Hunger Games


Epsilon Theory PDF Download (paid subscribers only): Hunger Games

And may the odds be ever in your favor!

You have been told that investing in the stock market is like betting on a sports game.

You have been told that you are a SPECTATOR in the game of markets, that you are WATCHING a game being played out in front of you by lots of different companies.

You have been told that you should make ‘bets’ on those companies based on how well you think those companies can play the game that you are watching. The companies will play the game and they will keep score by ‘beating’ or ‘missing’ on revenues and earnings and the like, and then that score will determine whether or not your bets pay off.

You have been told that the better you are at ‘analyzing’ the teams playing this game, the more ‘due diligence’ you put into studying the teams playing this game, the more money you will make with your bets.

You have been told that everyone can win with their bets, that this is how you, too, can achieve the wealth that you deserve.

You have been told that the odds are ever in your favor.

You have been told this for your entire life.

More and more, you suspect this is a lie. But if it is a lie … what then? What meaning exists in the stock market if this is a lie?

Over the past few weeks you have been told a new story. A brave story. A story of heroes. A story of meaning.

You have been told that by banding together and acting as one, you can “democratize” the stock market.

You have been told that you can slough off your market oppressors who “want companies to fail”.

You have been told that you can be a PARTICIPANT in the game of markets, that you can storm the playing field of companies, that you can take matters into your own hands and rescue a promising company under unfair attack.

And, yes, make some good money in the process. Why not? Seems only fair.

President Chamath Coin enlists Katniss to the cause.

Today, as you see the collapsing stock prices of the companies you supported, you suspect that this was a lie, as well.

And you’d be right.

Neither story is true. Neither story has EVER been true.

Both of these stories are narratives for our very own Hunger Games, a spectacle that chews up the participants in the arena while delivering enormous profits to the networks (media, financial and political) that put them on. Media networks count their profits in eyeballs, in the attention the Games garner. Financial networks count their profits the old-fashioned way, in the sheer volume of dollar-generating order flow the Games produce. As for politicians, they get their most valuable coin of the modern realm – an issue. The wackos on the left get to propose insane transaction taxes. The wackos on the right get to tell us how much liBeRtY we are enjoying by giving Ken Griffin all of our money. The very serious centrists get to tell us about how we need “a national conversation” about the T+2 settlement issues raised here.

And what about the rest of us? What about all of us reading story after story about the “Reddit Revolution” and what it means for us?

What do WE get out of the Hunger Games?

We are entertained.

This: the events of last week, with Gamestop soaring to $400/share and a subreddit chat group being the focal point of the “revolution” and Robinhood shutting down trades at the height of the frenzy and every hedge fund in the world degrossing at a mad clip and the usual Caesar Flickermans in politics and media trumpeting out a bullshit narrative of the little guy sticking it to The Man … changed NOTHING.

You were played. Again.

Also, this: the events of last week, with Gamestop soaring to $400/share and a subreddit chat group being the focal point of the “revolution” and Robinhood shutting down trades at the height of the frenzy and every hedge fund in the world degrossing at a mad clip and the usual Caesar Flickermans in politics and media trumpeting out a bullshit narrative of the little guy sticking it to The Man … changed EVERYTHING.

We had TWO Emperor’s New Clothes moments last week. Two moments that individually come around every 20 or 30 years. In one week.

What is an Emperor’s New Clothes moment? It’s when the meaning of a social institution changes on a dime. It’s when the common knowledge of a social institution – what everyone knows that everyone knows – changes on a dime.

I’ll express these two Emperor’s New Clothes moments as memes, which seems only appropriate.

Last week’s events accomplished every goal set out by the orchestrators of the Reddit Rebellion.

Goal #1: Melvin Capital’s ridiculous short position was obliterated, and there was much rejoicing by the usual Wall Street suspects who had set up their long positions in hopes that this narrative snowball they rolled down the hill would create just such an avalanche.

Goal #2: Both retail order flow and target stock volatility grew exponentially, creating windfall market maker profits. Sure, things got a little dicey there with that whole Robinhood clearinghouse thing, but all’s well that ends well.

But accomplishing these goals came at a price. The curtain was pulled back on what Wall Street really is, and The Man behind the curtain was revealed for everyone to see.

We all see it. We all see it.

Here’s the first thing we all saw:

We all saw that the thing that determines whether or not our stock market bets pay off is … other bets. We all saw that there is no “game of companies” taking place independently of our bets. We all saw that our bets, in and of themselves, can win the “game”, with absolutely zero input from the “team” that is supposedly out on the “field”.

What happened last week would be exactly like New York Jets fans getting together and deciding “hey, if enough of us bet on the Jets to beat the Patriots, that will CAUSE the Jets to beat the Patriots.” Insane, right?

But that’s exactly what happened.

Because unlike football, the bets ARE the game.

This is Secret #1. This is what Stevie Cohen and all the hedge fund masters of the universe know that you don’t.

The bets ARE the game.


Here’s the second thing we all saw:

We all saw that the rules of the game can be changed without warning if the game isn’t working out for the owners of the game. We all saw that the dominant retail broker platform (and non-dominant ones, too) were told by trading settlement rules makers to shut it down for a day. No warning. No hearing or discussion. Just a phone call that they were on double secret probation and could either come up with billions of dollars in cash … NOW … or shut it down.

What happened last week with Robinhood would be exactly like if the referees who were working that Jets versus Patriots game – the one that the Jets were miraculously winning – decided at halftime that the Jets would not be allowed to have the ball on offense in the second half unless they ponied up a couple of billion dollars in an escrow account. Insane, right?

But that’s exactly what happened.

Because unlike football, the referees OWN the game.

In this game, it’s not the people who make the biggest and most profitable bets who have the most money and the most power. No, it’s the referees. And by referees I don’t just mean the people who adjudicate the rules at the settlement clearinghouses. They’re basically the equivalent of, say, college football referees … an important but not that important subset of all referees. No, I want to focus on the equivalent of professional sports league referees, the top of the referee hierarchy, if you will. I want to focus on the people who place the ball on the 40-yard line or the 41-yard line in the Super Bowl, on the people who whistle a charge or a block on Lebron’s drive, on the people who call balls and strikes on Gerrit Cole. And who call the shots at the settlement clearinghouses, too, if you wanna know the truth. I want to focus on the people who adjudicate the bets and take a small fee from every transaction for their trouble. I want to focus on the market makers.

Last year, Citadel Securities, the market maker division of Ken Griffin’s financial empire and the largest market maker that executes retail trades, made $6.9 BILLION in net trading revenues. That’s more than twice their prior best year. They did this without taking ANY market risk. NONE.

Every time you push that button on Robinhood to buy something, Citadel Securities matches you with the seller and tells both of you what price you got. Every time you push that button on Robinhood to sell something, Citadel Securities matches you with the buyer and tells both of you what price you got.

And in that infinitesimal point in time when there is a tiny difference between what a buyer bids for a security and what a seller asks for a security, an infinitesimal point in time when Citadel Securities is BOTH buyer and seller of that security, an infinitesimal point in time that exists for EVERY market order that has ever occurred in the history of man … Citadel Securities is there.

They pocket that tiny difference. Not so tiny in the case of options. Definitely not so tiny when volatility spikes and that bid/ask spread widens dramatically. That’s what a market maker does, and that’s why they are the masters of this game. They literally make the market.

Citadel Securities doesn’t care if you’re buying or selling.

Citadel Securities only cares that you ARE buying or selling.

And you are. Business is good. Everyone all of a sudden wants to download that Robinhood app and start trading. You may have noticed that there are a lot of media stories about that.

Virtually all of the Robinhood orders go through Citadel Securities. Why them? Because they pay Robinhood top dollar for it. That’s how Robinhood makes money. Not by charging you a fee on your transactions, but by selling your Flow to Citadel Securities. What’s that line? When the product is free, yada yada yada.

Know who else Citadel pays top dollar to? Janet Yellen.

For the nanosecond that Janet Yellen was between jobs as Fed Chair and now Treasury Secretary, Citadel paid her $810,000 to deliver three speeches. Apparently that first speech was so riveting that they needed two more.

And you thought your ten-bagger in GME was a good investment. Imagine spending $800k to be best buds with the person who regulates your $7 billion in annual revenues.

It always amazes me how cheap it is to buy political influence. The best investment on Earth.

This is Secret #2. This is what Ken Griffin and all the market maker masters of the universe know that you don’t.

Market makers OWN the game.


Is any of this stuff illegal? Probably not. Maybe. I dunno. But here’s what I’d be asking if I were a Congressional staffer trying to figure out how to make my boss look good.

First I’d swear in CEO Vlad of Robinhood and ask him the following question:

Sir, are your internal controls so poor and your understanding of markets so rudimentary that you found yourself in violation of capital posting requirements to such a degree that your only option was shutting down client trades OR did the National Securities Clearance Corporation (NSCC) raise their capital posting requirements to a shocking and unprecedented level without warning?

Now, the answer to at least one side of this question must be yes. Maybe the answer to both sides is yes. But at least one MUST be. And if the answer to the latter side of the question is yes … well, then we need to ask the NSCC some questions. Start with the people who were on the phone with Vlad. I bet he remembers their names. I can promise you his lawyers remember their names. Work backwards from there. How did this decision to give Gabe and Stevie and all the other HF titans on the wrong side of this ridiculous trade a day to trim their sails and throw their ballast overboard come about? How did this process begin? Who made the first call?

I suspect many people will need to “refresh their recollection” of these events. Ah, well.

And then I’d call CEO Vlad of Robinhood back for some follow-up questions.

Because you see, mirabile dictu, in the days immediately after this extortionary rules change and emergency shutdown, Robinhood got $3.4 billion in new capital. Hmm. If a prime broker had pulled this stunt in institutional world, it wouldn’t have survived a single day. But Robinhood gets BILLIONS in more capital, more capital than it had ever raised in all of its investment rounds before. Combined. Hmm.

Per Matt Levine, “the VCs got a substantial desperation discount. (They bought convertible notes that ‘will convert into equity at a $30 billion valuation — or a 30% discount to an eventual valuation in a public listing, whichever is lower.’)”

Per the WSJ, “New and existing Robinhood shareholders participated in the deal, which is structured as a note that conveys the option to buy additional shares at a discount later, a person familiar with the matter said.”

So here are my follow-up questions for Vlad.

Sir, Bloomberg describes your latest financing round as being priced at, and I quote, a “desperation discount”. Who are the new participants in this financing, sir? Were the participants or the terms or any other aspect of this financing discussed alongside your negotiations with NSCC for permission to resume trading? And before you answer, sir, I would remind you that you are under oath.

And that’s when this gets interesting. Because of course the capital raise was part of the negotiations with NSCC, and of course the “new participants” will include a friend of Ken or a friend of Wes or a friend of Stevie, if not an outright market maker affiliate.

And the beat goes on.

Honestly, though, the investigations and legal issues around last week are a sideshow. None of these post mortems are going to change Wall Street. What happened last week wasn’t some aberration that can be reformed or punished so that we can return to some mythic Wall Street that never existed in the first place.

What happened last week IS Wall Street, and government regulators have ZERO interest in changing it.

All this “concern” that Janet Yellen and regulators suddenly have for the little guy, all of this “worry” that retail investors are getting themselves into trouble … bah! … complete theatrical horseshit. The only worry regulators had was degrossing contagion and whether they needed to step in to ensure big financial institutions (including hedge funds) didn’t go belly-up from all of their suddenly excessive risk.

So nothing changes, right?

Not if you expect Janet Yellen and Ken Griffin to do the changing.

President Griffin’s Snow’s Second Panem Address: “Unity”

Well, screw that.

We’re never going to get change in Wall Street from the top-down. We’re never going to get change from “reform”. We’re only going to get a change in Wall Street by the way that true and lasting change always comes, from the bottom-up and from individual action. The time to take that action is NOW. Why?

Because we all saw what we all saw last week.

That’s what it MEANS to have an Emperor’s New Clothes moment, to have a sudden shift in our common knowledge about the stock market. The common knowledge that the market is a derivative reflection of some real-world game of companies is gone. It’s over. It can’t be saved, no matter how many times Jim Cramer Caesar Flickerman says otherwise. There’s no more shushing and whispering about the two Big Secrets of markets. Everyone knows that everyone knows that 1) The bets ARE the market. 2) Market makers OWN the market.

Because we all saw what we all saw last week.

There WAS a revolution last week, just not the revolution you heard about. There was no ‘Reddit Revolution’. That’s not a thing. It’s just another story spun by those who would use you for fodder or feed. Or flow.

There was a Common Knowledge Revolution last week – the only revolution that really matters over the long haul – and that is what changes everything.

This is our chance to mobilize a critical mass of citizens, our chance to break out of the Sheep Logic that has gripped us for so long. It won’t be our only chance. But it’s a good one!

I don’t want to democratize control over Wall Street.

I want to diminish Wall Street’s control over democracy.

I don’t want to open up Wall Street to the little guy.

I want to reduce Wall Street’s pernicious power and control over the little guy.

I don’t want to create a new viral narrative of meaning for Wall Street.

I want to vaccinate against the faux narratives of meaning that Wall Street constantly evolves.

How do we do all that? Through policy action, investment action and personal growth. All are easier as a team. All are easier as a pack.

Policy action: We take every opportunity to press legislators and regulators to take leverage out of financial institutions. All of ’em. Every chance we get. And yes, I understand full well that taking leverage out of Wall Street means getting off zero interest rates. Yes, please!

Investment action: We take every opportunity to put our money where our mouth is. We invest to achieve fractional ownership positions in real-world companies with real-world cash flows. We invest in public markets as a transmission belt for placing our private capital with management teams who can utilize that capital to more productive ends than we can. You know, what a stock market is supposed to do. When it’s necessary to sit down at one of the casino tables that modern markets have become, we are armed with tools to measure and calibrate the narratives that determine price and flow around those tables. Even if it’s the only game in town, we refuse to be the sucker at the table.

Personal growth: It’s the question I posed earlier. It’s the only question that really matters.

But if it is a lie … what then? What meaning exists in the stock market if all this is a lie?

Meaning is found in calling a thing by its proper name. Meaning is found in the choice to engage with that properly named thing in the fullness of your identity and human autonomy.

Clear eyes. Full hearts. Can’t lose.

Or in full-blown Zen koan mode, my all-time fave …

Tanzan and Ekido were once traveling together down a muddy road. A heavy rain was still falling. Coming around a bend, they met a lovely girl in a silk kimono and sash, unable to cross the intersection.

“Come on, girl,” said Tanzan at once. Lifting her in his arms, he carried her over the mud.

Ekido did not speak again until that night when they reached a lodging temple. Then he could no longer restrain himself. “We monks don’t go near females,” he told Tanzan, “especially not young and lovely ones. It is dangerous. Why did you do that?”

“I left the girl there,” said Tanzan. “Are you still carrying her?”

― Nyogen Senzaki, Zen Flesh, Zen Bones: A Collection of Zen and Pre-Zen Writings (1957)

It’s the hardest thing in the world, right? To let go of all those thoughts and narratives that have been drilled into our heads for as long as we can remember. To let go of the narratives that we have been carrying around like so much dead weight for YEARS. To see the market with fresh eyes and yet not give yourself over to bitterness, but to engage with the market for the good that presents itself on its own terms.

On its own terms.

It’s not easy. It’s a two steps forward one step back sort of thing. I struggle every day with this letting-go process, especially with the “no bitterness” part, and I’d like to think that I’m more of an adept at this than most. But it’s so worth it. It’s so necessary if you’re going to invest a part of your life towards playing the game of markets.

This is the biggest game in the world. If you are a game player – as I am – you cannot resist it. The question is … can you survive it? I don’t mean financially. You’ll be fine. I mean, can you survive it with your autonomy and your authenticity and your honor intact?

I think that Epsilon Theory can help you do that. I think we can help you see markets for what they are. Not what you’ve been told they are, and not what you would like them to be. But what they actually are. And then how to engage with that reality with a full heart. Together.

This is what we DO. This is what we’ve done from the start.

We call it The Narrative Machine.

And we believe it’s our best shot at understanding a world that cannot be predicted, but can only be observed.

Because markets are not a clockwork. Markets are a BONFIRE.

Yes, we think this leads to specific investment strategies.

But more importantly, we think this leads to a strategy for LIFE. For making our way in a fallen world, where the electorate is polarized, the market is monolithic, and everyone seems to have lost their damn minds.

It’s not an Answer. It’s a Process.

The Long Now is going to get worse before it gets better, and there is strength in numbers. Watch from a distance if you like. But when you’re ready … join us.

Yours in service to the Pack. – Ben

Epsilon Theory PDF Download (paid subscribers only): Hunger Games




Epsilon Theory PDF Download (paid subscribers only): AMA? BITFD!

If you’re a medical doctor, you probably received an email like this in recent days from the American Medical Association, a tax-exempt not-for-profit corporation organized under section 501(c)(6) of the US tax code:

Subject: Dr. XYZ, don’t wait to get the PPE you need from the AMA

Dear Dr. XYZ,

Since the start of the pandemic, physicians across the country have gone above and beyond to keep patients safe. Yet after eight months, many are still unable to get enough PPE for their practices. We’ve urged the federal government to act, and now, we’re stepping in.

The American Medical Association is collaborating with Project N95, a not-for-profit organization, to reserve quality-certified PPE for AMA members to purchase with no minimum.

If you’re interested in ordering PPE, go here to learn more and view the available equipment, and then activate your AMA membership to get started. The deadline to place an order is 3 p.m. Central time on Monday, Nov. 23.

This PPE shortage has placed physicians in jeopardy for far too long. I hope this collaboration with Project N95 provides some immediate support as we continue to advocate for a long-term resolution.

Activate your AMA membership

Silly me. Did I say that if you were a medical doctor you would probably have received this email? What I meant to say is that if you were a medical doctor who is not currently a member of the AMA, or if your membership has lapsed … THEN you would probably have received this particular email. It’s tailored just for you.

That will be $420 for your annual membership.

And once you pay that – and no, you can’t see our great PPE bargains until you do, in fact, pay that – well, NOW take a look at these great PPE bargains.

Are they a bargain? I dunno. Honestly I have some significant qualms about the PPE pricing through this channel. But I’ll say this – I don’t think any of the parties involved in this effort (other than the manufacturers) are trying to profit in the technical sense of the word from some margin or mark-up on the PPE items themselves.

But the AMA is absolutely trying to profit here.

The AMA is absolutely NOT doing what it should be doing – giving away or heavily subsidizing PPE to ALL healthcare professionals.

What is this email and offer of PPE “support” to doctors all about?

It’s a freakin’ membership drive for the AMA.

But hey, maybe I’m too quick to judge the AMA here and how they are “stepping in to help”. Maybe they’re kinda new to the licensing and product sales world. Maybe they’re spending every dime on educational programs and grants to improve the medical profession and the delivery of healthcare to all Americans. Maybe they don’t have the resources to purchase and distribute PPE for their members – much less ANY healthcare worker – in urgent need of said PPE.

I mean, sure, the organization that Rusty and I helped start – Frontline Heroes – has been able to distribute 170,000 medical respirators to more than 1,400 clinics and hospitals across the United States at absolutely no charge to the recipients, funded by the awe-inspiring generosity of hundreds of donors who know exactly what “stepping in to help” truly means. Sure, every penny we raised has gone exclusively to the purchase and distribution of that PPE, with no one taking any compensation ever. Sure, we’ve done all that with a handful of incredible human beings and working out of my garage. But it is, admittedly, a nice garage. Maybe the AMA doesn’t have the wherewithal to find a couple of volunteers and a nice garage. Maybe they’re stretched terribly thin in “these unprecedented times”.

So I decided to look up the AMA’s tax filings.

All of the information I’m about to share is on the AMA’s public IRS filings (EIN: 36-0727175). I’ve stored and made available for download their most recent filing here: AMA 2018 Form 990.

In 2018, the American Medical Association had total revenues of $332 million. That’s not a typo or an extra zero or two in there. That’s three hundred and thirty two million American dollars in revenue. In one year.

I figured membership dues would be the biggest revenue line item, but no, not even close. Membership dues from all you doctors comes to just over 10% of revenues – $36.8 million. The AMA got almost as much in revenue from direct sales of merch – $29.7 million – and with a COGS of $5 million you really gotta admire their margins. Subscription revenues of $39.7 million were a bit higher than membership dues, but still not the biggest revenue item. Nor was the advertising revenue of $15.7 million, nor the dividend income of $12.4 million on an investment portfolio of publicly traded securities valued at $643 million, nor the profit on securities sold of $14.0 million, nor the “credentialing” revenue of $14.0 million, nor the “reprints and permissions” revenue of $7.4 million, nor all the other odds and ends categories.

No, by far the primary annual revenue engine for the AMA is … royalties.

In 2018, the American Medical Association made $158.6 million in 100% gross margin revenues by licensing its name and logo and membership lists to everyone from its own insurance brokerage subsidiary – the AMA Insurance Agency – to every pharma co or medical device co or whatever co that was willing to pay for that stamp of approval and halo of authority.

That’s how the AMA makes its money. Not so much by selling TO you – the doctors of America – with membership dues and overpriced PPE and merch, but by selling YOU – the doctors of America – to anyone who wants to buy your name and your reputation.

Okay, okay, but I’m sure it’s all for a good cause! Tell me about all the outreach programs and charitable grants that the AMA administers, Ben!

Yeah, well, about that …

In 2018, the AMA made $4.9 million in grants to 82 separate 501(c)(3) organizations. Almost all were quite small and for specific programs, except for a $1.8 million grant for “general support” to the PCPI Foundation, a Chicago-based medical consortium that is very closely linked to the – golly, can this be right – Chicago-based AMA. So really it was $3.1 million to 81 recipients, and yes, you can do that math as easily as I can: in 2018, the AMA handed out less than 1% of its revenues in grants and awards to independent medical charities and research programs.

The AMA spent more money on office equipment ($3.9 million) than on grants and awards. The AMA spent as much money on market research and telemarketing sales ($3.0 million) than on grants and awards. The AMA spent twice as much on advertising and promotion ($6.1 million) than on grants and awards. The AMA spent more than twice as much on membership solicitation ($7.8 million) than on grants and awards.

Of course you see where this is going.

In 2018, the American Medical Association spent $168.7 million on employee salaries and benefits.

The AMA had twenty-four Trustees in 2018, each paid an annual stipend ranging from $70,000 to $290,000. Four former Trustees, who had no apparent ongoing connection with the AMA, still collected $10,000 to $25,000 that year.

The AMA has five Senior Vice Presidents paid between $880,000 and $1,050,000 in 2018.

The AMA has a Chief Strategy Officer who was paid $1,130,000 in 2018.

The AMA has a Chief Operating Officer who was paid $1,350,000 in 2018.

The AMA has a Chief Financial Officer who was paid … huh? … only $730,000 in 2018. Wow, that’s weird. I mean, she’s the only woman in the C-suite, but I’m sure that has nothing to do with it. I think we all know that being a CFO is nowhere near as rigorous or demanding a job as being a ((checks notes)) Chief Strategy Officer, especially one who was the CEO’s best bud when they were both working at the University of Chicago Medical Center, a best bud who replaced the CEO and made sure he got his $2.7 million severance payment when the CEO was forced to resign.

Which brings us to Jim.

That’s Jim Madara, American Medical Association CEO and EVP since 2011, shaking his finger at us in a 2019 speech and telling us that the core challenge for the medical profession in general and the AMA in particular will be finding ways to address health inequity – the disparate healthcare outcomes for Americans stemming from food and housing insecurity, limited access to transportation, and above all, income inequality.

Jim announced that the AMA would be taking a “leadership role” in this important cause by acting on the AMA Health Equity Task Force recommendations to hire senior executives and staff to build out the AMA Center for Health Equity, a think tank that would be charged with making further programmatic recommendations to advance the AMA’s … leadership role.

To be sure, Jim’s bold vision for addressing health equity issues might surprise some, given that he was forced to resign from his prior position as CEO of the University of Chicago’s Medical Center over accusations of systematically redirecting low-income or uninsured patients to nearby hospitals and clinics for treatment, to the point where 190 U of C Med Center docs signed a letter to Trustees protesting Madara’s policy.

Speaking of income inequality, Jim Madara was paid $2.3 million in cash compensation by the AMA in 2018. That does not include deferred compensation, pension contributions and other benefits, which is reported at another $200k. Nor does it include his compensation from all of his other advisory side gigs, like the Aspen Leadership Group or the Chicago-based healthcare incubator Matter. But that’s not the big play for Jim.

In 2016, the AMA funded the creation of a private “tech accelerator” in Silicon Valley – Health2047 – with an initial $15 million investment, plus a follow-on $27 million investment in 2018. Did I mention that the AMA has an investment portfolio of $642 million in publicly traded securities and $111 million in private securities?

Health2047’s chairman of the board is – you guessed it – Jim Madara, and he hired his friend and self-described protege, Doug Given, as the company’s CEO. Health2047 has funded and “accelerated” four portfolio companies today, including Akiri (building healthcare data networks “on the blockchain”) and First Mile Care (described by Jim as “uber but for diabetes”). But this is only part of the big play for Jim.

A tech accelerator can make good money, sure, but it’s not nearly as lucrative as being the general partner in a private investment fund where you can charge a management fee and take a 20% carried interest in any realizations. So in 2018, Doug Given stepped down as CEO of Health2047 (don’t worry, he’s still on the board with Jim) so that he and Jim could start Health2047 Capital Partners, a good old-fashioned venture capital fund. Doug is the Managing Member of the General Partner for Health2047 Capital Partners, and Jim is chairman of the board.

SEC filings show that Health2047 Capital Partners recently closed on a $47 million investment as part of their $250 million initial fund. There are no public disclosures for investments in a private fund, but if I were a betting man – and I am – I would wager a substantial sum that the limited partner making that $47 million investment is the AMA. Hey, maybe I’m wrong. If Doug or Jim want to give me a shout and make a credible representation that the American Medical Association isn’t an LP in this venture fund where Jim is affiliated with the GP … I’ll be happy to post their denial statement directly in this note. LOL.

You know, I feel like I’ve been around the block a few times. I feel like I’ve seen more than just garden variety self-dealing and chicanery in my years around Wall Street. I feel like I’ve seen more than my fair share of corporate perversions of narrative and the tax code alike, more than my fair share of outright corporate betrayals of the public good.

But I’ve never seen anything like this.

The AMA is not a charitable organization.

The AMA is not an educational organization.

The AMA is a tax-exempt hedge fund and licensing corporation.

The American Medical Association is designed from the ground up to enrich its executives.

Publicly, it espouses a doubleplusgood narrative of social justice and health equity. Privately, the only interests it serves are its own bureaucratic imperatives and the self-aggrandizement of its “leaders”.

There is no “fixing” the AMA. There is no “reforming” the AMA. This is … this is an abomination.

Burn. It. The. Fuck. Down.

Epsilon Theory PDF Download (paid subscribers only): AMA? BITFD!


The Grifters, Chapter 3 – Election Prediction


Epsilon Theory PDF Download (paid subscribers only): The Grifters, Chapter 3 – Election Prediction

That’s Nate Silver, founder and face of election “modeler” FiveThirtyEight, performing his traditional “Awkshually, we weren’t wrong” dance after mangling yet another national election.

Haha. No, that’s a falsehood, as the fact checkers would say. That claim was made with no evidence, as an ABC News reporter would say.

In truth, this is a picture of Nate Silver speaking at the “ABC Leadership Breakfast” during Advertising Week XII. Of course Advertising Week uses the same numbering system as the SuperBowl ™. That would be 2015 in normie text, about a year prior to FiveThirtyEight’s mangling of the prior national election.

You will only see Nate Silver on ABC News and other ABC media properties and events, because FiveThirtyEight is a wholly-owned subsidiary of ABC News.

ABC News, of course, is a wholly-owned subsidiary of The Walt Disney Corporation.

Hold that thought.

That’s Fivey Fox, the FiveThirtyEight cartoon mascot, who is happy to guide you through the genius-level mathematics and super-science that “powers” FiveThirtyEight’s election models. You may have also seen Fivey Fox on ABC News programming, as part of a weekly animated cartoon segment broadcast over the past nine months to “inform” viewers about “how the election actually works”.

For all you FiveThirtyEight and ABC News viewers, I’d guess that most of you find Fivey Fox and the cartoon infographics pretty cringey. I’d guess that most of you believe, however, that these animated cartoons are not aimed at you, but at “low-information” viewers who are not easily capable of understanding how the election actually works, and certainly not capable of understanding the genius-level mathematics and super-science behind FiveThirtyEight’s election models. I’d guess that most of you believe that yes, Fivey Fox is a little silly, but it’s necessary to speak in cartoon language in order to communicate with all those Fox-watching and Trump-voting dullards out there.


Ask not for whom the cartoon tolls. It tolls for thee.

Fivey Fox and his cartoon friends on ABC News do not exist to “educate” the great unwashed, any more than ESPN programming exists for people who don’t watch sports. Fivey Fox exists to engage YOU, the politically-aware ABC News/FiveThirtyEight viewer.

So does “Nate Silver”.

I put his name in quotation marks because of course a real life Nate Silver exists. But the “Nate Silver” that you see at the ABC Leadership Breakfast or that you hear PhD-splaining every four years that “modeling isn’t polling” is just as much a cartoon – just as much a constructed abstraction of an abstraction in service to narrative ends – as Fivey Fox.

The disheveled look, the stark black eyeglass frames … “Nate Silver” looks exactly the way it needs to look to optimize your engagement with it. Not to like “Nate Silver”. Not to dislike “Nate Silver”. To engage with “Nate Silver”.

For the ABC News/FiveThirtyEight viewers who like the election prediction made by “Nate Silver” and Fivey Fox, this will be a mirror engagement yes! this Genius Expert ™ agrees with me! Science and Mathematics agree with me! And it’s so obvious that even a child could understand! Ah, sweet dopamine!

For everyone on the other side of the election prediction made by “Nate Silver” and Fivey Fox, this will be a rage engagementno! this Idiot Egghead ™ has lost all credibility! The polls are clearly not capturing Factor XYZ, and it is enraging to be told otherwise as if I were a child! Ah, sweet norepinephrine!

There’s nothing accidental about any of this.

Three mega-corporations in the world today truly understand the primacy of engagement: Google, Apple and Disney. Other mega-corporations have successfully adopted this principle over time, but Google, Apple and Disney built their empires on the primacy of engagement, on how their products or services make you feel. It’s the foundation of Google’s internet search algorithms. It’s the foundation of Apple’s product design. It’s the foundation of Disney’s media content.

Of the three, the Covid pandemic has hit Disney the hardest. Parks are shut down. Movies aren’t being made. As for television, sports programming is getting killed and overall ad spend is down. The only potential bright spot is that this is an election year, where $11 billion will be spent on political ads, and where maintaining engagement with its news programming has never been more important for Disney.

How do you get more engagement with your news programming? How do you trigger more neurotransmitter brain chemicals in your ABC News audience?

By creating “news” that can be transformed into an entertaining/enraging game.

By transforming a singular Election Day event into a months-long spectator sport, complete with plays and scores and announcers and cheering/anxious fans.

That’s what election modeling does. That’s why public polling and election modeling exist. Polls to create the “news”, election models to create the score, Fivey Fox and “Nate Silver” to announce the game. All to create engagement with a diversified media corporation.

That’s why Disney acquired FiveThirtyEight. That’s why they originally had it within ESPN and then transferred it to ABC News. That’s why they created the cartoon characters of Fivey Fox and “Nate Silver”.

No one understands how to create and sell a spectator sport better than Disney.

Here’s the kicker. This spectator sport that Disney/ABC News/FiveThirtyEight has created around Election Day has very little connection with the election itself. The “scores” and the “announcing” and the game itself are a totally distinct thing from the process and dynamic and the outcome of our most important political institution.

And they know it. And yet they sell their game over and over again as if it were the real thing.

That’s what makes it a grift.

In a nutshell, the FiveThirtyEight prediction model is designed around thousands of simulations of statewide results (based on statewide polls and a hypothesized probability distribution on state level results) that are then mapped against the Electoral College. These thousands of simulations of possible statewide results create a probabilistic distribution on the Electoral College outcome, and whatever percentage of outcomes are on the good side of 269 Electoral College votes for a candidate is the answer for the point-in-time odds of that candidate winning.

FiveThirtyEight went into Election Day 2020 assigning Joe Biden a 90% chance of winning, which was even more divorced from election reality than their 2016 “prediction” that Hillary Clinton had a 72% chance of winning. There is zero alpha … zero useful information … in a model that predicts an election outcome with near certainty when in truth that outcome hinges on a few tens of thousands of votes out of 150 million votes cast.

To use a spectator sports analogy, FiveThirtyEight set the 2020 betting odds for this “football game” with Joe Biden as a massive favorite, say 20 points. He won by 1 point. In 2016, FiveThirtyEight had Hillary Clinton as a somewhat less massive favorite, say 15 points. She lost by 1 point. There’s nothing “robust” about these predictions, as “Nate Silver” is currently claiming. These predictions are disasters. FiveThirtyEight would be laughed out of Vegas for setting odds like this.

The FiveThirtyEight model failed in both 2016 and 2020 – and will fail again in 2024 – for the same two reasons.

First, the prediction model failure in 2016 and 2020 is NOT just a garbage-in-garbage-out problem with the polls that serve as model inputs, as the current F#ck you, we did a good job non-apology tour of “Nate Silver’ would have it.

In fact, the Disney/ABC/FiveThirtyEight business model is in large part responsible for creating the bad polls.

