The Projection Racket (Part 1)

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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.

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Mailbag – Lucifer’s Hammer Edition

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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.

WALK DOWN STAIRS TO BASEMENT OF PIZZA PARLOR

>> THERE IS NO BASEMENT

GO BASEMENT

>> THERE IS NO BASEMENT

DIG FLOOR


“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!


This:

==> “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.


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Lucifer’s Hammer

67+

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.


NARRATOR:

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


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Facebook Delenda Est

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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.

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.

BITFD.


Epsilon Theory PDF Download (paid subscribers only): Facebook Delenda Est


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Why Publish Academic Research?

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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 info@epsilontheory.com.


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.


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“Rebalance Timing Luck: The Dumb (Timing) Luck of Smart Beta” by Hoffstein, Faber and Braun

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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 info@epsilontheory.com.

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


Authors

Corey Hoffstein is Chief Investment Officer at Newfound Research. 380 Washington Street 2nd Floor, Wellesley, MA 02481. E-mail: corey@thinknewfound.com. [1]

Nathan Faber is a vice president at Newfound Research. 380 Washington Street 2nd Floor, Wellesley, MA 02481. E-mail: nathan@thinknewfound.com.

Steven Braun is a quantitative analyst at Newfound Research. 380 Washington Street 2nd Floor, Wellesley, MA 02481. E-mail: sbraun@thinknewfound.com.


Abstract

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.


INTRODUCTION

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.

CONSTRUCTING EQUITY FACTOR PORTFOLIOS

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.


REPLICATING EXISTING SMART BETA PRODUCTS

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).

CONCLUSION

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.


References

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.” arXiv.org, October 19, 2018. https://arxiv.org/abs/1810.08384.

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.


Notes

[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


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The Grifters, Chapter 2 – N95 Masks

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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.

LOL.

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 https://www.epsilontheory.com/ppe-requests/ 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


39+

The Grifters, chapter 1 – Kodak

147+

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 info@dfc.gov?

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.

#BITFD


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


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The Stupid War

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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.

Hochstadt-Signage
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.

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.

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We the People? We the Pack.

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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)

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

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

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

Fig. 2 Competition Game (Prisoner’s Dilemma)

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

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

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

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

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

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

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

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

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

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

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

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

I still believe this will be our finest hour.

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

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

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


What now?


Let me tell you what now.

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

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

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

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

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

Now we act.

From the bottom-up.

With the strength of the pack.


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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

The pack always answers the call.


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

I don’t know. But you do.

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

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

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

But I bet you’ll find a way to help.

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

And that change is even more contagious than the virus.

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


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


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


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The Anti-Anarchist Cookbook

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



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

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

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

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

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

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

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

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

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


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

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


NARRATOR: The McCloskeys were not ready.

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

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

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

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

Yep, we’re all porn addicts now.

And social media platforms are our pornographers.

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

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

Not that there’s anything wrong with that.

Or maybe there is.

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

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

No, the answer is to speak politics better.

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

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

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

Police reform is only a start …


Defund the police? No.

Demilitarize and Deunionize? Yes.


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Imagine that.


Defund the police? No.

Demilitarize and Deunionize? Yes.


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

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

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

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

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

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

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


Is “Demilitarize” stimulative?

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

Oh yeah, they also got grenade launchers.

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

Is “Demilitarize” culture-porn resistant?

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

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

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

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

Yes, absolutely.

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

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

What I want to eliminate is a militarized police force.

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

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

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

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

Imagine that.

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

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


Is “Deunionize” stimulative?

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

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

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

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

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

Is “Deunionize” culture-porn resistant?

Very.

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

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

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

Yes, absolutely.

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

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

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

But you’re not a labor union.

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

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

And on that note of meaningful police reform legislation …

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

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

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

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

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

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

Enough.

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

Imagine that.

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


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


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Harrumph!

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

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

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

Hedley Lamarr: Give the governor harrumph!

Frightened Crony: Harrumph!

Le Petomane: You watch your ass.

Blazing Saddles (1974)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Others went even further.

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

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

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

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

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

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

Harrumph!

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Declaration of Independence (1776)

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

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

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

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


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

I think you will see why immediately.


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

Source: Epsilon Theory, LexisNexis Newsdesk

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

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

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

On the other hand, I find it worrisome.

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

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

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

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

Give the governor harrumph!

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

Give the governor harrumph!

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

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

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

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

It is our duty to resist that.

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What is Permissible

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PDF Download (Paid Subscription Required):  What is Permissible


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

Everything is permissible, but not everything is beneficial. 

The Bible, 1 Corinthians 10:23

It happens once every decade or so.

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

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

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

Every decade or so, that revolution launches and fails.

It doesn’t have to be this way.


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

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

Here is one example of it in the wild.

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

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

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

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

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


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

Fiduciary duties as fundamental ethical principles exist to protect owners.

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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


So what is the Answer?

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

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

As below, so above.

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

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

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

Our capital.

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

We think the same is true for markets.

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

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

It is time to take back your ownership.

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Self Assured Destruction

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


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


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


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

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

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

Same thing today.

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

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

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

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

Sound familiar?

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

Sound familiar?

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

Sound familiar?

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

Here, let me say that again.

Covid-19 is now endemic in the United States.

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

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

Every day.

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

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

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

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

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

But if it’s a bridge to nowhere …

If there’s no vaccine in the near future …

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

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


[first lines]

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

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

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

— Children of Men (2006)

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


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

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

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

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

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

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

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

Or will you rage?

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

Or will they find someone to blame?

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

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

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

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

They start a war.

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

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

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

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

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

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

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

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

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

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

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

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


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


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A New Gilded Age

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


Source: Library of Congress

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

That’s because it is.

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

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

Tuxedo Park.


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

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

Etiquette, by Emily Post (1922)

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

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

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

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

As it turns out, this was by design.

