Things Fall Apart (Part 1)

 Little Carmine: So, the reason I’m here you could probably guess.

Tony Soprano: What happened at Coco’s restaurant.

Little Carmine: This alteration you had with him. You’re at the precipice, Tony, of an enormous crossroad.

 ― The Sopranos, “The Second Coming” (2007)

Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
― W.B. Yeats, “The Second Coming” (1919)

Ogbuef Ezedudu, who was the oldest man in the village, was telling two other men when they came to visit him that the punishment for breaking the Peace of Ani had become very mild in their clan.

“It has not always been so,” he said. “My father told me that he had been told that in the past a man who broke the peace was dragged on the ground through the village until he died. but after a while this custom was stopped because it spoiled the peace which it was meant to preserve.”

 ― Chinua Achebe, “Things Fall Apart” (1958)

Things Fall Apart is the best-selling book of any African author, with more than 20 million copies sold. Chinua Achebe got involved directly in politics when his native Biafra declared its independence from Nigeria in 1967. Nigeria won that civil war by imposing a blockade and starving as many as 2 million Biafran civilians to death. This is the least disturbing photograph of the Biafran War that I could find.

Revenge is profitable, gratitude is expensive.

 ― Edward Gibbon, “The Decline and Fall of the Roman Empire” (1776)

We are all Tony Soprano today. We’ve tried to reason with Phil Leotardo. We’ve tried to compromise. We’ve tried to maintain the cooperative institutions of Our Thing. But the guy won’t take “yes” for an answer. He wants it ALL. So when one of his crew insults our daughter, we lose our mind. We overreact. We suffer Phil Leotardo Derangement Syndrome and we kick the lieutenant’s teeth in. Now we’ve got a choice. Do we settle with the guy we hate? Do we voluntarily pay the heavy price for breaking the “norms” of conflict with a guy who we suspect wouldn’t hesitate to break any norm at all?  Little Carmine’s comic relief notwithstanding, we all believe that we are at the precipice of an enormous crossroad in American politics.

But what if it’s not a choice at all? What if the choice has already been made for us? What if we are immersed in a competitive equilibrium of a competitive game, where the only rational choice is to go to the mattresses? To do unto others as they would do unto you … but to do it first. What then?

I don’t want to overstate the case. It bugs me to no end when people say that something is “another Pearl Harbor” or that we’re talking about a “civil war”. You know what’s like Pearl Harbor? Pearl Harbor was like Pearl Harbor. You know what’s like a civil war? Go to Wikipedia and look up Biafra, and then get back to me about how awful it is that Democrats and Republicans are figuratively at each others’ throats, not literally.

But for First World snowflakes like you and me, this is a big deal. This is a new equilibrium in the American political metagame. This is the breaking of mediative and cooperation-possible political institutions and practices, and their replacement by non-mediative and cooperation-impossible political institutions and practices. This is what it looks like, in a modern Western context, when things fall apart.

How did we get here? We got soft. I don’t mean that in a macho sort of way. I don’t even mean that as a bad thing. I mean that, just like the Romans of Gibbon’s history and just like the Africans of Achebe’s novel and just like the mobsters of the Sopranos, we have long forgotten the horrors of literal war and why we constructed these cooperatively-oriented institutions in the first place. We are content instead to trust that the Peace of Ani or the Peace of the Five Families or the Pax Romana or the Pax Americana is a stable peace – a stable equilibrium – where we can all just focus on living our best lives and eking out a liiiiitle bit of relative advantage. We are content to become creatures of the flock, intently other-observing animals, consumed by concerns of relative positioning to graze on more grass than the sheep next to us. Besides, it’s so wearying to maintain the actual intent of the old institutions, to mean it when you swear an oath to a Constitution or a god or a chief, and not just see it as an empty ritual that must be observed before getting the keys to the car.

This has all happened before.

NARRATOR:     And so it came to pass that in the late days of empire, both Rome and America waged remote control wars through vassal states and provincial “citizens”, wars that were no longer debated by the Senate but were announced by administrative fiat alongside a schedule of entertaining games and pleasing economic distributions, wars that could last for decades in farther and farther flung corners of the empire, wars that were all about naked commercial interest even as they were gussied up with strong words of patriotism.

Sure, tell me again how much we’ve advanced over the past 2,000 years, how much smarter we are, how much more self-aware and woke we are. What’s the difference between a President Trump and an Emperor Commodus? Commodus didn’t have cruise missiles for his  Syrian theatrics. That’s really about the extent of it.

And it’s not Trump per se, although Trump – like Phil Leotardo or Commodus – is the apotheosis of what I’m talking about. If it weren’t Trump, it would be someone just as ridiculous. It WILL be someone just as ridiculous in the future, probably someone on the other side of the political spectrum, someone like Elizabeth Warren or Kamala Harris. See, I am an equal opportunity connoisseur of ridiculous politicians. I’d say don’t @me, all you Trumpkins and Good Leftie Soldiers alike, but it won’t do me any good. Ah, well. That’s the thing about an equilibrium. That’s the thing about a widening gyre. The times make the man. Or the woman.

Here’s what a widening gyre looks like.

The Pew Research Center does consistently excellent work on U.S. voting patterns. In this long-running research series, they tend to focus on the distance between the median Democrat voter and the median Republican voter, and that’s all well and good. What I’m focused on however, is the shape of the Democrat and Republican electorate distributions, such that the overall distribution in 2017 is no longer a single-peaked something-akin-to-a-bell-curve as it was in 2004, but is instead a double-peaked or (to use a $10 word) bimodal distribution.

The bimodal distribution began to take shape in 2014, well before Trump came on the scene, but it’s just gotten more and more pronounced since his 2016 election. There’s a time-lapse animation of these charts that’s cool to watch, and I’ve put a solo shot of the 2017 results below.

So what’s the problem with a bimodal distribution? The easiest way to think about it is to compare the size of the purple area (where both the Republican and the Democrat electorate overlap) with the pure blue area (Democrat with zero Republican overlap) and the pure red area (Republican with zero Democrat overlap). When the purple area is smaller than both the blue area AND the red area, a centrist politician (someone between the median Democrat and the median Republican) can win neither a national nomination nor a national election in a two-party system. For any centrist candidate or policy, there exists a winning majority of voters on both the left AND the right who will favor a competing candidate or policy on both the left AND the right. This is what it means to say that the center cannot hold.

This chart is why incumbent Republicans who speak up against Trump or Trump policies lose their primaries to 9-11 Truthers and that incel-in-training kid in 10th grade history class who proclaimed that the Civil War wasn’t really about slavery. This chart is why incumbent Democrats who aren’t outright Socialists lose their primaries to latte-sipping, fashion-forward young things who honest-to-god believe that Fidel Castro and Yasser Arafat had some pretty good ideas if you just stop and think about it.

This chart is why mainstream and relatively centrist political candidates like Hillary Clinton lost. This chart is why mainstream and relatively centrist politicians like Paul Ryan are quitting. And yes, this chart is why I will get angry emails saying, “how dare you call that devil incarnate [Hillary Clinton/Paul Ryan] mainstream and relatively centrist!” AND emails saying, “good riddance to that mainstream and relatively centrist [Hillary Clinton/Paul Ryan]!”. Good times.

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

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

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

And when I say that those are your only options, let me pour some cold water on the idea that there are centrist candidates who could carry votes from both parties in a general election, or that the time is somehow ripe for a third political party. Hahahahahahahahaha. No, gentle reader, the idea that Ben Sasse or Joe Biden can ride a purple wave to victory in 2020 is completely and utterly wrongheaded. Look again at that chart. Look again at the size of that purple area today versus its size in the past. In 1994 or 2004, that purple area is where Bill Clinton and George Bush lived and thrived. Today, that purple area is where political candidates go to die.

The idea of a third party is somewhat more interesting, but only somewhat. The interesting part is that most liberal democracies have had bimodal electorate distributions for a long time. We call this Europe. And if, like European democracies, the United States had a proportional representation system, where getting 20% of the national vote would give you 20% of the seats in Congress, well then, centrists would no longer be the sad sacks of American politics. On the contrary, they’d be the swing partner in any conceivable coalition and would wield enormously outsized political power. But we don’t have proportional representation, and until that happy day of a Constitutional convention and a complete reconfiguration of American democracy … fuhgeddaboutit, as Tony Soprano would say.

The bottom line is this. In a two-party system with high-peaked bimodal electorate preferences:

There is no winning centrist politician.

There are no stable centrist policies.

Sorry.

One of the big points of Epsilon Theory is to call things by their proper names, to speak clearly about what IS. And what America IS today is a two-party political system with high-peaked bimodal electorate preferences. So long as that is the case, we will be whipsawed between extremist candidates of the Right and the Left. Our choices for president in 2020 will be The Mule and Madame Defarge. Enjoy.