Both polling and responding to polls have become political acts. There is a panopticon effect here, where both pollsters and the polled know that their behavior is being observed. Not in the sense of an enemies list or being personally identified, but observed nonetheless by a massive hidden audience watching the very public playing field of the election spectator sport. And in true panopticon fashion, the polled begin to see themselves as members of a team competing in this election spectator sport, as active political participants through their poll response.

This has an enormous – and predictable – impact on poll response behavior. It’s not that members of the Out group (in this case Trump voters) are “shy”, it’s that both In group and Out group members see themselves as players in a game. Because they are! And when you see yourself as a player in a game, you … play the game. You act strategically. You agree or refuse to participate in a poll for strategic reasons. You answer the questions one way or another for strategic reasons. It’s not that you’re lying in your answers, although of course some people do, it’s that you’re considering both your poll answers and your poll participation within the larger context of this election spectator sport that you know your answers will be used to support.

Everyone knows that everyone knows this is how polls are used today, that you are part of a larger political game that is distinct from the actual act of voting. This is the common knowledge of polling today, and as a result, no one provides “straight”, i.e. non-strategic, poll responses today. No one.

And Nate Silver knows it.

Hell, he and his Disney bosses created this game that uses polls as the “play” that happens on the field! They know exactly how the meaning of polling has changed, how polls are no longer an independent signifier of voter intentions, but are the output of strategic gameplay that is only tangentially connected with Election Day.

FiveThirtyEight depends on bad polling data as the play-by-play action in their election spectator sport.

Bad polls are necessary for this lucrative grift to continue.

So they will.

Second, the FiveThirtyEight prediction model itself is a category error, created and designed to promote a spectator sport business model with hundreds of point-in-time odds (the “score” of the game) over the months-long course of this made-up game, NOT to predict the outcome of a real-life, singular rare event.

To use an online poker analogy, the model is designed as an “engine” for a game where you can play poker all the time, as often as you like. It’s designed for you to engage with Fivey Fox and “Nate Silver” every day if you can stomach it, checking in constantly to see if the “odds” have changed with some new state poll and a rerunning of the simulations. That’s not a bad thing. The math of this game isn’t wrong.

Or as fellow cartoon Jessica Rabbit would say, “I’m not bad. I’m just drawn that way.”

But the way the prediction model was drawn … the way it generates a new probabilistic “score” of this constructed game every time a new state poll comes out … is NOT representative of the experienced odds of the single election event. At all. The math IS wrong when it comes to understanding the odds of who is actually going to win the actual election.

Why? Because Silver’s run-ten-thousand-simulations methodology masks the volatility and the uncertainty hiding in the statewide polls. I’m not talking about the uncertainty of a poll with a big margin of error. The methodology can handle that fine. I’m not talking about the uncertainty of a poll that says a statewide race is 50/50. That’s not a problem, either.

I’m talking about the uncertainty of a poll that doesn’t MEAN what you thought it means, where – in the lingo – error in the poll is not randomly distributed, where – for example – you have a pandemic changing actual voting behavior in a systematic way, but not changing poll response behavior in a systematic way, where – as Nate Silver understands perfectly well – you have poll respondents acting strategically in a systematic way.

If you have THAT kind of uncertainty in your statewide polls, then the FiveThirtyEight prediction model will not catch these errors. No, no … the simulation methodology will MAGNIFY these errors.

The result? FiveThirtyEight has no idea what the real score of the actual election game might be.

All of econometric and statistical analysis – ALL OF IT – exists to give you an answer to two and only two questions:

  • What’s your best guess?
  • How sure are you?

The FiveThirtyEight election model gives you an answer to the first question. That’s what a model – ANY model – does.

The fatal flaw with the FiveThirtyEight model is that they have no answer to the second question. Or rather, there is an answer – NOT VERY SURE AT ALL – but the Disney/ABC News/FiveThirtyEight business model does not allow them to report that answer. Because if they gave this truthful answer, then we would all ask a third question: Why the hell are we playing this game?

And that’s the question that blows up the entire grift.

A spectator sport must have a score at all times. That’s what it means to have a spectator sport. It’s perfectly fine if you say that the score is tied. In fact, that’s a really good thing for audience engagement. But what you cannot say is that you don’t know what the score is. What you cannot say is this:

“Yeah, I think Biden is ahead, but there’s a lot of uncertainty embedded within my model. Maybe Biden is way ahead and maybe the score is tied, I really couldn’t tell you. But I’m pretty sure that Trump is not way ahead.”

Nate Silver knows that’s the truth of the 2020 election and the FiveThirtyEight prediction model.

“Nate Silver” can never admit it.

Is there a better way to understand the truth of an election? YES.

There’s a toolkit for understanding how to play singular or rare events, where the consequences of being wrong or overconfident or just unlucky are far more impactful than repeated-play events. Jimmie Savage, the smartest statistician you’ve never heard of, called it decision theory. This toolkit is used in military decisions. This toolkit should be used in our Covid decisions. For more, read Once in a Lifetime.

There’s a toolkit for understanding the consequences of a polarized electorate and how that polarization changes both a politician’s behavior and voter response behaviors, including voter response behaviors to pollsters. This is the toolkit of strategic interaction. This is the toolkit of game theory. For more, read Things Fall Apart.

There’s a toolkit – which we are at the forefront of developing – for understanding the structure of narrative and how it impacts social markets. Like investing. Like voting. We call it the Narrative Machine. For more, read Inception.

I think these are the three toolkits required to understand the statistical truth of modern politics. Is there a scalable, billion dollar business model to be created around these toolkits, the way Disney has created a scalable, billion dollar business model around the game-ification of Monte Carlo election simulations? Nah. Not a chance. But that’s the thing about truth, statistical or otherwise. It rarely makes you really rich, but it always gives you a life worth living.

And it never turns you into a cartoon.

Epsilon Theory PDF Download (paid subscribers only): The Grifters, Chapter 3 – Election Prediction


“Quantile Tracking Errors (QuTE)” by Aguilar, Chengan, and Custovic


Epsilon Theory will occasionally publish academic research of merit pertaining to financial and political markets.

You can read about our reasons and our guidelines here: Why Publish Academic Research?

If you have publishable academic research that you think expands our collective understanding of financial or political markets, and you’d like to give it access to our network of 100,000+ investment professionals, asset owners, academics and market enthusiasts, please send it to us at

Will making academic journals irrelevant save the world? No.

But it’s a good start.

PDF Download: Quantile Tracking Errors (QuTE)


Mike Aguilar is a Teaching Associate Professor at the Department of Economics, University of North Carolina at Chapel Hill and the Chief Investment Officer at Cardinal Retirement Planning, Inc. in Durham, NC. Email:

Ruyang Chengan is an Analyst at Dimensional Fund Advisors in Charlotte, NC. Email:

Anessa Custovic is a Quantitative Research Analyst at Cardinal Retirement Planning, Inc in Durham, NC. Email:


The tracking error is a ubiquitous tool among active and passive portfolio managers, used widely for fund selection, risk management, and manager compensation. In this paper we show that traditional measures of tracking error are incapable of detecting variations in higher order moments (e.g. skewness and kurtosis). As a solution, we introduce a new class of Quantile Tracking Errors (QuTE), which measures differences in the quantiles of return distributions between a tracking portfolio and its benchmark. Through an extensive simulation study we show that QuTE can detect variations in higher order moments. We also offer guidance on the granularity of the quantile grid and weighting schemes for the relative importance of various quantiles. A case study illustrates the benefits of QuTE during the Dot Com Bubble and the Great Recession


Traditional measures of tracking error are inadequate. Although there are several variants, most commonly tracking errors are cast as squared deviations between a tracking portfolio and benchmark over some period of time. However, this type of quadratic structure is inconsistent with the linear performance fees through which most managers are compensated (see Kritzman [16]). Instead, managers are incentivized to avoid extreme return deviations (Rudolf, Wolter, and Zimmermann [22]), which implies that higher order moments, such as kurtosis, are relevant. Moreover, Beasley, Meade and Chang [3] suggest that managers are incentivized to avoid consistently underperforming their benchmark, suggesting that skewness is also relevant.

Dorockov [8] and Blume and Edelen [5] point out that the goal of a tracking error is to measure how closely a portfolio can exactly replicate its associated benchmark. There is a preponderance of evidence that asset returns are non-Gaussian. Mills [18] documents excess skewness and kurtosis in daily asset returns, while Chung, Johnson and Schill [7] document it for monthly [1] asset returns as well. Therefore, tracking only the first two moments, as do conventional measures, is insufficient.

Other shortcomings of traditional tracking error measures have been cited. For instance, Pope, and Yadav [19] illustrate the bias in tracking error due to serial correlation in returns. Moreover, Ammann and Tobler [1] recognize that tracking error variance is subject to sampling error.

This paper makes two contributions to the literature on portfolio tracking. First, we detail a previously undocumented shortcoming of traditional tracking errors. Through a simulation study we show that traditional tracking errors (such as average tracking error and tracking error volatility) fail to detect situations in which the skewness (and/or kurtosis) of the tracking portfolio differs from that of the associated benchmark.

The second contribution of this paper is to introduce a class of quantile based tracking errors (QuTE). As we will discuss in Section 2.2, there are many variants of tracking error. Some have symmetric loss functions, structured via absolute or squared deviations. Meanwhile other variants incorporate asymmetries visa vis semi standard deviations, which are aligned with downside risk. Each have an analogue within our quantile based measures. We show that even the most basic of these QuTE measures is able to detect deviations in higher order moments of returns.

We begin with a detailed accounting of the traditional measures of tracking error alongside the newly proposed quantile based measures. We then conduct an extensive simulation study to explore the relative merits of QuTE. Finally, we document historical episodes where QuTE was able to detect important differences between a tracking portfolio and it’s benchmark, while the traditional measures were unresponsive.

Portfolio Tracking

In this section we detail the lineage of tracking errors and provide a compendium of its variants. We complement with an introduction of the new QuTE class of tracking errors.

Tracking Errors

Equation (1) was seen first in the academic literature in Franks [10], which defined it simply “excess of benchmark returns”. Among practitioners, the object in Equation (1) is sometimes referred to as Tracking Difference.[2] Roll [20] refers to this object as “Tracking Error”, which we find to be commonly applied within the proceeding academic literature, and as such reserve that terminology throughout the balance of this paper. Note that the object in Equation (2) is simply an average of the Tracking Error over a period of time.

The object in Equation (3) is the next most commonly used variant of the term Tracking Error. Franks [10] refers to this object as Tracking Error, whereas Roll [20] refers to this as Tracking Error Volatility (TEV). Many proceeding academic studies (see Jorion [14]) use the TEV terminology. Moreover, Equation (3) is commonly referred to as Tracking Error among practitioners.[3] Often this is reported as an annualized value.[4] Equation (4) is subtly distinct, but is less often used in the literature than is Equation (3). Used by Ammann and Tobler [1], it captures the square root of the sum of the squared tracking error. Root Mean Squared Tracking Error (RMSTE) in Equation (5) was used by Chincarini and Kim [6] as a way to capture both the variability and the level of the tracking errors.

As noted by Kritzman [16], portfolio managers are rewarded by linear performance fees based upon the differences between their portfolio and the corresponding benchmark. Rudolf, Wolter and Zimmermann [22] argue, that due to this fact, linear deviations between the portfolio and benchmark give a more accurate description of the investors’ risk attitudes than do squared deviations. As such, tracking measures based off of absolute, rather than squared differences, such as those in Equation (6) and Equation (10) are sometimes advocated.

Both the quadratic and absolute measures heretofore are inconsistent with investor loss aversion. Rudolf, Wolter and Zimmermann [22] advocate the use of semi-variances for downside risk measurement. Equations (7) – (10) reflect this downside risk.

Finally, Beasley, Meade and Chang [3] introduce a generalized tracking error written as


Intuitively, QuTE compares two assets via differences in the quantiles of their respective return distributions. This is especially useful in finance given the preponderance of returns with excess skew and kurtosis, and quantile-based methods’ ability to capture these distributions (see Rostek [21]). Moreover, a quantile based approach is consistent with the utility maximization via quantile maximization of Rostek [21], as well as with Giovannetti [12], who builds an asset pricing model consistent with CRRA preferences via quantile maximization.

Since the Value-at-Risk (VaR) is merely a quantile of a return distribution, we can see QuTE as matching on the space of VaR’s are various levels. Yamai and Yoshiba [24] show us that portfolio ranking via VaR is consistent with expected utility maximization and is free of tail risk. We adapt the findings of Rostek [21], who characterizes the behavior of an agent evaluating different (investment) alternatives by the -th quantile of the implied (return) distributions and selects the one with the highest quantile payoff. We can represent an investor’s preferences via the quantiles of the associated return distribution. In the context of benchmark tracking, we can then cast the investor’s preferences for deviations from their benchmark via the differences in the quantiles of the portfolio and benchmark. Portfolio construction with VaR based objective functions is increasingly common (see Gaivoronski and Pug [11] for recent examples). Moreover, a quantile based approach is especially attractive given the prevalence of VaR for portfolio risk management. For instance, Follmer and Leukert [9] uses VaR in the context of dynamic hedging.

Note that a natural analogue to QuTE is moment based matching, rather than quantile based. One could use a method of moments type estimator to match a select set of empirical moments between the benchmark and optimal portfolio. Although potentially attractive, a moment based approach lacks the flexibility of a nonparameteric quantile based method.

Notice the similarities with the tracking error measures defined in Section 2.1. Importantly, the averaging in the QuTE class is not done over time , but rather across quantile levels . The QuTE measures never force the portfolio managers to compare his/her portfolio to the benchmark on a daily basis. This might mitigate the problem of “short termism” as indicated by Ma, Tang and Gomez [17]. Specifically, short evaluation periods for performance based compensation may damage fund performance by incentivizing managers to engage in such activities as risk shifting and window dressing to boost short-term performance.

Since there is a one-to-one mapping between the quantiles (returns) and the quantile levels (probabilities), portfolio tracking via QuTE can be cast within the wide literature of distribution matching. Cast this way, QuTER falls within the Fidelity Family of similarity measures. These types of measures are used in a wide variety of fields.

Beasley, Meade and Chang [3] expand their tracking error to accommodate for the case where someone might want to weigh the importance of the return deviations differently over time. Analogously, we introduce a quantile weighted version of QuTE. We illustrate below for the case of QuTER, but this approach can easily be extended to any of the measures within the QuTE family.

Simulation Study

In this section we explore the differences between QuTE and traditional TE tracking measures. Of particular importance, in subsection 3.1, is the sensitivity of each measure to differences in the empirical distributions of the benchmark and tracking portfolio. Subsections 3.2 and 3.3 focus on robustness of QuTE to various calibrations.

Sensitivity to Differences in Return Distributions

In this subsection we conduct a simulation study to evaluate the traditional tracking error measures of Section 2.1 as well as the QuTE based measures of Section 2.2. We craft a toy exercise that, while simple in nature, permits us to highlight the sensitivity of the tracking errors to differences in the underlying return distributions. Given the preponderance of evidence citing skewness and kurtosis (see Chung, Johnson and Schill [7], Mills [18], among others) in asset returns, coupled with the calls for linear performance measures a la Rudolf, Wolter and Zimmermann [22] and Kritzman [16], we consider deviations in these “higher order” moments.

We begin by creating a benchmark portfolio. For simplicity, we assume the returns of the benchmark follow a standard Normal distribution. We calibrate the length and empirical moments of the benchmark to match that of the monthly returns on Dow Jones Industrial Average over the period 1985 through 2019. This same index is used in a Case Study detailed in Section 4. Our simulations contain 10,000 paths, each of length 414 months.

Next, we generate a tracking portfolio that follows one of five distinct distributions, which are depicted in Table 1. In Case 0, the tracking portfolio has the same distribution as the benchmark portfolio. In Case 1, they differ only in the mean. Similarly, Case 2 varies in terms of variance, Case 3 in terms of skewness, and Case 4 in terms of kurtosis.[5]

We explore the ability of the various traditional tracking measures to detect differences in the mean (standard deviation, skewness, kurtosis) of the tracking portfolio and benchmark. As noted in Section 2.1, the TEV depicted in Equation (3) is the most commonly used tracking measure among academics and practitioners. We compare the TEV to ATE, TER, and RMSTE.[6]

First, we vary the mean return of the tracking portfolio in excess of the benchmark (i.e. excess mean) in the range.[7] Next, we compute the ATE, TER, RMSTE and TEV for each of these values of excess mean, simulated and averaged over 10,000 paths. Finally, we scale [8] the values for each of the cases for ease of visual comparison. Panel A of Figure 1 depicts the ATE, TER, RMSTE and TEV values over the range of excess mean values. Panels B, C, and D similarly reflect excess standard deviation, skewness, and kurtosis.

A desirable measure of tracking error should achieve a minimum at an excess mean (standard deviation, skewness, kurtosis) of 0, i.e. when there is no difference between the tracking portfolio and benchmark, the tracking error measure should be at its low point. We find that ATE is unable to detect changes in any of the four moments. Meanwhile, TEV performs similarly to TER and RMSTE across Cases 2 through 4. In this sense, TEV is roughly equivalent to TER and RMSTE.

Next, we compare the traditional and quantile based tracking measures in terms of their abilities to detect differences in the underlying statistical distributions of the benchmark and tracking portfolios. Our comparison is centered around the TER of Equation (4) and the QuTER of Equation (12). We note our prior findings that TER is roughly equivalent to the popular TEV, which makes this comparison relevant. Moreover, we note that QuTER is a direct analogue of QuTER, providing a fair comparison.

In Table 2 we explore these relative sensitivities by computing the percent change in the (Qu)TER statistic relative to Case 0. The greater is the percent change in the (Qu)TER in Case 1 relative to Case 0, the more sensitive is that measure to variations in the means of the two series.

The p-value of 0 for Case 1 in Table 2 implies that the percent change in the QuTER statistic for Case 1 relative to Case 0 is not equal to the percent change in the TER statistic for Case 1 relative to Case 0. In fact, we find that QuTER and TER have unequal sensitivities to differences in each of the first four statistical moments. Moreover, one-tailed t-tests suggest that the QuTER is in fact more sensitive than TER in all Cases.

We explore these findings further by conducting a sensitivity analysis as we did above. Again, we vary the degree of mean returns in the tracking portfolio in excess of the benchmark (i.e. excess mean) in the range.[9] Next, we compute the TER and QuTER for each of these values of excess mean, simulated and averaged over 10,000 paths. Finally, we scale [10] the values for each of the cases for visual comparison. Panel A of Figure 2 depicts the TER and QuTER values over the range of excess mean values. Panels B, C, and D similarly reflect excess standard deviation, skewness, and kurtosis. Again, a desirable measure of tracking error should achieve a minimum at an excess mean (standard deviation, skewness, kurtosis) of 0, i.e. when there is no difference between the tracking portfolio and benchmark, the tracking error measure should be at its low point.

Panel A of Figure 2 suggests that TER and QuTER are both sensitive to variations in the mean return of the tracking portfolio and benchmark. They each reach minimum values near 0 excess mean, and rise at values above and below that amount. Similarly, Panel B illustrates that both TER and QuTER appear sensitive to deviations in excess standard deviation. However, Panels C and D illustrate that TER is not sensitive to deviations in skewness nor kurtosis. Meanwhile QuTER continues to respond to these excess variations. We note that these findings are consistent for ATE/AQuTE, AATE/AAQuTE, and ATR/AQuTER.

We can see from Table 3 that the estimated  is positive and statistically significant for Cases 1, 3, and 4. This finding aligns with Figure 2, where QuTER appears to detect changes in the third and fourth moment, while TER is unable to do so. In terms of kurtosis, it appears that QuTER grows at least twice as fast per unit of change in excess kurtosis as TER does. Overall, we find that the sensitivities of the quantile based tracking errors are different, and in most cases larger, than the sensitivities of the traditional tracking errors.

Robustness to Granularity of Quantile Grid

 In this subsection we explore whether the granularity of the quantile grid for the QuTE statistics impacts their ability to detect differences in the distributions of the tracking portfolio and the benchmark.

We repeat the exercise of Section 3.1 by simulating the benchmark returns as simple Gaussian noise and then varying the tracking portfolio in four ways; Case 1 alters the mean, Case 2 alters the variance, Case 3 alters the skewness, and Case 4 alters the kurtosis. Figure 3 depicts the percentage change in the QuTER statistic in a given Case relative to Case 0. The x-axis varies the size of the quantile grid (). The reported values are the median across 10,000 simulated paths.

We find that the percentage change in the QuTER statistic falls as the number of quantiles in the grid rises. The relationship appears to plateau near 10 quantiles. This stability is important, indicating that the QuTER measure is robust to choice of quantile grid.

Impact of Varying Quantile Weights

In this subsection we explore whether variations in the quantile weighting scheme impact QuTE’s ability to detect deviations between the distributions of the tracking portfolio and benchmark.

Blitz and Hottinga [4] illustrate how to compare various investment strategies via a Tracking Error framework. They consider weighting strategies by several methods of importance, such as tracking error, information ratio, and the like. In a similar vein, we can weight various quantiles by whatever criterion is most important to the investor. In the following, we consider four weighting schemes: equal weight, tail risk weight, down side risk weight, and total return attribution.

Finally, we consider a total return attribution weighting scheme, wherein each quantile is weighted according to its contribution to the portfolio’s total return. Specifically, using the equally spaced 100 quantile grid (i.e. percentiles), we compute the midpoint between each grid point to signify the average return in that return bin. We then compute the relative frequency of return observations that fall within that bin. Notice that the average return in each bin times the relative frequency of observations occurring within that bin is approximately equal to the total return. To compute the attribution of any given bin, we take the average bin return times relative frequency and divide by the total portfolio return.[11] By design these attributions sum to 1, and thus are viable choices for quantile weights .

In Figure 4 we illustrate how the QuTER objective function varies with the four aforementioned weighting schemes. Specifically, we repeat the exercise from Section 3.1 by simulating the tracking portfolio and benchmark. Each case varies one of the first four moments of the return distribution for the tracking portfolio. The height of each bar is the associated QuTER averaged over 10,000 paths. The number above each bar is the gross change of that average QuTER statistic relative to Case 0. For instance, the 1.1 above the first bar in Case 1 implies that the QuTER value for the equal weight scheme in Case 1 is 1.1 times as large as the equal weighting scheme QuTER statistic for Case 0. The legend can be read as follows: EW = Equal Weight, TR = Total Return Attribution, Tail = Tail Risk, and Down = Downside Risk.

Within Case 1, we find that all of the weighting schemes are roughly equally (in)sensitive to excess mean returns. Gross changes are 1.1 for equal weighting, tail risk weighting, total return attribution, and for downside risk weighting. Within Case 2, total return and tail risk are again equally sensitive to variations in excess standard deviation, while downside is slightly more sensitive and equal weight is slightly less sensitive. For excess skewness, we find that tail risk is the most sensitive, downside is the least sensitive, while equal weight and total return have similar sensitivities. For excess kurtosis, equal weight and total return attribution are again similarly sensitive, with tail risk and downside risk being less so. In summary, a quantile weighting scheme of equal weight or total return attribution is robust to a wide array of differences in the underlying return distributions of the benchmark and tracking portfolio.[12]

Case Study

 In this section we conduct two small case studies in order to illustrate the behavior of QuTE alongside a traditional measure of tracking error. The first case regards tracking the DJIA, while the second focuses on tracking the MSCI Emerging Markets index. We apply the QuTER and TER measures in both an unconditional and conditional setting.

Tracking the DJIA

In our first case study we use the Dow Jones Industrial Average (DJIA) as a benchmark and the DIA SPDR ETF as a tracking portfolio. The DJIA is a leading index of equity market returns in the U.S., being launched in May 26, 1896 and with approximately 1,876.70 dollars indexed to it’s performance. The DIA is among the largest of the DJIA ETF tracking portfolios, with an average of 7,102,449 USD in daily volume since the inception date. It is also one of the oldest ETFs to track the DJIA portfolio, with an inception date of January 13, 1998.

Our dataset contains monthly simple returns for both the DJIA (benchmark) and the DIA (tracking portfolio) over the period January 1998 to June 2019. Figure 5 depicts the time variation of the two return series overlayed upon one another. Simple visual inspection suggests they are quite similar. In fact, the correlation between the two return series is 0.99. Table 4 contains basic descriptive statistics such as mean, standard deviation, skewness, and kurtosis, as well as select quantiles of the two series. The last row contains the p-value for tests of equality between these various measures. A standard t-test is used for equal means. A standard F-test is used for equal variances. A two-way Kolmogorov-Smirnoff test is used to compare all of the four moments jointly. Finally, to compare the quantiles we use employ the Wilcox et al [23] test with a quantile estimator proposed by Harrell and Davis [13].

Figure 4 complements the comparisons in Table 4 by overlaying histograms of the tracking portfolio and benchmark in Panel A, and presenting a two-way QQ plot in Panel B. In addition, Table 5 presents various measures of (quantile) tracking errors. Note that the TE and QuTE values are not directly comparable given the different scaling of each measure.

Taken together, the above results reveal that the DIA has distributional properties that are remarkably similar to the DJIA, thereby supporting our visual inspection. Each of the moments and quantiles examined are statistically identical across the two portfolios.

Nonetheless, the two series can differ over time that are important to portfolio managers and investors. Figure 7 charts the difference in returns (TE) for each month. Deviations between the two series are particularly visible during the aftermath of the dot-com bubble in 2001 as well as during the Great Recession of 2008-2010. Of particular note is the variability in the TE over time. Figure 5 depicts the time variation in the difference in the first four moments of the tracking portfolio and benchmark. For the benchmark, we compute the mean return over a trailing three year window. We repeat for the tracking portfolio. Then we subtract those two values. That is a single point in Panel A of Figure 8. We then roll each sample forward by one month, recompute the means, and subtract. We continue that process for the rest of the times series, and repeat that exercise for the standard deviation (Panel B), skewness (Panel C), and kurtosis (Panel D).

In a similar fashion we compute the TER and QuTER statistics between the benchmark and tracking portfolio. Panel A of Figure 5 depicts the rolling tracking measures computed over rolling three year windows, while Panel B depicts the month to month percent change in each tracking measure.

The statistical properties of the tracking portfolio differ from that of the benchmark over time. Our findings from Section 3 suggest that the QuTER statistic might be able to detect these differences when the TER cannot. For instance, as you can see from Figure 7, there is a large spike in the TE during 2001, followed by volatility of the TE until 2004. Figure 5 Panel A shows us that the differences in mean returns between DJIA and DIA was small and steady during this episode, while Panel D shows high differences in kurtosis. The TER is steady near 1.05 during this period, while the QuTER rises from 1 to 1.175, then falls back down to 1 by February 2004. These movements in the QuTER reflect its sensitivity to differences in return distributions that were not detected by TER.

Another episode of interest is the Great Recession. The TE swings wildly from 0.70 to 0.86 over the period 2008 to 2009. The mean return differences, as depicted in Panel A of Figure 5, vary between 0.17 and 0.20, and with it TER rises from 0.70 to 0.86. Notice that skewness changed from -0.01 to 0.11 and kurtosis from -0.05 to -0.10 over that period.[13] QuTER captured these movements, by increasing by almost 50 percent over that period, rising from 0.79 to almost 1.20, outpacing the roughly 22% change in TER.

Tracking the MSCI Emerging Markets Index

In our second case study we use the MSCI Emerging Markets Index (MSCI-EM) as a benchmark and the EEM iShares ETF as a tracking portfolio. We focus in on a recent episode that exemplifies the differences between TER and QuTER. Our dataset consists of monthly simple returns over the period January 2013 through November 2019.

The correlation between the two return series is 0.97 during this sample period. As depicted in Figure 10 the empirical distributions are similar. Nonetheless, as depicted in Figure 11, there are differences between the two series. Analogous to Figure 5 in Section 4.1, Figure 5 illustrates the time variation in the differences of the first four empirical moments of the benchmark and tracking portfolio. Panels B, C, and D show stark time variation in the differences of standard deviation, skewness, and kurtosis.

TER is little changed during this period, as seen in Figure 5, ranging from approximately 1 to 1.3. Meanwhile, QuTER is able to detect these variations in the series, ranging between .8 and 1.7. The relative sensitivity of QuTER is even more stark in Panel B of Figure 5.


In this paper we document a shortcoming of traditional tracking error measures. Cast as a quadratic norm of return differences between a tracking portfolio and benchmark, traditional tracking error measures like TEV and TER are focused on only the first two moments of the underlying return distributions. As such, they are inconsistent with the manner with which most portfolio managers are compensated. If the portfolio and benchmark differ in ways other than the mean or variance, traditional measures are insufficient.

As a remedy, we introduce a new class of tracking errors that are based on the differences in the quantiles of the tracking portfolio and benchmark, namely QuTE. Just as there are myriad variants of tracking error, so too are there variants of QuTE (see Section 2 for a complete listing).

We show via simulation that a simple quadratic summary statistic (QuTER) is more sensitive to differences in higher order moments than is its TER counterpart. We also document in two cases studies situations wherein the QuTER statistic is able to detect important differences in tracking portfolios from their benchmarks, which the TER missed.

Our findings are directly relevant for ex-post performance measurement as well as risk evaluation. Differences in higher order moments matter, and quantile based measures of portfolio tracking provide a useful complement to traditional measures.


[1] Ammann, M. and Tobler, J. (2000). Measurement and decomposition of tracking error variance. Working paper, University of St. Fallen.

[2] Barro, D. and Canestrelli, E. (2009). Tracking error: a multistage portfolio model. Annals of Operations Research, 165(1):47-66.

[3] Beasley, J. E., Meade, N., and Chang, T. J. (2003). An evolutionary heuristic for the index tracking problem. European Journal of Operational Research, 148(3):621-643.

[4] Blitz, D. and Hottinga, J. (2001). Tracking error allocation. The Journal of Portfolio Management, 27.

[5] Blume, M. and Edelen, R. (2004). S&p 500 indexers, tracking error, and liquidity. The Journal of Portfolio Management, 30:37-46.

[6] Chincarini, L. and Kim, D. (2006). Quantitative Equity Portfolio Management An Active Approach to Portfolio Construction and Management: An Active Approach to Portfolio Construction and Management. McGraw- Hill.

[7] Chung, Y. P., Johnson, H., and Schill, M. J. (2006). Asset pricing when returns are non-normal: Famafrench factors versus higher order systematic comoments. The Journal of Business, 79(2):923-940.

[8] Dorockov, M. (2017). Comparison of etf’s performance related to the tracking error. Journal of International Studies, 10:154-165.

[9] Follmer, H. and Leukert, P. (1999). Quantile hedging. Finance and Stochastics, 3(3):251-273.

[10] Franks, E. C. (1992). Targeting excess-of-benchmark returns. The Journal of Portfolio Management, 18(4):6-12.

[11] Gaivoronski, A. and Pug, G. (2005). Value-at-Risk in Portfolio Optimization: Properties and Computational Approach. Journal of Risk, 7(2):1-31.

[12] Giovannetti, B. C. (2013). Asset pricing under quantile utility maximization. Review of Financial Economics, 22(4):169 – 179.

[13] Harrell, F. E. and Davis, C. E. (1982). A new distribution-free quantile estimator. Biometrika, 69(3):635-640.

[14] Jorion, P. (2004). Portfolio optimization with tracking-error constraints. Financial Analysts Journal, 59.

[15] Kahneman, D. and Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2):263-291.

[16] Kritzman, M. P. (1987). Incentive fees: Some problems and some solutions. FinancialAnalysts Journal, 43(1):21-26.

[17] Ma, L., Tang, Y., and Gomez, J. (2019). Portfolio manager compensation in the U.S. mutual fund industry. The Journal of Finance, 74(2):587-638.

[18] Mills, T. C. (1995). Modelling skewness and kurtosis in the london stock exchange ftse index return distributions. Journal of the Royal Statistical Society. Series D (The Statistician), 44(3):323-332.

[19] Pope, P. F. and Yadav, P. K. (1994). Discovering errors in tracking error. The Journal of Portfolio Management, 20(2):27-32.

[20] Roll, R. (1992). A mean/variance analysis of tracking error. The Journal of Portfolio Management, 18(4):13-22.

[21] Rostek, M. (2010). Quantile Maximization in Decision Theory*. The Review of Economic Studies, 77(1):339-371.

[22] Rudolf, M., Wolter, H.-J., and Zimmermann, H. (1999). A linear model for tracking error minimization. Journal of Banking & Finance, 23(1):85 – 103.

[23] Wilcox, R., Erceg-Hurn, D., Clark, F., and Carlson, M. (2014). Comparing two independent groups via the lower and upper quantiles. Journal of Statistical Computation and Simulation, N/A:9pp.

[24] Yamai, Y. and Yoshiba, T. (2002). On the validity of value-at-risk: Comparative analyses with expected shortfall. Monetary and Economic Studies, 20(1):57-85.


[1] [7] documents excess skewness and kurtosis for cross-sectional daily, weekly, monthly, quarterly and semi-annual asset returns.

[2] See for example, the ESMA, Morningstar, and Vanguard

[3] CFA Institute hash=F7FF3085AAFADE241B73403142AAE0BB1250B311, International Organization of Securities Commissions and European Securities and Markets Authority

[4] Zephyr, Vanguard, Envestnet

[5] Each series was simulated within Matlab using the pearsrnd function for a Pearson system of random numbers with moments calibrated to match the mean, standard deviation, skewness, and kurtosis of the monthly return of the Dow Jones Industrial Average over the period 1985 through 2019.

