru responds by either acknowledging that or even being surprised by all the extras. As each one is mentioned, he adds some information about it.

And, finally, we go back to where we began, with the host speaking directly to the audience, emphasizing the great value they will get by responding immediately.

“People don’t buy art based on the personality of the artist. Or there wouldn’t be much art bought and sold.” – David L. Wolper

Buying Investment-Grade Art: An Inside View 

There is so much bullshit in the art world. So many flakes and fakes and posers. The art business has always had a fair amount of graft and fraud, but in the past several decades this shady side of the industry has ballooned to the point where it may be larger than the legitimate market.

I’ve collected art for 40 years, and I had an art business for 20 years. I have no idea whether my thoughts on art are conventional or radical. They are based on my personal experience.

What I Know About Art as an Investment 

Art has no intrinsic economic value. Unlike coal or oil or timber, it can’t be used to fuel trains, planes, and automobiles. The value of any individual work of art depends on the demand for it in the art market. And the strength of that demand is subjective.

If you stop to think about the supply of art, the millions – no, billions – of art objects that exist in the world today, you will have your first and most important lesson about art as an investment. And that is this: Most art, probably 98% of it, is barely worth the material it’s made from.

You are in Italy on vacation and buy an oil painting of a Tuscan landscape from a small gallery in Siena. You pay $1,200. But the moment you walk out the door, its value has probably dropped by 50% to 70% – and the only person that’s going to pay you the 50% is the dealer that sold it to you. And only if he thinks you’ll be coming back to buy more from him.

As the years go by, your Tuscan landscape changes hands, going from one person to another, and finally ends up in a garage sale or flea market. Its price at that time (adjusted for inflation) will almost certainly be less than $120, which means your investment would have lost 90% of its value.

This is not to say that if, instead of just letting it go, you offered it for sale now and then, you might one day find a buyer that values it as highly as you once did. It’s not likely, but it’s possible that you’d then get back your $1,200. Maybe even a bit more to cover inflation.

But as a rule, in purely economic terms, 98% of the world’s art objects aren’t worth the price you will pay for them – whatever that is.

Then there’s the other 2%…

For that very small part of the market that deals in a certain kind of art, the economics are very different.

Defining Our Terms 

What is this little part of the art market where values rise over time and sometimes fortunes are made? What sort of art is that? How do you even define it?

You may have heard the following terms: fine art, collectible art, investment-grade art, and museum-quality art.

Of those four, let’s throw out “fine art,” because it’s meaningless. Of the other three, I don’t have a preference. But for the sake of simplicity (and because the topic here is investing), let’s use “investment-grade art.”

What makes one still life worth $100 while another, virtually identical to the average viewer, is worth $1 million?

Contrary to what many believe, it’s not a question of beauty. Or of brilliance. Or even technical virtuosity. It has little to nothing to do with all the descriptive adjectives you are likely to hear from a docent or auctioneer or read in a gallery brochure. In fact, it has little to nothing to do with aesthetics.

No, a piece of art becomes valuable because of its history. An artist’s work takes its first step towards historical importance when one or several influential critics come to the conclusion that it is important.

Jackson Pollock’s experience is a good example. For years, he worked in relative obscurity, producing the sort of abstractions that were popular at the time. Then the up-and-coming critic Clement Greenberg decided that one of the experimental pieces that Pollack had been doing was a work of genius… and he immediately started to be sold by Peggy Guggenheim’s prestigious Art of This Century gallery in New York City.

To give you an idea of how inexpensive Pollack’s paintings were back then, MoMA bought this piece – “The She Wolf” – for $650 in 1943:

Since the 1950s, Pollack has been included in every significant history book about modern art and has been taught in every art appreciation class. And in 2015, this “drip painting” (Number 17A, done in 1948) sold for $200 million:

Once an artist’s work is in the collection catalog of a dozen major museums, and has been selling at auctions for millions of dollars, and has made its way into the pages of respected books on art, there is virtually no chance its value will depreciate. That’s because everyone one involved with it – the collectors, the museums, dealers, and the uber-wealthy people that have bought it – have a vested interest in seeing the price rise.

