The Grifters, chapter 1 – Kodak


Epsilon Theory PDF Download (paid subscribers only): The Grifters, chapter 1 – Kodak

The Grifters (1990)
Pat Hingle as Bobo and Angelica Huston as Lilly

Bobo Justus: Tell me about the oranges, Lilly…

[kicks over a bag of oranges]

Bobo Justus: While you put those in the towel.

Lilly Dillon: [kneels on the floor and starts picking them up] You hit a person with the oranges wrapped in a towel… they get big, ugly looking bruises. But they don’t really get hurt, not if you do it right. It’s for working scams against insurance companies.

Bobo Justus: And if you do it wrong?

Lilly Dillon: [terrified] It can louse up your insides. You can get p… p… p-p-p-p-p

Bobo Justus: What?

Lilly Dillon: P-permanent damage.

The best movie about con games is The Grifters, and the best scene in that movie is “Bobo and the oranges”, where mob boss Bobo terrorizes and punishes Lilly for screwing up one of his money laundering schemes. It’s one of the top-ten brutally compelling scenes in any movie I’ve seen, not so much for the physical violence as for the psychological violence.

We’re all Lilly Dillon today.

Our political and market worlds have become an unending sea of grift … small cons, big cons, short cons, long cons … and every day the distinction between grifters and squares becomes more and more blurred.

Day after day, we’re all getting smacked by Bobo and his bag of oranges, hoping to god that we only get badly bruised in the process.

But we all know that we’re past the point of permanent damage.

We’ve been assaulted by three grifts in just the past week … three smacks from Bobo and his bag of oranges … each deserving of an Epsilon Theory note.

Here’s chapter 1.

On Tuesday afternoon, the White House announced that Kodak – a public company with less than $100 million in market cap, basically a pension fund with a famous brand name attached – would receive $765 million in “loans” from the US government to create a “pharmaceutical start-up” that over a period of 8 YEARS will start making pharmaceutical “supplies”. Whatever the hell that means.

This $765 million in non-recourse, non-secured loans for pharmaceutical supply production, given to this micro-cap company with zero experience or expertise in pharmaceutical supply production, comes from the International Development Finance Corporation (DFC), a $60 billion piggy bank established by the Trump administration in 2019 to replace the Overseas Private Investment Corporation (OPIC).

Yes, “international development” and “overseas investment”.

The DFC is an institution that, per its mission statement and Congressional charter via the 2018 Better Utilization of Investments Leading to Development (BUILD) Act, is “focused on promoting inclusive economic growth in the world’s least developed countries.”

I mean … I knew things were bad in Rochester, but I didn’t know they were that bad.

To dust off an old Epsilon Theory catchphrase:

They’re. Not. Even. Pretending. Anymore.

Who is “they”?

On the corporate-grift side, it’s Kodak Chairman and CEO Jim Continenza (SEC CIK 0001197594), who picked up about 3 million shares and cheap options over the past year. It’s Kodak board member George Karfunkel (SEC CIK 0001085765), of the private equity and banking Zyskind-Karfunkel family, with his 6.4 million shares. It’s Kodak board member Philippe Katz (SEC CIK 0001579836), who owns about 4.3 million shares through at least five shell companies.

Here’s a pic of Jim Continenza, shown here on a magazine cover touting Vivial, the other company where he’s also Chairman and CEO. Vivial is a digital marketing company, which is Jim’s particular forte.

Oh, wait, you thought Jim had a background in manufacturing or pharmaceuticals? Hahahahahahaha. Hooo, boy, that’s rich. No, no … Jim is a marketing guy. Shocking, I know.

Based on yesterday’s closing price of $33.20 for the stock, I figure Jim and George and Philippe have made about $400 million over the past 48 hours.

The numbers looked even better when Kodak hit $53 earlier earlier in the day, but easy come, easy go.

I’m focused on Jim and George and Philippe, each of whom were granted tens of thousands of shares in Kodak just over the past 60 days, because this is where the real money from crony capitalism grift is made. But I’d be remiss if I didn’t acknowledge the effort of the small-fry Kodak grifters who covered their tracks and tipped their buddies about the deal, sparking 1.65 million Kodak shares trading for $2 and change on Monday, about 25 times the average trading volume of the prior week, in advance of the Tuesday announcement.

I would hope that lots of people in the Rochester area are about to get a crash course in what constitutes material non-public information and what their responsibilities are in this regard, whether they are the tipper OR the tippee.

But with the current priorities of the SEC and the Justice Department, I’m not holding my breath.

Who is “they”?

On the government-grift side, it’s Donald Trump, who gets a press conference and a talking point.

It’s Commerce Secretary Wilbur Ross and Secretary of State Mike Pompeo, who sit on the DFC board of directors and approved this deal, each pocketing a favor.

It’s Larry Kudlow, University of Rochester alum and friend of Kodak, who pockets a BIG favor.

It’s Adam Boehler, 41 year-old CEO of the DFC, who cements a lucrative career once his government “service” is complete.

Here’s the official government pic of Adam Boehler, sporting the same well-coiffed stubble as Homeland Security Acting Secretary Chad Wolf. Must be a thing with 40-something White House appointees these days.

In prior work, Adam was an “operating partner” at Francisco Partners, a $14 billion private equity firm, which means that he wasn’t a deal guy, but was one of the consultants they’d install to help manage a portfolio company.

Don’t worry, Adam, I’m sure you’ll be a real partner at whatever private equity firm you go work for next year.

Here’s Adam’s rationale for all of us getting smacked with this bag of oranges.

I learned that the company was interested in creating a start-up that could supply ingredients for pharmaceuticals.

What is crony capitalism? THIS.

Crony capitalism is when the 41 year-old head of a government slush fund “learns” – his words – that a failed company with ZERO experience or expertise in medicine or pharmaceuticals “was interested in creating a start-up that could supply ingredients for pharmaceuticals”, and so – within a matter of days – advances a proposal to give that failed company 765 million American dollars.

Now, Adam … purely out of curiosity … how exactly did you “learn” of Kodak’s keen interest in creating a pharmaceutical start-up?

Did they send an email to [email protected]?

Or maybe, just maybe you “learned” about Kodak’s … oh my god, I can’t type this without bursting out laughing … pharmaceutical start-up plans from Uncle Wilbur or Uncle Larry after they had a really interesting conversation with their good friends in Rochester.

And, Adam … again, purely out of curiosity … what evidence was proffered to you and the board showing Kodak’s pharmaceutical start-up expertise?

Because, Adam, I’m looking at Kodak’s 10-k and 10-q, where they talk about the business lines that Kodak has – Traditional Printing, Digital Printing, Advanced Film Materials & Chemicals, and a fourth category they just call “Brand” – and I’m wondering where pharmaceuticals fits into this picture.

Because, Adam, I’m looking at management discussion of new business and licensing opportunities, which took place at the annual shareholders meeting on May 27th – you know, Adam, all of 8 weeks ago – and where they talk about opportunities in “3D printing, smart material applications and printed electronics”, but I can’t find a single mention of pharmaceuticals.

Because, Adam, as the kids would say, I’m old enough to remember the last time Kodak stock tripled in a week, back when the company decided to reinvent itself as a crypto play, complete with a failed ICO and a Bitcoin-mining machine. You know, way back in 2018.

Ladies and gentlemen, I give you the Kodak KashMiner.

AYFKM, Adam?

Crony capitalism. In its purest form.

Just one big smack in the face by Bobo and his bag of oranges.

So I’m going to conclude chapter 1 of The Grifters with this.

Remember how I said that the DFC – this $60 billion piggy bank that is one (of many) White House conduits for crony capitalism – was established by law, specifically the 2018 BUILD Act, to support projects in developing countries?

What that means is that Congress could stop this bullshit transfer of $765 million in taxpayer money to the politically-connected managers and investors of this Rochester, NY-based company.

If they wanted to.

They don’t.


Epsilon Theory PDF Download (paid subscribers only): The Grifters, chapter 1 – Kodak


That’s the Thing I’m Sensitive About!


Thirteen-year-olds are the meanest people in the world. They terrify me to this day. If I’m on the street on like a Friday at 3PM and I see a group of eighth graders on one side of the street, I will cross to the other side of the street. Because eighth graders will make fun of you, but in an accurate way.

They will get to the thing that you don’t like about you. They don’t even need to look at you for long. They’ll just be like, “Ha ha ha ha ha! Ha ha ha ha ha! Hey, look at that high-waisted man, he got feminine hips!”

And I’m like, “NO! That’s the thing I’m sensitive about!”

John Mulaney: New in Town (2012)

Yesterday I read a social media post from Dana Carvey, who played a version of the recently departed Regis Philbin on SNL in the early 90s. Darrell Hammond did a later version that – like many of his impressions – relied a bit more on physical resemblance. Jimmy Fallon once did a version in 2011 that – like all of his impressions – relied more on a late-Millennial audience’s willingness to see his constant breaking as endearing instead of obnoxious. For my money, Carvey’s impression is still the standard.

In later conversations between Dana and Regis, they discussed the “Regis persona” that Philbin had created. He described it as an “exaggerated version of himself.” That made Carvey’s impression an exaggerated version of an exaggerated version of Regis.

When the 2016 Disney film Moana was being cast, the composer of some of its original songs – Lin-Manuel Miranda, of Hamilton fame – sent a draft score and demo tape to the actor who would ultimately voice the senicidal giant crab Tamatoa. Jemaine Clement, that New Zealand actor, later recounted that the demo was a recording of Lin-Manuel doing an impression of Jemaine’s impression of David Bowie. If you listen to the song Shiny from the film, you are listening to Jemaine Clement doing Lin-Manuel doing Jemaine Clement doing David Bowie.

When it comes to the stories we hear and tell, this kind of thing isn’t uncommon.

Sure, sometimes the extremes of what everyone knows everyone knows about a person or thing can be unfair and counterproductive. After all, with as many pixels as we light up on your machines with warnings about narrative abstractions, you won’t find us arguing in favor of applying our exaggerations as proxies. You can’t boil down David Bowie to a singing style in which you create an abnormally large cavity in the central sound-shaping part of your mouth to lengthen every vowel and a staccato approach to every consonant and plosive. You can’t boil down Regis Philbin to going halfway on a Kermit the Frog impression.

Extremes can be misleading.

Extremes can also be revealing. You learn a lot when you learn what thing a person or institution is sensitive about.

The extremes of a global pandemic have revealed a lot about what our political and corporate leaders and institutions are sensitive about.

For months, the Federal Reserve and White House have told anyone paying even the remotest attention that they were very sensitive to the price levels of risky assets, even at the risk of a variety of other considerations that they are theoretically or statutorily required to be sensitive to. Not that any of this is new, of course, but sometimes it’s good to appreciate the small things, like not having to update your priors for the better part of a decade or so.

Today. regional and super-regional banks are telling you that they are very sensitive to changes in the commercial real estate market. So sensitive that the CARES Act – you know, the one that was designed to help families and mom and pop small businesses? – includes a provision to allow them to suspend GAAP accounting and treat troubled debt as deferred, with much more favorable capital treatment. We’ve written more about this for our ET Pro subscribers, and will have a lot more to say about it.

Regulators and policymakers have told you that they are very sensitive to permitting the loss of equity value in certain industries and utterly indifferent to it in others. Remember when certain corners of the investment community told us that it was unfair and unjust that owners of airline stocks might permanently lose value because of government-instituted lockdowns, and then when those restrictions largely relaxed we were still operating at just a little over a 20% of normal capacity?

Source: Transportation Security Administration

Even now, after most COVID-19-related fears have settled into the familiar ennui of 2020, investors are telling you that they are still very sensitive to the perception of a company’s ability to survive and thrive in an extended stay-at-home world. So sensitive, in fact, that the manifestation of beta – systematic risk – today looks more like beta exposure to that ability than to a traditionally accepted expression of market risk. It is a fascinating phenomenon that Arik Ben Dor’s quant equity research team at Barclays wrote about yesterday. We don’t have permission to post it here, but institutional investors should reach out to your Barclays rep and ask for “Betas Reshaped: The COVID-19 Effect”.

Some of the lessons have been business lessons, too. Asset managers told you they were very economically sensitive to loss in management fee revenue associated with even brief declines in risky asset prices. Hedge fund managers told you with their pricing that they are very sensitive to all of your moves to allocate away toward other alternative investment vehicles.

It has been a busy few months.

In the end, COVID-19 too, shall pass. Like all extremes, treating all of this as a proxy for the world we will live in for the rest of our lives will be misleading. Yes, some things we thought could never change will be permanently different. And some things which we thought might be permanent will be only temporary. But in the midst of that, a lot of the institutions that should matter to you as an investor and citizen told you what they were sensitive about.

As the financial world emerges from one of the strangest periods in most of our careers, we cannot forget those lessons.


Extend and Pretend


As the kids would say, I’m old enough to remember Charles Keating and Neil Bush.

I’m old enough to remember the slow-burning dumpster fire that was the S&L Crisis of the late 1980s, when politically connected bankers used their influence to enrich themselves and secure regulatory forbearance for their crappy loans, leaving depositors and taxpayers to pick up the tab.

I’m old enough to remember that Charles Keating was convicted on 17 counts of fraud, racketeering and conspiracy in California state court, and then 73 counts of fraud, racketeering and conspiracy in federal court, for which he served a grand total of … [checks notes] … 4 years in prison.

I’m old enough to remember that Neil Bush secured $100 million in loans to his undisclosed business partners while “serving” as a director at Silverado, loans that were never repaid and were part of an S&L debacle that cost US taxpayers $1.3 billion to resolve. Neil’s punishment for his outright fraud: a $50,000 fine, paid for by one of his daddy’s campaign contributors.

At the heart of the S&L Crisis was the regulatory forbearance granted to these thrifts, allowing them to extend and pretend their crappy loans for years. It was the perfect swamp environment for human slime molds like Keating and Bush to bud and spore.

And now the same thing is happening again with commercial real estate (CRE) loans in banks across the country. I don’t know who the crooks are this time around. But I know they’re out there, again using political influence to gain regulatory forbearance that allows them to extend and pretend their crappy loans. And soon enough we’ll have a new list of names to add to the rogue’s gallery of Keating and Bush and all the rest.

The regulatory forbearance I’m talking about this time is tucked deep inside the CARES Act, the legislation that most famously set up the PPP loans to support struggling small businesses as the Covid crisis hit. (h/t to my friend Jim Chanos for showing me this; of course he has short positions on this … good for him)

Here’s the language verbatim:


(a) DEFINITIONS.—In this section:

(1) APPLICABLE PERIOD.—The term ‘‘applicable period’’ means the period beginning on March 1, 2020 and ending on the earlier of December 31, 2020, or the date that is 60 days after the date on which the national emergency concerning the novel coronavirus disease (COVID–19) outbreak declared by the President on March 13, 2020 under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates.

(2) APPROPRIATE FEDERAL BANKING AGENCY.—The term ‘‘appropriate Federal banking agency’’— (A) has the meaning given the term in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813); and (B) includes the National Credit Union Administration.


(1) IN GENERAL.—During the applicable period, a financial institution may elect to— (A) suspend the requirements under United States generally accepted accounting principles for loan modifications related to the coronavirus disease 2019 (COVID–19) pandemic that would otherwise be categorized as a troubled debt restructuring; and (B) suspend any determination of a loan modified as a result of the effects of the coronavirus disease 2019 (COVID–19) pandemic as being a troubled debt restructuring, including impairment for accounting purposes.