[6] The measures of absolute and semi tracking error are beyond the scope of this paper

[7] We also consider excess standard deviation in the range 0.10 to 5, excess skewness in the range -1.4 to 1.4, and excess kurtosis in the range 1 to 7.

[8] We scale as follows: Tracking Measure Value – min(Tracking Measure Value)/(max(Tracking Measure Value)-min(Tracking Error Value))

[9] We also consider excess standard deviation in the range 0.10 to 5, excess skewness in the range -1.4 to 1.4, and excess kurtosis in the range 1 to 7.

[10] We scale as follows: Tracking Measure Value – min(Tracking Measure Value)/(max(Tracking Measure Value)-min(Tracking Error Value))

[11] More precisely, we divide by the sum of the average bin returns times relative frequencies. Due to the averaging across the bins, this value may not be equal to the actual portfolio return in any given dataset, but will approach that value as the distance between the grid points approach 0.

[12] Our findings are similar for AQuTE and AAQuTE

[13] During this time period, the difference in kurtosis reached a high of -0.50.

PDF Download: Quantile Tracking Errors (QuTE)


Fell on Black Days


Epsilon Theory PDF Download (paid subscribers only): Fell on Black Days

So what you wanted to see good
Has made you blind
And what you wanted to be yours
Has made it mine

'Cause I fell on black days
I fell on black days

I sure don't mind a change

-- "Fell on Black Days" (1994)

I was driving the other week and switched the radio station over to Lithium, the grunge rock channel on Sirius, and the info panel showed that I should expect a Soundgarden song called “Fell on Black Days”. As I recalled (and the title implies), this song has the depressing lyrics of pretty much all Soundgarden/Chris Cornell songs, and I remember thinking that this would be a pretty good theme song for the year. Covid and the election and protests and urban violence and massive wildfires and brain-eating amoebas in south Texas drinking water … these sure feel like Black Days that we’ve fallen into. 2020, amirite?

But before playing the track, there was a brief recorded interview with Chris Cornell from some years ago (he committed suicide in 2017) explaining what he was thinking when he wrote “Fell on Black Days” back in 1994. It wasn’t what I expected.

He said that the song is about waking up one morning and realizing with a start that your life and the world in general are … off. Not just a little off, but way, way waaaay off. And not because of some huge traumatic event. Not because you got really sick or you got fired or a meteor hit the Earth, but because of a thousand little events, each regrettable and yet oddly unremarkable in itself, each building on the others, each lost in the noise of the others, each noted with a sigh and then promptly forgotten. It’s the realization that you are the frog now sitting in boiling water, that you are the one suffering a death by a thousand cuts. It’s the realization that you’re not as happy as you used to be, that you’re not as secure as you used to be, that you’re not as healthy as you used to be. And it all just … happened. It all just snuck up on you unawares, like you were asleep or something.

I know exactly what Chris Cornell is saying in this song. I bet you do, too.

“Fell on Black Days” isn’t a theme song for 2020.

It’s a theme song for all the years that got us to 2020.

Are you awake yet?

This is a picture of Chris Cornell with his daughter Toni. Looks like she’s what? Four years old? That would date this to 2008, fourteen years after he wrote “Fell on Black Days”.

Chris Cornell and I would be almost exactly the same age if he were still alive. We were both born in the summer of 1964.

I’ve got a picture just like this. I’ve got a lot of pictures just like this. If you’ve got kids, I bet you do, too.

Have you woken up to the realization that our nation and our world and your children’s place in that nation and that world are less secure and less healthy and less happy than a year ago? And that next year their place will be less secure and less healthy and less happy than this year?

I have no frame of reference for the depression that led Chris Cornell to take his own life nine years after this photograph was taken. But I know exactly the feeling of love and pride and hope in this photograph, just like I know exactly the feeling of anger and pain and realization in “Fell on Black Days”. These are the feelings that motivate me in everything I do.

The threat of the future revealed itself to me in 1996 with the death of my father and the birth of my child. One day the threat of the future will reveal itself to you, if it hasn’t already. When it does, you will be CONSUMED by thoughts of the future. You will FEEL the pressure of time more keenly than the younger you could ever imagine.


Are you awake yet?

I don’t mean “woke”. I don’t mean entrapped in whatever mind-welding syllogism that marks some SJW initiation ceremony.

I mean has Covid, BLM, the election … whatever car alarm you’re hearing in the middle of the night … has it shaken you awake from your pleasant dreams of “Yay, democracy!” and “Yay, capitalism!” ?

Has it made you question your received truths of party or corporation or church or nation?

Have you looked at some egregiously bullshit event over the past year and whispered to yourself quietly, oh-so quietly, Burn. It. The. Fuck. Down. ?

Are you awake yet?

I bet you are.

Change is coming, and I don’t mean the change of an election on November 3rd.

Does the election matter? Of course it matters. It matters a lot. Four years ago I wrote that I thought Trump would win. I wrote that I thought this would be a historic tragedy. I wrote that I thought Trump would break us. And he did.

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.

I don’t think people realize the underlying fragility of the Constitution — the written rules to our American political game. It’s just a piece of paper. Its only strength in theory is our communal determination to infuse it with meaning through our embrace of not only its explicit rules, but also and more crucially its unwritten rules of small-l liberal values like tolerance, liberty, and equality under the law. Its only strength in practice is that whoever runs our Executive branch, whoever is our Commander-in-Chief, whoever is in charge of “law and order”, whoever runs our massive spy bureaucracy national intelligence service, whoever controls the legitimate use of deadly force and incarceration … that he or she believes in those unwritten rules of small-l liberal values like tolerance, liberty, and equality under the law. When you hear Trump talk about “loosening the law” on torture, or “loosening the law” on libel prosecutions of anyone who criticizes HIM, or the impossibility of a federal judge being able to rule fairly because his parents were born in Mexico … well, there’s no way he believes in those small-l liberal virtues. No way.

And yeah, I know what the supporters say, that he “really doesn’t mean what he says”, or that “once he’s elected he’ll listen to the right people and his views will evolve”, or — my personal fave — “it’s only 4 years, how bad can it be?” Answer: pretty damn bad. And yeah, I understand the argument on the Supreme Court. But what I’m talking about is bigger than the Supreme Court. A lot bigger.

Virtue Signaling … Or Why Clinton Is In Trouble

So yes, I totally pegged this four years ago. And no, I have no prediction on who wins this election.

I’m over it.

Please hear me out.

I don’t mean that I’m not going to vote in four weeks. Of course I’m going to vote. I will vote as an expression of my political identity, and I’ll hope for the best. And I’ll prepare for the worst.

But no matter who is in the White House on January 20th, 2021 or January 20th, 2025, none of this ends. All of our coordination games are now competition games. That’s the new equilibrium. This is a permanent change. Covid is a permanent part of our world. Both the Republican and the Democratic parties are permanently transformed. The tether between taxation and spending – the core, most important relationship between government and governed – is permanently severed. There is no reset button. There is no saved game.

So what. Now what.

Now we wake up.

Now we recognize the scale and scope of what has been stolen from us over the past 40 years, a scale and scope that dwarfs the grifts and Il Duce cosplay of Donald Trump. Now we understand that our vote every four years is the merest, most insignificant part of our political participation.

We don’t play defense. We don’t content ourselves with avoiding the worst excesses of the Trumpist clownshow or the Socialist lunacies.

Now we change the entire freakin’ world. For ourselves, yes. For our children, even more.

“He’s dreaming now,” said Tweedledee, “and what do you think he’s dreaming about?”

Alice said, “Nobody can guess that.”

“Why, about you!” Tweedledee exclaimed, clapping his hands triumphantly. “And if he left off dreaming about you, where do you suppose you’d be?”

“Where I am now, of course,” said Alice.

“Not you!” Tweedledee retorted contemptuously. “You’d be nowhere. Why, you’re only a sort of thing in his dream!”

“If that there King was to wake,” added Tweedledum, “you’d go out — bang! — just like a candle!” 

– Lewis Carroll, “Through the Looking Glass” (1871)

We’re all familiar with the Queen of Hearts from Alice in Wonderland, less so with the Red King. He’s sleeping all the while, and when Alice goes to wake him up she’s warned off by Tweedledee and Tweedledum, who tell her that everything in Wonderland – including Alice herself – is perhaps just the dream of the Red King. Wake him up and maybe, just maybe, everything goes … poof!

The Red King is us.

Everything changes when we wake up from our dreaming world, when we no longer allow concentrated interests of wealth and power to nudge us back to sleep with their memes and soma.

It’s time to look beyond the November 3rd election, not because it doesn’t matter or it’s not worthy of your awake-for-the-first-time political participation, but because your awake-for-the-first-time political participation in the days and weeks and months and years and decades after November 3rd matters MORE.

I think the events of 2020 have woken the Red King … us! … and we have a once in a lifetime opportunity to unmake the Black Days that were created around us while we slept, a once in a lifetime opportunity to realize our dreams of old, now long deferred.

Our dreams – and our pledge – of liberty and justice for ALL.

This image has an empty alt attribute; its file name is langston-hughes.jpg
What happens to a dream deferred?

Does it dry up 
like a raisin in the sun? 
Or fester like a sore — 
And then run? 
Does it stink like rotten meat? 
Or crust and sugar over — 
like a syrupy sweet?

Maybe it just sags 
like a heavy load.

Or does it explode? 

– Langston Hughes, “Dream Deferred” (1951)

Mark me down for explode.

We need quantum change – meaning we must have change in the rules of the system, meaning that we must have change in the state of the system – because once you fall into the stable equilibrium of our Black Days, it is impossible for incremental change or adjustment to get you out. Not just difficult. Impossible. That’s what an equilibrium means. We cannot just open a door that has been welded shut. We must blow the door open.

We must Burn. It. The. Fuck. Down.

Which doors? All of ’em. All of the welded shut doors of the institutions that steal our autonomy of mind, that use us for fodder and feed. What are those institutions? Literally every single institution of human civilization.

Hey, go big or go home.

These are the ten Great Guilds of human civilization, each now fully captured by smiley-face authoritarian concentrations of wealth and power, even as the rank-and-file members of these guilds dream a pleasant dream of days gone by.

The Artists Guild — the human endeavor of entertainment, art and fashion; not only “content” (to use the modern term) but also design, marketing and sport.

The Bankers Guild — the human endeavor of money as a thing; commercial and investment banks, yes, but also all financial services.

The Doctors Guild — the human endeavor of health; not only doctors and hospitals, but also all medical services, medical devices, healthcare payers and pharmaceuticals.

The Lawyers Guild — the human endeavor of law as a thing; lawyers and law firms, yes, but also all law-making and law-execution and law-deciding.

The Masons Guild — the human endeavor of construction; the building of structures and infrastructure, including telecom/network infrastructure.

The Miners Guild — the human endeavor of natural resource extraction, for my purposes including renewable resources, agricultural resources, and constructed resources like semiconductors.

The Mercenaries Guild — the human endeavor of organized protection and the legal use of force, including soldiers, police and “security contractors”.

The Merchants Guild — the human endeavor of business as a thing; in the modern context, all of professional corporate management.

The Teachers Guild — the human endeavor of knowledge as a thing; not only education but also scientific, technical and engineering research.

The Thieves Guild — the human endeavor of organized crime and the illegal use of force; yes, this is one of the pillars of human civilization.

How did this happen? How were the Great Guilds of human civilization captured while we slept?

Through the systematic use of securitization, leverage, scale and alienation.

Securitization — the derivative connection of something in the real world with a piece of paper that can be bought and sold separately from that real world thing, with no impact on that real world thing; also known as a casino chip.

Leverage — borrowed money.

Scale — increased size generating a more than proportional increase in power.

Alienation — the process that transforms a human from making a cog to being a cog … and liking it.

These are the instruments of our Black Days. Sometimes used in unison, sometimes used separately, these are are TOOLS by by which smiley-face authoritarian concentrations of wealth and power have perverted all of our human endeavors. Application of securitization, leverage, scale and alienation is the PROCESS by which our Black Days were created.

Understanding the process is everything.

Because if I’m right about the process … then we have a blueprint for how to reverse it.

How do we fix the world?

By burning away the overwhelming levels of securitization, leverage, scale and alienation built up in every aspect of human civilization.

You may know these words by another name.

Leverage + Securitization = Financialization

Scale + Alienation = Neoliberalism

You know, in one of my Twitter spats with Angry Billionaire™ Cliff Asness, he proclaimed that the word “financialization” was not used by any serious person. By this he meant (I think) that it was a vague, mushy term tossed around for affect by people who had some inchoate beef with capitalism or wealth inequality or the like. A word full of sound and fury, signifying nothing.

Cliff was right.

Almost always, “financialization” is a word bandied about for emotional appeal. Almost always, it’s a verbal form of jazz hands, shorthand for “there’s something here that seems unfair or unjust to our woke sensibilities, so let’s all just agree that it’s bad by nodding our heads at the term”. At best, financialization is understood as Justice Potter Stewart understood pornography … we can’t define it, but we know it when we see it. Ditto with “neoliberalism”. Frankly, I think “neoliberalism” is even worse.

It’s incumbent on those of us who believe something is fundamentally and structurally WRONG with the way power and wealth are distributed in the modern world to choose our words with precision and care. I don’t mean that we have to be boring or pedantic. I mean that the burden of proof is on us to show that the current system is, in fact, structurally broken, and the best way to do that is to use our words like a scalpel, slicing away the skin of pleasant narrative and deceit to reveal the sinews of raw power beneath.  

What is financialization? It’s the application of securitization and leverage.

What is neoliberalism? It’s the application of scale and alienation.

HOW are they applied to the Great Guilds of human civilization to make our Black Days?

HOW do they strip away our life, our liberty, and our pursuit of happiness?

HOW can we reverse this?

Usually I’d write a series of notes to answer these questions and post them on the Epsilon Theory website. In this case that seems … small. It seems like a bad move in the metagame! Why? Because the words I’m writing are threatening words to these concentrated interests of wealth and power and their Renfields. Because the words I’m writing can and will be used against me and anyone who chooses to act on those words with me. They will intentionally be taken out of context. They will be intentionally be misconstrued. First to scoff and dismiss out of hand. Then to attack.

To win this game, I need to write a canonical, precise, single-source resource that can be distributed in multiple modalities through multiple distribution channels to as many people as possible, insulated through its form against misinterpretation and signal jamming.

I need to write a book.

Fell on Black Days: How Financialization and Neoliberalism Broke Our World, And How We Can Fix It

(coming soon)

You can help me if you like.

If you want to tweet at my publisher, @harrimanhouse, and tell them how excited you are about this project, that would actually be a big help.

If you want to join the Epsilon Theory Pack and support this effort directly with your subscription (yes, annual subscribers will get a free copy of this book), that would be an even bigger help.

And if you want to email me at with an example or story of how securitization, leverage, scale and alienation has impacted your guild … well, that would be the biggest help of all! The Pack is in this together, and it’s time to howl as one.

Epsilon Theory PDF Download (paid subscribers only): Fell on Black Days


The Projection Racket, Pt. 2


This is Part 2 of The Projection Racket, a series of notes detailing the civic arguments underlying a movement to both (1) make our lives less dependent on political, social and financial institutions with structurally broken features and (2) to protect the rights of our fellow-citizens to do the same by eliminating the source of those structural breaks so that these institutions can serve both the collective and individual good. It is an explanation of what we mean when we say to “Burn it the $!#* down.”

You can read Part 1 here.

Epsilon Theory PDF Download (paid subscribers only): The Projection Racket, Part 2

This is a long essay, and its arguments are best understood in full. But it’s 2020, so we’ve put together a TLDR, too.

You can read our Executive Summary here.

TMP] "Fighting in the Reichstag." Topic
Source: Monty Python and the Holy Grail (1975)

Arthur (reverently): Camelot!

Galahad (reverently): Camelot!

Lancelot (reverently): Camelot!

Gawain (dismissively): It’s only a model…

Monty Python and the Holy Grail (1975)

Our political machinery expends a great deal of energy to tell you that your vote IS your right to political expression. That your vote IS your right to political self-determination. That your vote IS your political will.

Sometimes they tell you in shades of Vote or Die, insufferable if sometimes well-meaning campaigns meant to impress on historically apathetic groups the existential importance of voting.

Sometimes they tell you through Holy Theatre, celebrating campaigns for long-withheld suffrage and criticisms of shameful voter suppression practices.

Mostly, however, they tell you through the machinery of the major political parties and media, which are in the convenient position of being able to say “voting is important!” out loud in ways that too obviously say “voting for this person/party is important.” As the now-politicized pulpits in most evangelical churches start delivering their “duty to vote” sermons, the words will say “vote”, but the context will scream “vote for Trump.” Captain America didn’t drop trou on Instagram for you to express your political will, y’all. When he says “vote,” what he means is, “vote for Biden.”

And there’s nothing at all wrong with Cap wanting you to vote for Biden, of course, any more than there is anything wrong with conservative Hollywood celebrities who want you to vote for Donald Trump. Both of them, in fact. So have at it, James Woods and Angelina Jolie’s dad.

More importantly, there certainly isn’t anything wrong with demanding our right to vote, celebrating when it is recognized and protesting loudly when it is denied or suppressed. Still, whether they are promoted by official party apparatchiks or their counterparts in business, media and entertainment, the mass of these exhortations inevitably fuel one of the oldest Projection Rackets in the game. In this racket, partisan campaigning in a turnout-driven election is clothed in the finery of high-minded belief in suffrage and self-expression.

Point out the political insufficiency of voting alone or the underlying intent of those who are really just using its memetic value to promote their preferred candidate or party, of course, and now you are the one who is questioning the sacredness of the vote.

Or, to put it in our parlance, “Yay, voting!”

Yet while we bathe in these memes, it is easy to lose sight of an important truth: Your vote IS NOT your right to political expression. Your vote IS NOT your political will. Your vote IS NOT your right to political self-determination.

Our right to political self-determination is nothing less than the inherent right to establish what authorities we will grant to those who would govern us, and what actions we will permit them to take in our name. It speaks to a scope of sovereignty that a periodic expression of our personal preferences in a representative democracy cannot possibly contain. But there is a lot of daylight between “my vote isn’t always a perfect expression of my political will” and “what’s the point in voting when none of these people matches my views of the world, and even if they did, I don’t trust one of them to actually do it, and even if they would, I live in a district that has voted for the other party in every election in my lifetime?”

That daylight is filled by a range of abstractions. In this context, that’s a $10 word for things which reduce the extent to which your vote has the ability to faithfully represent and advance your political will. For most of American history, those abstractions have been largely reasonable compromises. They were things for which you were offered some meaningful thing in return for a vote that offered influence that was slightly less transparent, slightly less direct and slightly less likely to achieve your desired ends.

Today, however, those abstractions have been transformed by a series of catalysts. Transformed into structural elements of our voting system that will persistently impair the capacity of American citizens’ votes to act as an expression of our political will. In short, the arrival of these catalysts means those compromises are no longer reasonable.

The Projection Rackets will say that the solution to this, like everything else, is to vote. Express yourself! Don’t you believe in democracy?

Here is what I say:

I say that we should first consider together the pre-existing, long-standing features of our electoral and political systems which create abstractions between your political will and your vote: the (1) two-party system made inevitable by our first-past-the-post (“FPTP”) electoral system, and the (2) winner-take-all (“WTA”) structure embedded in our existing social contract.

I say that we should then consider the emerging catalysts which are transforming those theoretically acceptable compromises into unavoidably oppressive systems which will persistently diminish your right to political self-determination: the (1) steadily increasing federalization of government policy, the (2) dilution of representation and (3) the Widening Gyre.

I say we that we should then burn them the $#@! down. All of them. First-past-the-post elections. Winner-take-all elections. The Electoral College. The structural inevitability of two-party hegemony and the fuel for America’s everything-polarization.

I say we do it not through destruction or dismantling of our most cherished and important institutions, but through the reinvigoration of our commitment to them. Not by diminishing the constitution, but by embracing its role as our protection against the encroachment of political actors and state power. Not by diminishing the several states, but by rediscovering how to wield their political power in defense of the rights of the people.

It’s not THE Answer, but it is AN answer.

First, I’ll suggest the WHY; then, I’ll propose the HOW.

First Past the Post and The Two-Party System

Your vote has never been a pure or complete expression of your political will. And that’s OK.

The most basic layer of abstraction between your political will and your vote is also the most obvious, namely, that our system of government is a representative democracy. In short, other than the occasional municipal bond issue and some state and local ordinances and referenda (more in some localities than others), in our system you don’t get to vote directly on practically anything.

This is an abstraction because the politicians you vote for are both figurative and literal proxies for your political will. They replace your detailed, specific views about the powers you would grant to those who govern us and the actions you would permit them to take in your name with the political candidate who you deem most desirable. Usually, although not always, you might decide who is most desirable on your assessment of the similarity between “what you think they would do” and “what you want to be done.” In some cases, perhaps the replacement of “what you want” with “who you think will do the closest to what you want” is a good representation. In other cases, perhaps it isn’t. In all cases, it is an imperfect representation acquired in exchange for a great deal of simplicity.

There are other reasons for the exchange as well. The reasons provided in defense of this system historically largely boil down to the same two, and they’re both pretty good ones: tyranny of the majority and unmanageable scale and scope. Founders who disagreed on practically everything else were convinced of the dangers and impracticality of a fully democratic form of government. Hamilton, probably the most comfortable of the prominent founders with the oligarchic risks of a permanent political class, was the most strident.

The ancient democracies, in which the people themselves deliberated, never possessed one feature of good government. Their very character was tyranny; their figure deformity: When they assembled, the field of debate presented an ungovernable mob, not only incapable of deliberation, but prepared for every enormity. In these assemblies, the enemies of the people brought forward their plans of ambition systematically. They were opposed by their enemies of another party; and it became a matter of contingency, whether the people subjected themselves to be led blindly by one tyrant or by another.

Alexander Hamilton, in Remarks to the New York Ratifying Convention (June 21, 1788)

Madison, however, wasn’t far behind him. His arguments, however, typically differed by casting the problems of a majority voting away the rights of the minority as one whose vector was nearly always factionalization. In short, Madison feared the effects of faction, and wrote in opposition to pure democracy principally on those grounds.

From this view of the subject it may be concluded that a pure democracy, by which I mean a society consisting of a small number of citizens, who assemble and administer the government in person, can admit of no cure for the mischiefs of faction. A common passion or interest will, in almost every case, be felt by a majority of the whole; a communication and concert result from the form of government itself; and there is nothing to check the inducements to sacrifice the weaker party or an obnoxious individual. Hence it is that such democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their deaths. Theoretic politicians, who have patronized this species of government, have erroneously supposed that by reducing mankind to a perfect equality in their political rights, they would, at the same time, be perfectly equalized and assimilated in their possessions, their opinions, and their passions.

A republic, by which I mean a government in which the scheme of representation takes place, opens a different prospect, and promises the cure for which we are seeking. 

Federalist #10, by James Madison (1787)

Even Jefferson, perhaps the most fundamentally democratic of the founders at heart, understood the intractable problems of scale and scope in a direct democracy. He favored what he considered the “2nd grade” of purity of government, and supported it with the “earnest wish…to see the republican element of popular controul pushed to the maximum of its practicable exercise”

[Classical Greece] had just ideas of the value of personal liberty; but none at all of the structure of government best calculated to preserve it. they knew no medium between a democracy (the only pure republic, but impracticable beyond the limits of a town) and an abandonment of themselves to an aristocracy, or a tyranny, independant of the people. it seems not to have occurred that where the citizens cannot meet to transact their business in person, they alone have the right to chuse the agents who shall transact it; and that, in this way, a republican, or popular government, of the 2d grade of purity, may be exercised over any extent of country.

Thomas Jefferson in a private correspondence to Isaac H. Tiffany, 26 August 1816

Much of the electoral system through which this representative democracy takes shape is not the direct product of our constitution; instead, it is the product of laws passed by the US Congress.

In the current federal electoral framework, each of the 435 members of the House of Representatives is elected in a geographically defined district using a pluralistic first-past-the-post (“FPTP”) process. What that means is that each state designs districts that have (roughly) the same population, and whoever in that district receives the most votes in an election wins. The US Senate is the same, except that it is a statewide election rather than a district-based election, and each state has 2 members.

Beyond the natural abstraction native to a representative democracy, our first-past-the-post system introduces two additional abstractions. The first abstraction transforms the vote of a significant number of citizens from an expression of political will into an expression defined entirely by the features of the electoral system itself. In other words, you could tell me everything about yourself, your political will, engagement, political history, preferences and temperament. Yet the most important thing, the thing that would tell me most about how your vote would influence the powers granted to government and the actions permitted in your name?

Your zip code.

Here’s what I mean.

Abstraction of your vote into features of FPTP

Because congressional elections are allocated by district, in our system, if you vote for a candidate and your candidate loses, your vote expresses nothing in terms of the post-election reality. Because senatorial elections are conducted discretely by seat, the same is true of the US Senate. Because of FPTP, the votes of tens of millions of Americans will have the capacity to convey zero effective influence over House or Senatorial elections come November.

This is a familiar arrangement to us, and so there is a powerful Projection Racket that treats concern about the abstraction – no, the elimination – of individual political self-determination in winner-take-all districts as opposition to democratic principles, opposition to competitive markets or a desire for coercive state influence. Our narratives and language cause us to frame elections discretely as something to be unequivocally ‘won’ or ‘lost’ by a single candidate, not because that is an inherent feature of democratic elections, but because it is an inherent feature of our electoral system. The district as the “unit” of an election to be won by a single candidate on a discrete basis is a construction, in no way a necessary condition of democracy. Still, in the United States, that racket has been successful enough that everybody knows everybody knows that this is “just how elections work.”

When viewed in the aggregate, the effect of this racket is bad enough. The (terribly labeled) chart below comes from the Brookings Institute. It shows the difference between the share of seats in the House of Representatives won by Democratic candidates and the proportion of votes that were cast for such candidates. If you drew a ruler between each dot and the solid line, you’d know, by percentage, how much greater the share of seats was than the share of votes. Dots above the line favor the DNC. Dots below favor the GOP.

Graph showing vote share versus share of seats.
Source: Brookings Institute, Republicans in Congress got a “seats bonus” this election (again) (2016)

Remember that this is an aggregate. Underneath the hood are states and jurisdictions which vary wildly in both directions. Indeed, the underlying feature driving this in the aggregate is that even in jurisdictions which tend to be dominated by a particular party, there are still a lot of people who dissent from the majority. Nearly 41% of people in deep blue Connecticut still voted for Donald Trump. In crimson Alabama, some 34% still voted for Hillary. As a rule, in a small or medium-sized deep blue state, unless there’s a military base, anything less than 40% for the minority party is going to mean a clean sweep, or damn near. In a small or medium-sized deep red state, unless there’s a city with a quarter of a million people or so that hasn’t been gerrymandered into five different districts, anything less than 40% for the minority party is going to mean a clean sweep, or damn near.

The scientific term for FPTP’s model of self-determination offered through the vote to these people is “pissing into the wind.” But, I mean, you never know until you vote, right? Don’t you believe in democracy?

Except even that isn’t an option in many cases. You see, so powerful is FPTP in the stable political tendencies of these districts that the opposing party often doesn’t even bother to run a candidate at all. For example, in the 2014 elections, there were 72 different congressional districts in which one of our two dominant parties decided not to field a candidate. More than 16% of the seats, accounting for some 55 million American citizens, didn’t even bother with supporting the narrative that the citizens there have a right to effective self-determination.

This is the heart of what we mean by an abstraction – that for most Americans, whether your vote is an expression of your political will has more to do with the parameters of our electoral system and the zip code you were able to find a job and house than anything else.

But geographical features of FPTP are not the only abstraction of our vote we must contend with.

Abstraction of your vote into less representative candidates

The second abstraction is the result of FPTP’s tendency to produce two-party outcomes. These two-party systems, by extension, tend to produce outcomes in which policies of the closest candidate with a possibility of winning are inherently more distant from the preferred policies of each voting citizen. In other words, under representative democracy, your vote will always be for an individual that doesn’t perfectly represent your political will. Under FPTP, that imperfection is magnified by the limited number of viable candidates.

The cause of pressure in the direction of fewer parties under the influence of FPTP is no secret. French political scientist, sociologist and Nikita Khrushchev superfan Maurice Duverger wrote about it enough in the 1950s and 1960s to get his name attached to it. To wit, Duverger’s Law posits that the equilibrial outcome for any pluralistic voting system like FPTP will be the concentration of party power, most often into a two-party system. In other words, if states determine who they send to Congress (or say, who they direct electoral college electors to select) based on who got the plurality of votes in a bunch of different political subdivisions, over time you are going to end up with two dominant parties.

You don’t have to be a political scientist to puzzle this one out. If you’ve heard – or God forbid, uttered – the words “wasted vote”, then you understand the cause and effect of Duverger’s Law. It is the practical, game theoretic outcome of political parties encouraging voters not to let the perfect be the enemy of the good. Yes, you may prefer that libertarian candidate, and you may prefer to give the libertarian party a leg up to begin building a third-party crusade, but are you really willing to let the DNC send another rep to expand the size of the federal government? Or if that isn’t your cup of tea, while I’m sure you would prefer a more progressive candidate, are you really going to let Donald Trump have another term?

If you are a political scientist, on the other hand, you probably have some technical rebuttals against Duverger’s. Save them. Yes, there are other pluralistic jurisdictions (e.g. India) with robust multi-party constructs. Yes, something something Canada. Yes, I am sure that by using a rational choice proximity model you can show that citizens who know they’re in a dominated district are happier to split their votes to support the emergence of third parties than Duverger allows for. But while the question of whether another path for American politics which permitted regular party formation and emergence was theoretically possible at some point sounds like a great journal submission, we have 100+ years of consistent data and an increasingly bimodal electorate, so forgive us if we’d rather not engage in hypotheticals.

The more important question, however, is this: how does a two-party system under FPTP structurally erode the self-determination and self-expression of the individual? How does it produce outcomes, as I alluded to above, in which policies of the closest candidate with a possibility of winning are inherently more distant from the preferred policies of each voting citizen?

The two-party system under FPTP creates artificial constraints on what would otherwise be a relatively free market for political ideas. Historically it does so by making it not only optimal but often necessary for candidates to adopt modal (i.e. the most common) same-party platforms in primaries, and modal (i.e. the most common) all-party platforms in elections. But while the central tendency of the electorate in any district may be something we can calculate to achieve election, it does not reflect reality. A Republican is not any more the ‘average’ of a Nozickian minarchist and a Jerry Falwell, Jr. poolside theocrat than a salad is the ‘average’ of a tomato and a ribeye. A Democrat is not any more the ‘average’ of a minister at an African Methodist Episcopal church in Louisville and a professional protester and Socialist Workers Party volunteer from Portland than Nebraska is the ‘average’ of Kentucky and Oregon.

Said another way: if you have ten viable candidates for office who each reflect some mixture of positions or a coherent political philosophy, the odds that your political will may be expressed in something approaching its true form is possible even in a representative democracy. If off-modal preferences are stamped out or become persistently sub-optimal, the odds that your political will may be expressed in anything approaching its true form are far less likely.

Still, the existence of a two-party system does not presuppose that off-modal preferences will always be stamped out. The two-party system under FPTP doesn’t require that, either, although it makes it much more likely. Indeed, for most periods in American history, FPTP and the existence of a two-party system have not been untenable constraints on effective individual political self-determination. The reason: There have always been factions within parties. These factions could grow or decline in their influence on the party as a whole. Parties could be big tents, even if there is pressure on certain issues to present a united front (which can be true in multi-party coalitions, too), and while still often monolithic in terms of specific districts, it was possible for individual districts to reflect an off-modal character.

What’s more, FPTP does obviate some features of alternative systems that are not always desirable. The hostage-taking, power-brokering potential offered to small minorities in proportional representation systems can be debilitating. The continuity offered by two-party government can have efficiency and execution advantages in implementing government policy. Um, theoretically. You may believe or disbelieve any of those arguments as you wish.

Because in the end, I am not saying you would have been wrong if you wanted to end FPTP before today. It is not a point worth arguing. But for those who did NOT think it rose to the level of institutional reform, I think it is important to establish that I agreed with you.

Until now.

But hold that thought until we explore the catalysts that we believe have changed the game.

Winner-Take-All Systems

In the same way that a system of representative democracy inherently creates distance between what you can vote for and your political will, there is a distance created by features of our social contract. To make everyone unhappy, I’ll use the term in both the sense of Locke and Rousseau.

The John Locke part of our social contract is the part we wrote down. Our constitution. The Rousseau part exists in the implicit vesting of authorities and duties in the state by long-term legislative mandates that cannot be (or at the least, perhaps ought not to be) unwound by a short-term change in aggregate political preferences.

In other words, there are things which citizens of our country decided – sometimes before you could express your political will – for which your vote provides practically no feasible avenue for expression. They reduce the extent to which your vote represents an expression of your political will.

It is, perhaps, an unusual framing to think of our constitution as constraining your expression of political will, it being a document that is designed to strictly define the scope of the government’s valid activities. But that is precisely the point. The Bill of Rights constrains the capacity of your vote to effectively convey a preference for curtailing speech, or for permitting police departments to adopt policies which would violate the 4th Amendment (hah!), or for desiring the abolition of private ownership of firearms. To constrain state encroachment on your individual liberties, an effective constitution must necessarily establish boundaries to the power of imagination vested in your political self-determination.