Although investment-grade art can offer smart investors returns equal to or greater than stocks, and although the rules for investing in art are similar in some ways to the rules for investing in stocks, there are also differences. For example:

* The size of the market for investment-grade art is much, much smaller than the market for stocks (i.e., there are far fewer players).

* The number of factors that influence the price of investment-grade art are far fewer than the number of factors that influence stock valuations.

* Because of the above two facts, those that participate in the investment-grade art market, as a whole and even individually, have much greater control of market prices than do 99% of stock investors.

Put differently, the investible art market is a private club comprised of dealers, brokers, critics, auction houses, museums, collectors, and investors. And unlike most other markets, all of these diverse players benefit from the same thing: the gradual and steady appreciation of the art product ad infinitum over time.

Each does his part. The dealers manage the artists and their production. The brokers buy and sell it. The critics promote it. The scholars memorialize it. The museums validate it. The collectors hoard it. And the investors profit from it.

Let me put this in more pragmatic terms… 

From a long-term perspective, the single most important factor in the value of a work of art is the artist’s status in the art history books. Next to that is the number of world-class museums that own and display it. Another extremely important factor is the total market “capitalization” of the artist’s work – i.e., how many millions of dollars large corporations and wealthy individuals have invested in it.

The good news for first-time art investors is that all of this information is publicly available. In fact, most of it can be obtained quickly through Google searches and auction records.

As I said, I’ve been buying and selling art for about 40 years – which is about as much time as I’ve been an active investor in the financial markets. My experience has been that, although there are some similarities (like the advantage of buying blue-chip when you can afford it and holding it long-term), investing in art feels more like investing in historical artifacts than in stocks or bonds. In other words, buying a statue by Henry Moore is more like buying a Tiffany lamp than a share of Microsoft or Walmart.

If you think about investment art as historical artifacts rather than as objects of beauty, and follow the common-sense rules one would follow when buying historical artifacts, your buying decisions will likely be sound.

“If you don’t have a real stake in the new, then just surviving on the old… I don’t think is a long-term game.” – Satya Nadella

Is Automation Scarier Than COVID-19? 

Does automation put people out of work?

Economists, politicians, and union leaders have been asking this question for as long as I can remember. And it’s a legitimate concern.

Consider driverless vehicles.

In the last 16 years, since the first DARPA Grand Challenge was held in the Mojave Desert, the race to develop a fully autonomous vehicle has been on. (See “Did You Know?” below.)

More than two dozen companies are working on it. The current leader is Alphabet Inc.’s Waymo, whose fleet of 600 vehicles have logged in more than 20 million miles. (Waymo stands for “a new way forward in mobility.”) And although we are not there yet, industry experts suggest that the first commercial autonomous vehicle will make its appearance in the next several years.

Considering the advantages (safer, cheaper to operate, etc.), it seems inevitable that driverless cars will replace conventional cars just as conventional cars replaced the horse and buggy.

How will that affect the workforce?

In Ride Sharing

I’m sure that Uber’s smartest executives are already doing the math on how much money they would save by replacing their 750,000 drivers with driverless vehicles. Add to those the drivers for Lyft, etc., and you’ve got about 1.5 million people out of work.

In Trucking

There are an estimated 1.2 million trucking companies in the US. When the trucking industry goes driverless, at least another 3.5 million Americans will be unemployed.

In the Bus Business

There are half a million school buses on the road, and another 600,000 commercial buses. Which means that 2 or 3 million bus drivers could lose their jobs.

And that’s not to mention the millions of UPS, FedEx, and other delivery service workers that will become obsolete when we have driverless vehicles and automated drop-off facilities.

What will all those people do?

Some Historical Perspective 

The average American is not enthusiastic about the increased use of automation by just about every industry you can name. Many fear that it will lead to widespread unemployment and even greater economic inequality.

I have that fear myself. But the facts don’t support it.

When, for example, ATMs were introduced in the mid 1970s, it was thought that the jobs of tens of thousands of bank tellers were on the line.

That didn’t happen. Since then, in fact, the number of bank tellers in the US has doubled, from about 125,000 to 250,000.

The reason?

The hyper-efficiency of the ATMs gave banks more operating profits. And those profits were invested in opening new branches.

Thus, although the number of tellers at each bank did go down by a third, the number of branches increased by almost half.

It gets better.