I say “enjoy” because I can’t help but use snark in my despair. But the truth is … and again, this is what a bimodal electorate preference distribution means … a significant majority of Americans will enjoy very much, thank you, a choice between The Mule and Madame Defarge. Or as all the pundits will say on TV, “the base sure is excited”, and that will be true for both Democrats and Republicans.

So why do I despair? Primarily because I think that the policy agendas on both extremist sides are an absolute dumpster fire, and that lurching from stem to stern on fiscal policy and social policy and national defense is a really crappy way to run a country. All I can hope for is gridlock.

But secondarily I despair because, as much as a significant majority of Americans will want and will enjoy a contest of extremists in 2020, an even larger majority of Americans will be very unhappy with whoever wins. A bimodal electorate preference distribution doesn’t just go away on its own. It doesn’t just get better over time. It is a widening gyre. It gets worse over time, as more and more extremist candidates, full of passionate intensity, strut and fret their hour upon the stage. That’s a mixed poetic metaphor, but you get my point. The widening gyre, as Yeats put it so perfectly, is a period of mere anarchy, not special or momentous anarchy. It is a tale told by, if not idiots, then ridiculous people, full of sound and fury and ultimately accomplishing nothing.

Has all this happened before? Sure. Time to dust off your copy of Gibbon’s Decline and Fall. Time to reread Will and Ariel Durant. Just be forewarned, the widening gyre can go on for a loooong time, particularly in the case of a major empire like Rome or America. It took the Romans about four centuries to officially exhaust themselves, at least in the West, with a few headfakes of resurgence along the way. Four centuries of mostly ridiculousness. Four centuries of profitable revenge and costly gratitude. Four centuries of a competitive equilibrium in a competitive game.

Has this happened before in American history? Hard to say for sure (how dare the Pew Research Center not be active in the 1850s!), but I think yes, first in the decade-plus lead-up to the Civil War over the bimodally distributed issue of slavery, and again in the decade-plus lead-up to World War II over the bimodally distributed issue of the Great Depression. I really don’t think it was an accident that both of these widening gyres in American politics ended in a big war.

I think that’s how this widening gyre ultimately resolves itself, too. In a big war. Not another Civil War, because the issues at stake today in the aftermath of the Great Recession aren’t existential and foundational like slavery, but are echoes of exactly the same issues we wrestled with in the aftermath of the Great Depression. No, we’ll need a big war with an Other to get out of this.

So one way or another, that’s what we’re gonna get.

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This is Part 1 of a three-part series. Next, what’s the market/investing corollary to all this? Because there is one. And finally, what do we DO about this, as both investors and as citizens? Spoiler Alert: you may not like the answer.


Letter From a Birmingham Museum

As regular readers of Epsilon Theory know, I may make my home in the wilds of Connecticut today, doing my best Eddie Albert / Green Acres impersonation here on Little River Farm, but I grew up just outside of Birmingham, Alabama. My father spent his entire adult working life as an ER doc at Lloyd Noland Hospital in Fairfield, Alabama (trust me, about as far from Fairfield, Connecticut as the Earth is from Mars), starting back before emergency medicine was even a thing. My mother kept their two sons from getting into too much trouble and created a wonderful home from a (quite) modest house in an unincorporated area that’s now part of Hoover.

Lloyd Noland Hospital itself is an interesting story for a brief Epsilon Theory aside. It was the old Tennessee Coal & Iron employees hospital, dating back to 1919, acquired by US Steel when it bought TCI in the 1950s, then immediately spun off as a nonprofit foundation. The Foundation sold its assets to Tenet Healthcare in 1996, and the senior Foundation executives made a fortune. A lot of the staff, both doctors and nurses, were fired. Funny how that works. Tenet flipped the hospital to HealthSouth just three years later in a deal backed by public money. Funny how that works, too. In 2004, HealthSouth imploded in one of the largest accounting frauds in American history, and Lloyd Noland Hospital was shuttered for good. Funny how that … ah, who am I kidding … none of this is funny at all.

At least the HealthSouth CEO, Richard Scrushy, went to prison for a few years. A few. He’s found Jesus now, of course, and if you’re looking for “a dynamic risk taking entrepreneur with a powerful track record”, he’s available to speak at your next corporate retreat. Maybe you’ll catch him on Fox Business or CNBC. Or you could buy his book. Barf.

Anyway, my wife and I took three of our daughters down to Birmingham last week to visit their cousins and their Nana, and we decided to take a morning and go see the museum at the Birmingham Civil Rights Institute. It’s been open since 1992, and I’ve only heard rave reviews. But I had never been to the museum. It’s been open for 25 YEARS, and I had never been. Why not? As my father would say, Ben, you have plenty of excuses, but not a single reason.

Well, that’s not exactly true. I had a reason, just not a good one. My bad reason: I didn’t want to be lectured on civil rights. I didn’t want to be served a heaping dish of cold spinach and feel like it was my social duty to smile wanly and say “why, thank you, that was delicious. May I have some more?” What I told myself, and this is the excuse part, is that I’m a modern, educated man. I told myself that I already knew pretty much everything that needed knowing about the civil rights movement.

NARRATOR:    He did not know.

Nope, not even close.

I wasn’t lectured. I wasn’t put down. I was uplifted.

Yes, it’s spinach. Yes, I walked through half of the exhibits with a lump in my throat. Yes, I was ashamed for only coming now, 25 years late. And you know what? That’s okay. I deserve that feeling of shame. I welcome that feeling of shame, because if you don’t feel shame you’re a creature of the flock, not a creature of the pack. Frankly, we need a lot more shame in the world, not as a permanent scarlet letter or as a bureaucratic tool of the Nudging State, but as a catalyst for the gut check that we all need from time to time. The gut check that requires you to come to grips with the painful past or the painful present and DEAL WITH IT as honestly as you can. The gut check that MUST be passed if you’re ever going to succeed or move forward with ANYTHING.

That’s what the Birmingham Civil Rights museum gives you. A gut check.

What makes the museum so effective in communicating a difficult story well? Just that. They present it as a story, as a narrative. Not a cartoon story of Superheroes, although it’s impossible to avoid some degree of hagiography when it comes to this stuff, and not a cartoon story of Social Justice™, either, although here, too, it’s impossible to eliminate completely the heavy-handed nudging of the Smileyface State. No, it’s mostly a story of … people. Of the actual lives of actual people. It’s immersive and it’s real. It creates a compelling narrative arc, but not in a way that feels scripted or forced. What do I mean? I mean that the very last exhibit of the museum is a gigantic room, filled only with photographic portraits of African Americans who endured the civil rights struggles of Birmingham in the 1960s. Not activists, necessarily, just people. No one famous. No one with a statue somewhere. A chemistry teacher. A church deacon. A housewife. Not photographs of heroic actions back in the day, but a simple portrait of how they look today. Which is … old. Weathered. But oh my god … PROUD.

And that brings me to the point of all this. Because my gut check wasn’t just an examination of the shame I felt in coming to this museum 25 years too late. There was another gut check, too. Where was my family in all of this? Because unlike the people in those photographs, I wasn’t feeling particularly proud.

I was born in 1964 at St. Vincent’s Hospital, on the edge of downtown Birmingham. I think that’s where almost everyone of my cohort and my race was born in Birmingham in those days. And unlike Lloyd Noland Hospital, St. Vincent’s is still around. Looks like it’s going strong, in fact. I understand that lots of babies, white and black, are born there every day.

Eight months before I was born, not two miles distant from St. Vincent’s Hospital, these four girls were killed in the dynamite bombing of the 16th Street Baptist Church, right across the street from where the museum stands today. It took 14 years to bring one of the killers to justice, 38 years to convict two more.

The girls’ names are (left to right) Carol Denise McNair, Carole Robertson, Addie Mae Collins, and Cynthia Wesley. I’d like for us to remember these names and not the killers’ names.

Twelve months before I was born, even closer to St. Vincent’s Hospital, Bull Connor sicced dogs on civil rights marchers and ordered the Birmingham Fire Department to attack with high-pressure hoses.

   

You’ve probably seen these photographs before. They’re pretty famous. Or infamous, I guess. What you might not know, however, is that most of the people in these photographs are children.

   

Yes, black children were intentionally attacked and detained by Bull Connor’s Police and Fire Departments, specifically because they wanted “to send a message”, something that seems particularly poignant given the “deterrence” rationale given by today’s White House in defense of its immigration policy, where brown children have been intentionally separated from their parents and detained indefinitely.

What’s also true, of course, is that there was nothing accidental about the Birmingham Childrens Crusade of 1963. Children didn’t march in some organic display of civil rights awareness. They were intentionally deployed by march organizers – “used”, if you will – in order to galvanize national public opinion against segregationist policies and political leaders. That, too, seems particularly relevant given what’s happening with our immigration policy today and the Fiat News constructed both in favor and in opposition to those policies.