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

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

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

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


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

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

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


The Club at Tuxedo Park as sketched by Vernon Howe Bailey

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Tuxedo Park — Tuxedo Historical Society

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tuxedo Park, from American Heritage magazine (1978)

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

The symbols of an American Golden Age.

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

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

Tuxedo Park, from American Heritage magazine (1978)

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

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

Emily Post, by Laura Claridge (2008)

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

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

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

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

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



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

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

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

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

I’ll tell you what happened.

Absolutely nothing.


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

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

For a while, anyway.

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

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

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

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

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

These are mainstream views. We all know.

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

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

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

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

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

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

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

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

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

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

Here’s an idea: Stop waiting and leave.

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

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

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

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

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

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


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

William Blake (1757 – 1827)


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

I think Blake was absolutely right.


Our narratives of COVID-19 are all lies.

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

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

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

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

How do you recognize a political narrative of betrayal?

It’s always based on a model.

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

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

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

Nothing makes me angrier.

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

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

What exists is the way of life of Americans.

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

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

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

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

Today it is our government’s first resort.

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

This is how an illegitimate government acts.

Like this:


Model-driven Narrative #1

Whatabout the Flu?

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

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

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

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

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


Model-driven Narrative #2

Herd Immunity!

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

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

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

It’s a high-functioning sociopath thing.

What do I mean by sociopathy and division?

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

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

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

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


Model-driven Narrative #3

Flatten the Curve!

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

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

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

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

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


If we let it.

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

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

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

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

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

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

But it doesn’t work with COVID-19.

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

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

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

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

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

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

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

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

How does a legitimate government resolve this conflict?

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

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

How does a legitimate government resolve this conflict?

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

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

How does a legitimate government resolve this conflict?

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

It’s just not that hard.

But it is impossible. Politically impossible.

So what do we do?

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

— Albert Camus, The Plague (1947)

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

So what do we do?

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


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


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Bear Stearns and the Narratives of Systemic Risk

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

So ended the House that Ace and Jimmy built.

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

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

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

And then we had the Bear Stearns Bounce.

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

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

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

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

LOL.

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

And so here we are in 2020. Nice bounce!

A screenshot of a computer Description automatically generated

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

It’s the New York/New Jersey surge.

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

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

“Yay, systemic risk is off the table!”

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

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


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

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

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


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

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

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

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

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

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

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

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

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

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


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Inception

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Epsilon Theory PDF Download (paid subscription required): Inception


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


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


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

— Inception (2010)

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

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


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


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

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

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

Yes, betrayed.

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

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

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

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

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

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

And you won’t believe me.

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

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

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

The Second Foundation hides in plain sight.

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


This is the Way

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

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


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


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

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

The rest is commentary.

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

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

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

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

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

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

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


Free Will Is Not Free

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

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

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


We’re Doing It Wrong

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

The market is not a clockwork machine.

The market is a bonfire.


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

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

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

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

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

To calculate fire.

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

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

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

Here’s an example.


His Name is Robert Paulson

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

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

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

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

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

They do not want to.

So we will.

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

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

I remember when I was first vaccinated.


Forgive. But Never Forget.

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

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

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

Forgive … full hearts.

Never forget … clear eyes.


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


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

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

It’s not an Answer. It’s a Process.

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

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


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

Andrew Fletcher, Scottish patriot

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

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

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


#BITFD

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

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


I’m a Superstitious Man

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


Was it murder? Was it suicide?

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

What room?

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

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

The same way I feel now in April 2020.

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

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

So what do WE do?

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

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

How do we do THAT?

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

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

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


Once In A Lifetime

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



Make, Protect, Teach

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


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

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

So go do.

All the rest is commentary.

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


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


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

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

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


Epsilon Theory PDF Download (paid subscription required): Inception


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First the People

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



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

The Germans, by Gordon A. Craig (1991)

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

For a New West, by Karl Polyani (1958)

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

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

First, the people die; then, the stories.

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

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

First, the people die; then, the stories.

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

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

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

It is our choice.

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

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

This is a mistake.

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

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The World Health Organization

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

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

That story is dead.

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

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

Yet corruption is the right word for what occurs here.

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

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

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

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

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

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

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

There’s just one problem.

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

And everyone at WHO knew it.

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

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

The Industrially Necessary Doctor Tedros (February 16)

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

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

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

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

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

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

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

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

Dr. Tedros, in a WHO Press Conference

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

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

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

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The Center for Disease Control

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

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

That story is dead.

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

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

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

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

Has it been 15 days since your mainland China visit?

Have you been to Northern Italy in past 14 days?

Have you been to Iran in past 14 days?

Have you been to South Korea in past 14 days?

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

Don’t Test, Don’t Tell (February 27)

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

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

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

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

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

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

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

Then the stories changed.

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

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

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

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

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

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

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

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

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The Food and Drug Administration

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

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

That story is dead.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Elite Universities

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

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

That story is dead.

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

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

Stop.

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

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

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

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

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

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

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

In a transaction that closed on March 2nd.

USC_SM11

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

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

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

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

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The News Media

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

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

That story is dead.

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

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

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

US media did each and every one of those things.

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

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

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

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

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

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

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

That explains the global wave of anxiety.

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

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

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

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

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

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

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

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

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

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

Is it, though?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

It was now this:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Public Company Boards

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

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

That story is dead.

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

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

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

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

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

It is also shockingly common.

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

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

Et voilà. They said the magic words.

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

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

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

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

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

Like the board of American Airlines Group.

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

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

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

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

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

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

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

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

Do the Right Thing (March 19, 2020)

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

Source: Do the Right Thing

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

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

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

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

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

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

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Wall Street

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

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

That story is dead.

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

Image
Source: CNBC, Screen grab by Andrew Lawrence

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

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

But if you could distill the very special kind of tonedeafness that afflicts Wall Street in times of crisis for the real world, you would probably end up with something like that image. You might alternatively end up with something like the below.

