We the People? We the Pack.

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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)

epsilon-theory-virtue-signaling-september-30-2016-hunt-together-alone-chart

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)

epsilon-theory-virtue-signaling-september-30-2016-prisoner-cooperation-defection-chart

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 – www.FrontlineHeroesUSA.org – 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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The Anti-Anarchist Cookbook

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



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?

Very.

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.

Enough.

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


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Harrumph!

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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

Harrumph!

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.

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What is Permissible

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Jamie Dimon and Mt. Kisco Chase branch employees take a knee to protest injustice. (Not pictured: Chase actually doing business in minority communities)

Everything is permissible, but not everything is beneficial. 

The Bible, 1 Corinthians 10:23

It happens once every decade or so.

Around then – more often if they are accidentally paying attention – investors get a glimpse into the hellish roundelay that is the charade of corporate governance. This time around maybe it was Hertz or Toys ‘R Us being used as leveraged bets and piggy banks for the purposes of a small minority of short-term flip-oriented investors and captive management. Maybe it was Whiting Petroleum‘s board deciding to throw caution and even the most perfunctory hand-waving at fiduciary duties to the wind in order to defend management’s interests over those of owners and creditors alike. Or maybe it was the board of American Airlines wildly diluting shareholder value with equity and options grants to disproportionately benefit management under the absurd pretense of “shareholder alignment.”

Every decade or so the curtain gets pulled back on the ways that managerial class rent-seekers and intermediaries exploit capital, risk-taking entrepreneurs and labor alike.

Every decade or so, the investors peering behind it get the idea in their heads that it is time for an asset owners’ revolution.

Every decade or so, that revolution launches and fails.

It doesn’t have to be this way.


But it usually is. And often for the same reasons.

Most of history’s asset owner revolutions fail for the same reasons most revolutions fail: the narrative of the revolutionary is simply co-opted and absorbed into a retelling of the narrative of status quo powers. They take your story and makes it theirs. Even if that doesn’t make immediate sense, I feel certain you know exactly the kind of thing I’m talking about.

Here is one example of it in the wild.

Below is a simultaneous image from a Twitter user in Turkey of the various regional official social media accounts operated by Bethesda Softworks, publisher of the popular Elder Scrolls and Fallout video game franchises. Under pressure from customers and the public alike – maybe even some of its private shareholders – it has absorbed the human rights revolution into its corporate DNA. That is, so long as it doesn’t require them to make any kind of expression in regions where it would be at all risky.

I’m guessing this kind of thing isn’t new to you. And to be fair, I am not saying that a company like Bethesda should be in the business of marketing its wokeness through, say, clever modifications of a corporate logo at all. I don’t care if they do or don’t. Doubly so since their private ownership is concentrated in one family and one private equity portfolio. What I am saying is that it shows just how painfully easy it is for corporations to defuse revolutionary sentiment by reframing success and progress as the adoption of riskless outward expressions of change.

This is why companies love to participate in and sponsor ESG forums. It is why they are thrilled to become signatories to toothless multi-decade environmental impact action plans they have literally zero intention of adhering to. It is why their extravagantly indifferent boards happily subject themselves to best practices seminars (minuted and on the record, of course) on inclusiveness and belonging. It is why we have photo ops like the one that headlined this note, which would be even funnier to you if you knew what Mt. Kisco – the branch Dimon visited – was like. If you can recast a real-world change objective into one of “showing leadership” and “raising awareness” on a social or governance issue, you have taken control of the narrative.

If this sounds like virtue signaling, that is because it IS virtue signaling. That is also a big reason I think “ESG” as a thing (rather than its very real underlying nominal aims) is most often a pure expression of industry-driven marketing and narrative co-option. But it is not ONLY that. The most powerful force to blunt revolutionary sentiment about corporate governance isn’t vacuous moral expressions from moralless legal entities, but rather the “grudging” submission by corporate rent-seekers to explicit standards and watchdogs.

That is, the most effective tool corporations have to defuse a shareholder revolution over mismanagement and self-dealing is to abstract asset owners’ specific complaints into principles – and then willingly adopt them.


There are a lot of those sets of principles today. Even the most fundamental of them – the fiduciary standard – is subject to this problem. And it IS a fundamental idea, a fulcrum concept on which the diffuse public corporation as a workable transmission mechanism for capital and its rewards rests. The idea of a fiduciary boils down to a simple idea – that board members and executives have duties to shareholders. They have a duty of loyalty, a responsibility to act only in shareholders’ interests and to avoid conflicts and self-dealing. They have a duty of care, a responsibility to act diligently, to do the necessary work. These duties aren’t just right-sounding. These sound like right principles because they are right principles. But there’s a problem.

Fiduciary duties as fundamental ethical principles exist to protect owners.

Fiduciary duties as legal requirements exist to protect managers and directors.

The moral hazard of the institutionalization of an ethical standard is that it inevitably transforms the necessarily open-ended, wide-ranging process of ethical evaluation and judgment required of a steward into the cover-your-ass-minded thought process of a securities lawyer. This doesn’t have to be true, of course, but be serious. You and I and everyone else can instantly discern the difference between good faith deliberation and deliberation that is designed to optimize the appearance and public record of “good faith.” If you have sat in a board room of any organization in the world for any amount of time, you know exactly which one these bodies tend to deliver.

Instead of evaluating what is beneficial, they evaluate what is permissible.

Where exceptions exist, they are exceptions driven by remarkable individuals. Yet make no mistake: permissibility evaluation is the direction that the gravity of things like the fiduciary standard inexorably pull. When management proposes a compensation plan laden with, say, short-term equity issuance immunized by share buybacks, it will not be framed in terms of whether it will be beneficial to shareholders. It will be framed in terms of whether it can be prudently argued that it will be beneficial to shareholders. In other words, it is framed in terms of whether it is permissible. An evaluation of what is beneficial inherently frames topics in terms of owners. An evaluation of what is permissible frames topics in terms of management.

This is a minor linguistic distinction, but it makes all the difference in the world. In addition to the inherent framing bias, it is important to observe that the evaluation of what is permissible exists almost completely in the world of narrative. Over decades, corporate, media and business school missionaries have steadfastly promoted common knowledge about corporate practices, especially around executive and board compensation, that has coalesced into those narratives.

Everybody knows everybody knows, for example, that equity compensation creates alignment. Everybody knows everybody knows that it doesn’t matter how much you pay executives so long as they produce more shareholder value than you paid them (or more than you would have gotten from a management team you could have paid less). Everybody knows everybody knows that returning excess cash to shareholders is inherently shareholder-friendly.

Each of these narratives is rooted in some truth or another, maybe even tautologically so on some narrow basis. But in a decision-making process based on the evaluation of what is permissible instead of what is beneficial, boards and executives have very little incentive to evaluate the specific merits of a policy or decision. After all, a structured debate around the abstracted principle has the benefit of better satisfying the legal standard, optimizing the board’s own risk-reward profile, requiring the least effort and ensuring that the board members maintain a reputation for playing by the rules. That’s how decisions about the term and volume of equity-based compensation are effectively made less in terms of whether it will have any impact on specific executive retention or business results, and more in terms of the narrative that equity compensation is inherently aligning and de facto prudent.

If executives like being thrown into the briar patch of deliberative processes structured around fiduciary duties, however, then they positively beg to be thrown into the briar patch of third-party proxy voting. Another idea with its heart in the right place, the original theory behind proxy voting services was to make sure that institutions with broad holdings but limited resources could pool their influence to empower oversight over the board and management’s stewardship of the company. It is a further layer of institutionalization of the principles of corporate oversight, stewardship and fiduciary duties.

Yet in practice, a combination of commercial sensibilities, a client base with diverse interests and risk-aversion of their own has meant that the third party proxy recommendation and voting services are functionally passive participants in corporate oversight (please don’t argue). Management slates are widely approved, outside activists are frequently viewed with skepticism (change is disruption, and disruption is rarely ‘prudent’, you see) and the language of permissibility permeates nearly of the recommendations they provide.

The abstraction of specific deliberative items into narratives strengthens management’s ability to extract economic rents from their incumbency. The further abstraction of those principles into the protective judgment of a third party like a proxy voting service cements it. That is how narrative co-option reaches its zenith – with management itself weaponizing the language of the right-sounding standards in support of their proposals.


There are other stories of failure from the history of asset owner revolutions in which narrative co-option was not the culprit, of course. By that I mean cases in which the managerial class fought back and won against the interests and arguments of diffuse public capital. In most of these cases, we think the revolutions failed because asset owners sought to impose solutions on corporate governance from the top down, usually in the form of explicit rules to be adopted across the board.

And to be fair, there are some of these top-down proposals we favor and would support if they came up. Depending on the terms, we could probably get behind policies that dealt with the most common sources of self-dealing shenanigans: restrictions on executives as chairpersons, limitations on management participation in compensation committees and limitations on equity compensation of board members. We also think that change of this variety can happen, albeit very slowly, so there is value in promoting the ideas even when they have a low likelihood of success.

But here, too, the overwhelming power of existing narratives and their curious alignment with our bimodal political environment make it nearly impossible to force change from the top-down.

In America, everybody knows everybody knows that there’s nothing wrong with getting obscenely rich by being the best at what you do. Everybody knows everybody knows that the market for executives is a market like any other, with the prices set at the margin by companies and executives. Everybody knows everybody knows that interfering in those markets is a form of socialism that will be a tide that lowers all boats.

Each of these narratives, too, like most effective narratives, is built on a kernel of truth.

And like most effective narratives, they are modified for battle on adjacent-but-not-actually-overlapping topics. For example, if you argue that a professional managerial class has somehow managed to create a persistent, market-distorting you-scratch-my-back structure with the professional board member class that extracts excessive value from equity owners, your view WILL be framed in narrative world as anti-capitalistic and anti-market. If you attempt to express a view that the magnitude of short-term equity-based incentive compensation at many US public companies seems almost completely untethered from long-term value creation or any sense of what would be necessary to retain staff, that view will be autotuned to a narrative of “left-wing anti-rich rhetoric” even if its source is literally the opposite of that.

This is the weaponization of what we have written about as yay, capitalism! memes.

And yes, those memes are so divorced from reality that those who argue for the better treatment of asset owners – actual capital – will be asked “don’t you believe in capitalism?” when they propose practically any top-down solution to managerial self-enrichment. Even if they aren’t, if history has demonstrated anything in each of these revolutions, it is that the political risk appetites and differences in objectives among asset owners make it nearly impossible to summon sufficient support to make sweeping, top-down changes to the roles of boards and executives in stewarding the capital of America’s families, pension plans, endowments and foundations.

It is a metagame that is designed for corporate management to win consistently, to the detriment of all other stakeholders.


So what is the Answer?

I have no idea. But I think I know the process.

It is the same as what we have argued elsewhere, about politics, social markets and culture. Not “as above, so below.”

As below, so above.

Historically, institutional asset owners who felt the revolutionary zeal to change the quality and nature of governance of American public companies have generally focused on either (1) changing the narratives of corporate responsibility or (2) imposing top-down solutions. There is a reason there are so many roundtables, position statements and publicized, press released-driven ESG programs. There’s a reason there are so many consultants, advisers jockeying for an opportunity to provide more CYA advice, op-eds, white papers, policy pieces, conferences, and joint working group best practices publications. It feels good. It feels like action. We feel heard. We feel connected, like others are there with us.

But it hasn’t worked. It isn’t working. It is simply too easy for managers and boards to absorb and co-opt these narratives, or else to fight them with the powerful “Yay, capitalism!” memes they have at their disposal, even in defense of capitalism’s most damaging perversions.

For most of those same asset owners, it has been a fifty year journey from broad, direct security ownership to external manager-focused mandates to today’s world of index-beta-sprinkled-with-tactical-and-opportunistic-investments. We can justify these as the right decisions from a portfolio management perspective until we’re blue in the face, and on that dimension we’d be right. Of course we’d be right. AND we must also recognize that this generational transition has given the managerial class an opening to pursue short-term incentives at the expense of long-term growth of capital.

Our capital.

We have written that we believe the birthrights of freedom in our political and social lives can only be claimed today from the bottom up.

We think the same is true for markets.

Do you fear what corporate mismanagement, self-dealing and revolving door corruption are doing to impair long-term returns? Do you fear what “prudent man” compensation structures designed to simultaneously maximize short-term compensation and the appearance of alignment are doing to impair the efficient allocation of capital?

If so, it is time to reestablish the right – the responsibility – for asset owners to exert direct, bottom-up influence over the oversight of public companies. It is time for each of our institutions to treat defending and exerting those rights as a core investment function, not an ancillary function to be farmed out to a third-party service or ignored entirely.

It is time to take back your ownership.

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Self Assured Destruction

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Epsilon Theory PDF Download (paid subscription required): Self Assured Destruction


In the 1960s, our Cold War strategy evolved into Mutual Assured Destruction, a dangerous but stable relationship with the Soviet Union.


In 2020, our Covid-19 War strategy devolved into Self Assured Destruction, a dangerous and utterly unstable relationship with the SARS-CoV-2 virus.


As the story goes, a few weeks after JFK was inaugurated in January 1961, his new Secretary of Defense – Robert McNamara – was briefed by the head of Strategic Air Command on US nuclear warfare strategy. Under the “Massive Retaliation” doctrine of the day, there were two options: go and no-go. Any provocation by the Soviet Union sufficient to trigger a go action would result in the immediate launch of all US nuclear warheads – about 1,500 at the time – against 650 targets, mostly in the Soviet Union, but also anywhere in the world where SAC thought the Russians had military assets. As McNamara remembered General Power (yes, that was his real name) telling him, “I sure hope you don’t have any relatives in Albania, Mr. Secretary, because we’re going to have to wipe them off the face of the earth, too.”

At the end of the presentation, the oh-so-pleased-with-themselves generals asked McNamara what he thought. His angry response:

You don’t have a war strategy. You have a war spasm.

Same thing today.

We don’t have a Covid-19 strategy. We have a Covid-19 spasm.

We launched all of our warheads against ourselves in a massive overkill of a lockdown, where our domestic equivalent of a noncombatant Albania was hit just as hard as our domestic equivalent of a Soviet missile base, and now we’re done. Our arsenal is gone. There will never be another coordinated national effort to control the spread of Covid-19. Not with this President, at least.

But that’s the problem with spasmatic policy and the blowhard leaders who administer it. You end up with neither a war-preventing strategy nor a war-fighting strategy. You end up neither containing the enemy nor defeating the enemy.

First, you ignore the initial small provocations and the warning signs of trouble because you’re not prepared with actions you can take short of all-out war. At first you minimize and you excuse.

Sound familiar?

Then, when you finally respond, you act in an incredibly heavy-handed, all-or-nothing fashion that inflicts maximum damage on both the true war-fighting targets AND targets that have nothing to do with the fight at hand.

Sound familiar?

Finally, if your spasmatic attack fails to wipe out the enemy – if the enemy retains an offensive attack capacity after your all-or-nothing effort – then your population is held hostage by the enemy’s threat. You have no choice but to surrender and hope for a merciful/lucky outcome.

Sound familiar?

Our leaders have botched this war, and we are defenseless against a still potent and now endemic enemy, left only with the deus ex machina hope of a truly effective vaccine.

Here, let me say that again.

Covid-19 is now endemic in the United States.

That means it is everywhere. That means it is something to live with rather than something to eliminate. That means Covid-19 is now being “handled” as a chronic disease rather than an acute infectious emergency, a chronic disease where – every day while it remains endemic – 15,000 to 20,000 Americans will get so miserably sick that they will seek treatment and be officially diagnosed, and 500 to 1,000 Americans will die.

15,000 to 20,000 Americans really sick. 500 to 1,000 Americans dead.

Every day.

By the way, these numbers would be a significant improvement over the numbers today. Over the past two weeks, the United States has averaged 22,089 newly diagnosed cases of Covid-19 and 1,118 deaths per day, even as cases and deaths from New York have dropped more than 80% from their peak (New York now adds about 1,200 new cases and 100 deaths per day). Frankly, I think 15,000 to 20,000 Americans officially sick and 500 to 1,000 Americans officially dead every day is a pretty optimistic scenario for an endemic Covid-19 in the months ahead.

Other countries, allies even, countries like South Korea, Taiwan, Japan and Germany, have waged their war against the virus much more effectively than the United States, so that a nationally coordinated policy of testing and contact tracing to manage an endemic virus without suffering ruinous daily casualties is at least possible.

We don’t have that possibility. We have botched this war so miserably that the only solution to an endemic Covid-19 available to the United States is a vaccine. Other systemically crucial countries, like Russia, Brazil and India, are in exactly the same boat. We’ve all followed a strategy of Self Assured Destruction.

And so we wait. We wait to see if we get an effective vaccine by the end of the year. If we do, then maybe we win the war, despite our absurd strategy and incompetent leadership. Maybe. If we don’t, then we lose.

By win, I’m not saying that our markets or our politics go back to “normal”, whatever that means. I’m saying that our markets and our politics can survive if there’s a viable vaccine developed in the next six months. I’m saying that the “bridge loan” narrative driving trillions of dollars in economic support for corporations and some measly fraction of that for unemployed workers can only work if there is a similarly-functioning domestic economy on the other side of this bridge.

But if it’s a bridge to nowhere …

If there’s no vaccine in the near future …

If Covid-19 persists as an endemic disease where 15,000 to 20,000 Americans get really sick and 500 to 1,000 Americans die every freakin’ day for a couple of freakin’ years, and where the situation is worse – MUCH worse – in countries like Brazil and Russia and India and Indonesia and Iran and Egypt and Mexico …

The free world does not easily survive a globally endemic Covid-19.


[first lines]

Newsreader:    Day 1,000 of the Siege of Seattle.

Newsreader:    The Muslim community demands an end to the Army’s occupation of mosques.

Newsreader:    The Homeland Security bill is ratified. After eight years, British borders will remain closed. The deportation of illegal immigrants will continue. Good morning.

— Children of Men (2006)

After the global flu pandemic of 2008, mankind loses its ability to conceive children, and the world begins a long, gradual descent into anarchy and despair. By 2027, Britain is the one civilized nation remaining, although it has transformed itself into a brutal police state to manage not just a fin de siècle, but a fin to … humanity.


That’s the premise of Children of Men, a great book by PD James and an even better movie by Alfonso Cuaron. It’s a premise that’s ringing pretty loud in my ears right now.

And I don’t know how to make the ringing stop.

See, I’ve been writing this note for the better part of a month now, unwilling to take my thoughts to their logical conclusion. And maybe we WILL get lucky. Maybe we WILL develop a truly effective vaccine in the next few months. I really do have faith in our technological prowess. Because I have to.

But here’s the problem with that faith. Whether or not there really is an effective vaccine, we will be TOLD that there is an effective vaccine. Our government policies and our personal behaviors will go forward over the next year AS IF there is an effective vaccine. The overwhelming narrative from both Wall Street and Washington will always be that an effective vaccine is “in advanced tests” or “showing great promise” or “ramping up production” or “available now for emergency personnel”. Maybe this will be true. God, I hope it will be true. But we won’t KNOW if it’s true … we won’t KNOW if there’s an effective vaccine for billions of human beings … until, what, Q3 of 2021?

If it’s NOT true, if there is not in fact a vaccine that can eliminate Covid-19 as a globally endemic illness, then I think we’re in a full-bore Children of Men scenario. All capital markets become political utilities in this future. Only national champion corporations remain, and the line between State and Oligarchy becomes nonexistent. Democracy? LOL.

The form of social organization that “works” with 15,000 to 20,000 Americans getting really sick and 500 to 1,000 Americans dying every freakin’ day for a couple of freakin’ years, combined with massive political instability and violence abroad, is national socialism with American characteristics. It’s a fetishization of the State and its provision of order, such that all economic and political behavior is funneled exclusively through the State and its crony capitalist “Yay, military!” and “Yay, stock market!” narratives. It’s smiley-face fascism. And not-so smiley-face fascism.

But even if it IS true, even if there is in fact a vaccine that can eliminate Covid-19 as a globally endemic illness, what happens during the months-long period between the announcement of this effective vaccine and its broad distribution? There will still be 15,000 – 20,000 Americans getting really sick and 500 – 1,000 Americans dying every day from this now preventable disease! What would your political response be if your mother or your husband or your brother died from Covid-19 because your government administered this vaccine to someone else first? There will be tens of thousands of such deaths in the United States, and hundreds of thousands of such deaths around the world. Will you accept a loved one’s death under these circumstances with equanimity, comforted by your faith that the Trump II or Biden I administration did everything possible to distribute this life-saving treatment with justice and fairness to all?

Or will you rage?

Forget about the United States for a minute. Let’s say you live in India. Do you trust the Modi government to administer whatever vaccine stock they acquire with justice and fairness? Will you shrug your shoulders if your town or state is passed over and your brother dies? How do you think the Modi regime will respond to your righteous anger? Will they say “oops, our bad” and make amends?

Or will they find someone to blame?

Now do Brazil. Now do Egypt. Now do Mexico. Now do Indonesia. Now do Iran. Now do Russia. Now do China. Now do the United States.

Maybe these regimes will blame you for their mistakes and unjust actions. Maybe these regimes will blame the Muslims or the Jews or the Uighurs or the communists or the imperialists or the Republicans or the Democrats or the immigrants or the “thugs”. Maybe these regimes will blame China. Maybe these regimes will blame the United States. One thing’s for sure, they won’t be blaming themselves.

I’m having a hard time seeing how we get from here (globally endemic Covid-19, incompetent and/or pseudo-fascist leaders in the most powerful countries on earth) to there (a non-outright burning, non-outright fascist world) even if we get a truly effective vaccine into production by the end of the year.

I’m having a hard time seeing how we get from here to there because I know how incompetent and/or pseudo-fascist leaders ALWAYS respond to this sort of domestic unrest and threat to the maintenance of their incompetent and/or pseudo-fascist regimes.

They start a war.

Not an allegorical “war” against a virus, but a real war against an Other. Sometimes that Other is a group or region inside their country. Sometimes that Other is another country. But it’s ALWAYS a war.

There are two ways to read the title of this note: Self Assured Destruction.

One way is how I led off the piece, as a play on Mutual Assured Destruction, as the consequence of having a war spasm rather than a war strategy, as an assured destruction brought down on yourself.

The other way to read it is as the self-assured destruction that incompetent and/or pseudo-fascist regimes visit upon their human enemies in real war, as they confidently propagandize and violently blame another country or group for their own failings.

The first interpretation is in the past. We can’t change the abysmal way in which our government and so many other governments have waged this “war” against Covid-19. We can’t do anything about that now.

The second interpretation, though, that’s in the future. And yes, we CAN do something about the tragic way in which our government and so many other governments will try to lead us down the path of real-world war.

Back in 1997, I wrote a book called Getting To War, about how all governments – democracies and dictatorships alike, in the 20th century or any other century – attempt to mobilize public opinion before taking on a risky action like starting a war. The book’s long out of print (although you can read big chunks of it on Amazon for free if you’re so inclined), but it’s time to dust off that 30-year old methodology and use the modern technology of the Narrative Machine to identify getting-to-war propaganda in today’s major powers.

Thirty years ago, I had no ability to do this narrative research in real-time, and no megaphone to communicate my findings to the world. Today I’ve got both.

Next up … Part 2 of this note – not Self Assured Destruction, but Self-Assured Destruction – where I’ll walk you through the getting-to-war process that all governments use to create a war-supporting narrative, how we can use the Narrative Machine technology to track this process, and what we can do to jam or subvert those war-supporting narratives. If you haven’t yet read the Epsilon Theory note Inception, now would be a good time to do that.

Act I of the Covid-19 War is over. The high-functioning sociopaths who have used us as fodder and feed for decades were caught unawares by this new enemy, and they thoroughly bungled the response of State and Oligarchy. Now the pleasant skins of “Yay, Democracy!” and “Yay, Capitalism!” – false narratives, not the real thing – have been ripped off to reveal the naked sinews of power beneath.

Act II will be the story of high-functioning sociopaths trying to re-establish their system of control through narratives of Other-blaming and war … and how we beat them at their own narrative game.

As for Act III … we’re going to change the world, you know. You and me.


Epsilon Theory PDF Download (paid subscription required): Self Assured Destruction


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A New Gilded Age

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Epsilon Theory PDF Download (paid subscription required): A New Gilded Age


Source: Library of Congress

History never repeats itself, but the Kaleidoscopic combinations of the pictured present often seem to be constructed out of the broken fragments of antique legends.

The Gilded Age: A Tale of To-Day, by Mark Twain (1874)

Winston Churchill has probably since eclipsed him in this regard, but for decades Mark Twain was the person to whom you attributed a quotation if you didn’t know who said it.

That whole bit he did about history rhyming but not repeating? It’s probably apocryphal, too, but at least Twain actually did write the thing that spawned the briefer expression. Strangely, it comes from what is probably his worst book, an attempted collaboration with another author that never really works. Yet even the title of this forgettable novel managed to spur the creation of a new term: The Gilded Age.

Now, because it makes for better storytelling, modern conversations about the Gilded Age as a period tend to focus on excess. We imagine – both individually and in our artistic representations of the period – lavish parties, opulence, and absurd displays of wealth and status. And yes, it was a time when neither taxes nor anti-monopoly power had much authority to displace the ambitions of the extremely wealthy. In Manhattan and Newport, old and new money competed openly for social status. If that is what we mean when we use the expression – a time in which the doctrine of Social Darwinism made conspicuous consumption not only acceptable but morally proper – we wouldn’t be very wrong.

But we would also miss the more important half of Twain’s point. The elegant idea of the Gilded Age is not that it was about prosperity. It is that it was about the narrative of prosperity.

That narrative of prosperity was built from the same stuff as any top-down narrative: an underlying political goal, a small-t truth, a big-t truth, a big lie and an abstraction through which the lie might gain purchase.

The political goal underlying American policy narratives from the 1870s through the early 1900s was nearly self-explanatory. After a brutal Civil War, we wanted – we needed – Americans to believe that the post-bellum period in America, a time defined by reconstruction, rapid immigration, reconciliation, resource exploitation, the emancipation of millions of slaves and the historically unique proposition of rapid rail expansion to a geographically far-flung land, could be America’s Golden Age.

The small-t truth was that these forces really did cause the country and its economy to grow remarkably quickly.

The Big-T Truth was that this expansion laid the groundwork for America to become the clear global hegemon of the 20th and 21st centuries.

The big lie was that this prosperity was equally accessible to all.

The abstractions? Well, those would be Twain’s gilding, wouldn’t they?

In a Gilded Age, abstractions are the things we are told represent prosperity. Back then, well, Americans were told that a lot of things represented prosperity. In Twain’s kind of bad story, prosperity was the ability to speculate on land, the freedom to take your shot on building the same kind of fortune as Vanderbilt and Carnegie. Prosperity was walking into the marble and gold edifice of J.P. Morgan’s bank and thinking, in awe, that we Americans could do something like this. Prosperity was the lives that social elites were capable of living, and if you weren’t, then, well, it looks like you might need to brush up on your Social Darwinism to figure out why not.

The excesses empowered by centers of political and social power were not just excesses. They were attempts to apply a layer of gilding to the baser materials underneath – the still vast and unresolved social and economic problems faced by an emerging United States with devastating inequality of both opportunity and circumstance. If it looked and felt like a Golden Age, wasn’t that all that really mattered?

Perhaps this all sounds familiar. Perhaps this sounds like the Long Now.

That’s because it is.

The Long Now IS a New Gilded Age, a top-down imposition of the idea that it is more important for a people to look and feel prosperous than to prosper. Only instead of land speculation and the pretenses of an aristocratic minority, our gilding largely boils down to the current level of the S&P 500 Index.

If we wish to understand the arc that these top-down political narratives follow, especially how they die and how they do not die, we will find no better example than in the least golden yet most gilded retreat of late 19th and early 20th century oligarchs. A place that even Twain himself ended up calling home late in life.

Tuxedo Park.


Mark Twain with a kitten in Tuxedo Park, New York, 1907. From the Mark Twain Papers, Bancroft Library, UC Berkeley.
Mark Twain (center, white suit) and a kitten (brown fur, left of center) at Tuxedo Park

And the last place in the world where we would look for comfort at such a time is in the seeming artificiality of etiquette; yet it is in the moment of deepest sorrow that etiquette performs its most vital and real service.

Etiquette, by Emily Post (1922)

The highest perfection of politeness is only a beautiful edifice, built, from the base to the dome, of ungraceful and gilded forms of charitable and unselfish lying.

On the Decay of the Art of Lying, by Mark Twain (1880)

Tuxedo was never the grandest destination for the ultra-wealthy.

Or the most opulent. Or the most extravagant. Frankly, it wasn’t any of those things, although even in its earliest days most of the mansions that would be so coyly referred to as ‘cottages’ would still dwarf the average residence of a 21st century one-percenter.

As it turns out, this was by design.

More than a hundred years before Tuxedo was a gleam in anyone’s eye, in 1760, an 18-year old French stocking weaver and immigrant to New York named Pierre began milling tobacco into snuff. After early success, he founded a corporation that is today generally regarded as the oldest tobacco company in operation, a company Pierre established using his family name – Lorillard. Over the next hundred years, he and his sons parlayed the company’s early success selling snuff into a remarkable tobacco and real estate empire.

So fabulously wealthy was his great-grandson Pierre Lorillard IV that in 1877 he was able to commission the construction of the most spectacular residence in a community of spectacular residences – Newport, Rhode Island. It was the city which, alongside Manhattan, formed the central hubs of high society in the Victorian-era United States. It was a remarkable Queen Anne-style mansion on Ochre Point in Newport, Rhode Island which he called The Breakers.

The Lorillard family had long been embedded in Gilded Age Newport society, but the extravagant new property put a bit of extra punctuation on the claim. Even the flagship Lorillard family asset had a lasting attachment to the city. After all, it is Lorillard that named their most successful product – America’s favorite menthol cigarettes – after the city, even if that was to occur some years later.

All that is to say that when Pierre sold The Breakers to Cornelius Vanderbilt II in 1885, it was a bold statement. And when Pierre packed up and hopped off a train rolling through the Ramapo Mountains of lower New York state with his architect and partner on a rainy day only weeks later to chart out a new kind of elite community, it was an even bolder statement.


NY Tuxedo Pk Bruce Price Chanler Cottage | Modernist architects ...
A characteristic shingle-style house of the early period at Tuxedo Park, from Creative Commons

Lorillard intended for Tuxedo to be both a social club and residential community; in short, Pierre built a country club. In 1885, however, the idea of a country club was still new. Really new. It wasn’t the perfunctory, pretentious province of the mass affluent like it is today, but instead the unassailable domain of the ultra-wealthy. Still, the underlying aim that nobody dared or dares to say out loud – to permit ‘desirable’ residents and forbid ‘undesirable’ residents – was largely the same. The difference is that the list of undesirable residents at Tuxedo Park was far longer. It included all of us. Except a couple of the bankers and hedge fund guys on our subscriber list. You gents (and yes, just gents, obviously) might have been OK.

The social half of the operation was first established as a shooting and fishing organization, but the club itself was the center of Tuxedo life in ways that went far beyond sporting activities. On weekends during the ‘Tuxedo season’ it would host events, galas, performances and balls – to which only the right kind of person and the right kind of behavior would be welcome.


The Club at Tuxedo Park as sketched by Vernon Howe Bailey

Who were the right kind of people? Well, membership to the Tuxedo Club was both limited and exclusive. More specifically, it was initially limited to 200 men, and exclusively offered to those who had accumulated great sums of wealth in the right way, which is to say by inheriting it. Or at the very worst, by handling such nasty business at a distance and only when strictly necessary.

Lorillard’s literal rejection of Newport through the sale of The Breakers was thus accompanied by a corresponding departure in values. Newport had, unfortunately, developed a nasty reputation for permitting those who had built wealth through acts of ingenuity or even labor, heaven forfend, to participate in the loftiest social circles that ought to have been reserved for long-standing families of quality, taste and discretion. Tuxedo Park would not repeat that if Lorillard had anything to say about it.

Although the possession of inherited wealth was never an absolutely essential criterion for admission, a substantial number of members were blessed with it, and working for a living was viewed with suspicion by many of the original Tuxedoites. Bankers, financiers, and others who dealt with money only in its more intangible and dignified aspects, however, were acceptable.

Frank Kintrea, in Tuxedo Park, from American Heritage (1978)

Furthermore, membership in the club was a de facto requirement for the purchase of property. By 1888, after growing demand that led to some relaxation of limits on membership, about 350 men belonged to the club. Roughly 30 of them had homes there, and little doubt was left in the matter of who could acquire those. Goold Redmond, a prominent member of the club (and of The Four Hundred and sometime resident of Newport) put it plainly:

All the property owners are members of the club, and none of them would sell to a person who would be likely to prove an undesirable resident. Such a person would scarcely want to buy, either, for it would be decidedly unpleasant, I should fancy, to be a resident of the park and not be admitted to the club.

Goold Hoyt Redmond, as quoted in Tuxedo Park, from American Heritage magazine (1978)

The effect of the policy was obvious. The families who were permitted to spend the season or reside in Tuxedo were not simply families of means, but established members of the ruling class of New York.

First and foremost, there were the Astors, who held vast quantities of real estate in the city and were seen as the gatekeepers of its social scene. It is more accurate to say that the Mrs. Astor, always with the definite article, if you please, was the gatekeeper. She and Ward McAllister maintained the list of the “Four Hundred.” It was the first and last word on who was considered part of society in the city, and by popular legend took its number from the capacity of the ballroom at Beechwood, the Astors’ 16,000+ square foot summer home in Newport.

Tuxedo also welcomed the Schermerhorns, who were an old New Amsterdam Dutch family who supplied just about every trade ship that came into New York Harbor with necessary equipment and supplies. This was the right kind of business, and with the right amount of age on the wealth it produced. It didn’t hurt that the Mrs. Astor was nee Schermerhorn.

Other Tuxedo members were part of the old Dutch roots on the island, too. The Kips, for example, defected to the English after that little kerfuffle and managed to get a whole section of midtown named after them for the trouble. If you’ve ever been east of Lex between 23rd and 34th street, you’ve been to the part of Manhattan named after this family.

Speaking of the minor conflagration that so irritated the Grand Pensionary of Holland, it is perhaps worth mentioning the Pells. They were the folks who literally bought the Bronx and most of lower Westchester County from Native Americans in exchange for a few barrels of rum, then got the British to force the Dutch out of New York when the latter had the audacity to complain about the transaction.

There were also the Bowdoins, of course, whose patriarch was JP Morgan’s right-hand man, and who himself was the great-grandson of the original right-hand man of New York City, Alexander Hamilton. Don’t worry, the Schuylers were well-represented, too. In fact, one family – the Crosbys, after whom the street in SoHo is named – could claim near Schuyler ancestry on both sides of the family. I suppose if you’re going to really commit to the imitation of royal lineages, you might as well…you know, nevermind.

In any case, if the de facto limitations on membership and property ownership or the self-explanatory membership rolls were not clear enough a description of whom Lorillard wanted to allow in and whom he wanted to keep out, however, there was also the matter of the literal stone fortifications and 24-hour armed security that greeted anyone approaching by road. If you didn’t fancy that, you might instead try the 8-foot barbed wire fence that greeted anyone traversing the 25-mile border of Tuxedo Park. The sort of pretense at security in modern ‘gated communities’ owes its existence to the more serious kind practiced here as early as the mid-1880s.

