The Two Churchills


This is my favorite street art in the world.

It adorns a rail bridge that soars above I-45 in Houston. More than 300,000 cars pass by it every day. It has been modified a couple times by other street artists, but every time it goes back.

It’s a complicated statement, and I suspect people read it different ways. To most, it means to Be Someone Important. To matter. It’s an external way of reading it: to have an impact. To be engaged. To have your contributions to the world, or humanity or some other measure weighed and acknowledged as a net positive. To be known and well-thought of.

There’s another reading that is more internal in perspective: to find the whole person that we are. Not an amalgam of symbols and identities and tribal affiliations, or of words we use to describe those things and hide ourselves behind language. To be a man or woman in full. To be someone.

At this moment I’m a man with complete tranquility…I’ve been a real estate developer for most of my life, and I can tell you that a developer lives with the opposite of tranquility, which is perturbation. You’re perturbed about something all the time. You build your first development, and right away you want to build a bigger one, and you want a bigger house to live in, and if it ain’t in Buckhead, you might as well cut your wrists. Soon’s you got that, you want a plantation, tens of thousands of acres devoted solely to shooting quail, because you know of four or five developers who’ve already got that. And soon’s you get that, you want a place on Sea Island and a Hatteras cruiser and a spread northwest of Buckhead, near the Chattahoochee, where you can ride a horse during the week, when you’re not down at the plantation, plus a ranch in Wyoming, Colorado, or Montana, because truly successful men in Atlanta and New York all got their ranches, and of course now you need a private plane, a big one, too, a jet, a Gulfstream Five, because who’s got the patience and the time and the humility to fly commercially, even to the plantation, much less out to a ranch? What is it you’re looking for in this endless quest? Tranquility. You think if only you can acquire enough worldly goods, enough recognition, enough eminence, you will be free, there’ll be nothing more to worry about, and instead you become a bigger and bigger slave to how you think others are judging you.

— Tom Wolfe, A Man in Full

There is nothing wrong with wanting to Be Someone in the external sense. But it is perilous. When our engagement with our communities and our societies is driven by a desire to have the greatest possible impact on the world, we are prone to competitive behaviors and to seeing competitive behaviors in others. At a time when we are already being forced into a Competitive Game, it isn’t a long road from well-intentioned desire to be known for changing the world to existential defensiveness, where we become slaves to how we think others are judging us, or worse, where we impose that slavery on others.

“He was slightly eccentric. He had very unusual taste but was happy so long as he was doing his own thing.”

 Malcolm Churchill, speaking about his father, Lt. Col Jack Churchill

“I felt as if I were walking with destiny, and that all my past life had been but a preparation for this hour and this trial.

— Winston Churchill

‘Eggsy’ Unwin: ‘To Pee or Not to Pee?’
Harry Hart: That was the headline the day after I defused a dirty bomb in Paris.
Eggsy: ‘Germany: 1, England: 5’
Harry:

Missed that game. I was breaking up an undercover spy ring at the Pentagon.

[Eggsy points at the Charles and Diana wedding cover]

Harry: My first mission. Foiled the assassination of Margaret Thatcher.
Eggsy: Not everybody had thanked you for that one.
Harry: The point is, Eggsy, nobody thanked me for any of them. Front page news and all these occasions are celebrity nonsense. Because it’s the nature of Kingsman that our achievements remain secret. A gentleman’s name should appear in the newspaper only three times: When he’s born, when he marries, and when he dies. And we are, first and foremost, gentlemen.
— Kingsman: The Secret Service (2014)

There were two notable men in the Second World War who bore the surname Churchill. Both were British, and both are famous. I’m sure that you know at least one I’m talking about, but maybe not the other. Both were men in full.

Sir Winston Churchill, Prime Minister of the United Kingdom, is regarded by many historians and other chroniclers of the times as the most indispensable man of the 20th Century. More importantly, he is regarded by me that way. As author, orator, humorist, strategist, motivator and statesman, he was a man from another time at a time when the rush of modernity required exactly that.

The other, Lieutenant-Colonel John Malcolm Thorpe Fleming Churchill, was no relation to the prime minister, but had every bit of the more noteworthy Churchill’s quirky personality. He was a newspaper editor, actor and male model born in Hong Kong who toured Burma on a motorcycle while stationed by the British Army there during the ‘20s. When war broke out again in 1939, he joined the British Expeditionary Forces in France. His tenure in Europe was an eventful one.