To be fair, not every American agrees on the desirability of what we have or haven’t defined as rights. Roughly one in four Americans explicitly wants the repeal of the 2nd Amendment. One in five would like to reinstitute the 18th Amendment and keep you from day-drinking to-go frozen margaritas during quarantines. Nearly three in ten disagree with the plain language of the 1st Amendment.

For my own mental health, I am not even going to search for any polls on the 13th Amendment.

Anyway, let’s say that for whatever reason, the rights you would grant to those who govern you included the right for police to rummage through your house because they felt like it, to fine you for saying naughty words or to charge you a $5 billion fee to get regulatory approval for your M&A transaction (oh wait). Your vote as a mechanism for expressing your particular brand of crazy is abstracted by one layer because you first have to find a candidate who shares something like that brand. It is abstracted – or rather, diluted – further by the fact that doing those particular things would require that insane congressperson to find enough like-minded sociopaths to initiate the constitutional amendment process. Just the small matter of securing 2/3 of both the senate and the house, followed by the ratification by at least 38 states.

This is unequivocally an additional encumbrance on the power of your vote and its link to your political will. And while we will differ on our judgments of the rightness of, well, rights, I don’t think it’s too controversial to judge this system as a good thing. The process for all of us deciding whether we should allow citizens to vote for permitting the chattel enslavement of other citizens should probably be a somewhat higher bar than deciding what the speed limit or budget for resurfacing interstate highways in a given year ought to be.

The other kind of social contract – in the more typical Rousseauesque meaning – is less formal than the recognition of rights in a constitution, but still effectively constrains how much of your political will your vote can make manifest. You may not agree that Social Security is an untouchable policy – I certainly don’t – but common knowledge has long been that it is a long-term commitment of the state that politicians only meddle with at their own peril. Remember the third rail? Remember the lockbox? Remember the mythology of the non-existent but still somehow inviolable social security trust fund? Everybody knows that everybody knows you can’t change social security.

There are other such policies which reflect long-term commitments of the United States both internally and externally, and for which that strong form of common knowledge increases reluctance by politicians to change course. Many fall into the category of what we call entitlements. Here, I think, it is probable that you and I disagree on particulars of the policies. For example, I think it is untenable not to make meaningful adjustments to social security, including increasing the eligibility age to reflect changes in life expectancy. I also think that the effective impediment to my power to effect that change through my vote is an acceptable price to pay for the flexibility and feasibility of our system to support long-term policy commitments. In other words, while we may reasonably believe that the individual policies are broken and in need of amendment, the system through which we express that preference is not broken, at least not as a result of this abstraction.

There is another system, another part of our social contract, however, which is instituted by the system of constitutional process. And we’ve got to talk about it.

Abstraction of your political will into the will of your state

Article I, Section 2 of our constitution sets out the parameters of what we call the Electoral College.

Whatever your opinion on the Electoral College – and I am certain you have one – there is zero question that it blunts the capacity of the vote to act as an expression of political will for tens of millions of Americans. It does so in two ways, one big and one small. The small way, which is the only way required by the constitution, effectively dilutes the influence of a vote from a state with a large population. The number of electors in each state is based on the sum of senators and representatives, so smaller than average states get the usual senatorial boost.

The big way that the Electoral College blunts the capacity of the vote to act as an expression of political will isn’t required by the constitution at all. The language permits the states to determine their own mechanism for directing the electors. All but two of them have chosen – in a game theoretic competition game that converged on its present strong equilibrium long ago – to implement a winner-take-all system. The candidate who achieves a plurality in every state but Maine and Nebraska takes all of its electors. For the same reason as FPTP, WTA is inherently disenfranchising in a very real way. Tens of millions of Americans will live their whole lives voting for president without a single shred of practical influence on the outcome of a single election.

That this creates an abstraction-into-system in the same way as FPTP is not in question.

What also isn’t in question is the fact that our constitution was clearly written to ensure that the vote for president still recognized the sovereignty of the states. It could have specified a clear process for selecting electors. It didn’t. It could have apportioned electors based on the House. It didn’t. It could have made the tie-breaking vote in the House in the case of plurality-without-majority a population-based affair. It didn’t. It gave each state’s delegation to the House a single vote. There is a movement to pretend all these things away that is transparently motivated by a desire to see the practical outcome of the removal of the Electoral College – a clear advantage granted to the DNC.

Feeling indignant, liberals? Have a snickers.

What also isn’t in question is that the same people who wrote in those protections for state sovereignty also wrote language which would have diluted the disproportionate tilt of the senate on electors into oblivion. All those founders who we’re so convinced would be rolling over in their graves if they heard us talking about giving away Wyoming’s sweet electoral advantage? You mean the guys who wrote and passed the Congressional Apportionment Amendment, which would have had the effect of reducing the ‘senatorial’ contribution to the Electoral College from 27% in 1789 to 1.5% in 2020, but for the intransigence of the Connecticut legislature in ratifying it? You mean those founders? I don’t know, but it seems kind of daft to imply that they couldn’t calculate growth rates over time considering that you couldn’t get Ben Franklin to shut up about compound interest. There is a disingenuous “but the founders” narrative that is used very selectively as part of a transparent desire to maintain the status quo of the Electoral College because it presently grants an advantage to the GOP.

Feeling indignant, conservatives? Have a snickers.

But we are not rhinoceroses. We can hold multiple ideas in our head at once. We can believe that state sovereignty and expression matters. AND we can believe that it was the founders’ intent to retain that and appropriate to be cautious about wantonly discarding it. AND we can believe that the constitutional amendment system isn’t broken. AND we can believe that it matters – a lot – for the people to have votes that matter.

From those ideas, we must determine together (1) whether we think that what we gain by exchanging some measure of the capacity for political expression through the vote is worth it and (2) whether the process of modifying the system which creates this structure is worth the high bar presented by the constitutional amendment process.

I have an opinion on both. I bet you do, too.

I don’t want to convince you that you were right or wrong. I do want to convince you that our catalysts have made both of our points of view moot.

It’s time to end winner-take-all. That includes the Electoral College.

Catalyst #1: The Encroaching Federalization of Government

Since some of you are probably still mad about all the Electoral College heresy, let’s bring your simmering anger to a rolling boil by starting with the most complicated of the three catalysts: the encroaching scope and scale of the federal government and the imperialization of the presidency.

I say it is complicated mostly because it is very difficult to disentangle the structural implications from the policy implications. And since BITFD is rarely, if ever, the right answer for policy differences, I mostly want to talk about why I think this has catalyzed the brokenness of other systems rather than why I think reducing the scope of the federal government would increase liberties of many varieties, including our right to self-determination.

First, that America has a larger federal government with a more expansive mandate than we enjoyed for most of our history is not very much in debate. Define the statement on any dimension you want, and it remains very obviously true. Define it by scale, say, by spending as a share of GDP, and we will probably look back on 2020 as the highest level since we were paying Ford to churn out a B-24 every hour out at Willow Run. Ignore the kink from our COVID recession, and you’re still looking at one of the highest marks we’ve seen, despite 2019 coming at the height of a broad expansionary phase.

Source: Bureau of Economic Analysis, US Census Bureau,,
Note: Pre-1929 GDP figures are somewhat less reliable than post-1929 figures, so take these with an additional grain of salt. 2020 represents an estimate and will likely deviate materially when realized.

Measure it by the scope of things the federal government is in the business of doing, and you’ll find the same thing. It has been transformed from an agency overseeing foreign relations, defense, and laws resolving disputes between individuals and disputes between states into one which regulates, funds and in some cases outright controls housing, energy, telecommunications policy, environmental policy, transportation, transportation security, health care and countless other features of everyday life.

For the most part, this is the result of the expressed preferences of the American people. You may think, as I do, that those preferences are often very short-sighted and lend to very special kind of permanence that only exists for government programs. You may think, as I do, that they typically represent an almost comical and flamboyantly dishonest reading of the Commerce Clause of the constitution. You may think, as I do, that they very often represent a bad model of technocratic government (yay, efficiency!) and the central planning impulse, in which decisions are made too far above the nexus at which they are more effectively made.

And yet, somehow, not everyone agrees with me. Imagine that! I’d sure like to change that and tell all of you how very wrong you are, but BITFD is not about addressing idiosyncratic policy gripes. Even mine. And while I have a lot of these gripes with the centralization and federalization of our country, a sack of idiosyncratic policy gripes does not magically become a systemic gripe just because it would be convenient for me to call it that.

To a lesser extent, all this applies for the expansion of the power of the presidency as well. We and our representatives in congress have tacitly and explicitly permitted it. Usually we cheer. When Obama had a “pen and a phone”, it was done to cheers from the blue bleachers. When Trump undertook a series of executive orders to “drain the swamp,” it was done to cheers from the red bleachers. Every president in most of our lifetimes has commanded the almost daily firing of weapons without a declaration of war, increasingly without even so much as an obligatory gesture in the direction of the War Powers Act. Conflicted investigations interfered in. Hyperaggressive interpretations of law in the case of DACA and ACA’s mandate. Complete indifference to law in the case of border wall construction, COVID relief and the approval of commercial M&A transactions.

I think you can probably tell where I come out on these issues, and if you were to say that the expansion of presidential power is of a slightly different kind than the encroachment of legislative and regulatory power, I would probably agree with you. But in the end, I am not trying to convince you that the expansion of the scope of the federal government or the imperial power of the presidency is good or bad, a righteous reflection of the will of the people or not. At least I’m not trying to convince you of that right now.

All I want to do is establish the shared foundation that, except for the Civil War and World War II, neither the federal government nor the presidency has ever exercised so much authority and power as they do today.

That fact isn’t just a policy question. It influences your right to self-determination under our electoral system. It does so in three ways:

#1 Stronger, Deeper Two-Party System Equilibrium

By increasing the stakes of federal politics, we have created the conditions to deepen the equilibrium of the two-party system. The mechanic here ought to be intuitive in both real-world and narrative-world, especially for anyone who has ever heard – or God forbid, uttered – “the most important election of our lifetimes.” When the stakes are higher, when our beloved policies are “under attack”, the willingness of parties, candidates and, in turn, the electorate to take risks is necessarily reduced.

What do we mean by risks in this context?

We mean out-group political risk-taking. Encroaching federalization makes it more difficult to justify funding, launching and running new parties and candidates to provide a more nuanced platform that better reflects the preferences of an underrepresented subset of the population. Because this quickly becomes common knowledge, the individual voter is even more constrained to limit their support of new party emergence, too.

We also mean in-group political risk-taking. The increased scale of federal policy also makes it more difficult for parties to tolerate off-modal policies, views and candidates. As scale grows, so too does the impetus toward party unity, the impetus to ensure that every ounce of influence is devoted toward protecting the “most important legislation/budget/policy/supreme court nomination of our lifetimes.” When one party moves to the small tent model, they will have a brief advantage before the other adopts the same. It is a defection in a Prisoner’s Dilemma game, and it is a strong equilibrium.

#2 Increased Share of Political Power Executed at a Deeper Layer of Abstraction from Your Vote

The steady redefinition of the relative scope of personal, local, state and federal government, even when implemented with the good-faith intention of pursuing superior policy to provide for the common welfare, also has the effect of moving more issues of political import to electoral arenas at which the individual’s vote is more heavily abstracted.

Your vote’s ability to express a transparent, less abstracted form of your political will is generally going to follow this order:

Family > School District > Municipality > County > State > House > Senate > President

In short, the effect of moving an increasing share of our collective political sphere from the left side of the chart to the right is to decrease the aggregate power of your vote to determine how you will be governed. You may think that’s good policy. That’s super. It also catalyzes the degradation of the real-world ability of a citizen’s vote to express their political will in a FPTP, WTA electoral system dominated by two parties.

Yes, there are exceptions. Yes, I’m sure [your local official] has been in office a long time and his continued reelection is totally suspicious and bogus. Please Google the word “generally” if you’re still struggling with this.

Let’s say, for example, that you simultaneously held education policy views that (1) standardized testing-based school funding is mostly stupid, counterproductive and punishes schools in poor areas that need the most help, (2) the 1619 Project is wrongheaded and counterproductively revisionist, and (3) common core seems weird but has parts that are largely OK (all views which, if you held them, I would personally find very agreeable). None of these policy opinions concern rights that ought to constrain other people from exercising their right to self-determination to disagree with you. If this remains wholly in the scope of local and state governments, if more citizens in your district or state disagree with you than agree, your political will has not been abstracted away, or at least not very much. It has been defeated. C’est la vie.

When those issues are raised to the scope of the federal level – as they have through the tenuous auspices of federal pursestrings under both Republic and Democratic congresses and presidents over the last 25 years – your political will HAS been abstracted away. That is to say, the centralization of policy doesn’t just affect that policy. It affects our self-determination, by which I mean that it vastly dilutes the degree to which our vote has the capacity to determine the way in which our lives are governed. The more that school policy sits with a school board or the state, the more direct the influence of your vote on how you are to be governed. The more that it sits in (or is influenced by the budget of) an agency empowered by federal legislation under the direction of a presidential appointee, the less direct the influence of your vote.

This is not complicated.

#3 Increased Political Scope Obviated by Winner-Take-All

This one is.

There is no clear answer for “how much self-determination given up structurally by permitting states to adopt winner-take-all systems is acceptable for whatever is gained in exchange.” There’s certainly no objective answer. Maybe you think the answer is zero, and I wouldn’t blame you for it, even though I disagree.

What we can answer objectively, however, is whether the effect of winner-take-all is worse when more of our political sphere has been moved to the federal side of the scale, especially when more of it has been moved to the imperialized presidency that is most sensitive to winner-take-all structures. That answer is yes. Unequivocally, meaningfully yes. It is worse.

We have empowered the presidency with the ability to wage war in our name on shallow pretenses and weak footing in both constitution and statute. We have empowered the presidency to suspend habeas corpus on multiple occasions with little to no timely consideration by congress, much less the courts, of whether that suspension was lawful. We have empowered the presidency to conduct warrantless surveillance on American citizens. If we preferred a presidency not so empowered, we have no candidate or party to express that preference and have not for many years. Both parties have routinely vested and protected an expanding presidency.

This is the presidency we allowed to exist.

So I get the arguments about retaining the sovereignty and coherent political identity of the states. I make those arguments. But if we are not willing to protect the sovereignty of the smallest minority, to permit each citizen to ALWAYS express their proportional opinion about who may wield the power to summarily kill, imprison or surveil in our name with limited or no oversight – and make no mistake, that’s exactly what we have decided the President of the United States gets to do – I’m not sure what notion of the rights reserved for the several states and the people we think the Electoral College still protects.

Our Projection Rackets will tell us we must think about the Electoral College in a binary way – that it is either sacrosanct and inviolable (“Don’t you respect the founders / constitution / states?”) or that it was always wrong-headed and has not been vindicated (“Don’t you believe in democracy?”). I am asking you to consider instead a mosaic of catalysts. If the encroaching power of the federal government and presidency was not enough to convince you that asking citizens to have a mute voice in favor of the protection of a symbolic gesture of state sovereignty is no longer the reasonable exchange it may once have been, I’ll give it one more try.

But for now, let’s head back to Capitol Hill.

Catalyst #2: The Steady Dilution of Representation

In 1788, when the U.S. constitution was ratified, the population of the United States was probably a bit more than 4 million. The 1790 Census put it at 3,929,214, with the widespread assumption among government officials that this was meaningfully undercounted. Parts of the country at the time were, shall we say, a bit rustic. The constitution granted the authority to determine voting eligibility to the states; most tended to restrict it to property-owning, tax-paying adult white males. New Jersey allowed women to vote for a little while. A few states allowed free black men to vote. In all, probably somewhere between 200,000 and 500,000 Americans were truly eligible to vote.

Not to bring up a sore subject, but this is, as it happens, probably the single biggest reason for the Electoral College. To permit states the freedom and sovereignty to adopt their own voting requirements obliged the union to normalize the basis of each state’s contribution to the aggregate vote on some basis other than the number of eligible voters. Otherwise they would all have been incentivized by obvious competitive pressures to simply permit as many adult citizens as possible to be electors. And what a disaster that would have been!

At any rate, even in the very early days of the union, the nature and scale of representation for voting and non-voting citizens alike were among the most focused topics of discussion. The original text of Article One, Section Two of the constitution provides for a congress in which each representative accounted for no more than 30,000 citizens, although the calculation was based on the familiar and horrific calculation of enslaved black Americans as three fifths of a person. Still, even that total was a point of significant contention, having been reduced from the initial draft of 40,000 at no less than the urging of George Washington himself. The import is that for each representative in the post-census 3rd United States Congress in 1793, there were around 37,000 living Americans, free and enslaved, and probably between 2,000-5,000 eligible voters for each representative. In 2020, each congressperson represents, on average, some 760,000 citizens and about 570,000 eligible voters.

For those following along, in 2020 there are roughly 100x as many eligible voters per representative and 20x as many citizens as there were in 1793.

What does that mean?

It means a lot of things.

First, the change from 30,000 to 760,000 in a geographically districted system is not a change in magnitude. It is a change in kind. It is a change from a feasibly engaged citizen-to-legislator relationship in which personal interactions have probably happened frequently to one in which they almost certainly have not. It is a change from a system in which appointments and emails and phone calls from highly engaged constituents would be entirely feasible mechanisms for supplementing the political will expressed by a vote to a system in which the communication is almost entirely one way in nature. Unless you count formal auto-response letters with a signature stamp written by interns.

Second, it means that the financial means necessary to run for election are vastly higher and typically dependent on (1) pre-existing wealth or (2) party support. The average campaign to win a seat in the House of Representatives spends approximately $1.5 million – that’s every two years, mind you. It’s nowhere near the stratosphere of a seat in the senate or the presidency, but even at that level it has the effect of creating dependence on the existing party infrastructure and deepening its entrenchment. It also has the effect of biasing the pool of likely candidates and stifling the entrance of new candidates and the formation of new parties.

Third, when the number of representatives grew along with the population, it had the ability to serve as an offset to the other features of our electoral system which supported the entrenchment of two-parties. It made the thresholds of first-past-the-post slightly less relevant because it increased the odds that a district would be capable of supporting a candidate that existed outside political norms within a party, or outside a party altogether. The fixed nature of our congressional vote since 1911 has stifled this impulse.

Each of these effects interacts with our electoral system as a catalyst that steadily erodes our right to self-determination as the population grows, not through the linear proportionate reduction we should expect by being slightly less of the electorate, but through the non-linear effects which compound that desirable dilution. They have limited the non-voting recourse available to citizens to actively influence their representative and they have reduced the pool and diversity of prospective candidates for office, further entrenching the dominance of the existing two-party structure and reducing the odds that a viable candidate will be a close match to the political will of a large number of voters.

This is the kind of steady, difficult-to-detect usurpation of the promise of the American republic so indicative of those defended by Projection Rackets. It is, without response from us, an inexorable and corrosive process which will continue to impair our expressions of political will.

Catalyst #3: The Widening Gyre

All of the structures and catalysts to this point have been long-standing or gradual developments. What we call the Widening Gyre, however, is not. To the contrary, it is a still-emerging feature of American politics which serves to amplify the most liberty-reducing flaws of both the FPTP and WTA components of our electoral system.

So what is a Widening Gyre?

In literature, it is a reference to the poetry of W.B. Yeats, in which he famously coined the expression that the “center cannot hold.”

Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

W.B. Yeats, “The Second Coming” (1919)

In our parlance, a Widening Gyre is a highly stable process of progressive political polarization.

[The Widening Gyre] is the breaking of mediative and cooperation-possible political institutions and practices, and their replacement by non-mediative and cooperation-impossible political institutions and practices. This is what it looks like, in a modern Western context, when things fall apart.

Things Fall Apart (Part 1) – Epsilon Theory

In game theoretic terms, a Widening Gyre is the specific outcome of a process in which the major political parties in a two-party system have actively dismantled systems and norms which protect cooperative game play, then engage in defecting strategies in the resulting competition game. Those strategies all but guarantee the persistent, long-term pursuit of that strategy by both parties. In other words, the self-defeating competition game becomes the new equilibrium. It is what happens, for example, when the sitting president declares the news media the “enemy of the people” and the media, in turn, uniformly and transparently sets itself against his reelection. It is what causes a viral pandemic to be perceived distinctly on almost explicitly political grounds.

In a picture, a Widening Gyre is this:

A Widening Gyre isn’t just a polarized environment. Those happen. It is an environment in which both parties in a two-party system have committed to policy-adoption, governing and electoral strategies which do not seek to appeal to the political center, to undecided voters, or to voters whose views do not map neatly to the “party” dimension who might otherwise find parts of the party’s platform attractive. Instead, they seek to win by creating more energy, internal consistency, antagonism of the political out-group and voter turnout among the in-group.

When one party in a two-party system commits to this strategy, it obliges the other to do so or be at a persistent marked disadvantage. When both parties commit to the strategy, it produces several results all at once. These are now features of American politics, so get to know them.

Emergence of Party as the Dominant Dimension of Identity and Group Polarization

While its political effects are diffuse, it is still worth pointing out what may be the most devastating influence of the Widening Gyre: it infects everything. Our culture. Music. Films. News. Conversations. How we see the same video. How we understand the same events. Whether we wear masks in a store or restaurant. Who we will be friends with.

This has very little to do with my BITFD argument. It just makes me sad.

The Progressive Divergence of Out-groups on the Party Dimension

The progressive divergence of out-groups on the party dimension is the continued and dynamic election by the parties to embrace more extreme – which is to say, more distinct from those of the other party – positions on indicative policies for that party. That doesn’t necessarily mean policies on the conservative-liberal dimension, however. It can often be as simple as the parties beginning to effectively choose contrary positions on as many issues and policies as possible.

The Progressive Consolidation of In-groups on the Party Dimension

I could describe what I mean by the consolidation of ingroups on the party dimension, but what Ben wrote in his note from 2018 does so better than I would.

If you’re an incumbent centrist politician, somewhere to the left of your median voter if you’re a Republican and somewhere to the right of your median voter if you’re a Democrat, you have exactly two choices.

You remain silent and just go with the party flow, clinging on for dear life against primary challengers, holding your nose at the party excesses, apologizing to your donors and your spouse in private, and hoping that one day the party comes back to you. You tell yourself “apres moi, le deluge.” Or in English, “sweet Jesus, have you seen the racist moron / lunatic communist who would take my place if I quit?”, and you’ve got a big enough ego to believe that sort of excuse as you slowly sell your soul.

You quit.

That’s it. Those are your options. I guess there are variations on #2, where you can either rage-quit (Jeff Flake) if your constituency is an eternal Trumpland desert or slink-quit (Paul Ryan) if your moderate constituency at least gives you a chance for a political comeback one day. But those are your only options.

Things Fall Apart (Part 1) – Epsilon Theory, August 8, 2018

In the familiar terms of the Pew Research chart, this is the “high-peaked” part of the “high-peaked bi-modal distribution.” It is the compression of allowable deviations from modal norms within each of the two parties, the closing of ranks and the end of the Big Tent model for party- and consensus-building.

A Stable Equilibrium

A Widening Gyre does not die of old age.

When both parties abandon the structures which permit cooperative gameplay, the political advantages of exploiting attempts at cooperation by the other player, and the political disadvantages of pursuing attempts at cooperation are both exceedingly high. Think “peace for our time” after the annexation of the Sudetenland. Except, you know, without the Nazis. After all, these are problems, but they are still very much first world problems.

The strategies Donald Trump perfected in American politics do not go away when Donald Trump does, whether that happens in January 2021 or 2025. The embrace on the political left of performative wokeism, deficit-doesn’t-matter MMTism and blow-it-all-up court packing proposals doesn’t go away when the other side starts playing nice. They don’t go away because in the competition game, the defector against a friendly participant wins. every. time. And when every political issue has been transformed into an existential struggle, the electorate simply won’t tolerate those kinds of losses.

The stable equilibrium of the Widening Gyre is why this is a catalyst that we don’t wait to resolve. The stable equilibrium is why this catalyst of the pre-existing conditions of our electoral system is a justifiable reason to burn them the #@!* down.

And make no mistake, the combination of this catalyst with our electoral system is pure poison.

The strong equilibrium of the Widening Gyre creates a stable long-term bias toward out-group divergence. In a FPTP system, this strengthens the electoral viability of extreme (on the party dimension) candidates who deviate more, on average, from the native preferences of a very large minority – perhaps even a plurality – of the electorate. It makes it more likely that those in uncompetitive districts under WTA will definitionally experience even greater divergence from their electoral preferences. That their vote will become a more abstracted, less effective instrument of their political will.

The strong equilibrium of the Widening Gyre creates a stable long-term bias toward in-group consolidation. In a FPTP system, this obviates the historical saving grace of FPTP in a two-party system: big-tent factionalization within parties. The consolidation of viable candidates into certain archetypes likewise makes even party members less capable of expressing mildly divergent views on any dimension (i.e. this is why you’d need to put out an APB to hear from Ben Sasse these days). It suppresses the emergence of new parties and the emergence of viable candidates with the potential to better express the political will of constituents not represented by the bi-modal preferences of the two parties.

And in the aggregate, the existential, competition-game nature of the Widening Gyre will inevitably make nearly every issue, every election “the most important election of our lifetimes”, one in which we “cannot waste our votes.” The pressure against new party, new faction and new candidate formation will be powerful, limiting the effective expression of citizens across the country, regardless of jurisdiction. Perhaps most importantly, the pressure in the absence of legislative cooperation to vest further power in the executive will continue to grow (“we need a man who can get things done!”), deepening the gravity of the underrepresentation of our winner-take-all Electoral College.

The Widening Gyre, the encroaching federalization of government and imperialization of the presidency, and the programmatic dilution of our representation in Congress conspire to transform the reasonable exchanges of our self-determination for stability, simplicity and state sovereignty into travesties.

None of this is to say that proportional representation or any of the remedies we might pursue to BITFD are without their problems. Tyranny of the minority and disproportionate Kingmaker power are real things. There are people who oppose it in good faith on these grounds. I think they are wrong in their weighing of the costs and benefits, but that’s just my opinion.

There are far more, however, who will oppose BITFD on the inauthentic, cynical terms of the two-party Projection Racket. There’s no law stopping you from running as whatever you want! You really want to change the law because you can’t win on the battlefield of ideas? Don’t you believe in democracy? Depending on the crowd, you could also go with: Oh, so you want to get rid of Congressional districts? You want to make sure that individual geographic communities don’t have a coordinated voice in their corner? Don’t you believe in democracy?

See how the Projection Racket works?

“Voting for Joe Biden is not about whether you agree with him. It’s a vote to let our democracy live another day.”

Alexandria Ocasio-Cortez

I am sure that you have felt the pull of the Widening Gyre, especially with the passing of Ruth Bader Ginsburg and the consideration of her placement. I am sure that you felt how it was spun to you as a reason to value your vote more dearly. In truth, it should show you how rarely it is that your vote HAS the kind of power that it always should. You can choose the mess of pottage, or you can fight for the genuine article.

How Do We BITFD?

So how DO we fight for the genuine article?

If you agree with the arguments about the systemic erosion in your self-determination we have made here, then that’s at least half the battle. Expanding the group of Americans who recognize these as significant priorities in their lifetimes would be an achievement of a kind:

  1. We end first-past-the-post.
  2. We end winner-take-all.
  3. We fix our diluted influence of the people’s voice in government: the U.S. House of Representatives.

That’s the IT of BITFD that we promised we’d explain to the small-c conservatives. If you’re like us and content to know the Process and leave the Answer for us all to determine together, feel free to stop here. Seriously. Everything from here on is just my opinion, a description of one possible plan among many. I happen to think it’s a good one, but if you decide to keep reading, don’t let it keep you from buying into the Process above.

And in fairness to the small-l liberals, I recognize that we haven’t yet explained how we propose to do any of this, so not describing any possible route seems like a cop-out. Part of why I am reluctant is because there are a lot of different routes this could take. Part of it is because achieving all of this is a path-dependent thing that trying too hard to prescribe will reveal as an exercise in futility. Part of it is because we just don’t know.

So what do we know? We know that turkeys don’t vote for Christmas. And we know that if there’s a fire you’re trying to douse, you can’t put it out from inside the house.

So we don’t.

We start from the outside.

We start from the bottom-up.

We start with a movement focused on engaging and influencing our state legislatures, one by one, to ratify the Congressional Apportionment Amendment as proposed to the states in 1789.

No, I am not kidding.

The only amendment that would have been part of the initial package that was approved by Congress but never ratified by a sufficient number of states, the Congressional Apportionment Amendment remains open for ratification. Indeed, eleven states have already ratified it (New Jersey, Maryland, North Carolina, South Carolina, New Hampshire, New York, Rhode Island, Pennsylvania, Virginia, Vermont and Kentucky…and depending on whom you ask, Connecticut). To blow open the doors of the U.S. Congress and begin the process of returning it to the people, we need 27 more states to ratify the amendment. Twenty-seven more state legislatures, closer to the people, less dependent on national party and fundraising engines, supported by 2020’s vastly weaker state party infrastructure, to convince, pressure and influence with as much time as we need to do it.

A focused national movement, executed state-by-state. One at a time. Not a movement of national protests or strikes that can be waited out. Not a voter initiative that can be blunted by the siren call of “the most important election of our lifetimes” and “wasted votes.”

And when we succeed – what happens? The US House of Representatives opens its doors to some 6,600 representatives, a veritable flash mob of just-out-of-college know-it-alls, communists, business leaders, theocrats, weirdos, libertarian bloggers, Vermont hippies, black community organizers, retired scientists, pipefitters union leaders, well-funded private equity managing partners, and probably a cultist or two, along with a well-coiffed and irritated looking Nancy Pelosi and an equally well-coiffed and irritated looking Kevin McCarthy.

You know. People. In the People’s House. Imagine that.

What else happens? The change in the size of the House immediately dilutes the disproportionate power of the electoral college in small states (i.e. 100 electoral votes in a sea of 6,700) in complete concord with the integrity and original intent of our constitution.

What else? If we do it right, if the people are invested in seizing the People’s House, and if the McCarthys and Pelosis of the world want to build a coalition to retain a shred of their former influence? In exchange for the cooperation of the (I think) 10-25% of non-partied participants now necessary to make any legislation work, those participants demand in solidarity that the first law be a transition of our electoral model to a system for proportional representation in the House of Representatives.

Yes, at first the House is still going to be chock full of lawyers turned GOP or DNC. Yes, you’d still have to work on the Senate. The presidency, too. Yes, if states began ratifying this 200+ year-old amendment, you’d better believe the parties would start the legislative and narrative machinery to act against it. Yes, 6,600 is an insane number, but more easily managed with 2020 technology than 100 would have been in 1793. Still, there is probably good reason to slim it down. A bit.

It is not THE answer, but it is AN answer. A path to break the entrenched power of the GOP and DNC. To break the two-party system. And once you break that power, it becomes feasible – at some point – to consider more challenging questions that were previously outside of our reach. We can consider more challenging questions because we will have broken the forces which presuppose the permanent existence of an electoral majority of some kind in the House. Perhaps more importantly, we can consider more challenging questions because we will have remastered the paths to work through the legislatures of the several states to create change without relying on top-down solutions from the federal government.

Either of those is a route which would allow the people and the states to decide if and how they are willing to move on from the current structure of the Electoral College and the election of senators, whether that takes the form of an amendment or of a coordinated, cooperative game in which states move their implementation of the Electoral College system to one of proportional representation, or the ground-up movement to drive action in state legislatures.

Then, I suppose, we will see whether we care more about the pretty stories we tell about state sovereignty or the political power we can make manifest by embracing it.

There are other routes. But if you truly want to take back your vote, I think this is the first volley.

And even if we never manage a single figurative shot in our lifetimes, recognizing the corruption embedded in our electoral system and shouting it from the rooftops will prepare the way for those who will.

FPTP delenda est. WTA delenda est.

Epsilon Theory PDF Download (paid subscribers only): The Projection Racket, Part 2


The Welding Shut of the American Mind


Epsilon Theory PDF Download (paid subscribers only): The Welding Shut of the American Mind

Well, that’s one way to handle a lockdown.

Oh, haha. JK! That’s not a Chinese soldier welding an apartment door shut in Wuhan in 2020 for coronavirus, that’s an Israeli soldier welding an apartment door shut in Hebron in 2015 for … well, I’m sure they had their reasons.

Maybe this is more what you had in mind.

Those are apartment gates that have been welded shut, and yes, this is in China. But again, it’s not the lockdown that you think it is.

These are the offices of the Unirule Institute of Economics in Beijing, winner of the Cato Institute’s Milton Friedman Prize for Advancing Liberty in 2012. Yes, the Cato Institute. Yes, the Milton Friedman Prize for Advancing Liberty. The Unirule Institute’s claim to fame is the 2009 publication of a series of articles that criticized and stopped (or at least delayed) a Chinese government-proposed constitutional amendment that would have enshrined the Party’s control over private property. Naturally, the Unirule Institute is characterized by Chinese state-owned media as a “liberal” and “subversive” organization. Those darn libs and their advocacy for private property rights!

This picture was taken in July, 2018. A year later, the Unirule Institute of Economics was shut down for good.

Turns out that governments and other organized interests of wealth and power weld doors shut all the time.

In 1987, Allan Bloom published The Closing of the American Mind. It is an important and beautiful work of art and thought. You should read it. Like all important and beautiful works of art and thought, there are aspects of this book that you will find to be highly problematic and you will disagree with vehemently. Certainly I did. More importantly, like all important and beautiful works of art and thought, there are aspects of this book where, if you allow it, you will find your notion of a life well lived changed forever. Certainly I did.