It is more charming than it sounds so long as you present it in post card form.


Tuxedo Park — Tuxedo Historical Society

The narrative of late 19th Century American prosperity promoted by Tuxedo Park was therefore first and foremost a narrative of exclusivity. It was a story that told aspirational laborers and entrepreneurs that an entirely separate world existed for people whose very nature was so lofty and inscrutable that there was nothing they could ever do to be deserving or dispossessed of it. How fabulous and remarkable must the stories of what happened behind those walls have been to the ‘villagers’ who lived beyond them – and yes, the residents of Tuxedo referred to them as the villagers. How striking must it have been to imagine that our still-young nation were capable of producing a true aristocracy. Why, in a few short decades we were almost like Europe already. This must truly be our golden age!

And yet there was an unavoidable problem with pretending at an Old-World aristocracy: there was no hiding how very young anything built in America was. Yet this, too, was a problem with a solution that existed not only in vast ballrooms of Carrara marble quarried by increasingly revolutionary Italian laborers, or in columns wrapped in gold leaf, but in the world of stories and narrative. You see, Lorillard’s vision when leaving the gaudy excesses of Newport, a vision shared by the primary architect Bruce Price, was that Tuxedo must be an old place. A place for old families, old Anglican religion, old social values and old money. And so the wealth invested in its construction was invested in creating exactly that illusion.

Nearly all country places in America have developed along similar lines of gradual and natural evolution; most of them have some tradition going back to Colonial or Revolutionary beginnings, and have passed from periods of early crudeness, and come to full and perfect beauty only with the mellowing help of age. Not so Tuxedo. Old-World and tradition-haunted as it looks, it is new. Incredibly new.

Tuxedo Park, An American Rural Community, from The Century Magazine (October 1911)

Fortunately, the nature of many of these techniques to produce exactly those illusions was recorded for posterity by Bruce Price’s daughter. Her name was Emily Price. You, however, probably know her better by her married name: Emily Post. Mrs. Post is most famous for publishing Etiquette, which now in its 19th Edition remains the American authority on the subject nearly 100 years after it was first published. Yet she also wrote in some detail about her childhood, adolescence and early adulthood spent in Tuxedo, which must be understood as the wellspring of many of the ideas promoted in her more famous text. From those pages, it becomes quite clear that the artificial, tradition-haunted oldness of Tuxedo was no accident. It was the conscious, top-down application of a social narrative by Pierre Lorillard IV, Bruce Price and the other aristocratic visionaries of New York society.

In the initial decade and a half of construction, nearly all of the – ahem – cottages were built on homesites which would not rise too high above the surrounding treetops, if at all. The idea was to present the notion that the old forest of the Ramapo hills had grown up around the Park over centuries. In addition, the styles of construction heavily favored materials and paints which permitted the conveyance of a certain oldness to the place. Not just in the sense that more natural materials were favored, but in the sense that the builders were literally instructed to pick stones for the front gatehouse and homes that had more lichen on them.

In beginning Tuxedo, the architect’s idea was to fit in the buildings with the surrounding woods, and the gate-lodge and keep were made of graystone, with as much moss and lichen on it as possible. The shingle cottages were stained the colors of the woods – russets and grays and dull reds…

Tuxedo Park, An American Rural Community, from The Century Magazine (October 1911)

And so the narrative of late 19th Century American prosperity was also a narrative of Old World establishments. We Americans had our grand old houses now too, you see. Look how prosperous we have become. This must be a good thing!

Yet Tuxedo Park as an abstraction of American prosperity still lacked a final, indispensable bit of gilding – a narrative of class. It needed a propagated set of rules and values so arcane that they could only be understood by those who had already been made familiar with the game. It needed an etiquette of language and actions which made it clear that this was a separate class from the businessman with a home in Newport, desperately trying to work his way inward from the outer circles of society.

So it was that the final, and probably most important, gilding of Tuxedo Park was its ritualized informality. It was the practiced leisure of those sophisticated enough to know that nothing was quite so boorish as trying too hard, unless perhaps it was working too hard. If the origin story of the tuxedo was not familiar to you before, then your guess that it might be related to the aristocratic refuge of Tuxedo Park was correct. You might be surprised, however, to discover that the attire was named after the town and not the reverse. Very much on brand, however, the tuxedo was originally a relaxation of common dinner jacket attire for gentlemen. The vision of Tuxedo class was exquisitely and consistently formal about its practiced informality.

There was always a certain effect of the private estate in that the women wore evening-dresses (generally ones left over from the Newport season), and the men, as a concession to informality, adopted the English dinner jacket, which later became generally known by the name “Tuxedo.”

Emily Post, in Tuxedo Park, An American Rural Community, from The Century Magazine (October 1911)

The idea was not inconsistent with how Mrs. Astor defined her Four Hundred – those who would be comfortable in any ballroom or parlor in the city. It is a pleasant enough sounding idea to be unpretentious, but the intent was anything but. The principle was that the ability to act comfortably in such a ritualized environment could only be the result of long exposure over time and complete buy-in to the importance of the rituals themselves. New money couldn’t simulate it and rebellious personalities couldn’t endure it.

The stories of intrigue from the late 19th and early 20th centuries in the Park are uproariously petty. For example, Emily Post herself wrote often about her frustration at being forbidden access to the performance stage at the club at Tuxedo. Apparently her banjo playing (yes, this was a fashionable skill for young debutantes at the time) and acting shone a bit too brightly in a world where her father’s necessary architectural prowess proved a rare exception to early admittance standards. There were scores of affairs and scandals on the most absurd grounds, excommunications for small breaches of etiquette, that sort of thing. Tuxedo Park was the urheimat of the HOA board member who slips a note into your mailbox about putting your trash cans at the road a bit too early – and then makes it a topic of gossip around the cul-de-sac.

Tuxedo Park may not have invented petty and capricious flitting between practiced informality and rigid norm-enforcement, but it perfected it.

Snobbery at Tuxedo came in such concentrated and virulent doses that it produced a stifling air of complacency and stilted formality.

Tuxedo Park, from American Heritage magazine (1978)

Still, the result of the relentless narrative promoted by Lorillard, the Astors and others from the top-down was the emergence of common knowledge. Within Tuxedo’s stone gates and barbed wire fences, everyone knew that everyone knew that it was a refuge for an emerging class of well-seasoned, elite families. Outside the walls, everyone knew that everyone knew that the very existence of a place like this was evidence of America’s great coming prosperity, an early symbol of wealth creation and the promise that it would soon spread across the diligent, industrious masses.

The symbols of an American Golden Age.

If you had asked individuals instead of members of the crowd watching the crowd, however, you would have gotten a very different description. From even the very early days, you would have been told about how obviously artificial the place was. How positively anyone could see it. Its various gildings – with perhaps the exception of some really remarkable architecture, some of which is attributable to Price himself – were widely deplored within and outside the walls. Nevertheless it, uh, persisted.

Although Tuxedoites might, as individuals, deplore the elaborate formality that prevailed in the park, it seemed to be a group affliction for which there was no cure.

Tuxedo Park, from American Heritage magazine (1978)

Irritation with the artificiality of the many forms of Tuxedo’s gilding hit very close to home for Emily Post herself. Her earliest of many conflicts with her husband were related to the absurdity of the place’s pretenses. Edwin Post considered himself a legitimate outdoorsman, traveler and gentleman (and as it turned out, he considered himself quite a catch for all sorts of women, too). The alpine costumery of its groundskeepers, the stocking of game and fish, the ostentatious faux-country estate mentality – its mise-en-scene, as Laura Claridge put it in her Emily Post biography – was immediately absurd to him.

In truth, for Edwin, anything would be better than spending the summer at Tuxedo Park. He found its mise-en-scène absurd: the gamekeepers; grown men as property guards, walking around in Tyrolean costumes; the artificially stocked lake. It was all humiliating to a real sportsman like himself.

Emily Post, by Laura Claridge (2008)

The facts underlying Edwin’s criticisms of the place were not secrets, either. The nature of the artificiality was widely known and understood.

The lake, for example, was originally the home to beautiful, enormous and sporting species of bass. Bass being the apex predator (among the fish, anyway) in most such environs, the dilettante gamekeepers introduced a species of European carp to be a food source to fatten up the bass. Instead, the carp crowded out the usual food sources for the bass and killed them off within a couple years.

Lorillard and his fellow budding aristocrats also found the wild game of lower New York – at the time some of the most plentiful in the world, if wild and not always cooperative to an afternoon’s casual sport – too difficult to access in a manner befitting a gentleman of quality. So, of course, they introduced massive coveys of quail and other gamebirds, which repeatedly died en masse in freak accidents that revealed just how artificial the enterprise was.

Other realities at Tuxedo couldn’t be reconciled with the gilded narratives, either. By the turn of the century, Tuxedo maintained a narrative of exclusive membership and old world construction from the top-down. Meanwhile, its rolls increasingly included more parvenus who knew enough to keep their mouths shut and support their patrons within the club. What’s more, those new money elites did exactly what they did elsewhere: they built spectacular architectural monstrosities. This was the 1899 Tuxedo Park home of Henry William Poor, of Standard and Poor’s fame. One presumes he enjoyed it greatly before turning it over to creditors a decade later as a result of failures in (no really) ice and sugar speculation.

Yet owing to the need to stay within the still-powerful common knowledge of Tuxedo Park, Poor still gave his estate an on-narrative name. Behold “Woodland.” I bet he made lots of s’mores here.



Even Post herself, who for nearly all of her life consistently professed a understandable fondness for Tuxedo, was individually completely aware of the absurdity of the place.

Tuxedo was the most formal place in the world. Nobody ever waved or hello-ed or hi-ed at Tuxedo. You bowed when you shook hands. . . . [F]irst names were considered very bad form. You might be Johnny in private, but you were Mr. Jones in public. There were only five men in Tuxedo who called me Emily, and then never in formal Society.

Emily Post, as quoted in Emily Post by Laura Claridge (2008)

Indeed, despite her fondness, Post’s enduring legacy is precisely of an etiquette which esteems intent above rule-adherence, nearly the polar opposite of the world in which she began her life. So if everyone – even America’s leading voice on the rules of etiquette – realized that the narrative of Tuxedo Park was utter nonsense, what happened? If everyone knew about the incompetent game management, the artificial architectural standards, the petty scandals, the inconsistency of the membership standards, what happened?

I’ll tell you what happened.

Absolutely nothing.


How easy it is to make people believe a lie, and hard it is to undo that work again!

Autobiography of Mark Twain, Vol. 2, by Mark Twain

For a while, anyway.

It’s a funny thing. When we recognize artificiality, we usually expect that the continuous pounding of reality will expose it. We want to believe that markets – social, financial and political alike – are voting machines in the short run, but weighing machines in the long run. We know that a lie can be halfway around the world before the truth gets its pants on, to steal another apocryphal not-really-Twainism, but the hopeful implication is that the truth will eventually get its pants on.

And when the narrative is a small, spontaneously emergent, mutually agreed upon story, it often does. Of course it does! We can probably all think of stories we can’t believe we ever bought into after reality threw some cold water on them.

But when the narrative is promoted from the top-down and built on a foundation of abstractions and models, it can sustain all sorts of contradictory facts. Indeed, that is the whole point of summoning the abstraction in the first place – to make it nearly impossible to find facts that exist on a dimension that could falsify the abstraction or lie.

Think about your experiences over the last decade financial markets. Can you think of any investor you know who has not said to themselves and others, “It seems like fundamentals have really stopped mattering all that much” at some point in the last 12 years? How about, “Surely central bank intervention like this isn’t going to be sustainable forever?” Or “How stupid is it that politicians keep taking credit for what the stock market is doing?” These are not secret beliefs, whispered in corners by conspiracy theorists. These are not fringe ideas. They are said aloud on every trading floor and in every investment office in the world.

And what about political markets? Does any politically active person you know not grouse about the rise in political tribalism? Do you know anyone who doesn’t think that whataboutism is a scourge, who doesn’t bemoan the loss of a political center, who doesn’t regret the utter polarization of American politics? These are not uncommon observations. They aren’t revolutionary. Not even when we write about them, unfortunately. Which we do. A lot.

These are mainstream views. We all know.

Yet it is not enough for all of us to know that equity markets are now a political utility. It is not enough for us all to know that they are too important as a measuring stick of prosperity, as a layer of gilding, for central banks and other centers of modern political power to allow to fail. It is not enough for us all to know how those incentives inherently create long-term social, political and economic value destruction. It is not enough to know that they empower the persistence of zombie companies. It is not enough to know that they create incentives to direct capital toward short-term share price appreciation over the development of productive tangible and intangible assets.

Nor is it enough for all of us to know that our political markets are broken. It is not enough for all of us to know that a polarized body politic is a sign of a diseased nation, a heads-I-win-tails-you-lose method for destroying the institutions conservatives want to protect and preventing the change that progressives wish to promote. It is not enough that we all recognize this existential polarization as the tool for protecting entrenched interests that it is. And it is not enough to simply know that all of our political institutions have failed us.

Likewise, the narrative gilding of Tuxedo Park didn’t wear away because enough people knew of its artificiality on so many dimensions. It didn’t fade because enough people put two and two together on the excessive formality, the pretense at effortlessness, the Tyrolean costumes or the stone castles named “Woodland.”

It faded because enough people decided to act on their individual knowledge. They packed up and left.

William Waldorf Astor was the first meaningful departure. He was not the last. Yes, even Emily Post, “eventually found Tuxedo manners too artificial for her taste and [she] too defected,” as Frank Kintrea wrote. By the end, the conclusion of the last remaining Lorillard in the Park was dire.

“Nobody lives here anymore who amounts to a row of beans,” growls Pierre Lorillard Barbey, 78, the last Lorillard in Tuxedo Park.

Tuxedo Park : Everyday Look Is In at Ex-Exclusive Community, Los Angeles Times

The only thing that breaks a top-down narrative is action.

That isn’t to say that knowing doesn’t matter. Knowing matters to you. Knowing matters to how you live your life, how you perceive and process information and how you make decisions in arenas where you do possess some modicum of control. But knowing won’t bring about change in what you know. And we all know, y’all.

We have allowed ourselves to become an army of whimpering John Mayers, a few hundred million people waiting on the world to change. People waiting for the truth to come out and break the hold of the governing political narratives that we all know are stupid. That don’t make sense. That don’t serve our interests.

Here’s an idea: Stop waiting and leave.

It is possible in markets. So who will be the CIO or Board Chair at a major public pension plan who will take the career risk that goes along with talking about the need for funding problems to be resolved with fiscal policy instead of blithely dialing up private equity and rotating hedge funds to long only equity exposure, among the most serious implications of an S&P 500-as-prosperity narrative? Who will recommend a complete elimination of the peer group comparison models that drive allocations to equity-centric consensus? Who will be the major asset manager that takes meaningful active risk betting the farm and the management fee franchise on fundamental value again? Who will be the board chair or chief executive at a major US corporation that gets rid of short-term equity incentives and grants as the faux-aligned, short-term results-incentivizing boondoggle that they are?

It is possible in politics, too. So who will lay themselves and their political career on the altar of the next iteration of the “most important election of our lifetimes” to chart out a path that breaks the weak stag hunt equilibrium of our two-party system? Who will forge the hard path that will make it possible for write-ins and third parties and underserved demographics to have a real voice in our collective governance?

Whoever among us works to puts an end to this New Gilded Age, who unlocks the power of real capitalism and real democracy to create multi-generational prosperity, will have performed an act of both clear eyes and full hearts.

Loyalty to petrified opinions never yet broke a chain or freed a human soul in this world — and never will.

From Consistency, an 1887 essay and speech by Mark Twain
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A Truth That’s Told With Bad Intent

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Epsilon Theory PDF Download (paid subscription required): A Truth That’s Told With Bad Intent


A truth that’s told with bad intent
Beats all the lies you can invent.

William Blake (1757 – 1827)


That’s Isaac Newton in William Blake’s painting, one of the major villains in Blake’s philosophy. Why? Because Newton was a modeler, a proponent of Science with a capital S, the most repressive force in the modern age.

I think Blake was absolutely right.


Our narratives of COVID-19 are all lies.

They are lies of a particular sort, political narratives that have a nugget of truth within them, but are told with bad intent. They are told this way because it works. Because the nugget of truth hides a deeper, unpleasant truth. And a Big Lie.

Some are narratives of the political left. Some are narratives of the political right.

They are all narratives of betrayal, meaning that they seek to excuse or promote policies designed for institutional advantage rather than the common good.

Clockwise from Donald Trump, that’s Fox’s Sean Hannity, the CDC’s Robert Redfield, Surgeon General Jerome Adams, Speaker of the House Nancy Pelosi, Harvard President Larry Bacow, the White House’s Larry Kudlow, and Vox co-founder Ezra Klein. They all get their moment of shame in our magnum opus on the ubiquitous institutional betrayals here in the early days of the pandemic age – First the People.

How do you recognize a political narrative of betrayal?

It’s always based on a model.

A political narrative of betrayal is always a top-down application of social abstraction, where a behavioral model is treated as the thing unto itself, falsely elevated as the subject and object of policy, rather than relegated to the analytical toolbox where it belongs. A political narrative of betrayal will always use “model” as a noun rather than “model” as a verb. A political narrative of betrayal always BEGINS with a prescriptive model of mass behavior – a model that by the most amazing coincidence serves the institutional advantage of the narrative creator – and ENDS with a forced fit to the individual citizen.

All political narratives of betrayal start like this, with a disembodied, modeled abstraction like “the American way of life” or “the economy” or “the market” or “public health” or “national security”. An abstraction that is then defined for you in such a way as to logically require the willing abdication of your individual rights, first as an American and ultimately as a human being.

A political lie always starts by establishing a disembodied, modeled abstraction like “the economy”. From there, the political lie will then start talking about the “sacrifices” that we citizens need to make for this disembodied, modeled abstraction.

Nothing makes me angrier.

Nothing makes me angrier than a politician like Chris Christie, a man whose idea of personal sacrifice is a regular order of fries, shaking his finger at us and telling us how reopening the local Arby’s is just like fighting Nazi Germany, how OUR deaths then and now are a “necessary sacrifice” in order to  “stand up for the American way of life.”

The American Way of Life™ does not exist. It’s not a thing.

What exists is the way of life of Americans.

Start with the individual American. Start with their political rights. Start with the citizens themselves. This is how a legitimate government acts in both words and deeds.

The government’s job – its ONE JOB – is to protect our individual rights in ways that we cannot do ourselves. That’s not an easy job. At all. There are trade-offs and gray areas, and clear-eyed/full-hearted people can disagree on how to accomplish that job. But it is the job.

Its job is NOT to create “alternative” facts like modeled seasonal flu deaths or modeled herd immunity or modeled COVID-19 deaths in nudging service to institutional goals. Its job is NOT to champion the rights of the politically-connected few and ignore the rights of the politically-unconnected many. Its job is NOT to deny the rights of any citizen in service to a politically convenient abstraction like “the American way of life” or “the economy” or “public health”.

When individual rights conflict in unavoidable ways or we are faced with an immediate and overwhelming threat to our system of individual rights, a legitimate government based on the consent of the governed may be forced to decide which citizens’ rights must be temporarily suspended. This is a legitimate government’s last resort.

Today it is our government’s first resort.

Today it is the first choice of our political leaders – White House and statehouse, Democrat and Republican – to decide which rights to prioritize and which rights to deny in service to THEIR conception of what society should look like. All wrapped up in a nugget of truth told with bad intent.

This is how an illegitimate government acts.

Like this:


Model-driven Narrative #1

Whatabout the Flu?

Dr. Sanjay “minor compared to the flu” Gupta 
Rush “it’s just the common cold, folks” Limbaugh
  • Political goal: COVID-19 threat minimization.
  • Truth nugget: The seasonal flu is a nasty (and mitigatable) disease.
  • Deep Truth nugget: We are shockingly blasé about all sorts of largely preventable deaths, and we warehouse our elderly parents in horrible places.
  • Big Lie:  This isn’t a big deal.
  • Policy prescription: Wash your hands, boys and girls!
  • Embedded model:   Laughably inaccurate models of seasonal flu deaths, designed to nudge popular adoption of annual vaccinations.

As the US death toll mounts, this narrative fades farther and farther into the background of our collective memory, but “Whatabout the Flu?” dominated the early weeks of American policy debates. And while it’s easy to find examples of this narrative from the political right, let’s not forget that CNN and Vox were beating this drum as hard as they could when Trump was shutting down some flights from China.

People don’t believe me when I tell them that we don’t actually count flu deaths, that the numbers thrown around by the Dr. Guptas and the Rush Limbaughs are taken from CDC models of pneumonia deaths. But it’s true. Basically we count pediatric flu deaths and hospitalized adult flu deaths, multiply by six, and intentionally generate an inflated flu death total. Why intentional? Because you need to be nudged into taking your annual flu vaccine.

If we compare, for instance, the number of people who died in the United States from COVID-19 in the second full week of April to the number of people who died from influenza during the worst week of the past seven flu seasons (as reported to the CDC), we find that the novel coronavirus killed between 9.5 and 44 times more people than seasonal flu. In other words, the coronavirus is not anything like the flu: It is much, much worse. – Scientific American (April 28, 2020)

On an apples-to-apples, counted deaths versus counted deaths basis, there is no comparison between COVID-19 and the flu. It’s pure narrative. Pure hokum. All based on a laughably inaccurate model. All geared towards the political lie of COVID-19 minimization.


Model-driven Narrative #2

Herd Immunity!

Anders “the death toll surprised us” Tegnell of Sweden 
Dan “more important things than living” Patrick of Texas

  • Political goal: Preservation of economic status quo.
  • Truth nugget: Massive unemployment is devastating.
  • Deep Truth nugget: Massive unemployment is particularly devastating to incumbent politicians.
  • Big Lie:  In the meantime, we can protect the olds and the sicks.
  • Policy prescription: Hey, you’ll probably be fine! I mean … probably.
  • Embedded model:   Laughably inaccurate models of COVID-19 infection spread and severity, designed to nudge fantasies of V-shaped recoveries in the stock market and commercial real estate prices.

Again, it’s easy to find examples of this narrative from the political right, but let’s not forget that the most prominent national example of “Herd Immunity!” policy is driven by the leftwing Social Democrats – Green Party coalition in Sweden. Again, the politicization of these narratives is not a left/right thing, it’s a power thing.

It’s a high-functioning sociopath thing.

What do I mean by sociopathy and division?

I mean the way our political and economic leaders beat the narrative drum about how this virus prefers to kill the old rather than the young, as if that matters for our policy choices, as if older Americans are lesser Americans, as if we should think of them differently – with less empathy – than Americans who are more like “us”.

I mean the way our political and economic leaders beat the narrative drum about how this virus prefers to kill those with “pre-existing conditions”, as if that matters for our policy choices, as if chronically ill Americans are lesser Americans, as if we should think of them differently – with less empathy – than Americans who are more like “us”.

I mean the way our political and economic leaders beat the narrative drum about how this virus hits certain “hotspot” regions, as if that matters for our policy choices, as if hotspot regions are lesser regions, as if we should think of Americans who live there differently – with less empathy – than Americans who are in “our” region.

And once you stop thinking in terms of trade offs, once you stop thinking in terms of probabilities and projected mortality rates and cost/benefit analysis and this expected utility model versus that expected utility model … once you start thinking in terms of empathy and Minimax Regret … everything will change for you. – Once In A Lifetime


Model-driven Narrative #3

Flatten the Curve!

Gov. Andrew “we need 40,000 ventilators” Cuomo  
Dr. Deborah “Trump is so attentive to the data” Birx

  • Political goal: COVID-19 threat maximization.
  • Truth nugget: Lockdowns prevent a surge in cases which can overwhelm the healthcare system.
  • Deep Truth nugget: When we’ve got everyone freaked out about staying alive, there’s no end to the crazy authoritarian stuff we can get away with.
  • Big Lie:  We can get R-0 down to zero.
  • Policy prescription: You’ll find these ankle monitors to be surprisingly light and comfortable to wear!  
  • Embedded model:   Laughably inaccurate models of COVID-19 deaths, malleable enough to serve the political aspirations of both the White House and their opponents.

Of the three politicized narratives, “Flatten the Curve!” has morphed the most from its original form, as its early success in convincing even Donald Trump that lockdowns were necessary to prevent a healthcare system meltdown gave both its White House missionaries and its state house missionaries free rein to use this narrative to fill a wide range of policy vacuums.

The original goals of “Flatten the Curve!” – to prevent a surge in COVID-19 cases with the potential to overwhelm the healthcare system – were achieved. The flood in New York City crested … and fell. Other cities that seemed as if they might follow in NYC’s footsteps … did not. Mission accomplished! But in the grand tradition of other initially successful emergency government interventions (“Quantitative Easing!”, anyone?) “Flatten the Curve!” is well on its way to becoming a permanent government program.

Today, “Flatten the Curve!” has become the narrative rationale for a range of extraordinary executive actions – on both the left AND the right – that would make Lincoln blush. This is the narrative that will propel the Surveillance State into a permanent feature of American life. This is the narrative that will propel the final transformation of capital markets into a political utility. This is the narrative that will propel us into a war with China. If we let it.


If we let it.

Okay, Ben, how do we stop it? How do we turn this misbegotten process of political lying on its head? How do we reject top-down, model-derived policies and their narratives? How do we BEGIN with the biology of this virus and the rights of individual citizens and build a policy framework from THAT?

This virus is 2-6x more contagious/infectious than the seasonal flu (depending on environment), and 10-20x more deadly/debilitating (depending on whether or not your local healthcare system is overwhelmed). It hits men harder than women, and the old harder than the young. Those are the facts. They’ve been the facts since January when we first studied this virus. The facts have not changed.

Knowing these biological facts, what social policies would you design around THAT?

As a 56 year-old man in just ok physical condition, I figure I have a 1% chance of death or disability if I catch COVID-19 when my local healthcare system is in good shape, maybe 4% if my healthcare system is overwhelmed. Both of those odds are completely unacceptable. To me. Other 56 year-old citizens may feel differently. Other 25 year-old citizens may feel the same. Each of us has a right to life, liberty and the pursuit of happiness, and the legitimacy of our government is predicated on preserving those rights for each of us. Liberty and justice for ALL … imagine that.

Knowing these foundational rights, what social policies would you design around THAT?

If you’ve read notes like Inception and The Long Now: Make, Protect, Teach and Things Fall Apart: Politics, you know that I am a full-hearted believer in acting from the bottom-up, in bypassing and ignoring the high-functioning sociopaths who dominate our top-down hierarchies of markets and politics. I still believe that.

But it doesn’t work with COVID-19.

The core problem with any rights-based approach to public policy is dealing with questions of competing rights. Under what circumstances could your right to liberty and the pursuit of happiness come into conflict with my right to life? Under most circumstances, neither of us is forced to compromise our rights, because we have the choice to NOT interact with each other. If my laundromat requires you to wear a mask to enter, but you think wearing a mask is an affront to your liberty, then the solution is easy: go wash your clothes somewhere else. And vice versa if I think your restaurant does a poor job of enforcing social distancing and food safety: I’ll take my business elsewhere.

Let me put this a bit more bluntly. I think that COVID-19 deniers and truthers are idiots. I think that people who minimize or otherwise ignore the clear and present danger that the biology of this virus presents to themselves and their families are fools. And there’s no perfect way to insulate their idiocy and foolishness from the rest of us. But if these idiots and fools want to take stupid risks alongside other idiots and fools, if their vision of liberty and the pursuit of happiness is to revel in some death cult, but in a way that largely allows us non-death cultists to opt out … well, I believe it is wrong for a government to stop them. Yes, there are exceptions. No, this isn’t applicable on all issues, all the time. But I believe with all my heart that if we are to take individual rights seriously, then we must take individual responsibility and agency just as seriously. Even self-destructive agency. Even in the age of COVID-19. Especially in the age of COVID-19.

There are three common and important circumstances, however, where this choice to NOT interact doesn’t exist, where the rights of yes, even idiots, to liberty and the pursuit of happiness as they understand it will inexorably come into conflict with the right to life of those who understand all too well the highly contagious and dangerous biology of this virus.

Only government can provide the necessary resources and the necessary coordination to resolve these conflicts of rights peacefully and without trampling the rights of one set of citizens or another.

You have no idea how much it pains me to say that.

It pains me because I think there’s a snowball’s chance in hell that our government will do that.

Here’s how a legitimate government would deal with the three inevitable and irreconcilable conflicts of rights in the age of COVID-19:

Healthcare workers and first responders have no choice but to risk their right to life in caring for all citizens who are sick, regardless of the agency or lack thereof behind that sickness.

How does a legitimate government resolve this conflict?

By mobilizing on a war-time basis to provide personal protective equipment (PPE) to ALL healthcare workers and social workers and first responders and public safety officers and anyone else who must serve the sick.

Workers who believe that their employer does not provide sufficient protection against this virus have no choice but to risk their right to life in their return to work, as unemployment insurance typically is unavailable for people who “voluntarily” quit their job.

How does a legitimate government resolve this conflict?

By providing a Federal safe harbor to unemployment claims based on COVID-19 safety concerns, AND by maintaining unemployment benefits at the current (higher) CARES Act level throughout the crisis.

All citizens who use public transit or use public facilities have no choice but to trust that their fellow citizens share a common respect for the rights of others, even if they may differ in their risk tolerance and private beliefs regarding the biology of the virus.

How does a legitimate government resolve this conflict?

By mobilizing on a war-time basis to provide ubiquitous rapid testing in and around all public spaces, starting today with symptom testing (temperature checks) and required masking to limit asymptomatic spread, and implementing over time near-instant antigen tests as they are developed.

It’s just not that hard.

But it is impossible. Politically impossible.

So what do we do?

“I have no idea what’s awaiting me, or what will happen when this all ends. For the moment I know this: there are sick people and they need curing.”

— Albert Camus, The Plague (1947)

We do what we can. We howl our discontent. We resist. We help our neighbors. We make. We protect. We teach. We keep the small-l liberal virtues and the small-c conservative virtues alive in our hearts and our minds.

So what do we do?

For the moment I know this: there are sick people and they need curing.


Epsilon Theory PDF Download (paid subscription required): A Truth That’s Told With Bad Intent


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Bear Stearns and the Narratives of Systemic Risk

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In May 2007, Bear Stearns – one of the crown jewels of Wall Street – traded at nearly $160 per share. The S&P 500 peaked five months later, in October 2007. Five months after that, in March 2008, Bear Stearns was taken out in the street and shot in the head by regulators. The stock closed at $2 per share that day. A few weeks later, the Bear Stearns carcass was sold to Jamie Dimon and JP Morgan for just under $10/share, although the effective price (long story) for most people who hung on to the bitter end (employees mostly) was $5/share.

So ended the House that Ace and Jimmy built.

Everyone who has been in markets long enough has their Bear stories, and I’m no exception. I liked Bear Stearns the company and I loved Bear Stearns the people! Bear was one of my two prime brokers (Morgan Stanley was the other), and we had a wonderful business relationship. Didn’t stop me from shorting them from $145 down to the bottom (with a borrow from Morgan Stanley, natch), and it didn’t stop me from moving our prime business over to JP Morgan in January 2008, but as Hyman Roth said, this is the business we have chosen. Nothing personal.

Anyhoo … while Bear Stearns was enduring an old-fashioned run on the bank in March of 2008 (it was hedge funds taking their money out of the prime brokerage that killed the company), the overall market was in a severe correction. Not a bear market, mind you (no pun intended), but a severe correction. When Bear went out, the S&P 500 was down 18% from the October highs and down 12% from the Jan. 1 year start.

You can see here how Bear was highly correlated with the S&P 500 from May 31, 2007 onwards, which makes sense given Bear’s poster child status for that market on the way up … and the way down.

And then we had the Bear Stearns Bounce.

The overall market came roaring back over the next 8 weeks, so that by May 19 the S&P was only off 1% for the year. Still down 8% or something like that from the highs of 2007, but no one cared about that. Long or short, you get paid in this business on the calendar year, and every January 1 is a clean slate. Shorts like me who were feeling pretty pleased with themselves on March 17 were enduring a crisis of confidence on May 19, and the longs who were despondent in March were feeling prettay, prettay good in May.

Why did the market come roaring back from mid-March to mid-May? Because narrative.

Because according to every market media Missionary, Bear Stearns was the bad Wall Street apple in an otherwise reasonably decent Wall Street barrel. Oh sure, there were still problems here and there in mortgage portfolios, and sure we were in a recession, but there was no longer a risk of the system falling down. Eliminating Bear didn’t mean that the tough times were over for the financial system, but it did mean that the crisis was over.

Sacrificing Bear Stearns to the regulatory gods meant that – and I’ll never forget this phrase – “systemic risk was off the table.”

LOL.

From May 31, 2008 to March 9, 2009, the S&P 500 fell by more than 50%. Because, of course, systemic risk was NOT off the table with the execution of Bear Stearns. Because, of course, the Wall Street banks were ALL bad apples.

And so here we are in 2020. Nice bounce!

A screenshot of a computer

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What’s the Bear Stearns equivalent in this morality play? What’s the bad apple? What’s the singular source of systemic risk that we are now hearing is “off the table”, so that investors can enjoy a well-deserved V-shaped rally?

It’s the New York/New Jersey surge.

It’s the fact that we really and truly flattened the curve and we really and truly avoided a healthcare disaster in San Francisco and Kansas City and Nashville and Los Angeles and Birmingham. It’s the fact that New Orleans and Houston did not become New York City. It’s the fact that NO city in the United States suffered an overwhelmed medical system except New York City.

And now that the worst is over even in the uniquely hard-hit area of New York/New Jersey … now that our daily death rate has peaked at 2,000+ Americans dying every freakin’ day from this disease, so that improvement to “only” 1,000+ Americans dying every freakin’ day becomes the “good news” that allows markets to climb a wall of worry …

“Yay, systemic risk is off the table!”

That’s the narrative you’re going to hear from every market media Missionary, that New York was the bad COVID-19 American apple in an otherwise reasonably decent COVID-19 American barrel. Oh sure, there are still problems here and there in clusters of cases in this state and that, and sure we are in a recession, but there is no longer a risk of the system falling down. Blaming New York (and make no mistake, that IS the thinly veiled subtext here) doesn’t mean that the tough times are over for the rest of the country, but it does mean that the crisis is over.

It’s already starting. Here’s Bret Stephens in the New York Times last Friday.


America Shouldn’t Have to Play by New York Rules (New York Times)

No wonder so much of America has dwindling sympathy with the idea of prolonging lockdown conditions much further. The curves are flattening; hospital systems haven’t come close to being overwhelmed; Americans have adapted to new etiquettes of social distancing. Many of the worst Covid outbreaks outside New York (such as at Chicago’s Cook County Jail or the Smithfield Foods processing plant in Sioux Falls, S.D.) have specific causes that can be addressed without population-wide lockdowns.