THE Churchill wanted to Be Someone. His tongue was only planted partially in cheek when he famously (and somewhat apocryphally) said that history would be kind to him because he intended to write it. He cared deeply about how he was perceived and about his reputation. His speeches were famously rich with evocative language and calculated delivery, and he cultivated a preternatural ability to induce emotional response. At that unique point in time, the stalwart British needed a man who would make himself great to make his nation capable of greatness. To modern sensibilities this carries a whiff of distasteful inauthenticity. Our culture so prizes the trappings of humility that the proud hero who knows he is a hero and plays the role willingly is typically considered to be no hero at all. Sir Winston would have reared back his head in laughter at such a heaping load of tosh.

The OTHER Churchill wanted to Be Someone, too. That someone was Mad Jack. He was a character straight out of a storybook, and not some soft Caldecott Medal-winning heartwarmer. We’re talking one of those German tailor-chopping-off-the-kid’s-thumbs-because-he-wouldn’t-stop-sucking them storybooks. In some of his early action in May 1940, he signaled the attack on a German position at L’Epinette by shooting a barbed arrow from an English longbow into a German sergeant. After joining the Commandos, his first campaign brought him to the shores of Norway, where he jumped out of the landing boat, grabbed his bagpipe and blew The March of the Cameron Men before pulling out a grenade and tossing it at the German position.

Later, he landed in Sicily with his pipes on his back and broadsword in his hand. After that, he moved on to Molina. There, together with a corporal he grabbed for the mission, Churchill captured a German position…along with the 42 Nazi troops manning it. In Yugoslavia he was the last man standing from his unit after heavy mortar fire, and fired every weapon he could find at advancing Germans until he ran out of ammo. What did he do then? Well, obviously, he jumped up, grabbed his pipes and played Will Ye No Come Back Again until he got knocked out by a grenade.

He was captured and escaped. Captured and escaped again. Walked 100 miles to Italy and lived out the rest of his life in peace. No, I’m kidding. He rescued 700 doctors and patients in Palestine, defended a medical convoy from 250 insurgent fighters, did more acting, designed surfboards, built coal-fired riverboats and rode motorcycles throughout the English countryside until he finally decided the world was too boring in 1996.

There’s nothing wrong with wanting to Be Someone like Winston Churchill. I think highly enough of him that I named my firstborn son after him (pictured right). There’s nothing wrong with aspiring to greatness, or with seeking reputation. The desire to have an impact on the world usually comes from a good place.

But in seeking to promote our brands, in our search for greater impact and influence, we are doing a lot of things that are killing our ability to have real dialogue with one another. As we grapple with how to break ourselves out of the Competitive Game we’re being forced into, we must also understand the forces that are keeping us there. Here are some of the ways in which our desire for our small voice to have an impact among 7 billion others is keeping us there instead.

The Principal / Agent Problem in Media

In Fiat Money, Fiat News, Ben discussed how, in the same way that bad money drives good money out of circulation, fake news drives real news out of circulation. Like money, this can manifest itself in two ways: through true counterfeiting of the news itself, or through biased presentations of facts published as advocacy by institutions acting as principals. In other words, fiat news. Some of those institutions are sovereign entities like, say, Russia that have an interest in promoting their interests through both fake and fiat channels. But some, probably most, of those in the business of fiat news are the media outlets themselves.

The media’s indispensable function is its ability to make available information that others do not want disseminated, especially when those others are governments, corporations and other powerful entities and individuals. In this function, journalists act as agents for the public, and do it a significant service. In some cases, that service really changed the world. The intent was to reveal and inform, and the outcome was a shift in the course of history.

This is changing. It has changed. From its historical role as agent, news media has increasingly set itself up as a principal. How? Rather than informing and allowing the dice to fall as they may, the media often now enters the fray with a view on the right outcome for the dice. Most media institutions have the good sense not to include outright lies, of course. But when you have an interest in the outcome of the story rather than its capacity to inform, you end up with fiat news like this, where CNN intentionally cuts off a portion of the video that would ruin the intent of their story, which is very obviously not to inform. You end up with fiat news like this, where you must read 7 paragraphs into a story to discover that a man being executed confessed to raping and murdering a 16-year old girl. Even that fact is couched in dismissive language that is very obviously intended to guide the reader to a salacious conclusion.