But my question remains. Where was my family in all of this? How is it possible that all of this was happening just down the street from where I was born, just a few miles from where I would live my entire pre-adult life, and I NEVER got a glimpse or heard a word about ANY of this? How is it possible that I would grow up without these events touching my life in any way, shape, or form? Because they didn’t. At all. More directly, why didn’t my father do something … no, scratch that … why didn’t my father do ANYTHING to support the civil rights movement happening in his backyard? Because he didn’t. At all.

To be clear, my father wasn’t a Bull Connor or George Wallace supporter. He thought they were thugs. He definitely wasn’t a segregationist or an avowed racist, and – quite the rarity – he wasn’t an unavowed racist, either, the sort of man who mutters the n-word under his breath and laughs uproariously at the “jokes”. I mean, I’m not going to say something stupid like “he didn’t have a racist bone in his body”, because I don’t think you could say that about any white person born in America in 1934, like my father. Hell, you couldn’t say that about anyone born in 1964, like me. But I’ll say this. For his day and his place, my father was as colorblind and as woke in his personal and professional life as anyone I’ve ever known. I’ve got a hundred memories of watching my father act with grace and humanity and camaraderie in interracial social settings, and not one – not ONE – of hostility or a mean-spirit. But in his political life – in his life as a citizen – he was AWOL from the defining struggle of his day. Why?

I think I found the answer to that question at the Birmingham Civil Rights museum, and I’ll use the Montgomery bus boycott of 1955 – 1956 to illustrate.

We’re all familiar with Rosa Parks, the seamstress who refused to give up her seat on a Montgomery bus to a white man, and was duly arrested, tried, and fined for breaking this prototypical Jim Crow law. What we’re less familiar with, however, are the politics and the NARRATIVE of the civil rights protest that followed in the wake of Parks’ arrest.

First, it wasn’t just Rosa Parks who refused to give up her seat, and several of those arrested were children.

Look at the charges filed against this 15-year-old girl – assault and battery for refusing to give up a bus seat. Look at the sentence here – the girl is declared a ward of the state, legally and permanently separated from her parents. This happened nine months before Rosa Parks was arrested.

Like the Childrens Crusade of 1963, it was no accident that a 15-year-old was on the front lines of a civil rights battle. The girl in this case – Claudette Colvin – was a member of the NAACP Youth Council, and her mentor – Rosa Parks – was the secretary of the NAACP Montgomery Chapter. Like the Birmingham children eight years later, Colvin was intentionally placed in harm’s way with the explicit goal of becoming a cause celebre that would be sympathetic to a national audience.

And it worked. National media coverage of the Montgomery bus boycott was highly critical of the arrests, particularly Colvin’s. In fact, the Colvin case – much more so than Rosa Parks’ own case – was the backbone of the Supreme Court decision in Browder v. Gayle, which struck down the Montogomery bus segregation laws as unconstitutional.

But Alabama media coverage – the media coverage that my father would have seen – focused entirely on the agency of the NAACP in breaking the law. There was zero assessment or discussion of the law itself. There was enormous assessment of the de facto illegality of the acts and the intentional use of children to perform illegal acts. In fact, E.D. Nixon, the head of the NAACP in Alabama during this span, decided not to proceed with a boycott of the Montgomery bus system after Colvin’s arrest precisely because – as effective as the Colvin Narrative might be on the national stage – he thought the child-used-by-NAACP Narrative would undermine the boycott’s effectiveness on the ground in the Montgomery area. Instead, he wanted an adult to be the face of the event, and that’s why Rosa Parks, arrested nine months later, is on a postage stamp but Claudette Colvin is not.

This War of Narratives, one acting nationally and one acting locally, escalated dramatically as the Rosa Parks arrest catalyzed a full-scale boycott of the Montgomery bus system in December 1955. Just as he had chosen Rosa Parks as the public face of the arrest, Nixon chose Martin Luther King, Jr., then a 26-year-old minister new to the Montgomery area, as the public face of this largescale protest action, MLK’s first. As with the choice of Parks, Nixon’s choice of MLK was brilliant from a Narrative construction and delivery perspective. E.D. Nixon played one hell of a metagame!

The white Narrative response was pretty effective, too, though. Rather than fight the boycott on the “merits” of segregation and Jim Crow laws, the status quo Narrative effort focused almost entirely on the illegality of the boycott. Yes, I know this sounds bizarre to the modern ear, but calling for a boycott of a commercial service used to be illegal. I’m not making this up.

Let me say this again, with emphasis: only a few decades ago, you would be arrested if you said out loud that people should stop going to Starbucks or Walmart or Amazon or SeaWorld or Chick-fil-A or Exxon or Red Hen or whatever.

This wasn’t just an Alabama thing and it wasn’t just a segregationist South thing. It was an anti-Labor thing across the country. It was a status quo political thing.

The Montgomery bus boycott was defined as illegal, which allowed the construction of a VERY effective Narrative that the organizers were, by definition, criminals. That MLK mug shot at the start of this note … that’s not from his Birmingham arrest, where he wrote his masterpiece “Letter From a Birmingham Jail”, but from his Montgomery arrest, where a grand jury indicted him and close to 100 others on felony charges of “conspiracy” against a business enterprise. MLK was sentenced to a $500 fine or a YEAR in the state penitentiary. No joke. More than a year, actually. He spent two weeks in jail before the fine was paid. For his words. For the criminal harm done by his “hate speech”, as it was defined then.

THAT’S the Narrative that my father heard. THAT’S the Narrative that moderate whites all over the South heard. It didn’t turn my father into a segregationist or a racist. But that was never the intent. The intent was to take my father off the political board. By constructing a dominant and immersive Narrative where opposing the status quo was defined as criminal, status quo institutions made it impossible for my father to actively support the civil rights movement. Why? Because to act in that way would mean self-identifying as a criminal, and that’s something my father would never do. It’s not that my father was oh-so concerned about the State seeing him as a criminal, although yeah, there’s that. My father’s pack was his family, and he wasn’t about to do anything that might draw the gaze of the State, which he distrusted immensely, onto his family. The bigger issue, though, was that my father could not abide seeing HIMSELF as a criminal, and that was the meaning of civil rights activism in the Narrative ocean in which 1960s Alabama white people swam: civil rights activism = criminality.

This is the awesome power of effective Narratives and the Common Knowledge Game. They don’t control us directly, like high-pressure fire hoses and billy clubs. No, they’re much more effective than that. Narratives and the Common Knowledge Game drive us to control OURSELVES.

The goal of Narrative creation by status quo Missionaries like politicians and oligarchs is rarely to change your mind. It’s rarely to try and switch you from one side to the other side. It’s rarely to get you to vote FOR them or to buy FROM them. Because you already do.

The goal of most Narrative creation is to take you off the board.

The goal of most Narrative creation is to convince you to sit down and shut up.

In our investment lives, we are told to sit down and shut up when it comes to industrially necessary eggs, investment products like ETFs and passive index funds. We are told by trillion dollar asset managers, who just happen to dominate the market in ETFs and passive index funds, that our fiduciary fitness is defined by our opposition to “high fees”. We are told that we are acting against our client’s best interests – i.e. we must self-identify as bad guys if not outright criminals – if we don’t focus on investment fees as our be-all-and-end-all consideration. None of this will turn independent-thinking financial advisors into outright Vanguard-indexing pod people. But it will absolutely make independent-thinking financial advisors doubt themselves and their own virtue if they start to question the party line. You’re not one of those bad guys trying to screw over your clients by putting them into actively managed funds, are you? No, of course you’re not.

In our political lives, we are told to sit down and shut up when it comes to law-breaking Others, like child-using MS-13 gangbangers or Muslim-country-originating ISIS terrorists or … on the other side … statue-protecting Charlottesville Nazis or Putin-loving White House traitors. We are told by trillion dollar political/media machines that our patriotic fitness is defined by our opposition to these cartoon foes. None of this will convince independent-thinking Republicans to vote Democrat or independent-thinking Democrats to vote Republican. But it will absolutely make both independent-thinking Republicans and independent-thinking Democrats doubt themselves and their own virtue if they start to question the (literally) party line. You’re not one of those bad guys trying to screw over America by supporting the criminals/terrorists/Nazis/traitors, are you? No, of course you’re not.

Last summer I wrote a note – Always Go To the Funeral – to introduce the social and game theory dynamics in play with all of this. At the time I didn’t see how our Narrative shock collars could possibly get any stronger.

And yet here we are. The shock collars are zapping us harder and harder. Our respective yards encompassed by our respective invisible fences are getting smaller and smaller.

Red Hen … ZAP! Child prisons … ZAP! Supreme Court … ZAP! MS-13 … ZAP! Russia … ZAP!