Yet Americans are being told they must still play by New York rules — with all the hardships they entail — despite having neither New York’s living conditions nor New York’s health outcomes. This is bad medicine, misguided public policy, and horrible politics.


And so we’re going to start reopening local and state economies. And so because of the biology of this virus and the nature of exponential functions, I think we’re going to have at least a solid month of still more “good news” from states like Georgia in regards to their re-opening “data” before you have any resurgence of clusters. And so even then, I expect the new clusters will be explained away, lost in the shuffle of 500 to 1,000 Americans dead from COVID-19. Every freakin’ day.

See, that’s the thing about narrative-world, both for markets and politics. People can get used to ANYTHING in narrative-world. As the COVID-19 narrative becomes that of a chronic and excusably lethal event for the United States, as opposed to an acute and unforgivably lethal event, we WILL get used to it.

I’m not saying this is good or bad. I’m just saying it is. And it’s constructive for things that are driven by narrative. Things like markets. Things like this White House.

And that constructive narrative will last until something acute and unforgivably lethal happens again in real-world, until real-world events give the lie to narrative-world complacency. Which they will. Because of the real-world severity of this virus and the entwining of TRILLIONS of dollars worth of assets in business models that are not just damaged but obliterated by that severity.

Just like real-world events gave the lie to narrative-world complacency in the summer of 2008. Which they did. Because of the real-world severity of nationwide housing price declines and the entwining of TRILLIONS of dollars worth of assets in business models that were not just damaged but obliterated by that severity.

The systemic risk question you need to ask yourself today is the same question you needed to ask in 2008:

What is the micro-level truth of the potential real-world shock (home price appreciation then, virus biology today), and does that micro-level truth threaten the common knowledge surrounding a levered business model and securitized asset class of enormous size (mortgage-backed securities then, global trade finance and collateralized loan obligations and similar debt securitizations today)?

I know that last sentence was a mouthful. But it’s worth parsing.

History doesn’t repeat when it comes to outcomes. it doesn’t even rhyme. But the PROCESS of history never changes. That’s what I’m describing here … the historical process of systemic risk manifestation in social systems like markets and elections.

I’m not here to sell you an Answer. I’m here to show you a Process.


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Inception

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Epsilon Theory PDF Download (paid subscription required): Inception


You infected my mind. You betrayed me. But you can make amends.


If you’re going to perform inception, you need the simplest version of the idea – the one that will grow naturally in the subject’s mind.


You mustn’t be afraid to dream a little bigger, darling.

— Inception (2010)

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

It won’t happen the way you think, because you think that someone is going to lead you. You think that someone is going to organize you. You think that someone is going to give you a top-down, political Answer in the form of something to march for or somebody to vote for, some ‘ism that requires your allegiance and attention.


You mustn’t be afraid to dream a little bigger, darling.


I would no more give you an Answer than I would infect you with a virus. Because that’s what every top-down, political Answer is, a contagious virus that attacks the mind rather than the body. A contagious virus that cripples human will and human autonomy. A contagious virus that transforms you into a Rhinoceros.

An Answer is not the solution. An Answer is the problem. An Answer is the disease.

Giving you an Answer is what THEY do. It’s what all of the high-functioning sociopaths and political entrepreneurs who control all of the myriad of social institutions that have betrayed us do.

Yes, betrayed.

That’s exactly what has happened with the onslaught of the real virus. That’s what Rusty is writing about in First the People. The past few months are not a litany of errors and honest mistakes by the institutions we have charged with protecting us from disease and ruin. They are a litany of betrayals, and their Answers – their False Stories – have been revealed as lies.

First we’re going to vaccinate ourselves to their Answers, to their False Stories, so that we think for ourselves again. Without this, we will inevitably fall back into the patterns of crony capitalism and obscene financialization that got us here in the first place.

It’s a vaccine that we don’t administer anymore … an intentional decision by the high-functioning sociopaths and political entrepreneurs who rule us, of course. Like all effective vaccines, it mimics the virus itself in its ability to trigger a physiological response in us. They want to nudge you into allegiance to a policy or a vote or a party. We want to un-nudge you into independence of spirit and thought. They want to infect you with an Answer. We want to innoculate you with a Process.

The Process is one of the Old Stories. It is, in fact, the Oldest Story of what makes for a good and just human society. It is a narrative that has directly motivated hundreds of millions of people to organize themselves in hundreds of thousands of beneficial social forms, large and small, for thousands of years.

We’re going to use that incepted Process to burn down these systems of iniquity from within and below. We’re going use that incepted Process to build something better together, as brothers and sisters exercising our birthright – our autonomy of mind.

I’m going to tell you exactly how we’re going to develop millions and millions of doses of the Old Story vaccine, and I’m going to tell you exactly how we’re going to administer them and exactly how we are going to change the world from below and from within.

And you won’t believe me.

I mean, this happens all the time. I will sit down with someone and walk them through the entire plan … how we’re developing the science of what Isaac Asimov called “psychohistory”, how that gives us the ability to not only measure the narratives of social control that oligarchic institutions broadcast but also to design effective jamming narratives of our own, how we create a decentralized epistemic community of distributed trust and mutual support that we call the Pack, how we burn down these oligarchic institutions from below by jamming their Answers and from within by replacing the current sociopathic leadership with members of the Pack … and it is literally as if a switch goes off in their head and their eyes go dim. But then I’ll say “yada-yada-Trump” or “yada-yada-Biden” or “yada-yada-the-Fed” or “yada-yada-Bitcoin” and they’ll perk right up again!

Yes, there were some big words in that last paragraph. But that’s not what shuts people’s brains off. It’s the political, top-down Answer virus – even as damaged as it is, even as revealed as it is – that does that. It’s the Answer virus that shuts down the part of our brain where we exercise our autonomy of will and our social imagination. It’s the Answer virus that increases our neural dependence on other-regarding emotions like jealousy and schadenfreude. It’s the Answer virus that dominates all the little dopamine economies that rule our world. It’s the Answer virus that we’re going to eradicate, and it has an intrinsic defense mechanism that prevents its hosts from hearing the ideas that would threaten it.

Honestly, though, it’s fine if you don’t believe me. It’s probably better, in fact, if you don’t realize you’re being vaccinated, if the Old Story takes you over and heals you unawares.

The Second Foundation hides in plain sight.

So here you go … five projections of the Radiant … five facets of the way in which we are going to change the world together. Whether you know it yet or not.


This is the Way

That’s the tagline for The Mandalorian, and it’s a good example of how to put an Old Story in a new meme, a new engram jacket that allows it to take root in your brain.

What is the Mandalorian Way? It’s their creed. It’s how they treat their kin and the treatment they expect to receive from their kin. Sure, it’s got some weird fetish around putting on helmets and never taking them off, but at its core the Mandalorian Way is this:


Do unto others as you would have them do unto you.


It’s the Golden Rule. It’s the Oldest Story of fundamental human ethics. You can find it in ancient Egyptian stories, preserved in papyri from the Middle Kingdom. You can find it in the ancient Sanskrit epic “Mahabarata”, as the way in which dharma manifests itself in human affairs. You can find it in the ancient Greek writings of Thales and Pythagoras. You can find it in the ancient Persian texts of Zoroaster. But here’s my favorite:

A gentile came before two teachers, Shammai the strict and Hillel the tolerant, and to each in turn said, “I will convert to Judaism if you can teach me the whole Torah while I stand on one foot.” Shammai chased him away. But Hillel said to the gentile, “What is hateful to you, do not do to your neighbor. That is the whole Torah; the rest is commentary. Now go and learn it.”

The rest is commentary.

The Golden Rule is all you need to know to organize a good and just society.

Everything else, all of the rules and principles and books and words and laws that engulf us … ALL of it … is just commentary.

The Golden Rule is the vaccine. The Golden Rule is the simplest and most powerful form of the idea of reciprocity, ready and primed for inception in every human dreamer. The Golden Rule is the formal description of empathy. The Golden Rule is the only law of the Pack. The Golden Rule IS the full hearts of Clear Eyes, Full Hearts, Can’t Lose.

The Golden Rule is the meme that we’re going to inject in a mass-customized way straight into everyone’s veins with the Narrative Machine.

And then YOU are going to burn down the current system of oligarchic iniquity from below and within. And then YOU are going to change the world.

All on your own. With no centralized organization and no Answer imposed from above.

How does that work? Here, I’ll show you (although this is the point where the Answer virus defense mechanism begins to switch off lots of brains). I’ll start with how a mass-customized meme of empathy and reciprocity is created and distributed.


Free Will Is Not Free

That’s the tagline for the current season of Westworld, which I like even more than the former tagline, courtesy of Romeo and Juliet: “These violent desires have violent ends”. The entire series, like The Mandalorian, is a great example of wrapping Old Stories in a new memetic jacket.

The wrapper for season 3 is the story of a gigantic computer program called The System, that simulates the lives of every human being and uses that information to favor the promising humans and ignore the flawed. It doesn’t predict what humans as a group will do. It doesn’t work on some top-down model of how humans behave. No, it calculates what each individual human will do in response to different stimuli, and then it observes the simulated result of those individual actions.

It’s an an actor-oriented model and system at massive scale, and I wrote about its potential market application a year and a half ago.


We’re Doing It Wrong

I want to suggest a different way to think about markets, a non-anthropomorphic model that works WITH the revolutionary invention of AI and Big Compute.

The market is not a clockwork machine.

The market is a bonfire.


No human can algorithmically PREDICT how a fire will burn. Neither can a computer. No matter how much computing power you throw at a bonfire, a general closed-end solution for a macro system like this simply does not exist.

But a really powerful computer can CALCULATE how a fire will burn. A really powerful computer can SIMULATE how a fire will burn. Not by looking for historical patterns in fire. Not by running econometric regressions. Not by figuring out the “secret formula” that “explains” a macro phenomenon like a bonfire. That’s the human way of seeing the world, and if you use your computing power to do more of that, you are wasting your time and your money. No, a really powerful computer can perceive the world differently. It can “see” every tiny piece of wood and every tiny volume of oxygen and every tiny erg of energy. It “knows” the rules for how wood and oxygen and heat interact. Most importantly – and most differently from humans – this really powerful computer can “see” all of these tiny pieces and “know” all of these tiny interactions at the same time. It can take a snapshot of ALL of this at time T and calculate what ALL of this looks like at time T+1, and then do that calculation again to figure out what ALL of this looks like at time T+2.

Want to guess who spends more money on Big Compute than everyone else in the world combined?

It’s the U.S. government, through the Dept. of Defense and the Dept. of Energy.

Know why they’ve spent BILLIONS of dollars on the world’s most advanced supercomputers?

To calculate fire.

So I want to calculate fire, too, and it no longer costs billions to get the massive computer processing power we need to do it. But the calculation of fire I want isn’t the simulation of a nuclear explosion. The calculation of fire I want is the simulation of a narrative explosion.

Our actor-oriented behavioral model – the equivalent of the laws of atomic physics – is the Common Knowledge (CK) game. Our observational and simulation technology – the equivalent of a real or simulated bomb technology – is Natural Language Processing (NLP). Put them together and you have the Narrative Machine. There, I just told you the most powerful secret I know.

What can we do with this secret? Today we can observe the way in which some narratives infect a lot of people and others don’t, the way in which narratives are born, live and die. Tomorrow we can simulate the life cycle of hypothetical narratives, and we can use that knowledge to take action in narrative-world, both to jam the autonomy-killing Answers of oligarchic systems and to promote the empathy and reciprocity-promoting Old Story of the Golden Rule.

Here’s an example.


His Name is Robert Paulson

That’s one of the taglines for Fight Club, which is probably the most quoted work of fiction in Epsilon Theory. Well, after The Godfather and 1984, of course. Fight Club, like The Mandalorian and like Westworld, is another great example of wrapping Old Stories in a new meme jacket.

Robert Paulson, played by Meat Loaf in the movie version, is a nobody so long as he is part of the Fight Club gang, part of Project Mayhem. Like all of his fellows, he literally has no name within the group. But then a stunt goes badly awry, and Robert Paulson is killed. In death, his name is restored. In death, his name is Robert Paulson.

Remember the 9-11 obituaries published by the New York Times?

I bet you do. If you are aware of them, it is impossible to forget them. if you read them, it is impossible not to weep.

Giving the dead a name and telling their individual stories is one of the most powerful narrative techniques to incept a meme of empathy and reciprocity. If they wanted to, this is how media outlets and the oligarchic institutions they represent could depoliticize COVID-19. If they wanted to, giving the COVID-19 dead a name and telling their stories would immediately transform many of your attitudes toward both the crisis and institutional response policies.

They do not want to.

So we will.

Not sure how. Not sure when. Not sure to what audience or in what memetic format. But we will. And wherever that meme takes root, political and social behaviors will begin to change in entirely unpredictable specific ways but entirely beneficial general ways.

It’s not an Answer. It’s a memetically-delivered vaccine of empathy and reciprocity.

I remember when I was first vaccinated.


Forgive. But Never Forget.

That’s the tagline for the Memorial des Martyrs de la Deportation, the most powerful artifact of remembrance I’ve ever experienced.

This is a memorial to the 200,000 French citizens who were deported to Nazi concentration camps from Vichy France. It’s built on the tip of the Ile de la Cit`e in Paris, literally in the shadow of Notre Dame. It’s also literally built on the site of an old morgue. Underground, inside the single claustrophobic hallway chamber, are 200,000 tiny glass crystals lit from within, one for each life snuffed out. As you leave the hallway to return to the living you see the inscription: Forgive, but never forget.

Not one person in a thousand has ever heard of the Memorial des Martyrs de la Deportation, much less visited. My father took me there when I was 12 years old. He read the inscription to me, told me what it meant. It vaccinated me for the rest of my life. Thanks, Dad.

Forgive … full hearts.

Never forget … clear eyes.


Clear eyes, full hearts, can’t lose.
― Peter Berg, Friday Night Lights (2006)


That’s the tagline for “Friday Night Lights” … a great book, a good movie, and a great TV series … an amazing trifecta of memetic rewrapping by Buzz Bissinger and Peter Berg. It’s about high school football in Odessa, Texas. Which is to say it’s about how to make your way in a fallen world.

What’s the secret to life, the universe, and everything? Clear eyes, full hearts, can’t lose.

It’s not an Answer. It’s a Process.

Some will absorb this memetic vaccine through a series of tweets. Some will absorb this memetic vaccine through a blog. Some will absorb this vaccine through a movie or a TV series. Some, like me, will absorb this vaccine in an obscure Parisian memorial.

The Narrative Machine will show us what works, and for whom. And that’s where we will be. Supporting that. Amplifying that. Rewrapping that. And over time, over the next five years … ten years … twenty years … it will ALL change.


Let me write the songs of a nation, and I care not who writes its laws.”

Andrew Fletcher, Scottish patriot

These songs of reciprocity and empathy will spread, fractal-like. First we will sing them as individuals. Then we will sing them as packs. Then we will sing them as communities, both geographic and epistemic. Then we will sing them as a nation.

The revolution will NOT be televised. The revolution will happen invisibly, within a critical mass of our individual hearts. The way all true revolutions happen.

You know when I finally figured that out? When Jeffrey Epstein died in jail.


#BITFD

#BITFD is my personal hashtag for my personal tagline: Burn. It. The. Fuck. Down.

I first used it in a tweet as a way to process my feelings after Jeffrey Epstein, shown here in one of his many Harvard sweatshirts, was discovered dead of asphyxiation in his jail cell.


I’m a Superstitious Man

“I’m a superstitious man, and if some unlucky accident should befall him — if he should get shot in the head by a police officer, or if he should hang himself in his jail cell, or if he’s struck by a bolt of lightning — then I’m going to blame some of the people in this room.” – Vito Corleone


Was it murder? Was it suicide?

I’m a superstitious man. I don’t care. I’m blaming the people in the room regardless.

What room?

The room of violence done to children with impunity by the powerful and the wealthy. The room of the corrupt State. The room of crony capitalism and obscene financialization, propped up by the apparatchiks and hangers-on and wannabes and “journalists” of District One.

Epstein’s death made me feel the same way I felt in October 2008, when the US Treasury put the full faith and credit of the United States behind the unsecured debt of Goldman Sachs and Morgan Stanley and JP Morgan and Bank of America, when the pleasant skin of “Yay, democracy!” was sloughed off to reveal the naked sinews of power beneath.

The same way I feel now in April 2020.

When Jeffrey Epstein died in that jail cell, I realized that the people in that room of violence and power and wealth will never be defeated on a single point of failure like his testimony at trial. Or like the bankruptcy of AIG. Or like the election this November.

It’s not that the election this November doesn’t matter. Of course it matters. It’s just that it doesn’t matter in a way that will change the system of bank bailouts and Jeffrey Epsteins and COVID-19 institutional betrayals. The system of sociopathic oligarchy will survive every single focused confrontation, every single potential point of failure. That’s what their narrative Answers are FOR. That’s what sociopathic oligarchs DO.

So what do WE do?

We DO unto others as we would have them do unto us.

And by so doing we create a million points of failure for the system of sociopathic oligarchy. We create points of failure AT SCALE.

How do we do THAT?

Well, I told you what Rusty and I are doing. We’re doing the whole psychohistory, Narrative Machine, AI/Big Data/Big Compute thing in order to vaccinate the world against sociopathy. You can help us directly with that if you like, by joining our Pack and contributing your own words and ideas on the Wittenberg church doors Epsilon Theory website. You can spread the word of a new, secular Reformation to anyone who will listen. Not everyone will, and that’s okay. We will eventually reach them, too, through Old Stories of empathy and reciprocity delivered with the help of the printing press Narrative Machine.

Or you can do your own thing. Both will work. Both will converge. Both will fix the world over time. I mean, the whole point of our philosophy is that we’re not controlling this from the top-down. This isn’t an Answer. It’s a Process based on self-autonomy and reciprocity. It’s a Process that embraces liberty and justice for all. You know … those words that we pledged our allegiance to when we were kids.

So here’s what you can DO on your own.


Once In A Lifetime

First, find your pack. Find your partners. Find the people who will treat you as an autonomous human being worthy of respect and empathy, not as a means to an end. There is no more important thing any human being can do to create a life worth living than to find their pack.



Make, Protect, Teach

Second – and here’s where all of the Answer viruses really go into high gear shutting down brains – devote yourself to a life of Making, Protecting and Teaching within and around your pack. See yourself with clear eyes through those lenses, through the DOING of Make, Protect, Teach, and watch how your world begins to change.


I’m not saying to become a monk. I’m not saying you can’t be successful in the world-as-it-is. After all, as Don Barzini would say, we are not communists. Just don’t fall for the oldest trick in the sociopathic oligarchy book. Don’t mistake Caesar’s tools and Caesar’s goals for your identity. You want to take Caesar’s money? You want to use Caesar’s tools to create a better life for your family and your pack? Yes, please. But the moment you start to identify with Caesar, the moment you give Caesar your heart because that Answer virus he infected you with makes you believe that you matter to his mighty cause … well, that’s the moment you become cannon fodder for that cause. And sooner or later, you will be sacrificed.

And I’m not saying that you can’t be politically active in the world as-it-is. I’m not saying you can’t or shouldn’t care who’s elected to what office this November. Of course you should care. Of course you should vote, especially if you can vote FOR candidates who represent the values of Making. Protecting and Teaching in their own lives, if you can vote FOR candidates who are not professional politicians or professional oligarchs, both of which are the surest career paths to sociopathy I know. There aren’t many of those non-sociopathic candidates to vote for right now. But there will be. In the meantime, just don’t fall for the second oldest trick in the sociopathic oligarchy book. Don’t mistake the merest part of your political participation – your vote – for the sum total of your political participation. To be a citizen is so much more than voting once every few years! To be a citizen is to DO.

So go do.

All the rest is commentary.

What are you waiting for? Someone to give you permission? Someone to give you a cause worth fighting for? Someone to organize you? Pffft. That’s the Answer virus talking in your ear. Each and every one of you knows perfectly well what you can do. Each and every one of you knows perfectly well that you can do more.


Hope has two beautiful daughters; their names are Anger and Courage. Anger at the way things are, and Courage to see that they do not remain as they are. – St. Augustine


We’re all angry right now. There’s plenty of that to go around. What’s in short supply these days is courage. Courage to create a tiny point of failure in the system of sociopathic oligarchy. Courage to do unto others as you would have them do unto you.

You may think your individual act of DOING is a small thing. I tell you it is the only thing.

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


Epsilon Theory PDF Download (paid subscription required): Inception


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First the People

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Epsilon Theory PDF Download (paid subscription required): First the People



In all countries, the First World War weakened old orthodoxies and authorities, and, when it was over, neither government nor church nor school nor family had the power to regulate the lives of human beings as it had once done.

The Germans, by Gordon A. Craig (1991)

Some of us still recall World War I, which awakened our generation to the fact that history was not a matter of the past, as a thoughtless philosophy of the hundred years’ peace would have us believe. And once started, it did not cease to happen…However, it is not a balance of our experiences, achievements and omissions that stands to question; nor am I scanning the horizon for a mere break. The time has come to take note of a much bigger change.

For a New West, by Karl Polyani (1958)

The first World War was bloody and vicious. By its end, it had taken the lives of more than 20 million people. That number a few times over perished in the Spanish Flu that followed in its wake. It is a story that has been retold a lot lately.

There were other casualties of the Great War, too. The narratives of a protective ruling class across Europe. Fervent embrace of trade and economic models based on colonialism and imperialism. Oligarchies and monarchies, yes, but belief in the capacity of oligarchies and monarchies to act benevolently and competently in the defense of the people, too.

First, the people die; then, the stories.

The human toll of COVID-19 is unlikely to approach even a mean fraction of the pain visited on humanity in the first quarter of the 20th century. But what about the stories we tell about our global institutions, our shared values, and our own orthodoxies and authorities?

Those stories are dying. They are dying because the institutions built on those stories failed us all, and all at once.

First, the people die; then, the stories.

The failures of these institutions were not simple mistakes, evidence of wrongness of one kind or another. The failures of these institutions were failures of narrative, devastating revelations of each institution’s fundamental inability to do what they said they would do. Revelations that their purpose was something other than the story they told about themselves. In various ways they each held power over us through those stories, told using the language of our needs and values and beliefs. In a single event, the world proved those stories false on their faces.

Whether we allow the world-as-it-is that was revealed by COVID-19 to change our commitment to these institutions and ideas is up to us; this is a time in which the world may be reshaped. In the past month and for the first time in most of our lives, each of us looked around and knew that everyone else had seen the same thing. We saw the emperors of our world standing naked as the day they were born. If the ravages of war and disease are humanity’s birthright, so too is the opportunity that comes along ever so rarely to seize something different. Something better.

For all that we may still trade that birthright for a mess of pottage.

It is our choice.

We may choose our birthright of resilience and sovereignty – a life in which we reclaim the power exploited so recklessly by nudging government officials, nudging oligarchs and rent-seekers. Or we may choose a world in which we accept that our participation will amount to obsessing over the charade of a presidential election every four years and nothing more.

Today, America is moving quickly on a path to frame COVID-19 as a domestic political matter, the result of failures that will be solved in the voting booth.

This is a mistake.

If we would not yield our birthright, we must first choose never to forget the full scope of our betrayal.

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The World Health Organization

The missionaries leading the WHO told you a story about who they were.

Yesterday everybody knew that everybody knew the WHO existed to provide the “attainment by all peoples of the highest possible level of health.”

That story is dead.

Today everybody knows that everybody knows that the WHO is led by political charlatans who are more concerned with securing the approval and support of the Chinese Communist Party than with those right-sounding aims.

The World Health Organization’s internal corruption became palpable to most people in late March. That is when this video, in which a Radio Television Hong Kong journalist conducts an interview with WHO official Bruce Aylward, came to light. To be fair, Dr. Aylward – a senior advisor to the Director-General – had been put in an awkward position when asked if the WHO will reconsider Taiwan’s membership. He is not the person who makes this determination.

Yet corruption is the right word for what occurs here.

If it were simply a matter of this being above Dr. Aylward’s pay grade, it would be only so easy to say so. None of the pregnant pauses, deceptive non-answers and the obvious pretense at ‘technical difficulties’ to conclude the call. But that isn’t what happened, because that isn’t the problem. The WHO has institutionalized a political fear of the CCP that supersedes its stated health-related mission.

The willingness of Dr. Tedros to steer the WHO toward policies and pronouncements that placed the ‘attainment of health’ for many people at risk in defense of the CCP’s preferences began much earlier than that. We published an essay called The Industrially Necessary Doctor Tedros on February 16, maybe a week or two before every carbon-based lifeform with a marginally working brain knew that COVID-19 had become a global pandemic.

That was, incidentally, almost a month before the WHO itself got around to declaring it a pandemic. More startingly, it was two weeks AFTER the WHO had published a document declaring an ‘infodemic.’ Too many people concerned about the virus, you see. Too many people concerned that China was not doing enough. Politics over health. Even then, it was apparent that the world-as-it-is had betrayed the story that the WHO was telling you about itself.

I’m just going to highlight what Dr. Tedros said at the WHO Executive Board meeting in Geneva on February 4, a week after meeting with Xi in Beijing and a few days after senior Chinese diplomats started talking about the “racism” inherent in other countries stopping flights to China and denying visas to people with Chinese passports issued in Hubei province.

Tedros said there was no need for measures that “unnecessarily interfere with international travel and trade,” and he specifically said that stopping flights and restricting Chinese travel abroad was “counter-productive” to fighting the global spread of the virus.

This is the Director General of the World Health Organization. On February 4th.

“We call on all countries to implement decisions that are evidence-based and consistent,” said Tedros. Roger that.

There’s just one problem.

The “evidence” here – taken without adjustment or question from the CCP – was a baldfaced lie.

And everyone at WHO knew it.

How do I know that everyone at WHO knew that the official Chinese numbers were a crock on Feb. 4?

Because WHO-sponsored doctors in Hong Kong published independent studies on Jan. 31 showing that the official Chinese numbers were a crock.

The Industrially Necessary Doctor Tedros (February 16)

This will be a familiar refrain, because the nature of our betrayal by so many of these institutions shares a flamboyant emphasis on “evidence-based” analysis. The problem is that “evidence” based on the analysis of knowably incomplete, non-representative or self-evidently fraudulent data is not evidence-based analysis at all. It is cargo cult science. It is doing sciencey-looking things to provide a dangerous and unethical imprimatur to the politically derived conclusions you had determined to promote long before any actual evidence came to light.

The lengths to which the WHO went to sacrifice its scientific- and health-related mission for political considerations relating to China were at times both absurd and trivial. For example, in the Coronavirus Q&A that was first posted to its website, the WHO maintained multiple versions. The original English language version of the Q&A counseled that there were four common myths about preventing or curing a COVID-19 infection: smoking, wearing multiple masks, taking antibiotics, and traditional herbal remedies. The original Chinese version omitted ‘traditional herbal remedies’ as a myth. Then the WHO took down ‘traditional herbal remedies’ in both languages. Politics over health. Politics over science. At even the smallest, silliest level.

Yet the Director-General did not just embrace cargo cult science to defend the economic interests of the CCP. He did not just refrain from criticism that might have reduced his influence within the country for pragmatic purposes. He stepped out boldly on several occasions to actively defend the Chinese government against criticisms from nearly every corner of the globe, becoming complicit in downplaying the risk of its spread.

“Nobody knows for sure if they were hiding [anything],” he said, adding that, if they had, the virus would have spread earlier to neighbouring countries. “The logic doesn’t support the idea [of a cover up]. It’s wrong to jump to conclusions.”

China, he said, deserved “tailored and qualified” praise. “They identified the pathogen and shared the sequence immediately,” he said, helping other countries to quick diagnoses. They quarantined huge cities such as Wuhan. “Can’t you appreciate that? They should be thanked for hammering the epicentre. They are actually protecting the rest of the world.”

WHO chief splits opinion with praise for China’s virus fight (Financial Times, February 9, 2020)

And now, coming under assault from many corners, after playing politics on Taiwan, after playing politics on travel restrictions, after playing politics on the early criticism of China, Dr. Tedros has one more request for you, people of the world:

“The virus is a common enemy. Let’s not play politics here.”

Dr. Tedros, in a WHO Press Conference

The WHO leader has repeatedly advised the world against policies that would lead to the “attainment by all peoples of the highest possible level of health” because the Chinese Community Party felt that policy would harm its interests.

This wasn’t a simple mistake. This was the world-as-it-is pulling back the curtain of narrative to show all of us what the WHO really is.

Whatever we decide tomorrow will look like, we must not forget how the leaders of the WHO have not represented our interests.

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The Center for Disease Control

The missionaries leading the CDC told you a story about who they were.

Yesterday, everybody knew that everybody knew the CDC, the nation’s health protection agency, “saves lives and protects people from health threats.”

That story is dead.

Today, everybody knows that everybody knows the CDC leadership promulgated “noble lie” guidance about masks to nudge citizens’ behaviors, and established testing eligibility criteria designed to minimize the headline COVID-19 infection numbers reported for the United States rather than to arrest the extent of its spread.

The chief betrayal by CDC leadership came in the form of diagnostic eligibility criteria for COVID-19, a policy we coined “Don’t Test, Don’t Tell” back in February. It was a policy wholly empowered by the trust placed by Americans in the existing institutional narrative of the CDC. We have likewise kept running tallies on social media of credible claims and media reports of refusals to test as a result of CDC criteria which advised not testing unless a provable link to an infected overseas traveler existed – and sometimes not even then. From Don’t Test, Don’t Tell:

Excruciating. They spend the first five minutes of the presser congratulating each other. Then the update: 83 people are in self-quarantine at home, where they are supposed to “check their temperature” daily. Don’t have a thermometer? Not to worry! The Nassau County Health Commission will provide one for you!

Who are the 83 in self-quarantine? Why, they’re everyone that Homeland Security says should be in self-quarantine, based on “current guidelines” of someone who was in mainland China within the past 14 days.

Has it been 15 days since your mainland China visit?

Have you been to Northern Italy in past 14 days?

Have you been to Iran in past 14 days?

Have you been to South Korea in past 14 days?

Well, no self-quarantine for you! You’re fine!

Don’t Test, Don’t Tell (February 27)

As late as February 26, the CDC claimed in emails made available to the Wall Street Journal that “testing capacity is more than adequate to meet current testing demands.” It is a claim which tells you two things: that the institution cared very much about being able to tell Americans that it was doing its job, and that it wanted to self-measure its performance in that job by whether it was able to provide enough tests to meet demand. There are only two ways it could feasibly achieve that end. The first would be to artificially limit what it defined as ‘demand’ by introducing arbitrarily and dangerously limited testing criteria. The second would be to move decisively and rapidly to expand available testing.

The leadership of the CDC chose the first. And then they failed for weeks to do anything productive about the second.

In the face of verified community spread, the CDC’s COVID-19 testing policy was retained long past its expiration date. More perilously, it transformed US testing into a Wittgenstein’s Ruler, useful only in the case of true positives but still used in aggregates to inform policies across businesses and state and local governments for all of February and far too much of March. In other words, the direct result of Don’t Test, Don’t Tell was to provide “data” that permitted governors, businesses and local leaders to act slowly to enact social distancing measures based on the imprimatur of ‘evidence-based’ analysis.

Don’t Test, Don’t Tell did not “save lives”. It ended them.

Don’t Test, Don’t Tell did not “protect people from health threats.” It subjected them to health threats.

The poorly developed and poorly communicated COVID-19 testing eligibility criteria promulgated by the CDC would have been bad enough. But the CDC was also responsible for a delay in widespread testing capacity on multiple fronts. From multi-week delays created by faulty preparation of initial test kits to delays in true private testing throughput as a result of underpreparation of the supply chain of the basic components needed for those test kits, the CDC has not performed as we expected. But there’s a difference between botched test kits and the promulgated testing policies. The former are mistakes. They happen. Sure, they are big mistakes, and they should have consequences, but they aren’t telling us something about the world-as-it-is that an institutionally promoted narrative was obscuring.

The testing policy failure was of a different kind. So, too, was the shift in official CDC recommendations about the use of masks by American citizens. At first – and for a very long time – the CDC joined the Surgeon General in advising Americans not to purchase or use masks. They made this recommendation because, as the claim went, they were not protective unless you wanted to prevent someone else from contracting the virus.

Then the stories changed.

In some instances, officials attempted to claim that the change in recommendation was made because of “new evidence” coming to light about the transmission mechanisms of this coronavirus. Hogwash. Evidence of the effects of viral dose on infection severity had been available for weeks at the time of the policy change, and the common sense that a mask will reduce the communication of at least some of the main vehicles for the virus had been available for as long as, say, grandmothers have existed.

When this belief-beggaring explanation fell flat, officials pivoted once again. This time, instead of excusing incorrect policy decisions with claims of “evidence-based” analysis (yes, THAT again), the arguments were behavioral. The CDC claims it wanted to avoid the moral hazard of risky behaviors licensed by mask wearing. Additionally, it was really just trying to protect medical professionals on the front line. The non-answer Robert Redfield provided to Helen Branswell in this interview published on Stat was instructive.

Helen Branswell (Interviewer): I would like to ask you a bit about the mask issue.

Redfield: We strongly continue to recommend that N95 masks and surgical masks really be committed to the health care workers that are on the frontlines. Our nation owes them all a great gratitude as they continue to confront what you and I now know is the greatest public health crisis that’s hit this nation in more than a century.

Stat, “An interview with the CDC director on coronavirus, masks, and an agency gone quiet” (April 4, 2020)

As you might imagine, we think that getting more PPE in the hands of healthcare professionals on the front lines is pretty important. Maybe among the most important things we can do. If the CDC and Surgeon General had told us very simply that we were redirecting all national inventories to healthcare uses, and to get cracking on home-made devices, there would have been no problem. But they lied. And then they lied about why they lied.

These actions aren’t simple mistakes like the faulty production of initial test kits. They are the world-as-it-is pulling back the curtain of narrative to show all of us what the leadership of the CDC really is.

Whatever we decide tomorrow will look like, we must not forget how the leaders of the CDC have not represented our interests.

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The Food and Drug Administration

The missionaries leading the FDA told you a story about who they were.

Yesterday everybody knew that everybody knew the FDA were our watchmen on the walls against unsafe food and medicine.

That story is dead.

Today everybody knows that everybody knows the FDA is more concerned with avoiding blame and defending its political turf than the safety of Americans.

Trump officials say 1M coronavirus tests to be shipped Monday ...

In a sense, the problem with the FDA is of a different kind than the utter, irredeemable mendacity and petty corruption of the WHO. The FDA’s betrayal has less to do with the particular inability of its leadership to manage a crisis – which was substantial – and more to do with the role with which we collectively empowered the institution. The FDA is an organization designed to move slowly, deliberately and with an excessive focus on what might go wrong. It is literally the worst possible organization to approve each and every diagnostic, new medical device or piece of PPE that might be necessary to rapidly inform and supply the fight against the exponential spread of a novel virus.

We asked a 60-year old retired defensive lineman to step in and play. Then we told it to line up at wide receiver.