Source: CNBC, Screen capture by Marketwatch

Is Rick Santelli, the gentleman pictured here, wincing as he thinks about a 40-something nurse gasping for breath in a hospital in Queens? Perhaps overcome by the struggle of a part-time retail worker and mother in Cleveland who is deemed “essential” riding into work on a packed bus, who knows if she doesn’t cover that cough today she’s going to be sent packing?

No, no. We just caught him in the middle of one of these sentences:

Rick Santelli: The catalyst? Just watch your local news. There’s your catalyst.

Kelly Evans: True.

Rick Santelli: Of course, people are getting nervous. And listen, I’m not a doctor. I’m not a doctor. All I know is, think about how the world would be if you tried to quarantine everybody because of the generic-type flu. Now I’m not saying this is the generic-type flu. But maybe we’d be just better off if we gave it to everybody, and then in a month it would be over because the mortality rate of this probably isn’t going to be any different if we did it that way than the long-term picture, but the difference is we’re wreaking havoc on global and domestic economies.

CNBC Transcript from March 5, 2020

You might also choose this image of National Economic Council Director Larry Kudlow, who is not in the middle of a sneeze as you might suspect, but rather in the middle of a material misstatement of the widely available facts about the COVID-19 pandemic on February 25, 2020.

I just want to say, though, as far as the US is concerned, when you look at this, I mean you’ve got a little higher headcount on the infections because of the cruise ship people coming off, we have contained this. I won’t say airtight, but pretty close to airtight. We’ve done a good job in the United States.

Larry Kudlow to CNBC on February 25, 2020

Yes, Larry was completely wrong when he referred to COVID-19 as contained. More than wrong. It was a statement which could not possibly have been correct given the testing information available at the time. It was not knowable. You cannot assert that something is contained when the only evidence that exists demonstrates that you are actively avoiding discovering evidence.

As alarming as his mendacity ought to be, the ‘airtight’ claims aren’t the useful tell here. The useful tell is that Larry – the Director of the National Economic Council – was in-the-know about the White House’s concerns about numbers from cruise ships inflating reported numbers. Those are concerns that would manifest only a week later in President Trump’s own remarks. It takes very few leaps in logic to see that the administration’s focus in late February through early March, the focus that led to active pursuit of a national policy of Don’t Test, Don’t Tell, was managing how much the stock market responded over a short horizon to news about the COVID-19 pandemic.

Is CNBC Wall Street? My goodness, no. Sure, some financial advisers and individual investors watch it seriously and earnestly for information. Professional investors, by and large, roll their eyes at it. But everybody has it on. And so, like Bloomberg and the Wall Street Journal (and Barron’s, once upon a time), it ends up being one of the primary missionary platforms through which corporate executives, along with capital markets, trading, lending, investing and government institutions seek to influence the behavior of others.

In this case, after Wall Street missionaries downplayed the significance of the COVID-19 pandemic, and after they bemoaned the impact of social distancing measures on the stock market, they began to agitate for rapid policy response. Most such missionaries in 2020 have long since learned to be careful about saying the quiet part out loud. When you want to stop the bleeding on asset prices, you don’t say that you want the Fed or Congress to step in because asset prices are bleeding. You say you want them to step in because of threats to the economy or liquidity.

And you do that even if the scale and nature of the response demanded uses the direct support of asset prices as a primary transmission mechanism for theoretical secondary effects in lending markets and barely even theoretical tertiary effects in labor markets.

If you are not involved in financial markets, let me tell you what happened and why this matters.

In early March, investors, lenders and businesses were all grappling with the unsettling uncertainty of the COVID-19 pandemic and what a 20-30% drop in economic activity in a single quarter might mean. For most, the answer was pretty clear, and became even clearer once they saw what others were doing: “hold and conserve cash.” And when a lot more investors, lenders and businesses start saying that they’d rather hold cash than anything else, a few things happen all at once.

Businesses with lines of credit draw them down. Lots of investors – especially ones with leverage on their portfolio – who own any kind of security, from equities to mortgage-backed securities to high yield bonds and even so-called safety investments like government bonds and high grade corporate bonds, try to sell them if they can. Those who are natural buyers of new issues stop buying them. Lenders slow or stop lending, especially in markets where they fear there may not be much appetite to turn those assets back into cash.

When you hear people talk about “liquidity”, this is the broadest definition of what they mean: How easily, how quickly and at what cost can you access cash that you thought you’d be able to access? It is a big question for lenders, businesses and investors alike.

It is an especially big question when your business model or lending model is almost completely dependent on the answers being, for at least some markets, “Really easily, basically immediately and at basically the price I have it in my accounting system.” Unsurprisingly, among the first of the Federal Reserve’s policy actions was to ensure that cash was accessible in the markets where participants are most “invested” in that being the answer. Treasury markets. Very short-term funding markets for banks and corporations. That sort of thing.

Not that complicated at this point.

When the Federal Reserve steps in to ensure ‘liquidity’ in really short-term lending markets, the Fed is effectively telling the market, “The price y’all are setting for cash is way too high for banks and companies reliant on commercial paper to function. We told you what we thought the price of this stuff should be, but now we’re going to force it.” Treasurys are a little bit of a gray area, but these are more or less pure liquidity operations. Is it intervention in markets? Of course it is. Should the Fed be charging more than they are given that the market has been telling us through repo markets that the real price of money is higher since well before COVID-19 raised its ugly head? Yeah, they should. But this is one of the reasons we have a central bank.

Still, ‘liquidity’ is a funny term. A ‘bear market’ is when we hate the prices that the market is coming up with. An ‘illiquid market’ is when we hate the prices the market is coming up with AND want to give a regulator the narrative cover of a ‘broken market’ to step in and ‘fix’ them. Even with what we might characterize as pure liquidity operations, we are technically bailing businesses out of the dangers of a leveraged dependence on a stable price of money. And with a few exceptions, we’ve generally determined that we’re OK with that, because we can’t figure out a way to do banking and capital intensive businesses that help us all grow faster without providing that crisis insurance. Fine.