I’m not saying that you should fight the Man, whatever that means to you.

I’m saying that the Man is very, very active in these Narrative efforts to take you off the board, to convince you to sit down and shut up as an investor or as a voter. I’m saying that once you start looking for these efforts, you will see them everywhere.

I’m saying that the Man is very, very skilled at defining your choices in ways that don’t seem at all like they’ve been defined for you. In ways that seem like common sense. In ways that seem like common decency. In ways that make you believe that YOU are the bad guy if you question the Narrative.

I’m saying that’s not true. I’m saying that you’re not a bad person for questioning the party line. I’m saying that you may still make the choice to take yourself off the board, but make it a choice. I’m saying that the sense of shame you may feel when you wrestle with these issues isn’t a sign of weakness, but a sign of strength. I’m saying that you may feel alone and besieged and full of self-doubt as you wrestle with these issues, but only because that’s the way that your social animal brain is hard-wired. Not because you are truly alone.

If I could go back in time and tell my father, gone more than 20 years now, ONE thing it would be that. You are not alone. Because I suspect he felt pretty darn lonely as he wrestled with all this. I think it would have meant the world to him to talk this through with a member of his pack, to try and figure it out together.

And that’s why I write Epsilon Theory. This is the blessing it has given me. To connect me with other free-thinking and truth-seeking human beings, from all over the world and from every walk of life, who are wrestling with this most basic question: how do we make our way in a fallen world without losing ourselves in the process?

I never had a chance to talk with my father about that. Not directly, anyway. But I can talk with you.

We are not alone.

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Make America Good Again

On episode 26 of the Epsilon Theory podcast, we welcome back Rusty Guinn, our executive vice president of asset management, to talk about political markets — a topic just as important to Ben as capital markets. Be sure to also check out the companion pieces to this podcast: “Always Go To the Funeral,” “Sheep Logic,” and “Before and After the Storm.”


2016-07-et-podcast-itunes 2016-07-et-podcast-gplay 2016-07-et-podcast-stitcher

Gandalf, GZA and Granovetter

Artist: Eric Geusz

I cordially dislike allegory in all its manifestations, and always have done so since I grew old and wary enough to detect its presence. I much prefer history — true or feigned — with its varied applicability to the thought and experience of readers. I think that many confuse applicability with allegory, but the one resides in the freedom of the reader, and the other in the purposed domination of the author.

J.R.R. Tolkien

I threw down my enemy, and he fell from the high place and broke the mountainside where he smote it in his ruin. Then darkness took me, and I strayed out of thought and time, and I wandered far on roads that I will not tell. Naked I was sent back — for a brief time, until my task is done. And naked I lay upon the mountaintop…I was alone, forgotten, without escape upon the hard horn of the world. There I lay staring upward, while the stars wheeled over, and each day was as long as a life-age of the earth.

— J.R.R. Tolkien, The Lord of the Rings: The Two Towers (1954), Speech by Gandalf

Gandalf is totally not Jesus, guys. Except for the fact that literally every aspect of their story arcs is identical, they have nothing in common. But understanding applicability vs. allegory is powerful.

Anytime people read my tweets, they hear it in autotune.

T-Pain

Me too, Mr. Pain. Me too.

Criminal subliminal minded rappers find it

Hard to define it, when narrow is the gate

For fat tapes and, then, played out and out of date

Then I construct my thoughts on site to renovate

And from that point, the God made a statement

Draftin’ tracements, replacements in basements

Materials in sheet-rock, to sound proof the beatbox

— GZA, “Living in the World Today”, Liquid Swords (1995)

There’s no shortage of ways to autotune our thoughts and behavior as citizens and investors. Scripts, symbols, tribalism. Some come from our own minds and some from external sources. Some we force on others. But we always, always have a choice. Do we allow others to write our scripts? Do we allow ourselves to be someone else’s agent? Or do we stake out our roles as citizens, as principals? Narrow is the gate, friends, and if you can’t construct your thoughts on site, to renovate, and soundproof the beatbox — you’ll always be someone else’s tool.

I’ve had a string of good luck lately. Or, at least, I’ve experienced a number of things that could have been much, much worse, which works out to the same thing, I think.

When I published Before and After the Storm, I was writing it from my home in Houston. I thought we would come through completely unscathed, and for the most part we did. My car flooded, but auto insurance is a lot better at covering losses like that than home insurance, and there wasn’t anything personal about what got destroyed. The things you learn in a disaster. I feel very fortunate.

Hurricane Harvey made landfall on my 10th anniversary. My wife and I met (re-met, actually) at a beach party on Surfside Beach, not terribly far from where landfall took place, and had originally planned to rent a house there to celebrate. Not in the cards this year, obviously. So we decided to celebrate that (and a nondescript birthday of my own) with a weekend away from our lovely two-boys-two-and-under with some close friends. In Vegas. That weekend.

But again, I feel fortunate. We stayed further north on the Strip. None of that keeps the mind from imagining the direst scenarios, though. What if we’d made our evening plans down there on Sunday instead of Saturday, when we walked the south end? What if we hadn’t called it an early evening on Sunday and instead decided to wander around (like you do when you’re in Vegas)? What if Willie, Robert Earl Keen or Ray Wylie Hubbard had been playing the festival (in which case I definitely would have been there)? There’s a note or two to be written about how this kind of thinking affects us as investors. The psychology of narrow misses, or at least of seeing tragedy at arm’s length.

But that’s not where my mind went. Instead, in the aftermath of the mass shooting in Las Vegas, I found myself, like many others, wondering what this vicious moron could have been thinking. A seemingly normal guy with no real motive, no obvious animus. Some compulsive behaviors, it would seem, but no more than a million other men and women. No clear ideological intent. No obvious prior evidence of sociopathy, psychopathy or really any other -pathy except for maybe antipathy. Other than the senselessness that pervades all such tragedies, the most striking observation following the attack has probably been that acts of terror, crimes and murders are being committed by people who look a lot more normal. Who may, in fact, be a lot more normal.

It’s something Malcolm Gladwell has spoken about, and which he wrote about in his 2015 piece in The New Yorker, Thresholds of Violence, and in various lighter ways in The Tipping Point. Like recently minted and well-deserving Nobel laureate Dick Thaler, Gladwell’s musings sometimes dip into the sort of paternalistic pop-science/pop-policy recommendations that grate on me a bit. But he’s onto something here. His notion is that the early mass shooters and murderers were the truly insane, those willing to independently plan, pursue and carry out a vile act. In so doing, they created a script, a pattern for others. Each successive event adds to our cultural story, and makes the script more accessible, more familiar to individuals at the margin of social norms. This lowers the threshold for another to carry out a similar attack. And so the next person who carries it out seems less clearly troubled, less self-evidently motivated by ideology. More normal.

The idea builds on the work of Stanford sociologist Mark Granovetter, who was among the first to describe this phenomenon through a range of examples. Whether it is deciding to join a riot, to eat at a Chinese-food restaurant, to buy a new kind of quintuple-levered vol-selling ETF, or any number of other everyday decisions, we judge certain aspects of our social engagement based on the quantities of others who have made similar choices. The more people join the riot, and the more those people look like us, the more likely we are to join. In other words, it’s Sheep Logic. Like that most sociopathic of animals, we make decisions in our own interest that incorporate the behavior and our observations of others not out of empathy or concern for the other, but because of their information value. This is how sociopathic behavior becomes commonplace among people who are, well, normal.

Thankfully, for most of us, this sheep-like tendency toward sociopathy doesn’t manifest itself in anything quite so horrific. But if you think that threshold effect-driven symbol devotion isn’t tearing us apart, you haven’t been paying attention. It hasn’t exactly been subtle, y’all.

Some of the symbols and stylistic tropes that force heterogeneous populations into homogenous groups are pretty obvious. Like, Gandalf-as-a-humble-leader-who-dies-sacrificially-to-save-his-followers-by-battling-a-demon[1]-on-his-descent-into-hell-after-which-he-is-resurrected-in-white-for-a-time-to-teach-and-lead-before-he-ascends-into-another-plane-to-escape-Middle-Earth-for-the-realm-of-the-angels obvious. Others less so. If you can get published in a journal for identifying the subtextual racist undertones in Starbucks Pumpkin Spice Lattes, just imagine how many different symbolic interpretations there are for something like, say, Citizen Kane’s Rosebud. Symbols, and the reverence we attach to particularly tortured interpretations of them, are the reason why English departments are still producing academic papers and why Dan Brown gets to live in a house in New Hampshire with hidden doors and secret passages.