In accidental collaboration with the unconscionable policies of the CDC, the FDA played a chief role in slowing the approval and roll-out of COVID-19 testing. On February 4th, instead of removing traditional hurdles to recognize the severity of the looming pandemic, the FDA added additional hurdles on labs before they could participate testing. In this case, it was a new formal application process for those labs. As reported in the Wall Street Journal, one lab director put it like this:

“We had considered developing a test but had been in communication with the CDC and FDA and had been told that the federal and state authorities would be able to handle everything.”

Alan Wells, Executive Vice-Chairman of the Section of Laboratory Medicine at the University of Pittsburgh Medical Center

If that were not enough, it was not until March 16th, when community spread was demonstrable in nearly every major US metropolitan area, that the FDA approved the marketing of COVID-19 tests by private sector labs. March. Sixteenth.

They issued a modified ventilator emergency use authorization on March 24th, weeks after governors had been begun begging for more inventory. They were among the last to approve foreign conventions for PPE, including KN-95 masks, an approval which governed the rules and purchasing guidelines of thousands of hospital executives for weeks during which doctors and nurses were becoming infected in part due to rampant shortages of both accurate tests and PPE. Among the last as in “issued their emergency use authorization on April the bloody third.”

When someone tells you that they care more about their reputation than their results, believe them the first time.

The U.S. Food and Drug Administration has been providing unprecedented flexibility to labs and manufacturers to develop and offer COVID-19 tests across the U.S. The FDA’s regulations have not hindered or been a roadblock to the rollout of tests during this pandemic. 

From FDA Press Release (” Coronavirus (COVID-19) Update: FDA expedites review of diagnostic tests to combat COVID-19″), March 30, 2020

This wasn’t a simple mistake. This was the world-as-it-is pulling back the curtain of narrative to show all of us what the leadership of the FDA really is.

Whatever we decide tomorrow will look like, we must not forget how the leaders of the FDA have not represented our interests.

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Elite Universities

Elite American universities told you a story about who they were.

Yesterday, everybody knew that everybody knew that Harvard and other elite universities were socially progressive forces committed to positive change in the world.

That story is dead.

Today, everybody knows that everybody knows that our elite universities exist to monetize the benefits of a reputation of progressive activism without even the most threadbare genuine commitment to it.

Just as there are COVID-19 truthers, wretched souls who will look for any opportunity to argue that measures taken were the result of a media-perpetuated hoax, there are also “university endowment truthers.” These citizens posit that endowments don’t actually have funds to do things like ensure that their hundreds of part-time contract workers across campus are not missing rent or meals because of a suspension in on-campus activity related to the COVID-19 pandemic. You see, the endowment consists of multiple different funds, each of which is completely earmarked. No money in any pool for this kind of thing. No, sirree.

Stop.

Anyone who tells you that large, endowed elite American universities lack the ability to rapidly access 6- or low 7-digit figures to provide financial support to staff, faculty and students is lying to you. This is a Laffer-Like, a truism that is nearly self-evident at extremes but applied by charlatans to other circumstances in which its accuracy breaks down completely. Yes, of course the idea that a $40 billion endowment is liquid and unconstrained enough by separate fund mandates and limitations on bequests to pull billions out to stabilize and stimulate the balance sheets of everyone in the community is silly. Just as silly is the idea that the trustees at any of these universities don’t have the wherewithal and capacity to approve a $800,000 or $1.5 million emergency funding initiative in the amount of time it takes for the Zoom lag to process all the “aye” votes.

It’s garbage. Wet, stinking garbage, like the kind carried out bag by bag through the back door of the cafeteria on Prescott Street in the middle of the night by the low-income employees Harvard sent packing. After all, we wouldn’t want to offend the sensitive noses of those tiptoeing through the tulips over to the Harvard Faculty Club next door with a visible dumpster.

And yes, these were the tortured arguments offered by some in half-hearted support of Harvard’s initial decision to lay off hundreds of sub-contractors with no extension in pay or benefits in mid-March. These are cafeteria, security, A/V and recreation workers, among the lowest paid and most economically vulnerable. These were the arguments which led Harvard to stop paying undergraduate workers while retaining pay for graduate students, faculty and administrators. They are the arguments which led Yale to extend funding horizons for faculty research but not for graduate students.

Separately, otherwise brilliant scholars (truly brilliant, I’m not being snarky) like Tyler Cowen offered a defense that suggested that whether they could afford it or not, this kind of support of staff isn’t why universities exist, isn’t why donors gave money and isn’t their moral obligation. Our social good is maximized when universities focus on deploying capital for their primary mission.

Fine, OK. Not so meta-game aware, but I get it.

But it’s an absurd hypothetical to engage in when the universities give lie to it by literally incorporating their commitment to these communities into their stated policies and mission. More to the point, why are we talking about this NOW? Universities have been using vast sums to snap up real estate at levels that dramatically exceed the growth in scale of students and the volume of research being conducted for decades. These universities have invested millions annually in absurdly bloated rosters of administrative staff, diversity coordinators and vice provosts for the supervision of junior assistant vice provosts. The argument that either of these things has the most marginal impact on the “justifiable aims” of an elite university is nonsense, and both exceed the scale of aid to members of the community by orders of magnitude.

Maybe you still disagree. Well, permit yourself for a moment to think about how much the education and research productivity of America will be aided by the balcony view below, a vista that will be enjoyed by University of Southern California President Carol Folt. Think about all the biochemists, computer scientists and sociologists who will break new ground that improves each of our lives as they think about that one time they got invited to have a glass of a mediocre, overoaked and overchilled chardonnay on this very balcony! Don’t care? You should. You subsidized it. You, fellow taxpayer, through the recognition of USC as a public benefit non-profit corporation, subsidized the purchase of this $8.5 million residence in Santa Monica for the particular use of the President of the University of Southern California.

In a transaction that closed on March 2nd.

USC_SM11

If it makes you feel better, the rationale for the purchase is that it is more sustainable than the current property, which remains on the USC balance sheet.

And that is the story that has been laid bare by the world-as-it-is: These institutions marketing themselves through endlessly promoted narratives of Progressivism™ couldn’t give two shits about the working poor.

These weren’t simple mistakes. American universities have institutionalized the promotion of narratives of progressiveness, social justice and awareness to such an extent that they have become cartoons. The kind of cartoons that permit ‘non-profit’ corporations like the University of Southern California to purchase mansions in the midst of a pandemic and call it part of their commitment to sustainability. The kind of cartoons that permit ‘non-profit’ corporations like the University of Pennsylvania to make the first two communications to their alumni community about COVID-19 a (1) paean to the corrupted WHO and booster for both “just the flu” and “really just about bigotry” narratives and (2) a second piece boosting “really just about bigotry” narratives. The kind of cartoons that permit ‘non-profit’ corporations like Harvard University to argue that furloughing subcontractors in a global pandemic (until popular opinion finally shamed them into doing the right thing) is consistent with a narrative that the University “inspir[es] every member of our community to strive toward a more just, fair, and promising world.”

Whatever we decide tomorrow will look like, we must not forget how most elite universities have not represented our interests.

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The News Media

The American news media told you a story about who they were.

Yesterday, everybody knew that everybody knew that there was “a Fourth Estate more important far than they all”, the last defense against tyranny. Okay, stop laughing and grant me the structural conceit of my essay. It works in almost all of these examples.

That story is dead.

Either way, today everybody knows that everybody knows that the US media are willing to speak truth to power…so long as it is the right power.

For most large-scale US media outlets with a left-wing editorial predisposition, the right power to speak truth to is Donald Trump.

Even if that meant being the most vocal US institution downplaying the risk of COVID-19 for all of January and the first half of February 2020. Even if that meant giving exaggerated voice to every irresponsible New York public health official counseling that fear of gatherings would be worse than the virus. Even if that meant definitively saying on January 31st that COVID-19 would not become a deadly pandemic – and later deleting that statement under the utterly mendacious guise that the prior statement reflected the “current reality” at the time. (Narrator: It did not.)

US media did each and every one of those things.

Perhaps you remember February 10th, when the New York Times gave voice to the claim that Trump’s ban on travel from China was “extreme”, owing in part to his “extreme fear of germs.”

Many health experts called Mr. Trump’s responses extreme, noting that the health workers would have most likely faced agonizing deaths had they not been evacuated to American hospitals. Former Obama administration officials said his commentary stoked alarmism in the news media and spread fear among the public.

Now Mr. Trump confronts another epidemic in the form of the coronavirus, this time at the head of the country’s health care and national security agencies. The illness has infected few people in the United States, but health officials fear it could soon spread more widely. And while Mr. Trump has so far kept his distance from the issue, public health experts worry that his extreme fear of germs, disdain for scientific and bureaucratic expertise and suspicion of foreigners could be a dangerous mix, should he wind up overseeing a severe outbreak at home.

Some Experts Worry as a Germ-Phobic Trump Confronts a Growing Epidemic (New York Times, February 10, 2020)

Do you recall February 13th, when the New York Times printed a feature promoting Dr. Ann Bostrom’s condescending attribution of fear of this novel coronavirus to cognitive triggers? Do you remember when the paper of record – now aggressively looking for Trump gaffes or policies to blame – was literally printing laughter at your concerns about this new disease?

Ann Bostrom, the dinner’s public policy co-host, laughed when she recounted the evening. The student was right about the viruses, but not about people, said Dr. Bostrom, who is an expert on the psychology of how humans evaluate risk.

While the metrics of public health might put the flu alongside or even ahead of the new coronavirus for sheer deadliness, she said, the mind has its own ways of measuring danger. And the new coronavirus disease, named COVID-19 hits nearly every cognitive trigger we have.

That explains the global wave of anxiety.

Coronavirus ‘Hits All the Hot Buttons’ for How We Misjudge Risk (New York Times, February 13, 2020)

Being a New York paper after all, the Times also gave exaggerated platforms in articles to New York City health officials who not only did not advise against, but positively recommended mass gatherings which almost certainly contributed to the pandemic’s uniquely devastating impact on the city of New York.

Dr. Barbot said that those who have recently traveled from Wuhan are not being urged to self-quarantine or avoid large public gatherings.

“We are very clear: We wish New Yorkers a Happy Lunar New Year and we encourage people to spend time with their families and go about their celebration,” Dr. Barbot said.

New York Braces for Coronavirus: ‘It’s Inevitable’ (New York Times, January 27, 2020)

Did you think that national health agencies were one of the powers that might be worth speaking truth to? If so, you weren’t working at the Times in January. Here is the paper unquestioningly aiding and abetting the noble lies propagated by the CDC and Surgeon General.

Although masks actually do little to protect healthy people, the prospect of shortages created by panic buying worries some public health experts.

Mask Hoarders May Raise Risk of a Coronavirus Outbreak in the U.S. (New York Times, January 29, 2020)

And yes, editorials, opinion submissions and letters each have different implications. But the Times provided one of the largest megaphones in America for these ideas all the same. Like this expert, who the Times empowered to plant early seeds of skepticism of social distancing measures that were later employed far too late in many jurisdictions.

Zhong Nanshan, of China’s National Health Commission, is reported to have said that the most effective way to stop the virus, which appears to be spread by droplets, was a quarantine.

Is it, though?

In Wuhan, a city of 11 million, both patients who believe they have been infected by the coronavirus and people with other medical problems are having difficulty seeing doctors: Shortages are common at such times, and quarantines only compound them. Residents are complaining on social media about inadequate care. Distrust of the health authorities is mounting.

And then, of course, overcrowding at hospitals, which mixes some presumably sick people with the healthy, increases the risks of transmission.

Will the Largest Quarantine in History Just Make Things Worse? (New York Times, January 27, 2020)

Or perhaps you remember the balance of letters they elected to publish. In a single day in late January, for example, the Times happily published a “worry more about the flu” take, and a “it’s just the olds” take.

Your coverage of coronavirus reflects a real concern as well as an overreaction in the West to this outbreak. When I walk through our Phoenix hospital’s emergency department, I’m reminded of the global outbreak we really should be worried about: influenza.

We are at a high point in the flu season, with 15 million cases, 140,000 hospitalizations, and 8,200 deaths in the United States alone, according to the Centers for Disease Control and Prevention. Every day dozens of people with flu symptoms come through our emergency department.

Coronavirus is a serious disease, and we must be vigilant in monitoring its spread while working to find solutions. But at this writing, there have been only a handful of confirmed cases of the coronavirus in this country, mostly in recent travelers to Wuhan, China. Rather than rushing out to buy masks and fretting over the unlikely chance of contracting the coronavirus, Americans should get their flu shots, and wash their hands often to avoid the flu.

As Fears of Wuhan’s Coronavirus Spread (New York Times, January 31, 2020)

Thus far, it appears that the virus produces a severe infection primarily in those with weakened lungs and immune systems, such as the elderly, diabetics and smokers. One important consideration is that the citizens of Wuhan are exposed to unusually high levels of PM 2.5, typically 20 times the current “acceptable” limit set by the Environmental Protection Agency. The virus is likely to be less lethal in less polluted areas of the world.

As Fears of Wuhan’s Coronavirus Spread (New York Times, January 31, 2020)

News coverage, editorial and opinion content from peer publications was generally little better. Perhaps you recall when the Los Angeles Times was happy to publish this Op-Ed back on January 29th?

It’s not just in China. Many people in U.S. cities are out on the street today wearing paper masks, hoping they will provide a barrier to respiratory droplets. The masks have been donned in the belief that a new and dangerous coronavirus has not only landed on our shores, but also is likely to infect them at any time.

I am not usually one to criticize public health measures, but this one is overkill. Surgical masks aren’t just an inadequate protection against viral spread; the masks also signal that we should be deathly afraid of something that does not currently pose a threat and may well never do so.

Op-Ed: The new coronavirus isn’t a threat to people in the United States — but flu is (January 29, 2020)

Remember two days after that, when the LA Times ginned up an op-ed that managed to cram “social distancing doesn’t work”, “just the olds”, “panic is worse” and “just the flu” memes into one piece? Pepperidge farm remembers.

But what the WHO is cheering is both ineffective and dangerous. The virus has already spread. Barricading Wuhan, a city larger than New York City, is very unlikely to prevent further spread of the virus. Current efforts by other nations to ban travel to and from China or to shutdown trade routes — which the WHO advises against — will likely take a large global economic toll but also will not contain the virus.

The coronavirus is scaring people because it is new and much is not known about it. But what we can tell so far is that this is no Ebola. Most people who contract it recover just fine. The fatality rate appears to be considerably lower than SARS and is probably much lower than it appears right now, since so many cases are very likely going unreported and mild versions of the disease are probably not being counted at all. Most fatalities are among the elderly and those with preexisting conditions.

The situation in Wuhan, where the vast majority of cases are, is being made far worse by the panic and extreme measures being taken. Panicked and trapped citizens are rushing to the hospital at the first sign of a sniffle. Hospitals are overwhelmed with thousands of people who probably do not have the virus — but are far more likely to contract it after waiting for hours in crowded waiting rooms with people who do.

Op-Ed: International overreaction to the coronavirus is more dangerous than the virus itself (LA Times, January 31, 2020)

It may feel like years ago, but it was only January 26th when the LA Times reporters decided “truth to power” didn’t really apply to powers that were diminishing the risk of COVID-19 transmission without any data to support their claims. This kind of story, blindly repeating the unchallenged and ultimately erroneous claims of local and regional officials, could be found in dozens of publications across the country in January through mid-February.

Los Angeles and Orange County health officials are dealing with their first cases of a patient with the new strain of coronavirus. But they are stressing that there is no evidence the virus has been spread beyond the two patients…

They are following up with anyone who has had close contact with the patient, but also noted that people with casual contact — such as visiting the same grocery store or movie theater — “are at minimal risk of developing infection.”

“The infected person presented themselves for care once they noticed that they were not feeling well and is currently receiving medical treatment. There is no immediate threat to the general public, no special precautions are required, and people should not be excluded from activities based on their race, country of origin, or recent travel if they do not have symptoms of respiratory illness,” officials said in a statement.


Coronavirus spreads to Los Angeles, Orange County: How concerned should we be about spread? (Los Angeles Times, January 26, 2020)

Maybe you don’t subscribe to those papers. Instead, maybe you remember one of the other most shared outlets, like the opinion pages of the Washington Post. You would have learned that your concerns about coronavirus were “weaponized dark emotions”.

Over the past four months, anywhere from 10,000 to 25,000 Americans have died from a widespread virus. But it didn’t come from China. It was the plain old-fashioned flu. So why haven’t we declared a national emergency? Largely because few Americans consider it to be a lethal risk. They think of the flu as a familiar, everyday problem, easily addressed through a shot you can get at the local pharmacy…

Some economists have said the outbreak could shave several percentage points off China’s gross domestic product — based not on damage caused by the virus so far but on projections of what it might do. This meets the definition of self-fulfilling prophecy. (On Wednesday, an unconfirmed report that researchers have found a cure to the virus sent global markets soaring — an example of exuberance just as irrational as the hysteria.)

Why? Because rational analyses have a hard time cutting through the noise in an age when social media and 24-hour news allow just about anyone to weaponize dark emotions.

What the Iowa disaster and the coronavirus have in common (Washington Post, February 7, 2020)

Or maybe you are a resident of Chicago who remembers being told by the Tribune Editorial Board on February 3rd that the risk was “vanishingly small”, a claim that could not be made legitimately at that time. The officials behind these claims were apparently powers not worth speaking truth to.

In Chicago, the risk of contracting the virus appears to be vanishingly low at the moment. Before kicking off the Chinatown Lunar New Year parade and buying a mango bubble tea on Sunday, Mayor Lori Lightfoot noted that Chinatown is “open for business.” While reiterating the risk here is low, she urged the federal government to provide cities with guidance and any funding necessary to deal with what has been declared a public health emergency, Gregory Pratt reports in the Tribune.

Editorial: How frightened should you be about the coronavirus? Just enough to dial up routine health precautions. (Chicago Tribune, February 3, 2020)

In case you were worried that only traditional media institutions were leading the charge in providing major platforms for “just the flu” sentiments, you can be easily disabused of that notion. Take a look at just about any major blog or other online publication and you’ll find similar stories from this period. The Hill’s totally-not-the-opinions-of-the-editors-wink-wink section got in on the fun on February 6th.

Yes, there is uncertainty, and the headlines are dramatic. But right now, the chances of any of us or anyone we know ever getting a severe, potentially lethal form of the Wuhan virus is negligible.

How much should we worry about the new coronavirus? (The Hill, February 6, 2020)

The “Changing America” section of The Hill made similarly stark statements of fact about the virus, and sourced the most Pollyannaish possible statements from health officials. Both ended up being wrong.

News of the virus has prompted some concern in the United States, but a more common virus is posing a greater threat to Americans — the flu…

“When we think about the relative danger of this new coronavirus and influenza, there’s just no comparison,” Dr. William Schaffner, professor of preventive medicine and health policy at Vanderbilt University Medical Center, told Kaiser Health News. “Coronavirus will be a blip on the horizon in comparison. The risk is trivial.”

Coronavirus is spreading — but the flu is a greater threat to Americans (January 27, 2020)

Maybe the best expression of a politicized media’s willingness to speak truth only the right power was this “news” story from Politico published on February 4th. It accepts the CCP-corrupted policy preferences of the WHO and Dr. Tedros as if they had sprung from the head of Zeus as the miraculous tools for criticism of President Trump that they must have appeared to be. Too sore a temptation.

The Trump administration’s quarantine and travel ban in response to the Wuhan coronavirus could undercut international efforts to fight the outbreak by antagonizing Chinese leaders, as well as stigmatizing people of Asian descent, according to a growing chorus of public health experts and lawmakers.

The World Health Organization’s top official on Tuesday repeated concern that moves that interfere with transportation and trade could harm efforts to address the crisis, though he didn’t directly name the United States. Meanwhile, unions representing flight attendants, nurses and teachers criticized the administration on Tuesday for not being forthcoming about what kind of screening and treatment individuals will undergo, and some members of Congress say they’re concerned the efforts could stoke racial discrimination.

Coronavirus quarantine, travel ban could backfire, experts fear (Politico, February 4, 2020)

If you are sensitive to unsourced, unsupported, orphaned uses of the horrifying phrase “data suggests”, which should be summarily forbidden by every publication’s style guide, you may not want to remember this disastrous take from Recode, published on February 13th.

But the fact remains that, so far, the flu has impacted far more people. The CDC estimates that 10,000 people have died from the flu this season, with some 19 million people in the US having experienced flu illness. Data from the CDC suggests that the flu is a greater threat to Americans than the coronavirus. Yet unlike the flu, the coronavirus is new and not well understood, which makes it especially scary to the public, including Silicon Valley’s elite.

“No handshakes, please”: The tech industry is terrified of the coronavirus (Recode, February 13, 2020)

Perhaps Recode isn’t familiar to you. It is Vox’s technology-oriented brand. Speaking of Vox, do you remember Vox’s contributions to the early dialogue on Coronavirus?

And do you remember what their ‘correction’ looked like?

Mark Dice on Twitter: "Garbage Internet "news" outlet Vox has ...

This captures with a simple shot-and-chaser why for most media outlets this wasn’t just a matter of getting the pandemic wrong. It was an institutional failure, an inevitable result of the narratives they created for themselves. US media were asleep at the wheel on the pandemic when they could have been actively challenging the WHO, China, the CDC, the FDA, local health officials and all sorts of other officials relying on fundamentally flawed methods for establishing their claims.

When the facts became unavoidable, to their credit, these outlets rapidly changed their tune – and their coverage. Some of the coverage in March from these same outlets has been extraordinary and brave. Kristof’s Bronx hospital tour piece in the New York Times was remarkable. Those NYT, WSJ and Washington Post reporters in China that were expelled after reporting on the atrocities visited on Uighur minorities should be celebrated. The investigative journalists at the Miami Herald should be celebrated. There are thousands more who could be part of the solution, because the problem in need of a solution has less to do with journalists and more to do with the outlets and editors who shape the assignments and coverage.

And the behavior of those outlets in this case was generally poor. Just like Vox, which sought to cover their dangerous early coverage through false claims that the “current reality of the coronavirus story” had ever supported their initial contention, most outlets proceeded as if the routine downplaying of COVID-19 on their pages in January and February had never happened. When the switch flipped and it was possible to speak truth to the right power – Donald Trump – they pursued it with unbridled fervor. And God knows his administration’s response has merited it at multiple turns.

At other times, however, the outlets which once worried that President Trump might be so worried about germs that he’d overreact to this new coronavirus invested significant ink in stories which were so obviously designed with a predetermined aim to demonstrate corruption, and which so fundamentally failed to prove their contention that it is a wonder that they were not designed to illustrate how deep the media’s institutional failure truly was.

Consider this article from the New York Times published on April 6, 2020 – the arguments of which should have been laughed out of the room by any editor with even a cup of coffee’s worth of experience in financial markets.

Some associates of Mr. Trump’s have financial interests in the issue. Sanofi’s largest shareholders include Fisher Asset Management, the investment company run by Ken Fisher, a major donor to Republicans, including Mr. Trump. A spokesman for Mr. Fisher declined to comment.

Another investor in both Sanofi and Mylan, another pharmaceutical firm, is Invesco, the fund previously run by Wilbur Ross, the commerce secretary. Mr. Ross said in a statement Monday that he “was not aware that Invesco has any investments in companies producing” the drug, “nor do I have any involvement in the decision to explore this as a treatment.”

As of last year, Mr. Trump reported that his three family trusts each had investments in a Dodge & Cox mutual fund, whose largest holding was in Sanofi.

Ashleigh Koss, a Sanofi spokeswoman, said the company no longer sells or distributes Plaquenil in the United States, although it does sell it internationally.

Trump’s Aggressive Advocacy of Malaria Drug for Treating Coronavirus Divides Medical Community (New York Times, April 6, 2020)

The New York Times did not think it very important that you question whether Dr. Tedros and the WHO were making recommendations against the China travel ban on the basis of any corrupt influence. They did not think it worth exploring why the WHO’s contentions so disagreed with WHO-sponsored studies conducted in Hong Kong.

They did, however, think it was very important that you question whether it is corrupt that Donald Trump’s family trusts own shares in Sanofi (which doesn’t even distribute the damn Plaquenil product in the US) through one of the biggest index funds in the United States. They knew their assertion was irrelevant to the point of nonsensicality, but you and I and everyone in the whole country who knows how to read knows why they kept it in the story.

They are likewise very interested in you questioning why a ‘fund’ called Invesco that is ‘run by Wilbur Ross’ owned a lot of stock in Sanofi. They were so interested that they called the office of the Commerce Secretary to confirm their chilling discovery. Except this implication is even stupider than the first, if that can be imagined. Invesco is not a fund at all. It is a publicly listed, diversified asset manager with $1.1 trillion under management across literally hundreds of funds. Invesco was not ‘run by Wilbur Ross’. Invesco is and has been run by Marty Flanagan for 15 years. Wilbur Ross ran the private capital group within Invesco. The funds in his purview couldn’t buy Sanofi. It is possible that Wilbur once met Erik Esselink or Kevin Holt, the portfolio managers there who had incredibly normal 0-3% positions in Sanofi based out of completely different Invesco offices on completely different teams. But if he did, I doubt he even remembers it.

But here’s the bigger thing: there are two data points here which show exactly what hard-hitting research the New York Times team here did to support their barely concealed implications of corruption and malfeasance. First, the assertion that Wilbur “ran” Invesco can be found in one place: Wikipedia. And where does the “biggest investors” data that would include Invesco come from? The first pop-up on Google, which refers to ownership of the Sanofi ADRs, rather than the local ordinary shares.

The New York Times is so eager to gesture vaguely at conflicts of interest and corruption in the office of the President, to speak truth to the one power that matters, that they would willingly source those assertions from a cursory glance at Wikipedia and the first thing that pops up on Google.

I keep waiting on Paul Krugman to jump out and shout “The Aristocrats” or something.

Look, if you don’t think the US media has suffered an institutional failure in need of redress by a populace who needs them to resume their role as the fourth estate, you are not paying attention.

And if you think the work of right-wing media beginning in late February hasn’t been even worse, you are paying even less attention.

The posture of conservative media, of course, has been nearly the opposite. For most large-scale US media outlets with a right-wing editorial predisposition, the right power to speak truth to is the left-wing media, or any one else who would dare criticize President Donald Trump. That narrative has been such a powerful governor of coverage on Fox News in particular between late February and March 16th (the date when everyone knew that everyone knew this was real) that it is almost more difficult to identify single cases in which COVID-19 was downplayed. It was that integrated into the programming and messaging coming through various news personalities.

Sean Hannity led the charge for this change in tone. In a phone interview he conducted with Georgia congressman Doug Collins on March 9th, Hannity was explicit in his downplaying of the risk of the COVID-19 pandemic. He explicitly referred to it as a hoax being perpetrated by enemies of President Trump.

In all seriousness, I think we’ve got to be very real with the American people. I don’t like how we are scaring people unnecessarily. And that is, unless you have an immune system that is compromised, and you are older, and you have other underlying health issues, you are not going to die, 99% from this virus, correct?

They’re scaring the living hell out of people. And I see it again as, like, “Oh, let’s bludgeon Trump with this new hoax!”

Sean Hannity on Fox News (March 9th, 2020)

In a fashion even worse than the historical revisionism employed by Vox, Hannity attempted little more than a week later to act as if this never happened. As if President Trump and Fox News had been warning of the very real dangers of the virus all along. As if the “hoax” being referred to was a reference to the attempts by Democrats and left-wing media to make COVID-19 disproportionately about Trump – and make no mistake, they absolutely did do that – but the idea that we are to believe this is what was meant by “hoax” is insulting.

By the way, this program has always taken the coronavirus serious. And we’ve never called the virus a hoax. We called what they’re doing, tryin’ to bludgeon the president out, their politicizing of this virus. Well, predictable, despicable, repulsive, all of the above.

Sean Hannity on Fox News (March 18th, 2020)

Nearly all of the techniques with which left-learning outlets directed early conclusions toward pacification, criticism of Donald Trump and eyes closed to the actions of the WHO and CCP, were later used by right-leaning outlets when the White House was the one in the business of downplaying the risks of COVID-19. In the New York Times, it was a behavioral scientist laughing at you for being concerned. On Fox News, it was Jesse Watters outright mocking you.

There’s some people that take town cars, and there’s people from all over the world on my small subway cars, some of them are wearing masks, many of them are coughing, and do I look nervous? No. I’m not afraid of this coronavirus at all. And I think other people — they have the right to be scared. That’s their business. Greg is terrified. He’s shaking in his shoes.

Transcript from The Five, Fox News (January 30, 2020)

A couple weeks later, Sean Hannity joined the mockery once again.

The apocalypse is imminent and you’re going to all die, all of you in the next 48 hours! And it’s all President Trump’s fault!

Sean Hannity on Fox News (February 25th, 2020)

Regular Fox News contributors consistently downplayed the seriousness of the epidemic. Dr. Drew and Laura Ingraham teamed up on the latter’s show as late as March 2nd. As ever, the only powers worth speaking truth to for these members of the media were traditional media outlets with a left-wing editorial stance. Even if it meant delivering a “just the flu” message weeks after this had ceased to become an even marginally defensible stance.

And just in case anyone wants to make the argument – like Hannity did – that what is being referred to is solely how Democrats and media were politicizing the issue, watch the video from which these quotes are sourced. Watch the scare clips Ingraham uses before introducing Dr. Drew. More than half of them don’t mention President Trump or politics at all. They are simply claims by members of the media that COVID-19 is a health crisis.

Laura Ingraham: “Now it’s not just the Democrats that are recklessly politicizing the coronavirus threat. Their media lapdogs are at it as well…”

Dr. Drew: “Essentially the entire problem we are having is due to panic, not the virus…I was saying this six weeks ago. We have six deaths from the coronavirus, 18,000 from the flu. Why isn’t the message, ‘Get your flu vaccine’? This is amongst us, it is milder than we thought.”

Dr. Drew Pinksy on The Ingraham Angle, Fox News (March 2, 2020)

It wasn’t that Fox News, Breitbart and others were simply making mistakes and getting the pandemic wrong. In fact, I don’t think it is very hard at all to argue that they were largely more attuned to the risk of this new coronavirus in late January than other media sources were. Tucker Carlson was early – and to his credit, did not pivot like many of his colleagues. Breitbart was publishing exclusives with Tom Cotton advising a much earlier shutdown of travel with China. They published serious updates on nearly every infection and political response throughout January. In fact, if you review the unique articles published in January 2020 from every major US outlet, I think that you would probably have gotten the most complete picture from Breitbart. Yes, that Breitbart.

But after mid-February, when the Trump administration shifted to a posture which sought to minimize the risk of a COVID-19 pandemic, when most media outlets began to shift their news coverage to recognize it as a more significant risk, the news coverage and opinion content on Breitbart and Fox News shifted dramatically. Diametrically. Immediately.

It was now this:

The left-wing Hollywood celebrities are stoking public hysteria over the coronavirus, using social media to spread fear as well as disinformation about President Donald Trump’s response to the deadly global outbreak.

15 Hollywood Celebs Spreading Fear and Fake News About Coronavirus, Breitbart (March 6, 2020)

It was now reprints of unhinged Limbaugh rants, which like so many of the accounts which emerged during this time managed to integrate both ‘just the flu’ and assertions that it was a media-driven panic.

Conservative talker Rush Limbaugh said during his nationally syndicated radio show on Wednesday that Democratic Party leaders and the media had “gleeful attitudes” about the coronavirus outbreak.

Limbaugh said, “I’m telling you, folks, I’m I that there’s so many red flags about things happening out there. This coronavirus, all of this panic is just not warranted. I’m telling you. When I tell you what I’ve told you that this virus is the common cold when I said that it was based on the number of cases. That’s also based on the kind of virus this is. Why do you think this is called COVID-19  is the 19th coronavirus. They’re not uncommon. Coronavirus are respiratory cold and flu viruses.”

Limbaugh: Media, Dem Leaders Have ‘Gleeful’ Attitudes About Coronavirus, Breitbart (March 11, 2020)

Coverage became laser-focused on media and left-wing behavior during the pandemic.

The Democrats’ newfound outrage over members of the GOP using what they consider problematic descriptions of the virus ignore the well-documented history of establishment media outlets using the phrases “Chinese Coronavirus,” “Chinese Virus,” “China Coronavirus, the “Wuhan Virus,” and “Wuhan Coronavirus” on several occasions.

15 Times Establishment Media Used ‘Bigoted’ Phrases to Refer to the Coronavirus, Breitbart (March 11, 2020)

It manifested in numerous opinion pieces, too. Like this one.

It is perhaps no accident that the coronavirus panic only began roiling world markets after Sen. Bernie Sanders (I-VT) emerged as the frontrunner for the Democratic Party’s nomination for president after the Nevada caucuses last weekend.

Pollak: Coronavirus Panic Partly Driven by Anti-Trump Hysteria, Breitbart (March 1, 2020)

Just like the Vox retconning experiment encapsulated the institutional failure of left-wing media during the unfolding of the COVID-19 pandemic, I think the above article readily encapsulates the failure of right-wing media. So convinced are they their mission must be first to speak truth to the power that is a progressive-dominated US news media that they abdicated their duty to provide true and timely information about the extent of a dangerous pandemic. They undersold and diminished the risk for precious weeks when their influence could have saved lives and prevented some of the more drastic social distancing measures that became necessary when community spread had gone too far to arrest with less restrictive policies.

The institutional failure that has been laid bare is not a national press that made some mistakes in its coverage. It is a media which – across the political spectrum – believes it is a principal. It believes and acts as if its proper role is to promote and influence adoption of its preferred interpretations of the world, instead of acting as the agent of the people, shedding light on issues that would otherwise be obscured from us by the powerful. All of them.

Whatever we decide tomorrow will look like, we must not forget how the media has not represented our interests.

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Boards Wall Street Congress Donald Trump Conclusions

Public Company Boards

We have long heard a story about the role of public company boards.

Yesterday, everybody knew that everybody knew that public company boards faithfully represented the interests of shareholders.

That story is dead.

Today, everybody knows that everybody knows that public company boards are largely captive to management, similarly motivated to maximize short term price appreciation at any cost and incentivized to be “good soldiers” to permit future lucrative engagements.

Whiting Petroleum brings first big bankruptcy of latest downturn ...

You’ve got a perfectly good set of monogrammed cuffs to tell you who the hell you’re lookin’ at, but in case that isn’t enough for you, this is one Bradley J. Holley. Mr. Holley runs an E&P company that borrowed a ton of money to bust shale at what a few months ago were marginally economic levels up in the Bakken. Between COVID-19 and some aggressive posturing by Russia and Saudi Arabia, this concentrated, leveraged and illiquid company ran out of gas. Figuratively speaking, of course.

We are talking about Whiting Petroleum, and Brad serves as both its Chairman of the Board and Chief Executive Officer. On March 26, 2020, that board paid him and his fellow executives $14.6 million in bonuses. Holley himself pocketed $6.4 million. Six days later, that same board sent Whiting Petroleum into Chapter 11 bankruptcy with a proposal that would wipe out 97% of the equity in the company.