It gets more complicated, however, when the Federal Reserve starts talking about the purchase of both primary and secondary issues of investment grade corporate and municipal debt, high yield debt and equities. Each of those, with the exception of equities, has been part of the Federal Reserve’s pandemic policy response thus far. That means that the Fed, through a dubiously constructed and funded set of special purpose vehicles (SPVs), is buying these bonds or vehicles which own them. In turn, that means that the Fed is telling the market, “The prices y’all are coming up with for high yield bonds, investment grade bonds and municipal bonds are too low. We’re going to buy them and make those prices go up.”

If this were truly a “liquidity” operation, the argument would be that the low prices for this debt would constrain banks from lending and companies from getting cash that they need, which might cause some companies to go out of business when they were otherwise healthy. And to some extent, there are lenders whose lending constraints are somewhat influenced by the prices of these assets, so there’s a theoretical grain of truth in this. But in general, this isn’t really a liquidity operation. This falls closer on the spectrum to a price intervention operation. This is a determination that it isn’t fair that this market environment will make it more costly for some more debt-dependent companies to borrow. It is reasonable to be empathetic to those companies, but it is also reasonable to question whether “ensuring liquidity” really extends to “making sure that all risky borrowers are paying a price that doesn’t seem a bit too high.” It is even more reasonable to question whether “ensuring liquidity” really extends to “making sure that leveraged speculative buyers are not inordinately harmed by what we consider a short-term phenomenon.”

In other words, when the Fed or Wall Street missionaries tell you that the Fed is executing plans to improve market liquidity, or to fix the breakdown in credit markets, or to make sure that lending is available to a hurting economy, to one extent or another, they are telling the truth. They do.

But that is never the whole story.

You see, most of the institutions who are sensitive to interest rates and credit spreads are not primary lending institutions at all. They are investors and investment managers who have a structural mandate to own those things nearly all of the time, or else they are speculative institutions who are betting on a change in the price of those things. That is not a pejorative – there is nothing inherently evil about hedge funds; in fact, they are one of the most important remaining bastions for those who actually attempt to appropriately price capital.

But among both the root causes of the recent lack of liquidity in these markets and among the beneficiaries of Federal Reserve policies meant to remedy them, you will find each of these institutions. And among those institutions, there were dozens – hundreds, probably – who came into the month of March with extraordinary quantities of leverage in their portfolios. In other words, they borrowed money directly or indirectly through the partially collateralized use of derivative instruments to make bets on interest rates, currencies and credit instruments. When a global pandemic was looming, many of them did not see it as an opportunity to reduce the amount of risk they were taking. Many of them continued to rely on discretionary (i.e. human-driven) or systematic (i.e. computer-driven) models for how risky those assets were and how related to one another they would be. Some increased their exposure, seeing it as an opportunity to make money for their investors in a time of crisis.

Those models frequently proved to be wrong. Grievously wrong. These funds lost tremendous sums, and then simultaneously lost tremendous sums on investments which they believed would diversify the first. They didn’t. And so, as they responded to hemorrhaging asset values and clients providing notice that they wished to withdraw money, it was these institutions who were the suckers crowding into the exit.

The market is like a large movie theater with a small door. And the best way to detect a sucker is to see if his focus is on the size of the theater rather than that of the door.

Skin in the Game, by Nassim Nicholas Taleb

Yet the Federal Reserve’s actions made suckers of us instead. When they began providing support to treasury securities, municipal debt and corporate debt securities in hopes that it might perhaps permit ongoing lending and borrowing activities to take place in the US, they also gave each of these investing and speculating institutions the ability to reduce their ownership in investments that had not worked. To survive to speculate another day.

Even if you believe that the drop in the prices of these assets in early March was a mechanistic, “fake” result of illiquidity and not an appropriate pricing by a functioning, if negative, market, it still remains that what the Federal Reserve undertook was AT BEST effectively a non-targeted, extremely below market cost bridge loan to all owners of debt securities. For hedge funds and CTAs, the Fed offered a mulligan on highly levered trades that missed out.

What many – including us – take issue with is that outside of true liquidity operations, the US government’s chosen path for making sure businesses and families could access debt markets was only the hypothetical secondary effect of a policy whose primary effect was to bail hedge funds out of ruinously risky trades gone wrong and to bail bad businesses out of ruinous leverage on business models ill-suited for that capital structure. Make no mistake: if those trades had gone spectacularly well, neither you nor I would see dollar one. When you hear people bemoaning the concentration of gains and the socialization of losses, this is what they mean.

The Fed’s actions represent a gross inequity, the rough equivalent of dropping a trillion dollars from a blimp into a stadium full of billionaires, and then saying, “Well, how else are we going to get money into the hands of store owners and workers?”

That is when the Wall Street missionaries emerge to tell us that now isn’t the time to seek justice. Now isn’t the time to look for who did what, or who’s going to be able to build another vacation house with the 2% management fees that were rescued. It’s the same kind of defenses that are offered up in defense of rescuing equityholders instead of companies, since sometimes bankruptcies end in job losses, and are you really recommending that people lose their jobs? Right now? If the Fed didn’t step in like this, and if we didn’t bail out shareholders, everyone might be hurt in the short run. Now is not the time for creative destruction!

Fine. Let’s all live in the fantasyland in which we pretend that the Fed’s and Congress’s actions were wholly motivated by “the real economy” and not asset prices for the benefit of highly leveraged investors. Doesn’t matter. Because this essay ain’t about mistakes. This essay is about institutional failures.

For decades, we have permitted the financial services industry to repeatedly force us into Hobson’s Choices at the end of every market cycle. Every cycle, Wall Street levers up and empowers cyclical sectors of the economy to lever up. When they do, they improve their returns in the interim, extract as much cash as possible and subject us all to systemic risk in the process. When that risk manifests, and it always does in some way “no one could have predicted”, we are then told we must all share the burden for it, since now is not a time for blame! Real businesses and families are hurting, and not helping Wall Street right now would hurt them, too.