Here are two important and beautiful quotes from The Closing of the American Mind that are relevant to this note:

“Freedom of the mind requires not only, or not even specially, the absence of legal constraints but the presence of alternative thoughts. The most successful tyranny is not the one that uses force to assure uniformity but the one that removes the awareness of other possibilities.”

“Indignation is the soul’s defense against the wound of doubt about its own; it reorders the cosmos to support the justice of its cause. It justifies putting Socrates to death.”

Bloom takes a sociological, impressionistic approach to his argument that the faux “openness” of academia and popular culture results in a rigidity and closing-off of thought more generally. I’m not going to revisit that here. That’s Bloom’s argument, not mine.

My argument is that the rules of the mental games we are playing today – the algorithm that goes through our hard-wired and socially trained heads as we process highly mediated and constructed narratives – creates a stable, incredibly damaging equilibrium of indignation and ego.

My argument is that the closing of the American mind is evolving into its next stage: the welding shut of the American mind.

What’s the difference between closing and welding shut? A closed door can be opened. A welded shut door cannot.

In economic terms, a door – or mind – that’s been welded shut is a strong equilibrium. There is nothing within the rules of the game and the self-interest of the game’s players that will ever open that door. Opening the door through continued play of the same game or following the same rules or incremental change is not just difficult, it is impossible.

The only way to open a door that’s been welded shut is to tear it down.

Now I can imagine ways to tear down the welded shut doors of the institutions and social systems that blight our world. This is the entire impetus behind our call to BITFD, to burn down these institutions and social systems now locked in the pernicious forever equilibrium of the Long Now.

But how do you tear down a welded shut mind? What does that even mean?

Answer: it’s a meaningless phrase. You can’t “tear down” a mind. You can’t take a mind and BITFD.

Once a mind is welded shut, it’s lost forever. Once a rhinoceros, always a rhinoceros.

Rhinoceros is about a small European town where everyone changes, one by one, into rhinoceroses. Once changed, they rampage through the town, destroying everything in their path. People are a little puzzled at first, but soon enough becoming a rhinoceros becomes normalized, to use a word you hear a lot these days.

“Oh look, a rhinoceros.”

Soon enough, it’s just the way things are. Soon enough, it becomes harder and harder to remember a time when rhinoceroses weren’t rampaging through the town. Soon enough, only one man remains a man. Utterly alone. Utterly lost.

See, it’s not just the bad guys who became rhinoceroses.

In Ionesco’s play, sure, the local goons and authoritarian politicians are the first to become rhinoceroses. But quickly the scientists and the academics and the artists begin to turn, and they’re the worst of the lot. Not because they’re the biggest and baddest rhinos. But because they know better. Because they have the capacity for self-recognition and self-reflection to resist the rhinoceros call … and they choose not to.

Exactly the same thing is happening in America today.

Every day, I see more and more good people lost to this Rhinoceros disease, a virus of the mind with an R-0 far higher than any coronavirus. Good people who have convinced themselves that they’ve found The Answer — either in the form of a charismatic person or, more dangerously still, a charismatic idea — and that The Answer requires their unquestioned indignation and unexamined ego in service to its mighty end. And once they go there – once they give themselves over to the indignation and the ego that is beyond self-recognition and self-reflection – they never come back. Their heart and their head are welded shut. They’re a rhinoceros now.

Once a rhinoceros, always a rhinoceros.

We can’t open a mind that’s been welded shut. We can only prevent more minds from being welded shut. We can only prevent our OWN minds from being welded shut.

And we can.

There IS a vaccine for the Rhinoceros disease. There IS a way to drive away the organized interests of wealth and power that are always searching for new ways to weld your mind shut.

There IS a way to fight the organized interests of wealth and power who pose a clear and present danger to liberty and justice for all, without sacrificing our autonomy of mind to other organized interests of wealth and power who pose an equally clear but slightly less present danger to liberty and justice for all.

Unlike a physical door, our minds can only be welded shut if we allow them to be. The narratives served up to us by organized interests of wealth and power – narratives which are the acetylene torches that can weld our minds shut – only find purchase if we allow them to find purchase. These intentional efforts by organized interests of wealth and power – what I like to call the Nudging State and the Nudging Oligarchy – are the necessary but not sufficient cause of a mind that is welded shut. The sufficient part is us.

Our autonomy of mind cannot be taken from us.

But we can give it away.

Here’s an example of how that works …

A few days ago I wrote a brief note on the go-to move by sophist demagogues like Vox and Trump, which is to claim that “many people” are asserting some made-up premise that justifies an otherwise ludicrous position. Why? Because common knowledge game. Because of the power of the crowd watching the crowd.

There were a lot of comments on the note like this:

In reaction, I made some of my usual snide Twitter responses. Blah. It deserved better.

Let’s start with a thought experiment. Let’s say that I had written this exact same note, but I didn’t mention Trump at all. Let’s say that the entire note talked solely about Vox and their manipulative, pathetic habit of begging the question by writing made-up nonsense like “To many, Beethoven’s most famous work is a symbol of exclusion and elitism in classical music” when, in truth, no one thinks this. No one. Maybe I found some other media outlets that use this same BS “many people say” construction, but I don’t mention Donald Trump at all.

What do you think the reaction of people like our Name_Redacted commenter above would be to that note?

Would it be “Huh, I see what you mean about Vox. That’s a manipulative, pathetic linguistic trick they’re using here!”

Or would it be “How dare you write this article about Vox and their use of this manipulative, pathetic linguistic trick, but leave out the biggest and most obvious user of this manipulative, pathetic linguistic trick – Donald Trump!”

Actually, forget about this being a thought experiment. I can give you a dozen examples of notes we’ve written where the common refrain from a particular set of readers is uniformly “but whatabout Trump!”. To readers like Name_Redacted, any set of appropriate objects of social criticism MUST include Donald Trump.

And in this case, I think that’s fair. Yes, Vox is an appropriate object of ridicule and scorn on this “many people say” crap, but I am certain that Trump is an appropriate object of ridicule and scorn here, too.

So that brings us to the note I actually wrote, with a set theory notation of Objects of Criticism = {Vox, Trump}, which brings us to the next step of this mind-welding algorithm, a comparative operation on the only dimension of critical analysis that matters for many readers: political power.

Name_Redacted’s rejection of the note as “silly” is not because he’s a Vox fan or thinks that the criticism of Vox is factually wrong. No, Name_Redacted’s rejection is based on his comparative assessment that a) Donald Trump’s existential political power > Vox’s mundane political power, and b) the potential damage from whatever bad things Trump may do with his existential political power > the potential damage from whatever bad things Vox may do with its mundane political power.

Therefore, the words spent on a critical analysis of Vox are a distraction and a waste of time from the far more important words spent on a critical analysis of Trump.

THAT’S what makes the note a silly exercise in “both-sidesism” to Name_Redacted.

Of course, no one is existentially powerful like the President of the United States. No one can do more damage to America and the world than the President of the United States. Which leaves us with this syllogism:

  • Whatabout! — Every set of appropriate objects of social criticism while Donald Trump is President must include Donald Trump.
  • Bothsidesism! — In any set of appropriate objects of social criticism, the existential salience of Donald Trump to modern society requires that all non-Donald Trump objects must be discarded as extraneous or comparatively immaterial.
  • Ergo, the ONLY legitimate object of social criticism is Donald Trump. QED.

Here’s another example. This time not within a mind-welding algorithm of social criticism, but a mind-welding algorithm of academic scholarship.

Earlier this summer, the English department at the University of Chicago – arguably the most prestigious English department in the world – issued the following statement [emphasis mine]:

Faculty Statement (July 2020)

The English department at the University of Chicago believes that Black Lives Matter, and that the lives of George Floyd, Breonna Taylor, Tony McDade, and Rayshard Brooks matter, as do thousands of others named and unnamed who have been subject to police violence. As literary scholars, we attend to the histories, atmospheres, and scenes of anti-Black racism and racial violence in the United States and across the world. We are committed to the struggle of Black and Indigenous people, and all racialized and dispossessed people, against inequality and brutality. …

English as a discipline has a long history of providing aesthetic rationalizations for colonization, exploitation, extraction, and anti-Blackness. …

In light of this historical reality, we believe that undoing persistent, recalcitrant anti-Blackness in our discipline and in our institutions must be the collective responsibility of all faculty, here and elsewhere. …

For the 2020-2021 graduate admissions cycle, the University of Chicago English Department is accepting only applicants interested in working in and with Black Studies.

So I want to be very clear with what I’m saying.

I think Black Studies is an academic discipline worthy of study and emphasis by – not just individual members of this incoming cohort of University of Chicago English department graduate students – but any individual member of any cohort of graduate students in any university in any humanities or social science department.

But I do not think Black Studies is the ONLY academic discipline worthy of study and emphasis by a cohort of University of Chicago English department graduate students.

Also to be clear, I’m not asking anyone to DO anything about the University of Chicago English Department’s decision. It’s entirely within their purview. There’s no great (or small) harm to anyone here, and there are plenty of other excellent English departments where graduate students who want a research career defined by something other than Black Studies can go.

But I also think this decision by the University of Chicago English Department is misguided and sad.

Why? Because the lifeblood of scholarship and research is this and only this: no one tells you what you work on. No one tells you what questions are interesting to YOU.

Take that freedom away – the freedom to define what questions are interesting to YOU – and you’ve got … med school. You’ve got law school or business school or any other pre-professional program where you are trained to be a mechanic who can think in a certain prescribed way and master a certain prescribed body of knowledge so that you can fix a certain set of chronic issues in a certain field. A highly paid mechanic, for sure, but a mechanic nonetheless.

No one goes into academia to be a mechanic. No one goes into academia to be trained. No one goes into academia to be told what is acceptable inquiry and what is not.

The faculty of the University of Chicago English Department know this is true, because I promise you it was true for each and every one of them when they entered academia. But when you believe that your world is faced with an issue of existential salience, when – to use Bloom’s words – the “alternative thought” is ANYTHING other than unwavering commitment to a struggle against racial injustice and brutality, then your syllogism becomes this:

  • Whatabout! — Every set of appropriate objects of academic scholarship in the humanities must include Black Studies.
  • Bothsidesism! — In any set of appropriate objects of academic scholarship in the humanities, the existential salience of Black Studies to modern society requires that all non-Black Studies objects must be discarded as extraneous or comparatively immaterial.
  • Ergo, the ONLY legitimate object of academic scholarship in the humanities is Black Studies. QED.

And if this is your syllogism – if this is the algorithm that runs through your head while setting graduate admissions requirements – then all of these pretty words about intellectual freedom and all of those pretty memories about your journeys of intellectual discovery as a graduate student really don’t matter. Not even a little bit.

By god, there’s a war to fight here and I’m a commanding officer on the front lines! Our graduate student admissions process must be placed in service to that war, and graduate students must be treated as a collective means to a noble end, not as individual ends in themselves!

As with all mental algorithms driven by ego and indignation and the stories we tell ourselves, this is a very stable equilibrium.

Here’s another example.

After years of facing criticism for lacking diversity among its Oscar nominees, the Academy of Motion Picture Arts and Sciences has decided it will require films competing for best picture to meet criteria aimed at fostering a more inclusive Hollywood.

Films can qualify by meeting standards in at least two of four broad categories. Those include having at least one main actor from an underrepresented racial or ethnic group; casting at least 30% of minor actors from underrepresented groups; telling a story that focuses on such groups.

All of this has happened before.

Hollywood is no stranger to self-censorship, and in the eternal struggle between art and commerce, the former gets lip service and the latter prevails. Always and in all ways. The most famous example is the Hays Code, a self-administered set of “moral standards” imposed on the content and production of movies released to the general public, which had enormous power in Hollywood from the mid-1930s through the mid-1950s.

But I think what’s happening today with these self-imposed inclusivity requirements is very different from the self-imposed Hays Code. Hollywood adopted the Hays Code and established the institutional framework around it in large part to reduce the threat of outright government censorship and an even more stringent set of “moral standards”. I’m not saying that many of the studio heads responsible for establishing these self-enforcement mechanisms did not also agree with many of the prurient and regressive rules they established, but I think it’s fair to say that the perceived existential threat of outright government censorship was the major catalyst for change. I think that’s fair to say for other famous examples of self-censorship in related commercial art forms, too, like the imposition of the Comics Code in the 1950s.

Hollywood’s self-censorship today isn’t driven by the perception of an existential government threat. The Academy is not establishing these Best Picture qualification rules because it’s worried that the government is going to swoop in and impose even more stringent inclusivity requirements. I mean … LOL.

Similarly, Hollywood’s self-censorship today isn’t driven by the perception of an existential commercial threat (or opportunity). The Academy is not establishing these Best Picture qualification rules because it believes that movies about historically underrepresented racial or ethnic groups make for better box office numbers. Also … LOL.

No, Hollywood’s self-censorship today is driven by the perception of an existential narrative threat. And by narrative threat I don’t mean the story that the rest of us might have about Hollywood. No, it’s a far more powerful narrative than that, which is what makes it existential. It’s the story that Hollywood tells itself about itself.

The existential story that Hollywood tells itself (particularly the Hollywood that is represented through vehicles like the Academy Awards) is that they are creating art. And not just any art, but good art. And not just good art, but Art That Makes A Difference ™.

In exactly the same way that the faculty of the University of Chicago English Department has changed their internal mental models to reflect an ego-driven self-narrative that requires all incoming graduate students to serve in the struggle against racial injustice in a prescribed manner of academic scholarship, so have members of the Academy changed their internal mental models to reflect an ego-driven self-narrative that requires all movies to serve in the struggle against racial injustice in a prescribed manner of Art That Makes A Difference ™.

And so:

  • Whatabout! — Every set of appropriate objects of Art That Makes A Difference ™ must include prominent depictions of historically underrepresented racial or ethnic groups.
  • Bothsidesism! — In any set of appropriate objects of Art That Makes A Difference ™, the existential salience to modern society of prominent depictions of historically underrepresented racial or ethnic groups requires that all non-prominent depictions of historically underrepresented racial or ethnic groups must be discarded as extraneous or comparatively immaterial.
  • Ergo, the ONLY legitimate object of Art That Makes A Difference ™ is a prominent depiction of a historically underrepresented racial or ethnic group. QED.

Of course, with the ego-amplifying mechanism of an awards ceremony embedded in the mix here, this is also a very stable equilibrium.

So …

I’m sure you’ve noticed that I’m not giving you any examples of a welded shut mind from the other side of the culture wars, any of the thousand and one examples I could provide of a mind-welding algorithm from MAGA-world or the Right more generally.

This is intentional.

This is a test.

I don’t write for rhinoceroses.

Did reading this note make you indignant? Good.

Earlier, I only gave you a snippet of that Allan Bloom quote on indignation. Here it is in full.

“Yet if a student can – and this is most difficult and unusual – draw back, get a critical distance on what he clings to, come to doubt the ultimate value of what he loves, he has taken the first and most difficult step toward the philosophic conversion.

Indignation is the soul’s defense against the wound of doubt about its own; it reorders the cosmos to support the justice of its cause. It justifies putting Socrates to death.

Recognizing indignation for what it is constitutes knowledge of the soul, and thus an experience more philosophic than the study of mathematics.

How do you keep your mind from being welded shut?

With self-reflection of ego and self-recognition of indignation.

You say you want a revolution? Well here’s where it happens. In your own damn mind.

THIS is the struggle of our day. This is the struggle of all days, of every human society that’s ever seen its day in the sun. It’s a struggle that NEVER stops, because those organized interests of power and wealth in every human society will ALWAYS be there with their narrative blowtorches, seeking to weld our minds shut in service to their power and wealth.

Their advantage is the strong equilibrium nature of the mental algorithms they burn into our brains. Once a rhinoceros, always a rhinoceros.

Our advantage is our nature: the innate autonomy of human minds.

Our advantage is our nurture: the learned bonds of human friendships.

A self-reflection of ego boils down to not taking ourselves too seriously. A self-recognition of indignation boils down to challenging our received truths.

How do we manage that?

With our friends.

With the people who respect our autonomy of mind, even as they challenge our cherished ideas for the ego and indignation often embedded within. And demand the same in return. With the people who refuse to apply the blowtorch syllogisms of political party to a personal bond of friendship, who refuse to deny your moral worth because you have “alternative thoughts”. And demand the same in return. With the people who treat you as an end in itself, never as a means to an end. And demand the same in return.

Ruth Bader Ginsburg and Antonin Scalia weren’t just friends. They were good friends. Two intellectual giants and enormous egos who came to vastly different conclusions on almost every political and legal flashpoint of the past 100 years. And yet political affiliation and legal philosophy and knock-down, drag-out intellectual fights did not define or preclude their personal relationship. Somehow they were able to challenge each other without triggering a nuclear war of personal indignation and wounded ego.

I wonder what they found as their common bond?

One last Allan Bloom quote. For the win.

The real community of man, in the midst of all the self-contradictory simulacra of community, is the community of those who seek the truth.

This, according to Plato, is the only real friendship, the only real common good. It is here that the contact people so desperately seek is to be found.

Find your Pack.

Epsilon Theory PDF Download (paid subscribers only): The Welding Shut of the American Mind

To learn more about joining the Epsilon Theory Pack:


The Projection Racket, Pt. 1


Source: Indiana Jones and the Raiders of the Lost Ark

In the course of a hasty sketch of the Revolution, I shall endeavor to show what errors, what faults, what disappointments led the French to abandon their first aim, to forget liberty, and to aspire to become the equal servants of the master of the world; how a far stronger and more absolute government than the one the Revolution overthrew then seized and monopolized all political power, suppressed all the liberties which had been so dearly bought, and set up in their stead empty shams; deprived electors of all means of obtaining information, of the right of assemblage, and of the faculty of exercising a choice, yet talked of popular sovereignty; said the taxes were freely voted, when mute or enslaved assemblies assented to their imposition; and, while stripping the nation of every vestige of self-government, of constitutional guarantees, and of liberty of thought, speech, and the press – that is to say, of the most precious and the noblest conquests of 1789 – still dared to claim descent from that great era.

L’Ancien Régime et la Révolution by Alexis de Tocqueville (1856)

The secret of happiness is freedom and the secret of freedom is courage.

History of the Peloponnesian War, Book II, by Thucydides (ca. 410 BC)

If you’re willing to get creative, there really are an awful lot of ways to surrender your liberties.

When it comes down to it, though, free people usually pick one of three methods.

Most often, I think free people give up liberties because we become convinced it is necessary. Usually because of some implacable and existential threat, which on rare occasion might even be real. History gives us a lot of these stories. And no, you having to wear a mask to go to the grocery store isn’t one of them.

Only slightly less often, I think, and often overlapping with the first, we pretend that giving up our liberties will be temporary. It takes a sort of Wile E. Coyote brand of suicidal persistence to believe this in 2020, but for some reason that’s a deep well that humanity never quite seems to exhaust. History offers us many of these stories, too. In case you’re wondering, the guy at the NSA reading your email because you Googled “jihad” and “the sleeper must awaken” after watching the trailer for the new Dune movie last week is nodding.

There is a third way we surrender rights and liberties, however, and it is far more difficult to spot. We give them away, piece by piece, in exchange for the mess of pottage that is the narrative of liberties. Our petty tyrants tell us grandiose stories about the ideas of freedom and equality. They offer us seductive and powerful symbols of their commitments to those ideas. All the while they are instituting and expanding systems, institutions and laws which steadily reduce those liberties in practice. Or, to paraphrase Tocqueville writing about the messy aftermath of the French Revolution, while stripping the nation of every vestige of self-government, of constitutional guarantees, and of liberty of thought, speech and the press – that is to say, of the most precious and the noblest conquests of [the revolution] – [they] still dare to claim descent from that great era.

It’s an Indiana Jones-style weight-and-switch bit. History tells us fewer of these stories.

It tells us fewer of these stories because when stories of steady usurpations of rights become history, our memories of the past have usually crystallized. That decades-long stream of gradual offenses becomes a single event, a betrayal that should have been obvious to anyone who was paying attention. The idea that it wouldn’t have been as transparent to those who experienced it is almost inconceivable to us. How easy it should have been to see that the most precious and the noblest conquests of 1789 were being used as a meme to support the consolidation of social, political and financial power into the coming Napoleonic empire! How easy it should have been for citizens to see that their votes didn’t really matter, that their newly won vibrant liberties were being exchanged for an irrelevant version, impotent to truly effect political, social or financial change!

We are breathtakingly arrogant when it comes to understanding history. Humans, I mean.

It is a shame, too, because the stories about gradual erosion of liberties we might have been told are also some of history’s truest stories. They would tell us what it is like to be an individual awash in a sea of narratives, finding one’s way in a fog of social, cultural and political war. It is an ephemeral perspective, forever lost when the zeitgeist is reduced and distilled into a caricature by history, spun into a cautionary tale for future middle school students to marvel and gawk at.

As ours will be one day. That’s the thing about the water in which we swim.

It should not be a surprise to us, then, that it is also much harder for a free people to become agitated about the dangers of a slow erosion in liberties taking place under the aegis of powerful narratives of liberté, égalité, fraternité, that sort of thing. That is, after all, the reason why these narratives and memes are conjured in the first place. What better way to protect a scheme to erode liberties to the benefit of a faction or a few than by co-opting their message? What better way to weaken those with concerns about that erosion than by accusing them of a lack of faith in those liberties!

Don’t you believe in free markets? Don’t you believe in democracy? Don’t you believe in equality? Don’t you believe in the power of individuals to make their own choices? Don’t you believe in self-determination? Don’t you believe in capitalism? Don’t you believe in free inquiry?

It’s not a protection racket.

It’s a projection racket.

It is the steady replacement of the power to direct the course of our own lives with right-sounding stories. Stories that at once give us neutered forms of the liberties they describe and then characterize our protests as opposition to the liberties themselves.

Why am I bringing all of this up? Because I know that it makes some of you uncomfortable when you read Burn it the $*!# down or “BITFD on these pages or on social media.

And I hear you.

It makes me uncomfortable, too, and not just because my mother will eventually ask me what the “F” stands for. No, anyone who considers themselves a small-c conservative should feel uncomfortable about burning anything down without knowing what “it” is. Anyone who considers themselves a small-l liberal should feel uncomfortable about burning anything down without knowing “how” we plan to do it. Anyone who is invested in a message of change from the bottom up should feel uncomfortable about a solution that sounds like it comes from the top down. And anyone who is furious about the literal burning being done to communities and businesses by, say, the LARPers in Portland, Seattle and Rochester ought to be uncomfortable if the idea looks anything like that, too.

If you feel like any of those descriptions fits you, I’ve got two messages for you:

The first message is that we agree with you.

The second is that those very sentiments are why I think you should and will be part of this movement. A movement to see with clear eyes and anger the erosion of the ability of each citizen to determine the course of their life. A movement to act with full hearts and courage to change that from the bottom up.

But first you deserve an explanation.

What is the ‘IT’ in BITFD?

I’ll give you three kinds of answers.

In theory, when we say BITFD, IT is any persistent institutionalized corruption which takes from the people and gives to existing concentrations of political, social or financial power. The “corruption” part is important, and the “institutionalized” part is important. We don’t mean garden-variety individual corruption, which will be with us as long as we are human. We also don’t mean “when the rich get richer,” which is often a fair and even desirable outcome of fair competition in all kinds of markets. We mean “when laws, policies and enforced norms make it structurally more likely that the rich will get richer, ceteris paribus.” We are not communists.

In principle, IT is social, political and financial structures that are (1) entrenched by law, narrative or strong game theory equilibrium and which (2) constrain self-expression, self-determination or rewarded risk-taking by individual citizens.

In practice, IT is (at the very minimum):

  1. Our two-party political system
  2. Our federal tax code
  3. Our antagonistic, militarized model of policing
  4. Our system for establishing for-profit state enterprises
  5. Our politically broken news media
  6. Our broken relationship with elite universities
  7. Our Federal Reserve’s realized mandate
  8. Our “independent board” system for shareholder representation
  9. Our monopolies (of several varieties)
  10. Our forever wars

No, this isn’t a complete list. And yes, there is widespread petty and large-scale corruption of many kinds which fits these descriptions. Still, many of those kinds are largely addressed by addressing one of the core issues above. That is because the IT rarely refers to the institution itself. Profit-maximizing public companies can be very good and liberty-reinforcing. Competitive, cutting edge universities, too. Police forces. Yes, even a properly mandated central bank. These are not institutions in need of burning down but building back up to a purpose that can serve both the rule of law and political, social and financial self-determination. To that end, we most often think that each IT is a proximate source of the erosion in the purpose of these institutions and systems embedded in law, policy or cultural common knowledge.

In practically all cases, each IT is also likely to be defended by a Projection Racket. By design, the most successful will rely on memes that will exert a powerful emotional and intellectual pull. Concerned about the suppression of financial freedom and risk-taking by monopolies? You’re not less free, dummy! People made those companies big because they provided the market something we all wanted. If you don’t like it, just vote with your dollars! Concerned that we are providing incalculable tax advantages and massive tax-supported research funding to universities that offer huge admission advantages to wealthy, connected legacy candidates? It’s a private university, dummy! Don’t you believe in freedom of association?

That emotional and intellectual pull will make it exceedingly difficult for us to see clearly, for example, how the real-world effect of a first-past-the-post voting system in a structurally polarized political environment is indistinguishable from the practical effect of disenfranchisement by fiat. The sophistication of these memes will permit us – encourage us – to embrace a mealy-mouthed sort of half-agreement that bemoans the “corruption” of crony capitalism as only a fault of unethical individuals without identifying the systemic causes in law and policy. Each of these ‘ITs‘ structurally reduces each American citzen’s capacity to make decisions which will influence their life (for better or worse), and not as a result of the natural competition of ideas and capabilities within social, political and financial markets.

While the principle and theory cut a much wider swath than any list of individual examples, these ten are the big ones. If you are trying to figure out whether to add your voice to the chorus, then thinking through where you stand on these issues is probably a good place to start.

Over the coming weeks, this series will walk through each of these items in detail. We will describe what IT is, and what, precisely, we mean when we say that it is time to BITFD. We hope you’ll join us. And even if you come agreeing only in part or not at all, we hope you will have a better understanding of what we mean when we say that it is a mission for Clear Eyes and Full Hearts.


Mailbag – Lucifer’s Hammer Edition


Editor’s Note: It’s been a full year since I wrote my last Mailbag note, which is kinda pathetic. My excuses are:

1) we’ve got an amazing Comment section on the website, where both Rusty and I actively participate. It’s truly one of the best things we do and is the antimatter to every other commentariat on the Interwebs.

2) there’s just SO MUCH new stuff that I want to write about that I find it hard to revisit topics in a Mailbag note.

But as my father used to say, “Well, Ben, sounds like you have lots of good excuses but no good reasons.”

My father was always right in that observation then, and he would be right in that observation now. Reader comments and emails following our publication of Lucifer’s Hammer have been amazing, and it would be a disservice to the Pack if I didn’t collect some of them here.

Like this collage from reader (and cartoonist) Jonathan Plotkin.

by Jonathan Plotkin (Instagram: @spontoonist)

And to think that until I got Jonathan’s email I was pretty happy with my homebrew adaptation of the traditional Ralph Wiggum Mailbag graphic to reflect what this note is all about.

So what is the skinny for Lucifer’s Hammer, and why does Jonathan’s collage capture it so perfectly?

Between Covid and the election and the cri de coeur of BLM and the anxiety of back-to-school and the West in flames and 10%+ unemployment and every other 2020 kick in the teeth, we are suffering a national nervous breakdown.

Many people, especially young men with delusions of ego amplified by rapacious social media platforms and their political sponsors, see this national nervous breakdown as an opportunity to shine as violent warriors in service to a mighty cause.

Our political parties, now incapable of seeing any issue except through the profoundly destructive Trumpian lens of zero-sum electoral competition, see this national nervous breakdown in exactly the same way, as an opportunity to “energize their base” and create a political “side” to every social cause and every national threat.

This union of political party advantage-seeking, social media platform profit-seeking, and individual fantasist violence-seeking creates a potentially apocalyptic comet of social destruction that will hit the Earth on Tuesday, November 3rd.

Neither the Democratic party nor the Republican party survives a defeat this November in anything close to their current form. I think a lot of people are starting to think about that.

But here’s what’s also true:

Neither the Democratic party nor the Republican party survives a victory this November.

And no one is thinking about that.

I’m going to start this Mailbag with a critique. Actually, most of the Mailbag entries are critiques.

May 1968 lasted 1 month and 3 weeks. Portland’s protests have dragged on for more than 3 months with zero sign of exhausting itself. Why? Because the protest is not fueled by some abstract desire for change but by very visible and visceral events on the ground.

Since the beginning, Portland has had way more counter-protester violence of any other city that I could recall. When the people involved were arrested, it was usually federal agents, not local police who brought them in. There may be an innocuous explanation for this division of labor, but it feeds into a strong common knowledge: not only are the police your enemy, the counter-protesters are their auxiliaries. It doesn’t help that there is a lot of video footage of police being far gentler with the militia groups than they are with BLM. All on top of indiscriminate use of gas and unidentified DHS agents.

If what happened in Portland happened in my city, I’d be out on the streets every night I could and f**k the curfew. Remember how you all felt when you saw that Navy vet getting clubbed until his hand broke? Imagine if you kept seeing that again and again.

“Fun” can keep a riot going for a month or two, but white-hot rage can keep a movement from going on for months even when all the participants are extremely exhausted, which they are. So what to do? Yes, we should definitely deploy the National Guard.

And at the same time, withdraw the Portland police, which are seen as an illegitimate occupying force, many of whom live outside the city and probably despise it.

This is the ET way, change always comes at the bottom-up. Ultimately, you have to rely on people’s love for their own city and talk to the stakeholders who have their skin in the game.

The idea that whatever Biden says or does matters … or whether Wheeler calls an election … that is the kind of top-down solution that just appropriates a local, urban conflict (protesters vs. police+counter-protests) into another widening-gyre political game. Wheeler can’t even stand up to the people occupying his city. They freakin’ gassed him.

The May 1968 case really did admit that kind of top-down solution because the protesters were spoken for by the opposition political party. Portland 2020 does not. Fin.

The fatal flaw in the Portland social justice movement and many other social justice movements is not that they have been co-opted by national politics or are somehow caught between top-down and bottom-up cross-currents. No, the existential problem for the Portland social justice movement is that it has allowed itself to be defined by others in terms of an undisciplined and inchoate conflict with that city’s police force, and – worse – it is how this social justice movement defines itself.

The sine qua non for any successful campaign where you are the underdog – whether that’s a business campaign or a military campaign or a campaign of resistance for social change – is *discipline*. If you’re the underdog and you do not excel in discipline, you will lose. Period.

By allowing violence to seep into this campaign for social justice, its organizers have failed their most crucial (and difficult) leadership task.

The violence genie is incredibly difficult to put back into the bottle. Your reactionary opponents will egg it on. Your members will want to hit back. Similarly, discipline is incredibly difficult to maintain. Why? Because discipline is not fun.

Once discipline is lost and violence emerges, your narrative fails. Not just the narrative that others have about you, but more importantly the narrative that you tell yourself.

Disciplined courage in the form of nonviolent protest is THE weapon of effective social justice movements.

Why? Because – to paraphrase your Miranda rights – anything you do can and will be used against you in the court of public opinion by a Nudging State that is extremely good at reframing your actions in a crushing narrative light. Once you lose that discipline … once you give yourself over to the emotional satisfaction of taking a swing at that smug bastard who’s been poking you over and over and over again … you WILL be framed as a criminal adversary to the public.

But if you CAN maintain the disciplined courage of nonviolence in the face of obscene provocation? Yeah, that works.

The highwater mark for the Portland protests, both internally and externally, was the morning after this Navy vet with a natural armor class of 23 took a beating from the goonsquad to stand up for the … wait for it … Constitution of the United States of America. This is how you lose a battle on the streets. And how you win a war in the hearts and minds of Americans.

Of course the rich white landowner thinks that nonviolent protest is the only answer, and anything else is going to cause some apocalypse-comet-level firestorm.  Set down the pearls and give your hands a massage.

Your fear’s simply not true.  The violence isn’t that big or widespread; there have been no Kent State-style police slayings (rubber bullets notwithstanding), and that idiot kid in Wisconsin, if you *actually watch the video*, acted primarily in self-defense, despite the fact that he shouldn’t have been there, just as those idiots shouldn’t have attacked him.

If burning down a few dozen (or even hundred) businesses is what it takes for the centuries-long genocide in the United States to stop, then so be it.  I won’t be doing the burning, but I refuse to shed any tears over some property damage if that’s what it takes to move the needle in our society.

Ultimately though this isn’t the tip of the spear of some giant uprising, or even widespread *real violence*.  It’s very easy to get caught up in your media bubble and think that Kenosha is burning to the ground or something, but it’s not, and any night you can count the dead on one hand is not something to start doomsaying over. – JP

If I were a betting man – and as a rich white landowner, of course I am – I’d be willing to make a substantial wager that a) JP is a young man in his 20s, and an even more substantial wager that b) JP has never been in a real fight in his entire freakin’ life, much less had a gun pointed at him in anger or seen deadly violence first hand. I bet he’s played a lot of Call of Duty, though, and has strong opinions about the efficacy of different caliber rifles for different missions. I bet JP is frustrated that the real-world organizations that he is associated with have been slow to embrace his superior insights, and that the online organizations he is associated with are much more appreciative. I bet JP believes himself to be a natural leader, and that he would thrive if the existing order were somehow turned upside down.