It’s not hard to come up with all sorts of explanations for why this is happening, from the consolidating ownership of media outlets, to the democratization of news via cheap internet venues that create a lowest-common-denominator effect, to the infotainment impact of always-on cable news. I think the root cause is more insidious. Through the feedback processes of each of those things and the resultant ways in which journalism is now taught at universities, a very significant portion of those entering the media want to Be Someone like Winston, not Jack. They are becoming journalists because they want to change the world. And so, in setting out to change the world, to borrow from the Washington Post’s insipid masthead postscript (“Democracy dies in darkness!”), they cease to be a light that shines in all dark places, and become instead a hand that guides the light to only those dark places that fit their aims.

Don’t believe me? Just take a look at these responses to a question posed by the Future Journalism Project survey from a couple years ago, which asked “Why did you become a journalist?”

“Soon you find out that you can really make a difference.”
“It can change the world.”
“I’ve always wanted to change the world.”
“I developed a sense of injustice [sic] for the underdog, because the underdog, I felt, was me.”
“I learned that injustice is part of our world, but that need not be a hopeless feeling. Not when you’re a journalist.”

It’s not that these are bad sentiments, or that they’re coming from bad people. Quite the contrary. But when the institutions that are supposed to act in service to the public start taking sides in the public debate through their news practices, even if it comes from a good-hearted place, from a desire to Be Someone, it is a terrible thing. In the same way that our American constitutional experiment is built upon the need for the rule of law despite the theoretical existence of benevolent kings, we should demand a similar standard from our media. When the media acts as principal, they, perhaps more than any other political institution in the world, serve to strengthen the equilibrium of the Competitive Game we are in.

Whataboutism, Grand Narratives and the
Hunt for Hypocrisy

The tribal layperson is guilty, too. The same competitive forces that push us into promoting our views and drowning out those we disagree with when we’re entrusted with impartiality like the media have similar effects on us in our personal lives. After all, if we are to make ourselves and our tribe great, we can do so by defending ourselves or by tearing others down. The most common form  whataboutism tries to do both. It’s a major part of the hunt for hypocrisy that dominates so much of the dialogue of the Competitive Game.

The Soviets made famous and frequent use of it during the Cold War. Václav Havel characterized its most common construction as a debate between two parties:

  1.  Your subway does not operate according to the timetable.
  2.  Well, in your country you lynch blacks.

The basic idea is to transition the discussion of an issue that threatens one’s tribe from a substantive one to a discussion of relative credibility. Sure, you may want to criticize the efficiency of our implementation of state-run, state-owned transportation, but we refuse to even broach the issue with people who still have racism in their country. Or: I don’t need to listen to a Roy Moore argument from the party that defended Bill Clinton. In other words, the tu quoque fallacy has taken the place of most every form of debate that used to be common to our national politic.

For a modern perspective, look at the below from Ben Shapiro, who I think is actually a pretty thoughtful conservative. This was his initial take on the day when the claims that Roy Moore assaulted a 14-year old girl some decades ago came to light:

Now, bear in mind, Shapiro followed this up with a clarifying comment asserting that Moore should step away in shame, full stop. The reality is that there are infinitely worse perpetrators. Paul Krugman, once a legitimate economist (no, really), can now be summoned by sacrificing three unblemished rabbits in a candlelit pentagram and repeatedly chanting “tu quoque” in monotone. But the blurb above is still fascinating in one fell swoop, it accurately explains and decries the problem created by whataboutism, and in doing so uses that as an opportunity to engage in some hypothetical whataboutism of its own. This is how it works:

  1. Someone from our Tribe does or says something dumb or evil.
  2. We see a narrative forming ascribing that dumb or evil thing as a trait of our Tribe.
  3. We are frustrated by the injustice of that, since the other Tribe is way worse on that dimension.
  4. Instead of disavowing that trait in our Tribe without qualification, we say, “Well, what about them and THIS thing they did.”