Fascinatingly, J.R.R. Tolkien actually very famously detested allegory, the most common kind of literary symbolism. He was not particularly fond of his close friend C.S. Lewis’s world of Narnia for this reason, thinking it far too allegorical, and with one too many electric streetlamps. Whether or not he always practiced what he preached, however, Tolkien’s point remains an important one for our public discourse, where symbols — semiotics — have become the center of gravity for almost every civic conflict and debate. Most symbols we encounter are powerful shorthands, and their meaning differs based on our unique and shared experiences. The song you remember from your first dance at the high school prom was the soundtrack to someone else’s personal tragedy, and the writer of the song had nothing of the sort in mind. And that’s okay. In Tolkien’s terminology, these symbols are applicable, but neither universal nor determined by any one person for another.

In Before and After the Storm and Always Go to the Funeral, Ben and I wrote about those who seek to divide us and drive us from a cooperative game into a competitive game. You won’t be surprised to see us write that this is often achieved through the construction of narratives, loaded for bear with symbols. But with these symbols, you don’t get to decide what they mean for yourself like a favorite song. No, that decision is made for you. In Tolkien’s words, these symbols represent the purposed domination of the author. They seek to strip us of sovereignty over our own intent. They force us to choose sides. This is among the most powerful forms of narrative construction.

Ben and I have also written and talked a lot about what we think it means to be a Citizen. Above all, it means always being a principal. It means treating others as principals. Those who would rule over us to serve their own ends would make us agents. They would make us nodes in a blockchain, repeating the anonymous reports of someone else’s philosophical transactions. The Citizen rejects this impulse at every pass, in his political, personal, professional and, yes, even his financial life.

Charlottesville, Continued

Both Ben and I wrote about the issue of Confederate statues, because part of this story has applicability for us, as it does for so many Americans. For me, it is applicable for two reasons. When he was 16, my third great-grandfather volunteered for what would later become the 34th Tennessee Infantry Regiment. In the first day of the Battle of Chickamauga, his gun exploded in his face at Brock’s Field. It was an injury that impacted the rest of his life, which was short. The 11th of 12 children, he was maimed in battle but continued to fight. He married, had children and died penniless in his early 40s. His wife and children were forced to leave for Texas, where they became cotton tenant farmers. They got by. Within two generations they prospered.

Don’t cry too much for grandpa Jim. There’s a Part II. His family — my family — also owned slaves. In 1860, my fourth great-grandfather, a Methodist minister, felt he had the right to say that he owned 20 human beings. The youngest was a four-month-old boy. The oldest was a 52-year-old woman. Among them was a 30-year-old man named Jim, just like my third great-grandfather. He married a woman named Clara from the next farm, and they had a son named George. The picture to the right is of George with his wife Winnie in the late 19th century.

So what do the symbols of the Confederacy mean to me? Shame, mostly. Shame in what my family did, what they were a part of. That they weren’t on the right side of justice. That they could preach a Christian Gospel and think to own a person with a soul. Some pride, too. Pride in a young boy who was brave, who volunteered and fought for his neighbors, and was maimed as a simple infantryman. Who, I hope, stood tall when the German expatriates from Indiana raised by Johann August Ernst von Willich[2] rained down artillery and rifle fire on them and the rest of General George Maney’s brigade. Sam Watkins, a soldier in another unit in the division, wrote about it in his marvelous memoir, “Company Aytch”:

We held our position for two hours and ten minutes in the midst of a deadly and galling fire, being enfiladed and almost surrounded when General Forrest galloped up and said, ‘Colonel Field, look out you are almost surrounded; you had better fall back.’ The order was given to retreat. I ran through a solid line of blue coats. As I fell back, they were upon the right of us, they were upon the left of us, they were in front of us, they were in the rear of us…the balls whistled around our ears like the escape valves of ten thousand engines. The woods seemed to be blazing…one solid sheet of leaden hail was falling around me. I heard General Preston Smith’s brigade open. It seemed to be platoons of artillery. The earth jarred and trembled like an earthquake. Deadly missiles were flying in every direction. It was the very incarnation of death itself. I could almost hear the shriek of the death angel passing over the scene.
Sam Watkins

For me, the conflicted realities of race and patriotism — shame and pride — don’t stop there. They are a running theme in my family, as they are with so many others. Almost 52 years ago to the day, on October 22, 1965, my Uncle Jimmy was walking through the jungle near Phú Cường with a small squad of men from the 173rd Airborne Brigade, when a grenade rolled into their midst. Without a moment’s thought, a young man from Chicago and Mississippi grabbed the grenade, threw it under his body and saved the lives of four men that were walking with him. My Uncle Jimmy was one of them.

This young man, who would have no doubt endured the same racism that many black Americans knew in 1965, loved his country and his fellow man, and literally jumped on a grenade for my family. For it, he was awarded the Congressional Medal of Honor by President Johnson, and became the first black man to receive the honor during the Vietnam War. If you’re still hung up on statues and memorials, the next time you’re in Chicago, walk just north of the Navy Pier to Milton Lee Olive Park.

The picture below shows Olive’s parents receiving his posthumous medal, my Uncle Jimmy standing at attention between Olive’s father and President Johnson.

I think it’s fair to say these issues have a lot of applicability for me.

But my experience still matters a whole hell of a lot less than the experience of just about any black person in America on this topic. Do I get psychic value from knowing a relative acted bravely on the field of battle? Yes. Would I be comforted to know my country respects the tactical military brilliance of Robert E. Lee, that it was mature enough to consider that in full context of his flaws? Yes. Do I think there are strong, justifiable reasons to be extraordinarily hesitant and deliberate about anything that looks like the destruction of art, of historical records? Yes. Do any of those things measure up to how these symbols are applicable to a black man or woman in America? NO. God, it’s hard for me to fathom that they can even be represented on the same scale.

But that is the nature of civic discourse: for us to collectively weigh matters of importance, or to allow each individual the freedom to do so for himself. That is what a society which values Tolkien’s applicability does. That is what a Citizen does. It doesn’t require us to conclude that all such perspectives are equally true, or even that each person’s opinion is equally valuable. Far from it. Don’t mistake this for the postmodern view that those without personal experience don’t get a seat at the table for the discussion. Much to the contrary, the enlightenment principles of free discourse require us to allow all the arguments to be heard. On matters of social import, to be weighed. And in all cases, to be represented faithfully.

But rather than engage in true Citizenship, in the path of enlightenment, we chose another path. We chose the path of allegory, of symbols assigned to us and to others as agents and not as principals. Those bent toward purposed domination of those with conservative political leanings imposed one particular allegory: ‘statues of confederate leaders represent the spirit, culture and history of the southern United States’. An attack on the statues is therefore an attack on the spirit of culture of a huge portion of the population. The enemy are the politically correct run amok, people who wish to erase history and replace it with a sanitized version! With a lie! If you do not stand for this now, they’re going to tear down all our statues, all of our history.

The manipulating spirit of the far left in this case found a far easier target (Godwin’s Law made manifest proved too sore a temptation). Once a platoon or two of sociopathic, dunderheaded, socially awkward, spoiled white guys with an inclination toward violence rolled out the old “Blood and Soil” song and dance number, the allegory basically wrote itself: Defense of the statues IS defense of white supremacy. Defending America against Tiki-torch wielding apfelstrudelführers, as Kevin Williamson brilliantly put it, must be our aim at any cost. If we must pretend that the Occupy Wall Street trust fund kids who swapped their hipster tents for Antifa masks are our heroic vanguard, a modern form of troops storming Normandy, so be it. If we don’t, we are basically enabling the rise of Hitler!

The magic of the technique is this: for those to whom the symbol has personal applicability, the allegory that replaces it is nearly impossible to resist. If you have some affinity for the south (which is no crime at all, folks), or if you believe that history is worthy of protection with integrity, these are defensible points of view to have. If you’re especially sensitive to both active and passive forms of racism, you’re in very good (if sadly incomplete) company. But under the control of those who would make us agents, allegory uses these affinities and applicabilities as a Trojan Horse, entering as defensible, admirable points of view and pouring out into the streets of Troy as straw men to focus our rage on any who might assault them. Our defense of the south evolves into a perspective that sees attacks on monuments of the Confederacy as a broad attack on us and our culture. Our righteous anger at racists transitions into frothing rage at any who happen to share a point of view on what from our history is worthy of remembering. Those who had never stopped in contemplation — whether out of pride or shame or anger — before a monument in their lives now saw it as some existential thing that reflected the ill will of our fellow Citizens acting as principals.

But it didn’t. They — we — had already been made into agents.

Enter the Anthems

Our next test (you know, the anthem thing?) didn’t go much better.

The flag and the anthem are among the clearest examples of varying applicability, because flags are literally designed to function as symbols and representations of the state or a ruling party. To many uniformed men and women and to their families and friends, it is a binding tie, a symbol of sacrifice and service. To the patriotic, it can be (varyingly) an emblem of affinity for culture, for opportunities provided, for values shared in connection with the nation. To others, it is a reminder that they feel like second-class citizens in some way. A sharp allusion to the hypocrisy they see, that a country could emphasize freedom and equality, and yet deny both to some for so long. All these are feelings formed by experiences, some anecdotal and narrow in import, and some broad and worthy of extrapolation. They are formed by thoughtful conclusions, some rightfully constructed and some hopelessly flawed. They are not equal. But they are the views of Citizens and principals.