According to the Board of Directors of the Whiting Petroleum Company, these bonuses were “intended to ensure the stability and continuity of the company’s workforce and eliminate any potential misalignment of interests that would likely arise if existing performance metrics were retained.” If you are a layperson, this explanation may sound to you like a very large crude carrier full of horseshit. I understand why you might think that. But let me assure you as a non-layperson that this explanation is an ultra large crude carrier full of horseshit.

It is also shockingly common.

When companies approach bankruptcy, they nearly always do it in the same two ways that Ernest Hemingway famously did: gradually, then suddenly. In almost every case, it fuels a particular pattern of behavior:

  1. Management comes to the Board, tells them “Gentlemen, things are getting hairy in a hurry. We need to draw the full line of credit and restructure with our creditors.”
  2. Board says, “Hairy in a hurry! OK, I guess that seems prudent.”
  3. Management brings back a term sheet negotiated with creditors to the Board.
  4. Board says, “Criminy, 97% of equity wiped out? Were things really that bad? When is all this happening?”
  5. Management says, “Almost immediately. We’ve got to figure out how we keep the executive team from jumping ship at the worst possible time. We NEED them to help steer the company into port, but with all the promises of equity and incentive compensation gone, I can’t guarantee that they will. It would be a disaster for everyone.”

Et voilà. They said the magic words.

And that is exactly what they are. Magic words. They are words designed to give the Board exactly what they need to make a decision that will look prudent. Words that will allow the Board to say “Yes, it is a shame that management got the company in this position, but it would not be prudent to add insult to injury here by forcing a mass exodus exactly when we need the people most familiar with the problem working on solving it!”

Words that will allow these gentlemen – the chairs of Whiting’s compensation, audit and governance committees, respectively – to continue supplementing their retirements with the roughly $100,000 a year in cash to go along with $200,000 or so in share grants that Whiting and comparable small- and mid-cap shale companies offer their directors.

The principle of fiduciary duty – the idea that executives, board members and some experts have a solemn responsibility to act for the benefit of certain others – is foundational and indispensable to our system of organizing capital through public corporations. Without it, absolutely nothing works, and companies will converge on being operated for the benefit of management and boards. But “fiduciary duty!” has today become a cartoon, a caricature that is satisfied not by acting like a fiduciary, but by acting like you are acting like a fiduciary. You do whatever the hell you want, so long as it can still carry the trappings of words and descriptions that look like what people would expect from a fiduciary.

And when you have the right magic words, there is practically nothing so brazen, so shocking to the rest of us that it could not be justified. In a case like Whiting, it is even worse – those bonuses are almost certainly going to be substantially clawed back as the company proceeds through Chapter 11, so the upside to this brazenness is limited, too. Unless, that is, your incentive is to demonstrate to future management teams in need of an experienced board slate that you know how to play ball.

Sometimes playing ball takes the form of permitting management to tell you a brazen story about their indispensability in a crisis. Sometimes playing ball takes the form of permitting management to juice returns for years and enrich itself in the process by endangering the business, by risking its shareholders, and yes, by relying on American taxpayers for yet another bailout.

Like the board of American Airlines Group.

American Airlines being a much more prominent company, its board is a mixed group. About half are genuine industry executives in semi-retirement, and about half are folks who could be charitably referred to as “professional board members.” These are people who fill their calendar with a half dozen or so public and private company board memberships and one or two local charity or golf club board roles.

What do you get for being an American Airlines board member?

  • You get somewhere between $125,000 and $160,000 in cash per year;
  • You get a grant of about $150,000 in restricted share units that fully vest in a year;
  • You and your family get to fly wherever you want on AAL metal, then grossed up in cash for those flights; and
  • You get the last benefit for life so long as you play ball for seven years.

Call it $300,000 – $350,000 a year before any accounting has been done for the lifetime benefit.

The fellow is Doug Parker. He’s the Chairman of the Board of American Airlines Group. He is also the CEO. We have published our thoughts about AAL before, in a piece called Do the Right Thing.

When it comes to management self-dealing and enrichment, no one tops Doug Parker of American Airlines (although Ed Bastian of Delta seems intent on making up for lost time). I do not think it’s an accident that Doug Parker is not only the CEO of American, he is also Chairman of the board.

You’re not reading this chart wrong. Doug Parker has pocketed more than $150 million through his sale of 3.6 million shares in American Airlines. These sales were particularly egregious in 2015 – 2016, not coincidentally the period of American’s greatest stock buyback activity. How egregious were the stock sales? For a twelve month period from mid-2015 through mid-2016, Doug Parker pocketed between $4 million and $11 million in stock sales per month. How large were the stock buybacks? Two-thirds of American’s $13 billion in stock buybacks over this six year period occurred over these same months.

Here’s another fun fact about Doug Parker. For a brief shining moment, American Airline’s stock price went above $50 in early 2018. Wouldn’t you know it, Doug just happened to choose that moment to sell 437,000 shares of stock, more than twice as much stock as he had ever sold before and almost 5x the usual size of his stock sales. Barf.

Do the Right Thing (March 19, 2020)

Over the last several years, the board of directors of AAL has approved the rapid expansion of the company’s debt to levels that exceeded that of the other five large US-based carriers. Combined. Meanwhile, they approved dividends and buybacks that drove negative free cash flow over this period. The AAL board (which, apropos of nothing, I’m sure, includes the former CEO of Boeing Commercial Airplanes) stood by as management took on the second most exposure of any US carrier to the 737 Max, which represented 31% of all their scheduled aircraft purchases for 2020 and beyond. Then, at the end of 2019, the board approved the diversion of $30 million of the settlement received from Boeing relating to the >$500 million impact of the 737 Max debacle from shareholders to the employee profit-sharing plan, since it had been so grievously harmed by…management’s decisions. All the while, the board approved massive share and option-based compensation to Doug Parker, whose $150 million in stock sales since 2014 took place most prominently when the company was buying back its own shares. In other words, the board wittingly or unwittingly played an active role in obscuring how egregiously Doug was milking shareholders by immunizing the effective issuance associated with those grants.

Source: Do the Right Thing

The board of directors was able to do all of this because returning cash to shareholders and paying management in equity both rely on the most powerful language of the fiduciary cartoon. The actions were all intended to increase alignment, don’t you see? Nevermind that these incentives allowed him to capitalize on their value appreciation over exceedingly short horizons.

And yet, those same actions were part of what led to where we are today, with Doug Parker holding his hands out for $12 billion in grants and loans from us, the US taxpayer. Loans and grants for which Parker has said he is “optimistic that the terms will not be onerous.”

The COVID-19 pandemic is a unique situation. As its effects extend into summer, it may become clear that American Airlines would have needed to restructure regardless of its capital structure or use of cash to pay executives and return cash to shareholders over the last several years. As we have expressed in other pieces we have published, it is unfortunate, but also exactly the kind of risk that shareholders in airlines in particular have agreed to take. Despite that, expect to hear a lot of arguments from Wall Street in the coming weeks that “it’s not time to punish anyone, it’s time to make sure we do the least harm” or other such right-sounding, mealy-mouthed defenses that have been heard a million times before in defense of the concentration of the gains and socialization of the losses of capital. Ignore them.

Do not ignore, however, American Airline’s urgent need to come to us with hat in hand today, and the magnitude of that need, was absolutely driven by policies rubber stamped by a well-heeled board led by an executive Chairman.

These were not simple mistakes of inadequate preparation or execution by management. They represent an institutional failure in the cartoonified fiduciary standard, and in the very purpose we have entrusted boards to serve in ensuring that shareholders enjoy the fruits of their capital.

Whatever we decide tomorrow will look like, we must not forget how executives, corporate boards and the fiduciary standard have not represented our interests.

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Boards Wall Street Congress Donald Trump Conclusions

Wall Street

Here on Wall Street we’ve been telling stories about ourselves for years.

Yesterday, everybody knew that everybody knew that Wall Street produced the occasional greed and excesses, sure, but in the end performed a vital function synthesizing views on risk and pricing of capital to ensure that capital is directed to its most productive ends.

That story is dead.

Today, everybody knows that everybody knows that no one on Wall Street cares about whether capital is correctly priced and directed to productive ends. The only thing that matters is that the prices never go down so much that they place stress on business models which rely on stable, upward-trending prices and/or massive amounts of leverage to generate acceptable returns.

Image
Source: CNBC, Screen grab by Andrew Lawrence

It is a bit unsporting to lead with the above screen capture from CNBC, a ‘news’ network dedicated to financial markets coverage.

First, it isn’t that uncommon for the market to do very well during short periods in which the economy is doing poorly. After all, participants in markets tend to predict and respond to that kind of news well before any figures are officially reported. And it is just sheer bad luck that Bioanalytical Systems, Inc. was running across the tickertape chyron at the time. Why they chose to abbreviate it as ‘BioAnal’ when Bioanalytical is only two characters longer than “Stonecastle” is a separate question.

But if you could distill the very special kind of tonedeafness that afflicts Wall Street in times of crisis for the real world, you would probably end up with something like that image. You might alternatively end up with something like the below.

Source: CNBC, Screen capture by Marketwatch

Is Rick Santelli, the gentleman pictured here, wincing as he thinks about a 40-something nurse gasping for breath in a hospital in Queens? Perhaps overcome by the struggle of a part-time retail worker and mother in Cleveland who is deemed “essential” riding into work on a packed bus, who knows if she doesn’t cover that cough today she’s going to be sent packing?

No, no. We just caught him in the middle of one of these sentences:

Rick Santelli: The catalyst? Just watch your local news. There’s your catalyst.

Kelly Evans: True.

Rick Santelli: Of course, people are getting nervous. And listen, I’m not a doctor. I’m not a doctor. All I know is, think about how the world would be if you tried to quarantine everybody because of the generic-type flu. Now I’m not saying this is the generic-type flu. But maybe we’d be just better off if we gave it to everybody, and then in a month it would be over because the mortality rate of this probably isn’t going to be any different if we did it that way than the long-term picture, but the difference is we’re wreaking havoc on global and domestic economies.

CNBC Transcript from March 5, 2020

You might also choose this image of National Economic Council Director Larry Kudlow, who is not in the middle of a sneeze as you might suspect, but rather in the middle of a material misstatement of the widely available facts about the COVID-19 pandemic on February 25, 2020.

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

Yes, Larry was completely wrong when he referred to COVID-19 as contained. More than wrong. It was a statement which could not possibly have been correct given the testing information available at the time. It was not knowable. You cannot assert that something is contained when the only evidence that exists demonstrates that you are actively avoiding discovering evidence.

As alarming as his mendacity ought to be, the ‘airtight’ claims aren’t the useful tell here. The useful tell is that Larry – the Director of the National Economic Council – was in-the-know about the White House’s concerns about numbers from cruise ships inflating reported numbers. Those are concerns that would manifest only a week later in President Trump’s own remarks. It takes very few leaps in logic to see that the administration’s focus in late February through early March, the focus that led to active pursuit of a national policy of Don’t Test, Don’t Tell, was managing how much the stock market responded over a short horizon to news about the COVID-19 pandemic.

Is CNBC Wall Street? My goodness, no. Sure, some financial advisers and individual investors watch it seriously and earnestly for information. Professional investors, by and large, roll their eyes at it. But everybody has it on. And so, like Bloomberg and the Wall Street Journal (and Barron’s, once upon a time), it ends up being one of the primary missionary platforms through which corporate executives, along with capital markets, trading, lending, investing and government institutions seek to influence the behavior of others.

In this case, after Wall Street missionaries downplayed the significance of the COVID-19 pandemic, and after they bemoaned the impact of social distancing measures on the stock market, they began to agitate for rapid policy response. Most such missionaries in 2020 have long since learned to be careful about saying the quiet part out loud. When you want to stop the bleeding on asset prices, you don’t say that you want the Fed or Congress to step in because asset prices are bleeding. You say you want them to step in because of threats to the economy or liquidity.

And you do that even if the scale and nature of the response demanded uses the direct support of asset prices as a primary transmission mechanism for theoretical secondary effects in lending markets and barely even theoretical tertiary effects in labor markets.

If you are not involved in financial markets, let me tell you what happened and why this matters.

In early March, investors, lenders and businesses were all grappling with the unsettling uncertainty of the COVID-19 pandemic and what a 20-30% drop in economic activity in a single quarter might mean. For most, the answer was pretty clear, and became even clearer once they saw what others were doing: “hold and conserve cash.” And when a lot more investors, lenders and businesses start saying that they’d rather hold cash than anything else, a few things happen all at once.

Businesses with lines of credit draw them down. Lots of investors – especially ones with leverage on their portfolio – who own any kind of security, from equities to mortgage-backed securities to high yield bonds and even so-called safety investments like government bonds and high grade corporate bonds, try to sell them if they can. Those who are natural buyers of new issues stop buying them. Lenders slow or stop lending, especially in markets where they fear there may not be much appetite to turn those assets back into cash.

When you hear people talk about “liquidity”, this is the broadest definition of what they mean: How easily, how quickly and at what cost can you access cash that you thought you’d be able to access? It is a big question for lenders, businesses and investors alike.

It is an especially big question when your business model or lending model is almost completely dependent on the answers being, for at least some markets, “Really easily, basically immediately and at basically the price I have it in my accounting system.” Unsurprisingly, among the first of the Federal Reserve’s policy actions was to ensure that cash was accessible in the markets where participants are most “invested” in that being the answer. Treasury markets. Very short-term funding markets for banks and corporations. That sort of thing.

Not that complicated at this point.

When the Federal Reserve steps in to ensure ‘liquidity’ in really short-term lending markets, the Fed is effectively telling the market, “The price y’all are setting for cash is way too high for banks and companies reliant on commercial paper to function. We told you what we thought the price of this stuff should be, but now we’re going to force it.” Treasurys are a little bit of a gray area, but these are more or less pure liquidity operations. Is it intervention in markets? Of course it is. Should the Fed be charging more than they are given that the market has been telling us through repo markets that the real price of money is higher since well before COVID-19 raised its ugly head? Yeah, they should. But this is one of the reasons we have a central bank.

Still, ‘liquidity’ is a funny term. A ‘bear market’ is when we hate the prices that the market is coming up with. An ‘illiquid market’ is when we hate the prices the market is coming up with AND want to give a regulator the narrative cover of a ‘broken market’ to step in and ‘fix’ them. Even with what we might characterize as pure liquidity operations, we are technically bailing businesses out of the dangers of a leveraged dependence on a stable price of money. And with a few exceptions, we’ve generally determined that we’re OK with that, because we can’t figure out a way to do banking and capital intensive businesses that help us all grow faster without providing that crisis insurance. Fine.

It gets more complicated, however, when the Federal Reserve starts talking about the purchase of both primary and secondary issues of investment grade corporate and municipal debt, high yield debt and equities. Each of those, with the exception of equities, has been part of the Federal Reserve’s pandemic policy response thus far. That means that the Fed, through a dubiously constructed and funded set of special purpose vehicles (SPVs), is buying these bonds or vehicles which own them. In turn, that means that the Fed is telling the market, “The prices y’all are coming up with for high yield bonds, investment grade bonds and municipal bonds are too low. We’re going to buy them and make those prices go up.”

If this were truly a “liquidity” operation, the argument would be that the low prices for this debt would constrain banks from lending and companies from getting cash that they need, which might cause some companies to go out of business when they were otherwise healthy. And to some extent, there are lenders whose lending constraints are somewhat influenced by the prices of these assets, so there’s a theoretical grain of truth in this. But in general, this isn’t really a liquidity operation. This falls closer on the spectrum to a price intervention operation. This is a determination that it isn’t fair that this market environment will make it more costly for some more debt-dependent companies to borrow. It is reasonable to be empathetic to those companies, but it is also reasonable to question whether “ensuring liquidity” really extends to “making sure that all risky borrowers are paying a price that doesn’t seem a bit too high.” It is even more reasonable to question whether “ensuring liquidity” really extends to “making sure that leveraged speculative buyers are not inordinately harmed by what we consider a short-term phenomenon.”

In other words, when the Fed or Wall Street missionaries tell you that the Fed is executing plans to improve market liquidity, or to fix the breakdown in credit markets, or to make sure that lending is available to a hurting economy, to one extent or another, they are telling the truth. They do.

But that is never the whole story.

You see, most of the institutions who are sensitive to interest rates and credit spreads are not primary lending institutions at all. They are investors and investment managers who have a structural mandate to own those things nearly all of the time, or else they are speculative institutions who are betting on a change in the price of those things. That is not a pejorative – there is nothing inherently evil about hedge funds; in fact, they are one of the most important remaining bastions for those who actually attempt to appropriately price capital.

But among both the root causes of the recent lack of liquidity in these markets and among the beneficiaries of Federal Reserve policies meant to remedy them, you will find each of these institutions. And among those institutions, there were dozens – hundreds, probably – who came into the month of March with extraordinary quantities of leverage in their portfolios. In other words, they borrowed money directly or indirectly through the partially collateralized use of derivative instruments to make bets on interest rates, currencies and credit instruments. When a global pandemic was looming, many of them did not see it as an opportunity to reduce the amount of risk they were taking. Many of them continued to rely on discretionary (i.e. human-driven) or systematic (i.e. computer-driven) models for how risky those assets were and how related to one another they would be. Some increased their exposure, seeing it as an opportunity to make money for their investors in a time of crisis.

Those models frequently proved to be wrong. Grievously wrong. These funds lost tremendous sums, and then simultaneously lost tremendous sums on investments which they believed would diversify the first. They didn’t. And so, as they responded to hemorrhaging asset values and clients providing notice that they wished to withdraw money, it was these institutions who were the suckers crowding into the exit.

The market is like a large movie theater with a small door. And the best way to detect a sucker is to see if his focus is on the size of the theater rather than that of the door.

Skin in the Game, by Nassim Nicholas Taleb

Yet the Federal Reserve’s actions made suckers of us instead. When they began providing support to treasury securities, municipal debt and corporate debt securities in hopes that it might perhaps permit ongoing lending and borrowing activities to take place in the US, they also gave each of these investing and speculating institutions the ability to reduce their ownership in investments that had not worked. To survive to speculate another day.

Even if you believe that the drop in the prices of these assets in early March was a mechanistic, “fake” result of illiquidity and not an appropriate pricing by a functioning, if negative, market, it still remains that what the Federal Reserve undertook was AT BEST effectively a non-targeted, extremely below market cost bridge loan to all owners of debt securities. For hedge funds and CTAs, the Fed offered a mulligan on highly levered trades that missed out.

What many – including us – take issue with is that outside of true liquidity operations, the US government’s chosen path for making sure businesses and families could access debt markets was only the hypothetical secondary effect of a policy whose primary effect was to bail hedge funds out of ruinously risky trades gone wrong and to bail bad businesses out of ruinous leverage on business models ill-suited for that capital structure. Make no mistake: if those trades had gone spectacularly well, neither you nor I would see dollar one. When you hear people bemoaning the concentration of gains and the socialization of losses, this is what they mean.

The Fed’s actions represent a gross inequity, the rough equivalent of dropping a trillion dollars from a blimp into a stadium full of billionaires, and then saying, “Well, how else are we going to get money into the hands of store owners and workers?”

That is when the Wall Street missionaries emerge to tell us that now isn’t the time to seek justice. Now isn’t the time to look for who did what, or who’s going to be able to build another vacation house with the 2% management fees that were rescued. It’s the same kind of defenses that are offered up in defense of rescuing equityholders instead of companies, since sometimes bankruptcies end in job losses, and are you really recommending that people lose their jobs? Right now? If the Fed didn’t step in like this, and if we didn’t bail out shareholders, everyone might be hurt in the short run. Now is not the time for creative destruction!

Fine. Let’s all live in the fantasyland in which we pretend that the Fed’s and Congress’s actions were wholly motivated by “the real economy” and not asset prices for the benefit of highly leveraged investors. Doesn’t matter. Because this essay ain’t about mistakes. This essay is about institutional failures.

For decades, we have permitted the financial services industry to repeatedly force us into Hobson’s Choices at the end of every market cycle. Every cycle, Wall Street levers up and empowers cyclical sectors of the economy to lever up. When they do, they improve their returns in the interim, extract as much cash as possible and subject us all to systemic risk in the process. When that risk manifests, and it always does in some way “no one could have predicted”, we are then told we must all share the burden for it, since now is not a time for blame! Real businesses and families are hurting, and not helping Wall Street right now would hurt them, too.

This is the institutional failure that has been laid bare by the world-as-it-is. Not the policy response. The fact that the policy response will always look like this. Every cycle. And once again we can choose, because this is a fixable problem. For my part?

Whatever we decide tomorrow will look like, we must not forget how Wall Street has not represented our interests.

WHOFDACDCUniversitiesMedia
Boards Wall Street Congress Donald Trump Conclusions

Congress

I won’t lie to you. Congress has no stable institutional narrative. Never has. Insert the Mark Twain quotation of your choosing here.

There is the occasional hero story, of course, in which some American political tribe pretends for a moment that some representative or senator is acting for the benefit of the people. I’m not immune. For a brief moment before he seemingly disappeared forever, I thought Ben Sasse was The Answer.

Even those stories are dead.

Today, everybody knows that everybody knows that Congress can’t even pass an historic, once-in-a-lifetime emergency bill for a global pandemic without inserting into it every possible personal cause, special interest or political ambition.

Frankly, in context of most government actions, you could even make the argument that the CARES Act is a decent bill. Relatively speaking, anyway. It contains a lot of direct aid to Americans, through direct payments, unemployment extensions, small business lending and temporary (he said, tentatively) expansions of various social safety net programs.

Along with a bunch of other ridiculous shit.

There’s $17 billion for “businesses critical to maintaining national security”, which is regulation-speak for bailing out Boeing shareholders for management’s disastrous execution of the 737 Max, and pretending it had anything to do with the COVID-19 pandemic.

There’s a provision that prohibits use of funding for a wall with Mexico.

There’s a provision that prevents recipients of loans to take actions in response to labor union formation.

There’s a provision that squeezed in shortened approval processes for drugs that have nothing to do with COVID-19. Oh, and also sunscreen. The FDA is now required from congress not to review a particular sunscreen ingredient.

It was important to the nation’s healing from COVID-19 to permit the use of HSA funds to purchase menstrual care products.

There’s the usual ag stuff, because no bill from US Congress is complete and no congressman from Iowa electable without it.

Oh, and nothing says, “Let’s urgently help businesses and families recover from this pandemic” like a fully funded abstinence program.

Or a rousing performance at the newly funded Kennedy Center, which responded to its windfall by proceeding to furlough just about everybody left on staff.

That’s just the nonsense that got into the bill. Some of the proposals from both sides of the aisle were shocking, even by congressional standards. Most damning, of course, is the complicated tiering for phase-outs of the household checks, the lack of effort to accelerate the processing of those payments, and the week of near-silence on the almost-certain oversubscription of the SBA facility provided by the initial bill.

Perhaps all of this seems fairly perfunctory, and it is. The latest institutional failure is, in fact, the usual institutional failure of Congress: that it boasts of some special expertise for the identification of need and the allocation of resources to direct it.

Yet the uniqueness of the pandemic and the immediate shutdown of many sectors of the economy warranted rapid, simple, easy-to-process payments to families and businesses to fill the gaps. Instead, we got this.

Whatever we decide tomorrow will look like, we must not forget how Congress has not represented our interests.

WHOFDACDCUniversitiesMedia
Boards Wall Street Congress Donald Trump Conclusions

The White House

Perhaps you found it conspicuous that the US presidency and Donald Trump didn’t show up until the end of this list. The White House is here in part because many of the institutional failures and mistakes described above are also effectively the institutional failures and mistakes of the White House. The FDA and CDC are both part of President Trump’s Department of Health and Human Services. So, too, are the Surgeon General and the United States Public Health Service, which we have so far let off the hook for their brazen participation in the nudging state behavior surrounding the use of masks by citizens.

Perhaps you also found it conspicuous that this example isn’t getting the same clever little device that the others did. You know, where we would say that the White House told us a story about who it was, but then a lot of people died and now that story is dead?

I didn’t say that…because the story isn’t dead. The narrative of the US Presidency is alive and well.

And that’s a problem.

When we published the words below on February 10th, we wrote them about the Chinese Communist Party.

More importantly, I also believe that Chinese epidemic-fighting policy – just like American war-fighting policy in the Vietnam War – is now being driven by the narrative requirement to find and count the “right number” of coronavirus casualties.

Body Count (February 10, 2020)

Our contention – our fear – was that the cartoonification of coronavirus figures by governments would lead to policies which sought to optimize the cartoon rather than the world-as-it-is. A government which abstracts a pandemic crisis into the “right number” of infections being reported about it will be inclined to direct policies which reduce the number of infections being reported.

There are a lot of ways to do that.

You can lie.

Because of all we’ve done, the risk to the American people remains very low…the level that we’ve had in our country is very low and those people are getting better, or we think that in almost all cases, the better they’re getting.

President Donald Trump, in White House Press Conference on February 27, 2020

You can change what is being measured.

I like the numbers being where they are. I don’t need to have the numbers double because of one ship that wasn’t our fault.

President Donald Trump, in speech on March 6, 2020

You can maintain an artificially restrictive set of testing criteria to minimize the testing taking place over an extended period.

The White House has said that it acted early – and against the grain of a biased national media who promoted the idea that he was overreacting – to cut off travel from China. That is correct. It did (and they did). That action almost certainly slowed the spread and saved lives. Of course it did, despite the post hoc face-saving thinkpieces from late-to-the-game outlets making tortured arguments that it didn’t. Same thing on Europe, frankly. The White House has also said that it was ahead of the curve in identifying some of the problems with the relocation of American manufacturing and key industries overseas (even if the policies driven by those beliefs were not entirely productive). That is also correct. It was.

All that is true. What is also true is that by the time the United States had tested 1,000 Americans for COVID-19, France had tested five times as many, Italy had tested 34 times as many, and Korea had tested 157 times as many. What is also true is that widespread testing did not begin taking place in the United States until March 16th, weeks after evidence of community spread in multiple locations had emerged.

What is also true is that when Larry Kudlow, Trump’s senior economic adviser, went on CNBC on February 25th to say, “We have contained this – I won’t say airtight, but pretty close to airtight,” the virus was spreading unchecked and untested in New York, New Jersey, California, Washington, Connecticut, Louisiana, Colorado and almost certainly many other states.

What is also true is that the repeated attempts to downplay the risk posed by the COVID-19 pandemic to Americans by the White House between February and mid-March – including President Trump, Vice President Pence, and many of their advisers on many occasions – had the direct effect of slowing the implementation of social distancing measures made necessary by the lack of effective testing across the nation. We only hit the halfway mark for US states one day or two before the calendar flipped over to April.

That was basically two weeks ago.

We can never directly attribute a death to any one of these failures. But log growth isn’t hard, and most Americans are plenty capable of grappling with its implications. Even two weeks of curve-slowing would very likely have spared Americans from hundreds of thousands of infections and thousands of deaths. It could have drastically changed the economic response that was necessary to slow the spread. And two weeks is about as charitable an interpretation as it possible to grant.

And now, when we are at perhaps the second most critical juncture in the pandemic process – where we decide when and how to rescind stay-at-home orders and social distancing measures – the administration has unveiled their suggestion.

Image

God help us.

Whatever we decide tomorrow will look like, we must not forget how Donald Trump and the White House have not represented our interests.

We could call these ‘mistakes’ – big mistakes, to be sure – but we would be wrong. The errors made by the executive branch in response to the COVID-19 pandemic were not uncertain bets on evidence that simply turned out to be wrong. They were not procedural failures in execution. They were not the result of breakdowns in communication.

These policies were the inevitable outcome of the need for the White House to promote its preferred narrative about the pandemic: “We’ve got this under control! Don’t sell your stocks!”

Yet when the mortuary refrigerator trucks started showing up, even that narrative started to lose its war to the world-as-it-is. That was the moment when the true, most powerfully institutionalized American narrative of all emerged. The sustaining energy of the Widening Gyre:

That we can fix it all if we just elect the right person to be president.


Bullshit.

Look, vote out Trump because of this botch job. Keep him in because you think he’s been given an unfair rap by the media relative to all the other people and institutions who screwed up even more. I don’t care. I’m not telling you how to vote. Not even telling you whether to vote. And I’m absolutely not telling you how to weigh how every institution screwed up, or how we ought to apportion the blame for this nightmare among the CCP, the WHO, the CDC, the FDA, Congress, Donald Trump or your local crackpot governor who claims we only learned about this coronavirus’s asymptomatic transmission in late March.

I am telling you that the more we go through that process, the more we will lose sight of our true opportunity here.

The more we subject ourselves to “Call it the Trumpvirus” or “Call it the Chinavirus”. The more we subject ourselves to cringeworthy Trump pressers blaming the WHO, CDC, China and FDA, or to left-wing fantasyland Op-Eds pretending that the media have been bravely reporting the dangers since November. The more we subject ourselves to “hydroxychloroquine is the miracle cure and the media is downplaying it because they hate Trump” truthers, or to “Trump is only pushing hydroxychloroquine because his blind trust owns an index fund that owns shares in Teva” truthers. The more we subject ourselves to the brutal political ads we are going to start seeing en masse once the deaths in New York slow down. The more we do ALL of these things, the more we will start to believe this myth that the Widening Gyre will plant in our brains: that what matters here, the way that we fix this kind of thing so that it can’t happen again is that we make the right decisions in the voting booth this fall.

That is the mess of pottage we are being offered for our birthright. Reject it. Reject it utterly.

Friends, for the first time in any of our lifetimes, everyone around us is seeing the same things that we are seeing about the same institutions. They know the same things we know. We may all observe in real-time the brokenness of a fragile economic system built on the present-efficient tools of the Long Now, the over-optimization of cash, inventory, supply chains, operating and financial leverage. We may all observe in real-time how complexity makes liars out of global institutions designed with political pacification of the masses (“All is well!”) as their primary purpose. We may all observe in real-time the condescending moral bankruptcy of the nudging state who would tell us noble lies to conserve masks and limit fear or “moral hazard”, or the nudging oligarchy who would lie that saving companies and jobs means that we must bail out equityholders! Before long, we will observe in real-time both politicians and corporations who see long-term benefits in making permanent the temporary restrictions on liberty we have accepted and will accept to protect us and transition us back to a functioning economy.

Far more importantly, however, we may all see in real-time how the strength we have shown as a nation did not come from faceless institutions, but from the efforts and sacrifices of individuals, families, associations, communities, towns and tribes, connected by both the value they place in each other AND by the values they share.

We all see it now.

And We. Must. Not. Forget.

In finance, you make a career by forgetting. You make a cushy, low-risk career not by spotting big changes in the world, but by betting that the world will usually go back to the way it was, more or less. Because that’s what it usually does. And when they miss the big changes happening in the world, cynical people in our cynical industry shrug and say, “Oh well, no one could have predicted it.”

I will let you in on a secret: those people are the reason why the world goes back to the way it was.

Strive against these people.

Seek your pack.

Find how to make it resilient.

Never again yield your life to any fragile institution.

Tho’ much is taken, much abides; and tho’
We are not now that strength which in old days
Moved earth and heaven, that which we are, we are;
One equal temper of heroic hearts,
Made weak by time and fate, but strong in will
To strive, to seek, to find, and not to yield.

Ulysses, by Alfred, Lord Tennyson

Epsilon Theory PDF Download (paid subscription required): First the People


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Boards Wall Street Congress Donald Trump Conclusions

98+

Once in a Lifetime

119+

Epsilon Theory PDF Download (paid subscription required): Once In A Lifetime



The Moving Finger writes; and, having writ,
Moves on: nor all thy Piety nor Wit
Shall lure it back to cancel half a Line,
Nor all thy Tears wash out a Word of it.

– Rubaiyat of Omar Khayyam (c. 1080)

That’s a poem attributed to Omar Khayyam, an 11th century Persian philosopher and all-around genius who lived near the modern-day city of Qom, the epicenter of the COVID-19 plague wracking Iran today.

Here’s another philosopher and all-around genius, David Byrne, saying the same thing one thousand years later.


And you may ask yourself
Am I right? Am I wrong?
And you may say to yourself
“My God! What have I done?”

– Once In A Lifetime (1981)

David Byrne lives in the modern-day city of New York, the epicenter of the COVID-19 plague wracking the United States today.

It’s all the same, you know. The dad in Qom coughing up a lung who loves his kids and is loved by them is exactly the same as the dad in New York coughing up a lung who loves his kids and is loved by them. I know we don’t think of it that way. Hell, I know plenty of people in my home state of Alabama who don’t even think a dad in Montgomery is the same as a dad in New York, much less a dad in freakin’ Qom, Iran. But they are. The same, that is. Exactly the same.

We will never win this war until we regain our sense of empathy, until we regain our ability to appreciate the pain that others endure in their struggle against this common enemy.

It’s how Gandhi defined religion.


I call him religious who understands the suffering of others.


Of course, most of our leaders wouldn’t know Gandhi from a hole in the head.

Instead, our leaders, if they think of empathy at all, think in terms of Steve Martin’s advice.


Before you criticize a man, walk a mile in his shoes. That way, when you do criticize him, you’ll be a mile away and have his shoes.


You know what people without empathy are, right? They’re sociopaths, and I use that word in an entirely clinical sense. Because that’s what we are today, clinically speaking, a society largely governed by high-functioning sociopaths in both our economy and our politics, humans devoid of empathy for any other human outside of the narrowest bonds of convention. And they’re training us to be just like them.

It’s not a left/right thing. It’s not a Republican/Democrat thing. It’s not an American thing. It’s not even a boomer thing.

It’s a Nudging Oligarchy thing. It’s a Nudging State thing. It’s a Long Now thing.

Why do high-functioning sociopaths and their Renfields manufacture bullshit “analysis” to convince you that the sky is green and it’s only the olds anyway so what’s the big deal and the really important thing is to go back to work and save their wealth the economy? It’s not really to minimize the disease. That’s just the text. The sub-text … the REAL message … is to minimize your empathy, to convince you to abdicate your autonomy of mind and heart to THEM.

The real message is to convince you that 2 + 2 = 5.

Iakov Guminer, Arithmetic of an alternative plan (1931)

In the end the Party would announce that two and two made five, and you would have to believe it. It was inevitable that they should make that claim sooner or later: the logic of their position demanded it. Not merely the validity of experience, but the very existence of external reality, was tacitly denied by their philosophy. The heresy of heresies was common sense.

And what was terrifying was not that they would kill you for thinking otherwise, but that they might be right.

— George Orwell, 1984

The Long Now is the Fiat World of reality by declaration, where we are TOLD that inflation does not exist, where we are TOLD that wealth inequality and meager productivity and negative savings rates just “happen”, where we are TOLD that we must vote for ridiculous candidates to be a good Republican or a good Democrat, where we are TOLD that we must buy ridiculous securities to be a good investor, and where we are TOLD that we must borrow ridiculous sums to be a good parent or a good citizen.

And where we are now TOLD that we must join our leaders in sociopathy and division to be a good American.

What do I mean by sociopathy and division?

I mean the way our political and economic leaders beat the narrative drum about how this virus prefers to kill the old rather than the young, as if that matters for our policy choices, as if older Americans are lesser Americans, as if we should think of them differently – with less empathy – than Americans who are more like “us”.