Honestly, I got all that just from how JP used the word “genocide”.

I get a lot of JPs who email me about my fear-mongering and doom-saying about Covid-19, too. The common denominator is the “count the dead on one hand” comment. The JPs of the world are fascinated with counting the dead and matching those numbers against some score they have in their head about how that count should be weighed.

The JPs of the world scare the hell out of me.

There are a lot of JPs.

And on a related note …

one group fights the power, one group IS the power.

The violence, albeit distasteful, is finally generating true examination of the inequities in society. What should be happening is all of the downtrodden groups, those that have been left behind, poor white and black, should be coalescing behind a push for change. Instead, many of those that are in bad shape have thrown in with the group that has continued to oppress them. Sad. – Boston Dad

No, Boston Dad, the violence is more than “distasteful”. It is more than counter-productive. It is an abject betrayal of the discipline and strength required to mount a successful campaign of resistance and social change.

I’d feel more comfortable about using the National Guard if the local police and DHS Goonsquad hadn’t acted exactly like children getting to LARP their favorite video game.

Agreed. Saving grace is that we all have news cameras in our pockets today, and their LARPing helps us construct a narrative that aids nonviolent social change.

On a related note, this was an interesting discussion about QAnon on Noah Feldman’s podcast – The Allure of QAnon — Deep Background with Noah Feldman – where Adrian Hon, the CEO of the gaming company Six to Start, talks about how QAnon is compelling to believers because it operates like a virtual quest.

QAnon as virtual LARPing is exactly right.






“Carnival larping spirit”. Exactly!

Check out the Firing Line replay with Buckley moderating Dotson Rader and Arnold Beichman.  The whole thing is an incredible prequel to where we are today. I hate to say it, but Dotson Rader has been exactly right about the real terms of engagement.  The whole thing is filled with easter eggs, but I think you will find an the 2 minutes starting at 18:00 incredibly interesting because Rader articulates the same thing you describe.  The 1968 French Revolution you mention is explicitly referenced later in the interview.  Rader’s explanation of the imperviousness of the New Left to reason is unfortunately prescient (and equally applicable to the “New Right.”) – Andrew

These old Firing Line episodes are solid gold … the guests taking long drags on their cigarettes, stubbing them out in an ash tray just off camera. They’re also pretty hard to take sometimes. Geez, the smugness just oozes off everyone.

Worth watching all the way through, but yes, if you’re in a rush, fast forward to the 18 minute mark and hear playwright (and Parade magazine columnist – LOL) Dotson Rader talk about the sexiness of violent revolution. That I suppose he’s read about.

As a guy with a garage full of motorcycles, you almost lost me with “motorcycle gang”, but then as I read on the “gang” started to look pretty good by comparison.

I have been of the opinion for a long time that both major political parties were destroying themselves, and I have long desired for that to happen to create space for what comes next. I don’t have a crystal ball about timing, but the decay is irreversible. – Craig

I’m with Craig on this. Have been for a while now.

You know, all of my notes are like my children, so it’s hard to have favorites. But this is a favorite.

Always Go To The Funeral

So what’s the punch line? Why am I talking about all this in a cheery note about death and funerals?

Because once a Cooperation Game becomes a full-blown Competition Game, it never goes back to the way it was before. Once mustard gas is introduced into your trench warfare game, whether it was one of the other guys or one of your guys, it’s here to stay. Deterrence has failed. The cooperative Stag Hunt equilibrium is dead. I am, admittedly, still at Stage 4 of the Kubler-Ross scale on all this — depression — but we all need to get to acceptance ASAP. No regrets. No magical thinking. Just hard thoughts on how to design an operating system that can compete with and win against the billionaires’ operating system when the reboot happens. And who we want in our foxhole in the meantime. And how to build a gas mask.

Because there’s a pose that very sick farm animals sometimes take when they’re near death, where they lie down and twist their head way back into their shoulder in a very unnatural way. It’s an odd sight if you don’t know what it signifies, a horrible sight if you do. Both the Republican Party and the Democratic Party are starting to twist their heads back into their shoulders. I don’t know if it’s too late to save them or not, but I’m increasingly thinking that it is. We need to start thinking about the funeral, who’s going to speak, and what they’re going to say.

Several years ago, in the run up to 2016, I worked on a volunteer, web-based website with about 30 other people. As things got heated on the political front heading into mid-year, the ownership team was trying to figure out how to handle what was going to be a contentious election internally. There were plenty of calls to have no chatter in internal channels (email/Slack) about the election.

We didn’t do that.

We built a dedicated venue for people to talk about the election so it could be contained to one location, but still expressed so that the people, the participants could have their voice heard within the system, not repressed out of it. And then we didn’t allow conservation on the election outside of that locale. And I think this is analogous to what is recommended here.

The answer is to encourage the participation through channels designed to allow for self-determination, and actually allowing that change to take place if so demanded. But also, it’s about preventing the forms of expression that do not seek a true change, but just want to watch the world burn.

Create avenues for the will of the people to be freely and truly expressed, and then hold the line on this who do not actually wish for change but simply want to feel the rush of emotion attached to the moment.

To quote the Mandalorian: This is the way.

The trick – whether it’s politics or business or family or whatever – is to be a strong enough leader to establish these channels of self-expression and voice, to keep them from bleeding over into each other, and to abide by them if the self-determination that emerges goes against your personal interests!


==> “Portland mayor Ted Wheeler, who refuses to defund the police in the way that Portland protesters mean the word (i.e. abolish), should resign. AND he should run in the special election called to replace him. AND the Portland protesters should put up their own candidate who will, in fact, defund the police to oblivion. Then vote. Let’s do this next week. Let’s see who the people of Portland put into office. Either the dog catches the car or the car runs over the dog. Either way, the story arc of this particular protest narrative ends there.

We make it not fun by removing the thrill of the chase and the thrill of the fight – we contain the rioters and the night time looters – so that all that is left is the boredom of walking around and yelling into the wind all night. We accomplish this with numbers and curfews. We request the assistance of the National Guard – of course we request the assistance of the National Guard! – so that we have the sheer numbers of trained personnel to contain the bullshit looters and keep out the bullshit “militias”.
That’s how we work our way through this.

We accommodate protester voice through new elections/plebiscites, and we contain criminal tag-alongs with sheer numbers of trained public safety officers.” <==

Enough, let’s see if people really want to fully defund the police. Let’s see how popular zero police protection is as policy?

What I’ve seen all along is that almost everyone agrees with the non-violent protests against the specific police actions we’ve witnessed on TV and the idea of police targeting blacks. Away from some fringe crazies, I haven’t heard any public official say otherwise – or anyone in my all-over-the-political-map friends and relatives – not one.

So great, we all agree that bad is bad. What I haven’t seen is, until “defund the police” took off, any specific policy response ideas. It’s been protest as identity and virtue signaling that spiraled into violence and, yes, death and destruction. And for that, sorry, you can hate me and think I’m a T supporter (I’m not), I blame mainly the left. But now everyone’s getting in on the fun – sigh.

But still, what is the policy people want? Let’s have the first vote Ben suggests (and have it everywhere) – defund or not? Then, maybe, we can have more votes till we get to a reasonable response. I have my ideas, but they’re not important; what is important is that we find an answer within the system we have.

I’m not sure I fully understand the process of Ben’s BITFD, but I kinda think he says we make the political parties irrelevant by not playing their game. So let’s not play their game of violence-in-the-street to get them votes; let force real votes on real issues to get answers. – Mark Kahn

The answer to our systemic failings is not centralization and federalism, but decentralization and antifederalism. The answer to our political failings is not less democracy, but more democracy.

As for the police …

Defund? No.

Demilitarize and Deunionize? Yes.

Ben, have the riots all stopped, or are we just not being shown any anymore?

Reporting on this went dark, quietly and immediately.

Good question, and I don’t know the answer. I THINK that the riots have, in fact, diminished because I THINK that the DNC has told every allied group to knock it the fuck off.

Was intending to write a big long response to this that even included an excerpt from a poem — but, upon reflection, I am deeply conflicted and confused by our current moment, as I suspect many people are if they don’t have the armor of rigid ideology, so I’ve decided to note one thing only:

I am so happy you used a specific historical analogy to make a point that was not the “US-as-Weimar” or “US-as-Roman Republic” — tropes that irritates me to an extreme degree.

It’s odd to me that the 1968 France analogy isn’t getting more play. For one thing, Charles de Gaulle was easily as weird as Donald Trump.

Thanks for what you’re doing with ET. It’s enlightening – though also depressing AF.

I recently heard an anecdote that I thought you may find interesting. 

In my father’s village, in Croatia, fishermen would load a block of ice in the boats when leaving to fish. As they would catch fish, they would chip at the block to make ice and keep the fish fresh. We’re talking mid 20th century here. 

But on very good days, that ice would not be enough for all of the fish. For these cases, they would keep a couple of big spiders in a jar. If they had fish they couldn’t put in ice, they would put them in a dry barrel, and then throw in the spiders.

The fish in the barrel would feel the spiders and freak out. That stress would keep them alive for longer than they normally would – long enough to bring them to port and put them on ice there.

For what weird part of today’s economy is this a good metaphor? I don’t know, but if anyone would, it’s you! – Gavrilo

It’s hard for me to believe that a fish out of water could be MORE stressed than suffocating to death, just like it’s hard for me to believe that a fish would find a spider’s touch to be particularly distressing, but I love this story so much that I’m going to believe it and repeat it without hesitation!

My god, if there is a better description of the political fear system that we fish are subjected to 24/7 than … big spiders in a barrel stressing us out to keep us alive long enough for the fishermen to get us back to shore and sell us for food … I’ve never heard it.

Predating Lucifer’s Hammer in my life was “A Boy and His Dog” by Harlan Ellison, but the impact was the same, or greater.  The movie was no comparison to the book in my opinion, your mileage may vary.

Thanks for confirming my choice to withdraw into heirloom tomatoes and exercise for the time being. – Jeff

Pretty sure I’ve read everything that Harlan Ellison ever wrote, and totally agree on the book superiority of “A Boy and His Dog” … the altered ending!

But we did get the first major film role for Don Johnson, so there’s that.

Remind me Ben, how much did the Fed expand its balance sheet in response to the comet of Lucifer’s Hammer, and how much higher was the S&P 500 after the comet strike? – ike

If memory serves, the Eccles Building was either engulfed in a sea of lava or submerged under a mile of ocean when Lucifer’s Hammer hit the Earth. Either way, the Fed needs to update its disaster recovery protocols for comet strike!

Rusty and I started to keep a running tally of the “but Biden” and “but Trump” responses. I’d say the totals were unbelievable, but of course it’s totally believable.

To be clear, I blame Trump for our irretrievably broken political system.

Four years ago, when I wrote that I thought Trump would defeat Clinton, I said that Trump breaks us by turning every one of our domestic political games from a coordination game – where cooperation in the national interest is at least possible – into a pure competition game where that potential cooperation is impossible. He did. That’s exactly what happened.

And now here we are. It’s all trench warfare all the time. Mustard gas, flame throwers, whatever … it doesn’t matter now who was first. None of these weapons of war can be uninvented. None of these bells can be unrung.

So what. Now what.

Michael Ginsberg: I feel sorry for you.

Don Draper: I don’t think about you at all.

Mad Men (Season 5, 2012)

It’s one of the best lines in a series full of great lines. It’s devastating. It’s cruel. It’s also the reality of our world.

Our political and corporate leaders don’t think about you at all. They’re ALL Don Draper.

Am I furious at Trump and his wanton debasement of the American Constitution – the most valuable piece of intellectual property of the past 2,000 years? Yes, I am.

Do I think that Trump has, time and again, betrayed his oath of office and the American people? Do I think that Trump has been an utter failure as President of the UNITED States? Yes, I do.

Do I think there’s a good chance Trump simply declares victory by fiat if the election is even arguably close, and that whether he is re-elected or “re-elected” there is an even better chance we enter a decade of domestic violence and secessionary impulses unseen in this country for 170 years? Yes, I do.

But guess what. I also think there’s a snowball’s chance in hell that Biden and the Democrats accept a narrow loss to Trump, also with a good chance of triggering a decade of domestic violence and secessionary impulses unseen in this country for 170 years.

None of this goes away on November 4th. This isn’t just a bad dream. There is no saved game to access, no reset button to push.

So what. Now what.

Now we refuse to be Michael Ginsberg. Now we refuse to let these Don Draper high-functioning sociopaths into our heads. Now we refuse to take them – any of them – into our hearts.

Now we find our pack. Now we vote and we hope for the best and we prepare for the worst. Now we keep the flames of small-l liberalism and small-c conservatism alive in our homes and our packs.

Now we show the disciplined courage to engage in nonviolent protest whenever and wherever we see those principles of small-l liberalism and small-c conservatism violated by a rapacious, overbearing state … no matter what.

As a fellow Citizen disillusioned with our political parties I encourage you to contact Bret Weinstein regarding the Unity 2020 movement.  I don’t have any illusions about our chances, but there is a plan to get a team on the ballot for president in all 50 states this election cycle. With the support of people like yourself, who already have an audience and the abysmal choice we are offered by the political parties.  I think there is a chance to do some good.

I’ve had a long conversation with Eric Weinstein about this and lots of other topics. Sorry, but I’m passing on Unity 2020. Heart’s in the right place here, but this is a distraction and extremely … fragile.

Have you ever read East of Eden? One of my absolute favorite books. My favorite verse from my favorite character in the book reminds me a lot of you. I want to share it with you as a compliment.

“I hope they got there,” said Adam.

“I know. And when my father would tell me I would say to him, ‘Get to that lake— get my mother there — don’t let it happen again, not this time. Just once let’s tell it: how you got to the lake and built a house of fir boughs.’ And my father became very Chinese then. He said, ‘There’s more beauty in the truth even if it is dreadful beauty. The storytellers at the city gate twist life so that it looks sweet to the lazy and the stupid and the weak, and this only strengthens their infirmities and teaches nothing, cures nothing, nor does it let the heart soar.’ ”

Keep teaching the dreadful, beautiful truth. Keep making hearts soar. – TH

Haha! No pressure there! But seriously … thank you. Steinbeck is one of my all-time faves, but I had forgotten that particular passage. Absolutely beautiful. Absolutely correct. And I will.

Okay, four long reader emails to close out this Mailbag. No comments. No jokes. Just a heartfelt invitation to join the Epsilon Theory pack and engage in this conversation with me and Andy and Adam and Steven and TB about how to change our lives and how to change our world.

Because I bet you’ve got something to say.

I share your rage and empathy. I too have vastly changed my life, and that of my family’s to deal with the world in which we live. I feel really good about the work I am doing, and the community in which my wife and I have chosen to raise our family. Though I still feel very alone as someone who frequently moves to the meta to contemplate the world at large. 

Much like when I read and am in contact with my old mentor, I love your work. While it stirs emotions that I sometimes try to avoid so I can go about my daily family life, your work makes me feel more sane in an insane world. It is a strange paradox of feeling less alone, because I am not the only one seeing and thinking about these things, but it also makes me feel more alone, in the sense that I don’t know anyone in close proximity to me that is thinking about these things. 

I have written, erased, and rewritten this email to you a few times. I don’t quite know what it is I am asking for or what I am seeking. I feel a deep connection to what your and Rusty are doing, yet I feel distant from it and from you guys. I want to find others near me who think like this and want to engage in thoughtful discussion and activities. 

I know that part of your mission is to empower others to create meaningful connection and packs. I believe pre covid, you guys were doing get togethers in your area and occasionally engaging people in other areas. I wanted to see where this stands. Do you guys connect ET followers in similar locations when possible/appropriate? 

Long story short is that I appreciate the work you guys do. I want to be more engaged, but am not sure how/why to engage you and your work more. What is my role in all of this? I realize this is probably my own question to answer, but wanted to finally hit send on this email. – Andy

It’s been on my mind to email you again for months but I couldn’t bring myself to do it out of embarrassment until I joined the pack officially…finally got around to doing that today (sorry I’m a cheapskate). I sent you the email above over 2 years ago (!! wow) when epsilon theory had just begun to mean something important to me. You were gracious to respond then…I know your following and time commitments have gone up by orders of magnitude since then (congrats, well deserved).  Importance of your (and Rusty’s) work for me has also gone up orders of magnitude.

I somewhat gradually realized this past year that I wanted to do more than just consume your work, but only recently really got started with any seriousness. Basically so far this looks like me flooding all my facebook friends, and real life close friends, with epsilon theory concepts, and generally just trying to build my pack. In my ‘old life’ I had been posting my Trump outrage on FB frequently but shut that all down in the months after I discovered ET and had you rock my worldview, basically became a social media recluse for 2 years until this summer when I decided to start trying to convert more friends to ET.  I’ve also recently moved back closer to friends and family on the north-side of Indianapolis, honestly it may sound a touch crazy but the ‘build my pack’ mentality played a role in this decision to get closer to people who really matter to me and the family.  I will continue to keep doing this building of my pack, but I am reaching out to you today in case there is more I can do.  A few thoughts in this regard:

In particular it has been on my mind that, having spent 2 lonely years as seemingly the only person in my world who ‘got’ what you were saying, I have felt like it would be very nice if there was some sort of means for discovering other folks in my local area who are part of the ET pack. I believe you have alluded to such things before as, perhaps, part of your long term plan. Of course I know you also want to avoid anything too top-down which is a potential risk from beginning to ‘organize’ the pack. But if there was a way to start forming local packs and there are other members in the Indy area I certainly would be up for helping with that effort.

Another thing that has been on my mind is that, having consumed ET continuously for years now I feel quite well-versed in the various ‘tenets’ of ET…..but I’ve found that when trying to discuss ET with friends I am basically speaking a different language from them!  Widening gyre, minimax regret, clear eyes-full hearts, BITFD, common knowledge game, missionaries, the list goes on and on!  I love these concepts and use them all the time speaking/posting, but I personally think that just sending a random friend to the blog is sometimes not as effective as I would like it to be because of this different languages issue.  So TL;DR, it has been on my mind that it could be useful if there was an ‘ET bible’ or something that tries to give a more easy-to-consume introduction to the language and concepts.  I am curious if you have thoughts in this regard, and depending on those thoughts I would also be very happy to try to help contribute to building such a thing.

Lastly, I know you have mentioned in the past (pre covid I suppose) of a conference or something along those lines to bring ETers together. I am sure the time is not yet with the virus, but if this becomes a thing again it would be something else I would be happy to help with however I can if needed. (Indy is a pretty nice place for a conference! 😉 cheaper than most and centrally located).

Given my obsession with ET I imagine you will see me in the comments there now, looking forward to it, and thanks again for everything you do. – Adam from Indianapolis

I am a dedicated consumer of ET output and find it heartening and encouraging to read your and Rusty‘s thoughts every week. Thank you for doing what you do – it helps.

I thoroughly enjoyed your conversation with Grant Williams last week. He has produced an outstanding series of insightful episodes over the past month and your exposition did not dilute the series at all. Far from it.

I wanted to pick up on one point you (both) made which was to question if we could ever return to the world as we knew it before the descent into Griftism that is the hallmark of our crapitalist system today – endemic corruption and egregious displays of a self-serving kleptocracy. It feels like early stage fascism without the uniforms and the appalling music, but with the same latent undercurrent of a threat of violence against the unruly or the unwilling fomenting in the atmosphere. We have a a way to go yet and it won‘t look like the 30s but the results may be just as dystopian.

So no, we can‘t go back. But we can go forward and your work helps formulate one possible path to take. I think we will have to lose a few more battles yet and they will be painful ones. The countries we end up living in (you in the US, my family in the UK, me in Ireland) will not be places our parents will either recognise or want to live in, although I guess here in Ireland, if I stay away from Dublin, I will probably have the mildest version of whatever is coming down the line. 

You voice your frustration at not doing enough and at the same time recognise the need to distance yourself from the grip of the sociopaths. This has always been the dilemma of the political warrior who finds him or herself on the wrong side of history. It is Cicero‘s dilemma and Coriolanus‘ tragedy and that of every man of either action or letters (or both) who has lived through the decline of mores and the slow collapse of a once civilised society into authoritarianism. What to do in the face of insuperable odds and a daily violation of those morals and codes of behaviour we thought were sacrosanct? 

Well, I believe the answer is to be found in Alfred Nock‘s marvellous essay on Isaiah and the Remnant (Isaiah‘s Job, which I am sure you know). I was only half-joking when I posted in your aborted ET Live chat whilst waiting for you to go live that I supposed Isaiah to have been sent to enlighten the remnant and not hinder them from hearing the truth as the eponymous storm played havoc with your mobile infrastructure. When decadent civilsations begin their descent into chaos, as we are doubtlessly doing, then only a tenacious and ferocious adherence to an inner core of unshakeable ethics, a code of honour and agape, and if, as I am, you are of faith,  to your God, will preserve you in sanity. What you at ET call Clear Eyes and Full Hearts. Isaiah‘s God knew that the decadent corrupt and narcissitic Israelite ruling classes were never going to listen to the prophet, but that was never the point of his intervention. The point was to keep the flame of hope alive in the remnant, that dispersed diaspora of men and women intelligent enough to see the truth and strong enough to live by it. And keeping their heads down and their families safe.

Your „community of truthseekers“ to which you alluded when I first came across you a few years back is a form of the remnant. They need you a) alive and well, b) out of prison c) able to write and publish, no matter where you are are, because you and others like you, are who the remnant need to understand that they are not alone, not mad and not without hope for a better world and a society that is once again built (perhaps on the rubble of the old)  upon the values of honour and agape. So go where you need to go, don‘t look back, keep writing and thinking and know that with your PPE initiative you have already done more than enough. – Steven from Ireland

I’ve been reading ET for months now (maybe 6+?). Initially, I found it a bit extreme and sometimes abrasive, but I recognized there was something to it even if I couldn’t explain it. I continued to read, not religiously, but as I saw articles hyped on Twitter I’d consume.

I began reading more content as COVID-19 unraveled, and again, your stance seemed aggressive… until it didn’t, which, for me was earlier than most. I found myself starting to rant to anyone that would listen (mostly my wife), and even those that wouldn’t. My wife even told me, in early March that I was “acting hysterical” and “panicking”. She later realized it was warranted. I wish I had your foresight, but I’m thankful I had the open mindedness to continue reading and digesting your writing.

Last night I read your latest, “Bear Stearns And The Narratives Of Systemic Risk. It all clicked. 

I previously had no clue what you were talking about when you kept harping on “the process”. Last night I saw the light. – TB

Welcome to the Pack.

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

Oh, yeah, one last thing.

Facebook delenda est.


Lucifer’s Hammer


Epsilon Theory PDF Download (paid subscribers only): Lucifer’s Hammer

The perversity of the Universe tends towards a maximum.

The gods do not protect fools. Fools are protected by more capable fools.

Ethics change with technology.

Quotes by legendary science fiction author Larry Niven, none of which are from Lucifer’s Hammer.

I was 14 years old when I read Lucifer’s Hammer, the post-apocalyptic novel by Larry Niven and Jerry Pournelle about a comet hitting the Earth. It’s pretty standard end-of-the-world fare, with mile-high tsunamis and volcanos emerging from earthquakes and billions dead and an intrepid community of surviving scientists/libertarians defeating the cannibal, faux-religious, statist army-remaindered horde that attacks without warning or honor.

It was one of those books that I read at just the right time, so I remember entire passages almost verbatim.

I remember how the odds of the comet hitting the Earth were minuscule at first, but every day would go up ever so slightly. I remember how smart people paid attention to that … to a 1/100th of 1% chance moving to a 1/10th of 1% chance moving to a 1% chance, when the probabilities are converging on the same event.

I remember how the sentry’s signal to the sniper that all was well was to raise his arms as if he were being held hostage, because of course that’s the action that any would-be bad guy would forbid the sentry to take under any circumstances.

I remember how the battle with the cannibal, faux-religious, statist army-remaindered horde is ultimately won by getting them into a valley and them lobbing homebrew mustard gas canisters at them, and how the lung-destroyed survivors are dispatched by crossbow bolts so as not to waste any bullets.

I remember how the scientist hero saves the future of humanity by wrapping a full set of Encyclopedia Britannica and The Way Things Work in double-sealed plastic bags with mothballs, and then hiding them in a septic tank.

But most of all, I remember the voice of Ego whispering this in my ear:

“You know, this whole post-apocalyptic thing doesn’t sound half bad!”

Sure, I’d have to survive that initial strike. And sure, it’s all quite sad that people I love (i.e., my parents) would have to die. But tbh, they had a good run, and I’m sure it would be a painless death. And this post-apocalyptic society … why, it’s a meritocracy, where my hidden genius and quiet courage and (very) untapped virility would finally be appreciated!

Those whispers of Ego, those post-apocalyptic fantasies of a 14-year-old boy, have never left me.

I’m 56 years old, and I still fantasize about how I could take out a motorcycle gang assaulting the farm. I’ve figured out where to set up the enfilade line of fire, where to plant the IED and how big it would need to be to take out a half-track armored vehicle. I’ve spent many a pleasant hour figuring out how to construct a laser-guided RPG for when, you know, the cannibal, faux-religious, statist army-remaindered horde sends their helicopter out in support of the (now dead) motorcycle advance troops and half-track APC.

If I were a betting man – and I am – I would place a large wager that every first-world post-pubescent reader of this note similarly burdened with a y-chromosome harbors similar fantasies. Not just Harry Potter/Disney/comic book oh-I’m-a-special-orphan-destined-to-lead-a-grand-struggle fantasies, but “real” post-apocalyptic how-do-I-kill-the-motorcycle-gang fantasies.


The world after the comet hits is not a meritocracy, but a brutal dictatorship without end, where boys like you are used as fodder and feed. And girls like your daughters are used as worse.

Death is pain incarnate, always and without exception. And yet there are worse pains that await you after the comet hits.

This is not a fucking game.

It has taken me a lifetime to hear the Narrator more loudly than the Ego.

It has taken me a lifetime to see clearly not only what deserves burning down but how to burn it down.

The What is the inequitable social structures of power in our normal, quotidian lives, both in the halls of secular mightiness and – even more so – in our own freakin’ hearts.

The How is the unrelenting willingness to Make, to Protect and to Teach away from and in resistance to those inequitable social structures of power, creating a social movement that ignores the institutionally nudged and amplified whispers of Ego, that turns the other cheek as it builds and builds and builds and builds a new nation of … believers. Believers in the white-hot power of making, protecting and teaching to burn away the accumulated crud of decades of I-got-mine-jack sociopathy. Believers in the flamethrower of change that is political participation through community action, not just the sparkler of change that is political participation through voting once every four years.

Turning the other cheek doesn’t mean you don’t get angry. Trust me, I am SO angry! That’s why I use angry words, like BITFD – Burn. It. The. Fuck. Down. – words intended to galvanize and shock, yes, and also words that embody the cold rage that first engulfed me during the Great Financial Crisis and has grown and grown with every moment of the Long Now. But anger is not enough. In the history of social change, mere anger has never been enough.

Turning the other cheek – which is just the OG phrase for nonviolent protest – is a strategy for channeling our anger and weaponizing our voice.

It’s a choice.

It’s choosing the clear eyes needed to recognize that the institutions and the high-functioning sociopaths who wield today’s inequitable social structures of power WANT you to strike back with your fists rather than your words. It’s choosing the full heart needed to take a hit for the Pack through nonviolent protests, sure, but nonviolent actions even more – unwavering, constant nonviolent actions of exit, sacrifice, voice and mutual support from the bottom-up – creating a decentralized epistemic Fight Club of citizens who make their way IN this fallen world without being OF this fallen world.

It’s the smart play.

As wise as serpents. As harmless as doves.

2,000 years ago, this was pretty good advice for changing the world when the wolves of powerful, entrenched interests were looking for any excuse to rip your throat out, and it’s pretty good advice today.

And yes, this is how we change the world. This is how we BITFD. For real. For good.

Unfortunately, we believers have a problem. That problem is that no one gives a damn about burning down the systems of control and nudge when their actual house and their actual car are actually burning.

But that’s the comet that’s speeding our way, a comet of endemic urban violence.

And for so many people – especially young men with the voice of Ego now shouting in their heads as the whispers are turned up to 11 by the amps of party and media – they think that sounds just dandy.

This has all happened before.

Back in the day, when I was a young pup of a poli sci professor at NYU, actual Marxists roamed the Earth. In my experience, Marxists are infallibly delightful conversationalists, and at an academic dinner I got to talking with two of these ancient dinosaurs (one of whom remains an avowed Marxist to this day and the other who had forsworn his faith) about the 1968 riots in Paris. They had both been there, manning the barricades! The Mother of All Protests! A national uprising against the police powers of a far rightwing President hellbent on reshaping the French republic!

I asked them to describe their experience. What was it like to be a part of May 1968, a student-led protest that mobilized the working class and shut down the entire country of France? That forced de Gaulle to (briefly) flee the country?

The old Marxist looked at his friend, the now disavowed Marxist.

“Well, I remember I got laid a lot.”

“Yes,” said his friend with a wink, “it was quite a lot of fun.”

And there you have it, ladies and gentlemen, the dirty little secret of every riot and protest and looting that ever existed in the history of mankind … IT’S FUN.

And not to be outdone, here’s the dirty little secret of every counterprotest and posse and vigilante group and “militia” that ever existed in the history of mankind … IT’S FUN.

I felt weightless. I felt that nothing would happen to me. I felt that anything might happen to me. I was looking straight ahead, running, trying to keep up, and things were occurring along the dark peripheries of my vision: there would be a bright light and then darkness again and the sound, constantly, of something else breaking, and of movement, of objects being thrown and of people falling.

I had not expected the violence to be so pleasurable.

That’s Bill Buford, literary editor and SJW, who started off writing an anthropological study of Man United “hooligans”, only to be embraced as part of the crew and to discover the atavistic joys of a good rumble.

Among the Thugs is the best book you’ll ever read about the human nature of riots and group violence.

Know who’s having fun tonight? Know who’s running on adrenaline and endorphins and the rush of cops and robbers? Know who simultaneously believes that nothing can happen to them and that everything could happen to them? All of the BLM “organizers” and all of the Antifa “cadres” and all of the Proud/Boogaloo “boys” and all of the MAGA militia “soldiers”, that’s who.

Man, they’re all having a blast.

All with the voice of Ego running through their minds, all secure in the knowledge that they matter and will be recognized for their meritorious service to this mighty cause.

How do we stop the violence and the carnage of these bullshit and criminal “fiery but mostly peaceful” night time waves of destruction, and – increasingly – the bullshit and criminal confrontations between rival English soccer team political supporters?

How do we stop burning down the wrong things so we can get started on burning down the right things?

We change the narrative that these burners and looters and counter-burners and counter-looters tell themselves. We make it not fun, for the burners and looters as well as for the counter-burners and counter-looters.

We change the narrative by removing the oppositional foil of the rioting and looting story arc – we make it impossible to believe that the criminals are part of an unrequited struggle against The Man and his inexorable injustice – so that all that is left is the petty (and not so petty) criminal behavior which cannot be excused. We accomplish this with accommodation. Not by agreeing to “demands” … usually there are no demands by daylight nonviolent protesters … but by elected leaders resigning and/or establishing new elections/plebiscites so that there is a clear and meaningful alternative outlet for nonviolent protesters’ voices.

Portland mayor Ted Wheeler, who refuses to defund the police in the way that Portland protesters mean the word (i.e. abolish), should resign. AND he should run in the special election called to replace him. AND the Portland protesters should put up their own candidate who will, in fact, defund the police to oblivion. Then vote. Let’s do this next week. Let’s see who the people of Portland put into office. Either the dog catches the car or the car runs over the dog. Either way, the story arc of this particular protest narrative ends there.

We make it not fun by removing the thrill of the chase and the thrill of the fight – we contain the rioters and the night time looters – so that all that is left is the boredom of walking around and yelling into the wind all night. We accomplish this with numbers and curfews. We request the assistance of the National Guard – of course we request the assistance of the National Guard! – so that we have the sheer numbers of trained personnel to contain the bullshit looters and keep out the bullshit “militias”.

That’s how we work our way through this.

We accommodate protester voice through new elections/plebiscites, and we contain criminal tag-alongs with sheer numbers of trained public safety officers.

Together, these actions change the story that we tell each other about the crimes that are committed in the name of a just struggle, AND these actions change the story that the wannabe and the confirmed criminals are able to tell themselves.

That’s exactly how the May 1968 riots in France were defused.

De Gaulle, under pressure from his #2, Georges Pompidou, finally accommodated demands for government change by agreeing to new elections. At the same time, the Parisian police, backed by the French military, contained the protesting students by avoiding pitched conflict and preventing the takeover of government buildings.

But that’s not going to happen in 2020 America. In fact, the opposite of this is going to happen. Why?

Because it’s not just the Antifa/MAGA Militia goonies who are positively giddy with excitement at the prospects of this post-apocalyptic world. It’s not just these clowns and criminals and wannabe culture war heroes. It’s also every media organization that covers the night time “protests”. It’s also the Republican party AND the Democratic party, both their elected officials AND their party apparatchiks, who are intentionally amplifying the Ego whispers to their proxies through their MSM and social media platforms for a perceived electoral advantage.

It’s not the Russians or the Chinese doing this to us.

We’re doing this to ourselves.

Four years ago, when I wrote that I thought Trump would defeat Clinton, I said that Trump breaks us by turning every one of our domestic political games from a coordination game – where cooperation in the national interest is at least possible – into a pure competition game where that potential cooperation is impossible. He did. That’s exactly what happened.