(2) APPLICABILITY.—Any suspension under paragraph (1)— (A) shall be applicable for the term of the loan modification, but solely with respect to any modification, including a forbearance arrangement, an interest rate modification, a repayment plan, and any other similar arrangement that defers or delays the payment of principal or interest, that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019; and (B) shall not apply to any adverse impact on the credit of a borrower that is not related to the coronavirus disease 2019 (COVID–19) pandemic.

(c) DEFERENCE.—The appropriate Federal banking agency of the financial institution shall defer to the determination of the financial institution to make a suspension under this section.

In English, this means that banks can take loans that would have previously been classified under GAAP accounting as a troubled debt restructuring (TDR), with all of the increased scrutiny and loan reserves and hits to capital requirements that TDR requires, and instead classify them as “deferred loans” with much lighter regulatory oversight and knock-on effects.

How does a bank avail themselves of this favorable treatment for their CRE loans? Why through a modification – any modification will do – that can be ascribed to Covid-19 relief. How long does this suspension of GAAP accounting last? Why for the entire term of the modification – whatever that modification might be – no matter whether Covid-19 is still an issue over that term or not.

Do yourself a favor and check out the percentage of loans that went into the deferred bucket in the bank Q2 earnings reports, particularly in regional and super-regional banks. You’ve got some not-small banks where deferred loans are now north of 20% of their entire book and 2x or more of their tangible common equity.

Does putting a loan into the deferred bucket mean you no longer have to assign reserves against the loan? No. It’s not a complete whitewashing of your accounting requirements. But there is a significant difference in what regulators (and investors) believe is appropriate reserves for a loan in deferral and a TDR.

Is CRE a big enough securitized asset class and/or are the ultimate loan losses here enough to trigger another Great Financial Crisis … at least whenever the extend and pretend regulatory forbearance ends?

Chanos thinks yes, but I think no.

I don’t think securitized CRE loans are a big enough asset class to make this a truly systemic risk, where failed AAA-rated CMBS securities ripple through the entire financial system like a giant tsunami in the same way that failed AAA-rated RMBS did. I mean, non-agency RMBS was a $10 trillion asset class in 2008. CMBS is a fraction of that. Sure, the total amount of commercial real estate loans held on bank balance sheets is a big number, probably close to $5 trillion. But the securitized portion of that lending – the securitized portion that gets priced daily and shows up as a non-extendible and non-pretendable loss – that’s a lot less than $1 trillion in outstanding issuance.

But I DO think you’re going to get some failed AAA-rated CMBS here.

And I DO think that there are crucial parallels to sub-prime residential mortgages here.

And I DO think that we will have a slow-motion banking crisis – a la the S&L debacle of the late 1980s – that emerges from this.

More importantly, I absolutely think that the US economy in general and the commercial real estate market in particular is facing a polar vortex of a credit freeze from every regulated bank and shadow banking facility in the known universe.

Most importantly, I absolutely think that this triggers an even deeper recession in the real economy.

Can extend and pretend give the Keatings and Bushs of this generation of bankers a few more quarters of freedom and anonymity? Sure.

Can extend and pretend prevent give the illusion of liquidity and reasonable capital ratios and loan loss reserves? Sure.

Can extend and pretend create performing loans out of non-performing loans? Can extend and pretend create solvency? Can extend and pretend create monetary velocity and bank willingness to lend? Not a chance.

Bank lending is the oxygen that any real economy depends on for life itself. That oxygen has now been cut off, and no amount of Fed asset purchases or SPV facilities for S&P 500 companies can change that fact.

Buckle up, everyone.


Taiwan is now Arrakis


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He who controls the spice controls the universe.

Yep, that’s the plot of Dune, by Frank Herbert.

It is, in fact, the plot of the entire Dune series of books, one of the ur-texts of modern science fiction. There’s this galactic empire, see, and interstellar travel requires access to a certain narcotic drug, colloquially called “spice”, which only exists on one barren world – Arrakis. So if you want to control the empire, you have to control the supply of spice. And if you want to control the supply of spice, you have to control Arrakis.

I thought about all this when I read this little gem in the aftermath of Intel’s self-immolation last week … you know, the earnings announcement where this crown jewel of American innovation and strength told us that they had decided to financialize themselves into oblivion. Or as I like to call it, “pull a GE”.

TSMC gets large Intel chip order, Apple R&D plant (Seeking Alpha)

Taiwan-based newspaper Commercial Times reports that Intel has ordered 6nm chips from TSMC for next year.

The unprecedented Intel order would reportedly include 180,000 wafers, only slightly behind the raised 200K order from AMD, major TSMC client and Intel rival.

TSMC’s leading-edge capacity is now fully-booked for the first half of next year.

In other news for the pure-play foundry, Economic Daily News says Apple is setting up a display tech R&D plant within TSMC.

The world’s principal supplier of semiconductors – the spice of OUR global empire – is now Taiwan.

Forget about Hong Kong. Forget about the Uighurs. Forget about the virus. Forget about the Trade Deal. Forget about the South China Sea. Forget about all the reasons you’ve been told that the United States should or could be at odds with China.

And by forget, I don’t mean that you should really forget. What I mean is that none of these reasons really matter anymore. None of these reasons are spice. None of these reasons are the supply of semiconductors – the sine qua non of modern global power.

There is no future where the United States can both maintain its existential national interests and allow the world’s principal supplier of semiconductors to come under the direct political control of China.

And there is no future where China can both maintain its existential national interests and allow the world’s principal supplier of semiconductors to remain outside its direct political control.

Thanks a lot, Intel. Thanks a lot, Bob Swan. Thanks a lot, Jack Welch. Thanks a lot, all you Wall Street wizards of financialization.

Taiwan is now Arrakis. It’s now the most important country on earth. And we WILL fight over it.


Is This The Real Life?


I got a ton of email and engagement from Professional subscribers on my email last week regarding the narrative signals we were seeing in our Epsilon Theory Narrative Alpha (ETNA) – signals that give us a tech sector short in our sector rotation model portfolio. And for good reason. It’s one thing to put on a tech sector short position as a trade, even though it’s been a widow-maker trade for what … years, now? Seems like years. But the big questions – and the questions that underpinned almost all of the correspondence with subscribers – are these:

Are we seeing a reversal in the Growth > Value narrative?

Is this, at long last, the turning point for Value investing?

Short answer: yes and maybe.

I know that’s disappointing, but the slightly less short answer is, I think, more encouraging.

Slightly less short answer: yes and yes for a trade (weeks to months); don’t know and don’t know for an investment (months to years).

To explain what I mean by the slightly less short answer, let’s start with that email from last week (Tuesday, June 15):

As most of you are aware, last year we launched a set of S&P 500 sector rotation indices based on our research that we call Epsilon Theory Narrative Alpha (ETNA). We’ll have a number of announcements forthcoming shortly regarding ETNA, most notably that we recently signed a distribution and trade execution agreement with UBS around these indices, and if any ET Professional subscribers are interested in an update call (or an introductory call) on ETNA, I’d be happy to oblige.

But the reason I bring ETNA up today is that our market neutral model portfolio generated a rare set of signals coming into July … a significant short on the technology sector, based on the overwhelming narrative “drumbeating” regarding tech (Narrative Attention in our framework) in June. Our behavioral signals are contrarian – when the drumbeating gets really loud (and especially if happens fast), it’s time to get out – and, boy, was the tech sector drumbeating loud and fast in June! That short position looked pretty stupid for the first week and a half this month, as the tech sector continued to outperform every other sector (again, this is a market neutral model, so it’s the relative performance across sectors that we’re tracking here), but the past two days have been … gratifying. The tech sector reversal on Monday was particularly striking from a technical (no pun intended) perspective, but this is exactly the sort of behavioral “snap” that our narrative signals were anticipating. We’ll see if this tech sector underperformance continues over the rest of the month, but this break in the narrative potentially has broad implications, including a long bias towards value – whether that’s expressed as a value factor, as value-oriented sectors, or as a value style of discretionary investing.

Since that email, value continued to beat growth (and Dow beat Nasdaq) on that Weds and Thurs, gave back some of the ground on Friday, gave back a LOT of the ground this Monday, retook ALL of that ground and more this Tuesday, and then we had today – Weds, July 22.

Today started off like it was going to be a return to our regularly scheduled entertainment – growth over value, same as it ever was. But then, just like last Monday when all of this “stuff” started in the first place, tech/growth took a midday header and we ended up with another day of value ascendant.

So I’ll say this (again) … these midday out-of-the-blue reversals are exactly the sort of market behavior I expect when a dominant market narrative is breaking. These mysterious no-news reversals are exactly the market behavior you get when Common Knowledge shifts.

Here’s what I wrote back in 2014 (wow, I’ve been writing these notes for a long time!) in When Does the Story Break:

Fortunately for us, game theory provides exactly the right tool kit to unpack socially driven dynamic processes. To start this exploration, we need to return to the classic thought experiment of the Common Knowledge Game – The Island of the Green-Eyed Tribe.


On the Island of the Green-Eyed Tribe, blue eyes are taboo. If you have blue eyes you must get in your canoe and leave the island the next morning. But there are no mirrors or reflective surfaces on the island, so you don’t know the color of your own eyes. It is also taboo to talk or otherwise communicate with each other about blue eyes, so when you see a fellow tribesman with blue eyes, you say nothing. As a result, even though everyone knows there are blue-eyed tribesmen, no one has ever left the island for this taboo. A Missionary comes to the island and announces to everyone, “At least one of you has blue eyes.” What happens?

Let’s take the trivial case of only one tribesman having blue eyes. He has seen everyone else’s eyes, and he knows that everyone else has green eyes. Immediately after the Missionary’s statement this poor fellow realizes, “Oh, no! I must be the one with blue eyes.” So the next morning he gets in his canoe and leaves the island.

But now let’s take the case of two tribesmen having blue eyes. The two blue-eyed tribesmen have seen each other, so each thinks, “Whew! That guy has blue eyes, so he must be the one that the Missionary is talking about.” But because neither blue-eyed tribesman believes that he has blue eyes himself, neither gets in his canoe the next morning and leaves the island. The next day, then, each is very surprised to see the other fellow still on the island, at which point each thinks, “Wait a second … if he didn’t leave the island, it must mean that he saw someone else with blue eyes. And since I know that everyone else has green eyes, that means … oh, no! I must have blue eyes, too.” So on the morning of the second day, both blue-eyed tribesmen get in their canoes and leave the island.

The generalized answer to the question of “what happens?” is that for any n tribesmen with blue eyes, they all leave simultaneously on the nth morning after the Missionary’s statement. Note that no one forces the blue-eyed tribesmen to leave the island. They leave voluntarily once public knowledge is inserted into the informational structure of the tribal taboo system, which is the hallmark of an equilibrium shift in any game. Given the tribal taboo system (the rules of the game) and its pre-Missionary informational structure, new information from the Missionary causes the players to update their assessments of where they stand within the informational structure and choose to move to a new equilibrium outcome.

Before the Missionary arrives, the Island is a pristine example of perfect private information. Everyone knows the eye color of everyone else, but that knowledge is locked up inside each tribesman’s own head, never to be made public. The Missionary does NOT turn private information into public information. He does not say, for example, that Tribesman Jones and Tribesman Smith have blue eyes. But he nonetheless transforms everyone’s private information into common knowledge. Common knowledge is not the same thing as public information. Common knowledge is simply information, public or private, that everyone believes is shared by everyone else. It’s the crowd of tribesmen looking around and seeing that the entire crowd heard the Missionary that unlocks the private information in their heads and turns it into common knowledge. This is the power of the crowd watching the crowd, and for my money it’s the most potent behavioral force in human society.

Prior Epsilon Theory notes have focused on the role of the Missionary, and I’ll return to that aspect of the game in a moment. But today my primary focus is on the role of TIME in this game, and here’s the key: no one thinks he’s on the wrong side of common knowledge at the outset of the game. It takes time for individual tribesmen to observe other tribesmen and process the fact that the other tribesmen have not changed their behavior. I know this sounds really weird, that it’s the LACK of behavioral change in other tribesmen who you believe should be changing their behavior that eventually gets you to realize that they are wondering the same thing about you and your lack of behavioral change, which ultimately gets ALL of you blue-eyed tribesmen to change your behavior in a sudden flurry of activity. But that’s exactly the dynamic here. Even though there is zero behavioral change by any individual tribesman for perhaps a long period of time, such that an external observer might think that the Missionary’s statement had no impact at all, the truth is that an enormous amount of mental calculations and changes are taking place within each and every tribesman’s head as soon as the common knowledge is created.

For almost the entire duration of the game, the activity is internal and invisible, not external and visible, but it’s there all the same, bubbling beneath the behavioral surface until it finally erupts. The more tribesmen with blue eyes, the longer the game simmers. And the longer the game simmers the more everyone – blue-eyed or not – questions whether or not he has blue eyes. It’s a horribly draining game to play from a mental or emotional perspective, even if nothing much is happening externally and regardless of which side of the common knowledge you are “truly” on.

If you haven’t observed exactly this sort of dynamic taking place in markets over the past five years, with nothing, nothing, nothing despite what seems like lots of relevant news, and then – boom! – a big move up or down as if out of nowhere – I just don’t know what to say. And I don’t know a single market participant, no matter how successful, who’s not bone-tired from all the mental anguish involved with trying to navigate these unfamiliar waters.

These punctuated moves don’t come out of nowhere. They are part and parcel of the Common Knowledge Game, no more and no less, and understandable as such.

I know that was a terribly long quote, so probably skipped by most. But the skinny is this:

The more I see these midday mysterious reversals in the growth/value relationship, the more I think that there is a Common Knowledge shift happening and not just a month-by-month shift in the Wall Street drum-beating for this sector or that sector.

I know we’ve got the latter, that month-by-month shift in Wall Street drum-beating, and that’s good for a trade.

I suspect that we’ve got the former, a shift in the Common Knowledge, but I need to see more narrative data to be sure. If confirmed … that would be more than a trade. It would be a long-term investment thesis, in this case a reversal in the multiyear growth-and-tech-uber-alles strategy that has laid waste to value investing.

A Common Knowledge shift is a Big Deal. It’s not something I want to jump the gun on proclaiming, and there’s no need to time this down to the nanosecond, precisely because it IS a long-term investment thesis. I expect to gain a lot more insight on this as we launch our Factor Narrative Monitor sometime in August.

And whatever I discover, you’ll be the first to know.




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A friend of mine came into a meeting one morning looking a tad worse for wear and tear after a night out frequenting some Houston bars. Someone asked him how he was feeling. His response: “Clearly I was overserved.”

I thought about that line – which I have enthusiastically stolen – while reading an email I got this morning from a multi-billion dollar asset manager promoting their new special purpose vehicle (SPV) to buy shares in SpaceX, shares which this asset manager will receive at the end of July as part of the SpaceX Series N funding round.

Yes, Series N. The letter N being the 14th letter of the English alphabet, and thus presumably the 14th private funding round for SpaceX.

To be clear, I’m not a client of this asset manager. I don’t know anyone at this asset manager. I have never had any relationship – personal or professional – with this asset manager. It’s an unsolicited blast email to some bcc list of “Dear Friends”.

The unsolicited blast email came with a few “Space X Confidential and Proprietary” powerpoint slides, chock full of chart crimes like this, where the specific $5 billion addressable market has more graphical surface area than the hand-waving $900 billion addressable market:

And no, if you send me an unsolicited blast email asking me – a complete stranger – for money, I don’t care if you mark your deck “Confidential”. That’s true whether you’re a Nigerian email scammer or a multi-billion dollar asset manager, because the difference isn’t as great as you apparently think it is.