I mean the way our political and economic leaders beat the narrative drum about how this virus prefers to kill those with “pre-existing conditions”, as if that matters for our policy choices, as if chronically ill Americans are lesser Americans, as if we should think of them differently – with less empathy – than Americans who are more like “us”.

I mean the way our political and economic leaders beat the narrative drum about how this virus hits certain “hotspot” regions, as if that matters for our policy choices, as if hotspot regions are lesser regions, as if we should think of Americans who live there differently – with less empathy – than Americans who are in “our” region.


The future is already here – it’s just not evenly distributed.

– William Gibson

We are, all of us, old. We are, all of us, chronically ill. We are, all of us, living in a hotspot.

Some of us are already there. Some of us aren’t. Yet.

Age, illness, environment … they are unevenly distributed among us. But they are the future for all of us just the same. What is empathy? It is the recognition of this truth. What is our duty? To shout this truth from the rooftops. To require our leaders to bend to OUR will, and not the other way around.

Enough. It’s time for the Pack to howl.

The moving finger writes, and having writ moves on.

The policy decisions we make cannot be undone. We have one shot at this.

Nor all thy MAGA piety nor all thy Twitter wit shall lure it back to cancel half a line.
Nor all thy SJW tears wash out a word of it.

Given the irrevocable life-and-death nature of our policy decisions today … given the profound UNCERTAINTY that governs the impact of a pandemic on society, as opposed to mere RISK … we should not seek to maximize our utility.

Instead, we should seek to minimize our maximum regret.

A risk is an event where we can assign some sort of reasonable probability to its occurrence AND some sort of reasonable assessment of its potential impact, so that we can calculate what’s called an “expected utility” … in English, so that we can talk meaningfully about risk versus reward of some action or decision. To use Donald Rumsfeld’s oft-maligned but in-truth brilliant characterization, a risk is a “known unknown”.

When people talk about the trade off between the national economic impact of shutting down the country and the national health impact of shutting down the country, they are using the language and the calculator of risk.

It’s not that people are wrong to say there’s a trade off. There IS a trade off. Where they’re wrong is to think that there is some equilibrium here – some sort of balancing point in our policy so that we can maximize our national economic expected utility given our national health expected utility and vice versa.

Where they’re wrong is to think in terms of risk and expected utility in the first place!

This image has an empty alt attribute; its file name is rumsfeld-1.jpeg

“There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know.”

An uncertainty is an event where either we can’t know the probabilities at all or – as in the case of public policy in the face of a pandemic – we’re only going to play the game once.

To use a poker analogy, my decision-making process for playing a hand is going to be entirely different if I’m only going to be dealt one hand for the rest of my life or if I’m playing all night and every night. If I’m playing all night and every night, I’ll play the odds in every hand, trusting the odds to even out in my favor over time. If I’m only playing one hand, though, where an unlucky break cannot be salvageable over time … what’s my tolerance for that?

In Rumsfeldian terms, uncertainty is an “unknown unknown”, and in his mind (he was Secretary of Defense, after all) the classic example of an uncertainty was going to war. Our war is with COVID-19. We get to fight once and only once. Whether we win or we lose is an uncertainty, not a risk, and we need a decision-making process designed specifically for THAT.

The decision-making strategy designed specifically for uncertainty is Minimax Regret.

Minimax Regret was invented (or at least formalized) in 1951 by Leonard “Jimmie” Savage, one of the founding fathers of what we now call behavioral economics. Savage played a critical role, albeit behind the scenes, in the work of three immortals of modern social science. He was John von Neumann’s right-hand man during World War II, a close colleague of Milton Friedman’s (the second half of the Friedman-Savage utility function), and the person who introduced Paul Samuelson to the concept of random walks and stochastic processes in finance (via Louis Bachelier) … not too shabby! Savage died in 1971 at the age of 53, so he’s not nearly as well-known as he should be, but his Foundations of Statistics remains a seminal work for anyone interested in decision-making in general and Bayesian inference in particular.

As the name suggests, the Minimax Regret strategy wants to minimize your maximum regret in any decision process. This is not at all the same thing as minimizing your maximum loss. The concept of regret is a much more powerful and flexible concept than mere loss, because it’s entirely subjective. But that’s exactly what makes the strategy human. That’s exactly what makes the strategy real when the ultimate human chips of living and dying are on the table.

Minimax Regret downplays or eliminates the role that probability distributions play in the decision-making process.

Minimax Regret doesn’t calculate the odds and the expected utilities over multiple rolls of the dice. Minimax Regret says forget the odds … how would you FEEL if you rolled the dice that one time and got snake-eyes?

More technically, Minimax Regret asks how would you feel if you took Action A and Result 1 occurs? What about Result 2? Result 3? What about Action B and Result 4, 5, or 6?  Now out of those six potential combinations of action + result, what is the worst possible result “branch” associated with each action “tree”? Whichever action tree holds the worst possible result branch … well, don’t do THAT. Doing anything but THAT (technically, doing the action that gives you the best worst-result branch) is the rational decision choice from a Minimax Regret perspective.

The motto of Minimax Regret is not Know the World … it’s Know Thyself.

Because when faced with an uncertain event, where you only have one roll of the dice on a probabilistic event, that’s all we can know.

Ourselves.

So what do I know about myself? What’s MY maximum regret that must be minimized regardless of anything else in this single-play game of coping with a virus that has a natural R-0 of 3+ and is 10-20x more deadly than the flu? It’s losing one of these guys.

We’ve all got a photograph like this. An old picture of the people who matter most to us in the world.

Time flies. Fifteen years. That unhappy little girl in the front row just heard back from college admissions yesterday. Good news.

I’m eligible for AARP now. My mother is now in her late 70s. She has what you’d call a “pre-existing condition” I suppose, but so will I in another 15 years.

The future is already here in this picture. It just wasn’t evenly distributed.

Now here’s the trick. The trick to rejecting the sociopathy and division that our leaders inject in our veins. The trick to engaging the world with a full heart.

The trick is to take the love you feel for your family even if they are old, even if they are infirm, even if they live distantly from you, geographically or emotionally … and extend the knowledge of that love to everyone else.

I’m not asking you to love that dad in Qom like you love your dad. I’m not asking you to be a saint.

I’m asking for empathy. I’m asking you to recognize that there but by the grace of God go I, that in fact you DO recognize exactly that when it comes to your family, that in fact you DO recognize that the future and the present and the past are as one in love … just not evenly distributed at any given time. I’m asking you to recognize that everyone in the world shares this and deserves this. I’m asking you to treat every human as an autonomous being of free will, capable of love and being loved. Just as you would want them to do unto you.

It won’t diminish the love you feel for your family. I promise. Love and empathy don’t work that way. It’s not a transaction.

It’s not a trade off.

And once you stop thinking in terms of trade offs, once you stop thinking in terms of probabilities and projected mortality rates and cost/benefit analysis and this expected utility model versus that expected utility model … once you start thinking in terms of empathy and Minimax Regret … everything will change for you.

Specifically and in terms of policy, what does a decision-making structure of Minimax Regret combined with empathy require?

I don’t know all the details. I don’t know if I’m missing key elements. But I believe strongly that any plan requires these two elements.

Keep our healthcare workers and first responders safe.

If they fall, we all fall. Every worst outcome has this as a common denominator. How do we keep them safe? Massive quantities of personal protective equipment (PPE). Everywhere. On-demand. At a granular level of the front lines.

Create common knowledge of safe zones, safe towns, safe events, safe cities.

Every worst outcome has the opposite: everyone knows that everyone knows that the contagious walk among us, creating a giant Prisoners Dilemma game of constant defection everywhere you look. Every nation for itself. Every state for itself. Every county, every city, every company, every family for itself. How do we create common knowledge of safety? Ubiquitous and rapid testing. Everywhere. All the time.

And until we can manage those two things, we lock it down. We keep the R-0 of this bastard virus <1. Everywhere. As long as it takes.

Empathy + Minimax Regret = How to Fight COVID-19

2 + 2 = 4


I’ll close this with a personal note. Because that’s what this war is for all of us … personal.

There’s another Talking Heads song that everyone knows, and that’s Life In Wartime, which Byrne wrote in 1979, two years before Once In A Lifetime. Here are the lyrics you know by heart:

This ain’t no party, this ain’t no disco,
This ain’t no fooling around
No time for dancing, or lovey dovey,
I ain’t got time for that now

Certainly pertinent for today! But these are the lyrics I’m thinking about.

You make me shiver, I feel so tender,
We make a pretty good team
Don’t get exhausted, I’ll do some driving,
You ought to get you some sleep

Do you have a partner? Do you have a pack?

That’s how we get through a war.

That’s how we get through a lifetime.

Find your partner. Find your pack.


Epsilon Theory PDF Download (paid subscription required): Once In A Lifetime


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Do The Right Thing

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Epsilon Theory PDF Download (paid subscription required): Do The Right Thing


I’m angry that I have to write this note.

I’m angry that when we have people dying left and right in this country, when there is an urgent need for ALL of us to spend ALL of our time helping our families, helping our neighbors, helping our emergency responders and healthcare workers and social service providers to DO THEIR JOBS … that I have to write a note about the airline industry and how to structure the bail-out of United, Delta, American and Southwest. And Boeing.

But I do have to write this note, because of course the raccoons and the high-functioning sociopaths are out in force on this, looking to get their private losses socialized and their private gains locked in. Looking to get their 30 pieces of silver.

So I’m not going to spend a lot of time on this. I’m just going to give all of you the facts and let you all take it from here. Because if this goes down anywhere near where I think it’s going to go down … well, one day when we’ve passed through this valley there’s going to be a reckoning, and we will visit our righteous anger on those who abused the public trust.

Like Disney:

Like Tesla:

But that’s for another day.

Today we’re going to talk about airlines, their CEOs, and their major shareholders. Trust me, there will be plenty of righteous anger to go around.

You know, back in the day, my hedge fund owned a chunk of Ryanair, the cut-rate Irish airline. We didn’t own it for long, because … Michael O’Leary … but it was actually a Michael O’Leary quote (he’s Ryanair’s founder and CEO) that got me interested in the company and the industry in the first place. I’ll try to paraphrase this to avoid the profanity.

You think airlines are a service industry? You *$#@ idiots. Airlines are a UTILITY.

So right. Airlines are exactly the same thing as an electrical generation plant. They provide the transportation outcome, the getting-from-point-a-to-point-b-in-a-short-time that our modern economy depends on just as much as it depends on electricity. Or banking. Or healthcare.

Commercial air travel isn’t a luxury. It isn’t a service that we can purchase or not, upgrade or downgrade as we like. Sure, the airlines present themselves as a service because they get you to pay more money if you think of them like that, but they are not a service.

Airlines are a utility.

While we’re at it, here’s another quote. You’ll never guess who said it.

Airlines are a public utility, and they should be regulated as such.

Sounds like something Bernie Sanders would say, right? Nope. That was George Will. Yes, ur-conservative free marketeer George Will. Know who passed the Airline Deregulation Act? Jimmy Carter.

Here’s one more quote.

Q. If you actually fire these people, won’t it put your air traffic control system in a hole for years to come, since you can’t just cook up a controller in — [inaudible]?

The Secretary of Transportation. That obviously depends on how many return to work. Right now we’re able to operate the system. In some areas, we’ve been very gratified by the support we’ve received. In other areas, we’ve been disappointed. And until I see the numbers, there’s no way I can answer that question

Q. How long are you prepared to run the air controller system — [inaudible]?

The Secretary of Transportation. For years, if we have to.

Q. How long does it take to train a new controller, from the waiting list?

The Secretary of Transportation. It varies; it depends on the type of center they’re going to be in. For someone to start in the system and work through the more minor office types of control situations till they get to, let’s say, a Chicago or a Washington National, it takes about 3 years. So in this case, what we’ll have to do if some of the major metropolitan areas are shut down or a considerable portion is shut down, we’ll be bringing people in from other areas that are qualified and then start bringing people through the training schools in the smaller cities and smaller airports.

This is from the 1981 press conference where Ronald Reagan announced he was firing 11,345 striking air traffic controllers, bringing all commercial aviation to a halt. He didn’t just fire them. He barred each of them from ever taking a federal job again. For life.

There were no replacement air traffic controllers. They brought in some military guys where they could, and otherwise just winged it with retirees and new trainees. And it worked. It ended up being minor blip in commercial air service for most Americans.

I’m starting with these quotes to make three simple observations.

No one is talking about putting the US airline industry out of business, least of all me. This is as strategically important an industry as exists in the country. We can and we should provide emergency financial assistance from the federal government to keep the airline industry healthy and fully functioning throughout this CV-19 crisis.

There is nothing sacrosanct or natural about our current regulatory and ownership structure for the US airline industry. Nothing.

Governments can do whatever the hell they want.

As the lawyers would say, so stipulated.

Now here are the facts about the airline industry and the rampant financialization that has infected them for the past 6+ years.

There are four publicly traded companies that account for almost all commercial air travel in the United States: Southwest, Delta, American, and United. That list is in order of passengers carried, with Southwest leading the way (>165 million people transported last year), although the other three beat Southwest handily on the industry metric of revenue-passenger-kilometers (Delta, American and United each flew their paying customers a total of about 330 billion kilometers last year).

Throughout this note, these are the four airlines I’ll be talking about. They’re the only ones that are necessary to preserve in any bailout legislation (although I’m sure all the smaller guys will be covered, too).


Fact #1 – Starting in 2014, each of the Big 4 airlines began a policy of massive stock buybacks, totaling $42.4 billion over the following 6 years.

Please, for the love of god, let’s not reignite the stock buyback wars of 2019 over this. I do not believe that buybacks are inherently evil or that they should be banned from existence. I DO believe, however, that they are intentionally used by management to obfuscate and sterilize ludicrous stock-based compensation schemes, so that much of the capital that is supposedly “returned to shareholders” through buybacks is not returned at all, but is hijacked directly into management’s pockets. I DO believe that this sterilization scheme is so widespread and so harmful to shareholders and to society that it is necessary to implement government restrictions on buybacks. You can read more of my thoughts on all this here, here and here.

Whether or not you agree with me on the evolution of stock buybacks into a ubiquitous instrument of management self-dealing, I hope that we can all agree on this: stock buybacks are a CHOICE.

I’m sorry that you airline management teams and boards of directors made a bad choice. I’m sorry that you and your shareholder base thought it was stupid and inefficient to hold more cash against the prospect of a global recession. Welcome to capitalism.

In any event, here are the numbers for stock buybacks in the airlines over the past six years, taken directly from their 10-K filings.


Fact #2 – These buybacks, together with increased debt (+78%), were the engine of an intentional strategy of heightened financial risk taking, such that buybacks were greater than free cash-flow for the group ($37.1 billion).

Speaking of choices …

Stock buybacks are only part of a corporate strategy of financialization, where leverage and capital allocation decisions are placed in service to the cartoon, market-world measurements of corporate performance – like stock price – rather than fundamental, real-world corporate performance itself.

At every turn over the past six years, management teams at the Big 4 airlines have increased debt and directed their free cash-flow towards anything they thought would prop up their stock price, at the expense of using this money to grow their core business OR protect their core business against a global recession.

This is financialization. It is the real-world hollowing out of our largest and most important private companies in order to maximize wealth generation for senior management and large institutional investors.

Here’s the data on debt and free cash-flow, as reported on Bloomberg. Debt is pretty self-explanatory. Free cash-flow (FCF) less so, so I’ll spend a moment on that.

Free cash-flow is the money you have left over after running your core business (cash-flow from operations) and after you’ve made whatever tax payments and interest payments and maintenance capital expenditures (capex) you are required to make. To be fair, different people have different ideas on how free cash-flow should be measured, particularly when it comes to these capex decisions. Your calculation of FCF for the airlines may be a bit different (I’m just taking the Bloomberg reported numbers as is), but they will be similar to what I’m reporting below.

The percentages at the bottom of the FCF chart are the percentages of free cash-flow spent on stock buybacks over the six year period. American has a negative percentage because the company bought back $13 billion worth of stock despite having negative free cash-flow over this span. As a result, American skews the overall ratio of stock buybacks to FCF for the group as a whole, but you can see that there are no choirboys here. Even the least profligate airline – Delta – spent 63% of their free cash-flow on stock buybacks.


Fact #3 – The operating fundamentals of the Big 4 airlines deteriorated over this period, with EBITDA, free cash-flow and cash-flow from operations all lower in 2019 than in 2015.

You’ve got the free cash-flow chart above. Here’s what earnings before interest, taxes, depreciation and amortization (EBITDA) and cash-flow from operations look like. High watermark in 2015, and downhill from there. Again, all data taken from Bloomberg.

It’s not conjecture that every major airline shifted its management focus from operational, long-term core business issues to financial, short-term market issues. It is fact.

Know who else stopped running their company for real-world excellence in exchange for market-world rewards? This guy.

Dennis Muilenburg, Boeing CEO and centimillionaire

Here’s my take on Boeing, a case study of how weaponized financialization and management greed destroyed a crown jewel of American industry.

This is from November of last year, btw.

And here’s my take on Dennis Muilenburg himself, the poster child for our modern Zeitgeist of outrageous management self-dealing.


Fact #4 – The CEOs of the Big 4 airlines received $430 million in stock-based compensation over this period, separate from their cash compensation, deferred benefits, etc.

Every airline CEO is just another Dennis Muilenburg.

As with Muilenburg (and with IBM’s Ginni Rometty if you want to read that take-down), I’m not going to calculate the salary and annual cash bonuses for these airline CEOs. I’m not going to count the corporate jet. I’m not going to count the perks and the club memberships and the board seats at other companies and the deferred comp and the remaining options and RSUs and all that. Nope, cash comp and deferred comp are for suckers. Just ask Jamie Dimon.

What I’ve done is go through every SEC Form-4 (this is the form that corporate insiders must file whenever they buy or sell stock) for the four current CEOs of the Big 4 airlines. Each of these guys has more than a hundred Form-4s, and each of them has to evaluated by hand. It’s a chore, and I think that it is intentionally made to be a chore (but that’s a note for another day). If you want to check my work, the SEC filing numbers are: Doug Parker (0001249552), Ed Bastian (0001289878), Gary Kelly (0001027716), and Oscar Munoz (0001237371). In all cases, I’ve combined personal holdings and family trust holdings. I’m not including all the stock-based comp these guys have received from other companies (board seats), and I’m just going back to the start of these financialization/buyback strategies in 2014.

For each CEO, I’ve compiled a comprehensive list of every share of stock in their company that they’ve sold (and the price they sold it for), every share of stock they still hold, and the price at which they’ve acquired the stock that they have sold or currently hold (usually the acquisition price is $0, but occasionally they exercise an option). Notably on that last item, there are ZERO examples of any of these CEOs buying stock in their own company in the open market. ZERO.

From these three data points (value of stock sold, value of stock held, cost of stock sold and held), we can construct the total profit each CEO has made on their stock transactions in their respective company. Realized stock sales + unrealized stock sales – cost basis = total stock-based value received.

Here’s the compiled data.

I know that I just said each of these guys was another Dennis Muilenburg, but that’s not really true, is it? When it comes to management self-dealing and enrichment, no one tops Doug Parker of American Airlines (although Ed Bastian of Delta seems intent on making up for lost time). I do not think it’s an accident that Doug Parker is not only the CEO of American, he is also Chairman of the board.

You’re not reading this chart wrong. Doug Parker has pocketed more than $150 million through his sale of 3.6 million shares in American Airlines. These sales were particularly egregious in 2015 – 2016, not coincidentally the period of American’s greatest stock buyback activity. How egregious were the stock sales? For a twelve month period from mid-2015 through mid-2016, Doug Parker pocketed between $4 million and $11 million in stock sales per month. How large were the stock buybacks? Two-thirds of American’s $13 billion in stock buybacks over this six year period occurred over these same months.

Here’s another fun fact about Doug Parker. For a brief shining moment, American Airline’s stock price went above $50 in early 2018. Wouldn’t you know it, Doug just happened to choose that moment to sell 437,000 shares of stock, more than twice as much stock as he had ever sold before and almost 5x the usual size of his stock sales. Barf.

On the other hand, both Gary Kelly of Southwest and Oscar Munoz of United are way back in the rearview mirror of Parker and Bastian. I’d also point out that Gary Kelly has been CEO of Southwest since taking over from Herb Kelleher in 2008, and that Southwest has by far the least levered balance sheet of the Big 4. Interestingly enough, Southwest has also been by far the best stock market performer of the Big 4 since 2014, and American has been by far the worst. I know it sounds weird to say that $75 million in stock-based comp is a sterling example of CEO restraint, but that’s the effed-up world we live in today.


Fact #5 – The primary shareholders of the Big 4 airlines today, together owning about 25% of each company, are two professional investors – Warren Buffett’s Berkshire Hathaway and Primecap Management.

I’m just going to leave this here for the most part and not get into a long discussion about Saint Warren and the guys at Primecap. But I will say this: we must call things by their proper names.

Both Berkshire and Primecap are hedge funds. And good for them! You don’t think they are, because you don’t want to think of them that way (actually, you’ve probably never heard of Primecap), and because both firms have gone to enormous lengths to create an alternative narrative in the public eye.

Both Berkshire and Primecap are ruthless investors. And good for them! Again, you don’t think they are, because you don’t want to think of them that way (again, you’ve probably never heard of Primecap), and because both firms have gone to enormous lengths to create an alternative narrative in the public eye.

If the tables were turned and Berkshire or Primecap were in the government’s position of dictating terms to the airlines and their shareholders, my promise to you is that they would either wipe out the common shareholders entirely or dilute them into oblivion. I promise.

And good for them.

Capitalism is red in tooth and claw, and Berkshire and Primecap are two of the biggest, hungriest tigers in that jungle. Sure, they’ll take your bailout if you give it to them. But they do not deserve it. Seriously. Please.


So those are the pertinent facts here. As I see it, anyway. So what do we DO with those facts?

There are 1,001 ways in which the government can structure the necessary financial rescue of the necessary airline industry.

The rescue structure we choose should not reward these self-dealing management teams or the hedge fund investors who support them.

Here’s my suggestion for how this can work.

First, impose regulated caps and clawbacks on ALL senior management compensation, including stock-based compensation, for the next decade, regardless of how quickly any loan support is repaid. If these guys aren’t willing to work for $1 million or $2 million dollars per year in total comp, I’m sure we can find a perfectly good replacement CEO who will.


Second, the current board Chair for each airline should be summarily dismissed and replaced by an independent director appointed by the government. This is also a 10-year right that the government maintains, regardless of how quickly any loans are repaid.


Third, require each airline to raise new equity capital in the open market dollar-for-dollar to whatever low-interest loan facility is backstopped or made available directly by the US government. In other words, if Delta wants access to $10 billion in loans, they must raise $10 billion in new equity at whatever price the market demands to clear the equity raise. We require banks to maintain a certain level of equity capital, because we’ve judged them to be too strategically important to fail. Let’s do the same for the airlines.


Fourth, until the loan facility is repaid in full, no stock buybacks and no dividends. Duh.


I’m not naive enough to think that the bailout is going to go down the way I’m suggesting here. Oligarchs gonna oligarch. Mob bosses gonna mob boss.

But all the same I think you may be surprised what can happen if we lift our voices here. I think you may be surprised what can happen if we HOWL, if we raise holy hell about the inequity of bailing out the effin’ Doug Parkers and the effin’ Warren Buffetts of the world … again. All of these guys, and particularly Warren Buffett, play a mean meta-game. They’ll get a sense of where the political wind is blowing and move over to get in front of it. If we blow hard enough.

I believe that our nation’s response to CV-19 will be our finest hour. I believe that no nation mobilizes for war better than the United States, and I believe that this airline bailout must be implemented as part of that wartime mobilization, not as part of the I-got-mine-Jack wealth inequality Zeitgeist of the past ten years.

It’s time for all of us to Do The Right Thing. Even airline CEOs. Even Warren Buffett.

Bailout the airlines and their rank-and-file employees? You bet.

Bailout the CEOs and Warren Buffett? Not a chance.


Epsilon Theory PDF Download (paid subscription required): Do The Right Thing


123+

Lack of Imagination

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It has been a long week.

I am hopeful that an optimistic Friday close – or better yet, some time with family and (er, appropriately small) groups of friends – has allowed you to put some of it in perspective.

I suspect that perspective won’t be entirely pleasant. Yes, realizing that those we love are what matter may assuage the anxieties of one of the most volatile weeks in US financial markets history. But it also means that a lot of the real anxiety, frustration and pain is still ahead of us. We are on the front end of whatever Covid-19 curve we end up experiencing. At long last, we are making plans to look more like Singapore and less like Italy, but the speed, competence and consistency with which we execute those plans will determine whether that is, in fact, what we experience. We aren’t ashamed to say we think this will prove to be our finest hour.

I am less sure that this will prove to be our finest hour as investors. I don’t mean returns, although most of us are bleeding. I don’t mean undue fear and greed behaviors, although many of us are demonstrating them. I mean that I fear investors are thinking about their gameplans today in ways that could damage their outcomes over long horizons. Unfortunately, the worst of these frameworks are being actively promoted by market missionaries in financial media and academia.

Sometimes at the same time.

Jeremy Siegel has taught Finance 101 at Wharton for a long time. Not “taught it to Donald” long, but certainly “taught it to Ivanka” long. The course is more along the lines of a monetary economics class there, but the man has trained bankers and PE guys to put together DCF models for decades. And that’s fine. Really. What is less fine is that Siegel, like many other academics, has found additional sources of revenue and book sales by applying the bottom-up thinking about company-level cash flows to CNBC on-air macro commentary.

The result is often very much like the below, which I extracted from an on-air interview on March 2.

“I’d like to first repeat what I said last week, and that is that over 90% of the value of a stock is due to its profits more than one year into the future. So as bad as this year can be…we could really have a short quick recession, the long-term value is not significantly impaired…let’s face it, this is mostly going to be a demand-induced slowdown.”

Dr. Jeremy Siegel to CNBC (March 2, 2020)

If you watched CNBC at all the last couple weeks, you probably heard variants of this prediction. “How much should valuations really drop if they only impact two quarters of EPS? Even if we lost a WHOLE year, it would be irrational for stocks to go down by more than 10%!” It is comforting, rational-sounding and calm. Professorial, if you will.

It is also utter hogwash.

I am absolutely NOT saying that investors shouldn’t build investment philosophies around the judgement-based valuation of cash flow streams. The raison d’etre for this entire website is the belief that this is still what investing ought to mean, that our efforts should be focused on reinforcing the primary intended function of markets as the appropriate pricing and direction of capital! I AM saying that treating the markets like a first-year banking analyst at Morgan Stanley – organizing a model completely around a single key variable – is a recipe for tunnel vision on that variable to the detriment of a million other things that matter. Not just things over some short, ‘irrational’ period – I’m talking about things that really matter to asset prices and returns over extended periods.

This behavior makes one blind to all sorts of things.


The first blind spot, as we have argued in more detail in our institutional research, is that it treats uncertain events – items of unknowable incidence and severity – as if they were risks that could be estimated probabilistically. Even if we remain in purely fundamental space, there are specific facts about the coronavirus pandemic and its impact on cash flows which utterly confound probabilistic estimation. Will its future mutations prove yet more virulent? Will challenges in vaccine efficacy for those strains make an endemic coronavirus a transformational, recurring long-term issue? Will summer heat in the northern hemisphere kill it nearly to the ground? Will governments conjure epic, MMT-level stimulus response? How quickly will governments work to implement and enforce aggressive mitigation measures? How far along the exponential curve are we actually today given our systematic undertesting?

These thoughts shouldn’t paralyze you, although the fact that they each contain embedded series of uncertain and dependent outcomes of potentially significant magnitude should absolutely influence your active risk budget, portfolio concentration and use of leverage! Yet this is not an inherently bearish argument. The veil of uncertainty contains both uproariously positive and fiendishly negative series of events.

The problem is that analyzing these events and their effects probabilistically isn’t hard. It is impossible. Yet the machinery of our industry cannot go into quarantine. It must produce research! It must produce estimates! It must produce predictions! How does it do it?

It picks a reasonable-sounding central assumption, then shows that even if you doubled it, things would still fit within your estimation range.


The second blind spot still sits within the world of pure fundamentals, and is exposed to both uncertainty and risk. It is the tendency to underestimate the length and magnitude of chains of dependent events. Estimating how 2-6 months of a global cratering of demand and interruption in supply will manifest in knock-on effects is hard. Really hard. Assuming that you’re going to capture those knock-on effects by applying a low baseline demand shock estimate on EPS is ludicrous.

It IS easy enough to think in advance of some anecdotal examples to illustrate this, even though handicapping them today is a practical impossibility (in large part because they are dependent on binary assumptions about key policy actions). Even without going into the availability of credit and other primary capital markets, there is a lot to consider.

Let us say that the crisis in air travel places a major domestic airline in financial distress. Now assume that the government does not bail them out. It goes through some kind of BK or liquidation. What if they had accounted for 60% of the travel capacity of a half-dozen medium-sized cities? 100% of the economics of two dozen local mechanical and aerospace services companies? What of their replacement parts contracts and those 25 A320s they have on order?

Alternatively, take a look at the data published by OpenTable on daily restaurant activity across major markets (mostly in North America).

No photo description available.
Source: OpenTable

What happens if and when the 50% drop we see on Thursday of this week in some markets becomes the story in every town and city in America for the better part of two months? If your average local restaurant grosses $10,000-15,000 a week and operates on a sub-10% margin, how long until they have to stop paying the waitstaff and line cooks? How long until the credit line with the First Community Bank of Podunk runs dry or gets pulled? When they stop paying rent, how long until the local businessman who owns their building is forced to pull capital earmarked to fund the growth of his valve-fitting shop to service the debt he used to buy it? How does that impact the growth and returns of the small factory in the region that had counted on their order being delivered on time?

And how long do these types of effects ripple through multiple businesses and multiple industries?

What happens to consumer behaviors after a month or two of social distancing? After a month or two of adapting to a life without available daycare? After a month of effectively homeschooling children? Is there a tranche of the public that remained loyal to local brick-and-mortar retail for some category of their consumption that will undergo a permanent transition to online shopping? Do consumption patterns change permanently in other ways?

And what of tourism? How long do tourists eschew Covid-19 hotspots? Cruise ships? Casinos? Ride-sharing? Will ALL the fashion and real estate and investment conferences that huddle in Milan come back in 2021? How long will the overhang on tourism more generally last? Will tourists shy away from Thailand, Cambodia and Belize, countries heavily dependent on tourism? If they do, how long can those industries hang on before capital flees to other endeavors, domestic or otherwise?

If and when we flatten the curve, and Covid-20 pops up in the winter, how reflexively and violently do briefly allayed fears shift behaviors back to the state we know today?

Again, please do not see this as inherently bearish relative to current prices. Let me take the other side of this.

What if many of the companies and industries that die were negative ROI, good-capital-after-bad companies and industries that probably should have died long ago, but for the sweet succor of interventionist government? What if the forced utilization of remote work technology finally becomes truly transformational, permanently reducing the operating expenses and capital requirements of a dozen industries? What if the federal stimulus in the US and elsewhere results in rapidly expanded networking infrastructure investments across secondary and tertiary cities to support it?

The point, again, is not that we should allow ourselves to become overwhelmed by the range of potential outcomes or the fact that many of them simply cannot be predicted. It is to recognize that the effect of events on other events at times like this is to make fools of forecasts built on some expectation of cash flows over a defined period. That’s why (thankfully) actual fundamental investors taking risk in equity markets have been busy exploring, such as they can, questions like all of the above for the last few weeks. That’s why they’ll continue to do so, no matter how many two-quarter-shock-to-the-ol-DCF cartoons get trotted out to pump up stocks.


The “10% of NPV!” approach also creates a blind spot to a class of path-dependent effects which exist outside of pure fundamentals – that is, in the world of narrative. Consider, if you will, these declarations from important political missionaries across the political spectrum from the three most important economies in the world in only the last two days.

Like German Economic Minister Peter Altmeier.

Germany would like to localize supply chains, nationalization possible, minister says [Reuters]

Like Senator Ted Cruz.

Coronavirus Spurs U.S. Efforts to End China’s Chokehold on Drugs [NY Times]

Like Chinese Foreign Ministry spokeman Lijian Zhao.

Chinese diplomat accuses US Army of creating coronavirus epidemic in Wuhan [Washington Examiner]

Think this emerging narrative of global decoupling and deglobalization is isolated to healthcare and pharmaceutical supply chains? Tell that to US Senator Marco Rubio.

And to the think-tanks who are already furiously spinning out pro-autarky thinkpieces in recognition of the rapidly changing zeitgeist on international trade links.

Make America Autarkic Again [Claremont Institute]

I suspect that Ben and I are both going to be writing a lot more about the de-globalization narrative as it emerges. I can’t tell you today how probable it is that any one company or industry will move more production back to domestic shores. I can’t tell you how probable it is that regulation will be put forward in this administration or the next to force (explicitly or implicitly) some of this to take place. I can’t tell you how that will impact cost structures and corporate margins. I can’t tell you how that will impact the expectations and multiples investors are willing to pay, or their home country bias, or countless other dimensions of the collective determination of asset prices. I can’t tell you if this is long-term bullish or bearish…OK, probably a little bearish.

I CAN tell you that if your analysis of market and prices is completely abstracted from the path of events that could lead to a significant movement toward global economic decoupling, you’ve got blinders on. And if you think applying “conservatism” to widen the range of your best guess at a deterministic period hit to EPS is the right way to accommodate its potential, you’ve lost the plot completely.


Cartoons constructed from deterministic EPS macro analyses have one more trick to play on us. Only this one isn’t about blinders on the future. It’s about blinders on the past.

Buried in the sour grapes responses some on the buy side and in the financial adviser community have had to the (IMO pretty subdued) victory laps from bearish funds and traders is a seed of really dangerous thinking. Paraphrasing from a half dozen or so, the claims go something like this: “None of these bears predicted a pandemic. This bear market is the result of the pandemic, so the people who are short because they thought the market was expensive or being propped up by the Fed or whatever reason they were always bearish don’t get credit for getting it right.”

I’m not linking to specific people here for a few reasons. First, a lot of people are publishing things like this in letters and I don’t want to single anyone out. Especially because I believe most of them are perfectly smart, good people trying to do right. Second, it’s hard to deal with being down this much in a rough couple weeks, and I’m empathetic to the annoyance. Third, there are absolutely people who have been really bearish for a very long time and are STILL underwater for their investors. They still have a lot to prove before they have any business claiming to be right.

But the sentiment is still wrong. Really, really wrong.

Look, of course just about everybody involved in markets in any active sense is responding to the impact of Covid-19 and the broad economic impact of our global mitigation effort. But for all of us who are in the business of investing, we must understand this: asset returns are never just a mechanistic reflection of changes in forward-looking estimates of some fundamental thing. They are also a reflection of inertia. Of path-dependence.

The fact that a stock traded at a particular multiple today is often as much (and in many cases far more!) driven by the fact that it traded at that multiple yesterday as it is by the market’s aggregated expectations of future growth and appropriate discounting of those expectations. When the market declines sharply in response to some suspected (or in the case of Covid-19, obvious) proximate cause, do you not think that some investors who deemed yesterday‘s price appropriate in part because of expectations of asset price-motivated central bank activities or the expectation of unduly growth-hungry or yield-hungry behavior by other investors calibrated their actions today to consider how those other factors might be affected, too?