Sometimes whataboutism isn’t just about trying to assault our opponents and weaken their credibility with outright claims of hypocrisy. Sometimes it’s demanding that every person we debate with follow our priorities of issues, or that they follow the forms we prefer for discussing them. I think you know what I’m talking about, because we see it all the time:

In the rare moments when our political and social dialogue isn’t “Well, what about what your tribe did”, it is often “If you said this, why didn’t you say this?” We are endlessly charitable in assuming that our own philosophies are consistent with our words and actions, but we fill in the gaps for others with far less kindness. If someone engaged in a Competitive Game against us doesn’t condemn an action as quickly as they ought to, if they don’t use the same number of exclamation marks as when they criticized someone else’s actions a month before, if they want to discuss or write about X when much bigger issue Y just happened, if they don’t balance and season every single political or social statement they make with comments on any possible related issue, we attack.

We have no choice, we think. We were destined for this. We have to fight this battle, and we have to win, because it’s not acceptable to be the party that is more associated with this Bad Thing. But when we see every battle as existential, when we seek to purposely dominate others by inserting meaning they never intended, when we search for every hint of hypocrisy to make ourselves great, to Be Someone in the great conversations of our time, we perpetuate the Competitive Game.

‘Collective Munchausen Syndrome’

While the ways in which the Competitive Game drives us to dominate and diminish others through language are perhaps most prevalent, so much of what it means to Be Someone is still locked up in identity. Lebanese-Canadian evolutionary behavioral scientist Gad Saad coined the above expression to describe how people in large social settings have taken to competitions in (usually imagined) victimhood. From Donald Trump complaining about #FakeNews and the mean jokes of the SNL cast, to the sorts of absurd ethnographic intersectionalist ramblings you’ll find coming out of most sociology departments, practically everyone across the sociopolitical spectrum is in on this game. There are few behaviors which are more conducive to maintaining the strong equilibrium of our Competitive Game (and to establishing some strategic dominance within that game) than establishing the strongest victimhood credentials. The reason? Because like the other strategies here, it simultaneously argues that our voice ought to be louder and that other voices ought to be silenced completely. It is a tactic perfectly engineered for this time.

Some will misunderstand my meaning here, I think. It would be stupid to deny that privilege, the word typically used to cast someone as an anti-victim, exists. If you can’t accept that certain birth circumstances make your success and ease of navigating our society easier or harder, you’re not approaching the question seriously. If you can’t accept that certain life experiences will have similar impacts, you’re being obtuse. But there’s a marked difference between (1) recognizing those truly different starting places and working wherever possible to eliminate them within society, on the one hand, and (2) concluding that they constitute a system of oppression that can only be addressed by empowering those who would silence the views of any they would call privileged, on the other. The prevalence of this approach is a nightmare for any hopes of escaping the Competitive Game. The answer to this, as I argue in Gandalf, GZA and Granovetter, is only for a critical mass of citizens and voters to choose to hear all voices, knowing that no individual may be reduced to her privilege or victimhood.

We respond to symbols and events based on millions of experiences, and no one can tell us what they mean to us.

OK. So now what?

Well, in the last three notes on this topic, including this one, I’ve written about a range of things I think we can do to hit escape velocity from the Competitive Game equilibrium.

  1. We can stop treating every issue as existential. (Yes, I’m looking at you, ‘But Gorsuch’ Republicans and ‘Trump is the End of the Republic’ Democrats)
  2. We can stop telling people what they intended by their words and actions.
  3. We can stop allowing people to tell us what we intended by our words and actions.
  4. We can stop looking for hypocrisy everywhere.
  5. We can stop using identity to shut out opinions we don’t like.
  6. We can stop abusing the trust people put in us to represent their interests by promoting our own.

But what else?

For those of us who think about improving civic engagement, who want to be citizens, I have a humble suggestion: stop trying to be Winston Churchill. I recognize that this counsel is likely to be as popular as my advice from Before and After the Storm (i.e. learn to lose). I’m not saying not to be ambitious. I’m saying that instead of identifying strategies for debate and discussion which elevate us while they demean and debase our opponents, instead of making every matter existential, instead of choosing grand rhetoric, instead be the most independent, extraordinary, true version of who you are. If you can manage to find a truly independent voice in your personal, political and financial life, pursue it with reckless abandon. Don’t set it to the side so that you can build a brand or make an impact.

Trust me. If you’ve decided to Be Someone like Mad Jack, you’re going to have an impact. So get your ass out of the boat, grab your bow, strap on your broadsword and sound the pipes. All that’s left is to decide what song you’re going to play.