But I’m not here to talk about SpaceX. I don’t know anything about SpaceX other than that – apparently – they publish misleading graphics in their pitch decks. Certainly SpaceX would not be unique in that regard.

No, I’m here to talk about the terms this asset manager is asking for investing in their SPV.

For an existing client of this asset manager, which I am not, it’s a 1% annual management fee and a 10% carried interest for the asset manager.

For a new client of this asset manager, which I would be if I were so inclined and were a “qualified purchaser” (I’m not and not), it’s a 1.5% annual management fee and a 15% carried interest for the asset manager.

To be clear, this asset manager isn’t “managing” anything. I would be paying them 1.5% of my investment every year for access to this initial purchase of SpaceX shares. I would be giving my money to this multi-billion dollar asset manager, and they would in turn give most of the money to SpaceX to get shares in this Series N stock sale for the SPV. But the asset manager will keep a healthy chunk of my money in this SPV as cash to pay for “fund expenses” and (probably) their “management fee”, and my capital account will be debited as if it were cash every year for these expenses and fees.

But wait, there’s more …

No Limited Partner will be permitted to withdraw capital from the Fund without the General Partner’s consent, which may be granted or withheld in its sole discretion and which is generally not expected to be permitted. … As such, prospective investors should not invest unless they are prepared to retain their LP interest until the Fund liquidates, which investors should expect will not occur for a very significant period of time.


That’s from the micro-font disclosures page. And yes, it means exactly what you think it means. Your investment is locked up … forever. And the asset manager will collect fees on your investment … forever.

There is no exit here unless SpaceX decides to do an IPO, and when Elon can do an (apparently) infinite number of private stock transactions at whatever valuation Elon’s heart desires, why would SpaceX ever do that?

Now you might do that anyway if employees and early investors clamor loudly enough for the liquidity that an IPO can give them, but this multi-billion dollar asset manager is showing a clever solution for that pressure: get all the liquidity you need by offloading your stock to the rubes AND collect an annual fee for your “generosity” AND get a 15% share of any profits if a miracle occurs and there is an IPO a decade from now.

Whee! Isn’t investing fun!

Who are the rubes? With a minimum investment of only $250,000 to participate in this SPV, it’s clear to me that this offering is being targeted at small “family offices”, the greater fool in the current Wall Street ecosystem.

Yes, this investment opportunity is limited to qualified purchasers, which means that you must have $5 million in investment assets to participate. The asset manager is doing this because having only QPs as investors will exempt the SPV from registering with the SEC under the Investment Company Act of 1940, which is a Big Deal for the asset manager.

Once upon a time, being a QP – i.e., having $5 million in investment assets – was a decent indicator that you were an “institutional investor”, a Big Boy who could take care of himself. Today, every Tom, Dick and Harry “family office” has $5 million in investment assets. It’s a total that’s well below the minimum that many blue chip investment advisors require before they will take you on as a client.

Everyone is all in a tizzy about day traders and Robinhood and Dave Portnoy. “Ooooh, they’re going to have such a hangover when the bubble pops. Ooooh, they don’t understand how investing works.”

Pffft. They’ll be fine.

The investors facing a hangover are small family offices, plied with endless offerings of fee-heavy SPVs and SPACs by multi-billion dollar asset managers. They’re the ones overserved by Wall Street today.


The Stupid War


Epsilon Theory PDF Download (Subscribers Only): The Stupid War

You are now homeland, Chaco,

of the dead deep in your belly

in search of the soul that does not exist at the bottom of your wells.

Sangre de Mestizos, by Augusto Cespedes (1936)

There are proxy wars. And then there is the Chaco War.

Una guerra estupida, as Bolivian war journalist Augusto Cespedes would later call it.

And it was.

It was not a stupid war only in the way that all wars are stupid, in the way that precious few of the things we are told are worth dying for truly require us to do so. Neither was it stupid because the rights and claims of the belligerents were somehow false or illegitimate. They were not. The Chaco War was a stupid war because it was an unnecessary war, exploiting the claims of the people to further the unrelated aims of others. It was a stupid war because it exposed its participants – Paraguayans and Bolivians alike – to a breathtakingly bloody decade, all for a miserable strip of land and to satisfy stories of resistance against landlocked decline and imperialist ambition. It was a stupid war because its proximate cause – the question of whether incursions into a disputed territory constituted the violation of an agreed-upon status quo – should have been easily resolved during a subsequent 6-year period during which both countries delayed open warfare so that they could accumulate enough weaponry to make a real show of it.

Even if the stakes for most of us today are nowhere near as dire as all that, narrative missionaries haven’t given up inspiring us to fight in their stupid wars. Maybe we aren’t being called to march into a shooting war, although we shouldn’t delude ourselves into thinking that we never will again. But we are also compelled to fight in political, cultural and social struggles. The narrative missionaries remind us of our rights and claims, then demand we defend them.

It is only later that we discover that, whatever the battlefield, the war we were fighting in defense of our claims and interests was not our own.

And yet somehow, the casualties always are.

If you have never been to Gran Chaco, the namesake of the Chaco War, you are not alone. Frankly, if you are an American and you have never heard of it, you are not alone.

In 1927, when a Bolivian unit captured a Paraguayan patrol and shot its escaping lieutenant in the shadow of a makeshift mud hut along the marshes of the stagnant Rio Pilcomayo, few Paraguayans or Bolivians had ever been there either. By the latter, the events leading up to the shooting were perceived and promoted to the public as an ordinary series of encounters linked to mutual probes of a disputed area. By the former, as the aggressive violation of a status quo agreement prohibiting such incursions. Whether the status quo agreement was real or fiction, however, all sides would reluctantly agree that the region it ostensibly covered was remote, sparsely populated and inhospitable.

In its furthest reaches to the east along the Rio Paraguay, the Chaco is tolerable enough. Certainly for agriculture, at any rate. Cattle ranches are common, as are the small towns that serve as homes for the permanent laborers that work the ranches for their typically absentee landowners back in Asunción. The same is true far to the west in the foothills of the Andes, where in some places it resembles some of the grasslands of the bordering semi-arid Pampas of north-central Argentina. There, the waters of rivers and tributaries flow regularly and the rising altitude moderates the otherwise oppressive heat.

In between, however, the rivers that visit the Chaco are slow and tend toward swampy bends and marshes that grow outward into a foul, barely traversable morass during the rainy season. During the dry season, it is well and truly dry, and the hard ground shrivels into a dustbowl that confounds all but heavily industrialized agriculture.

At least in terms of climate, there are few places in the world quite like it. Such as they are, most lie somewhere between tropical semi-arid savanna and true deserts. The northern half of the stretch of highway between Darwin and Alice Springs in the Northern Territory would feel like this. The southwest coast of Madagascar, too. That’s about it.

Filadelfia, Paraguay
An image from Filadelfia, the largest town in the Paraguayan Chaco

Its residents, as it happens, are probably not who you would expect, either.

If you enter the Chaco Boreal from the Paraguayan side today, the last city of any real size is Concepción. It sits outside the periphery of the region, and while it is stiflingly hot more or less year round like most of the Chaco, at least it rains. It is by no means a wealthy city, but the 50,000 some-odd citizens of Concepción have experienced an upswing in prosperity since Big Ag brought its clear-cutting equipment to the region some years ago.

If you were to drive 210 miles to the north and west, through the cattle ranches that the more consistent semi-arid savanna of the Rio Paraguay permits, you would enter the Chaco proper: the Paraguayan department of Boquerón. As soon as you turned right off the Transchaco highway toward the department capital of Filadelfia, you would note something peculiar about the place names.

The first barely-even-a-village on your left is called Silbertal. Then Halbstadt. Kleinstädt (yes, with an umlaut). Grünfeld. You do have a choice, however: on your way to Filadelfia, do you take the road to the west that goes through Strassberg, Hochfeld or Blumengart?

You see, both today and in the early 20th century, most of the largest settlements in the Paraguayan Chaco were actually settlements of Plautdietsch-speaking Mennonite immigrants from Northern Germany and the Netherlands, typically by way of Russia and Canada. The first of these – named Menno after that most influential of early Anabaptist writers – was founded by settlers in 1926 with the blessing of the Paraguayan parliament. And in the early 20th century (more so than today), many of the remaining settlements were small – that is to say, forced into reduction by Hispanic governments – communities of Guarani and Guaycuruan indigenous peoples.

Photo Source: Cindy Servranckx

By 1926, when the first influx of Mennonite colonists to the Chaco began in earnest, there were also early Hispano-Guarani mestizo settlers, would-be cattle ranchers and planters in what are now the eastern borders of Boquerón. But beyond what is today the town named after the Hero of the Chaco War and later President of Paraguay, José Félix Estigarribia Insaurralde, there was practically nothing but hard, thirsty ground and hard, thirsty quebracho trees for hundreds of miles.

From the Bolivian side, there is – and was – perhaps even less direct human connection to the region.

The northeastern extreme of Bolivian settlements included a small river port and similarly small forts bordering the intersection of the Chaco and Brazilian Pantanal along the Rio El Pimiento, a tributary to the Rio Paraguay. Founded in the late 19th century, its establishment led to further incursions that yielded a diplomatic response from the Paraguayan parliament and a somewhat less diplomatic one from a Paraguayan gunboat, but Puerto Suárez itself couldn’t be wholly unseated. Perhaps a 700 mile drive to the southwest, in the more amenable climes of the Andes foothills, was another emerging town on the frontier of the Bolivian Chaco – Villamontes. And until around 1910 or so, that was about it. In between the foothills and the Pantanal was a pure wilderness. A wilderness mostly deemed unsuitable for permanent human habitation, lest we grow too sentimental.

Around the turn of the first decade of the 20th century, Bolivia did establish a small number of military outposts in the Chaco proper, mostly on the east bank of the Rio Pilcomayo, not too far from the small current-day Argentinian town of Santa Victoria Este and San Agustin, Paraguay. They were purely minor military encampments – fortin they called them, the Spanish diminutive for fort. Other Bolivians, however, generally wanted nothing to do with the region. As Bruce Farcau wrote in The Chaco War: Bolivia and Paraguay, 1932-1935, “Bolivia…could not convince its highland Indians, fearful of the tropical diseases of the lowlands, to migrate there for love or money.”

All that is to say that if the average Paraguayan citizen’s concern for the Chaco in the early 20th Century was limited at best, that of the average Bolivian was next to nothing, excepting perhaps some agitation at the idea of Paraguay consolidating control over it. As British commercial counselor R.L. Nosworthy wrote to his superiors in London in 1932, the average Bolivian had never been anywhere near the Chaco, and had not “the slightest expectation of visiting it in the course of his life.”

Still, Villamontes had something else. Something new. Cattle ranches could exist on the periphery in both countries, to be sure (and in the Argentinian Chaco too, for that matter). And the ubiquitous quebracho throughout the region is a useful species, more than twice as hard as the standard northern red oak and high in tannins that made it useful for the leatherworking trade. On the edges of the Pantanal, rubber was a possibility. But in 1919, in Villamontes, they found something else.


Oil on the edge of a long-disputed wilderness.

If there has been a small mercy in the COVID-19 pandemic, surely it is that, for most of America, the spread of the disease has been active during the summer months.

There are about 57 million children enrolled in K-12 public and private schools in the United States. Around 39 million of them live with both parents, or at least with two cohabiting adults. Some 2 million live with someone other than a parent, like a foster family or a relative. The remaining 16 million or so live in a single-parent household. About 85% of those are single mother households.

Among two parent households with a child of school age, around 65% rely on two incomes. Households with multiple children are somewhat more likely to rely on a single income – since mothers of very young children are more likely to stay at home for some time – but it is not a large effect. Assuming that households are mostly similar regardless of the number of children, we can estimate that 41 million of the 57 million school-aged kids in the United States come from households in which every present parent is gainfully employed. If we assume that a comparable proportion of the 2 million in the care of relatives or foster families live in households where every adult works, the number is 42 million.

Source: Bureau of Labor Statistics

There are 42 million schoolchildren in the United States living in families that depend on the income of every adult living in the house.

To be fair, some of those families are not dependent on the dual income in an existential way. It may be entirely possible for them to survive on one by making lifestyle adjustments, and these statistics do not provide any insight into that question. Likewise, some of those employed parents work shifts that do not coincide with the school day. But neither of those observations changes the reality:

The closure of schools for any amount of time would represent a nearly unfathomable disruption for tens of millions of American households. It would represent a literal impossibility for tens of millions more.

There is an understandable aversion on the part of educators and school administrators to having their work characterized as daycare. There is also often a bit of condescension in the aversion (childcare being a perfectly admirable profession), but let’s extend some grace and assume that most of those who take pride in their chosen profession do so not because they feel it makes them superior but because they happen to like it in particular. Nothing wrong with that. No matter how understandable our discomfiture may be, however, it cannot change the simple reality that we have structured our economy, household budgets, tax code, social expectations, transportation infrastructure, service amenities, consumption patterns, housing choices, families and communities around the expectation that our kids are going to be in a safe and productive environment during our working hours for most of the year.

May and June of this year taught us that Americans are resilient to some measure of disruption. Teachers and parents across the country figured out how to make it work. Many employers, whether the result of mercy, publicity or regulation, did the same. But September 2020 won’t be May and June. Office employers which instituted work-from-home policies that eased the transition to school closures are re-opening with an emphasis on masks, distancing and other procedural precautions. That accounts for 29% of American employment, give or take. Manufacturing, transportation, retail, arts, food service and other industries that survived have done so with the dramatic narrowing of their margin for error. The 71% of Americans who rely on jobs with these employers are likely to be extended far less grace than the already stretched version they may or may not have received in the late spring.

Many of the households themselves, of course, had to provide their own buffer. When furloughed, they relied on savings or the charity of others. Yet both savings and charity have their limits. Millions of households have reached the limits of savings that even the most naive of financial planning ‘experts’ think American households can manage. That means that they are acutely sensitive to disruption in their ability to go to work. It is no longer a preference. It is a life-altering problem.

That reality is taking hold for many of these families. In August, with the prospect of closed schools, it will become unavoidable. At dinner tables and in lonely showers at the end of the day, the same words will be spoken and unspoken:

What are we going to do?

Standard Oil Company hauling equipment up a narrow mountain road near Villamontes, Bolivia

The ownership of the oil fields around Villamontes and Camiri was never very much in doubt.

Villamontes and the Andes foothills were Bolivian patrimony, land to be defended until there were no more poor people from the mountains left to die for it. Even Paraguay’s most aggressive claims on the disputed Chaco territory only extended so far as the Rio Parapeti, well east of the fields that Standard Oil of New Jersey had begun to develop. Its wagons and machinery were driven through the mountains almost immediately after the discoveries of 1919 and 1920, just as soon as the company we now know as Exxon had inked its 1922 agreement with the Bolivian state.

By the time that Paraguayan lieutenant was shot 60 miles southwest of the current Mennonite colony of Hochstadt in 1927, Standard Oil had a small but active operation far to the west. Its practical distance was even greater than measured, because in almost no season was the muddy mess that is the Rio Pilcomayo at this point reliably navigable by large craft. S.O. had producing wells at the Bermejo, Camiri, Catamindi and Sanadita fields, all well within the shadow of the Andes. A few years later, in 1931, still before the formal start of hostilities, they had built refineries near the Camiri and Sanadita fields, too.