Because the ATMs handle a majority of routine banking functions, tellers are freed up to to do more challenging – and higher-paying – work. (Such as customer service and loan processing.) And that means they make more money.

This is not to say that some jobs aren’t lost through automation.

From 1850 to 1970, the US agricultural sector shrank from 60% of the general workforce to 5%. Today, it’s 1%!

Manufacturing jobs, too, have been on the decline. Partly because some operations were moved overseas, but even more so through automation. In 1960, manufacturing workers represented 26% of the labor force. Today, that number is barely 9%.

But here’s the thing: Except for the Great Depression and the Great Recession, US employment opportunities, in general, did not shrink. On the contrary, they expanded.

One example:  In 2012, after putting robots to work in its warehouses, Amazon was accused of being “determined to profit by creating a future where automation replaces good jobs.” But within a year, instead of having fewer employees, Amazon had added nearly 30,000.

Out With the Old… 

When I was starting out in business in the late 1970s, every executive I knew had a secretary.

Being a secretary was a decent job for a smart person with a high school education and good typing skills. You could make $14,000 a year with benefits. But it was also mind-numbing. All you did was type, file, answer the phone, and book appointments.

Today, thanks in large part to computers and changes in the way businesses are run, secretarial jobs have pretty much disappeared. (My primary client has more than 1000 employees, and I don’t think there’s a single secretary among them.)

So what are all the people that once might have been secretaries doing? They are event planners, graphic artists, paralegals, personal assistants, and freelancers in dozens of fields – jobs that didn’t exist 50 years ago.

In much the same way, that’s what automation is all about.

Yes, automation replaces human labor. But countless studies, both in the US and in Europe, have found that innovations in technology, particularly in automation, have actually created more jobs.

What’s happening, I think, is this: By lowering the cost of the dullest and most tedious forms of human labor, automation generally increases profitability. A general increase in profitability stimulates economic growth. And when the economy grows, new jobs are created in every industry. Jobs that are more demanding, more interesting, and more financially rewarding than the ones that were lost.

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“Collette said hope costs nothing. But it does. It costs the time you spend hoping.” – Michael Masterson

The Corona Economy: How Bad Is It… Really? 

It’s time for another look at our Corona Economy. Time to assess the amazing amount of economic damage the shutdown has caused and make some guesses about how long, how bad, and how widespread the coming recession will be.

Recession? What? You think that things are under control? You feel confident that the economy will bounce back once we get this virus thing out of the way?

This is the way I see it…

The US economy is shrinking.

In my May 1 blog post, I noted that since the Corona Crisis began, our national production was down $10 trillion. That’s $10 trillion that was lost forever. No matter what happens in the future, that loss cannot be erased. In the three months since then, GDP has continued to shrink. In the second quarter alone, it fell by 10%. That’s higher than any 3-month period in the history of our country.

Unemployment is still crazy high. 

The unemployment rate has gone down considerably since it peaked this spring, with jobless claims down from nearly 7 million in the third week of March to 1.2 million last week. Overall, the official unemployment rate has dropped from about 13% in April to 10.2% today.

Of course, the official unemployment rates are entirely bogus. They don’t count people who are unemployed and not looking for work. This number was about 6 million before the $600 giveaways. It’s probably 10 million now. Plus, the official rates don’t include part-time workers that want, but can’t find, full-time jobs. And on top of that are the problems with the way workers are classified. The most egregious: Those on furlough are counted as working, rather than as unemployed.

If you add back in those purposeful and possibly accidental errors, the actual unemployment rate is probably about 16%, which would make current levels higher than at any time since the Great Depression.

200,000+ businesses have been closed for good. 

According to a study by the University of Illinois, Harvard Business School, Harvard University, and the University of Chicago, more than 100,000 small businesses had shut down permanently from March to the beginning of May. In June and July, another 100,000 may have been shuttered.

“We are going to see a level of bankruptcy activity that nobody in business has seen in their lifetime,” James Hammond, chief executive of New Generation Research told The Washington Post. “This will hit everyone, but it will be harder for small businesses since they don’t have a lot of spare cash.”

And Mark Zandi, chief economist at Moody’s Analytics, predicts that total failures for small businesses this year will pass 1 million.

It goes without saying that the closing of hundreds of thousands of small businesses will have a domino effect on hundreds of thousands more, the little shops and restaurants that survive on the patronage of these small businesses in small communities around the country.