So today, neither the Trump campaign nor the Biden campaign can see the United States through anything other than the lens of a pure competition game.

Neither campaign or party will take the necessary steps to defuse the growing violence in American cities, like Biden calling for Democratic mayors to request National Guard support or like Trump doing anything to accommodate the voices of nonviolent protesters, because they both think that to do so would place them at a competitive disadvantage in the November election.

Neither campaign or party is appropriately afraid of this comet hitting the United States, because they both think that they’ll do just fine in a post-comet world. They both think that they can handle the aftermath of this comet strike after November 4th. They both are listening to their institutional Ego rather than to the Narrator.

They are both sowing the wind.

And they will both reap the whirlwind.

Neither the Democratic party nor the Republican party survives a defeat this November in anything close to their current form. I think several people are starting to think about that.

But here’s what’s also true:

Neither the Democratic party nor the Republican party survives a victory this November.

And no one is thinking about that.

Oh, and a quick post script. In case you were wondering about that snap election that de Gaulle called in May 1968, the election that the Socialists expected to win in a walk given the initial popularity of the student protests and the early ham-handed reactions by de Gaulle and his “Law and Order” / “France First” party … it was, in fact, a landslide.

For de Gaulle.

Epsilon Theory PDF Download (paid subscribers only): Lucifer’s Hammer


Facebook Delenda Est


Epsilon Theory PDF Download (paid subscribers only): Facebook Delenda Est

Trump hosted Zuckerberg for undisclosed dinner at the White House in October (NBC)

President Donald Trump hosted a previously undisclosed dinner with Facebook CEO Mark Zuckerberg and Facebook board member Peter Thiel at the White House in October, the company told NBC News on Wednesday.

Zuckerberg also gave a speech at Georgetown University the week before, detailing his company’s commitment to free speech, and its resistance to calls for the company to crack down on misinformation in political advertisements.

It is unclear why the meeting was not made public or what Trump, Zuckerberg and Thiel discussed.

The White House declined to comment.

Facebook’s Hate-Speech Rules Collide With Indian Politics (WSJ)

The company’s top public-policy executive in the country, Ankhi Das, opposed applying the hate-speech rules to Mr. Singh and at least three other Hindu nationalist individuals and groups flagged internally for promoting or participating in violence, said the current and former employees.

Ms. Das, whose job also includes lobbying India’s government on Facebook’s behalf, told staff members that punishing violations by politicians from Mr. Modi’s party would damage the company’s business prospects in the country, Facebook’s biggest global market by number of users, the current and former employees said.

Facebook’s Zuckerberg promises Merkel action on hate speech  (Deutsche Welle)

“Facebook founder Mark Zuckerberg on Saturday promised German Chancellor Angela Merkel that his company would work on measures to combat racist and hateful comments on the social media platform.

This comes after German Justice Minister Heiko Maas met with Facebook representatives in Berlin in mid-September following the posting of a number of right-wing extremist and racist comments about refugees.

Maas had expressed bewilderment that photos considered to be indecent were quickly deleted, while hate speech postings were often left on Facebook pages even after users had complained. Merkel had also called on the company to take measures to fight mass incitement.”

So … I’m pretty close to being a free speech absolutist. Or at least I have an old-school small-l liberal John Stuart Mill-esque belief in free speech, with an extremely high bar for the “harm” that speech must directly inflict on other citizens before a rightfully constituted government, based on the consent of its citizens, has a legitimate duty to regulate that speech.

And I believe that the US Supreme Court has been pretty much spot-on with its free speech decisions like Brandenburg v. Ohio and R.A.V. v. City of St. Paul, where they said (roughly speaking) that even speech calling for violent protest against the government is protected speech and that hate speech isn’t a thing. Let me repeat that last one. The US Supreme Court has repeatedly held that hate speech is not a thing.

I think this is exactly right.

To be clear, I also believe that a private organization has the right to apply hate speech standards (or any other speech standards) to its members, if those members have the ability to leave the private organization AND that organization does not enjoy unique government support. So, for example, if I choose to attend a private religious college, and they have rules against hateful/blasphemous speech, then it’s fine for them to kick me out when I start doing my hateful blasphemous speech thing. I’d never go to that college in the first place, and there are plenty of other schools I can attend. But if ALL colleges started imposing hate speech standards, or if the ONLY college started imposing hate speech standards, or if ANY public college started imposing hate speech standards … well, I’d have a real problem with any of these circumstances.

And I believe that a just government has a duty to intervene in these circumstances.

Now I also believe that the US Supreme Court got it terribly, terribly wrong with Citizens United, where they decided (again, roughly speaking) that non-real life citizens – like corporations or other constructed legal entities – enjoy the same protections for political speech that real life citizens do. I’ll repeat that one, too. The US Supreme Court has held that constructed entities of pooled capital (corporations) or pooled labor (unions) or pooled political influence (parties) have the same protection for their political speech as unconstructed/unpooled you and unconstructed/unpooled me.

I think this is nuts.

To be clear, I also believe that limitations on how much money or time real life citizens can spend on their political speech are similarly nuts. So, for example, I believe that really rich American citizens like Bill Gates or Jeff Bezos or George Soros or Charles Koch can spend as much money as they please – literally billions of dollars if they want – to proclaim whatever cockamamie political idea they want to proclaim. What is unacceptable in my view – but is exactly what Citizens United allows – is for really rich guys to spend unlimited amounts of money on political speech after they are dead, or (worse!) for corporations and unions and parties to spend unlimited amounts of other people’s money on political speech, with the same legal protections as real life citizens.

Government does not exist to protect the rights of a dead rich guy’s money. Government does not exist to protect the rights of corporations, unions and political parties. Government EXISTS to protect the unalienable rights of its citizens, and that among these are life, liberty and the pursuit of happiness.

Do foundations and corporations and unions and political parties have rights? Do they enjoy the protection of our laws? Of course!

Can foundations and corporations and unions and political parties speak on the issues of the day? Sure!

But foundations and corporations and unions and political parties are conveniences, not citizens. They exist because they are useful efficiencies, not because they possess unalienable rights. They are not the same as voting citizens, and a government of the people, by the people, and for the people is under zero obligation to extend the same protections to the political voices of these non-people as it must to its actual people, much less MORE protections.

But that’s where we are today.

These non-people … these non-citizen, non-voting, artificially constructed legalistic entities of pooled capital, labor or influence … they enjoy MORE free speech protections than you and me.

And I believe that a just government has a duty to do something about that, too.

Now if you don’t mind, please hold those two thoughts …

1. Ben doesn’t think that hate speech is a thing. Ben also thinks there are (limited) circumstances where a just government must reach into private organizations to prevent them from applying hate speech standards.

2. Ben doesn’t think that constructed entities like foundations and corporations and unions and political parties should enjoy the same free speech protections as real life citizens. Ben also thinks – and this is at the heart of what he wants to BITFD – that these constructed entities actually enjoy far more free speech protections from our government than the real life citizens our government was established to protect.

… and let’s talk for a minute about Facebook.

The following facts are, I believe, not contentious. They are, I believe, clear and obvious facts to any observer of Facebook policy in the three markets that are most important to Facebook – the United States, India and Europe.

Fact #1: Facebook has constructed a standard of what they consider to be political hate speech and announced that they intend to apply it on their platforms within the United States, India and Europe.

Fact #2: Facebook applies this hate speech standard with rigor and unswerving attention against specifically the group who (IMO) should never have a hate speech standard applied against them … individual, real life citizens of the United States, India and Europe.

Fact #3: Facebook does NOT apply this hate speech standard with rigor and unswerving attention against the group who (again IMO) might well have a hate speech standard applied against them … powerful non-citizen entities of pooled capital/labor/influence both internal and external to the United States, India and Europe. In fact, the more powerful the non-citizen entity of pooled capital/labor/influence might be over Facebook’s business model, the more Facebook turns a blind eye to any violation of the hate speech standard by that entity and the more Facebook cracks down on any violation of the hate speech standard by that entity’s political opponents … particularly the small and helpless ones.

Sure, the Facebook hate speech policy is all wrapped up in powerful narratives of “Yay, Science!” and “Yay, Democracy!” and “Boo, Terrorists!”, and sure, Mark cleans up real nice when he goes to Georgetown and name drops Elijah Cummings, Frederick Douglass, #BlackLivesMatter, #MeToo, Air Force moms, the war in Iraq, and Martin Luther King Jr. (I am not making this up) all within the space of a few paragraphs in his speech, Zuckerberg: Standing For Voice and Free Expression“.

That’s the actual title of his speech, as provided by Facebook to the Washington Post, where they published it verbatim: “Zuckerberg: Standing For Voice and Free Expression”. You know, just in case you weren’t sure what cartoon Mark was trying to project. Again, I am not making this up.

But in truth, this is all just Free Speech Theater.

Facebook is not a content-delivery platform. Its business is not to “give people voice and bring people together”, as Zuckerberg says in his best cartoon voice.

Facebook is an advertising-delivery platform.

Facebook’s business – its entire reason for being – is to sell as many ads as possible based on free, user-generated content. Contentious, inflammatory user-generated content is great for selling ads – particularly if it IS an ad – but the content can’t be so contentious that it generates a popular backlash, reducing demand/usage, or that it makes the ruling powers-that-be angry, generating a fine or some other profit-reducing regulation.

THAT’S the algorithm that Facebook is trying to solve. THAT’S the determining constraint on Mark Zuckerberg’s “commitment” to free speech.

In every crucial jurisdiction where Facebook does business, Mark Zuckerberg meets privately with the chief executive of that market and works out a political accommodation.

What’s your biggest “free speech” concern [wink, wink], Mr. or Mrs. Chief Executive, and how can Facebook tailor its policies to help you out?

  • In the United States, Zuckerberg has dinner with Trump. Amazingly enough, Facebook does not apply its “fact-checking” or “hate speech” controls to political ads.
  • In India, Zuckerberg has dinner with Modi. Amazingly enough, Facebook does not apply its hate speech controls to prominent members of the ruling BJP party.
  • In Germany, Zuckerberg has dinner with Merkel. Amazingly enough, Facebook expands its hate speech controls to shut down and marginalize content critical of German refugee and immigration policy.

And in return, across all of these crucial markets, Facebook enjoys unique government support for a communications and social media platform – Facebook, WhatsApp and Instagram – that is impossible for a US citizen or an Indian citizen or a German citizen to escape.

And that’s the rub.

Swearing off Facebook/WhatsApp/Instagram is no solution here. There is no meaningful way to opt out of a ubiquitous and universal communications and social media platform, because the system of a ubiquitous and universal communications and social media platform is impervious to your individual decision. It’s like saying that you’re going to opt out of Covid-19. Sure, you can move off the grid into the Alaskan wilderness and not get sick. Knock yourself out. But that’s not a meaningful definition of opting out. Barring that sort of absurd action, however, your exposure to the virus, whether it’s the virus of SARS-CoV-2 or the virus of Facebook/WhatsApp/Instagram, isn’t so much dependent on your actions as it is on everyone else’s actions.

These are the conditions under which a just government must reach down into a private organization like Facebook and turn their pernicious hate speech standards completely on its head.

Which leads us to the George Costanza legislative fix for Facebook.

Like George, every instinct that Mark Zuckerberg has regarding free speech is wrong, and so Facebook should be required by law to do the exact opposite of what they’re doing today.

Specifically, that means that it is precisely the slick political ads and user-generated content from non-real life citizens like corporations, unions and political parties that Facebook should scrutinize carefully and hold to some fact-checking and hate speech standard. It is precisely the gross and insulting and hateful and mean-spirited user-generated content from real life citizens that Facebook should let slide.

I know. LOL. There’s a snowball’s chance in hell that any legislative body in the world would ever pass this sort of law. But a guy can dream, right?

Barring this sort of legislative fix to the core Facebook business model, the only other solution I see is to tear down Facebook on antitrust grounds, by which I mean force Facebook to divest WhatsApp and Instagram (Messenger, too), and maybe hive off the Indian and European operations from the US mothership. Over time – over a LOT of time – I think that this sort of Ma Bell solution could maaaaybe weaken core Facebook to the point where users have a real choice in what communications and social media networks they use, making Facebook’s hate speech standards no less pernicious but allowing a true opt-out. But I’m not holding my breath on this solution, either.

It’s frustrating.

We can see so clearly how Facebook is undermining our democracy and our most integral political rights.

We can see so clearly how Facebook has bought and paid for political cover at the highest levels of American, Indian and European government, political cover that prevents any of the actions we might take as a society to rid ourselves of this cancer.

What do I mean when I say BITFD? What is it that I want us to burn the fuck down?


This system of bought and paid for political patronage that companies like Facebook use to nudge us into social ruin.

More than 2,000 years ago, the renowned Roman soldier and orator Cato the Elder would end every speech, regardless of topic, with the phrase Carthago delenda est … roughly translated, Carthage must be destroyed.

It wasn’t that Carthage posed an imminent threat to Rome. No, Rome had already defeated Carthage soundly in two wars, and Carthage was no longer a competing empire but merely a wealthy city. It was the idea of Carthage as an alternative to traditional Roman principles that Cato believed was so dangerous … the potential of Carthaginian wealth and business prowess to subvert Rome from the inside through law and custom that Cato believed had to be stopped.

It’s exactly the same thing with Facebook.

Mark Zuckerberg’s idea of free speech and its proper limitations – where “hate speech standards” are rigorously enforced when it comes to individual citizens and conveniently set aside when it comes to the most powerful entities of pooled capital/labor/influence in our society – is a profound threat to liberal democracy, whether that’s in India, Europe or the United States.

Not because it competes with us from the outside. Not because it presents itself as a competent external alternative. Facebook is not China.

But because it subverts our most important principle of representative government – the free expression of a citizen’s political views – from within.

Facebook delenda est.


Epsilon Theory PDF Download (paid subscribers only): Facebook Delenda Est


Why Publish Academic Research?


A few days ago, we read a tweet from Corey Hoffstein saying that after a six month review process, an academic journal decided not to publish an investment research paper written by Corey and two colleagues.

We reached out to Corey and team to see if they would be interested in publishing their research on Epsilon Theory, and today we’re delighted to publish Rebalance Timing Luck: The Dumb (Timing) Luck of Smart Beta, by Corey Hoffstein, Nathan Faber and Steven Braun.

We think this is an important paper. Here’s why.

Sensible-sounding abstractions, sometimes acknowledged perfunctorily and sometimes considered so self-evidently reasonable as to be passively accepted, are the bane of social science research and are at the heart of the reproducibility crisis – the frequent inability to duplicate the findings of published research.

This is especially true in financial markets.

Studies of systematic investment strategies and factors are far more sensitive to assumptions about rebalancing, time horizons, rolling windows, calculation methods, etc. than researchers are typically willing to indicate in their papers, and as a result their conclusions usually need to be taken with a substantial grain of salt.

We think this paper is an excellent illustration of how this phenomenon plays out in smart beta benchmarks, and it might have been buried forever if there were no alternative to academic journals and an inherently flawed peer-review process.

So we’re not stopping here.

Epsilon Theory is more than happy to occasionally publish academic research of merit pertaining to financial and political markets.

If you have something that you think expands our collective understanding of those markets, send it to us at

Why are we committed to publishing academic research?

Because we think the peer review process of academic journals cannot avoid embedding bias in paper selection.

We think peer review is useful, and that the vast majority of peer reviewers are serious and ethical people. But in the social sciences in particular, we also think that methodology and priors are often inextricably linked. That means that what you think the answer will be influences how you set up the problem and how you try to answer it. That also means that what you want the answer to be may affect whether you, as a reviewer or editor, think the methodology used by another to explore the question is sound. We believe that the peer review process often rejects papers on the superficial basis of methodology and rigor when the true underlying basis is dissatisfaction with its conclusion, problem framing or priors.

Because we think academic research in finance tends to be excessively backward-looking.

We think there is an emphasis in academic finance on empirical studies of asset prices, security-level fundamental characteristics and quantitative economic variables that do a magnificent job of creating an explanation for things that happened and not much else. There is a role for this sort of economic history, but it is a bit part, and not the leading role we have made it. There are reasons why financial markets research tends to not reflect live testing of hypotheses like it absolutely could, and most of that reason is “because we’d usually end up with nothing to write about.”

Because academic journals’ focus on novelty weakens collective understanding.

For commercial and philosophical reasons, academic journals in the social sciences prioritize the publishing of entirely novel research and topics. It is an understandable aim, but one that doesn’t always serve the expansion of the collective understanding of important topics. In our experience, finding new ways to illustrate a truth is every bit as important as discovering it in the first place. Ditto for trying out a hypothesis and finding that the empirical evidence does NOT support that hypothesis.

Because we think our readers are smart enough to evaluate this research on their own.

We think that journals have a legitimate challenge in determining how to accept or reject papers. There are a LOT of submissions. Some submissions are better than others. We think that good people truly do their best to publish the higher quality papers, but we also think that reputation and credentials play a role in these decisions. If, say, Harry Markowitz decides to send you a new paper, you keep your red pen in your damned desk drawer. But what’s true at that extreme is true in the in-between as well: there are reasons that a paper might be rejected or accepted, edited or taken as-is, that sometimes have nothing to do with its importance or quality. We think you’re smart enough and capable enough to decide on the usefulness of research for yourself.

A few ground rules …

We can’t commit to publishing everything. Your paper might be objectively bad. Your paper might be objectively incomprehensible. And by objectively, we mean subjectively to Rusty and Ben.

We can’t commit to giving you feedback and comments on a paper that you send us, whether we publish it or not.

We can’t commit to timing on any of this. Some weeks we’ll be really quick on this, and other weeks we’ll be swamped with other stuff.

We absolutely, positively will NOT commit to publishing your corporate white papers.

But if we don’t publish your academic research on financial or political markets, it will never be because we don’t like the conclusions, the topic, or the methodology.

It will never be because you don’t have a certain set of academic credentials or a certain set of academic connections.

And if we do publish your research paper, our commitment to you is this:

  • We won’t charge you anything, ever.
  • We won’t put it behind a pay wall.
  • We won’t edit or modify it.
  • We won’t keep you from publishing it somewhere else, and if getting it published somewhere else means you need us to take it down here, we’ll do that, too.
  • We will make it visible and searchable, and we will give it access to our network of 100,000+ investment professionals, asset owners, academics and market enthusiasts.

There are many institutional gatekeepers. There are many powerful guilds and socially embedded practices that seek to limit our voices and ideas. Are academic journals the worst of these? Not by a long shot. But they ARE one of these.

This is how we change the world. This is how we unleash our voices and ideas. Not by attacking these institutional gatekeepers from the top-down with yet another institutional gatekeeper, but by making the institutional gatekeeper irrelevant through our bottom-up, decentralized actions.

Will making academic journals irrelevant save the world? No.

But it’s a good start.


“Rebalance Timing Luck: The Dumb (Timing) Luck of Smart Beta” by Hoffstein, Faber and Braun


Epsilon Theory will occasionally publish academic research of merit pertaining to financial and political markets.

You can read about our reasons and our guidelines here: Why Publish Academic Research?

If you have publishable academic research that you think expands our collective understanding of financial or political markets, and you’d like to give it access to our network of 100,000+ investment professionals, asset owners, academics and market enthusiasts, please send it to us at

Will making academic journals irrelevant save the world? No.

But it’s a good start.

PDF Download: Rebalance Timing Luck: The Dumb (Timing) Luck of Smart Beta


Corey Hoffstein is Chief Investment Officer at Newfound Research. 380 Washington Street 2nd Floor, Wellesley, MA 02481. E-mail: [1]

Nathan Faber is a vice president at Newfound Research. 380 Washington Street 2nd Floor, Wellesley, MA 02481. E-mail:

Steven Braun is a quantitative analyst at Newfound Research. 380 Washington Street 2nd Floor, Wellesley, MA 02481. E-mail:


Prior research and empirical investment results have shown that portfolio construction choices related to rebalance schedules may have non-trivial impacts on realized performance. We construct long-only indices that provide exposures to popular U.S. equity factors (value, size, momentum, quality, and low volatility) and vary their rebalance schedules to isolate the effects of “rebalance timing luck.” Our constructed indices exhibit high levels of rebalance timing luck, often exceeding 100 basis points annualized, with total impact dependent upon the frequency of rebalancing, portfolio concentration, and the nature of the underlying strategy. As a case study, we replicate popular factor-based index funds and similarly find meaningful performance impacts due to rebalance timing luck. For example, a strategy replicating the S&P Enhanced Value index saw calendar year return differentials above 40% strictly due to the rebalance schedule implemented. Our results suggest substantial problems for analyzing any investment when the strategy, its peer group, or its benchmark is susceptible to performance impacts driven by the choice of rebalance schedule.


The popularization and distribution of equity factor strategies has been a boon to investors, providing low-cost access to a range of systematic investment styles. However, there is no precise method of measuring or executing these strategies. Differences in the approaches to constructing these strategies can lead to significant dispersion in results even for strategies targeting the same investment style (Ciliberti and Gualdi (2018)). While substantial effort is spent researching new factor signals, refining previously discovered signals, and developing portfolio construction techniques, the seemingly innocuous activity of choosing when to rebalance these strategies is largely absent from the existing literature.

Blitz, van der Grient, and van Vliet (2010) first documented this impact for an annually-rebalanced fundamental equity index, finding a large discrepancy in realized results. This fundamental index, as described in Arnott, Hsu, and Moore (2005), weights its constituents in proportion to the companies’ fundamentals (book value, cash-flow, and dividends), in contrast to the conventional approach where the constituent weights are proportional to their market capitalization. Blitz et al (2010) documented that a fundamental index annually rebalanced in March outperformed an identically constructed index rebalanced in September by over 10 percentage points in 2009, despite the two indices being identical in process and rebalance frequency. Further, the authors found that the realized performance dispersion resulting from the different rebalance schedules [2] was not mean-reverting, generating a permanent remnant in the performance of the indices; an effect large enough to influence investment decisions long after the initial dispersion was manifested.

We label the potential performance dispersion between two identically managed strategies with different rebalance schedules rebalance timing luck (RTL). When applied to a single manager or fund, this concept is theoretical in that the effect lies in the investment decisions that could have been made (e.g. annually rebalancing in March rather than September). The realized performance of a fund cannot be changed and RTL can only be explicitly measured ex-post through the lens of a theoretical universe of identically-managed investment strategies with varied rebalance schedules. Importantly, the effects of RTL can also present itself when comparing a manager’s performance to another manager or even to a benchmark. Given different rebalance schedules, positive and negative RTL impacts can make a given manager appear more or less skilled. [3]

To illustrate these effects, we first construct long-only U.S. equity strategies designed to capture value, momentum, quality, and low volatility tilts, where the universe of eligible securities is obtained from the S&P 500 universe and fundamental data is obtained from Sharadar Fundamentals. For each style, we vary the target number of holdings as well as the rebalance frequency to target specific sensitivities to these explicit decisions. In line with the analytical derivation of RTL from Hoffstein, Sibears, and Faber (2019), we find that the realized RTL is directly influenced by the number of holdings, the portfolio turnover realized by the strategy, and the rebalance frequency. Our results also align with the expectation that strategies with low average turnover tend to exhibit less RTL.

To further illustrate the real-world effects of timing luck, we then replicate popular smart beta indices in the United States Large-Cap equity space. Our findings suggest that the choice of rebalance schedule is material and has affected annualized returns by as much as 200 basis points for higher turnover strategies, with one-year performance discrepancies as high as 40 percentage points.

Through the results in our study, we extend the literature by validating the existence of RTL in indices corresponding to popular equity investment styles. Further, by utilizing the framework identified in Hoffstein et al (2019), our results empirically validate the influence that portfolio concentration, portfolio turnover, and rebalance frequency choices have on the realized results of an investment strategy. By explicitly testing the RTL framework on different equity investment styles, we also show that the analytical derivation of RTL unveils significant insights for analyzing the realized performance of an investment strategy.

Our results suggest significant potential problems for return-based strategy comparisons and analysis.  For example, failing to inoculate a benchmark against the effects of RTL can cause a strategy to appear skilled or un-skilled by relative comparison when the performance dispersion is actually an artifact of luck.  This is a particularly timely topic given the popularization of “smart beta” strategies and other systematic funds over the last decade.  Our results show that the spectre of RTL is an ongoing influence on portfolio results and the prioritization of portfolio construction, through the use of an overlapping portfolio solution, leads to more consistent outcomes for the end investor and successfully mitigates the unpalatable effects of RTL.


We begin by constructing long-only, U.S. large-cap factor portfolios, using the S&P 500 as the parent universe. For each factor, securities are first ranked by corresponding characteristics and the top-ranking securities are purchased in equal weight. The characteristics defining our factor strategies are as follows: [4]

To estimate RTL for a given factor, we first construct sub-indexes reflecting the different potential rebalance schedules and then we use those sub-indexes to construct an RTL-neutral benchmark. For the latter, we follow the suggestion of Blitz et al (2010) – proved optimal by Hoffstein et al (2019) – and implement an “overlapping portfolio” solution (also referred to as “staggered rebalancing” or “tranching”) by holding the sub-indexes in equal weight.

By construction, the performance differences that occur between the sub-indexes and the RTL-neutral benchmark are due only to differences in rebalance schedule. Therefore, by calculating the differences in monthly returns between the sub-indexes and the RTL-neutral benchmark, we can empirically measure RTL. Specifically, we measure RTL as the annualized volatility of these differences.

Hoffstein et al (2019) derived an intuitive closed-form solution for an ex-ante estimate of RTL (Equation 1). From this equation, it becomes clear that RTL (L) is affected by a portfolio’s turnover rate (T), rebalance frequency (f), and the opportunity set allotted to the portfolio (S). [5]

A higher turnover rate implies that the holdings of a portfolio have a higher potential for meaningful divergence for different rebalance schedules. Consider a portfolio with 100% average annual turnover; it would follow that a portfolio such as this, with an annual rebalance schedule in January versus a portfolio rebalanced in July, would have a low level of holdings overlap, thus increasing the role of RTL in the two portfolios’ performance results. Conversely, a strategy with close to zero turnover would have a high level of holdings overlap between rebalance schedules, implying a lower amount of performance dispersion from RTL alone.

We should think of T as an intrinsic, continuous turnover rate of the strategy driven by the decay speed of the driving signals.  In practice, however, portfolios are typically refreshed at a discrete frequency (f) to balance signal freshness with implementation costs.  For faster moving signals (e.g. momentum which has a particularly short half-life as opposed to a slow signal such as value), the level of signal decay in between rebalance dates can introduce RTL into the portfolio’s performance as the signal begins to decay, favoring more recent information.

With this in mind, we also construct a number of specifications for each factor by varying (1) the number of holdings and (2) the rebalance frequency. Portfolio holdings range between 50 and 400 securities in increments of 50. Rebalance frequency is either annual, semi-annual, or quarterly. [6]

Exhibit 1 depicts the calculated RTL of the four factor portfolios for different concentration and rebalance frequency specifications. [7]

Exhibit 1

In this table, we show the empirical estimate of timing luck of Value, Momentum, Quality, and Low Volatility U.S. Large Cap equity factor portfolios for annual, semi-annual, and quarterly rebalance frequencies, varied by the number of holdings in the portfolio. The Momentum portfolio is constructed by sorting on 12-1 month realized returns; the Value portfolio is constructed by sorting on trailing twelve-month earnings yield; the Quality portfolio is constructed by sorting on the average rank of trailing twelve-month return on equity, accruals ratio (negative), and leverage ratio (negative); the Low Volatility portfolio is constructed by sorting on trailing twelve-month realized volatility (negative). The time-period for these results is July 2000 to September 2019.

Source: Sharadar. Past performance is not an indicator of future results. Performance is backtested and hypothetical. Performance figures are gross of all fees, including, but not limited to, manager fees, transaction costs, and taxes. Performance assumes the reinvestment of all distributions.

In line with Equation 1, the empirical results show that higher turnover styles, such as momentum, exhibit higher realized RTL as opposed to lower turnover styles such as low volatility. Further, higher portfolio concentration (i.e. fewer holdings) increases the magnitude of RTL as more concentrated portfolios would reduce the level of holdings overlap between rebalance versions, while more frequent rebalancing tends to reduce it. Surprising, however, is the actual magnitude of RTL; for a semi-annual rebalance schedule, annualized RTL is as high as 2.5%, 4.4%, 1.1% and 2.0% for 100-stock value, momentum, low volatility, and quality portfolios, respectively.

A portfolio that takes a long position in one of these sub-portfolios while being short another, could then explicitly capture the relative effect of timing luck between the two portfolios. If we assume that the impacts of RTL are independent from one another, we can calculate the volatility of this long-short portfolio through Equation 2, where vi and vj are the different sub-portfolios of the same strategy.  From this, a confidence level can be generated to capture the potential return range that a strategy would be expected to achieve, simply from the rebalance choices the strategy had made. For the 100-stock value, momentum, low-volatility, and quality portfolios, we could, therefore, infer that a strategy targeting one of these styles could have resulted in performance dispersions of +/- 7.1, 12.5, 3.1, and 5.7 annual percentage points due to RTL alone. 

These results complicate the manager selection process as the annual returns of two managers tilting towards the same style could be several hundred basis points apart strictly due to different rebalance schedules and nothing else.  Conversely, the skill of a manager may appear diminished (inflated) when compared to a benchmark that realized positive (negative) RTL. 

To highlight the effects of dispersion caused by RTL, Exhibit 2 depicts the various equity curves of the sub-indexes for a semi-annually rebalanced, 100-stock momentum strategy. We also construct the RTL-neutral benchmark (labeled “Tranche”). Exhibit 3 details the realized performance statistics of the sub-indices as well as their tracking error to the RTL-neutral benchmark. We find that the minimum tracking error realized is 2.9%, which happens to also arise from the best-performing rebalance schedule over the analysis period (MAY-NOV), while the greatest tracking error realized over this period is 4.6%.

While the sub-index rebalanced in May and November had the highest realized returns, the performance difference is not statistically significant and suggests that the realized excess performance of this parameterization is not persistent.  Rather, the May and November rebalance schedule simply benefited from positive RTL shocks relative to its peers.

Exhibit 2

In this figure, we show the equity curves of 100-stock equity momentum portfolios constructed from the S&P 500 universe. These portfolios depict the different rebalance schedules of a semi-annual rebalance frequency. The tranched portfolio is also shown which represents a composite of the different rebalance schedules.

Source: Sharadar. Past performance is not an indicator of future results. Performance is backtested and hypothetical. Performance figures are gross of all fees, including, but not limited to, manager fees, transaction costs, and taxes. Performance assumes the reinvestment of all distributions.

Exhibit 3

In this table, we show the annualized performance statistics of the six rebalance schedules available to a semi-annually rebalanced equity momentum portfolio sorted on 12-1 month realized returns, as well as the tranched composite of these rebalance schedules. Tracking error is calculated relative to the tranched composite.

Constructing portfolios that are long one sub-index and short another for all iterations isolates the relative RTL between the two sub-indices.  We find that the overall significance of any persistent outperformance is low, indicating that no rebalance schedule shows significant outperformance over other versions of the strategy. Out of the fifteen permutations of the momentum style, no combinations were found to be statistically significant,[8] and similar results were found in the remaining styles (pairwise t-stat tables can be found in Appendix A). 

Importantly, this test of significance serves the purpose of disproving whether there exists a rebalance schedule that is inherently superior versus the others. The lack of evidence for schedule superiority suggests that RTL is an uncompensated source of risk in portfolio construction. The manner in which this risk manifests is in the dispersion of terminal wealth achieved, and the RTL shocks that lead to this dispersion not expected to have mean-reverting characteristics, as shown in Blitz et al (2010).

To further isolate the dispersion due to RTL, Exhibit 4 plots the rolling 252-day performance difference between two different rebalance schedules for a semi-annually rebalanced 100-stock momentum strategy. Shockingly, the seemingly trivial decision to rebalance the portfolio in May and November resulted in a twenty percentage-point return difference when measured against the same strategy, with its rebalance shifted by only one month (April and October).

Exhibit 4

In this figure, we show the rolling 252-day performance difference between a 100-stock momentum portfolio rebalanced in May/November and a 100-stock momentum portfolio rebalanced in April/October.

Source: Sharadar. Past performance is not an indicator of future results. Performance is backtested and hypothetical. Performance figures are gross of all fees, including, but not limited to, manager fees, transaction costs, and taxes. Performance assumes the reinvestment of all distributions.


To bridge the gap from hypothetical to use-case, we replicate the process behind the S&P 500 Enhanced Value, Momentum, Low Volatility, and Quality indices. Specifically, we implement the rules disclosed in the index methodology as follows:[9]

Building from these rules, we construct all possible rebalance schedule variations of these four indexes.[10] Exhibit 5 highlights the terminal wealth realized from the portfolios along with the best and worst performing rebalance schedules. The resulting portfolios are shown to exhibit significant amounts of performance dispersion, flowing through to meaningful differences in the terminal wealth accumulated. Again, it is important to emphasize that the only difference in these portfolios is the rebalance schedule: all other aspects of the portfolio construction process are held constant.

Exhibit 5

In this figure, we show the terminal wealth results from a one-dollar investment in different replicated S&P equity factor index variations from January 2001 to September 2019.

For the Enhanced Value, Momentum, Low Volatility, and Quality indices, the annualized return dispersion between the best- and worst-performing rebalance schedules is 100, 192, 25, and 106 basis points, respectively. Importantly, a pattern does not exist as to which rebalance schedule shows consistent under- or out-performance between factors.