With so much oil so near to the Andes foothills, it stood to reason that the Chaco must be teeming with the stuff. And if Bolivia’s claim on the Chaco Boreal was marginally less weighty than Paraguay’s, it was still legitimate. Bolivia pressed its claim based on uti possidetis juris – the idea that new states should by default be understood to retain the existing borders of the predecessor departments from which they were formed. Most of the Chaco Boreal indeed fell within the Spanish colonial territories of Moxos and Chiquitos from which Bolivia was formed.

Sort of. Inconveniently for everyone, the Spanish colonial entity that gave birth to Bolivia, the Audiencia de Charcas, was demarcated in a way that was not designed to function with any realistic capacity as an international border.

As with most such disputes, especially in post-revolutionary South America, it was a mess. Thanks a lot, Pope Julius II.

Beyond its legal claims, there can be no contention that Bolivia did not have interests in the Chaco. Yes, of course there is the oil they were so certain would be quickly found throughout the region, but there were other interests as well. For Bolivia was not always landlocked. Until it lost it to Chile in 1884, Bolivia had de facto control of the Pacific province of Litoral and a port called Cobija, about 80 miles north of what is now the modern city of Antofagasta, Chile. A port which itself had been destroyed less than a decade before by a brutal earthquake in yet another stroke of bad fortune.

Bolivia needed access to the ocean, and if not the Pacific, then the Atlantic would have to do. It also needed a way to send its oil somewhere other than Argentina, as the prospect of building a pipeline through the Andes was almost too daunting to consider.

On the eve of the second quarter of the 20th century, Bolivia had both a justifiable claim on the Chaco and was justifiably desperate. With the loss of its coastal territory and more, it had lost its potential place on the world stage. It had finally fallen into the good fortune of an oil find, even if a minor one, but had practically no way to transport it for sale. What pipelines existed through Argentina were already the subject of suspected collaboration between Standard Oil and Bolivia’s neighbor to the south. If you were a Bolivian official of any measure of authority, one question would have been constantly on the tip of your tongue:

What are we going to do?

In the spirit of the Mennonite colonies of the Chaco Boreal, let us undertake a brief Gedankenexperiment. Let us say that we wished to create the optimal ‘human petri dish’ for the national spread of an aerosol- and droplet-propagated coronavirus like COVID-19. Never you mind why. What would it look like?

  • Obviously, you would want to store the subjects indoors in an enclosed space that limited practical social distancing to less than 6 feet on average;
  • You would preferably ensure that the individuals were in fixed, non-moving positions for as long as possible to maximize the potential of aerosol transmission and reduce the reliance on near-distance droplet transmission;
  • If possible, the facility would have constant budgetary limitations that made it a near impossibility to guarantee the provision of protective equipment or proper sanitation;
  • You would desire HVAC systems with archaic or non-existent filtration capabilities;
  • You would want the subjects to have preternatural disposition to resist the use of protective equipment, exercise horrifying personal hygiene and demonstrate underdeveloped habits for limiting the projection of coughs, sneezes and other bodily functions;
  • In a perfect scenario, you would be able to ensure that the presumed host individuals that would occupy the space would be members of a demographic most likely to remain asymptomatic as long as possible while infected;
  • At this point we are dealing with perhaps unrealistic requirements, but if you could make it legally compulsory for subjects to be in the room every day for several hours, that would be an extraordinary feature;
  • In a similarly perfect case, to maximize community spread you would want the individuals to come from households that were geographically close enough to facilitate the development of a medical resource-straining hotspot, but preferably go home on a daily basis to different households in that close geographic area so as not to waste any disease-spreading potential; and
  • If there were a demographic trait of subjects that would ensure that it was unavoidable that the potentially infected individuals would come into close physical contact with other family members on a daily basis, that, too, would be optimal.

It’s a school. We invented an American public school.

This will not be a sentimental appeal.

You see, it happens that in most cases, the public school setting probably does not create extraordinary individual risk for the 57 million students and 4 million or so educators and school support personnel who would otherwise occupy that setting. Why? Because those individuals are probably subjected to less individual risk than many others whose labor we have also deemed essential.

Grocery store clerks, factory workers, restaurant servers and food service employees, for example, are all generally exposed to a greater number of different individuals. Over a one- or two-day period, the concentrated nature of school-setting contact and the arm’s length nature of most food service interactions, for example, probably makes the cumulative risk to the teacher and students higher. Over a week or a month, however, the inherently rotating cast of characters encountered by public-facing workers would begin to overwhelm the effect of all those contributing factors in our Gedankenexperiment, all of which wildly skew the conditional probability of subsequent infections within the classroom once someone has contracted COVID-19, and none of which really does much to change the probability of a static universe of individuals bringing the infection into the room in the first place.

But it doesn’t matter.

It doesn’t matter if the grocery store worker, Uber driver or school teacher has a slightly higher or lower cumulative probability of contracting COVID-19 over some period. In a region with community spread, each of those individuals has a legitimate claim on fear that their work subjects them to unusually high risks relative to those of us fortunate enough to be able to work from home or an adequately socially distanced office. Each of them also has a legitimate claim on fear that their particular working environments provide them with little defense against the actions of others. It may furthermore be worth considering that the elementary school teacher with a recurring chalk, pencils and paper delivery order from Amazon on a personal credit card is not being unreasonable in suspecting that their local school district may not invest a great deal in resources to adequately protect the classroom environment.

Even if you still want to compete in the “who has got it worse” Olympics and say that factory line workers, or bus drivers, or coffee shop baristas being forced back are subject to greater individual risk, it still doesn’t matter.

It doesn’t matter because an environment with conditional infection probabilities approaching 1 is a super-spreader environment. The American public school classroom environment is a super-spreader environment. That means that even if the cumulative probability of a single individual school teacher or student contracting COVID-19 is not substantially higher than that of individuals pursuing many other daily activities we have collectively deemed an ‘acceptable risk’, the probability that any infection will lead to deep, rapid community spread that induces strain on local health care resources IS higher. Much higher.

Around the country through the rest of July into August, this is the thought that will occupy the minds of educators, administrators, city governments, counties, school boards and medical professionals. The very next thought will typically be the same:

What are we going to do?

Because they were based on legal succession, Bolivia’s claims on the disputed Chaco territory were rather more expansive, even if it rarely pressed them. It claimed the territory extending all the way to the confluence of the Rio Pilcomayo and Rio Paraguay, which is to say “everything up to the capital of Asunción.”

For decades prior, however, the de facto ownership of lands hundreds of miles to the north and west of that point had been established by predominantly Hispano-Guarani mestizo settlers, ranchers and planters, which is a fancy way of saying Paraguayans. Similarly, if less legally binding, these settlers felt some obvious kinship with the Guarani-speaking indigenous peoples who continued to live in various pockets of even the western reaches of the Chaco just inside of the Rio Parapeti into the early 20th century. The aforementioned Mennonite settlers were sponsored and sanctioned by the Paraguayan government, too, and had settled in some cases north and west of the minor encampments the Bolivians had begun setting up along the Pilcomayo in the 1920s.

Whereas the Bolivian claim was largely based on legal succession of borders, Paraguay’s was therefore mostly – but not entirely – a de facto claim. In other words, they said they owned it because they were already doing the things that you did when you owned something, like building houses, roads and lumber yards on it. It also relied in part on one surprisingly favorable outcome of its otherwise devastating war with Argentina, Brazil and Uruguay in the 1860s. As it happened, the belligerents consented to arbitration by US President Rutherford Hayes over the disposition of claims on the Chaco. The arbitration awarded much of the Chaco Boreal to Paraguay at this time. Problematically for Paraguay’s arguments against Bolivia, however, Hayes did not admit Bolivia’s claims to the discussion. That meant that while Paraguay, Argentina and Brazil’s claims on this part of the Chaco had been resolved, the legal matter between Paraguay and Bolivia remained under dispute.

Again, thanks a lot, Pope Julius II.

The favorable treatment by Hayes notwithstanding, in the same way that Bolivia’s wars following independence had neutered it and isolated it from the world stage both figuratively and literally, Paraguay’s defeat in that war was incalculably devastating. Estimates and records vary wildly, but it is possible that as much as 50% of the country’s pre-war population had died of war and disease by 1870. It lost territory on all sides to its neighbors, and crippling reparations to each of its three foes forced it to sell land along the Rio Paraguay to ranchers and financial speculators, mostly Argentinians, but some Europeans and Americans as well.

Paraguay, too, had legitimate interests in the Chaco that went beyond its simple legal or de facto claims. For one, it already had a meaningful number of settlements and colonies in the territory which looked to the Paraguayan government for protection. It was entirely reasonable to view the establishment of Bolivian fortin deep into the region in the 1920s as a legitimate threat to those settlements. Paraguay was also dependent on the Rio Paraguay as its sole means for navigable access to the Atlantic, although its interest was the protection of its route through the Chaco from molestation by hostile forces rather than seizing it in the first place.

And yes, like Bolivia, Paraguay had an interest in the hypothetical presence of oil in the Chaco. Even if it never claimed anything so far as the fields around Villamontes, Paraguay had every expectation that it and the associated discovery by Royal Dutch Shell elsewhere in the Chaco were indicative of a resource-rich territory that could sweeten a quickly souring set of circumstances for the country.

In Asunción, governors and leaders remembered yearly the cost of their defeat at the hands of the now nearly hegemonic Argentinians and Brazilians through crippling debt payments. They accessed the Atlantic through the Rio de la Plata only by the forbearance of multiple nations. Their closest national rival, many times larger and made newly fortunate by the discovery of oil, had begun regular incursions into territory and established military camps where Paraguayan citizens and charges had already settled. In coffee houses, state houses and private houses alike, the same thoughts would have been running through every mind and flitting on the edge of every tongue:

What are we going to do?

When two desperate parties with legitimate and competing claims ask “what are we going to do?”, for the rest of the world there are two ways to respond:

We figure out how to bridge the impasse.

We figure out how we can benefit from the fight.

The Chaco War was first exploited for others’ benefit in the world of narrative – through the transformation of what the war was about.

It started in Paraguay, where newspapers took the lead in whipping up the people’s sentiment and appetite for conflict and sacrifice. They did so using the most powerful meme available in early 20th century South America: assertions that a foe was the puppet of imperialist influence from Europe or America. It was powerful because it was integral to the story of every generation in every nation in the region. It was powerful because it was very often true.

So it was that Paraguayan newspapers asserted that the true underlying cause of ‘Bolivian Aggression’ was the imperialist aims of the Standard Oil Company of New Jersey. Beginning in 1932 and throughout much of 1933 and 1934, the claims would be repeated daily in most newspapers. It was a largely local phenomenon for much of that time. That is, until American Senator Huey Long – a man who combined the political sensibilities of Bernie Sanders with the unmistakable political style of Donald Trump – saw a means to advance his long campaign against the Rockefeller empire by asserting the same in a extraordinarily long filibuster speech delivered to the senate on May 30, 1934.

It was a marvelous piece of narrative creation, aided by the truth that Standard Oil had agreed to sell refined products produced at its Bolivian facilities to the country for use by its army to prosecute the war, and by the fact that it was circumstantially true that Bolivia’s aims would probably work to Standard’s benefit. But the plight of Paraguay was a sideshow to Long’s real target.

The domestic usefulness of the war for Long did not end with Rockefeller.

The result was almost instantaneous, first in Paraguayan media. On July 1st, 1934, El Diario in Asunción published the entire speech on three pages of its Sunday edition under the headline “Sensational Speech of Mr. Long in the Senate of the United States.” Then it took hold in Paraguayan government. The US envoy to Paraguay Meredith Nicholson sent a dispatch to the Secretary of State noting that “recent utterances of Senator Huey Long with reference to the Standard Oil Company and its relations with Bolivia have not been without effect on the President [of Paraguay].”

If there is evidence that Standard Oil provoked, caused or funded the Chaco War beyond its willingness to supply the fuels it was producing locally, it is either lost or destroyed. In the end, Standard Oil saw little benefit from whatever support it did provide. Its assets became a case study for future expropriation events when Bolivia nationalized its oil and gas industries only a few years later.

In narrative world, however, the senator’s entry into the fray was huge. Huey Long’s profile rose, especially after a hapless Bolivian diplomat gave him an opening to deliver yet another scathing speech on July 7th. It was exceedingly light on what Senator Long wanted to do to help Paraguay, and powerfully heavy on calling Standard Oil executives all sorts of things. Domestic murderers! Foreign murderers! International conspirators! Rapacious thieves and robbers!

If the first speech was a novelty, the second proved to be a phenomenon. In Asunción, El Diario printed it in its entirety three times, calling Long “a beautiful spirit”, a sentiment Louisianans of the time might have a bone or two to pick with. It was later joined by every other major newspaper in Asunción. La Tribuna beatified him in elegant portraits. El Orden called him “Defender of the Right.” El Liberal called him “a citizen without any other motive than that of justice.”

But this time it didn’t stop in the newsrooms of Asunción. Long’s speeches and editorials supporting their contentions were carried in Ecuador, Costa Rica, Chile and Argentina. It became not only the story of the war, not only the story of the many travails experienced by Paraguay (which were many), but the story of South American resistance to imperialistic foreign intervention in its affairs. And it quickly became common knowledge. As historian Michael Gillette put it, “Even the most intelligent persons were either convinced of the truth of the sensational charges against the oil company or were fearful to express an opinion contrary to popular prejudice.”

Chilean poet-cum-statesman Pablo Neruda was among them.

Standard oil awakens them,
clothes them in uniforms, designates
which brother is the enemy,
and the Paraguayan fights its war
and the Bolivian wastes away in the jungle
with its machine gun.

Standard Oil Co., by Pablo Neruda

Bolivian and Paraguayan peasants alike died in the muck of the Rio Pilcomayo while foreign governments, thinkers and editorial pages cheered on the holy cause they had created for them.

Yet if Standard Oil’s complicity in promoting or funding the conflict lacks any real evidence, we have no such problem identifying any number of outside institutions that actively sought out how to benefit from the competing claims of two desperate parties.

Argentina, for example, saw a great deal it could gain from a war between its neighbors. Like Brazil, it was a major power on the continent and saw an industrializing Bolivia as a threat. It jumped at the opportunity to observe a quasi-vassal state like Paraguay blunt the ambitions of an emerging regional rival like Bolivia without taking much risk itself. They provided military counsel. They provided free or extremely low cost access to and transportation of materiel along Argentinian riverways, rails and ports. They provided access to some equipment and ammunition from armories. They positioned their neutral armies on the east bank of the Pilcomayo to deny the Bolivians a protected right flank. The British air attache even claimed that Argentinian pilots were flying for Paraguay. The war that was “about” justice against imperialist powers was also “about” weakening potential future foes of Argentina.

Britain, on the other hand, knew early and on a first-hand basis of the intent behind Bolivia’s military buildup. Coordinated and reported heavily by British diplomats and envoys, Bolivia acquired nearly all of its war materiel from British arms manufacturer Vickers-Armstrongs beginning in the late 1920s. Vickers was thrilled to negotiate a $9 million contract that would (er, theoretically) deliver perhaps as many as 200 artillery pieces, 12-15 warplanes, tens of thousands of small arms, and hundreds of the Vickers machine guns made so famous in the first world war, along with millions of rounds of ammunition to accompany each. Vickers brought Bolivian officers and mechanics to Britain to train them in the use of each. Throughout the pre-war period Bolivia requested and by all indications the British Foreign Office consented to putting diplomatic pressure on Chile and Argentina to permit the transport of these arms. It worked. Sometimes.