Entire industries have been decimated. 

Travel bans have gutted the transportation industry, drastically cutting not just airline revenues but train travel, bus travel, and car travel. Uber and other such businesses are down more than 75% since last year.

The near halt in travel has sent oil prices tumbling, putting thousands of businesses that support oil and gas distribution out of business and millions more Americans out of work.

In the retail sector, it’s not just small shops and restaurants that have been forced into bankruptcy, it’s beauty shops and fitness studios and day care centers. The list goes on and on.

But things don’t seem so bad… right? 

I know. The unemployed have been getting federal paychecks. Businesses are getting billions in loans. And the stock market has been charging along.

That don’t change the facts.

When I last wrote about this (May 1), I noted that the numbers then were worse than they were at the nadir of the Great Recession of 2007-2009. And that even though the Great Recession officially ended in June of 2009, the growth of the GDP afterwards was anemic. Well… except for a modest improvement in the phony unemployment rate, all the key economic health indicators have only gotten worse.

Remember how difficult it was to make ends meet from 2009 to about 2016? It could be worse this time.

What about the bailout? Shouldn’t that help? 

The coronavirus scared the hell out of millions of Americans, with studies predicting mortality rates of 6% and 3 million dead before the end of the year.

It was a national health emergency that could have united the country. Instead, it morphed into a ludicrous political drama, with the Democrats accusing the Republicans of being heartless and incompetent, and the Republicans accusing the Democrats of exaggerating the danger to tank the economy and bring Trump’s ratings down.

When it came time to pass an economic stimulus bill, partisan politics continued. The first round of bailouts cost US taxpayers $2.4 trillion that the Treasury had to borrow. And that was on top of $2.2 trillion approved to cover the budget deficit. The current package will add another $1 trillion to $3 trillion to that, bringing the total national debt to $25 trillion or more.

That – spending trillions of dollars we don’t have – has been the government’s solution to an economic disaster that is as bad as any we’ve had since the Great Depression.

Let’s stop here and remind ourselves that debt and spending have been the primary causes of every economic disaster the US economy – and, for that matter, every economy – has ever had.

If your kid were in debt because of a gambling habit and told you he was going to get himself square by borrowing money from a loan shark, would you think that was a good idea?

So that’s the real problem. We may never know how necessary it was to shut down the economy, but the solution to the economic damage it did has been a borrowing spree greater than ever in our history (and in the entire world).

And nobody in Washington thinks there is the slightest thing wrong! The old debate about responsible spending and balancing the budget has gone out the window. Those free checks from the government have bought the hearts and minds of the entire electorate. We may be doing something we’ll regret later, the most conservative say, but what the hell! Let’s print more trillions and wish for the best!

What to expect. What to do. 

If you believe the stock market is the economy, I don’t know what to tell you. There are good reasons to believe stocks will continue to move up. The biggest reason is all these trillions of free dollars.

I have converted about 75% of my stocks into cash for reasons I explained on July 24. As I said then, my decision wasn’t based on any certainty that the market is going to crash, but on the possibility that it might.

If you understand that the stock market is not the measure of the wealth of the US but the measure of only the wealthiest 10%, you should be very concerned about all this debt and continued spending. You should be worried that sooner or later the bill will come due. And the only feasible way that the government can manage that debt is by allowing for an extended period of “moderate” inflation – low enough that the Treasury can pay the interest on its debt, but high enough that it can erode the value of that debt. And what that means is stagflation: years and years of increasing prices without any significant economic growth.

Unless you are already wealthy, this means that you will get a lot poorer over the next 5 or 10 or even 15 years.

There are things you can do to protect yourself and profit. I’ll tell you about it in my next essay on the Corona Economy.

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Ever since Trump took office, conversation with many friends and most of my family has been a challenge. They feel about him the way some of  my conservative friends and colleagues feel about Hillary Clinton. When feelings are strong, reason declines and facts lose their context. I like a loud argument as much as any Irish American, but I don’t like an intellectual joust that leaves emotional bruises. Those bruises last longer when ideology insinuates itself into argument. Ideology leads to groupthink. Groupthink leads to war. And war is always destructive.