When Colin Kaepernick began his protest of the anthems, most of us didn’t notice, since we were sitting at home on our couches, distracted by beer, friends and smartphones. Say what you will about a young man who decries oppression wearing a t-shirt celebrating one of the 20th century’s great oppressors, who bemoans a lack of mutual respect wearing socks that stylized policemen as pigs wearing hats. But he was clearly acting as a principal, a man responding to what these symbols meant to him based on his judgments and his experiences, right or wrong.

Fueled by competitive game-driven rhetoric from the president, the right’s response took us away from the path of the Citizen. The personally applicable meaning of the symbol immediately became a monolith, an immutable national standard. To sit during the anthem wasn’t what the person doing it said it was, it was a symbol of disrespect toward the military, the police, the nation, our values, our Constitution. It was a sign of hatred of the country, and if he didn’t like living here, why doesn’t he just move? There is no intrinsic, no fundamental reason why this action in context of this symbol should have that meaning, except that we all agreed that it did. Instead of treating those protesting as principals — which doesn’t mean agreeing, but does require from a Citizen some attempt at understanding — we made them agents. We assigned them views and intents they never themselves conceived. In so doing, we made ourselves agents as well.

True to form, the American left took the bait. I don’t know if we’re really all going to laugh about this in a decade or two, but the attempts at symbol construction here are frighteningly absurd. In response to the shenanigans above, we got proclamations about acceptable forms that the protest symbol must take. Because the Dallas Cowboys knelt together before the anthem and not during it, it was bullshit. Craven and useless. Anyone who stands for the anthem stands for white supremacy! Richard Sherman informed us that if we didn’t condemn the president’s rhetoric, we were complicit. This is increasingly the shape that our debates take. Why are you angrier about this issue than that issue? Why did you tweet/post/talk more about this one issue than this other issue that I think is more important? How dare you not observe the forms that reflect the right-sounding thoughts in the manner I prefer? Did you use the proper skin tone in your emoji-laden message?

You could call all of this a more rigorous way of describing political correctness, and you’d be pretty near the truth. The left remains, I think, the most pernicious source of this scourge to an enlightened society. The Foucaltian language of privilege and oppression, while it may at times be an accurate reflection of the realities of inequality, bias and circumstance that we must assault as a society, can never be the language of the Citizen, because it inherently rejects the idea that certain people can be principals. It says that a person born in privilege is always an agent of his bias, and that he may not have the sovereignty of a principal in various arbitrarily chosen political issues. Yet for all that, under President Trump it has instead been the right that has been the proximate cause of allegory and political correctness, I think. As Ben has pointed out, this is how this political environment is trying to break us.

Agents and Markets

So what is a Citizen to do? And what of the Citizen in markets?

In markets, it should be a reminder that strong enough narratives make agents of us all. You need only to look at VIX-based instrument markets to observe just how willing we are to forgo our views as principals to join in a group-based thinking. In Part I of my recent note, The Myth of Market In-Itself, I introduced some of the ways in which behavior influences markets, but it is in Part II that I will dive more into the archetypes and languages in which principals become agents.

It should also be a reminder to those of us with clients that it is important to listen to what they are telling us. About their desires, their intents, their motivations. The robo-adviser, style-box generation is happy to slot us into a category and tell us who we are. Even outside of this, the investment industry has constructed entire business models out of gaming characteristics to suit investor archetypes and the superficial things that are likely to attract them to buy. As an industry, we don’t treat our clients like principals, and it’s a problem.

But whether or not we are in markets, the refrain you will hear from us is to resist being drawn into the competitive game. Resist being drawn to allegory. Resist being made into an agent, and reject doing so to others.

[1] OK, a Balrog of Morgoth, which is technically among the Maiar kin to Sauron that aligned themselves with Melkor when he rebelled against the Valar that Eru had sent to shepherd their collective vision for the world. So not really a demon, but “wings of shadow, wreathed in flame?” Imma call it a demon. Don’t @ me, Stephen Colbert.
[2] This is a really fascinating man. A Prussian noble who renounced his titles and became confidante and eventual competitor to Karl Marx, Willich counted Friedrich Engels as his aide-de-camp during the socialist revolutions of 1848-1849. He ultimately found Marx to be too conservative, and challenged him to a duel that Marx rejected. Willich then left for America, where he recruited and led a division of men from Indiana and Ohio, mostly German expatriates. They were among the most decorated units in the Union Army.

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Before and After the Storm or: Make America Good Again


Thanks for being part of the Epsilon Theory community. One of the other communities that matters to us is Brazoria County, a rural county south of Houston that is experiencing heavy floods in the wake of Hurricane Harvey. The United Way of Brazoria County is a charity focused on recovery for this heavily impacted region.


Mr. Advocate, the rotten tree-trunk, until the very moment when the storm-blast breaks it in two, has all the appearance of might it ever had. The storm-blast whistles through the branches of the Empire even now. Listen with the ears of psychohistory, and you will hear the creaking.
— Isaac Asimov, Foundation (1951)

Do you hear the creaking?

I don’t. It’s not that I don’t see what’s going on in America or that I’m not pained by an increasingly bi-polar distribution of political, social and ethical views. After all, the belief in narrative-driven politics and narrative-driven markets isn’t a belief in their virtue, only their existence. I also don’t know how we get out of this cycle, but I believe that we will. This is not a Seldon Crisis, and Trump is not the Mule.

That Nature smiles at the union of freedom and equality in our utopias. For freedom and equality are sworn and everlasting enemies, and when one prevails the other dies. Leave men free, and their natural inequalities will multiply almost geometrically, as in England and America in the nineteenth century under laissez-faire. To check the growth of inequality, liberty must be sacrificed, as in Russia after 1917. Even when repressed, inequality grows; only the man who is below the average in economic ability desires equality; those who are conscious of superior ability desire freedom, and in the end superior ability has its way.
— Will and Ariel Durant, The Lessons of History, 1968

Cersei Lannister: You should have taken the realm for yourself. Jaime told me about the day King’s Landing fell. He was sitting in the Iron Throne and you made him give it up. All you needed to do was climb the steps yourself. Such a sad mistake.
Ned Stark: I’ve made many mistakes in my life, but that wasn’t one of them.
Cersei: Oh, but it was. When you play the Game of Thrones, you win or you die. There is no middle ground.
Game of Thrones, Season 1, Episode 7

Perhaps the cause of our contemporary pessimism is our tendency to view history as a turbulent stream of conflicts — between individuals in economic life, between groups in politics, between creeds in religion, between states in war…but if we turn from that Mississippi of strife, hot with hate and dark with blood, to look upon the banks of the stream, we find quieter but more inspiring scenes: women rearing children, men building homes, peasants drawing food from the soil, artisans making the conveniences of life, statesmen sometimes organizing peace instead of war, teachers forming savages into citizens, musicians taming our hearts with harmony and rhythm, scientists patiently accumulating knowledge, philosophers groping for truth, saints suggesting the wisdom of love. History has been too often a picture of the bloody stream. The history of civilization is a record of what happened on the banks.
— Will Durant

  Unidentified man/hero/Texan

Reporter:  You guys going to jump in and help out?
Unidentified Man:  Yes, sir.
Reporter:  Where you coming from?
Unidentified Man:  Texas City.
Reporter:  What…what are you going to do?
Unidentified Man:  I’m going to try to go save some lives.

“Val”, said Father, “we don’t expect you to understand this, but some of the things that make Peter…difficult…are the very things that might also make him great someday.”
“What about me?” asked Valentine. “As long as you’re telling fortunes.”
“Oh, Val,” said Father. “All you have to do is live your life, and everyone around you will be happier.”
“No greatness, then.”
“Val,” said Mother. “goodness trumps greatness any day.”
“Not in the history books,” said Valentine.
“Then the wrong people are writing history, aren’t they?” said Father.
Orson Scott Card, Ender in Exile, (2008)

Damn right, they are.

It’s hard to stay focused on a lot of things in the face of human tragedy. Including markets.

I’m writing this on Tuesday, August 29 from my home office in Memorial, a village on the west side of Houston. We’ve gotten more than 30 inches of rain through this morning, we can still do our jobs, and we’re doing fine. The people to the west of us in Katy aren’t. Waters from rains upstream have led to overflowing reservoirs that will be released over time, keeping flood waters high. People to the east of us aren’t, either. Many of Houston’s most populated areas are under water. We have colleagues that have been evacuated from houses they evacuated to, and clients and friends who haven’t been able to leave their second floors for a week.