This is the institutional failure that has been laid bare by the world-as-it-is. Not the policy response. The fact that the policy response will always look like this. Every cycle. And once again we can choose, because this is a fixable problem. For my part?

Whatever we decide tomorrow will look like, we must not forget how Wall Street has not represented our interests.

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Congress

I won’t lie to you. Congress has no stable institutional narrative. Never has. Insert the Mark Twain quotation of your choosing here.

There is the occasional hero story, of course, in which some American political tribe pretends for a moment that some representative or senator is acting for the benefit of the people. I’m not immune. For a brief moment before he seemingly disappeared forever, I thought Ben Sasse was The Answer.

Even those stories are dead.

Today, everybody knows that everybody knows that Congress can’t even pass an historic, once-in-a-lifetime emergency bill for a global pandemic without inserting into it every possible personal cause, special interest or political ambition.

Frankly, in context of most government actions, you could even make the argument that the CARES Act is a decent bill. Relatively speaking, anyway. It contains a lot of direct aid to Americans, through direct payments, unemployment extensions, small business lending and temporary (he said, tentatively) expansions of various social safety net programs.

Along with a bunch of other ridiculous shit.

There’s $17 billion for “businesses critical to maintaining national security”, which is regulation-speak for bailing out Boeing shareholders for management’s disastrous execution of the 737 Max, and pretending it had anything to do with the COVID-19 pandemic.

There’s a provision that prohibits use of funding for a wall with Mexico.

There’s a provision that prevents recipients of loans to take actions in response to labor union formation.

There’s a provision that squeezed in shortened approval processes for drugs that have nothing to do with COVID-19. Oh, and also sunscreen. The FDA is now required from congress not to review a particular sunscreen ingredient.

It was important to the nation’s healing from COVID-19 to permit the use of HSA funds to purchase menstrual care products.

There’s the usual ag stuff, because no bill from US Congress is complete and no congressman from Iowa electable without it.

Oh, and nothing says, “Let’s urgently help businesses and families recover from this pandemic” like a fully funded abstinence program.

Or a rousing performance at the newly funded Kennedy Center, which responded to its windfall by proceeding to furlough just about everybody left on staff.

That’s just the nonsense that got into the bill. Some of the proposals from both sides of the aisle were shocking, even by congressional standards. Most damning, of course, is the complicated tiering for phase-outs of the household checks, the lack of effort to accelerate the processing of those payments, and the week of near-silence on the almost-certain oversubscription of the SBA facility provided by the initial bill.

Perhaps all of this seems fairly perfunctory, and it is. The latest institutional failure is, in fact, the usual institutional failure of Congress: that it boasts of some special expertise for the identification of need and the allocation of resources to direct it.

Yet the uniqueness of the pandemic and the immediate shutdown of many sectors of the economy warranted rapid, simple, easy-to-process payments to families and businesses to fill the gaps. Instead, we got this.

Whatever we decide tomorrow will look like, we must not forget how Congress has not represented our interests.

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The White House

Perhaps you found it conspicuous that the US presidency and Donald Trump didn’t show up until the end of this list. The White House is here in part because many of the institutional failures and mistakes described above are also effectively the institutional failures and mistakes of the White House. The FDA and CDC are both part of President Trump’s Department of Health and Human Services. So, too, are the Surgeon General and the United States Public Health Service, which we have so far let off the hook for their brazen participation in the nudging state behavior surrounding the use of masks by citizens.

Perhaps you also found it conspicuous that this example isn’t getting the same clever little device that the others did. You know, where we would say that the White House told us a story about who it was, but then a lot of people died and now that story is dead?

I didn’t say that…because the story isn’t dead. The narrative of the US Presidency is alive and well.

And that’s a problem.

When we published the words below on February 10th, we wrote them about the Chinese Communist Party.

More importantly, I also believe that Chinese epidemic-fighting policy – just like American war-fighting policy in the Vietnam War – is now being driven by the narrative requirement to find and count the “right number” of coronavirus casualties.

Body Count (February 10, 2020)

Our contention – our fear – was that the cartoonification of coronavirus figures by governments would lead to policies which sought to optimize the cartoon rather than the world-as-it-is. A government which abstracts a pandemic crisis into the “right number” of infections being reported about it will be inclined to direct policies which reduce the number of infections being reported.

There are a lot of ways to do that.

You can lie.

Because of all we’ve done, the risk to the American people remains very low…the level that we’ve had in our country is very low and those people are getting better, or we think that in almost all cases, the better they’re getting.

President Donald Trump, in White House Press Conference on February 27, 2020

You can change what is being measured.

I like the numbers being where they are. I don’t need to have the numbers double because of one ship that wasn’t our fault.

President Donald Trump, in speech on March 6, 2020

You can maintain an artificially restrictive set of testing criteria to minimize the testing taking place over an extended period.

The White House has said that it acted early – and against the grain of a biased national media who promoted the idea that he was overreacting – to cut off travel from China. That is correct. It did (and they did). That action almost certainly slowed the spread and saved lives. Of course it did, despite the post hoc face-saving thinkpieces from late-to-the-game outlets making tortured arguments that it didn’t. Same thing on Europe, frankly. The White House has also said that it was ahead of the curve in identifying some of the problems with the relocation of American manufacturing and key industries overseas (even if the policies driven by those beliefs were not entirely productive). That is also correct. It was.

All that is true. What is also true is that by the time the United States had tested 1,000 Americans for COVID-19, France had tested five times as many, Italy had tested 34 times as many, and Korea had tested 157 times as many. What is also true is that widespread testing did not begin taking place in the United States until March 16th, weeks after evidence of community spread in multiple locations had emerged.

What is also true is that when Larry Kudlow, Trump’s senior economic adviser, went on CNBC on February 25th to say, “We have contained this – I won’t say airtight, but pretty close to airtight,” the virus was spreading unchecked and untested in New York, New Jersey, California, Washington, Connecticut, Louisiana, Colorado and almost certainly many other states.