Investing in ways that reflect a belief that asset classes have embedded inertial assumptions (like say, multiples) but with uncertainty about a catalyst for changing them is not unusual at all. It’s the basis for a huge swath of classic investment strategies! Uh, value? Even when we feel like the catalyst of market action is plain, believing that the magnitude of the market’s response to it is wholly related to that catalyst and not the catalyzed reexamination of other factors will not lead to a useful forward-looking analysis of positioning.


When Ben and I went independent back in 2018, one of the first things he wrote was the Things Fall Apart series. In the third installment, he focused on distinguishing between the big recurring macro risks faced by investors, and one big unknown. He used the example of the Oldest Game from the marvelous Neil Gaiman’s Sandman to illustrate the difference in kind – not magnitude – of accommodating uncertainty in our investment frameworks.

The Oldest Game is a clever construction in which two players in turn conjure identities capable of defeating the identity selected by the other player on his prior turn.

There are many ways to lose the Oldest Game. Failure of nerve, hesitation, being unable to shift into a defensive shape. Lack of imagination.”

Neil Gaiman, from Sandman

The structurally bullish will warn us against failure of nerve. The traders will warn us against hesitation. The structurally bearish will warn us about being unable to shift into a defensive shape.

What we should be worried about is a lack of imagination.

I know it feels like you are sitting in your home office in the middle of a pandemic quarantine, because you probably are. But you are also sitting in the middle of a period of historic change and upheaval. Do you think that it is possible that an almost complete shut-down of many forms of trade, tourism, travel, retail activity for 1-2 quarters or MORE will not result in some kind of transformation? Of consumer behaviors? Of regional industry? Of local industry? Of investor preferences? Of the shape of globalization?

Take off the blinders and LOOK.

Or better yet, do what the winner of the Oldest Game did.

Choronzon: I am anti-life, the beast of judgement. I am the dark at the end of everything. The end of universes, gods, worlds… of everything. Sss. And what will you be then dreamlord?

Dream: I am hope.

Sandman, by Neil Gaiman

The people who win THIS game (and the people who help us ALL win the bigger game) aren’t going to be the ones wasting ink raining on the parade of so-called ‘perma-bears’. They aren’t going to be the ones putting together pseudo-empirical analyses for their fund investors explaining what happened in the subsequent 5 1/2 week period in 17 out of the last 28 drawdowns of 20.49% or more. The people who win this game will be the ones who can smile at the end of universes, gods and worlds and say, “I am Hope.”

That doesn’t mean being bullish.

It means having imagination.

Imagination to see with clear eyes the shocking capacity of uncertainty to embarrass probabilistic frameworks used incorrectly to model it.

Imagination to see with full hearts how vast the range of paths and outcomes can be when they are dependent on the path of critical, potentially transformational events.

Like it or not, you live in interesting times. Don’t waste them on a lack of imagination.

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Don’t Test, Don’t Tell (10 Days Later)

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Last week, Claire Lehmann, the founder and editor in chief of Quillette, asked if I’d be interested in publishing a new version of Don’t Test, Don’t Tell on the Quillette platform. I’ve never published anywhere except the Epsilon Theory platform in the seven years I’ve been doing this, and to be honest I find many of the articles published on Quillette to be more than a little problematic.

I immediately agreed.

As Rusty described in his magisterial note, The Elton/Hootie Line, what we need so desperately here in The Long Now are, to use the ten-dollar phrase … epistemic communities … opt-in places of thought and speech for truth-seekers. Or, to use the ET lingo … packs.

Quillette is a pack. It’s not my pack, but so what? We truth-seekers gotta stick together.

So here’s the article I wrote for Quillette, reprinted below. You’ll notice a few differences in the text, as Claire’s editors toned things down in a few places!


Anyone who wants a test can get a test.

On Thursday, February 26th – just as President Donald Trump was finishing up his initial White House press conference on the coronavirus … the one where he appointed Vice President Mike Pence as coronavirus czar and talked about “the fifteen cases that could go to zero” – I received a Twitter DM from a physician that included screenshots of an email that had been sent to staff at the UC Davis Medical Center in Sacramento, California earlier that afternoon. After checking for authenticity, I posted the screenshots in a tweet of my own.

And that’s when, as the kids would say, my Twitter feed blew up.

Since that night, the original email has been confirmed by UC Davis and reported on by multiple news organizations. Here’s a copy of the email as reported by NPR.

I want to highlight a couple of quotes from this email.

Since the patient did not fit the existing CDC criteria for COVID-19, a test was not immediately administered. UC Davis Health does not control the testing process.

The facts here are clear cut. A patient came in from another hospital on Wednesday, Feb. 19 – this is one week before the email – already intubated and on a ventilator, and the doctors at UC Davis – who have treated other coronavirus cases – immediately suspected a coronavirus infection.

But the US Center for Disease Control (CDC), the organization with the sole authority and ability to administer a coronavirus test, refused to test.

Why? Because this patient didn’t fit their “criteria” for testing. These criteria – what are known as Patient Under Investigation (PUI) guidelines – have been set in stone in the United States since coronavirus first burst onto the scene a few months back. Do we know for sure that the UC Davis patient was either a) in mainland China within the past 14 days, or b) in close contact with another confirmed case? No? Well then by definition this UC Davis patient could not possibly have a coronavirus infection. No test for you!

It’s not that testing was not available. It’s that testing was not ALLOWED.

This is “Don’t Test, Don’t Tell” and it is the single most incompetent, corrupt public health policy of my lifetime.

But wait, there’s more. It’s not only this patient who was directly harmed by Don’t Test, Don’t Tell.

When the patient arrived [Wednesday], the patient had already been intubated, was on a ventilator, and given droplet protection orders because of an undiagnosed and suspected viral condition. … On Sunday, the CDC ordered COVID-19 testing of the patient and the patient was put on airborne precautions and strict contact precautions.

Translation: for four days, every healthcare professional treating this patient at UC Davis was exposed to airborne transmission of coronavirus. And so was every healthcare professional at the hospital before UC Davis, particularly during the intubation process. Because the CDC refused to test this patient for coronavirus in a timely manner, all of the doctors and nurses and technicians caring for this patient were put at risk.

Sure enough, over the next few days about 124 UC Davis Medical Center staffers – including at least 36 nurses – were ordered into self-quarantine because of their exposure to this one patient. Worse, three staff members at Northbay VacaValley Hospital – the facility where this patient was treated before being transferred to UC Davis – have already tested positive for coronavirus infection, with an unknown number of additional healthcare professionals from that hospital now in self-quarantine. That’s all from one coronavirus infection.

Now imagine this same story repeated day after day across the United States for the past two months, where those infected with the virus fail to receive the care they need, spreading the disease not only to their community when their symptoms do not require hospitalization, but spreading the disease directly to emergency responders and healthcare professionals when their symptoms do. Even today, more than a week after the consequences of Don’t Test, Don’t Tell were revealed in that first case of community-spread coronavirus from Sacramento, the number of tests performed in the US is laughably low, particularly in states that were caught flat-footed when the CDC abdicated control over test production. Missouri, a state with a population of more than 6 million, has performed only 17 tests. Michigan, with a population of 10 million, has performed only a few dozen tests. Pennsylvania, with a population of almost 13 million, can perform all of 33 tests per day. Amazingly enough (sarc), these states do not have a confirmed case of coronavirus within their borders.

Now imagine this same story repeated day after day across the globe.

The statistical anomalies would be comic if they weren’t so tragic. As I write this essay on March 5th, there are more confirmed coronavirus infections in Harris County, Texas (five) acquired by Americans who traveled to Egypt than there are confirmed cases within the entire country of Egypt (three). Why? Because Egypt has only tested a few hundred people in this country of 100 million. There are more confirmed coronavirus infections in the city-state of Singapore (three) acquired from Singaporeans who traveledto Indonesia than there are confirmed cases in the entire country of Indonesia (two). Why? Because Indonesia has only tested a few hundred people in this country of 265 million. Can’t make it up.

With the exception of South Korea and Italy (and you can throw the UK in there, too, I suppose), pretty much every nation in the world has adopted some form of Don’t Test, Don’t Tell. The offenders include rich countries like the United States and Japan, vast countries like Indonesia and India, communist countries like China and Vietnam, theocracies like Iran and Saudi Arabia, oligarchies like Russia and Nigeria, social democracies like Germany and France … Don’t Test, Don’t Tell knows no geographic or ideological boundary.

And so you might ask: is this a difficult or expensive test to make? Is there some fundamental reason of technology or economics why a country might find itself forced to pursue a policy of Don’t Test, Don’t Tell?

Nope. It’s a relatively simple test to develop and administer in vast quantities. I figure there are half a dozen university and industry labs in Jakarta or Nairobi, much less Moscow or Chicago, that could crank out a few thousand test kits per week if they wanted to. Or rather, if they were allowed to.

Now that doesn’t mean that you can’t screw up the coronavirus test if you really set your mind to it. And in fact, that’s exactly what the CDC did in January, when they rejected the World Health Organization’s proposed test panel for SARS-CoV-2 (the official name for this particular novel coronavirus which causes the disease COVID-19) in favor of a gold-plated test panel of the CDC’s own design. After all, why just test for SARS-CoV-2 when you could also test for other SARS and MERS viruses? Unfortunately, with complexity came error, and these initial CDC triple-test kits had a flaw in one of the multiple tests, ruining the entire test. Now the CDC is producing a solo test for the SARS-CoV-2 virus, but this fiasco set us back weeks in test-kit supply.

So if it’s not a difficult or expensive test to make, why are so many countries pursuing a policy of Don’t Test, Don’t Tell?

The answer, of course: to maintain a political narrative of calm and competence.

It’s what the Best and the Brightest always do … they convince themselves that their citizens can’t handle the truth, particularly if the truth ain’t such good news. They convince themselves that they can buy themselves time to figure out a winning strategy against a disease like COVID-19 if they employ a constructed “communication strategy” like Don’t Test, Don’t Tell.

Until they run out of time.

Like they ran out of time in China. Like they ran out of time in Wuhan.

From The Fall of Wuhan:

A city falls when its healthcare system is overwhelmed. A city falls when its national government fails to prepare and support its doctors and nurses. A city falls when its government is more concerned with maintaining some bullshit narrative of “Yay, Calm and Competent Control!” than in doing what is politically embarrassing but socially necessary.

That’s EXACTLY what happened in Wuhan. More than 30% of doctors and nurses in Wuhan themselves fell victim to COVID-19, so that the healthcare system stopped being a source of healing, but became a source of infection. At which point the Chinese government effectively abandoned the city, shut it off from the rest of the country, placed more than 9 million people under house arrest, and allowed the disease to burn itself out.

And so Wuhan fell.

The disaster that befell the citizens of Wuhan and so many other cities throughout China is not primarily a virus. The disaster is having a political regime that cares more about maintaining a self-serving narrative of control than it cares about saving the lives of its citizens.

We must prevent that from happening here. From happening anywhere. Yes, containment has failed. But that does NOT mean the war is lost. We can absolutely do better – SO MUCH BETTER – for our citizens than China did for theirs.

China’s brutal handling of the coronavirus in Hubei province, from its muzzling of doctors like Li Wenliang for “rumor-mongering” to its forced quarantines of tens of millions to its carefully falsified “data” regarding the spread of the disease to its influence over World Health Organization recommendations … it was all guided by Don’t Test, Don’t Tell (with Chinese characteristics).

The Chinese experience with coronavirus is not a “lesson” for the West. It is a cautionary tale!

How do we do better by our citizens than China did by theirs?

By prioritizing the protection of our emergency responders and our healthcare professionals, through better equipment and facilities, yes, but most of all through better policy and organization, starting with the abandonment of Don’t Test, Don’t Tell.


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The Elton/Hootie Line

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Epsilon Theory PDF Download (paid subscription required): The Elton/Hootie Line


We’re talking about things that are going to change the world and change the way people listen to music and that’s not going to happen with people blogging on the internet…There’s too much technology available. I’m sure, as far as music goes, it would be much more interesting than it is today.

Elton John, Interview with The Sun (2007)
Image result for bob dylan

The records I used to listen to and still love, you can’t make a record that sounds that way. Brian Wilson, he made all his records with four tracks, but you couldn’t make his records if you had a hundred tracks today. We all like records that are played on record players, but let’s face it, those days are gone. You do the best you can, you fight that technology in all kinds of ways, but I don’t know anybody who’s made a record that sounds decent in the past twenty years, really.

You listen to these modern records, they’re atrocious, they have sound all over them. There’s no definition of nothing, no vocal, no nothing, just like – static. Even these songs probably sounded ten times better in the studio when we recorded ’em. CDs are small. There’s no stature to it. I remember when that Napster guy came up across, it was like, ‘Everybody’s gettin’ music for free.’ I was like, ‘Well, why not? It ain’t worth nothing anyway.’”

Bob Dylan, in an interview with Rolling Stone (2006)
Image result for hootie and the blowfish live

We’ve wanted to bring a party; it’s high-energy, and it’s about fun. The worst thing for me when I go to a concert is a whole bunch of ballads. You get bored.

Darius Rucker, who absolutely does not want you to call him Hootie, to the St. Louis Post-Dispatch (June 2016)

This will not be fair to Hootie.

Or the Blowfish, for that matter. He didn’t start it. He didn’t really make it worse. For God’s sake, he doesn’t even want to be called Hootie anymore. That’ll be Darius, if you please.

It is just bad luck that his was the best-selling album in the United States the year that a minor trend among heavy metal, punk and the occasional rap artist went mainstream. It’s not his fault that Elton John topped the charts with a musical-inspired soundtrack album to The Lion King that stood in stark contrast the prior year.

That year was 1995. The year we crossed the Elton/Hootie Line.

The Elton/Hootie Line is not a demarcation of musical genre. It isn’t the border between good and bad music, or between one media format and another. It hasn’t got anything to do with Napster or the RIAA or anything like that.

The Elton/Hootie Line marks the last time that we allowed popular music to be quiet sometimes.


Loud and quiet are easy ideas to understand. There’s not much gray area in the formal definition. It is trivial to measure the difference in air pressure against ambient levels caused by sound waves. Plot those measurements on a log scale, and you’ve got what you know as a decibel.

In practice, however, the human experience of loud and quiet relies heavily on context. Other qualities of a sound – its pitch, its timbre and the sustained level of its volume – influence the individual experience of loud and quiet. Many people might listen to a thrash metal album with a pressing, ostinato rhythm from a distorted electric guitar, crashing open hi-hats and double bass drum pedals and say, “that’s louder”, even if a sweet, gentle cello sonata was being played and heard at a nominally identical decibel level.

The most important context to loud and quiet, however, relates to how music is recorded and reproduced. For obvious reasons, the volume that instruments were played at passes through a mixing and mastering process that normalizes sounds for whatever medium will be sent to the consumer. Celine Dion belting an adult contemporary power ballad was a lot louder in the studio than what you’d hear if you were standing next to a pre-autotune Selena Gomez. But on Spotify, Apple Music or a CD? Not much difference. Er, with the loudness, I mean.

Through a combination of adjusting the gain, or sensitivity of the microphone used to record, and through both hardware and software tools used to adjust levels of tracks post-recording, their voices will hit a record at largely similar volumes. Yes, different genres of music have different levels of reliance on the lead vocal track that will drive marginal differences, but by and large the peak levels of vocals will reach roughly the same volume on most modern recordings.

Much of this normalized level is defined by the fact that there are limits to how loud something can be in a recording at a certain bitrate before it begins to distort. In other words, the loudest segments of a recording are going to be just a bit below where they’d create distortion.

That creates a problem for the engineer and producer alike: if the peaks – the loudest parts – of every recording are being normalized to similar levels for reproduction and you want to make your music stand out from the rest as energetic, powerful or exciting, how do you do it?

The answer: you crank up the volume on everything but limit or cap the peaks in the recording from getting so loud that they will distort.

And that’s exactly what the music industry did. They cranked up the volume of anything remotely quiet, limited the peaks from distorting, and compressed the overall dynamic range of everything we listen to. (The software and hardware tools used to achieve this are literally called compressor/limiters)

Now, they didn’t really start with Cracked Rear View in 1995, obviously. It was something that engineers and artists had experimented with many times over the years. Some pressings of Hotel California did it in 1976. Queen tried it on Sheer Heart Attack that same year. AC/DC and Ozzy, for example, released a number of records in the early 80s that were designed to crank things up. Metallica dabbled with several in 1983. The Who’s soundtrack to Tommy that same year. Twisted Sister in 1985. It wasn’t just a rock music phenomenon, although it’s clear to see why those artists and engineers thought it was an appealing strategy to make their recordings stand out for their audience. Live music also often relies on compressor/limiters to handle uncertainty, bad microphone technique, blending with crowd noise, feedback and other issues. Even live music with a decidedly relaxed groove, like Bob Marley’s live album Babylon by Bus, stands out on this dimension.

There were also some albums that still allowed some Dynamic Range after the Elton/Hootie Line had been crossed in 1995. Most were in what people outside of Texas call country music (e.g. Shania Twain’s The Woman in Me and Garth Brooks’s The Hits) and in corners of rap and hip-hop (e.g. Coolio’s Gangsta’s Paradise). By 1997, country music was the only holdout. Engineers for George Strait (PBUH) and his album Carrying Your Love With Me kept a light touch on their compressor/limiters. Same with Leann Rimes’s Unchained Melody. But for basically any other charting album and every other genre, the line had been permanently crossed.

Just as we can measure loudness with decibels, we can measure the extent to which the dynamics of music have been compressed with a measure called Dynamic Range. It is a variant of crest factor, which measures the ratio of the peak value of a waveform to a representation of its general level (RMS). Basically, a Dynamic Range of 14 or more usually means music that has not been compressed very much. Dynamic Range of 11-13 might imply a moderate level of compression that we’d usually associate with the normal process of normalizing levels in a typical mastering setting.

Below that? Either you’re listening to some weird Philip Glass album that’s like 45 minutes of a sine wave, or your engineer is dialing up the compression. All to make the music stand out to you, dear consumer. You like energetic music, don’t you? Exciting music? Stirring, thrilling, powerful music?

Making music sound more energetic and exciting through the use of heavy compression was initially a dominant and escalating strategy in an industry that was playing a Coordination Game. That doesn’t mean that there wasn’t competition, or even that it wasn’t frequently cutthroat. It meant that the nature of that competition was not to take actions which harmed the ultimate product AND forced everyone else to do the same thing.

It was what game theory calls a Stag Hunt, something we’ve written about several times in context of politics and markets. The basic idea is that if both parties coordinate their hunt, they both end up taking home a stag. Lots of meat to go around. If one party decides to go off on his own to hunt a rabbit instead, the other party will miss out on the stag and any meat altogether.

It’s a game that has two equilibria in repeated plays: when players are cooperative, pursuing a better outcome for both is an equilibrium. When one party defects and decides that they’d prefer to win a relative game more than they want to take home the most meat, they’ll win for a while. But that isn’t a stable equilibrium. Everyone else quickly realizes that the defector cares more about winning than getting a better outcome. The only way they can eat at all is to defect and settle for a rabbit, too. The worse outcome for everyone becomes a new equilibrium.

epsilon-theory-virtue-signaling-september-30-2016-hunt-together-alone-chart

You see, when you heard it on the radio or on a CD player at your house, a Hootie and the Blowfish album that had been heavily compressed did feel more energetic. Pop in something else before or after, and even if it was more musical, more expressive and more interesting, it would be missing something. Once the top-selling albums all defected, NOT defecting to heavy compression would mean coming home from the hunt empty-handed.

And so they defected. All of them. Here is the Dynamic Range of the top-selling album by year for every year from 1968 to 2019. There was no going back.

Source: Epsilon Theory, Billboard, Dynamic Range DB

For most listeners, even this probably understates the experience. In addition to the audio compression being applied at the studio, beginning in the late 1990s many users began to consume audio in forms that applied additional digital compression to reduce the size of a recording. MP3s, and later, streaming. One of the frequent side effects of reducing the file size of a digital recording is a further reduction in its Dynamic Range.

Once the game changed, something else happened, too: the process of creating commercial music changed. What I mean is that if you knew that your music was going to be heavily compressed, the music that you would write, perform and produce would probably be different.

It was.

The music being recorded changed in ways completely unrelated to audio compression at almost the exact same time. As we crossed the Elton/Hootie Line, we also saw dramatic compression in lyrical diversity. Colin Morris at The Pudding put together a fascinating analysis of exactly that a couple years ago: how much you could compress a song’s full lyrical set using the Lempel-Ziv algorithm. You know it as the basis for most “zipping” programs you use because your IT department inexplicably limits your mailbox size at some absurdly small number.

Just like with zip files, we can compress the lyrics of a song based on repeated words and characters. The more compressible a song is, the more repetitive its lyrics. Here’s what Colin found. Essentially, pop lyrics were at a pretty consistent level for most of the 80s and early 90s. Then, around 1995/1996, lyrical complexity plummeted.

Oh sure, we may be mixing up cause and effect here. That’s OK. I’m not really saying that there’s some linear causal relationship between audio compression and lyrical compression. I’m saying that when you turn up the volume on anything, you’re defecting from a working game structure. You’re pushing the game from a Coordination Game to a Competition Game.

And it matters.

When we transform our interactions into Competition Games, it doesn’t just mean that we’re mean and yelling at each other all the time. It also means that optionality disappears. Degrees of freedom disappear. Creativity disappears. Diversity disappears. True risk-taking disappears. More of our decisions are optimized toward cartoons, abstracted versions of reality. More of our information is based on narratives and memes.


The Elton/Hootie Heuristic: When you turn up the volume, the signal to noise ratio drops.


Volume is a literal thing when it comes to music. But it’s a thing in politics and media, too. It’s extreme language. It’s big metaphors. It’s framing each issue in nearly existential terms. It’s the Flight 93 Election, every election for the rest of our lives.

In 2016, Ben wrote a seminal Epsilon Theory piece about how Donald Trump turned up the volume of our political discourse in a way that would break us.

Trump, on the other hand … I think he breaks us. Maybe he already has. He breaks us because he transforms every game we play as a country — from our domestic social games to our international security games — from a Coordination Game to a Competition Game.

Virtue Signaling , or…Why Clinton is In Trouble (Epsilon Theory, September 2016)

You can disagree about whether Donald himself is responsible. You can say he was an inevitable outcome of a prior defection in the Stag Hunt by a now almost entirely left-wing news media and academy. That’s maybe a little bit closer to my personal view. It doesn’t matter now. Whatever the proximate cause, the volume of our political discourse has been cranked to 11.

That volume manifests in our emotions about political opponents:

Growing shares in both parties give ‘cold’ ratings to those in opposing party

It manifests in extremes in the differences of our views, like the record gap in approval rating for President Trump observed between Democrats and Republicans in 2019. Like the research compiled indicating that out-group loathing was a greater political motivator than in-group preference.

But turning up the volume also does something else. It compresses the range of acceptable political ideas, policies and discourse. Through political correctness, patriotic correctness and things like cancel culture, views which don’t hew to the protective sphere of one political pole become socially impossible. There is rarely one governing narrative for any social sphere or institution, but views, opinions and actions which deviate from one of the compressed set of acceptable narratives are ruthlessly ostracized and eliminated.

But none of that is surprising. You already know that the volume has been turned up. You’ve seen the data showing our political polarization. You’ve seen the language framing each election and each issue in existential terms. You also already know that the compression is happening. Like us, you’ve probably despaired at the absence of nuance and any semblance of a political center. It’s not important to see all that data again.

What’s important is recognizing that the concepts of volume and the compression are linked. When you turn up the volume and make politics existential, you will ALWAYS limit the range of feasible views. You will ALWAYS end up with more institutional paralysis. You will ALWAYS make policy compromises far more difficult. You will ALWAYS constrain the emergence of good new ideas.

A loud political environment IS a compressed political environment.


That is just as true in media as it is in politics.

As with music, as with politics, the higher volume environment has created a tendency toward compression. What does that mean in this context? It means that when language becomes more extreme, when society becomes more polarized, narratives take on a more dominant role in defining and framing news coverage.

Consider each of the biggest news events of 2019 where it felt like the volume was turned to 11. Think about the nature of the articles you read. How long did it take for them to arrive at a discrete set of narratives, stories that everybody knew everybody knew about that event? How long did it take until you felt like you could predict exactly how each publication would frame updates about the event?

I’ll work back from the answer: A week. In 2019, it rarely took more than that to crowd out off-narrative takes on a high volume story.

Consider this list of the major news events of 2019:

  • Mueller Report
  • Impeachment of Donald Trump
  • Death of Jeffrey Epstein
  • Celebrity Admissions Scandal
  • Notre Dame Fire
  • Hong Kong Protests (Ongoing)
  • Australia Fires (Ongoing)

Imagine that you could take in every article written about these events in the first week after they took place. Now imagine that you could look at every article written in the second week. Now imagine that for each of those blocks of articles, you could measure how similar the language used was to every other article published that week. For the ongoing events that took place over multiple months, imagine you could compare the stories written in the first major news month for the event (e.g. June 2019 for US coverage of Hong Kong protests) and compare them with articles written in December 2019.

If what you wanted to identify was how much off-narrative news was permitted to exist, you’d set some threshold for that measure of linguistic similarity that represented an unusually low degree of connectedness to the rest of the coverage. Then you could look at the two periods to see whether the share of articles falling below that threshold rose or fell. If off-narrative news was being sloughed off, you’d expect it to fall.

So that’s what we did. And that’s exactly what happened. Specifically, we present below the Period 1 to Period 2 change in the percentage of articles whose normalized mean harmonic centrality in a network graph of stories about each topic fell into the bottom 10% of values we’d expect in average network of news of that size.

Around a week after a major event, more than 20% of the off-narrative angles got compressed into on-narrative takes. And while the point here is a more general one about the volume level of our volume in the aggregate, I don’t think it takes much to observe that the more political articles appear to have been more subject to compression in off-narrative perspectives between the initial and subsequent period after the event.

A loud environment for information is also a compressed environment for information.


A few weeks back I wrote a piece called We Hanged Our Harps Upon the Willows. The intent of the piece was to reiterate our long-standing belief that the only answer to Competition Games is not to play. I think some readers thought it was an argument for not doing anything. For blogging and hiding in a walled garden.

That isn’t it. At all.

Let me tell you how the Loudness War Competition Game was solved, because I think it’s instructive not only for media, but for every kind of political, financial market and other Competition Game in our world today.

The Loudness War was solved when enough people who really loved music and had had enough of overcompression got together to create a sustainable environment…for vinyl records.

That’s it. They didn’t boycott the big labels. They didn’t try to draft people into being installed as executives to shift the direction of music. They didn’t push for regulatory standards on bitrates or streaming compression. They refused to sing their songs. They refused to play their games. They created a community. They grew it. They invested themselves in it. They paid way too much for vintage tube pre-amps. They converted artists to their passion. That conversion made other adjacent communities, like those built around digitally distributed music encoded with lossless codecs, stronger, too.

Don’t get me wrong. If you’re not acting intentionally, most music you will hear today is still hilariously simplistic and overcompressed. The point is that you now have a choice. But in most – not all, but most – of the battles we will fight today and in the future, this is what victory will look like: the creation of a sustainable, opt-in world for people who want to be free from a life in which we are obliged to invest our passion, treasure and energy in cartoons. In other words: epistemic communities.

Epsilon Theory is one. There are others.

Jonathan Haidt, Debra Mashek and the Heterodox Academy are building such a community, a response to compression and volume in academia.

Claire Lehmann and Quillette are building such a community, a response to compression and volume in media.

Eric Weinstein is building such a community. It responds to compression and volume across multiple social spheres.

Yes, even the Bitcoin community fits the bill in many ways.

So, too, do local institutions connecting people in narrow geographies that are too many to count. We’ve also expressed our admiration for organizations like Let Grow and Strong Towns in the past. They are involved at a national level in empowering our lowest-level institutions: families and towns.

If your response is to say that you have an issue with one or more of the ideas that have come out of these groups, well, all I can tell you is to join the club. Me too. That’s not the point. The point is that they are organized on axes other than the prescribed axes that result from a compressed environment. They are places where creativity and autonomy of mind can exist, where quiet can exist, where cooperative, coordinated game play can be promoted.

They are arenas in which we are each free to seek out the signal amid the noise.

Find your pack.


As regular readers will know, the graph included earlier in this note was referenced without identifying information in a brief competition held here. We asked subscribers to tell us what they thought the graph presented. No one guessed it exactly, but one long-time packmember came unnervingly close with what he later disclosed was a joke submission. All the same, we’re declaring Michael Madonna the winner of this competition.

Epsilon Theory swag incoming.


Epsilon Theory PDF Download (paid subscription required): The Elton/Hootie Line


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Don’t Test, Don’t Tell

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Epsilon Theory PDF Download (paid subscription required): Don’t Test, Don’t Tell



I believe that a healthy society should not have only one voice.

Li Wenliang, Wuhan physician, born October 12, 1986, died February 7, 2020.

Last night, I received a Twitter DM that included screenshots of an email that went out to staff at the UC Davis Medical Center. After checking for authenticity, I posted the screenshots in a tweet of my own.

And that’s when, as the kids would say, it blew up.

I want to highlight a couple of quotes from this email.

Since the patient did not fit the existing CDC criteria for COVID-19, a test was not immediately administered. UC Davis Health does not control the testing process.

The facts here are pretty clear. Patient comes in from another hospital on Wednesday, Feb. 19 – this is one week ago – already intubated and on a ventilator, and the doctors at UC Davis – who have treated other COVID-19 cases – IMMEDIATELY suspect COVID-19.

But the CDC refuses to test for COVID-19.

Why? Because it didn’t fit their “criteria” for testing. They didn’t know for sure that the patient was in mainland China within the past 14 days, and they didn’t know for sure that the patient was in close contact with another confirmed case, so BY DEFINITION this patient can’t possibly have COVID-19. No test for you!

This is “Don’t Test, Don’t Tell” and it is the single most incompetent, corrupt public health policy of my lifetime.

And it’s happening all over the country.

Here, take a look at yesterday’s press conference from Nassau County, Long Island.

Excruciating. They spend the first five minutes of the presser congratulating each other. Then the update: 83 people are in self-quarantine at home, where they are supposed to “check their temperature” daily. Don’t have a thermometer? Not to worry! The Nassau County Health Commission will provide one for you!

Who are the 83 in self-quarantine? Why, they’re everyone that Homeland Security says should be in self-quarantine, based on “current guidelines” of someone who was in mainland China within the past 14 days.

Has it been 15 days since your mainland China visit?

Have you been to Northern Italy in past 14 days?

Have you been to Iran in past 14 days?

Have you been to South Korea in past 14 days?

Well, no self-quarantine for you! You’re fine!

And here’s the kicker. Not only is there ZERO tracking or monitoring of anyone who has been swimming in the coronavirus stew of South Korea, Northern Italy and Iran, but let’s say that you have in fact been to one of those areas recently and now you’re feeling sick. You go to the doctor and you tell her the whole story. Both of you suspect it might be COVID-19. You’re trying to do the right thing here. You call the county health authority. You call the state health authority. You call the CDC. And then you learn the awful truth of Don’t Test, Don’t Tell.


It’s not that testing is not available.

It’s that testing is not ALLOWED.


I’m not panicked. I am perfectly calm.

But I am really, really pissed off.

Because here’s the other quote from the UC Davis email that I’d like you to pay close attention to:

When the patient arrived [Wednesday], the patient had already been intubated, was on a ventilator, and given droplet protection orders because of an undiagnosed and suspected viral condition. … On Sunday, the CDC ordered COVID-19 testing of the patient and the patient was put on airborne precautions and strict contact precautions.

Translation: for four days, every healthcare professional treating this patient at UC Davis was exposed to airborne transmission of COVID-19. And so was every healthcare professional at the hospital before UC Davis. Because the CDC refused to test this patient for COVID-19 in a timely manner, the doctors and nurses and technicians caring for this patient were put at risk.

Sure enough:

We are asking a small number of employees to stay home and monitor their temperature.

This is the part of the story that we must yell at the top of our lungs.


Don’t Test, Don’t Tell is not just hiding the true extent of COVID-19 cases in the United States.

Don’t Test, Don’t Tell is not just perpetuating the politically corrupt “Yay, Containment!” narrative of this White House.

Don’t Test, Don’t Tell is endangering the lives of our doctors and nurses.


Just like in China.

Just like in Wuhan.

A city falls when its healthcare system is overwhelmed. A city falls when its national government fails to prepare and support its doctors and nurses. A city falls when its government is more concerned with maintaining some bullshit narrative of “Yay, Calm and Competent Control!” than in doing what is politically embarrassing but socially necessary.

That’s EXACTLY what happened in Wuhan. More than 30% of doctors and nurses in Wuhan themselves fell victim to COVID-19, so that the healthcare system stopped being a source of healing, but became a source of infection. At which point the Chinese government effectively abandoned the city, shut it off from the rest of the country, placed more than 9 million people under house arrest, and allowed the disease to essentially burn itself out.

And so Wuhan fell.

The disaster that befell the citizens of Wuhan and so many other cities throughout China is not primarily a virus. The disaster is having a political regime that cares more about maintaining a self-serving narrative of control than it cares about saving the lives of its citizens.

We must prevent that from happening here. From happening anywhere. Yes, containment has failed. But that does NOT mean the war is lost. We can absolutely do better – SO MUCH BETTER – for our citizens than China did for theirs.


The CDC’s Don’t Test, Don’t Tell policy came crashing down last night. So did Trump’s “buh, buh the flu” and “Yay, Containment!” narratives.

Now let’s get to work preparing for the fight to come.

Not in panic. Not in fear. But with resolve, sacrifice and righteous anger for those who would use us instrumentally for their own political ends.

Clear eyes. Full hearts. Can’t lose.


Epsilon Theory PDF Download (paid subscription required): Don’t Test, Don’t Tell


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The Fall of Wuhan

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Epsilon Theory PDF Download (paid subscription required): The Fall of Wuhan


Two weeks ago I wrote about the corrupt political response of China to COVID-19.

Last week I wrote about the corrupt political response of the World Health Organization to COVID-19.

This week I’m writing about the corrupt political response of the United States to COVID-19.

Because it’s happened before.

In August 2005, the city of New Orleans fell.

New Orleans did not fall because of Hurricane Katrina.

New Orleans fell because of the corrupt political response to Hurricane Katrina.

We can stabilize the situation. Again, I want to thank you all.

Brownie, you’re doing a heckuva job!

President George W. Bush

In January 2020, the city of Wuhan fell.

Wuhan did not fall because of COVID-19.

Wuhan fell because of the corrupt political response to COVID-19.

Wuhan is a heroic city, and people of Hubei and Wuhan are heroic people who have never been crushed by any difficulty and danger in history. All regions and departments performed their duties actively and conscientiously.

Xi the Commander (no, I am not making this up; this is how the Xinhua news service describes him now … “Xi the Commander”)

A corrupt political response is always the same. It never changes in form. It never changes in function.