And Ben and I would like to hear it. Send us a note at Rusty.Guinn@EpsilonTheory.com and Ben.Hunt@EpsilonTheory.com telling us what else you think we need to commit to as citizens to break this cycle. Let’s continue the dialogue.

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Information Bottlenecks, Fake News and Boredom (by Silly Rabbit)

Information bottleneck

A new idea called the “information bottleneck” is helping to explain the puzzling success of today’s artificial-intelligence algorithms — and might also explain how human brains learn:

“Claude Shannon, the founder of information theory, in a sense liberated the study of information starting in the 1940s by allowing it to be considered in the abstract — as 1s and 0s with purely mathematical meaning. Shannon took the view that, as Tishby put it, “information is not about semantics.” But, Tishby argued, this isn’t true. Using information theory, he realized, “you can define ‘relevant’ in a precise sense.”

Quantum computers need smart software

Nature reports “The world is about to have its first (useful) quantum computers … The problem is how best to program these devices. The stakes are high — get this wrong and we will have experiments that nobody can use instead of technology that can change the world.” Related to this, I’m excited to spend some time in a couple of weeks with Scott Aaronson of QCWare who “develop hardware-agnostic enterprise software solutions running on quantum computers”.

In other “the quantum age is nigh” news:

A pair of researchers from the University of Tokyo have developed what they’re calling the “ultimate” quantum computing method. Unlike today’s systems, which can currently only handle dozens of qubits, the pair believes their model will be able to process more than a million.

Australian researchers have designed a new type of qubit — the building block of quantum computers – that they say will finally make it possible to manufacture a true, large-scale quantum computer.

Microsoft now has 8,000 AI researchers

Apparently, Microsoft now has 8,000 AI researchers. That’s a veritable army. Presumably a big chunk of the 8,000 are datamungers, infrastructure engineers etc., just as on aircraft carrier like the USS Nimitz (pictured below) where there are, order of magnitude, the same number of personnel but most are cooks, logistics managers, medics etc. rather than fighter pilots. But still: Eight thousand!!!

And in other “that’s a lot of engineers” news: Amazon now has 5,000 people working on the Echo / Alexa.

As I’ve noted before, in my view it is utter conceit that it is possible to do something ‘AI’ which is truly and sustainably novel, scaled and production-ready in a high stakes environment (such as trading) without a decent sized team focused on a narrowly defined problem.

Fake news and botnets

Fascinating interview with Researcher Emilio Ferrara on fake news and botnets:

“We found that bots can be used to run interventions on social media that trigger or foster good behaviors,” said Ferrara. “This milestone shatters a long-held belief that ideas spread like an infectious disease, or contagion, with each exposure resulting in the same probability of infection. Now we have seen empirically that when you are exposed to a given piece of information multiple times, your chances of adopting this information increase every time.”

Representational universality

It has been at least a month since we have had a Hofstadter quote, and this week’s Rabbit Hole column feels light on existential theory, so here’s a classic:

“In the world of living things, the magic threshold of representational universality is crossed whenever a system’s repertoire of symbols becomes extensible without any obvious limit.”

Boredom

And finally, in general I have quite a bit of reticence about sharing TED Talk links as, to quote the low-agreeability Benjamin Bratton, they can be kinda “Middlebrow Megachurch Infotainment.” Having said that, here’s a link to a terrific TED Talk on why boredom is important.

Best quote:

“As one UX designer told me, the only people who refer to their customers as “users” are drug dealers and technologists.”

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Information, Please.

On episode 19 of the Epsilon Theory podcast, Dr. Ben Hunt is joined by Rusty Guinn, Salient’s executive vice president of asset management. Picking up from their last conversation on fake news, Ben and Rusty consider the kinds of information that we have at our disposal and if we are asking the right questions in our analysis — or just searching for the answers we want.

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

The Rabbit Hole: The War on Bad Science (by Jeremy Radcliffe)

If questioning everything you ever thought you knew about science sends you into a downward spiral of crippling anxiety, this may not be the Rabbit Hole for you.

A methodical dissection of the peer-reviewed studies underpinning all sorts of critical science (from fields as diverse as nutrition and psychology) reveals that they are likely highly flawed due to a combination of poorly-designed incentives and non-standardized, sub-optimal review processes.

Back in 2005, John Ioannidis of Stanford shocked the scientific community when he published his paper “Why Most Published Research Findings Are False.

The first article I read on the topic put it a little more bluntly. From The Atlantic: “Lies, damned lies, and medical science.”