My little hometown in Brazoria, Texas, some 60 miles to the south, is about to have the screws put to it next. It sits between two rivers. One is a stream called the San Bernard River. The other is a Big, Nasty River called the Brazos. It puts nine times as much water through it as the Rio Grande. Come later this week when this piece is published, it will be putting through 45-60 times as much water — at my hometown maybe some 70-80,000 cubic feet per second. If extrapolations from this NWS projection are to be believed, it could be more like 120-140,000 cubic feet per second. As you can see from the missing right axis, it is both literally and figuratively an unfathomable amount of water — an Olympic-sized swimming pool flowing every 3 seconds through a channel where it usually takes two minutes.

We tend to think big thoughts when big things like this happen, and there’s been a lot of that going on. For me, those thoughts have turned local, but I know a great many people outside of the Greater Houston area are focused on other things that are going on: Charlottesville, the Trump presidency, Berkeley, Eclipses, Nazis. It’s a lot to take, and Ben has accurately predicted and is now observing how some of these issues are manifesting themselves in Competitive Games that force us all into positions where we must either fight or lose. He was absolutely right that the aftermath of the Trump presidency would break us, that it would destroy any chance at productive political, social — hell, even investment dialogue. Was the event that broke us irrevocable? How do we get out of this Competitive Game? Can we?

These questions form the central context for one of the greatest works of science fiction ever written: Foundation, by Isaac Asimov. Spoilers follow, but frankly if you haven’t read it, you should stop reading this note and read it instead. It’s better. The story of Foundation is the story of a massive multi-planetary civilization and the development of a robust, flexible system for understanding and modeling the sociopolitical trends of its very large societies: psychohistory. The main champion of this system, a generational genius named Hari Seldon, identifies the inevitable fall of the prevailing government and its devastating aftermath. While the collapse is unavoidable, he determines, not all subsequent outcomes are equivalent. He devises a plan to plant seeds of the civilization that would survive in two corners of the galaxy, predicting that the evolution of those societies over future generations would lead to the maximum possible peace and stability. The system of psychohistory hinges on the behaviors of very large groups of humans and the simplifying assumption that no individual could possibly have the influence or power to break these models.

There are two kinks in Hari Seldon’s system. The first is the idea that Foundation — but really, any civilization — will reach inflection points from time to time where one set of actions will break the path back to peace and harmony, and one set of actions will maintain it. These events require active intervention outside of the normal behaviors that those in power would otherwise pursue. These are Seldon Crises. The second kink is different in that it is unpredictable, or at least was unpredicted. It is the existence of a single individual who does reach the level of power — in this case through the development of abilities to influence the emotions and judgments of those he encounters — to change the inevitability of Seldon’s map of history. The Mule, as he is called, nearly breaks the Seldon model, until those who rediscovered psychohistory rebuild the models and determine the appropriate strategy to ensure that the Foundation civilization gets back on its long-cycle path back toward peace and stability.

This is fiction and there is nothing in political science , economics or sociology that approaches psychohistory’s fictional robust stochastic framework for predicting the ebbs and flows of history. But there is truth here. The long cycles of history do have repeating features, which have never been better described in a non-fictional sense than by Will and Ariel Durant. Despite already having recommended one book, I think very few books are truly “must-reads.” Still, every human should own and read The Lessons of History as well. Among many other lessons, the Durants present a framework in which the path of history swings between liberty and freedom on the one hand, and equality through social control on the other. That control may extend from a government, from the seat of a priest, spiritualist or imam, from a military strongman or warlord, or from a particularly influential social structure.

In the days and weeks since Charlottesville, I think that a lot of people are starting to see President Trump’s election as a sort of Seldon Crisis. The language people used — the language *I* used when I left the GOP to be a #NeverTrumper — was the language of statistical distributions. “Sure, Hillary Clinton has a lower mean, but Trump has a fat left tail” was the particular phrase I used to sound smart and inoffensive to friends and family who either supported or opposed him. In a lot of ways, this is the language of a Seldon Crisis, because it begins to characterize the threats to society posed by an event or person as existential. I don’t know exactly how to communicate to you that existential language is now our lingua franca, but do I really need to?

Source: Google 2017

A lot of people see the president as The Mule now, too, I think, by which they imply that Trump was both unpredictable and capable of disproportionately large influence on the direction of society relative to what we would have expected from the ordinary ebbs and flows of history. Of course, the Voxsplainer types would be happy to provide you with their latest patronizing explanation for why and how Trump was elected. They’ll also follow it up with a series of snide sub-tweets to give themselves ironic cover. But the many on the left who cannot understand his election or his continued support often have difficulty fathoming that his base did not form as the result of Mule-style manipulation of some sort of another. It’s a backhanded compliment for a big slice of humanity: they couldn’t possibly be this stupid. Of course, it’s also condescending as hell.

The truth is even more condescending. Trump is not a Seldon Crisis. Trump is not the Mule. Sorry. The rotation between equality and liberty continues unabated, peacefully or otherwise, over the centuries. And it’s all happening again. Except it is different this time. It is happening faster. Much faster. Not because of the existence of a Mule character like, say, Hitler, whose individual influence thwarts the ability of the psychohistorians like Hari Seldon or Will Durant to predict paths. And it’s not because of Trump, as much as many want to paint him with that brush.

It’s because of the internet.

Taxonomy of Tribalism

“All politics is local.”
— Tip O’Neill, Jr.

It wasn’t that long ago that Speaker O’Neill was right in saying that politics was local. Politics and civics were largely formed in a household, shaped by a local community and then influenced by a largely regional experience. Most people shared party affiliations with their parents, and if they shed them, it was a ritualistic shedding of those affiliations in favor of another held by a similar group — think Woodstock or Haight-Ashbury. Diversity of belief was protected by general isolation from other groups. You knew what the politics and civics of a small town in Oklahoma with one Baptist church would be. You knew what politics a union town in Ohio with a steel mill would adopt. The meeting at the community center in a poor district of a big city held few secrets. Our towns, our families, our communities were our echo chambers.

I come to bury this notion, not to praise it!

These structures fostered social stability, which was often a boon to those communities. People had structures for emotional and material support, people who would be there to keep an eye on their home when they traveled. People who would stop by with food after a funeral (which they always went to). People who provided accountability and comfort and resources to empower productive risk-taking. They show themselves in the wake of tragedies like Hurricane Harvey in huge quantity because — and I genuinely believe this — people are generally good. But as much as I sobbed like a baby watching the good-ol-boys of the Cajun Navy roll in from New Orleans, Lafayette and Baton Rouge, I’m not naïve, Kay. I know this won’t last forever. In a few weeks, maybe a couple months, we’ll be back to business as usual. A lot of people (these are not the generally good people I was talking about earlier, in case you were wondering) have already jumped the gun, trying to decide which political stance they want to justify through use of the disaster. If history is any guide, the rest of us will follow.

If Charlottesville and Berkeley are a reminder of anything, however, it’s that our community echo chambers were often vile, too. When a community jointly agreed that racism was acceptable, that a socialist revolution was imminent, that communists were under every bed, or that southerners were all provincial rubes, the forces compelling change in those views were few. Oh, sure, some bold ones would stand up from within the community to speak truth to power. These were virtuous men and women, those who accelerated the necessary conversations. People moved, television and radio and newspapers still communicated narratives, and thoughts still flowed through the country. But slowly. And slowly but surely change took place in gradual, predictable ways. For centuries, it was a conservative America, not in the modern issue-based political sense but in the more traditional Buckleyan sense of standing athwart history yelling, “Stop!” It wasn’t slow because of some strong political force, but because the force required to change the inertia of a geographically massive country with relatively low population density was not there. Politics instead followed the patterns of linguistic dialects, where isolation and proximity drove deviations in diction, syntax and grammar, and where the things that caused interaction like trade, diplomacy, television, culture and politics, led to their convergence.

Both virtue and vileness notwithstanding, everyone was generally still playing a Collaborative Game. Not because of any special virtue of the parties involved, but because there were so many pockets of difference in experience that any kind of engagement required identifying commonalities and finding compromise. Of course there was conflict. But these were (figuratively) isolated populations coming together to discuss radically different world views, which generally required explanation, empathy and patience. Going Competitive meant true isolation, because the other side didn’t have to play our game, not really. Politics were local. In the same way that people coming together who speak different languages had to find a means of communication to proceed to rubrics and translations, there was a natural need for collaboration — and the occasional threat of conflict bred out of mistranslation! But after any negotiation, there was a home to return to. The Competitive Game didn’t work, because people had the option to leave that game and join another. You couldn’t force people to play in your game and lose, because they could take their ball to their community and go home.

The internet broke that.