When news of the coronavirus broke, there was every reason to believe we were in a global crisis. Crisis often galvanizes otherwise opposing factions to band together against a common enemy. I hoped, naively, that this would be the case. Alas, it did not happen. The threat of COVID-19 became, almost immediately, an ideological topic.

The reports we were hearing from China and Europe through the World Health Organization (WHO) were positively frightening. But the numbers associated with those stories didn’t make any sense. So I began to write about it and do some research on my own. The more I studied what was being said, the less I believed it. And when the shelter-in-place solution was introduced as the “scientific” protocol for reducing the eventual death rate from COVID-19, I was challenging it in my blog posts and conversations.  

That was not well received by my friends and family members who were getting their information from the mainstream press. They were convinced not only that sheltering-in-place was the right course of action, they believed that the USA had been hobbled by Trump by not putting it into effect sooner. It didn’t seem to matter to them that Trump’s earlier doubts about  it were not his, but the recommendations of the WHO, the CDC, and the White House panel of experts headed by Dr. Fauci.

We do agree on one thing: The Trump administration bungled its response to the threat. But my friends/family think the mistake was in implementing mass quarantines too late. I think the mistake was in implementing them in the first place. 

Living in Fear of the Fear of COVID-19 

“Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety.” – Ben Franklin

I want to resume my wrestling, but K is worried that I will catch the virus from a training partner and infect the family.

My brother-in-law is worried about the throngs of (mostly young) people that have descended on Atlantic Avenue and its restaurants since they reopened a week ago. “It’s all bullshit,” he says. “Nobody is keeping social distance or wearing masks. Even some of the servers aren’t wearing masks.”

My fellow members of The Mules, the book club I belong to, want to have our next meeting virtually, as we’ve had the last two.

It’s difficult for me to speak about the virus with any of them because I know they are seriously frightened. But I believe their fear is unsubstantiated by the facts. And it angers me to think that they have been prompted into that level of fear by politicians and media that are using this crisis to further their political objectives.

So when I do speak about it, I find it difficult to restrain my anger. I state my opinions in definitive terms in hopes of shocking my friends/family out of their panic. It is a foolish approach. My sister reminded me of that yesterday, and she was right. So I’m writing this today, another essay on what I’ve learned about the coronavirus and why I believe the fear they are living with is based largely on misinformation.

I want to begin with some facts. But before I do, I implore you to read these facts with an open mind. Keep in mind that they all come from sources that you probably trust: the WHO, the CDC, Dr. Fauci and team, and several dozen studies done by respectable research institutions since the last essay I published on the virus itself.

*Fact One: Based on current death rates, COVID-19 ranks 13^th on the list of the ailments that people, worldwide, die from each day. It is exceeded by cardiovascular disease, cancer, respiratory diseases, lower respiratory infections, dementia, digestive diseases, neonatal disorders, diarrheal diseases, diabetes, liver diseases, kidney diseases, tuberculosis, and HIV/AIDs. It is also exceeded by road injuries and suicide (which is on its way up). The number of people that die from cardiovascular diseases is more than 20 times greater. (This would not have been true had you made the comparison when the death rate was at its peak, but it is true now.)

You may be thinking that you are not interested in comparing COVID-19 to cancer or heart disease, since they are not contagious. In terms of my topic – which is fear – I think that is an illogical position. But put that aside…

* Fact Two: Of contagious diseases, it ranks 7^th, after lower respiratory diseases, neonatal disorders, diarrheal diseases, digestive diseases, tuberculosis, and HIV/AIDs.

The fatality rate of COVID-19 is the primary reason that some epidemiologists were so concerned about the disease in the first place. Early reports had it at double digits, then at 6%, and then at 3.4%.

Those were the numbers that spurred the call for mass quarantining. But those numbers were based on case fatality rates.

As I explained in every essay I wrote on the subject, this is an useless and potentially misleading statistic. The case fatality rate does not measure a disease’s actual lethality rate. It measures only how many people died compared to how many people have been diagnosed as positive.

We can only know the actual fatality rate (some call it the infectious fatality rate) when we know how many people have died compared to how many people have been actually infected.

That was impossible to determine in March or even April because test kits were limited and no one was doing randomized tests of people that showed no symptoms.