Continental Europe wouldn’t miss its opportunity to make this little tête-à-tête about them, either. While not an explicit measure of German support, Bolivia’s army was led in the early war by a (woefully outdated) former German general and expatriate. Czechoslovakia, far more formally, sent a military mission to aid the Bolivians. In retrospect, this made some sense given that the Brno Arms Works was probably the second largest supplier of arms to the country after Vickers. About 15% of the vz.24 bolt-action rifles that were ever manufactured were sold to the Bolivian Army.

The Paraguayans had their European advisers, missions and suppliers, too. As with German General Kundt, their participation was not a formal expression of support by any country, but the Paraguayan officer corps included as many as 80 Cossacks who had fought with the Whites only a few years before. More importantly, Paraguay was happily assisted by the Italians, who sent advisors, training staff and modern (and expensive) 5-7 Fiat CR.20 aircraft. It was also Italian shipyards who built and sold to Paraguay its two rivergoing monitors – the Cañonero Paraguay and Cañonero Humaitá.

A photograph of Paraguayan Fiat CR.20 aircraft supplied by Italy

If it feels as if any one country is being singled out or omitted here, disabuse yourself of the notion. During the obvious buildup that followed the initial border skirmishes of 1927 through 1933, Paraguay spent somewhere between 30-60% of its national income acquiring arms from nearly every country capable of manufacturing them. As compiled by military historian Matthew Hughes, its purchases included, among many others:

  • Thousands of Mauser rifles from Fábrica Nacional de Oviedo in Spain;
  • Cavalry sabres from Jules Fonson of Brussels;
  • Hundreds of machine guns from Dansk Rekylriffel Syndicat in Denmark;
  • Hundreds of Browning pistols and millions of 7.62mm rounds from Fabrique Nationale d’Armes de Guerre of Liège;
  • Thousands of new uniforms from the Spanish, very clearly intended to match the color scheme of the Chaco, years in advance of any hostilities;
  • Artillery spotting equipment from Nederlandsche Instrumenten Compagnie of Venlo; and
  • Cavalry saddles and tack from Germany;

And America? Our companies (and Britain’s too, for that matter) sold to both sides. Colt sold arms to Paraguay. Remington and Curtiss-Wright sold arms to Bolivia. Following a US Senate investigation, it also became clear that American arms manufacturers began widespread smuggling of their arms through Argentinian and Brazilian ports even after President Roosevelt enacted an embargo on such sales in 1934.

If there was any doubt that these companies both (1) knew that the conflict would die without their participation and (2) wished for the war to continue, the Senate record should eliminate any doubt. Simply listen to the words of Frank Jonas, from Remington Arms, who described selling arms to Bolivia as “one hell of a business”, and added, “it would be a terrible state of affairs if my conscience started to bother me now.” Or to C.K. Travis of Curtiss-Wright, who noted that Bolivia was “a small country, but they have come across with nearly half a million dollars in the past years, and are good for quite a bit more if the war lasts.”

While politicians and narrative missionaries cheered on the Chaco War as a war that was about their anti-imperialist narratives, across the western world governments and corporations alike cheered on the Chaco War as a war that was about their opportunity to produce new sales, new influence and new notoriety on the world stage.

And not simply in the distastefully banal manner of all arms sales.

No, from beginning to end, each of these institutions knew that this desperate war between landlocked countries with no domestic arms industries or modern military training was entirely reliant on their participation. Each of these institutions knew that they had meaningful influence over whether the slaughter could continue.

And each of them decided that if it might yield them some benefit, it was in their interest to encourage these desperate, proud people to fight.

There are a lot of people and institutions who have decided it is in their interest to encourage a fight between those consumed by the justifiable fears that schools will close and upend the slim control they have over their household, and those consumed by the justifiable fears of viral spread with schools that open in the midst of emerging hotspots with little preparation and little protection for educators, students and communities alike.

As always, there are war profiteers looking for ways to profit from and encourage that fight. Only in a cultural war about an ongoing pandemic, the profiteers aren’t companies like Remington, but for-profit education support companies promoting manipulative narratives about “the Covid Slide.” Based on standard academic research into the impact of school breaks (especially in summer), it is a term that has been co-opted by companies like Huntington Learning Center to deepen and profit from the fears of parents who are already worried about schools being closed.

In videos like this one:

As always, there are those actively trying to abstract the legitimate claims and interests of those involved into grander social narratives and battles. And why wouldn’t they?

After all, it is immensely pleasurable, cathartic and popular (within the right circles) to abstract others’ fear about the consequences of closing schools into Trumpiness. It is another opportunity to chest-pound about how right we were about masks, and how wrong they are again. It is another opportunity to take the preening moral high ground about the inhumanity and indifference they must have in their hearts to carry and be motivated by those concerns.

After all, it is mutually encouraging to recognize you are among those few who realize how broad and far-reaching the desire to thwart the sitting president goes, even when it comes at the cost of our children’s futures. It is another opportunity to shout “hypocrite!” at those who are afraid to do their jobs but aren’t afraid to go to restaurants or grocery stores and ask those people to do theirs. It is another opportunity to talk about how media and social media elites are demonstrating how they have no idea what most Americans’ lives are like.

After all, it is wise-sounding and circumspect to abstract the discussion into one about the lies, failures and miscues that have gotten us to where we are today.

Having written just a little bit about those failures, I hope you will hear me when I say this: none of that matters one bit to this discussion.

We are where we are.

Americans who fear the consequences of opening OR closing schools deserve our grace, our patience and our willingness not to abstract their intent into any narrative we wish to promote simply because it makes it easier for us to dismiss their concerns.

No, more than that. They deserve our help, which means now is an urgent time to consider: What can we do to make classrooms safer? What can we do to ease the childcare burden of workers who simply can’t endure more missed work? Perhaps your mind goes to top-down policies, and I won’t argue against that being part of potential solutions. But if we live in a place where schools may be cancelled, for example, and we have the ability to step in as part of the childcare solution for those who require it, now may be the time to make our bottom-up contribution to our pack.

The sooner we offer those things, the better, because the efforts to push these two sides into a prolonged, politically tinged fight are working. The idea that parents wondering what they’re going to do and teachers wondering what they’re going to do ought to be at war – are already at war – has already permeated our memes, our misappropriated satire and our everyday discussions. The idea that the other side’s concerns are really about bad political views and the other side’s blind obedience to them is crystallizing.

Friends, this is a song we MUST refuse to sing.

We must refuse to sing it because it will further sunder us from our fellow citizens.

We must refuse to sing it because it will distract us from making sound, fact-based, risk-conscious (if not risk-less) decisions for our children, our communities and one of the most critical groups of citizens to our future – our educators.

We must refuse to sing it because those who seek to manipulate us into fighting over this don’t deserve our attention, much less our compliance.

We must refuse to sing it because you and I know something they don’t about the first 80 years or so that followed the end of the war:

They didn’t find oil in the Chaco.


The New Monitors Are Here!


I don’t expect everyone to be as excited about the arrival of the new ET Professional Narrative Monitors as Steve Martin was about the arrival of the new phonebooks … but it’s close!

Here’s the replay for the Narrative Monitor webinar we held via conference call and screenshare for ET Pro subscribers:

I’ve also attached the slide deck we used in the presentation here: ET Pro Narrative Monitor deck.




To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.

Last December, we published a note titled The Long Now, Pt. 4 – SNIP! , as part of the Long Now series, which is still, I think, the best entry point for someone new to Epsilon Theory to figure out what all the fuss is about.

The note is about the cutting of the cord between taxes and spending, which is pretty much the last thing that keeps us citizen astronauts tethered to the spaceship of non-totalitarian government. And in that note I wrote this:

I think that whoever is elected in 2020, we will see a $2 trillion spending plan enacted in 2021.

If it’s a second term for Trump, it will be the 2021 Make America Great Again Act, and we will call them “Infrastructure Bonds”.

If it’s a first term for a Democrat, it will be the 2021 Take Back America Act or something like that (I suppose if it’s President Biden we can hope for the 2021 No Malarkey Act, although I’m rooting for the 2021 OK, Boomer Act), and we will call them “Green Bonds”.

Since then we got this in April:

Trump calls for $2 trillion infrastructure package as part of coronavirus response (CNBC)

And now this on Tuesday:

Joe Biden Unveils $2 Trillion Plan to Combat Climate Change (WSJ)

LOL. See, this is why you become a paid subscriber to Epsilon Theory. We can’t always write tomorrow’s headlines today. But we do try.

More seriously, though, I want to leave you with the conclusion to Snip! . Once the tether between taxes and spending is cut:

There are no limits to the retributive and malicious use of taxation as a political weapon.

There are no limits to the retributive and malicious use of spending as a political reward.

This isn’t a Democrat thing and this isn’t a Republican thing. It’s a power thing.

The Long Now is going to get a lot worse before it gets any better, and there is strength in numbers. Watch from a distance if you like, but you are welcome to join our pack.


We the People? We the Pack.


Epsilon Theory PDF Download (available to everyone): We the People? We the Pack.

Back in early April, I wrote this about our battle with the coronavirus:

There is no country in the world that mobilizes for war more effectively than the United States. And I know you won’t believe me, but I tell you it is true:

This will be #OurFinestHour.

Since then, our leaders have totally botched the Covid-19 war-fighting effort. I mean our leaders at every level of government and of every political stripe, and I mean that it has been spectacularly botched. Covid-19 is now endemic within the United States, meaning that it is neither effectively contained nor effectively mitigated. Meaning that it is uncontrolled and uncontrollable. Meaning that tens of thousands of Americans get sick with this disease every day, and between 500 and 1,000 Americans die. Every day.

It didn’t have to be this way. As I write this note, Germany – a large country with a federal political system and the 4th largest economy in the world – is reporting two Covid-19 deaths today. Two. Japan – an even larger country and even larger economy – is reporting one Covid-19 death today. One.

But here’s the thing. Yes, our political leaders have been a horror show. God knows I’ve been railing about them for months. But there’s another awful truth at work here.

We the people have failed our nation more than the politicians.

In fact, I honestly don’t believe we still have a nation. We have a country, of course, but that’s just an administrative thing … here are the borders, here is your social security number, here are the rules for how we do things. A nation is both less than a country and much, much more. A nation is the meaning of a country. A nation is the embodiment of We the People.

It’s not that I think being an American has no meaning. It has a lot of meaning to me. It has a lot of meaning to many people. It has some meaning to almost everyone.

It’s that being an American no longer has a shared meaning.

It’s the widening gyre that we’ve been writing about for years now. Literally for years.

I just never thought it would come to this.

I knew that high-functioning sociopath politicians would continue to do their high-functioning sociopath thing, where with one hand they pump out culture-porn telling us that what really matters is our attitude towards Goya beans or Columbus statues, and with the other hand they pump out TRILLIONS of dollars into a money-laundering scheme we like to call “monetary policy”.

All while MILLIONS of Americans are getting sick and MILLIONS of Americans are out of a job and TENS OF THOUSANDS of Americans are dead.

I just never thought we would embrace this evil – and that’s what it is – in our heart of hearts.

I just never thought that we would reject empathy for our fellow citizens in favor of sociopathy, that we would think of our fellow citizens as mattering less in a horrific economic and public health emergency because they live in a different part of the country or have a different political affiliation.

Not all of us. But a lot of us. A critical mass of us. Enough of us so that the rest of us disengage from cooperative gameplay on a national scale, not out of emotion or spite, but out of cold, hard rational choice. It’s the inevitable outcome of our domestic social games transformed from Coordination Games into Competition Games.

From Virtue Signaling, or … Why Clinton is in Trouble:

The hallmark of a Coordination Game is that there are two equilibrium outcomes possible, two balancing points where the game is stable. Yes, one of those stable outcomes is mutual defection, where everyone pursues their individual goals and everyone is worse off. But a stable outcome of mutual cooperation is at least possible in a Coordination Game, and that’s worth a lot. Here’s a graphical representation of a Coordination Game, using Rousseau’s famous example of “the stag hunt”.

Fig. 1 Coordination Game (Stag Hunt)


The basic idea here is that each player can choose to either cooperate (hunt together for a stag, in Rousseau’s example) or defect (hunt independently for a rabbit, in Rousseau’s example), but neither player knows what the other player is going to choose. If you defect, you’re guaranteed to bag a rabbit (so, for example, if the Row Player chooses Defect, he gets 1 point regardless of Column Player’s choice), but if you cooperate, you get a big deer if the other player also cooperates (worth 2 points to both players) and nothing if the other player defects. There are two Nash equilibria for the Coordination Game, marked by the blue ovals in the figure above. A Nash equilibrium is a stable equilibrium because once both players get to that outcome, neither player has any incentive to change his strategy. If both players are defecting, both will get rabbits (bottom right quadrant), and neither player will change to a Cooperate strategy. But if both players are cooperating, both will share a stag (top left quadrant), and neither player will change to a Defect strategy, as you’d be worse off by only getting a rabbit instead of sharing a stag (the other player would be even more worse off if you switched to Defect, but you don’t care about that).

The point of the Coordination Game is that mutual cooperation is a stable outcome based solely on self-interest, so long as the payoffs from defecting are always less than the payoff of mutual cooperation. If that happens, however, you get a game like this:

Fig. 2 Competition Game (Prisoner’s Dilemma)


Here, the payoff from defecting while everyone else continues to cooperate is no longer a mere 1 point rabbit, but is a truly extraordinary payoff where you get the “free rider” benefits of everyone else’s deer hunting AND you go out to get a rabbit on your own. This extraordinary payoff is what Trump is saying is possible when he talks about America “winning” again. But it’s not possible. Not for more than a nanosecond, at least, because there’s no equilibrium there, no stability in either the upper right or bottom left quadrant. You want to pass a modern version of the 1930 Smoot-Hawley Tariff Act to “win” a trade deal? Knock yourself out. As in 1930, you’ll enjoy those benefits for about two months before every other country does the same thing against you. And in about 12 months, as in 1931, every bank that’s levered to global trade finance goes bust. Whee! There’s one and only one equilibrium in a competition game — the “everyone defect” outcome of the bottom right quadrant — meaning that once you get to this point (and you will) you can’t get out. The stability of the Competition Game is the stability of permanent conflict.

More importantly than what happens in any of these international games, however, is what happens in our domestic games. Blowing up our international trade and security games with Europe, Japan, and China for the sheer hell of it, turning them into full-blown Competition Games … that’s really stupid. But we have a nasty recession and maybe a nasty war. Maybe it would have happened anyway. We get over it. Blowing up our American political game with citizens, institutions, and identities for the sheer hell of it, turning it into a full-blown Competition Game … that’s a historic tragedy. We don’t get over that.

But that’s exactly what’s happening. I look at Charlotte. I look at Dallas. I look at Milwaukee. And I no longer recognize us.

I wrote this four years ago. I no longer recognized us in 2016. Today in 2020 under the stress of a plague? It’s done. There’s no shared or coordinated position on what it means to be an American. Our domestic political lives are in the stable equilibrium of a Competition Game. There’s no reversion here. There’s no pendulum to swing back the other way.

The United States as a powerful country can easily last another 500 years.

America as a nation, though, as a common knowledge construct of what it means to be a citizen of the United States … RIP.

There’s little to be gained by asking who or what’s to blame for the end of America as a nation. As with any big event, it’s terribly overdetermined, which is a ten-dollar word that means shit happens. My personal view is that Trump is much more than a catalyst but something less than a determining event, more like the introduction of trench warfare and mustard gas in World War I than the assassination of Archduke Ferdinand. Well-meaning people may disagree. Don’t @ me on this, please, because we don’t have time for this conversation.