What is also true is that the repeated attempts to downplay the risk posed by the COVID-19 pandemic to Americans by the White House between February and mid-March – including President Trump, Vice President Pence, and many of their advisers on many occasions – had the direct effect of slowing the implementation of social distancing measures made necessary by the lack of effective testing across the nation. We only hit the halfway mark for US states one day or two before the calendar flipped over to April.

That was basically two weeks ago.

We can never directly attribute a death to any one of these failures. But log growth isn’t hard, and most Americans are plenty capable of grappling with its implications. Even two weeks of curve-slowing would very likely have spared Americans from hundreds of thousands of infections and thousands of deaths. It could have drastically changed the economic response that was necessary to slow the spread. And two weeks is about as charitable an interpretation as it possible to grant.

And now, when we are at perhaps the second most critical juncture in the pandemic process – where we decide when and how to rescind stay-at-home orders and social distancing measures – the administration has unveiled their suggestion.

Image

God help us.

Whatever we decide tomorrow will look like, we must not forget how Donald Trump and the White House have not represented our interests.

We could call these ‘mistakes’ – big mistakes, to be sure – but we would be wrong. The errors made by the executive branch in response to the COVID-19 pandemic were not uncertain bets on evidence that simply turned out to be wrong. They were not procedural failures in execution. They were not the result of breakdowns in communication.

These policies were the inevitable outcome of the need for the White House to promote its preferred narrative about the pandemic: “We’ve got this under control! Don’t sell your stocks!”

Yet when the mortuary refrigerator trucks started showing up, even that narrative started to lose its war to the world-as-it-is. That was the moment when the true, most powerfully institutionalized American narrative of all emerged. The sustaining energy of the Widening Gyre:

That we can fix it all if we just elect the right person to be president.


Bullshit.

Look, vote out Trump because of this botch job. Keep him in because you think he’s been given an unfair rap by the media relative to all the other people and institutions who screwed up even more. I don’t care. I’m not telling you how to vote. Not even telling you whether to vote. And I’m absolutely not telling you how to weigh how every institution screwed up, or how we ought to apportion the blame for this nightmare among the CCP, the WHO, the CDC, the FDA, Congress, Donald Trump or your local crackpot governor who claims we only learned about this coronavirus’s asymptomatic transmission in late March.

I am telling you that the more we go through that process, the more we will lose sight of our true opportunity here.

The more we subject ourselves to “Call it the Trumpvirus” or “Call it the Chinavirus”. The more we subject ourselves to cringeworthy Trump pressers blaming the WHO, CDC, China and FDA, or to left-wing fantasyland Op-Eds pretending that the media have been bravely reporting the dangers since November. The more we subject ourselves to “hydroxychloroquine is the miracle cure and the media is downplaying it because they hate Trump” truthers, or to “Trump is only pushing hydroxychloroquine because his blind trust owns an index fund that owns shares in Teva” truthers. The more we subject ourselves to the brutal political ads we are going to start seeing en masse once the deaths in New York slow down. The more we do ALL of these things, the more we will start to believe this myth that the Widening Gyre will plant in our brains: that what matters here, the way that we fix this kind of thing so that it can’t happen again is that we make the right decisions in the voting booth this fall.

That is the mess of pottage we are being offered for our birthright. Reject it. Reject it utterly.

Friends, for the first time in any of our lifetimes, everyone around us is seeing the same things that we are seeing about the same institutions. They know the same things we know. We may all observe in real-time the brokenness of a fragile economic system built on the present-efficient tools of the Long Now, the over-optimization of cash, inventory, supply chains, operating and financial leverage. We may all observe in real-time how complexity makes liars out of global institutions designed with political pacification of the masses (“All is well!”) as their primary purpose. We may all observe in real-time the condescending moral bankruptcy of the nudging state who would tell us noble lies to conserve masks and limit fear or “moral hazard”, or the nudging oligarchy who would lie that saving companies and jobs means that we must bail out equityholders! Before long, we will observe in real-time both politicians and corporations who see long-term benefits in making permanent the temporary restrictions on liberty we have accepted and will accept to protect us and transition us back to a functioning economy.

Far more importantly, however, we may all see in real-time how the strength we have shown as a nation did not come from faceless institutions, but from the efforts and sacrifices of individuals, families, associations, communities, towns and tribes, connected by both the value they place in each other AND by the values they share.

We all see it now.

And We. Must. Not. Forget.

In finance, you make a career by forgetting. You make a cushy, low-risk career not by spotting big changes in the world, but by betting that the world will usually go back to the way it was, more or less. Because that’s what it usually does. And when they miss the big changes happening in the world, cynical people in our cynical industry shrug and say, “Oh well, no one could have predicted it.”

I will let you in on a secret: those people are the reason why the world goes back to the way it was.

Strive against these people.

Seek your pack.

Find how to make it resilient.

Never again yield your life to any fragile institution.

Tho’ much is taken, much abides; and tho’
We are not now that strength which in old days
Moved earth and heaven, that which we are, we are;
One equal temper of heroic hearts,
Made weak by time and fate, but strong in will
To strive, to seek, to find, and not to yield.

Ulysses, by Alfred, Lord Tennyson

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Once in a Lifetime

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The Moving Finger writes; and, having writ,
Moves on: nor all thy Piety nor Wit
Shall lure it back to cancel half a Line,
Nor all thy Tears wash out a Word of it.

– Rubaiyat of Omar Khayyam (c. 1080)

That’s a poem attributed to Omar Khayyam, an 11th century Persian philosopher and all-around genius who lived near the modern-day city of Qom, the epicenter of the COVID-19 plague wracking Iran today.

Here’s another philosopher and all-around genius, David Byrne, saying the same thing one thousand years later.


And you may ask yourself
Am I right? Am I wrong?
And you may say to yourself
“My God! What have I done?”

– Once In A Lifetime (1981)

David Byrne lives in the modern-day city of New York, the epicenter of the COVID-19 plague wracking the United States today.