Those tests have been conducted in the last four weeks. And what they are showing us is that the earlier case fatality rates overestimated the true fatality rates by a factor of 10 to 50.

For example:

* Fact Three: A new randomized study of 3000 people in New York State found that 13.9% of those tested for antibodies were positive. That means 2.7 million New Yorkers have already contracted COVID-19. When this was reported, there were 257,216 cases with 15,302 deaths. That equates to a case fatality rate of 6%.

But as I explained above, the case fatality rate is meaningless until you know the number of people infected, not just the number diagnosed. I suggested in my April 8 essay that it must be at least 10 times higher because symptoms for so many were flu-like and because of the lack of testing available then.

Adjusting for the latest findings, we can see that the actual lethality rate is a bit more than 10 times case the fatality rate, coming in at about 0.5%.

* Fact Four: This same study found that 21.2% of those tested in New York City were diagnosed as positive for COVID-19 antibodies. New York City’s population is 8.4 million. Extrapolating on that, we can assume that about 1.78 million denizens of the Big Apple were already infected with COVID-19 at the time. This means that even in the worst hot spot in the country, the actual fatality rate was 0.6%.

* Fact Five: These findings are similar to those from antibody studies done in Santa Clara, CA; LA county; and Kansas. Dutch, German, and French studies also show a much higher incidence of the virus than case studies would suggest – which means much lower real lethality rates.

My friends and family members that have a different view than I do tell me that the actual death count from COVID-19 is higher than reported. They tell me that there were surely people that died from it in the early days that were not diagnosed. I don’t doubt that. But if you understand the protocols that were put into place in by the CDC in early March, you can deduce that this must be a fraction of the distortion that occurred during the period of time when the death count was in the thousands.

* Fact Six: The CDC’s recommendations for reporting COVID-19 deaths included patients that died with “symptoms” of the disease, even if they didn’t die “of” the disease. In other words, if a patient that died of pancreatic cancer happened to test positive for COVID-19, the cause of death should be noted as COVID-19. (Note: When the state of Colorado did a study of this recently, differentiating those people that died with COVID-19 symptoms from those that died of COVID-19, the COVID death rate dropped by 25%!)

It’s hard to understand why the CDC would have made this recommendation, since it is patently unscientific. Most symptoms of COVID-19 are similar to flu and other respiratory diseases. Even in hot spots, less than half of those with COVID-19 symptoms test positive. Several emergency room and ICU doctors have commented publicly on this anomaly, complaining that they feel pressured to report deaths as due to COVID-19 when there is no certain reason to think it is so.

A fatality rate of 0.5% is considerably higher than the 0.1% or 0.2% fatality rate of influenza. But as I have explained, there is an important difference between COVID-19 and influenza. COVID-19 does most of its killing among populations of older people that have other life-threatening, “comorbidity” issues.

* Fact Seven: A study by the AMA found that 94% of hospitalized COVID-19 patients in New York City had serious underlying conditions. 53% had hypertension, 42% were obese, and 32% had diabetes. The median age was 63.

* Fact Eight: In New York, the fatality rate for COVID-19 patients between 18 and 45 is 0.1%. For children, the fatality rate is statistically zero percent.

These numbers correspond to the analysis I did in March. Also, multiple studies have shown that children are not significant “vectors” of COVID-19. That means they don’t spread it very well.

The chances of contracting COVID-19 are much greater in confined spaces than they are in the open air.

* Fact Nine: A Chinese study of 3000 COVID-19 deaths found that all but one of the patients contracted the disease indoors. (The one exception contracted it through contact with someone that had just arrived from Wuhan province.) Yet many state governors, like New York’s Cuomo, were forcing elderly COVID-19 patients into nursing homes – which accounts for the severe contagion and death rates that we saw in those facilities across the globe. (This policy has just recently been reversed, weeks after the results of this study were reported.)

There have been several new studies suggesting that herd immunity for COVID-19 might be much lower than the 60% to 80% that was originally projected. I haven’t had time to locate these studies, so I can’t call this a fact. I know the projections are between 10% and 40%. 10% makes no sense. But 40% could explain why we’ve seen the recent drop in mortality.

There is no disputing the fact that you can reduce the speed at which the virus spreads by social distancing and washing hands. This is the strategy of flattening the curve. But flattening the curve is about slowing the spread of infection – not necessarily decreasing the eventual death count – which is what happened because of measures like social distancing and hand washing, not the lockdown.