Exhibits 6, 7, 8, and 9 plot the calendar year returns in excess of the average sub-portfolio return for that year, for different rebalance schedules. The annual returns of the factors highlight that periods of elevated market volatility can exacerbate performance dispersion. The S&P 500 Enhanced Value replications, for example, see a highly significant dispersion arising in 2009, whereby the indices rebalanced in FEB-AUG and JAN-JUL significantly outperformed the other versions. Between the JAN-JUL and JUN-DEC rebalance schedules, the performance differential in 2009 is an astounding 41.7 percentage points.

Exhibit 6

In this figure, we show the calendar year excess returns of the replicated S&P 500 Enhanced Value index relative to the average sub-portfolio calendar year return, varied by rebalance schedule.

Source: Sharadar. Past performance is not an indicator of future results. Performance is backtested and hypothetical. Performance figures are gross of all fees, including, but not limited to, manager fees, transaction costs, and taxes. Performance assumes the reinvestment of all distributions.

Exhibit 7

In this figure, we show the calendar year excess returns of the replicated S&P 500 Momentum index relative to the average sub-portfolio calendar year return varied by rebalance schedule.

Source: Sharadar. Past performance is not an indicator of future results. Performance is backtested and hypothetical. Performance figures are gross of all fees, including, but not limited to, manager fees, transaction costs, and taxes. Performance assumes the reinvestment of all distributions.

Exhibit 8

In this figure, we show the calendar year excess returns of the replicated S&P 500 High Quality index relative to the average sub-portfolio calendar year return, varied by rebalance schedule.

Source: Sharadar. Past performance is not an indicator of future results. Performance is backtested and hypothetical. Performance figures are gross of all fees, including, but not limited to, manager fees, transaction costs, and taxes. Performance assumes the reinvestment of all distributions.

Exhibit 9

In this figure, we show the calendar year excess returns of the replicated S&P 500 Low Volatility index relative to the average sub-portfolio calendar year return, varied by rebalance schedule.

Source: Sharadar. Past performance is not an indicator of future results. Performance is backtested and hypothetical. Performance figures are gross of all fees, including, but not limited to, manager fees, transaction costs, and taxes. Performance assumes the reinvestment of all distributions.

The S&P 500 Momentum replications show that the overall dispersion in performance throughout the period analyzed tends to be more consistent, given that the turnover of this strategy tends to remain high, as the majority of the years realize a difference of at least four percentage points.[11] For each of the factor replication strategies, minimum annual performance dispersion, as measured by absolute difference in calendar year returns, are 1.3, 4.5, 1.8, and 0.1 percentage points for Enhanced Value, Momentum, Quality, and Low Volatility, respectively. The maximum return differences were 41.7, 14.6, 8.6, and 2.9 percentage points, respectively.  Elevated bouts of broad market volatility tend to increase the amounts of absolute dispersion (e.g. 14.6 percentage points in 2002 and 14.1 percentage points in 2009).


While the concept and execution of rebalance schedules has been glossed over in the existing literature, a decision must be made as to when a strategy is measured and executed.  This decision does not come without consequence. Empirical evidence has shown that performance results can vary drastically and leave a lasting impact on wealth outcomes.

In this piece, we explored the impact of rebalance timing luck on the results of smart beta / equity style portfolios with varying portfolio characteristics. We empirically tested this impact by designing a variety of portfolio specifications for four different equity styles (Value, Momentum, Low Volatility, and Quality). The specifications were varied by holding concentration as well as rebalance frequency.

We then constructed all possible rebalance variations of each specification to calculate the realized impact of rebalance timing luck over the test period (2001-2019). In line with the mathematical model from Hoffstein et al (2019), we generally find that those strategies with higher turnover are more sensitive to timing luck, while those that rebalance more frequently exhibit less timing luck. Additionally, a higher number of portfolio holdings reduces the impact timing luck has on realized returns, all else equal.

The sheer magnitude of timing luck, however, may come as a surprise to many. For reasonably concentrated portfolios (100 stocks) with semi-annual rebalance frequencies (common in many index definitions), annual timing luck ranged from 1-to-4%, which translated to a 95% confidence interval in annual performance dispersion ranging from +/-1.5% per year for low turnover strategies to +/-12.5% for higher turnover strategies, though, we identify periods in which this estimate falls drastically short of empirical results.

These results call into question one’s ability to draw meaningful relative performance conclusions between two strategies, or a strategy and its benchmark, even if other variables such as factor definition and portfolio constructions methods are controlled.

We then explored more concrete examples, replicating the S&P 500 Enhanced Value, Momentum, Low Volatility, and Quality indices, which are tracked by live assets. In line with expectations, we find that Momentum (a high turnover strategy) exhibits significantly higher realized timing luck than a lower turnover strategy rebalanced more frequently (e.g. Low Volatility). For these four indices, the amount of rebalance timing luck leads to a staggering level of dispersion in realized terminal wealth.

Given that most of the major equity style benchmarks are managed with annual or semi-annual rebalance schedules, even the benchmarks that investors use for comparison and analysis may be realizing hundreds of basis points of positive or negative performance luck a year. While identifying and testing the impacts of RTL in a systematically managed strategy is certainly feasible, conducting the same exercise with a discretionary, actively managed strategy becomes non-trivial. Given that an active manager would not necessarily operate on a set rebalancing schedule, one might argue that timing is an active decision within an active manager’s process. Nevertheless, while difficult to explicitly measure, the specter of RTL would still play an important role in the manager’s result and therefore comparison against an RTL-neutral benchmark would be prudent.  With such a large emphasis on identifying and quantifying the skill of investment managers, investors should always bear in mind that supposed skill, seemingly beyond passive smart beta investing, might merely be attributable to dumb (timing) luck.

Appendix A

This appendix shows the t-statistics of the annualized realized returns of long-short portfolios for each equity style. The portfolios are constructed by creating a portfolio that is long one rebalance schedule and short another from January 2001 to September 2019.  The t-stats depicted in these tables show the significance of average outperformance of the rebalance schedules, where the existence of statistically significant results would indicate the existence of a superior rebalance schedule over a long timeframe.  Bolded values indicate statistical significance at the 5% level.

Pairwise t-stat table of constructed Long-Short Value portfolios of different rebalance dates. 5% statistical significance is indicated in bold.

Pairwise t-stat table of constructed Long-Short Momentum portfolios of different rebalance dates. 5% statistical significance is indicated in bold.

Pairwise t-stat table of constructed Long-Short Quality portfolios of different rebalance dates. 5% statistical significance is indicated in bold.

Pairwise t-stat table of constructed Long-Short Low-Volatility portfolios of different rebalance dates. 5% statistical significance is indicated in bold.


Arnott, R.D., Hsu, J., and Moore, P. (2005), “Fundamental Indexation”, Financial Analysts Journal, Vol. 61, No. 2, 83-89.

Blitz, D., van der Grient, B., and van Vliet, P. (2010). “Fundamental Indexation: Rebalancing Assumptions and Performance,” Journal of Index Investing, Vol. 1, No. 2, 82-88.

Ciliberti, S., and Gualdi, S. “Portfolio Construction Matters.”, October 19, 2018.

Doran, J., Jiang, D., and Peterson, D. (2012). “Gambling Preference and the New Year Effect of Assets with Lottery Features,” Review of Finance, Vol. 16, No. 3, 685-731.

Haugen, R., and Lakonishok, J. (1988). “The Incredible January Effect: the Stock Markets Unsolved Mystery”. Homewood Ill.: Dow Jones-Irwin.

 Hoffstein, C., Faber, N., Sibears, D. (2019). “Rebalance Timing Luck: The Difference Between Hired and Fired,” Journal of Index Investing, Vol. 10, No. 1, 27-36.

Keim, D. (1983). “Size Related Anomalies and Stock Return Seasonalities,” Journal of Financial Economics, Vol. 12, No. 1, 13-32.

Sias, R. (2007). “Causes and Seasonality of Momentum Profits.” Financial Analysts Journal, Vol. 63, No. 2, 48-54.


[1] The authors would like to thank (in alphabetical order) Adam Butler, David Cantor, Conrad Ciccotello, Antti Ilmanen, and Pim van Vliet who offered their opinions and insights.

[2] Herein we distinguish between rebalance frequency (e.g. semi-annual or annual) and rebalance schedule (e.g. every June and December or each May). The frequency defines how often the strategy is rebalanced while the schedule determines when, specifically, the rebalances occur within a year.

[3] When analyzing active portfolio managers, it is important to highlight that there is no evidence that managers make deliberate rebalance choices with the objective of maximizing performance, so any rebalance choice from actively managed portfolios is an active decision with unmeasured risk.

[4] The characteristics chosen to construct our factor portfolios were selected as these definitions generally align with the existing literature and popular indices tracking each style.  These characteristics are meant to be representative only, but our research suggests they are without loss of generality.

[5] The S variable in Equation 1 is technically the estimated volatility of a long/short portfolio where the long leg of the portfolio is what the portfolio is invested in and the short leg captures the residual assets that the portfolio could be invested in at a given time. See Hoffstein et al (2019) for a further discussion of this variable.

[6] Data comes from Sharadar and utilizes all available pricing history at the timing of writing (2001 to 2019).

[7] All return results presented are gross of transaction fees or advisory expenses, so any increases in portfolio turnover from more frequent rebalances would negatively influence net returns, all else equal.

[8] There is existing literature citing a seasonality effect in momentum profits, known as the “January Effect”.  This anomaly is credited to window-dressing (managers removing losing holdings from a portfolio before holdings are released at year-end), liquidity conditions in the market, higher investor risk appetites, as well as from tax-loss selling of underperforming stocks. The January Effect has been shown to boost common factor strategies returns in January, while impairing the returns of momentum strategies. Conversely, this effect originates in December, where institutional buying of recent winners pushes momentum profits higher in the month of December.  See Keim (1983); Haugen, Lakonishok (1988), Sias (2007), and Doran, Jiang, Peterson (2009) for further descriptions and evidence of this phenomenon.

In the scope of this study, we found the results of the MAY-NOV (rebalanced and remeasured at month-end in May and November) momentum strategies to outperform other rebalance schedules; however, when analyzed through the lens of long-short portfolios, no combinations were found to be significant.  Further, by instantiating simulation-based analysis of significance, there were no pairings that resulted in returns that were statistically dissimilar from zero.

[9] These methodologies were referenced from the S&P Dow Jones Indices website in December 2019.

[10] For indices with semi-annual rebalance schedules, there are six unique sub-indices that can be constructed, while there are three sub-indices available for an index that rebalances quarterly.

[11] The factor replication minimum performance dispersion, as measured by absolute difference in calendar year returns, are 1.3, 4.5, 1.8, and 0.1 percentage points for Enhanced Value, Momentum, Quality, and Low Volatility, respectively. The maximum return differences were 41.7, 14.6, 8.6, and 2.9 percentage points.

PDF Download: Rebalance Timing Luck: The Dumb (Timing) Luck of Smart Beta


The Grifters, Chapter 2 – N95 Masks


Epsilon Theory PDF Download (paid subscribers only): The Grifters, chapter 2 – N95 Masks

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

Bobo Justus: Tell me about the oranges, Lilly…

[kicks over a bag of oranges]

Bobo Justus: While you put those in the towel.

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

Bobo Justus: And if you do it wrong?

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

Bobo Justus: What?

Lilly Dillon: P-permanent damage.

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

We’re all Lilly Dillon today.

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

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

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

We’ve been assaulted by three grifts in just the past few week … three smacks from Bobo and his bag of oranges … each deserving of an Epsilon Theory note. Chapter 1 was about Kodak.

Here’s chapter 2.

Last week, Mike Pence shook his finger at us and said that there were no outstanding requests on federal PPE stockpiles from any governor, and thus any urgent requests for N95 masks from doctors or nurses were isolated incidents to be quickly resolved by state authorities.

SMACK goes the bag of oranges.

In truth, both the supply and the distribution of N95 masks in the United States remains a national disgrace, a squandered opportunity to fight Covid with something other than death cultism or lockdown defeatism.

In truth, what could have been our finest hour is turning into our worst.

For the past six months, a big part of my life has revolved around getting PPE directly to doctors, nurses, EMTs, first responders, social workers and other frontline heroes in this war against Covid-19.

Thanks to the amazing generosity of donors big and small, we raised close to $1 million. Thanks to the inspired work of a dozen friends-for-life-most-of-whom-I-didn’t-even-know-before-this, we first set up an “underground railroad” of N95 and high-quality KN95 masks from China, and later a steady network of PPE suppliers. Thanks to the daily, unwavering commitment of a small team (literally my wife and daughter, literally working out of our garage), we’ve been able to distribute more than 120,000 medical respirators in batches of 100-200 to more than 1,100 hospitals, clinics, police departments, fire departments, prisons and shelters across 47 states. So far. We’ll get out another 4,000+ this week. And next week. And every week until we win this war.

Clear eyes. Full hearts. Can’t lose.

Is the overall PPE situation for healthcare workers and first responders better today than it was in April? Absolutely. In April we were sending masks to desperate ER docs and nurses at major hospitals in the biggest cities in America. Today there is neither an urgent need nor even a shortage of PPE in these big city ERs and ICUs.

Why not? Because, distribution of PPE from our massive federal and state stockpiles is designed for big cities and big hospital systems. Because that’s how the American system of trickle-down everything … in this case PPE … works.

Eventually, Andrew Cuomo sucks it up and asks Mike Pence for help, and eventually Mike Pence makes a call to FEMA, and eventually all the requisition forms get filled out and signed by all the right people at the governor’s office, and eventually a truckload of 1 million N95 masks makes the trip from the FEMA warehouse to the New York-Presbyterian warehouse, and eventually a NY-P van starts shuttling a pallet of masks every week to every NY-P hospital loading bay, and eventually the boxes of N95s get allocated to the individual medical departments. Eventually.

At the same time, NY-P has half a dozen people in their requisition and supply department wading through all of the private channels and PPE distribution networks to place giant orders of their own. It takes twenty failed orders for one to come through, but eventually that one big private order shows up at the warehouse. Eventually.

Of course there are shortages and delays and weird distribution snafus and rationing for the non-emergency medical departments within these big hospital systems within big cities. Of course the system is kludgy and slow and absolutely maddening for anyone involved. But it kinda sorta works. Eventually.

Outside of these big hospital systems within big cities, however, PPE supply is a joke. A killing joke.

Trickle-down PPE is not an eventually thing for small towns and for poor, rural counties. It’s a never thing.

The tragedy of our nationalized and oligarchized PPE system is not just our inadequate production system. It is also and much more so our failed distribution system.

There’s never a truckload of N95 masks that goes to Dothan, Alabama or Harlingen, Texas or Lake Charles, Louisiana, much less the towns and rural clinics and county health offices and nursing homes these small cities serve. There is no van to shuttle PPE on a regular basis from the warehouse filled with this stuff. There is no well-staffed requisition department with the resources to make private orders. The requisition “department” is Rafa the volunteer EMT, who has to fill out three forms and wait six weeks to get reimbursed for the box of useless-as-PPE surgical masks he bought at the local Staples.

But it’s in Dothan and Harlingen and Lake Charles and a hundred small cities just like them where an endemic Covid-19 is working its worst evil today. It’s in Hale County and Cameron County and Beauregard Parish and a hundred poor or rural counties just like them where people get sick at home and mostly recover at home but sometimes die at home. This virus is no longer just a big city disease. It’s an everywhere disease. Et in Arcadia ego.

None of these communities have sufficient PPE for frontline medical personnel and emergency responders, much less secondline clinics like a dialysis center or a maternity ward, much less chronic care facilities like a nursing home. At best they get some hand-me-downs from an affiliated big city system. Usually they buy something crappy from a friend of a friend distributor. Often they have nothing. In all cases, they are on their own.

And don’t get me started on the schools.

I don’t think I have the words to communicate just how screwed up our PPE distribution system is in this country.

I don’t think I have the words to describe what a profound betrayal it is for our government to support this perverse system of personal greed and corporate ambivalence in exchange for campaign soundbites and photo ops.

But I’m gonna try.

Every PPE manufacturer in the world – from the largest like 3M and Honeywell to the smallest like some retrofitted Chinese factory – relies on private distributors to resell their masks. If you don’t have access to FEMA stockpiles, you must work through these private distributors to buy N95s or KN95s (the functional Chinese equivalent) or FFP2s (the functional European equivalent).

Calling this private distribution system “the Wild West”, which is how I often see it referred to in the press, is laughable. It’s not the Wild West. There were sheriffs and marshals in the Wild West. There were repeat transactions in the Wild West. There was a functional market for goods and services in the Wild West. This is not that.

One company – 3M – dominates global N95 mask production, making about 100 million masks per month. Roughly 40% of that total is made in the US, and roughly 40% of that total is made in China. For all practical purposes, the domestic US number is the only number that matters, as China no longer allows 3M to export Chinese-made N95s to the United States. Two other companies – Honeywell and Owens & Minor – round out the vast majority of domestic N95 mask production. The President says that we will produce 80 million N95 masks in the US this month. Let’s take that with a big grain of salt (the Defense Dept. says we should hit that number by the end of the year), and say that the actual domestic N95 production number for these three companies combined is 50 million.

I’ve been buying PPE for six months, spending hundreds of thousands of dollars, and I have never successfully purchased a legitimate batch of 3M or Honeywell or Owens & Minor N95s. Never.

Everyone assures us that 3M and Honeywell and Owens & Minor make 50+ million N95s per month in the United States, and I’ve never seen ONE.

I’m not saying they don’t exist. I’m saying that they are a) hoarded by private distributors who sell them to sovereign buyers at an enormous mark-up and/or big hospital systems at a large mark-up, and b) hoarded by the US government who – eventually – trickles them down to big hospital systems in big cities.

There is no market for domestically produced N95s in the United States.

That market simply does not exist, and anyone who approaches you as a broker or a contact or a distributor of a distributor of 3M or Honeywell N95s is a liar. Without exception, they are – if not petty grifters themselves – caught up in someone else’s grift.

By the way, Mark Cuban was saying exactly this four months ago. He was right then and he’s even more right today.

So what we’re left with – and by we I mean every American purchaser of medical respirators who is not a big hospital system in a big city – is the international KN95 distribution market. Again, not the Wild West. That’s far too polite. This is a Hobbesian state of nature, where (economic) life is brutish, nasty and short. I’ve endured dozens of bait-and-switch operations, including a literal switching of packages at a Chinese air freight facility. I’ve seen documents that were forgeries of a known forgery. I’ve been forced to learn the niceties (and not so niceties) of Chinese currency transfers and customs law. I’ve tried to ship masks via diplomatic pouch and via Tesla’s special export channel. I’ve heard hundreds of earnest assurances that dried up like the morning dew. I’ve met outright con men (rare) and pseudo-grifters (common).

I’ve also met some really good people.

I’ve also purchased some really high-quality KN95s at a fair price.

That’s what makes the current system so frustrating. There ARE good actors in this system. There ARE high-quality products being manufactured by entrepreneurs all over the world. But right now the good actors and the good products are overwhelmed by a tsunami of misinformation and grift.

Right now, there are tens of millions of N95 masks that are NOT being distributed because they are hoarded by resellers and governments, including our own.

Right now, there are tens of millions of N95 masks that are NOT being made because of regulatory barriers and crony capitalism.

We could fix this today, you know.

Today, the White House could crack open the supply chain and distribution networks of 3M and Honeywell, the two giant corporations that dominate N95 mask production in the United States, but who do so as an afterthought, as a pimple on the butt of their strategic plans.

Today, the White House could require NIOSH (the regulatory body that approves a mask as N95-compliant) to expedite its ridiculous 6+ month approval process for new entrants, including KN95 mask producers.

Today, the White House could take a fraction of the money it’s giving to politically-connected companies like Kodak or Owens & Minor, and make that funding available to American entrepreneurs – the most powerful force for positive change in the world today – to get involved directly in the manufacturing and (even more importantly) the distribution of PPE to ALL Americans. Even if they live in Dothan, Alabama or Harlingen, Texas.

None of these things will happen today, of course.

Today, the White House will continue to run its political grift, exchanging crony capitalism and status quo preservation for campaign photo ops and talking points.

For megacorps like Honeywell and 3M, both members of the S&P 500 and both with market caps close to $100 billion, life is good if you play ball with the White House – meaning you say nice things about Trump and you “invite” him to use your factories for campaign speeches and photo ops – and life is difficult if you don’t.

That’s Honeywell Chairman and CEO Darius Adamczyk – a “fantastic man” as Trump reminded us twice in his speech that day – presenting the President with a framed N95 mask after touring a Honeywell facility in Phoenix, Arizona on May 5th. Also attending were Arizona Governor Doug Ducey (“a fantastic governor”) and Arizona Senator Martha McSally (“a fantastic person” who is “bringing tremendous amounts of dollars back to her state”).

After noting the fantasticness of all involved, Trump introduced Jorge and Betty Rivas, the owners of Sammy’s Mexican Grill, who had recently been featured in a Trump tweet and so “they became very rich”. Jorge informed the cameras that “we represent the Latino community” and that “all the Latinos are going to vote for you”. Trump made sure to note that he (meaning his campaign) would be paying for the food provided by Sammy’s Mexican Grill that day. After a few more local testimonials, Trump wrapped up the photo op, and staffers cued the Trump Rally mixtape. New for the Honeywell event: the Guns N’ Roses cover of “Live and Let Die”.

I am not making this up.

What was the payoff for Honeywell from playing ball with the White House?

Well, part of the payoff was the $148 million awarded to Honeywell by HHS and the $27 million awarded to Honeywell by the Defense Dept for increased production of N95 masks, both contracts inked three weeks before the Phoenix trip. But these are drop-in-the-bucket contracts for Honeywell, which does more than $30 billion a year in revenues.

The real payoff from playing ball with the White House is smooth sailing for the $6 billion in revenues that Honeywell will get from the US government this year within its Defense and Space division.

Honeywell’s long-term growth model – the thing that will make Darius Adamczyk’s 600,000+ stock options worth hundreds of millions of dollars if he plays his cards right – is selling stuff to the Pentagon, and as a result his company – like all defense contractors – makes an art form out of schmoozing everyone with appropriations influence in Congress or the White House. Usually that means campaign contributions. Usually that means letting a Senator use one of the company jets. Usually that means a job or a board seat or an advisory council position once they’re out of office. Usually that means our elected officials at least pretend that they’re not on the make. But as we’ve seen again and again with this White House …

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

At least Honeywell got the joke. 3M, on the other hand …

This tweet sent 3M stock down more than 3% on April 3rd, costing the company a couple of billion dollars in market cap.

What did Mike Roman do to bring down the Trump Twitter wrath on his head?

Why, he made the White House look bad. He took away a talking point.

The saga begins on February 29th, when Pence had to scramble at that afternoon’s press conference to back up Trump’s off-the-cuff claim that “we have more than 40 million masks available today”. Supporting the Boss, Pence announced:

“We’ve contracted now with 3M to … [long pause] … 35 million more masks per month will be produced, and we’re also going to be working with other manufacturers.”

Apparently, no one was more surprised by this “contract” than 3M. In an email around midnight that Saturday night, a 3M representative wrote, “Just to clarify, we are not yet under contract for the volume mentioned today. However, we are preparing to respond to the US administration’s request for a proposal for respirators.”

Preparing to respond to a request for a proposal.


So a week later, Pence makes a hastily scheduled trip to Minneapolis, along with our fave scientist, Dr. Birx, to meet with 3M CEO Mike Roman and Minnesota governor Tim Walz.

You can just feel the electricity, right?

I think this is what Trump would call “low energy” if it were a political adversary and not, you know, the Vice President. But wait, it gets better.

CEO Mike told VP Mike that 3M couldn’t just snap their fingers and make 35 million N95 medical respirators magically appear, but they did happen to have 35 million N95 masks made for the construction industry laying around somewhere. If, by chance, the White House could see their way clear to having someone at FDA or NIOSH approve a liability waiver for 3M as pertains to these N95 construction masks, why then by definition they would be available as N95 medical masks.

It took a couple of weeks, but sure enough Pence and team got the waivers in place for 3M. They let the company know, and a week later VP Mike called CEO Mike to ask him when they can expect the 35 million N95 masks. To which CEO Mike roughly said:

Oh, YOU wanted those masks? Gosh, there’s been a terrible misunderstanding. I thought we were clear that the waivers were just to make the masks available as medical PPE. Sorry, man, but we’ve already sold all those masks to our resellers. They’re already on their way to Canada and Latin America. We’ll be sure to get you on the next batch, though!

And that’s when Trump brought in the big guns.

Jared Kushner, the president’s son-in-law, has been leading administration contacts with the company to learn where the masks went and why some were not available as promised. The situation led Trump to invoke the Defense Production Act, said the official, who spoke on condition of anonymity to discuss events that have not been made public.

Trump, 3M clash over order to produce more face masks for US (Associated Press, April 4, 2020)

Honestly, it’s like a plot line from Veep.

Why did 3M cross the White House when Honeywell did not?

Because 3M’s existential client isn’t the government … it’s their resellers and distributors.

This is a company that depends as much on their distribution channels as Honeywell depends on the Pentagon. So when a windfall like 35 million N95s cleared for medical export comes available, in the early days of a global pandemic, when your CCP landlords have been breathing down your neck for months (3M manufactures as many products in China as any company on the face of the Earth) … are you joking? Sure, CEO Mike would love to make the White House happy, but he also knows exactly where his bread his buttered – in keeping his distributors happy.

But fear not, all you 3M shareholders, a face-saving solution was soon found for all concerned. By April 21, the Defense Dept. ponied up a $76 million contract for 3M, and followed that up with another $126 million on May 6. Trump stood down from Twitter Defcon 2, and his imposition of the Defense Production Act was a complete nothingburger – 3M was commanded to work closely with Jared and give him what he wanted. As a result, the stock price never saw the lows of April 3rd again. Whew!

What did Jared want? It’s all the White House ever wants. They wanted praise. They wanted a big number for a talking point. Just do THAT and it’s all good. So that’s exactly what Mike Roman gave them. He stopped complaining about the Trump tweets and started thanking the Trump administration for helping 3M help the American people. He promised to increase domestic N95 production to some big round number over the next 12 to 18 months. The precise number is impossible to lock down because everyone interchangeably talks about mask production increase and mask production totals – sometimes it’s 50 million masks a month total by October, sometimes it’s 50 million masks more per month by October – but hey, 50 million is a big number! And next year … well, who’s to say that won’t be 100 million masks per month? That’s an even bigger number!

What happens to all of those masks? Where will they go? Well, some will need to go to the national stockpile because … you know, we need a big number there, too. And you can’t export too many of these masks to Canada or Brazil like you did with those windfall 35 million we gave you the waivers on. But otherwise you can do whatever the hell you want with the masks, CEO Mike. Taking care of your distributors at the expense of the health and safety of Americans was never the problem. It was the embarrassment you caused the White House that was the problem.

One last vignette on the 3M saga. On the Q2 earnings call, CEO Mike starts off by, again, thanking the Trump administration for all of their help and coordination in making more N95 masks right here in the good old US of A. Want to know how many analyst questions he got about N95 masks in the Q&A after his prepared remarks? Zero. Why? Because N95 mask production is 2% of 3M’s global revenue. Because now that there were no more angry Trump tweets and no more public relations concerns, they could go back to asking questions that really matter.

Andrew Obin — Bank of America Merrill Lynch — Analyst

So just going back to capital allocation. What do you need to see in terms of things getting back to normal? To go back to share buybacks, to go back to looking at M&A, what does it take?

Joe Ritchie — Goldman Sachs — Analyst

OK. All right. And then maybe one follow-on question. Just going back to the comments around capital deployment and when you could potentially get more aggressive with a buyback or M&A.

Yep. When share buybacks? Can’t make it up.

Look, I can go on forever about this stuff. I mean, I haven’t even talked about the contracts with Owens & Minor, a public company with a sub-$1 billion market cap.

Here’s Trump a week after the Honeywell photo-op in Phoenix, taking the stage at the Owens & Minor production facility in Allentown, PA, flashing his America First salute. He’s about to introduce Jared and … wait for it … Jared’s college bud and the CEO of the US International Development Finance Corporation, Adam Boehler. Yes, the team that brought you the Kodak fiasco is exactly the same team that brought you Owens & Minor, through exactly the same funding mechanism. Adam is, of course, described as “fantastic”. From there we have the usual stump speech about America First and Sleepy Joe Biden. But don’t call it a campaign appearance.

It’s always the same thing, in big ways and in small ways – play ball with the White House and you can feed at the trough.

Nothing matters. Everything is for sale. An unending ocean of political grift.

Meanwhile, another 50,000 Americans will get sick with Covid-19 today.

Meanwhile, another 1,000 Americans will die.

Hey, it is what it is.

Nope. It isn’t. It really, really isn’t.

From a policy perspective, I’ve already told you what I think we should do. This part is easy.

Today, crack open the supply chain and distribution networks of 3M and Honeywell, the two giant corporations that dominate N95 mask production in the United States, but who do so as an afterthought, as a pimple on the butt of their strategic plans.

Today, require NIOSH (the regulatory body that approves a mask as N95-compliant) to expedite its ridiculous 6+ month approval process for new entrants, including KN95 mask producers.

Today, take a fraction of the money we’re giving to politically-connected companies like Kodak or Owens & Minor, and make that funding available to American entrepreneurs – the most powerful force for positive change in the world today – to get involved directly in the manufacturing and (even more importantly) the distribution of PPE to ALL Americans.

The policy perspective is easy. It’s the personal perspective that’s hard.

How do we live with the NOW? How do we make our way in a fallen world, where this sort of banal evil flourishes with such abandon and success?

It’s inhuman not to feel anger. So yeah …

Burn. It. The. Fuck. Down.

But also …

If you are a healthcare worker or first responder in urgent need of PPE (or you know someone who is), go to and let us know. No promises. But we will do everything we can to help.

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

Hope has two beautiful daughters – Anger and Courage.

Anger at the way things are, and Courage to see that they do not remain as they are.

St. Augustine (supposedly)

Epsilon Theory PDF Download (paid subscribers only): The Grifters, chapter 2 – N95 Masks


The Grifters, chapter 1 – Kodak


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

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

Bobo Justus: Tell me about the oranges, Lilly…

[kicks over a bag of oranges]

Bobo Justus: While you put those in the towel.

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

Bobo Justus: And if you do it wrong?

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

Bobo Justus: What?

Lilly Dillon: P-permanent damage.

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

We’re all Lilly Dillon today.

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

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

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

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

Here’s chapter 1.

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

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

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

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

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

To dust off an old Epsilon Theory catchphrase:

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

Who is “they”?

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

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

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

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

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

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

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

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

Who is “they”?

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

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

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

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

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

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

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

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

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

What is crony capitalism? THIS.

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

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

Did they send an email to

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

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

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

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

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

Ladies and gentlemen, I give you the Kodak KashMiner.

AYFKM, Adam?

Crony capitalism. In its purest form.

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

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

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

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

If they wanted to.

They don’t.


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


The Stupid War


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

You are now homeland, Chaco,

of the dead deep in your belly

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

Sangre de Mestizos, by Augusto Cespedes (1936)

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

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

And it was.

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

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

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

And yet somehow, the casualties always are.

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

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

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

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

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

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

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

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

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

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

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

Photo Source: Cindy Servranckx

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

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

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

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

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

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


Oil on the edge of a long-disputed wilderness.

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

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

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

Source: Bureau of Labor Statistics

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

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

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

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

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

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

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

What are we going to do?

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

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

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

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

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

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

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

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

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

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

What are we going to do?

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

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

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

This will not be a sentimental appeal.

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

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

But it doesn’t matter.

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

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

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

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

What are we going to do?

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

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

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

Again, thanks a lot, Pope Julius II.

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

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

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

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

What are we going to do?

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

We figure out how to bridge the impasse.

We figure out how we can benefit from the fight.

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

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

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

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

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

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

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

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

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

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

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

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

Standard Oil Co., by Pablo Neruda

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In videos like this one:

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

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

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

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

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

We are where we are.

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

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

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

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

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

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

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

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

They didn’t find oil in the Chaco.


We the People? We the Pack.


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

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

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

This will be #OurFinestHour.

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

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

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

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

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

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

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

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

I just never thought it would come to this.

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

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

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

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

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

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

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

Fig. 1 Coordination Game (Stag Hunt)


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

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

Fig. 2 Competition Game (Prisoner’s Dilemma)


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

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

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

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

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

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

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

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

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

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

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

I still believe this will be our finest hour.

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

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

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

What now?

Let me tell you what now.

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

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

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

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

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

Now we act.

From the bottom-up.

With the strength of the pack.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The pack always answers the call.

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

I don’t know. But you do.

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

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

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

But I bet you’ll find a way to help.

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

And that change is even more contagious than the virus.

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

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

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


The Anti-Anarchist Cookbook


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?


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

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

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

Yes, absolutely.

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

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

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

But you’re not a labor union.

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

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

And on that note of meaningful police reform legislation …

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

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

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

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

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

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


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

Imagine that.

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

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




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

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

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

Hedley Lamarr: Give the governor harrumph!

Frightened Crony: Harrumph!

Le Petomane: You watch your ass.

Blazing Saddles (1974)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Others went even further.

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Declaration of Independence (1776)

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

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

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

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

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

I think you will see why immediately.

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

Source: Epsilon Theory, LexisNexis Newsdesk

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

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

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

On the other hand, I find it worrisome.

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

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

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

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

Give the governor harrumph!

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

Give the governor harrumph!

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

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

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

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

It is our duty to resist that.


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.