We don’t have time to look behind because everything is at stake in looking forward.

There’s everything to be gained by asking how we move our country out of this Competition Game and back into a Coordination Game where a shared sense of national identity is at least possible.

There’s everything to be gained by asking how an America of shared meaning – a nation of liberty and justice for all – can be reborn within the country of the United States.

And everything to be lost if we don’t. Because I promise you the Nudging Oligarchs and Nudging Statists are hard at work developing their version of a new operating system for this American reboot.

I still believe this will be our finest hour.

Not of the America that was. But of the America that can be.

What is the question that matters? It’s the only question that ever matters as you experience an existential crisis.

It’s the question Butch asks Marsellus in Pulp Fiction.

What now?

Let me tell you what now.

Now we help our American brothers and sisters survive both the greatest public health crisis of our lives AND the greatest economic dislocation of our lives. Even those brothers and sisters who would never do the same for us. Even those brothers and sisters who are out of their freakin’ minds in the culture-porn simulated world of MAGA-this and SJW-that.

You’ve heard of the expression that there are no atheists in a foxhole? Well, guess what … there are no Democrats and no Republicans in a foxhole, either. There are no New Yorkers and no Texans, no race and no class. There is only us – human beings who are in the fight of our lives, who want to do the right thing for ourselves and our families, who used to share more than just a border and a history with the other human beings in this American foxhole. And can once again.

Now we reject the New Story of sociopathy and division. Now we sing the Old Story of empathy and shared sacrifice.

Now we reject the logic of the flock. Now we embrace the logic of the pack. Now we turn the other cheek. Not because it’s the kind move or the sweet move. But because it’s the smart move.

Now we make. Now we protect. Now we teach.

Now we act.

From the bottom-up.

With the strength of the pack.

Now this is the law of the jungle, as old and as true as the sky,

And the wolf that shall keep it may prosper, but the wolf that shall break it must die.

As the creeper that girdles the tree trunk, the law runneth forward and back;

For the strength of the pack is the wolf, and the strength of the wolf is the pack.

That’s from a poem by Rudyard Kipling. I know he’s been canceled, but I don’t care. I think he’s great.

What does acting from the bottom-up with the strength of the pack mean?

For me it means shouting from the Epsilon Theory megaphone – a megaphone powered by my pack – that we are being lied to about Covid-19 and betrayed by our political leaders.

See, I’m not a lockdown guy. At all. I believe that we’re all smart enough to make up our own minds about the risks that Covid-19 poses for ourselves and our families, commensurate with our own personal conception of life, liberty and the pursuit of happiness AND our absolute obligation to respect those same rights in others.

I also believe that our government has intentionally obscured and misrepresented crucial information about Covid-19 that is necessary for an informed, personal risk-taking decision.

I also believe that that our government has abdicated and abused its irreplaceable role in providing resources and coordination to resolve inevitable conflicts of individual rights.

For me it also means distributing N95 and KN95 masks – a distribution powered by my pack – to thousands of individual healthcare workers and first responders in urgent need of PPE.

To date we’ve purchased and distributed about 110,000 N95 and KN95 masks to more than 1,000 individual hospitals, clinics, fire depts, police depts, prisons and shelters across 46 states. We send these masks in packages of 50 to 200 directly to doctors, nurses, EMTs, officers and social workers in urgent need, who then distribute them to their teams.

We don’t compete with federal or state authorities in their big bulk orders of PPE. But we’re also not waiting on these federal or state authorities to trickle those bulk orders down to the frontlines. Because somehow they never do.

If you are a healthcare worker or first responder in urgent need of PPE (or if you know someone who is!) fill out the online form here – Getting PPE to Healthcare Workers and First Responders – and we will do what we can to help!

Please understand that our efforts really are for those in urgent need. Please don’t game the system. Please don’t approach this with a “hey, can I get some free masks?” attitude. Yes, this happens. No, this doesn’t work.

So let me tell you a story about my pack and these masks. You may notice that I’m no longer publishing a website address where you can go and donate money to this cause. The website is still up – – but there’s no donation link. You know why? Because the pack was so generous in their donations that we’ve got all the money we need right now.

One day we may need to raise more money. That will be a sad day, because it will mean that this plague is still with us long after it should be eradicated and long after this charity should have been wound down. But if that day ever comes, the pack will hear the call and the pack will answer.

The pack always answers the call.

What does acting from the bottom-up with the strength of the pack mean to you?

I don’t know. But you do.

You know what you can do. You know the needs of your community. You know who your pack is. And if you don’t … well, maybe you should put some thought into that. The culture-porn can wait. Twitter and Facebook and all that, it’ll still be there when you get back.

I’ll tell you this, though. Every school in this country is going to need a lot of help over the next few weeks and months. This isn’t a statement about reopening or not. This isn’t a statement about the politics of reopening or the benefits of reopening or the dangers of reopening or the wisdom of reopening or the idiocy of reopening. This is a statement about need.

Whatever your views are on school reopening … however angry you get with the parents and politicians who are on the other side of this issue … you could do worse than to organize your pack and figure out how to help the human beings in your community – parents, students and teachers alike – who are going to have a hard time with the schools this fall under any circumstances. Maybe you’ll figure out a way to help with the economic risks they will face. Maybe you’ll figure out a way to help with the health risks they will face.

But I bet you’ll find a way to help.

Once you start to see the parents, students and teachers in your community as something more than abstract placeholders for the political arguments they (or you!) may be immersed in … once you start to see them as fellow Americans stuck in this foxhole with you … everything changes.

And that change is even more contagious than the virus.

We’re going to change the world, you know … you and me.

PS. If you’re interested in joining the Epsilon Theory pack, we’d love to have you.

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An Advantageous Contagion


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A few weeks ago, we published a Zeitgeist called Never Forget about the protests and the narratives being promoted about them. It was a little brief that Ben ended with this flourish:

This isn’t a threat to democracy. This IS democracy.

Never forget.

Never Forget

We got a lot of comments and emails about this one.

Most were supportive. Still, there were enough that fell into two less-than-supportive camps to make us feel they were worthy of mention. The first, if I can paraphrase, wondered why Ben couldn’t see how important it was that so many of the protests really were devolving into riots. The second posited that Ben simply didn’t want to see that so many of the protests were really being stoked and inflamed by outside elements intent on creating division and unrest. If you didn’t see these responses in the wild, simply recreate them by shouting in your shrillest voice, “Haven’t you read about the pre-arranged bricks?” and then collapse in a heap onto the nearest available chaise lounge.

Pearls optional.

We have written before about the peculiar Prussianness of certain American institutions, but not so much about our pronounced shared preference for order even at the cost of injustice. But goodness gracious, people. I feel slightly worse about calling Goethe Prussian than about using one of his quotations cynically (especially since I know the idea is more about the rule of law than order per se), but sometimes the shoe fits:

My good friend Gore would not yet understand how I could have risked so much for the sake of an unknown and perhaps criminal person. I pointed always, jestingly, to the clean space before the house, and said at last, rather impatiently: “The fact is, it is part of my nature; I would rather commit an injustice than suffer disorder.”

J.W. Goethe, Campagne in Frankreich 1792

It is one of the most inconvenient things about the practice of free speech: if it matters, it is messy.

Of course some of the protests turned into nighttime scenes of wanton, arbitrary destruction of property. Of course there were people and organizations who desired, provided for and stoked those activities, who had designs on steering the protests in anti-social, division-focused directions. Of course there are integrated subcultures of the usual professional anti-capitalism, anti-everything activists in a huge swath of the protest events. None of that should surprise anyone. If it did, that’s on you. What is – at least to me – more surprising is how many people are equally willing to buy into the counternarrative that this kind of roughness, artificiality and attempts at co-option which inevitably follow genuine expressions of the speech of a free people, invalidate or lessen the value of those expressions.

Fortunately for proponents of truly free expression, the world as-it-is doesn’t care about our pearl-clutching. Because the other inconvenient thing about the practice of free speech – at least for those who would stifle it with half-hearted No True Scotsman gatekeeping – is that it is contagious.

First, go read the letter now-former New York Times columnist Bari Weiss posted on her personal website today. It is a resignation letter. And yes, it has the usual exhausting “I’m not a lawyer, but this sure seems like constructive discharge” stuff. But the rest of this thing is marvelous, must-read material about resisting the overwhelming power of narrative on ideas and thought.

Resignation Letter – Bari Weiss

Next, go read the letter published by Harper’s – Harper’s! – that was written and co-signed last week by a list of academics, authors and other thinkers entitled “A Letter on Justice and Open Debate.”

A Letter on Justice and Open Debate

A letter co-signed by Nicholas Christakis, Jonathan Haidt, Noam Chomsky, Garry Kasparov and Gloria Steinem is one we should read. Not because they are Important People and we should give two shits what they have to say more than anyone else who has the right of an issue. But because this is probably the most ecumenical expression of commitment to freedom of expression, repudiation of culture-porn and commitment to empowering risk-taking in culture-world that has come out of the left and center-left in most of our lifetimes.

This stifling atmosphere will ultimately harm the most vital causes of our time. The restriction of debate, whether by a repressive government or an intolerant society, invariably hurts those who lack power and makes everyone less capable of democratic participation. The way to defeat bad ideas is by exposure, argument, and persuasion, not by trying to silence or wish them away. We refuse any false choice between justice and freedom, which cannot exist without each other. As writers we need a culture that leaves us room for experimentation, risk taking, and even mistakes. We need to preserve the possibility of good-faith disagreement without dire professional consequences. If we won’t defend the very thing on which our work depends, we shouldn’t expect the public or the state to defend it for us.

A Letter on Justice and Open Debate (Harpers, July 7, 2020)

Y’all, if you had a Chomsky and Steinem parlay in your “Who will argue most vociferously for widening the Overton Window in 2020?” pool, you are now officially the richest person in America.

With all that said, there’s no need to be pollyannaish about where we are at on this – looking at you, social media giants – but if a commitment to free expression is the next contagion to catch from the bottom up, we are here for it.


The Anti-Anarchist Cookbook


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Back when I was in 9th grade – so this would have been 1978 – the older brother of a friend of mine had a copy of The Anarchist Cookbook. I remember the thrill I had just holding it. Such forbidden fruit! I only had a chance to flip through it then, but clearly this was the stuff of legend. This was the stuff of dangerous and powerful men.

I found a copy many years later, when I was in grad school. Of course I bought it. I took it back to my apartment, so excited to read this masterpiece at leisure, on my own.

LOL. What a let-down. Here I was expecting the most insanely great revolution-porn of all time, and it was like a Playboy from the 1950s. THIS is what got so many people like 14-year-old me so hot and bothered?

Look, there’s no doubt that The Anarchist Cookbook is pornography.

Meaning it’s got lots of pictures, it’s enormously attractive even in concept to adolescent boys, it’s stimulative rather than informative, and it’s mostly harmless but not completely harmless to consume. Certainly its production is part of a decidedly harmful and terrible subculture, and if you want to make the argument that consuming porn aids and abets that harmful and terrible subculture, I’ll listen. Yes, I know the William Powell story and I know the documentary, American Anarchist.

But if you think that The Anarchist Cookbook is anywhere near as pornographic or contributory to a harmful and terrible subculture as Recoil magazine, which you can find at every Barnes & Noble in the country, then you just aren’t paying attention.

I thought about The Anarchist Cookbook and Recoil magazine when I saw this now infamous picture of the St. Louis personal injury lawyers defending their Italian palazzo. I’m not going to discuss this case, because no one reading this note will be able to get past that discussion. Many readers will not even be able to get past this picture. We are all highly stimulated by this picture. That’s because it’s quality amateur porn. Nowhere near the production values of a cover of Recoil magazine, but in the tradition of quality amateur porn everywhere, the actors more than make up for that with their enthusiasm for the roles.

If I were a betting man – and I am – I’d be prepared to wager a large sum that the McCloskeys do not own a copy of The Anarchist Cookbook. In fact, if they’re aware of it at all, I’m sure they believe it’s a learners’ manual for Commies and traitors. I’d also be prepared to wager a large sum that the McCloskeys own several issues of Recoil or its ilk, and they believe it’s a wonderful resource for freedom-loving American patriots like themselves.

That’s an even more poignant observation when you consider this. I only remember one line from The Anarchist Cookbook (and for all I know I am misremembering … porn memories are less trustworthy than real world memories). But paraphrasing, it goes like this:

Never point a gun at someone unless you’re ready to shoot them.

Never shoot at someone unless you’re ready to kill them.

NARRATOR: The McCloskeys were not ready.

It’s a good lesson, right? I mean, yes, The Anarchist Cookbook is incredibly boring as far as violence-porn goes. But there’s an authenticity and a realness to The Anarchist Cookbook – frankly, just like there’s an authenticity and a realness to those Playboy issues from the 1950s – that is utterly nonexistent in today’s slick productions of culture-porn and politics-porn like Recoil. Or HuffPo. Or OANN. Or CNN. Or Fox.

And in exactly the same way that your real world sex life will be completely messed up if all you know about sex is what you get from watching Pornhub, so will your attitudes about real world citizenship be completely messed up if all you know about politics and culture is what you get from Recoil. Or HuffPo. Or OANN. Or CNN. Or Fox.

I think that’s what happened to the McCloskeys. I think they got so addicted to the culture-porn and politics-porn of whatever their media sources might be, that they actually believed that the right way to “protect themselves” was to buy military weaponry that they have ZERO idea how to use and then brandish that weaponry in a way that makes the situation MORE dangerous to others AND themselves.

But it’s not just the McCloskeys, of course. It’s all of us. We’re all so immersed in the culture-porn and politics-porn that inundates our dopamine-based economy that half of us believe that the United States is a racist Nazi hellscape and the other half believes that the United States is literally burning as Maoist mobs run amok.

Yep, we’re all porn addicts now.

And social media platforms are our pornographers.

Jack Dorsey and Twitter are today’s Hugh Hefner and Playboy. It’s 90% culture-porn and politics-porn, intentionally toned-down just a wee bit, with 10% non-porn material as a beard … you know, like the interviews were for Playboy.

Mark Zuckerberg and Facebook, though … man, they’re today’s Larry Flynt and Hustler, all hardcore culture and politics-porn all the time.

Not that there’s anything wrong with that.

Or maybe there is.

Maybe it’s not such a great thing that we’re a nation of porn addicts. Maybe it’s not such a great thing that our most powerful media companies are pornographers. Maybe it’s not such a great thing that our President is a gifted political porn star, and that his electoral opponent is … a less-gifted political porn star.

The answer is not to ban culture and politics pornography. I know that because government-led banning (even chilling) of cultural and political speech, no matter how pornographic, IS ITSELF a form of cultural and political pornography. It is, in fact, THE WORST form of cultural and political pornography, because it is, in fact, the means of production of the (truly) fascist state. The answer is not to limit political speech.

No, the answer is to speak politics better.

The answer is to be more attractive than the porn stars. The answer is to be sexy without being pornographic. The answer is to be authentic and real and human and smart. The answer is to choose your words about culture or politics – to construct your narrative about culture or politics – in a way that is not just stimulative for stimulation’s sake, but stimulative and informative and authentic.

That’s what the rest of this note is about. A specific example of a shift in language and narrative that I think can make a real difference in reducing the culture and politics-porn that is killing our world AND help create actual policy change that yes – burns the existing system down – to replace it with something better.

The first chapter – the first of many, I hope – in The Anti-Anarchist Cookbook.

Police reform is only a start …

Defund the police? No.

Demilitarize and Deunionize? Yes.