It’s all the same, you know. The dad in Qom coughing up a lung who loves his kids and is loved by them is exactly the same as the dad in New York coughing up a lung who loves his kids and is loved by them. I know we don’t think of it that way. Hell, I know plenty of people in my home state of Alabama who don’t even think a dad in Montgomery is the same as a dad in New York, much less a dad in freakin’ Qom, Iran. But they are. The same, that is. Exactly the same.

We will never win this war until we regain our sense of empathy, until we regain our ability to appreciate the pain that others endure in their struggle against this common enemy.

It’s how Gandhi defined religion.


I call him religious who understands the suffering of others.


Of course, most of our leaders wouldn’t know Gandhi from a hole in the head.

Instead, our leaders, if they think of empathy at all, think in terms of Steve Martin’s advice.


Before you criticize a man, walk a mile in his shoes. That way, when you do criticize him, you’ll be a mile away and have his shoes.


You know what people without empathy are, right? They’re sociopaths, and I use that word in an entirely clinical sense. Because that’s what we are today, clinically speaking, a society largely governed by high-functioning sociopaths in both our economy and our politics, humans devoid of empathy for any other human outside of the narrowest bonds of convention. And they’re training us to be just like them.

It’s not a left/right thing. It’s not a Republican/Democrat thing. It’s not an American thing. It’s not even a boomer thing.

It’s a Nudging Oligarchy thing. It’s a Nudging State thing. It’s a Long Now thing.

Why do high-functioning sociopaths and their Renfields manufacture bullshit “analysis” to convince you that the sky is green and it’s only the olds anyway so what’s the big deal and the really important thing is to go back to work and save their wealth the economy? It’s not really to minimize the disease. That’s just the text. The sub-text … the REAL message … is to minimize your empathy, to convince you to abdicate your autonomy of mind and heart to THEM.

The real message is to convince you that 2 + 2 = 5.

Iakov Guminer, Arithmetic of an alternative plan (1931)

In the end the Party would announce that two and two made five, and you would have to believe it. It was inevitable that they should make that claim sooner or later: the logic of their position demanded it. Not merely the validity of experience, but the very existence of external reality, was tacitly denied by their philosophy. The heresy of heresies was common sense.

And what was terrifying was not that they would kill you for thinking otherwise, but that they might be right.

— George Orwell, 1984

The Long Now is the Fiat World of reality by declaration, where we are TOLD that inflation does not exist, where we are TOLD that wealth inequality and meager productivity and negative savings rates just “happen”, where we are TOLD that we must vote for ridiculous candidates to be a good Republican or a good Democrat, where we are TOLD that we must buy ridiculous securities to be a good investor, and where we are TOLD that we must borrow ridiculous sums to be a good parent or a good citizen.

And where we are now TOLD that we must join our leaders in sociopathy and division to be a good American.

What do I mean by sociopathy and division?

I mean the way our political and economic leaders beat the narrative drum about how this virus prefers to kill the old rather than the young, as if that matters for our policy choices, as if older Americans are lesser Americans, as if we should think of them differently – with less empathy – than Americans who are more like “us”.

I mean the way our political and economic leaders beat the narrative drum about how this virus prefers to kill those with “pre-existing conditions”, as if that matters for our policy choices, as if chronically ill Americans are lesser Americans, as if we should think of them differently – with less empathy – than Americans who are more like “us”.

I mean the way our political and economic leaders beat the narrative drum about how this virus hits certain “hotspot” regions, as if that matters for our policy choices, as if hotspot regions are lesser regions, as if we should think of Americans who live there differently – with less empathy – than Americans who are in “our” region.


The future is already here – it’s just not evenly distributed.

– William Gibson

We are, all of us, old. We are, all of us, chronically ill. We are, all of us, living in a hotspot.

Some of us are already there. Some of us aren’t. Yet.

Age, illness, environment … they are unevenly distributed among us. But they are the future for all of us just the same. What is empathy? It is the recognition of this truth. What is our duty? To shout this truth from the rooftops. To require our leaders to bend to OUR will, and not the other way around.

Enough. It’s time for the Pack to howl.

The moving finger writes, and having writ moves on.

The policy decisions we make cannot be undone. We have one shot at this.

Nor all thy MAGA piety nor all thy Twitter wit shall lure it back to cancel half a line.
Nor all thy SJW tears wash out a word of it.

Given the irrevocable life-and-death nature of our policy decisions today … given the profound UNCERTAINTY that governs the impact of a pandemic on society, as opposed to mere RISK … we should not seek to maximize our utility.

Instead, we should seek to minimize our maximum regret.

A risk is an event where we can assign some sort of reasonable probability to its occurrence AND some sort of reasonable assessment of its potential impact, so that we can calculate what’s called an “expected utility” … in English, so that we can talk meaningfully about risk versus reward of some action or decision. To use Donald Rumsfeld’s oft-maligned but in-truth brilliant characterization, a risk is a “known unknown”.

When people talk about the trade off between the national economic impact of shutting down the country and the national health impact of shutting down the country, they are using the language and the calculator of risk.

It’s not that people are wrong to say there’s a trade off. There IS a trade off. Where they’re wrong is to think that there is some equilibrium here – some sort of balancing point in our policy so that we can maximize our national economic expected utility given our national health expected utility and vice versa.

Where they’re wrong is to think in terms of risk and expected utility in the first place!

This image has an empty alt attribute; its file name is rumsfeld-1.jpeg

“There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know.”

An uncertainty is an event where either we can’t know the probabilities at all or – as in the case of public policy in the face of a pandemic – we’re only going to play the game once.

To use a poker analogy, my decision-making process for playing a hand is going to be entirely different if I’m only going to be dealt one hand for the rest of my life or if I’m playing all night and every night. If I’m playing all night and every night, I’ll play the odds in every hand, trusting the odds to even out in my favor over time. If I’m only playing one hand, though, where an unlucky break cannot be salvageable over time … what’s my tolerance for that?