* Fact Ten: Studies from Germany and Switzerland found that the flattening of the curve of the contagion happened weeks earlier than originally believed. In every case studied, the peak appears to have been before lockdowns were implemented. What that means is that the lockdowns did not work. They were not the reason the curve flattened. They had, if any, only a negligible impact on the curves in those countries.

* Fact Eleven: According to an analysis by Stanford University, there is no statistical correlation between lockdowns and COVID-19 deaths between those states that locked down early and those states that locked down late.

Those are some of the facts. And all of them come, as I said, from the WHO, the CDC, and reputable university and scientific studies.

So this brings me to the point of disagreement I have with friends and family members that believe the lockdown was and still is necessary, and that the movement towards opening the economy puts them and others in danger of dying.

Spend five minutes thinking about the above facts, and you have to agree that the proper response to the coronavirus threat would have been to isolate the most vulnerable (which we did not do) and not shut down the economy.

In fact, there is an argument to be made that sheltering-in-place has caused and will cause thousands and potentially hundreds of thousands of additional deaths. Deaths from depression, suicide, and domestic violence, as well as the deaths of many people with symptoms of heart attack, stroke, etc. that should have gone to the hospital but didn’t because of the fear of getting infected.

* Fact Twelve: Vaccinations for children have abruptly fallen at an alarming rate since the shutdown. In Michigan, fewer than half of infants 5 months or younger are up to date on their vaccinations, which may allow for outbreaks in diseases like measles.

But I won’t make that argument. It’s more important to make another point.

Unless we develop a miracle vaccine in the next few months, there are going to be lots more people dying of COVID-19. We don’t know how many. But based on the facts I’ve listed above, I hope it’s clear that there will be no lowering of the death rate by any continuance of the lockdown.

And speaking of a miracle vaccine, we have seen an historically unprecedented acceleration of efforts, private and public, to find a vaccine. And according to reports on both sides of the argument, we are making progress. At least a half-dozen vaccines have been approved for initial, phase one testing.

But here’s another fact to consider:

* Fact Thirteen: 90% of drugs that are approved for initial, phase one testing fail to make it to phase two.

The logic behind the opinion that many hold – that mass quarantines will minimize future deaths because the spread of the virus will be slowed – is faulty. The opposite is the case.

The only valid purpose for the lockdown that ever made any sense was to flatten the curve and thereby prevent hospitals from being so overwhelmed that they could not properly treat COVID-19 patients. But I’ve not found a single report that verified a death caused by, for example, lack of access to a ventilator.

What the lockdowns did, without question, is slow the race towards herd immunity. That means (again, barring the development and approval of an effective vaccine in the next few months) we will almost certainly have a second and even a third wave of the virus. And when those waves come, they will likely be different – maybe more lethal – strains. Which would mean, for certain, that the lockdown strategy will have resulted in many more deaths.

That is what makes me angry. And that is why I am upset when I hear my friends and family members say that those that favor opening the economy are putting money ahead of lives. It’s simply not true. The facts don’t support it. If we want to reduce the eventual death count, we must allow the virus to spread among the large percentage of the population that has little to no chance of dying from it. We have to reach heard immunity before a new, more lethal strain comes back and infects us. (This, by the way, is what happened with the Spanish Flu of 1918.)

I am angry and I want to blame someone. But I can’t blame my friends and family members who are scared because of the misinformation they’ve relied on.

I blame the mainstream media for not investigating the pandemic with any seriousness. And I blame some newspapers and news programs for pursuing reporting that was evidently meant to scare people.

These reporters and commentators failed very early to do even the simplest arithmetic, which would have made them understand how misleading the early case fatality rates were. Since then, they have ignored the studies that have unearthed the evidence listed above. Why they continue promoting their false narrative is anyone’s guess.

But because they will continue to promote their false narrative, the people that have taken it for truth will likely continue to believe it. They will continue to find ways to blame the Trump administration for the deaths that will follow, ignoring the fact that the mistake it made is clearly the mistake of shutting the economy down.

As I’ll explain in a moment, though, none of that makes any difference. We are already fast into the opening process and that isn’t going to stop.