The problem with “Defund the police” is not one of policy, but of narrative.

I know that neither the proponents nor the opponents of “Defund the police” will agree with me. Both will say it’s ALL about the policy, either the necessity of the policy (proponents) or the horrors of the policy (opponents). If you’re on the left, you will probably be frustrated with me for saying that “Defund the police” is no longer about policy — no, no, Ben, you just don’t understand. And if you’re on the right, you will probably be angry with me for saying this — no, no, Ben, you just don’t see.

What I understand is how culture-porn works. What I see is its success.

In this case it’s a matter of political entrepreneurs on the right taking the word “defund” and associating it with cardiovascular and hormonal-stimulative images and short phrases (n-grams in the narrative science lingo, engrams in the neuropsychology lingo, memes in the popular lingo) in order to produce the desired behavioral reaction in their followers.

For example, here’s the image Breitbart ran in connection with its “news” article Alexandria Ocasio-Cortez Supports ‘Defund the Police’ Movement.

Everything about this, from the insertion of AOC’s name in the headline to the tagging of the image (“far-left-rioters-640×480”), is designed for effective search engine optimization (SEO) and social media distribution to a very specific audience. It’s exactly like a porn site, but designed to stimulate stress hormones rather than pleasure hormones. You can find a hundred examples just like this with even a cursory narrative search of the word “defund”, all with very high production values, in media sources like Breitbart, OANN and Fox. It’s quality porn.

And lest my culture porn-addicted friends on the right think I’m picking on them, I’ve got a million zillion examples of equally high production value culture-porn from CNN and Huffpo and MSNBC and all the rest, mostly of the “Republicans pounce” genre (the missionary position of left-leaning culture-porn production). Increasingly though, as cancel culture marches on, the culture-porn of left-leaning media is of the “every public figure is a Nazi racist” genre, which is – and I mean this seriously – the most liberty-destroying and human rights-damaging political development of my lifetime.

Culture-porn addiction is absolutely a both-sides thing, and it boils down to this: if you spend a significant amount of time on social media, regardless of your political affiliation or lack thereof, you are addicted to culture-porn.

I say this in the clinical sense of the word. This is biology, not ethics. I say this as an addict myself.

The result? Once your narrative has been captured by the culture-porn machine (and that’s exactly what it is … a profit-making, power-accumulating machine) you can no longer “explain” to people what your narrative or slogan “really” means.

Why? Because you are no longer fighting ignorance or apathy, you are fighting neural brain chemicals. You are fighting dopamine and cortisol and noradrenaline. You will lose that fight every time.

Willie Brown, maybe the greatest natural politician of the past 50 years, understood this.

Every minute you’re explaining, you’re losing.

Willie Brown, San Francisco mayor 1996 – 2004, godfather of modern California politics

If you don’t know Willie Brown’s story, do yourself a favor and look it up. He’s Alexander Hamilton-esque, just in a different day and age. You could definitely put together a musical here.

Does “Defund” mean “Disband”? Of course not. But every resource spent explaining that “defund” means a reallocation of resources into community policing and policies that can improve the public safety of ALL Americans is a wasted effort. Worse, it’s actually counterproductive. As Willie Brown said, your act of explanation makes you lose more, as it forces people to engage with the highly stimulative culture-porn that you are earnestly explaining about. “Defund the police” has been captured by the culture-porn machine, and there’s no coming back from that.

If you believe in the goals of this policy initiative – as I do – that’s a sad thing. But the proper response to this sad thing is not to mope. It’s certainly not to make the sad thing even sadder by continuing to fight a lost narrative cause.

No, the proper response is to be more attractive than the porn star. The proper response is to speak politics better, using a narrative that is still sexy (i.e., stimulative) but is also authentic and real enough to be culture porn-resistant. Not culture porn-immune. Nothing is culture porn-immune. But culture porn-resistant … a narrative framing that can be successfully advanced by political entrepreneurs of the CENTER.

Imagine that.

Defund the police? No.

Demilitarize and Deunionize? Yes.

The words “demilitarize” and “deunionize” are stimulative, culture-porn resistant, and authentically descriptive of the real world policy changes that structural police reform requires.

By stimulative, I mean it is possible to create a set of specific images and texts around “Demilitarize and Deunionize” that trigger many of the same brain chemical reactions as culture-porn.

By culture-porn resistant, I mean it is difficult for either the politically entrepreneurial left or the politically entrepreneurial right to create an oppositional set of specific images and texts around “Demilitarize and Deunionize”.

By authentically descriptive of real world policy changes, I mean that “Demilitarize and Deunionize” is contextually accurate and an authentic representation of the policy position I am advocating. Put more bluntly, I mean that “Demilitarize and Deunionize” is not culture-porn itself.

That last one is probably the most important, and it’s my biggest problem with the “Defund” argument. I don’t want to defund the police. In and of itself, that is not my policy reform goal. Frankly, I’m prepared to give the police MORE money in terms of salary and training and personnel if I can accomplish my policy reform goals, which are, in fact, to demilitarize and deunionize the police.

Asking these three questions of any narrative – is it effective on a brain chemical level? is it resilient against narrative counterattack? is it authentic to what you truly believe? – is the right framework to achieve lasting policy success in a modern age of ubiquitous social media and culture-porn addiction.

Let’s look at each of these questions in turn for the narrative I’m proposing for structural police reform: “Demilitarize and Deunionize”.

Is “Demilitarize” stimulative?

LOL, the stories write themselves. Here’s a picture of the 14-ton armored personnel carrier that the Los Angeles school district police acquired in 2014 from the US government’s “1033 Program” – a 20-year-old initiative to distribute military equipment to policing authorities. I mean, you can’t make this stuff up. This is the public school police, prepared to navigate whatever literal minefields might get in their way as they storm the potential terrorist bastion of PS 33.

Oh yeah, they also got grenade launchers.

This particular story is six years old, an evergreen because … c’mon, school police and armored personnel carriers. Give me a day, though, and I could write 100 more stories just like it. Every police department in the country has been flooded with expensive military toys like this, and it’s child’s play to write a sexy story arc about that.

Is “Demilitarize” culture-porn resistant?

I think so. But like I said, nothing is culture-porn immune.

The potential culture-porn treatment of police demilitarization is to get some imagery of armed-to-the-teeth criminals murdering a brigade of unarmed patrolmen, and then to equate “demilitarize” with “disarm”.

For example, here’s a shot from the 1995 movie “Heat”, with Robert De Niro mowing down about a dozen cops. If you were able to get something like that from the real world, it would play. Of course, De Niro is white, so you really don’t get the culture-porn money shot here, but I could see the usual media suspects taking some images from, say, a drug cartel’s assault on a Mexican police deployment and trying to use that. It’s possible, but I think it’s a stretch.

Is “Demilitarize” an authentic representation of my policy goals?

Yes, absolutely.

And let me start by addressing that possible culture-porn counter-narrative that I just mentioned, that Demilitarize = Disarm. Every big city should have a SWAT team. Every big city should have a unit capable of handling anything that criminals can bring to bear. And they do. SWAT has been part of every big city’s police organization for almost 50 years. Hell, I’m old enough to remember the original S.W.A.T. on TV, from 1975. It’s impossible to remove this core militarized unit from a large police organization, and even if you could, I don’t think you should.

I’m all for keeping a militarized unit in a police organization.

What I want to eliminate is a militarized police force.

Why? Because militarization is the antithesis of community policing. Because militarization is not just a matter of equipment and firepower, but more crucially a matter of attitude and training. Because militarization creates distance between police officers and the citizens they are sworn to serve, destroying the empathy that should exist from the police to civilians, and the empathy that should flow back in return.

If you tell yourself that you are an occupying army, if you use the language of an occupying army to describe your tactics and your goals in your own internal conversations, then you WILL become that occupying army. And you will be treated as one.

Narratives always matter, but they matter most in the narratives we tell ourselves.

Ubiquitous military hardware is the scaffolding for that language, for that internal narrative that police officers tell themselves. Take away the ubiquitous military hardware. Take away that scaffolding and watch as an old story takes root once again within your police organization, a narrative not of occupying a hostile territory but of defending a grateful community. An old narrative that becomes new again: Protect and Serve.

Imagine that.

One last point here … “Demilitarize” is a specific enough term (far more specific than “Defund”) to describe my policy goals in regards to structural police reform. It is also general enough to describe adjacent policy goals that I also believe should be part of structural police reform, but do not have a stimulative narrative in and of themselves – policy goals like the elimination of civil asset forfeiture.

The seizure of civilian assets without conviction in a court of law – hell, without charges, arrest or trial – is what an occupying army does. Civil asset forfeiture is an affront to every American who gives a damn about liberty or the rule of law, and it goes hand-in-hand with militarization. They came into our police forces together, and they can be eliminated together. This is the power of a strong, winning narrative like “Demilitarize”.

Is “Deunionize” stimulative?

The potential story arcs around police unions are not as visually arresting, but the stimulative effect on brain chemistry is no less.

This is Lt. Bob Kroll, president of the Minneapolis Police Union, shown here discussing his opposition to releasing body camera footage of a fatal police shooting in 2018, and more recently in the news for his denunciation of the firing (not the arrest … the firing) of the four police officers who killed George Floyd. As the New York Times notes, “Mr. Kroll is himself the subject of at least 29 complaints”, including, as the Wall Street Journal notes, at least 10 complaints of excessive use of force, a letter of reprimand for using police resources to harass an ex-girlfriend, and a settlement paid to five Black police officers who, as part of a hostile work environment suit, said that Kroll wore a “white power” badge on his leather motorcycle jacket.

This is Pat Lynch, president of the New York City Police Benevolent Association, shown here in 2019 denouncing a judge’s decision to recommend the firing of the police officer who killed Eric Garner in 2014 with a chokehold. Lynch railed at the “trampling” of the officer’s “due process rights” (again, this firing recommendation is happening five YEARS after Garner’s death), noting that while the death was painful for Garner’s family, the police officers involved have also “suffered”.

Is it Kroll’s and Lynch’s job to take unpopular public positions like this? Yes, to an extent. But only to an extent. No one forced these guys to make a zealous public defense of the indefensible. They sought it out. There’s a difference between filing a labor grievance behind the scenes and an impassioned public defense of killers and abusers, and it is in that difference where brain chemistry stimulation exists.

As with “Demilitarize”, there are literally hundreds of stories like this across America, stories that write themselves when guys like Kroll and Lynch indict themselves with their own language.

Is “Deunionize” culture-porn resistant?


In fact, I don’t think that the politically entrepreneurial right can touch this at all, as they’ve already made a cottage culture-porn industry out of attacking labor and unions. Again, nothing is culture-porn immune, but I have no idea what the “police unions are great” story arc would be from the right, especially since the other giant public sector union – teachers unions – is the Great White Whale of many an Ahab on the politically entrepreneurial right.

It’s the politically entrepreneurial left that is more likely to gnash their teeth about “Deunionize”, again because of its adjacency to teachers unions, but again I have no idea what the “police unions are great” story arc would be here. All you’ve got are slippery slope arguments – which are about as sexy as a treatise on mold spores – and “it’ll get held up in the courts” arguments – which are even less stimulative, if that’s imaginable.

Is “Deunionize” an authentic representation of my policy goals?

Yes, absolutely.

See, I don’t think that police unions are labor unions at all. I think they’re guilds. I think that the police guild in almost every American city and town has smartly adopted the language of labor unions and collective bargaining to create a narrative shield that is as false as it is powerful.

The reality is that a police force does not exist in the world of Labor vs. Capital that contains true labor unions. The reality is that a police force is a self-regulating organization that is hired by the citizens of a city or town, and paid for by the pooled resources of those citizens, in exactly the same way that citizens used to hire a mason’s guild to build a city wall. This isn’t collective bargaining. It’s just bargaining.

To be clear, I’m perfectly fine with the police in a town or city forming a guild and doing their guild thing, which at its core is to maintain a local monopoly in who can and can’t call themselves “police” in exchange for a reasonably good quality-of-service in that local jurisdiction. I think that policing is one of those rare common goods that lends itself extremely well to citizens granting that local monopoly.

But you’re not a labor union.

And you don’t get to shield your self-interested guild practices – like protecting the jobs of guild members who have betrayed the citizens they swore an oath to serve – with labor law.

By the way – and this is a direct response to those who say it will take 20 years to fight this in the courts – you know what it takes for all of these local police guilds to be stripped of their legal status as unions? A federal law. I know that sounds crazy in this day and age where everyone in the House and Senate is a wannabe culture-porn star, far more interested in that bon mot tweet than actually, you know, being a legislator.

And on that note of meaningful police reform legislation …

Just as “Demilitarize” is both specific enough to be representative of its direct reform goals and general enough to incorporate adjacent reform goals, so is “Deunionize”. For “Deunionize”, that adjacent goal is the elimination of qualified immunity status for police officers.

What’s the connection? Both unions and qualified immunity status provide legal protections for police from the rightful claims and just redress of the citizens they swear an oath to protect. Like civil asset forfeiture, qualified immunity status is an affront to every American who gives a damn about liberty or the rule of law. Like police unions, qualified immunity status can be undone with a single piece of federal legislation. At least Justin Amash is trying. But it’s not working because he put the cart before the horse.

First comes the winning narrative that creates a deep reservoir of popular support for meaningful policy reform from the bottom-up. THEN comes the legislation from the top-down.

That’s the process. That’s how we change the world.

The weapons of The Anti-Anarchist Cookbook are not guns and explosives. They’re words.

Throughout human history, narrative has been used against us by high-functioning sociopaths as they turn us into fodder and feed. Narrative has been used to excuse the inexcusable, to preserve a status quo that subverts our inalienable rights even as it pretends to defend them.


It’s time to turn the tables. It’s time to use our understanding of the Narrative Machine to subvert the sociopaths and their smiley-face authoritarian system of crony capitalism and trickle-down democracy. It’s time to create counter-narratives in service to liberty and justice for ALL.

Imagine that.

We’re going to change the world, you know … you and me.

Epsilon Theory PDF Download (paid subscription required): The Anti-Anarchist Cookbook




Governor William J. Le Petomane: We’ve got to protect our phony baloney jobs, gentlemen! We must do something about this immediately! Immediately! Immediately!

Room Full of Supporters / Cronies: Harrumph! Harrumph! Harrumph!

Le Petomane (pointing at one silent crony): I didn’t get a harrumph outta that guy.

Hedley Lamarr: Give the governor harrumph!

Frightened Crony: Harrumph!

Le Petomane: You watch your ass.

Blazing Saddles (1974)

Theatre and film make their way into the pages of Epsilon Theory quite a lot.

Some of that is admittedly because Ben just really, really likes The Godfather. Most of it, however, is because the same tools that are designed to steer emotional and intellectual responses in theatre are the tools of narrative. The same memes, the same forms, the same processes.

I have written about some of these shared forms in context of a framework developed by Peter Brook called the Empty Space. In it, Brook breaks down theatrical experiences into four classes: Deadly, Holy, Rough and Immediate.

Each time I have seen Hamilton it has been a Holy theatre experience.

That doesn’t mean good. It doesn’t mean spiritual. It isn’t a pedestal. It means that the performances were filled with symbols and narrative cues built around our predictable physical responses to them. And it means that the cast presented them in something close to their natural, unaffected form. One of those rare cases in which narrative and meme are put to well-intentioned, positive uses.