It didn’t happen immediately, in part because of the pace of adoption of the technology itself, but more because the forms that constant, broad communication would take took some time to settle on. The message board begat the chat room begat the personal webpage begat the blog begat closed social media networks begat open social media networks. That was the singularity. The open social media network — Twitter and, increasingly, Facebook — replaced the community. Even for those who weren’t active participants in the networks themselves, a critical mass of other of society’s structures became connected to it, its language and its norms. The media, corporate executives, politicians — even sports leagues — cannot escape the influence of the norms promoted by these networks.

You could argue that churches, community groups, neighbors, extended families, political action groups, and other causes still act as anchors for cultural values, but for the most part, you’d be wrong. The average child may spend 6-8 hours a day on social media. The average adult spends two. How many hours does the average American spend in Church/Temple/Mosque? Reading his Bible/Torah/Koran? Outside of a natural disaster, how often does he really talk to his neighbors? Add to this the network effect of other media that are inextricable from the ways in which news is consumed, evaluated and parsed, and it becomes clear that there is no community to run to. Choose your box, because the game has changed, and you can’t leave the table.

So what’s the big deal? The big deal is that this has driven much more rapid propagation, acceptance and incorporation of new ideas. In the same way that a meme is already the subject of meta-jokes about cynical responses to the original meme by the time that half the country is just seeing it, dizzying new social values emerge almost daily. It took 396 years for America to decide that it probably doesn’t make sense to criminalize being born as a gay person. It took 12 years after that for America to recognize that the world isn’t going to come crashing down around us if we recognize that gay people who love each other ought to be able to get married. It took 2 years after that for social media to decide that there are 183 shades of human sexuality, and read the sticky post on the top of the forum for the acceptable terms to use for each of them, because the old terms you used yesterday are now hateful. The world is moving very, very quickly.

The social liberal looks at this state of affairs and says, “Hell yes!” Maybe we overshoot sometimes, but that overshooting is overstated. If moving quickly and pissing people off along the way is the cost of taking away the safe places for bigots, racist and sexists, and starting the process of taking away oppressive systems put in place by rich white men, then it’s worth it. Look, I hear you. A lot of good people think this way.

The social conservative looks at this and is puzzled. We’ve transitioned from a society that cared what you did, to a society that cared what you said, to a society that cared what you thought, he says. I’m kind to my family, to my friends, and to strangers. I really do try to improve myself, and I know I’m not perfect. I really do care about what happens to people, and I’ll drive 300 miles with my pick-up truck, a boat and some hip waders, and I’ll work myself to exhaustion for a week for people I don’t know and will never see again. But I also have values and beliefs I grew up with, and they’re values that have worked for hundreds of years. I’m not ready to throw them away on a whim. I hear you, too. A lot of good people think this way.

Good or not, neither of these people can take his ball and go home anymore, because there is no home. If they would be a part of the process of making social, cultural and political decisions at all, they must play, whether it is a Collaborative Game or a Competitive Game. The steering wheel has been ripped away from them, but to make the game of chicken complete, someone must point the cars at each other and set the stakes. Those who would marshal these forces find an easy tool to achieve this, whether intentionally or subconsciously: convince people they’re part of a tribe, and tell them they’re under attack.

What I’m talking about here isn’t just applying names to things we or others attach ourselves to. It isn’t just saying that “You’re a democrat so you’ll think this” or “You’re a black/white/Hispanic man, so this must be your view on this topic.” No, what we are talking about is the scorched earth tactic that treats every defining issue as an existential one. It’s us or them. You win or you die.

This dynamic isn’t out of character with the path of history, some aberration caused by an unduly influential Mule. It is an emergent property of a society undergoing too-rapid change.

Manufactured Existential Crises

The forces that seek to manipulate the political right do so through the creation of wholly imaginary ideals that are assumed to be in need of defending. Since they are imaginary, to conjure threats against them is purely a matter of narrative creation of the sort that has graced these pages for years. Consider the white race or white culture. It is a myth — it doesn’t exist. Racially, admixture analysis finds a tremendous amount of diversity within Europe. Mediterranean populations often have more in common with those of the Levant than with Northern Europe. Modern and ancient DNA archetypes found within Scandinavia, Ireland and the Balkans are extraordinarily different. I belong to a Y-DNA sub-clade called A738, a relatively recent off-shoot of M-222 that includes a narrow set of names: Guinn, Egan, Keegan, Morgan, Goggins, Larkin. And I am more likely to share a direct male line ancestor with a man from N’Djamena than a man from Nuremberg or Nizhny Novgorod. The below is the spread today of the R1b haplogroup, which is even further up the chain.

The Lost Cause vision of the Confederacy is a myth. I say this as someone who will defend almost any cemetery installation celebrating the simple bravery and honor of the individual soldier, and as someone who thinks Robert E. Lee was sufficiently brilliant as a tactician to merit historical remembrance. But anyone who says the largely disposable plaques and generic statues churned out by a generic factory to celebrate the “spirit of the Confederate Cause” are those kinds of monuments to history is defending an imaginary construct. It is vapor, but useful vapor to those who would divide us. It’s forced us into a world where people who don’t know Paul Johnson from Paul Blart have become self-appointed defenders of history, and where people who learned about the Federalist Papers in a Broadway musical are deeply concerned about celebrating treason. Please.

The forces motivating and influencing the political left in America have cultivated an even more perfect, self-reinforcing tool for division, I think. The post-modern sensibilities of the movement are utterly Foucauldian. In a rather clever sleight-of-hand from the intent-, conviction- and character-driven views that drove the Civil Rights movement, the manipulators of the American left now fully embrace the language of the Panopticon. By presenting society as citizens operating within a controlled and monitored system, the left can argue at any juncture that those who oppose their arguments are simply agents of an oppressive system. Can’t find data to support your statement? Can’t develop a logical path to support your conclusions? You need only say that your opponent argues from a place of privilege or status within an oppressive system, and the argument is over. This kind of language that automatically asserts the pervasive existence of oppression as an argument-ender, whether it exists or not, is just another way to promote the constant existential crisis.

If after reading one of the prior three paragraphs we think to ourselves, “Yes, but ____ is a fake existential crisis. Mine is real, and here’s why,” then we have to consider whether we’re part of the problem. All of these things, and the politicians we elect to promote our narrow view of them, are natural patterns in the swing of the pendulum toward equality-motivated control.

So what do we do?

It is time now for us to rise from sleep.
— Benedict of Nursia

What does the path of history tell us? What does the aftermath of one of America’s greatest natural disasters and human tragedies tell us? What can we do to survive and escape a Competitive Game that doesn’t allow us to pull away from the table? If you’re reading this, you’re probably in the investment industry, or at least have an interest in financial markets. If you’re in the investment industry or in the financial markets, you like to win. So you’re not going to like my answer.

We play. And we lose.

The story of history, I think, is that the only way to defuse a Competitive Game is to win by eliminating your competition, or to choose to play a Collaborative strategy even when you know it is sub-optimal.

There is a time for war, and that is usually our instinct. But there is a time for sacrifice, too. In 529 A.D., Benedict of Nursia chose sacrifice. At a time where the Competitive Game had so gone off the rails that Rome fell into ruin, Benedict and his adherents isolated themselves from society and devoted themselves to service, industry and memory. The result of their efforts was isolation, poverty and celibacy. It was also the preservation and creation of much that was and is good about European culture and society. They preserved and practiced techniques for making foods and wines. They preserved writing, language, literature and histories. Agricultural methods and metallurgy. They were the Foundation during the collapse of the Empire.

What about us? What can we do?

We can start by laying down our right to take offense. We can be unfailingly committed not only to the principles of freedom of speech, but to the value of free expression and exchange of ideas. In other words, by not pursuing the counterproductive, obstructive aims of the worst cartoon the otherwise brilliant Randall Munroe ever made. We can be vulnerable, we can let our opponents assign us identities and titles we would never adopt for ourselves without complaint. We can believe the best about people, even if we know it may cause us harm. We can give up our right to be right.

This is true in our businesses and lives as investors as well, because most of you know as well as I do that the cynicism that pervades politics has invaded our world as well. So what can we do? We can be unfailingly honest with our clients, our families. We can hold loosely to the things we think about markets and our portfolios by focusing on a narrow group of things that matter. We can engage with our clients and build portfolios that will allow them to focus on the things that happen on the banks, and not in the bloody river. We can do all in our power to destroy the agency issues and career risk dynamics that influence decisions and cause harm to the people who put their trust in us. We can gas up the boat and try to save some lives.

In short, we can choose goodness over greatness. It only works if we do it together.

Join us!

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Anthem!

On episode 11 of the Epsilon Theory podcast, Dr. Ben Hunt is joined by two of his daughters, Hannah Hunt and Harper Hunt, to find out if they have an anthem this election season: a rousing cause or political movement about which they feel passionate. They also discuss the role of government and if their difference of opinion is a result of a generational gap.

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