But before I get into that, a few words on what I think we should have done.

In retrospect, the smarter federal policy would have been to:

1. Allow those that had a near zero chance of dying from the virus (children and people under 28) to lead their normal lives, spreading the virus among their peers at a controlled but relatively free pace, so that we could move towards herd immunity as fast as could be reasonably done.
2. Advise healthy people in their 30s, 40s and 50s (whose chances of dying from COVID-19 are less than 1%) to act like responsible adults capable of making adult decisions.
3. Focus 80% of our resources to quarantine the 20% of our population that is most vulnerable to the disease.

In retrospect, the correct response from the CDC and the president’s task force would have been to recognize, immediately, that the arithmetic that gave us “official” lethality rates of 10% and 6.5% and 3.4% (and the early predictions of millions of US deaths) was obviously wrong.

In retrospect, state and local governments should have kept parks and beaches open so that people could get the exercise and the sun they needed. They should have advised anyone concerned about catching the virus or passing it on to their elders that the likelihood of that happening in the outdoors is tiny compared with the chances of catching it in any sort of “sheltered” place.

In retrospect, we should not have required nursing homes to take back their clients that had been diagnosed with COVID-19. That’s what caused the spike in deaths that we saw. We should have isolated those people and, thus, reduced the huge percentage of deaths that occurred in such facilities.

* Fact Fourteen: 41% of the Americans that have died from COVID-19 were in nursing homes. In Minnesota, the percentage was 81%. In New Hampshire, it was 72%. In Rhode Island, it was 75%. In a dozen other states, it was more than 60%.

The coronavirus is very contagious. And it is lethal to older people that have serious comorbidity issues. But it is not lethal to the rest of the population. To most of those that have been put on unemployment – mostly younger, healthier people – it isn’t a great threat at all. And to those that are vulnerable, shelter-in-place increased their chances of dying from it.

Those are, it seems to me, the facts.

The curve has flattened in most of America, but COVID-19 has not been conquered. Not at all. It will come back and it will continue to kill. In one of my early essays, I predicted that it would kill between 60,000 and 120,000 this year and as many as 600,000 if we don’t reach herd immunity.

The lockdown did not and will not diminish that number. Only herd immunity (either acquired naturally by spreading the infection or with the help of a vaccine) will do that.

In retrospect, it would have been better to if the WHO, the CDC, and the administration had reduced, rather than inflamed the panic that has spread like a virus across our country. It would have been better if they had admitted, early on, that the original arithmetic and modeling were bad and waited for the facts.

I would like to think that anyone that that is fearful now could get a realistic grip of reality by focusing on these facts, but that may not happen. When you have invested so much emotional energy into a fear about the future, it’s difficult to give it up.

I doubt, too, that when this is over, those that have accepted the viability of the lockdown will change their opinions. They will be suspicious of facts that don’t support the narrative they have been sold. And the media and public figures that sold that narrative aren’t likely to admit that they were wrong either.

They make minor adjustments to their stories to accommodate realities that cannot be refuted, but will hold on to the scientific evidence that is more difficult for lay people to understand. They will do this to protect themselves from the shame they must feel when they think about what they have created.

For my part, I’m going to do my best to bite my tongue whenever I hear fearful friends and family members fretting about the opening up of the economy. Biting my tongue is an easy price to pay to avoid saying something that pisses them off.

A tougher issue for me will be how I go about taking advantage of all these openings. For one thing, as I said at the top, I want to resume my wrestling. That would mean rolling around on the floor with young guys who, if they had COVID-19, would likely be asymptomatic. I understand why K has forbidden me from doing that. I believe the actual risk is infinitesimally small, but being wrong is not chance I’m willing to take.

I will have to put off my favorite form of exercise until K’s fear subsides. And I realize that’s not going to happen until the pandemic narrative she has been listening to gives up the ghost of its beliefs about the lockdown and shelter-in-place strategies.

That will happen well before we have an effective vaccine. I can see it happening already. K had her hair done yesterday. My brother-in-law hugged a friend. It is people like this, not the protesters that have been opposing the shutdown, that will bring the American economy back to life.

They will do it not because they believe the shutdown was wrong, but because they are sick and tired of being locked up.

There is only so long that a mentally healthy person can stay locked up in a prison of fear.

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