There will come a time when Burr’s build-up to George Washington striding in or his introduction to Lafayette before he leaps onto the table become stale and the cast is forced to try to go through motions to recreate the magic somehow. There will come a time when the pause after the “we get the job done” line doesn’t get its usual whooping from the audience and the director tries to coax it back. When that time comes, the productions will take their Deadly turn into the dull and lifeless energy you’d find in most Broadway theatres on most nights. It will look much the same, but it will feel different. It happens to every show.

Until then, however, most of its performance are worthy of admiration, I think.

As pure history it includes a great deal of nonsense, of course, both in fact and in its alignment with my personal sensibilities. Hamilton, the protean creator of the Fed Put, would rank behind nearly every generally accepted founding father but Adams in my pantheon. Neither a maiden in need of defending nor a man in need of lionization. Still, as musical theater, I think it is a very fine work. As artistic take on historiography – you have no control who lives, who dies, who tells your story – it is singular.

Leaving artistic criticism aside, for quite some time it was also insanely popular. I don’t think that is the sole result of the quality of the music and book. They are good, but plenty of other shows that didn’t yield a fraction of the attention are really good, too. I don’t think it was the unusual juxtaposition of subject matter and style either. Frankly, after Avenue Q mashed up an NC-17 version of The Graduate with the musical stylings of Sesame Street, it’s hard to look at a blend of 90s-style hip-hop with American history as genre-busting. I don’t think the mildly provocative immigration takes or the minority-and-immigrant-only casting approach are universal explanations either, although I think it is fair to say they attracted a new audience to a narrow industry dominated demographically by upper-middle class white tourists.

No, I think Hamilton is popular because Miranda’s expression of what the American Experiment means is among the most expansive and inclusive ever represented in a work of art. It celebrates the enterprising individual – the need for men and women of action with an appetite for risk to force change from the bottom up. It celebrates the community – those who sacrifice personal glory to create an environment in which those risks can be taken by others. It celebrates the society – the rules we create together to make sure that everyone can play whatever role suits them without coercion. Whether or not they like the music or the protagonist or the historical accuracy or the cast preaching at Mike Pence in the audience, I don’t think there is a full-hearted American of any political predisposition who couldn’t watch the thing and conclude, “This captures a part of our story.

Miranda’s Hamilton is, if nothing else, an authentic sermon on the civic duty to action.

The fact that Hamilton’s model of what made, makes and will make America great is so expansive, so aware and capable of accommodating the contradictions and duties of independence, makes what comes next almost too predictable for words: it is officially not woke enough for 2020.

To wit, CNN published this in an opinion piece by a journalist and lecturer at Columbia University over the weekend:

Hamilton: is quaint and noncommittal. HamilFilm has arrived at a moment when America is not satisfied with ambivalence or compromise, but yearning for real and necessary change.

The problem with the ‘Hamilton’ movie, CNN (July 5, 2020)

Others went even further.

These cringeworthy takes come from the far-left fringe only weeks after Lin-Manuel himself came under significant fire for not being quick enough to leverage official Hamilton social media channels to voice support for Black Lives Matter (for reference, the published public support came on May 30th, four days after initial protests had begun). The pressure was enough to generate apologies from other members of the production team, including producer Jeffrey Seller:

I’m not a politician. I’m not an activist. I’m not an expert. I’m a theater producer.

Social Media Statement from Jeffrey Seller, as quoted by The Hollywood Reporter

I didn’t get a harrumph outta that guy! Give the governor harrumph!

But what I realize today is most importantly I’m an American citizen and silence equals complicity and I apologize for my silence thus far.

Social Media Statement from Jeffrey Seller, as quoted by The Hollywood Reporter


There is a new, rapidly emerging narrative structure in America today. It doesn’t have much to do with the language from the CNN piece or (thank God) from the lunatic fringe on Twitter. It is the familiar language from Sellers’s apology: “silence equals complicity.” From the background, this expression and its variants have exploded into common knowledge in less a month.

On its own, that isn’t inherently bad. That is to say, we shouldn’t necessarily be concerned that “Silence is Complicity” is now the narrative governing our cultural zeitgeist. And it is.

We should be concerned, however, that “silence” is being redefined as the failure to say what is demanded.

Because whether it is in ‘service’ to the left’s political correctness or the right’s patriotic correctness, we are taking a Holy idea – our joint civic duty to one another – and perverting it into the Deadly Theatre of induced social media mea culpas.

The obligation to act in the face of injustice facing our fellow citizen is neither new nor the domain of any modern political dogma.

The civic principle that we have positive obligations – duties to act on one another’s behalf – has been argued for centuries. It is embedded in the political philosophy underlying just about every American founding document, even if we have seemingly abandoned it at every turn. It is a fundamental American social value, made perhaps more so by the observation that both the extreme far right and extreme far left probably disagree with all of what I just said.

As always, probably the most famous associated quotation is the apocryphal one. You know the one. That “all that is necessary for the triumph of evil is that good men do nothing” quote from Burke that JFK used? No, Burke never said that. And no, that doesn’t matter. It is a pithy expression of the core idea underneath the silent/complicit construction, and Burke wrote plenty otherwise that said much the same:

It is not enough in a situation of trust in the commonwealth, that a man means well to his country; it is not enough that in his single person he never did an evil act, but always voted according to his conscience, and even harangued against every design which he apprehended to be prejudicial to the interests of his country. This innoxious and ineffectual character, that seems formed upon a plan of apology and disculpation, falls miserably short of the mark of publick duty. That duty demands and requires, that what is right should not only be made known, but made prevalent; that what is evil should not only be detected, but defeated.

Thoughts on the Cause of the Present Discontents , by Edmund Burke (1770)

So did a wide range of other 18th and 19th century writers and political philosophers. Like John Stuart Mill.

Let not any one pacify his conscience by the delusion that he can do no harm if he takes no part, and forms no opinion. Bad men need nothing more to compass their ends, than that good men should look on and do nothing. He is not a good man who, without a protest, allows wrong to be committed in his name, and with the means which he helps to supply, because he will not trouble himself to use his mind on the subject. It depends on the habit of attending to and looking into public transactions, and on the degree of information and solid judgment respecting them that exists in the community, whether the conduct of the nation as a nation, both within itself and towards others, shall be selfish, corrupt, and tyrannical, or rational and enlightened, just and noble.

Inaugural Address Delivered to the University of St. Andrews, by John Stuart Mill (1867)

The obligation for positive action by the moral citizen is a basic idea in most modern histories, too. For example, the inability and unwillingness of the German people to stand up against Nazism is a big part of the World War II story (even if Shirer and some other historians offer more grace for a propagandized people than most). The silence of priests and bishops about decades of rampant sexual misconduct and abuse within the church is a still-evolving part of the history of Christianity in the late 20th and 21st centuries. The acquiescence of white Americans to widespread segregation, racism, lynchings and mythologies about the confederacy is a big part of the history of the civil rights movement.

Martin Luther King, Jr. dealt very directly with the issue of this passivity, framing it in terms of its most common apologia.

One is what I often speak of as the myth of time.  I’m sure that you’ve heard this.  This is the argument that only time can solve the problem of racial injustice.  Only time can bring integration into being.  And so those who set forth this argument tend to say to the Negro and his allies in the white community, just be nice and just be patient and wait 100 or 200 years and the problem will work itself out.  I think there is an answer to that myth.  That is that time is neutral, it can be used either constructively or destructively.  And I’m absolutely convinced that in so many instances the forces of ill will in our nation, the extreme righteous of our nation have used time much more effectively than the forces of good will.  And it may well be that we will have to repent in this generation, not merely for the vitriolic words and the violent actions of the bad people who would bomb a church in Birmingham, Alabama but for the appalling silence and indifference of the good people who sit around and say wait on time.  Somewhere we must come to see that human progress never rolls in on the wheels of inevitability.

Martin Luther King, Jr. in the 1966 Convocation at Illinois Wesleyan University

Even our own Declaration of Independence treated the response of the governed to tyranny and evil as not only a right but as a duty.

But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security…

The Declaration of Independence (1776)

In short, it is a fundamental precept of western democratic civics that the citizen’s freedom from coercion does not confer freedom from moral obligation. All of that is to say that, yes, fellow citizen, sometimes it will be not only your right but your duty to detect, speak up against and act in opposition to injustice.

Maybe you, like me, believe all of that passionately.

Maybe you, like me, still cringe when you see someone say that “silence is complicity.”

If so, now is your chance to make an escape.

First, let me show you why we think this has emerged as the core of our cultural zeitgeist. No fancy Epsilon Theory narrative structure metrics – just coverage volume. The below chart presents our estimate of the number of articles published by month across major media outlets, blogs and newswires referencing variants of the linguistic construction relating silence and complicity. This comes from LexisNexis’s database, so it isn’t a complete representation of everything written. It omits some outlets that aren’t licensed to be part of their database. But it’s large enough and representative enough for our purposes.

I think you will see why immediately.

Articles Relating Silence and Complicity (November 2016 – June 2020)

Source: Epsilon Theory, LexisNexis Newsdesk

There is no trend. There is ‘before’, and then there is ‘after 5/26/2020’. That is when “being silent is being complicit” went from an occasional rhetorical technique to something that everybody knew that everybody knew was the framework for cultural debate.

It seems pretty obvious that coverage of the murder of George Floyd was the proximate cause of this immediate shift. But the interesting part of this isn’t just the volume of articles using this language. It is the breadth of pieces that adopted it. In fact, roughly half of the pieces with “silence is complicity” language in June do not mention Floyd or police at all. Many evolved into discussions of race more broadly. Many covered the protests or the riots alone. Many were not about race per se, but specifically about the Black Lives Matter movement and organization. Perhaps most surprisingly – this language being historically in the wheelhouse of progressive politics – some were conservative outlet pieces about the riots, Antifa, destruction of monuments and anti-police sentiment.

On the one hand, I find it exhilarating. I think you can look at this chart – even if the phrase “silence is complicity” makes you cringe – and have hope. Hope that maybe it means we are dealing with issues we haven’t had the courage to deal with during our lifetimes.

On the other hand, I find it worrisome.

I am worried because I don’t think the dominant narrative for a movement we need to last and evolve is one which defines an objective that can be satisfied by cheap daily genuflection from celebrity social media interns and shoe companies with a library of documentaries about third world labor abuses.

I am worried because there is a veritable army of social media warriors and pundits out there, most of whom have done precious little for other human beings, all of whom stand to gain considerable cultural capital by sniping from the standing room only section, who stalk out institutions and individuals who haven’t yet dropped their two cents on a political or social issue then demand that they give the governor harrumph. Beyond that, there is an inherently accusatory idea in the “silence is complicity” narrative that the whole of a person can be boiled down to what they’ve said on a topic on social media. It is understandable when you consider that the phrase is typically coming from a pundit who thinks that honor and glory should be allocated based on how much you’ve run your mouth about something, but being understandable doesn’t make the Hedley Lamarr framework any less ludicrous.

I am worried because the demands that citizens speak up about injustice – which is a righteous moral demand – are being co-opted into expectations that they indicate their support for movements that encompass aims a lot broader than just anti-racism and the exploration of deep-seated roots in our social structures. Through abstraction, silence is being redefined not as the unwillingness to speak, but the unwillingness to say exactly what is demanded.

This demand that others recognize our rituals is a wholly bi-partisan thing. The patriotically correct right invites you to demonstrate your patriotism, but demands that you perform their rituals to accept your demonstration and sentiment as valid. Sure, you’re investing in the lives of young people, supporting entrepreneurs, re-investing in your community, helping to drive voter turnout and promoting your political views in an appropriate political forum, but what do you do physically during the playing of the national anthem? Where are your flags? Why are you being silent about your love of America?

Give the governor harrumph!

The politically correct left invites you to demonstrate your commitment to ending racism, but demands that you perform their rituals to accept your demonstration and sentiment as valid. Sure, you are working on your heart, contemplating the advantages you may have gained by your race, gender, orientation and wealth, and trying to identify and fix where those advantages may be subconsciously invested in our institutions. But have you publicly offered your public support to the specific organizations we highlighted? Have you agreed with their platforms for change, and will you vote for candidates who vow to Defund the Police? Why are you being silent about racism?

Give the governor harrumph!

Speaking up – and acting – when we see injustice is our right and duty. When done correctly it can be a kind of Holy Theatre, a ritual that affects and inspires others to action. It needn’t be non-disruptive. It needn’t be peaceful. It needn’t even be warm! But it must be authentic.

Perverting that holy idea into one that requires others to perform the rituals in exactly the way we demand, on the other hand, is Deadly Theatre. It is an empty, vacuous service that serves only ego and social capital.

The Civil Rights Movement of the 1960s was invested with the former. I think that’s true of a lot of the 2020 protests thus far, as well.

Yet if the narrative structure here tells us anything, it is that top-down pressure is being applied to transform a bottom-up movement into a top-down movement that conforms more closely to our pre-existing political divisions.

It is our duty to resist that.


The Lost Art of the Jawbone


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mundanewarrior's Movie Musings: Fear and Loathing in Las Vegas (1998)

Duke (in his head): If so – well, we’ll just have to cut his head off and bury him somewhere.  Because it goes without saying that we can’t turn him loose. He’d report us at once to some kind of outback Nazi law enforcement agency, and they’ll run us down like dogs.

Duke (out loud): Jesus. Did I say that?

Duke (in his head): Or just think it. Was I talking? Did they hear me?

Gonzo (to the hitchhiker): It’s okay. He’s admiring the shape of your skull.

Fear and Loathing in Las Vegas (1998)

When Ben writes “They’re not even pretending anymore!” it is usually because he is really pissed off about something. I’m not just talking about the vague irritation hiding just below the surface at all times, but the special kind. The kind that you have to earn.

Me? It’s an expression of disappointment. The practiced kind of disappointment that only a father to two young boys can have, because when the four year-old punches the five year-old in the back of the head for saying something mean about mommy, YOU come up with a better answer than “Boys, I’m, uh, really disappointed.”

There is little that is more disappointing than lazy propaganda. It is literally the only thing a politician does that requires cleverness of any kind (okay, maybe fraud and compromise, too), so its devolution into the broadcast of a political functionary’s internal monologue out loud on national television is pretty unfulfilling. Larry Kudlow at least has the excuse of continuing to play the character that he has always played on television.

Still can’t get over this gem from February.

I just want to say, though, as far as the US is concerned, when you look at this, I mean you’ve got a little higher headcount on the infections because of the cruise ship people coming off, we have contained this. I won’t say airtight, but pretty close to airtight. We’ve done a good job in the United States.

Larry Kudlow to CNBC on February 25, 2020

But the Chinese Communist Party? Et tu?

China told citizens to buy stocks, boosting market — ‘We have the Fed…China has its state media’ [CNBC]

A front-page editorial in China Securities Journal said fostering a “healthy bull market” is important given China’s increasingly complicated international relations, intense financial and technological competition, and the challenge of controlling internal financial risks.

Chinese Stocks Surge as Individual Investors Pile Into Market, WSJ

Call me a dreamer. Tell me I’ve just got rose-tinted glasses about the good ol’ days. But I remember when “BUY MOAR STOCKS” would be a message buried in the subterfuge of the carefully orchestrated release of cartoonified macro figures and tangentially related analyses from state banks massaged to carry the trappings of independence. Now we’re just going to say the quiet part out loud? In an editorial? On the front page of the securities journal subsidiary of Xinhua News Agency, the state-run media arm of the CCP? With transparent cannot-miss-if-you-tried references to its implications for the security of the state?

It is almost as if the world’s political leaders are discovering that the usual dosage of common knowledge construction is insufficient to the operation of capital markets as a political utility.