A corrupt political response occurs when a political leader sacrifices national interest for regime or bureaucratic interest … when a constructed narrative of “Yay, Calm and Competent Control!” is maintained for the political benefit of the Leader at the expense of the Led.

Oh, the Leader and his flunkies will convince themselves that the narrative “is in the public interest” … that the narrative will “buy them time” … that the narrative is necessary because “the other side” would do the same or worse if given half a chance. It’s all the excuses that all the Renfields to all the professional politicians tell themselves as they slowly sell their souls. It’s what every President and every Director-General and every Senator and every CEO eventually comes to believe, that their personal interests are identical to “their” people’s interests.

Corrupt political responses occur all the time. Literally every day, all over the world. It’s not a left/right thing. It’s not a Democrat/Republican thing. It’s not a Chinese thing or an American thing or a Russian thing. It’s a power thing. It’s a high-functioning sociopath thing.

Not only are corrupt political responses as common as rain, they’re almost never big deals. It’s not treason. It’s not Benedict Arnold selling a map of West Point. It’s petty stuff. It’s patronage appointments. It’s log-rolling. It’s pork barrel politics. Who’s gonna notice? Who’s hurt?

Precisely because these corrupt political responses are so commonplace and so quotidian, they are almost never revealed publicly. I mean, sometimes you have a “whistleblower” listening in on your petty corrupt bargaining with the Ukrainian President or some such, and it blows up into a bit of a tempest, but that’s the exception rather than the rule. And even so, these normal-time reveals are almost always tempests in teacups … full of sound and fury, but no more than that.

But every once in a very great while, an honest-to-god crisis reveals the consequences of your petty everyday corruption, consequences that are paid in the LIVES of those who trusted you to be better.

Every once in a very great while, an honest-to-god crisis reveals the political self-interest and mendacity behind your carefully constructed narrative of “Yay, Calm and Competent Control!” .

Like the fall of New Orleans revealed George W. Bush.

Like the fall of Wuhan revealed Xi Jinping.

What we must prevent today is the NEXT city to fall.

We must prevent the fall of Daegu. We must prevent the fall of Qom. We must prevent the fall of Milan. Looking ahead, we must prevent the fall of Yokohama. We must prevent the fall of San Francisco.

Because containment has failed.

What we’re seeing in South Korea, Iran and Italy is what exponential disease propagation looks like in the real world. Real world data is spiky. Real world data is messy. Real world exponential growth looks like nothing, nothing, nothing … then cluster, cluster, cluster … then BOOM! My rule of thumb: when a country reports a death from a local COVID-19 infection, then the disease is already endemic in that country. Implementing extreme quarantine measures after that first death – either within that country or by other governments to isolate that country – is closing the barn door after the horse is out … it’s too late. Doesn’t mean you shouldn’t do it for disease minimization or social distancing. But it does mean that a goal of containment is unrealistic.

What we’re seeing today in South Korea, Iran and Italy is the BOOM. Other countries will follow. The United States will follow.

And so now we must fight.

As individuals that means social distancing. As individuals that means doing what we can to stay healthy and prepare for a storm. As a nation that means a war-footing to build dedicated treatment wards before they’re required, to protect healthcare professionals before they get sick, to update our testing and diagnostic capabilities before they are swamped … to do everything possible to bolster our healthcare systems BEFORE the need overwhelms the capacity.

Above all, that means calling out our leaders for their corrupt political responses to date, and forcing them through our outcry to adopt an effective virus-fighting policy for OUR benefit, not theirs.

Because a city does not fall just because it is hit hard by a plague.

A city falls when its healthcare system is overwhelmed. A city falls when its national government fails to prepare and support its doctors and nurses. A city falls when its government is more concerned with maintaining some bullshit narrative of “Yay, Calm and Competent Control!” than in doing what is politically embarrassing but socially necessary.

That’s EXACTLY what happened in Wuhan. More than 30% of doctors and nurses in Wuhan themselves fell victim to COVID-19, so that the healthcare system stopped being a source of healing, but became a source of infection. At which point the Chinese government effectively abandoned the city, shut it off from the rest of the country, placed more than 9 million people under house arrest, and allowed the disease to essentially burn itself out.

And so Wuhan fell.

The disaster that befell the citizens of Wuhan and so many other cities throughout China is not primarily a virus. The disaster is having a political regime that cares more about maintaining a self-serving narrative of control than it cares about saving the lives of its citizens.

We must prevent that from happening here. From happening anywhere. Yes, containment has failed. But that does NOT mean the war is lost. We can absolutely do better – SO MUCH BETTER – for our citizens than China did for theirs.

And so we must call out the Director-General of the World Health Organization for his corrupt political response to COVID-19, where by continuing to toe the (literal) party line, he sacrifices WHO’s authority and credibility on the altar of China “access”.

During my visit to Beijing last week, I was so impressed in my meeting with President Xi at his detailed knowledge of the outbreak, and for his personal leadership … if it weren’t for China’s efforts, the number of cases outside China would have been very much higher.

WHO Director-General Tedros

And so we must call out the President of the United States for his corrupt political response to COVID-19, as well.

China has been working very hard to contain the Coronavirus. It will all work out well. In particular, on behalf of the American People, I want to thank President Xi!

President Donald Trump

Now the virus we’re talking about, having to do, a lot of people think that goes away in April with the heat, as the heat comes in, typically that will go away in April. We’re in great shape, though, we’re, we have 12 cases, 11 cases, and many of them are in good shape.

Trump’s enthusiastic support of Xi and his narrative of “Yay, Calm and Competent Control!” is absolutely a corrupt political response. It is an intentional trade-off of national security for domestic political gain – one part continued Chinese commitment to buy US agricultural products, something that Trump sees as critical to his electoral chances in November, and four parts continued stability for the stock market, something that Trump sees as absolutely critical to his electoral chances in November.

And before all the MAGA snowflakes get their feelings hurt by this criticism of Dear Leader … yes, I wrote a blistering note criticizing Obama and his corrupt political response to Ebola in 2014. It’s just unlucky for Trump that his deadly plague has a lot higher R-0 score.

And I’m not saying that Trump should be impeached on this. I’m not saying that this is some high crime or misdemeanor. No, no …

I’m saying something much stronger than that.

I’m saying that our actions today are what history will remember us for. And how we will be judged by our children and their children. That’s true for ALL of us, Team Elite or not, Bernie Bro or not, MAGA or not, commoner or king. Or even President.

I’m saying that there are decades where nothing happens, and then there are weeks where decades happen. This is one of those weeks. That’s paraphrasing an old enemy of the United States, but I’m saying it because I love my country.

I’m saying that we can absolutely still win this fight. I’m saying that this fight can bring us TOGETHER rather than drive us farther apart. If we let it. If we’re brave enough to do the right thing and not the narrative-expedient thing.

I’m saying that it’s time to speak out. Yes, you. I’m talking to you.

I’m saying it’s time to talk with your neighbors and your friends and your coworkers, and when they wave you off or give you the usual talking points from Dr. Gupta (“buh, buh the flu”) or the White House (“buh, buh the heat”), then you look them in the eye and you ask them to remember how they felt when New Orleans fell, how they felt when they saw those pictures from the Superdome, how they felt when our own government abandoned our own citizens in the wake of a natural disaster, not through malice but through incompetence. Ask them why we shouldn’t act now to prevent all that from happening again on a national scale. And then send an email to the White House and your governor and your reps and Senators. Together.

Once more with feeling:

Containment has failed. And so now we must fight.

As individuals that means social distancing. As individuals that means doing what we can to stay healthy and prepare for a storm.

As a nation that means a war-footing to build dedicated treatment wards before they’re required, to protect healthcare professionals before they get sick, to update our testing and diagnostic capabilities before they are swamped … to do everything possible to bolster our healthcare systems BEFORE the need overwhelms the capacity.

Above all, that means calling out our leaders for their corrupt political responses to date, and forcing them through our outcry to adopt an effective virus-fighting policy for OUR benefit, not theirs.

We got this.


PS. Trump tweeted this out as I was publishing this note today. Honestly, you can’t make this stuff up.


Epsilon Theory PDF Download (paid subscription required): The Fall of Wuhan


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The Industrially Necessary Doctor Tedros

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Epsilon Theory PDF Download (paid subscription required): The Industrially Necessary Doctor Tedros


The World Health Organisation will lead a mission to China this weekend to start investigating the COVID-19 outbreak.

Sky News, FEBRUARY 15, 2020

“start investigating”AYFKM?

There’s this pleasing mythology out there that the World Health Organization is like some international version of the Center for Disease Control, that it’s staffed by scientists and doctors flying all over the world and racing against the clock to battle infectious diseases and – against all odds – find The Cure.

I mean, that’s an actual subplot of Contagion, where an intrepid WHO scientist tracks down the disease origin in Hong Kong, goes to the remote Chinese village where all of the children are sick (the children!), is taken prisoner, and works heroically (if ultimately unsuccessfully) to get vaccines to the children (the children!).

This is a crock.

The World Health Organization is a political organization, bought and paid for by its sponsor countries (China foremost among them), with a single, dominant mandate: maintain the party line.

Literally.

The truth is that WHO has done nothing more than parrot the official Chinese Communist Party line since the day the world learned of COVID-19.

The truth is that only now – TWO MONTHS INTO THE EPIDEMIC – is WHO sending a “team” to “start investigating” the virus.

To be sure, WHO’s Director General, Dr. Tedros, has been to China several times since the disease broke out, glad-handing (again, literally) President Xi and all the other CCP mandarins.

So … I’m not going to get into the way China lobbied and pressured the UN to get Dr. Tedros appointed as WHO Director General, succeeding their hand-picked (again, literally) Director General, Margaret Chan, despite credible accusations that Tedros had covered up cholera outbreaks in his home country of Ethiopia. If you want to get into that, you can read this New York Times article: Candidate to Lead the W.H.O. Accused of Covering Up Epidemics.

And … I’m not going to get into the way Dr. Tedros appointed freakin’ Robert Mugabe as a Good-Will Ambassador for the World Health Organization, a toady move that was greeted by healthcare professionals (and anyone with a soul) as “a sick joke”. If you want to get into that, you can read this New York Times article: After Making Mugabe a ‘Good-Will Ambassador,’ W.H.O. Chief Is ‘Rethinking’ It.

No, no … I’m just going to highlight what Dr. Tedros said at the WHO Executive Board meeting in Geneva on February 4, a week after meeting with Xi in Beijing and a few days after senior Chinese diplomats started talking about the “racism” inherent in other countries stopping flights to China and denying visas to people with Chinese passports issued in Hubei province.

Tedros said there was no need for measures that “unnecessarily interfere with international travel and trade,” and he specifically said that stopping flights and restricting Chinese travel abroad was “counter-productive” to fighting the global spread of the virus.

This is the Director General of the World Health Organization. On February 4th.

“We call on all countries to implement decisions that are evidence-based and consistent,” said Tedros. Roger that.

There’s just one problem.

The “evidence” here – taken without adjustment or question from the CCP – was a baldfaced lie.

And everyone at WHO knew it.

How do I know that everyone at WHO knew that the official Chinese numbers were a crock on Feb. 4?

Because WHO-sponsored doctors in Hong Kong published independent studies on Jan. 31 showing that the official Chinese numbers were a crock.

https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)30260-9/fulltext

Money quotes:

In our baseline scenario, we estimated that the basic reproductive number for 2019-nCoV was 2.68 (95% CrI 2.47–2.86) and that 75,815 individuals (95% CrI 37,304–130,330) have been infected in Wuhan as of Jan 25, 2020.

If the transmissibility of 2019-nCoV were similar everywhere domestically and over time, we inferred that epidemics are already growing exponentially in multiple major cities of China with a lag time behind the Wuhan outbreak of about 1–2 weeks.

I’ve attached a PDF of the full report here: Lancet nCov2019 Model.

This is what it looks like when the narrative tail of personal and professional corruption (must support my Chinese benefactors!) wags the public policy dog (sure, I’ll recommend that flights and visas should continue, based on evidence I know is false!).

Will this disease spread farther and faster … will more people DIE … because WHO Director General Tedros recommended as best practice on February 4th that flights and visa issuance in and out of China continue without significant disruption?

Yes. I think so.

And yet … and yet … we are told that the REAL DANGER for public health is questioning the official Chinese line and these Stepin Fetchit policy recommendations of Dr. Tedros.

Here’s what Tedros wrote in a South China Morning Post op-ed piece THREE DAYS AGO:

In addition, a wider strategy is needed to debunk pseudoscience and strengthen trust in everything from vaccination to public institutions. Misinformation thrives where trust in the authorities is weak.

In a fast-evolving disease outbreak, there is a fine line between the deliberate spread of misinformation and the well-intentioned but potentially still damaging redistribution of false claims.

And here’s a Reuter’s article, also from three days ago:

The rise of “fake news” – including misinformation and inaccurate advice on social media – could make disease outbreaks such as the COVID-19 coronavirus epidemic currently spreading in China worse, according to research published on Friday.

In an analysis of how the spread of misinformation affects the spread of disease, scientists at Britain’s East Anglia University (UEA) said any successful efforts to stop people sharing fake news could help save lives.

And what is this “fake news”?

Fake news is now defined as anything that disputes WHO data, which means that fake news is now defined as anything that disputes the official China party line.

Why did China spend so much money to buy off the World Health Organization? This:

The World Health Organization is working with Google to ensure that people get facts from WHO first when they search for information about the new virus that recently emerged in China.

Since the outbreak began, a number of misleading claims and hoaxes about the virus have circulated online. They include false conspiracy theories that the virus was created in a lab and that vaccines have already been manufactured, exaggerations about the number of sick and dead, and claims about bogus cures.

Associated Press, Feb. 3, 2020

It’s not just Google. It’s also Ten Cent. It’s also Facebook. It’s also Twitter.

And no, you’re not misreading the clear narrative intent of these articles.

Where possible, China wants to criminalize any speech … any social media … that does not follow the official party line. Where it’s not possible to criminalize that speech, China wants to ban it through the cooperative censorship of global tech and media platforms. Where it’s not possible to ban that speech, China wants to shame it into the shadows by getting us to reject it as “fake news”.

And if you don’t see that the United States is about two minutes behind China in doing the same damn thing, then you’re just not paying attention.

I am certain that there are plenty of good people at WHO, and I am certain that they do good and important work, particularly in funneling money and resources to actual researchers and actual clinical programs.

But what is happening at the most senior levels of the World Health Organization is not just a disgrace. It is not just a humiliation for the people who are doing good and important work.

It is a betrayal of the entire world.


What’s to be done?

Getting Tedros the man out of the World Health Organization will feel good, and he deserves all the ignominy that’s coming his way, but it will accomplish nothing.

No, to accomplish anything here, we need to get rid of The Industrially Necessary Doctor Tedros.

See, the actual human being named Tedros Adhanom Ghebreyesusis is not The Industrially Necessary Doctor Tedros. The human Tedros is just another on-the-make politician, one of a zillion Renfields who sell their soul on the daily. Sure, he was tapped by his Chinese patrons to play the role of The Industrially Necessary Doctor Tedros, but if it hadn’t been him, there were plenty of other guys and gals to take his place.

We must look through Tedros the man to see the Nudging Oligarchy and the Nudging State that created The Industrially Necessary Doctor Tedros.

We must look through so many of the ideas we take to be immutable truths of safety or goodness – whether those truths concern the food we eat or the stocks we buy or the health we seek to preserve – and recognize that they are not truths at all!

They are conveniences, and not conveniences for us, but for the sellers of the food we eat or the stocks we buy or the health we seek to preserve.

THAT’S what it means to be Industrially Necessary – a constructed social practice in service to those who would subvert our autonomy of mind and will, presented to us as Truth-with-a-capital-T by Missionaries who shake their finger at us and tell us HOW to think about the world.

Once you start looking for The Industrially Necessary Doctor Tedros, you will see him everywhere.

And that’s when your world starts to change.


PS. If you haven’t yet read our original note on how we can tell the Chinese data on COVID-19 is false, here you go:

Body Count

China is fighting nCov2019 exactly like the US fought North Vietnam … with policy driven more by narrative control than by what’s best to win the war. That was a disastrous strategic mistake for the US then, and it’s a disastrous strategic mistake for China today. … Continue reading


PPS. And if you’d like to read our core notes on the Nudging State and the Nudging Oligarchy, together with the Industrially Necessary meme …

The Industrially Necessary Egg

In modern farming and in modern investing, we have become prisoners of the monoculture. It’s efficient. It’s necessary for a mass society of ever-increasing Desire. But here’s the thing. In the investment monoculture, you’re not the farmer. … Continue reading


Clever Hans

You don’t break a wild horse by crushing its spirit. You nudge it into willingly surrendering its autonomy. Because once you’re trained to welcome the saddle, you’re going to take the bit. We are Clever Hans, dutifully hanging on every word or signal from the Nudging State and the Nudging Oligarchy as we stomp out our behavior.  … Continue reading


Epsilon Theory PDF Download (paid subscription required): The Industrially Necessary Doctor Tedros


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Body Count

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Epsilon Theory PDF Download (paid subscription required): Body Count


Lancet nCov2019 propagation model PDF Download (free): Lancet nCov2019 Model


Over time, continual bad news will discourage any civilian population, and Americans had the lowest tolerance on the planet for bad news.

Karl Marlantes, “Matterhorn” (2009)

Have you read Matterhorn, by Karl Marlantes? You should. It’s not just the best novel I’ve ever read about the Vietnam War, but it’s also one of my irreplaceable sources of inspiration for understanding The Maw – that unlimited gluttony of the violent State to chomp on our bones and suck out our minds … and the oddly not-so-rare instances of individual human bravery to persevere regardless.

I would bet my life that there are thousands of instances of individual human bravery persevering against The Maw happening right now … in Wuhan … in Wenzhou … in dozens of other quarantined cities throughout China.

And in Xinjiang, too.

What was my first experience with The Maw? It was as a seven-year-old boy watching the nightly news on our little black-and-white set, where every night … EVERY NIGHT … we were told exactly how many American and South Vietnamese and North Vietnamese soldiers had been killed that day.

The American numbers were accurate, I guess, and the South Vietnamese numbers were probably in the right ballpark. But the North Vietnamese numbers of wounded and killed? Pure fiction.

The daily body count of killed and wounded North Vietnamese soldiers was, in Epsilon Theory-speak, a cartoon – an abstraction of an abstraction in service to the creation of Common Knowledge.

Hey, everyone knows that everyone knows that we’re winning the war in Vietnam. Didn’t you see the body count numbers on CBS last night?

Once you start looking for cartoons, you will see them everywhere.

Inflation numbers? Cartoon.

Employment data? Cartoon.

Asset allocation? Electoral coverage? Financial journalism? Cartoon, cartoon, cartoon.

And yes, we write a lot about cartoons. You can read more here, here, here, here, here and here. For starters.

But this is the kicker.

Because it was so important to maintain the fiction that we were Winning the War ™, and that fiction required metrics like a body count of North Vietnamese that was always a multiple of the South Vietnamese casualties and always a factor of the American casualties, American war-fighting policy was soon driven by the narrative requirement to find and count the “right number” of North Vietnamese casualties!

These were the infamous search-and-destroy missions of the Vietnam War.

This is The Maw in action.

Do a little research on search-and-destroy. Read about My Lai and Son Thang. Read Matterhorn.

And then take a fresh look at the coronavirus stats coming out of China.

Here’s the core post in a reddit thread that’s Matterhorn-esque in its truth (and a heck of a lot shorter to read).

The point of this quadratic regression on Chinese infection and death numbers as reported by the World Health Organization from the first official announcement through February 4 was the publication of this projection.

Sure enough, the WHO announcements since this prediction was published have been eerily close.

  • 2/5 — 24,363 cases — 491 fatalities
  • 2/6 — 28,060 cases — 564 fatalities
  • 2/7 — 31,211 cases — 637 fatalities
  • 2/8 — 34,598 cases — 723 fatalities
  • 2/9 — 37,251 cases — 812 fatalities
  • 2/10 — 40,171 cases — 908 fatalities

Crazy, right? The deaths being reported out of China are particularly accurate to the model, while the reported cases are leveling off (which is what you’d expect from a politically adjusted epidemic model over time … at some point you have to show a rate-of-change improvement from your epidemic control measures).

But wait, there’s more.

The really damning part of Antimonic’s modeling of the reported data with a quadratic formula is that this should be impossible. This is not how epidemics work.

All epidemics take the form of an exponential function, not a quadratic function.

All epidemics – before they are brought under control – take the form of a green line, an exponential function of some sort. It is impossible for them to take the form of a blue line, a quadratic or even cubic function of some sort. This is what the R-0 metric of basic reproduction rate means, and if – as the WHO has been telling us from the outset – the nCov2019 R-0 is >2, then the propagation rate must be described by a pretty steep exponential curve. As the kids would say, it’s just math.

Now I don’t want to get into the weeds as to whether it’s possible to model this specific data set with an exponential function (it probably is), and we’ll never have access to the detail of data we’d need to be certain about all this. And to be clear, at some point the original exponential spread of a disease becomes “sub-exponential” as containment and treatment measures kick in.

But I’ll say this … it’s pretty suspicious that a quadratic expression fits the reported data so very, very closely. In fact, I simply can’t imagine any real-world exponentially-propagating virus combined with real-world containment and treatment regimes that would fit a simple quadratic expression so beautifully.

I believe that the Chinese government is massively under-reporting infection data in the pandemic regions of Hubei and Zhejiang provinces.

Just like the American government massively over-reported North Vietnamese casualty data in the Vietnam War.

It’s not only that I believe the numbers coming out of China are largely made up.

More importantly, I also believe that Chinese epidemic-fighting policy – just like American war-fighting policy in the Vietnam War – is now being driven by the narrative requirement to find and count the “right number” of coronavirus casualties.

nCov2019 is China’s Vietnam War.

From a narrative perspective, China is fighting this war against nCov2019 exactly like the US fought its war against North Vietnam.

It’s what the Best and the Brightest always do … they convince themselves that the people can’t handle the truth, particularly if the truth ain’t such good news. They convince themselves that they can buy enough time to win the real-world war by designing and employing a carefully constructed “communication strategy” to win the narrative-world war.

That strategy proved to be a social and political disaster for the United States, as the cartoon tail (gotta get more NV casualties for Cronkite to report) ended up wagging the policy dog (send out more counterproductive search-and-destroy missions).

I think exactly the same thing is happening in China.

And I think the social and political repercussions will be exactly as disastrous.



PS. A couple of thoughtful readers on both the original reddit thread and here on my Twitter feed have asked whether it makes a difference to look at the daily reported cases and deaths rather than the cumulative reported cases and deaths. It’s a good question, as cumulative data can give the illusion of being “smoother” than the underlying phenomenon truly is, and the way you get around this is typically to evaluate the individual data points that are added together to get the cumulative data points.

First, it really is a good question, and it’s why I assign very little meaning to the high r-squared results for the quadratic regression on the reddit thread.

Second, though, you’ve got to be really careful with standard econometric techniques for evaluating the daily event count data (typically a Poisson regression), because the *assumption* that underlies those techniques is that the observations are, in fact, independent of each other. In other words, the standard assumption is that the number of new deaths or new cases today is independent of the number of new deaths or new cases yesterday, and I would submit to you that this is obviously not a viable assumption. There are ways to relax this assumption (for example, assume a negative binomial distribution for the underlying stochastic nature of this phenomenon rather than a Poisson distribution), but I am pretty certain that just by writing those words I have lost 99.99% of my readers.

So instead let me give you a numeric example of why I believe that – just like the American military leadership in the Vietnam War – the Chinese party leadership today is assigning a “target” death rate for the nCov2019 epidemic, and how that target plays out in both the daily and the cumulative reported data.

Let’s imagine, for example, that you’re President Xi, and you’d like to show that you are Winning the War ™ against nCov2019. You can’t just say that the epidemic is over and the disease is cured, because you’ve got more than 100 MILLION people in a military quarantine, and it’s kinda obvious that the disease is anything but cured. But you want to show progress in Winning the War ™.

So maybe you come up with a rough formula that goes something like this …

Yesterday we told everyone that 500 people have died since the outbreak. That’s a made-up number, of course, but that’s what we told everyone. Today let’s tell everyone that an additional 15% of that number died yesterday, so 75 new deaths for 575 total dead. And tomorrow let’s tell everyone that 14% of that total number died, and the day after 13%, and then 12% and then 11%. Clear progress! Got it, my loyal cadres?

In fact, China reported a total of 491 cumulative deaths from nCov2019 through Feb. 5th. If you applied my incredibly rough and cartoonish model, then, of 15% new deaths on Feb. 6th, and 14% new deaths on Feb. 7th, and so forth and so on, you’d end up with the following daily data points on new and cumulative deaths:

  • Feb. 6 — 74 new deaths — 565 cumulative deaths
  • Feb. 7 — 79 new deaths — 643 cumulative deaths
  • Feb. 8 — 83 new deaths — 720 cumulative deaths
  • Feb. 9 — 87 new deaths — 810 cumulative deaths
  • Feb. 10 — 89 new deaths — 901 cumulative deaths

And now here’s what China and the WHO actually reported:

  • Feb. 6 — 73 new deaths — 564 cumulative deaths
  • Feb. 7 — 73 new deaths — 637 cumulative deaths
  • Feb. 8 — 86 new deaths — 723 cumulative deaths
  • Feb. 9 — 89 new deaths — 812 cumulative deaths
  • Feb. 10 — 96 new deaths — 908 cumulative deaths

I mean … c’mon, man.

I just gave you a ridiculously naive and idiotic model of “Progress in the War against Coronavirus!”, and it’s incredibly predictive for the reported data ON A DAILY BASIS for a nation of 1.4 BILLION people in the throes of an unimaginable public health crisis.

They’ll need to tweak this ridiculously naive and idiotic model, because the 1% improvement per day is clearly too optimistic even for the willing stooges at WHO to keep swallowing, but tweak it they shall. And the willing stooges at WHO will keep reporting the official numbers.

You remember what happened to the American narrative of Winning the War in Vietnam ™, right?

This happened. The Tet Offensive happened.

In real-world, the Tet Offensive was a disaster for the Viet Cong and the NVA regulars. In narrative-world, though, it changed everything. North Vietnam wasn’t on the “verge of surrender”. We weren’t “winning the hearts and minds” of the Vietnamese people. What everyone knew that everyone knew about the Vietnam War changed on a dime.

The Tet Offensive changed our Common Knowledge about the Vietnam War.

We are one photograph like this from Common Knowledge about nCov2019 changing in exactly the same way.

It’s coming.



PPS. If you’d like to see how professionals who are not toadies of the CCP might model the spread of nCov2019, I highly recommend this Jan. 31st article in The Lancet:

https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)30260-9/fulltext

Money quotes:

In our baseline scenario, we estimated that the basic reproductive number for 2019-nCoV was 2.68 (95% CrI 2.47–2.86) and that 75,815 individuals (95% CrI 37,304–130,330) have been infected in Wuhan as of Jan 25, 2020.

If the transmissibility of 2019-nCoV were similar everywhere domestically and over time, we inferred that epidemics are already growing exponentially in multiple major cities of China with a lag time behind the Wuhan outbreak of about 1–2 weeks.

I’ve attached a PDF of the full report below (Lancet nCov2019 Model), and there is no subscription required to download.


PDF Download (paid subscription required): Body Count


Lancet nCov2019 propagation model PDF Download (free): Lancet nCov2019 Model


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We Hanged Our Harps Upon the Willows

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By the rivers of Babylon, there we sat down, yea, we wept, when we remembered Zion.

We hanged our harps upon the willows in the midst thereof.

For there they that carried us away captive required of us a song; and they that wasted us required of us mirth, saying, Sing us one of the songs of Zion.

Psalms 137:1-3

Each year around this time we make the journey back home to Texas.

It’s an opportunity to see family. It’s an opportunity to surrender our bodies to enchiladas. It’s an opportunity to take our youngest son to check in with the neurosurgeon who took his skull apart and the plastic surgeon who made sure it came back together correctly.

OK, I’m being a bit dramatic.

The procedure he underwent has remarkable success rates, and in expert hands has pretty low risk. Empirically. But let’s make a deal: you hand over your sleeping two-month old to a group of doctors who have told you they intend to put him under general anesthesia for three hours to cut out five strips of his skull and see what kind of stoic Enlightenment scientist you turn out to be.

But even as I say that, I know I shouldn’t. Many of you have experienced this kind of powerlessness before – and worse. After all, our inability to control every circumstance we face is, shall we say, a fundamental feature of the world.

It’s also a good reason not to turn over any more of that autonomy than we must on those rare occasions when we actually have a choice in the matter.


Last week I made a comment on social media saying that I found it really hard to dislike Andrew Yang. A commenter told me they couldn’t understand how that might be possible. After all, his policies were absurd and expensive.

Opinion gatekeeping like this is an occupational hazard. If you haven’t been informed that an opinion you expressed isn’t allowed because someone else perceived some measure of inconsistency with another opinion you expressed, then you simply haven’t said enough. Give it time. When it happens, you too shall marvel at the gaps in your views others are willing to fill in for you.

Someone else told me they were surprised. Wasn’t Yang’s use of “Freedom Dividend” the sort of Orwellian newspeak I usually rail against?

It was an earnest question. And fair. As it happens, I don’t have a problem with the branding because I don’t think Yang’s campaign is summoning “Yay, Freedom!” memes to tell me how to think about the policy. No one is positioning his UBI proposal in a way that would characterize my opposition to it as a lack of belief in freedom itself. I think the guy truly believes his policy is like a successful business’s dividend – sharing more broadly the prosperity that free enterprise brought about.

Corny, yes. Misguided? I think so. Malicious? Meh.

When we attune ourselves to the special dangers of a world we experience and understand through stories, it is easy to become cynical about every analogy, every example of symbolism, every bit of branding that abstracts the reality of something into some other frame chosen by the speaker. There is no cure for this paralysis. Sorry. The difference between the harmful, malicious use of meme to tell us how to think and what to fear, and the empathetic use of shared imagery to establish common understanding is often one of magnitude, not of kind. Of intent. No flashing lights. No klaxons.

I wrote an essay a couple years ago about this unusual challenge.

It is a lesson in two parts: Life is too short to surrender autonomy of mind. Life is also too short to see a tyrant in every poet.

We obnoxiously intone the mantras of clear eyes and full hearts because they generalize a process to evaluate something that is unavoidably subjective. Only you know and only you can judge if someone’s words or the collective common knowledge being promoted by a missionary is affecting your autonomy of mind. When we DO actively assert the belief that someone is acting as a missionary for a narrative in an objectively harmful way, it is almost always because that person occupies a seat from which we are right to demand an uncolored description of facts: The media. Government officials. Scientists. Chief financial officers.

Anyone in one of those seats who tells you how to think would carry you away as captive and require of you a song. They would steal your autonomy of mind.

It’s really that simple.

Except in most other cases, it isn’t that simple. Not remotely. Most of the stories we will be told and memes we will be subjected to in a day won’t come from scientists and journalists. They will come from friends, loved ones, colleagues, prospective business partners, community leaders and national political leaders. Or from ourselves. Some missionaries, some not. That means that citizens of a world awash with meme and narrative face two risks to our autonomy of mind: that we would become paralyzed, perceiving manipulation in every empathetic use of symbol, or that we would ignore or fail to perceive true acts of manipulation.


Both are real, but I think the second is the greater risk. Why?

Well, in small part, it’s because we already have a good answer to that inevitable cynicism when we feel like we see narrative everywhere: full hearts. Grace and mercy, and a willingness to consider intent go a long away. But the bigger reason lies elsewhere:

Because the danger of powerful memes, cartoons and narratives is not that they demand our acquiescence. It is that they demand our participation.

When we are asked to hold up our Yay, Democracy! signs, we are not only told how to think about the importance of elections and our role in collective oversight of government institutions. We are compelled to participate in voting for ridiculous candidates who do not deserve the office on the basis of manufactured existential fear. You don’t want to be to blame for Trump being elected again / the socialists destroying our capitalist foundations, do you?

When we are asked to hold up our Yay, Military! signs, we aren’t just being told how to think about the right kind of moral, financial and spiritual support we should provide to our veterans and active warriors. We are being compelled to participate, told that if we do not stand up, salute the flag and support every expenditure, every conflict, and every explanation provided to us for the same, that we are failing them. You don’t hate the military, do you?

When we are asked to hold up our Yay, Peace! signs, we aren’t simply being told how to think about the right posture on foreign policy. We are being compelled to participate, told that we must support and vote for political candidates who cyncially claim that he or she will be the one to “end our endless” wars, only to once again shift the goalposts like so many officeholders before. You don’t hate peace, do you?

When we are asked to hold up our Yay, Work Ethic! signs, we aren’t simply being told how to think about the classic American values that unleashed capitalism. We are being compelled to participate, told that if we don’t willingly invest ourselves in pointless work divorced from its underlying purpose we have somehow repudiated some entrepreneurial spirit. You don’t hate hard work, do you?

When we are asked to hold up our Yay, Alignment! signs, we aren’t just being told how to think about the right way for principals and agents to align. We are being asked to participate, told that resistance to a particular compensation model represents an opposition to alignment per se. You don’t hate being aligned with your clients, do you?

When we are asked to hold our our Yay, College! signs, we aren’t just being told how to think about the importance of higher education to a functioning, growing industrial society. We are being asked to participate, to turn a blind regulatory eye to the ever more bloated cost and administrative strucures of American universities, to support their ongoing growth through debt forgiveness, to join in the rousing chorus of “Well of course smart kids should to go to college.” You don’t hate education, do you?

When we are asked to hold up our Yay, Capitalism! signs, we aren’t just being told how to think about the indispensible role a system which rewards risk-takers has played in creating a prosperous world. We are being asked to participate, to be always-on, always-long and always-indexed in US large cap equities, regardless of valuation and regardless of potential sources of artificiality in the costs of capital for many companies. We are told to treat management teams like entrepreneurs, voting for conflicted boards, extravagant salaries for an army of EVPs and rich buyback-immunized share grants in exchange for sector benchmark matching returns. You don’t hate capitalism, do you?


Ben has already written about the way out. It’s included in one of the links above to a note called a Song of Ice and Fire. He suggests the only way for those with clear eyes to do battle against the songs used to steal our autonomy of mind is to remember that we may sing our own songs, too. There are words we can write and symbols we can revive. We can use them to tell true stories – sing new songs – about education and equality and freedom and faith and capitalism and country and entrepreneurialism and risk-taking and sovereignty.

We can create new common knowledge that, within our community at least – at first – is in fact a reflection of what we all believe and not what we all want others to believe.

We are the human animal.

We are non-linear.

We ARE a song of ice and fire.

It’s a song that has built cathedrals and fed billions and taken us to the moon.

It’s a song that can do all of that and more … far, far more … if only we remember the tune.

A Song of Ice and Fire (Epsilon Theory, May 2019)

If you are interested in maintaining autonomy of mind in a world awash in narrative, This is The Way. But before we can sing a new song, we must stop singing theirs.

So deny them the mirth they require. Deny them the song they demand. Withhold your participation in their cynical game.

It’s time for the clear eyed to hang their harps upon the willows.

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