The Washington Post found that many scientific studies can’t be replicated.

That is, indeed, a problem, but the scientific method along with the web could be the fix.

Houston billionaire John Arnold and his wife Laura are challenging the fundamental structure of how scientific research is conducted. To quote Arnold, “A new study shows…” are the four most dangerous words.

But before you start thinking these scientists are just a few bad apples publishing a few bad papers, consider this sting operation on the fraudulent and predatory practices of open-access scientific journals. It’s madness.

You don’t even need to publish your study’s findings to make a global impact if you’re a savvy enough journalist, as John Bohannon found out when his article on a fraudulent study (chocolate aids weight loss) he conducted for a documentary on lax industry standards went viral.

Forget about fake news for a second and consider how much fake science we’re talking about here. I hope this dive down the rabbit hole of bad science inspires you to continue discovering and supporting truth-seekers in the scientific community and beyond.

Peace.
JR

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Fiat Money, Fiat News

Ron Burgundy: Discovered by the Germans in 1904, they named it San Diego, which of course in German means a whale’s vagina.
Veronica Corningstone: No, there’s no way that’s correct.
Ron Burgundy: I’m sorry, I was trying to impress you. I don’t know what it means. I’ll be honest, I don’t think anyone knows what it means anymore. Scholars maintain that the translation was lost hundreds of years ago.
Veronica Corningstone: Doesn’t it mean Saint Diego?
Ron Burgundy: No. No.
Veronica Corningstone: No, that’s — that’s what it means. Really.
Ron Burgundy: Agree to disagree.
― “Anchorman: The Legend of Ron Burgundy” (2004)

Ron Burgundy: Boy, that escalated quickly … I mean, that really got out of hand fast.
Champ Kind: It jumped up a notch.
Ron Burgundy: It did, didn’t it?
Brick Tamland: Yeah, I stabbed a man in the heart.
Ron Burgundy: I saw that. Brick killed a guy. Did you throw a trident?
Brick Tamland: Yeah, there were horses, and a man on fire, and I killed a guy with a trident.
Ron Burgundy: Brick, I’ve been meaning to talk to you about that. You should find yourself a safehouse or a relative close by. Lay low for a while, because you’re probably wanted for murder.
“Anchorman: The Legend of Ron Burgundy” (2004)
Priest: It’s horrifying. If men don’t trust each other, this earth might as well be hell.
Commoner: That’s right. The world’s a kind of hell.
Priest: No! I believe in men. I don’t want this place to be hell.
Commoner: Shouting doesn’t help. Think about it. Out of these three, whose story is believable?
Woodcutter: No idea.
Commoner: In the end, you cannot understand the things men do.
― “Rashomon” (1950)

Commoner: But is there anyone who’s really good? Maybe goodness is just make-believe.
Priest: What a frightening…
Commoner: Man just wants to forget the bad stuff, and believe in the made-up good stuff. It’s easier that way.
― “Rashomon” (1950)

To be an artist means never to avert one’s eyes.

― Akira Kurosawa (1910 – 1998)

If the Emperor had not delivered his [15 August 1945] address urging the Japanese people to lay down their swords — if that speech had been a call instead for the Honorable Death of the Hundred Million — those people on that street in Sōshigaya probably would have done what they were told and died. And probably I would have done likewise. The Japanese see self-assertion as immoral and self-sacrifice as the sensible course to take in life. We were accustomed to this teaching and had never thought to question it.

― Akira Kurosawa (1910 – 1998)

Kurosawa’s Rashomon is the defining movie of an Epsilon Theory world, where Narrative dominates and Truth with a capital T is nowhere to be found. The bandit, the wronged woman, the dead samurai, and the woodcutter witness all testify at trial, and the only certainty, as unsatisfying as it may be, is that we the jury will never know what truly happened in that forest. Such is life. Such is history.

I think Kurosawa is spot on with his assessment of Japanese political culture, by the way. No anti-status quo Trump or Brexit votes there. Just the resignation of self-sacrifice and the long slow slide into irrelevance.  

To Counterfeit is DEATH.