In Rumsfeldian terms, uncertainty is an “unknown unknown”, and in his mind (he was Secretary of Defense, after all) the classic example of an uncertainty was going to war. Our war is with COVID-19. We get to fight once and only once. Whether we win or we lose is an uncertainty, not a risk, and we need a decision-making process designed specifically for THAT.

The decision-making strategy designed specifically for uncertainty is Minimax Regret.

Minimax Regret was invented (or at least formalized) in 1951 by Leonard “Jimmie” Savage, one of the founding fathers of what we now call behavioral economics. Savage played a critical role, albeit behind the scenes, in the work of three immortals of modern social science. He was John von Neumann’s right-hand man during World War II, a close colleague of Milton Friedman’s (the second half of the Friedman-Savage utility function), and the person who introduced Paul Samuelson to the concept of random walks and stochastic processes in finance (via Louis Bachelier) … not too shabby! Savage died in 1971 at the age of 53, so he’s not nearly as well-known as he should be, but his Foundations of Statistics remains a seminal work for anyone interested in decision-making in general and Bayesian inference in particular.

As the name suggests, the Minimax Regret strategy wants to minimize your maximum regret in any decision process. This is not at all the same thing as minimizing your maximum loss. The concept of regret is a much more powerful and flexible concept than mere loss, because it’s entirely subjective. But that’s exactly what makes the strategy human. That’s exactly what makes the strategy real when the ultimate human chips of living and dying are on the table.

Minimax Regret downplays or eliminates the role that probability distributions play in the decision-making process.

Minimax Regret doesn’t calculate the odds and the expected utilities over multiple rolls of the dice. Minimax Regret says forget the odds … how would you FEEL if you rolled the dice that one time and got snake-eyes?

More technically, Minimax Regret asks how would you feel if you took Action A and Result 1 occurs? What about Result 2? Result 3? What about Action B and Result 4, 5, or 6?  Now out of those six potential combinations of action + result, what is the worst possible result “branch” associated with each action “tree”? Whichever action tree holds the worst possible result branch … well, don’t do THAT. Doing anything but THAT (technically, doing the action that gives you the best worst-result branch) is the rational decision choice from a Minimax Regret perspective.

The motto of Minimax Regret is not Know the World … it’s Know Thyself.

Because when faced with an uncertain event, where you only have one roll of the dice on a probabilistic event, that’s all we can know.

Ourselves.

So what do I know about myself? What’s MY maximum regret that must be minimized regardless of anything else in this single-play game of coping with a virus that has a natural R-0 of 3+ and is 10-20x more deadly than the flu? It’s losing one of these guys.

We’ve all got a photograph like this. An old picture of the people who matter most to us in the world.

Time flies. Fifteen years. That unhappy little girl in the front row just heard back from college admissions yesterday. Good news.

I’m eligible for AARP now. My mother is now in her late 70s. She has what you’d call a “pre-existing condition” I suppose, but so will I in another 15 years.

The future is already here in this picture. It just wasn’t evenly distributed.

Now here’s the trick. The trick to rejecting the sociopathy and division that our leaders inject in our veins. The trick to engaging the world with a full heart.

The trick is to take the love you feel for your family even if they are old, even if they are infirm, even if they live distantly from you, geographically or emotionally … and extend the knowledge of that love to everyone else.

I’m not asking you to love that dad in Qom like you love your dad. I’m not asking you to be a saint.

I’m asking for empathy. I’m asking you to recognize that there but by the grace of God go I, that in fact you DO recognize exactly that when it comes to your family, that in fact you DO recognize that the future and the present and the past are as one in love … just not evenly distributed at any given time. I’m asking you to recognize that everyone in the world shares this and deserves this. I’m asking you to treat every human as an autonomous being of free will, capable of love and being loved. Just as you would want them to do unto you.

It won’t diminish the love you feel for your family. I promise. Love and empathy don’t work that way. It’s not a transaction.

It’s not a trade off.

And once you stop thinking in terms of trade offs, once you stop thinking in terms of probabilities and projected mortality rates and cost/benefit analysis and this expected utility model versus that expected utility model … once you start thinking in terms of empathy and Minimax Regret … everything will change for you.

Specifically and in terms of policy, what does a decision-making structure of Minimax Regret combined with empathy require?

I don’t know all the details. I don’t know if I’m missing key elements. But I believe strongly that any plan requires these two elements.

Keep our healthcare workers and first responders safe.

If they fall, we all fall. Every worst outcome has this as a common denominator. How do we keep them safe? Massive quantities of personal protective equipment (PPE). Everywhere. On-demand. At a granular level of the front lines.

Create common knowledge of safe zones, safe towns, safe events, safe cities.

Every worst outcome has the opposite: everyone knows that everyone knows that the contagious walk among us, creating a giant Prisoners Dilemma game of constant defection everywhere you look. Every nation for itself. Every state for itself. Every county, every city, every company, every family for itself. How do we create common knowledge of safety? Ubiquitous and rapid testing. Everywhere. All the time.

And until we can manage those two things, we lock it down. We keep the R-0 of this bastard virus <1. Everywhere. As long as it takes.

Empathy + Minimax Regret = How to Fight COVID-19

2 + 2 = 4


I’ll close this with a personal note. Because that’s what this war is for all of us … personal.

There’s another Talking Heads song that everyone knows, and that’s Life In Wartime, which Byrne wrote in 1979, two years before Once In A Lifetime. Here are the lyrics you know by heart:

This ain’t no party, this ain’t no disco,
This ain’t no fooling around
No time for dancing, or lovey dovey,
I ain’t got time for that now

Certainly pertinent for today! But these are the lyrics I’m thinking about.

You make me shiver, I feel so tender,
We make a pretty good team
Don’t get exhausted, I’ll do some driving,
You ought to get you some sleep

Do you have a partner? Do you have a pack?

That’s how we get through a war.

That’s how we get through a lifetime.

Find your partner. Find your pack.


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