Ben Franklin (1706 – 1790), from a 15 shilling note of his design

For 600 years, from the 13th century to 1870, the punishment for counterfeiting in Great Britain and its colonies was the same as for high treason — to be hanged, drawn, and quartered. First you’d be slowly hanged, so that you came close to asphyxiation but couldn’t end the suffering by breaking your neck, then you’d be castrated, then you’d be disemboweled, and THEN you’d be killed by beheading. And then for good measure your headless body would be chopped into four pieces.

British counterfeiters during the American Revolutionary War were known as “shovers” for their efforts to “shove” fake dollars into circulation and destabilize the Colonial government. One infamous shover, David Farnsworth, was arrested with more than 10,000 counterfeit dollars, a not-so-small fortune in 1778. George Washington called for Farnsworth to be tortured to death, but Farnsworth got off easy and was simply hanged.

The largest counterfeiting operation in the history of economic warfare was Operation Bernhard, a German plan during the Second World War to destabilize the British economy by flooding the global economy with forged Bank of England notes. The forgeries are, for all practical purposes, indistinguishable from the originals.

Alves dos Reis, instigator of the Portuguese Bank Note Crisis of 1925 and my choice for the greatest counterfeiter of all time. ADR didn’t print fake Portuguese currency. He printed fake instructions to the official banknote printers (famed London firm Waterlow and Sons) to print REAL notes equivalent in value to almost 1% of Portugal’s nominal GDP, and ship them to him directly.

It may please your majesty to understand, that the first occasion of the fall of exchange did grow by the King his majesty, your late father, in abasing his coin from six ounces fine to three ounces fine. Whereupon the exchange fell from 26s 8p to 13s 4p which was the occasion that all your fine gold was conveyed out of this your realm.

― Sir Thomas Gresham (1519 – 1579), letter to Queen Elizabeth I

Gresham’s Law: bad money drives good money out of circulation.

Hunt’s Law: fake news drives real news out of circulation.

What is unexpected about medieval houses, however, is not the lack of furniture but the crush and hubbub of life within them. Households of up to twenty-five persons were not uncommon. Since all of these people lived in one or at the most two rooms, privacy was unknown. How did people achieve intimacy under such conditions? It appears that they did not. Medieval paintings frequently show a couple in bed or bath and, nearby in the same room, friends or servants in untroubled, and apparently unembarrassed, conversation.

Witold Rybczynski, “Home: A Short History of an Idea” (1986)

In 1215, the Fourth Lateran Council of the Catholic Church decreed that everyone, king and commoner alike, should practice individual confession. In a very real sense, the IDEA of privacy — the concept of an internal life of the mind as a social good — did not exist in the West before this pronouncement.

They say the Nile used to run

From East to West

And you know I’m fine

But I hear those voices at night

Sometimes

The star maker says it ain’t so bad

The dream maker’s going to make you mad

The spaceman says everybody look down

It’s all in your mind

 ― The Killers, “Spaceman” (2008)

Illustration of a wolf trap from Le Livre de la Chasse (c. 1407). An entire pack could be captured by laying a blood trail through a one-way wicker door in a circular fence built around a central pen with a scared, bleating sheep. The design ensured that individual wolves could not see each other until it was too late, each wolf believing that it was on a uniquely rewarding path. I’m pretty sure this painting now hangs in Mark Zuckerberg’s office.

On December 30, the Washington Post published a story claiming that Russian hackers had “penetrated the U.S. electric grid” through an “attack” on Burlington Electric, a Vermont utility.

In a statement that night Vermont Gov. Peter Shumlin (D) said, “Vermonters and all Americans should be both alarmed and outraged that one of the world’s leading thugs, Vladimir Putin, has been attempting to hack our electric grid, which we rely upon to support our quality-of-life, economy, health, and safety. This episode should highlight the urgent need for our federal government to vigorously pursue and put an end to this sort of Russian meddling.”

Vermont Sen. Patrick Leahy (D) said he was briefed by Vermont State Police on Friday evening, and announced via statement that “This is beyond hackers having electronic joy rides — this is now about trying to access utilities to potentially manipulate the grid and shut it down in the middle of winter. That is a direct threat to Vermont and we do not take it lightly.”

According to Vermont Rep. Peter Welch (D), the attack showed that Russia “will hack everywhere, even Vermont, in pursuit of opportunities to disrupt our country. We must remain vigilant, which is why I support President Obama’s sanctions against Russia and its attacks on our country and what it stands for.”

Wow, even Vermont. Those Russian bastards.

The next day, the Washington Post amended their original story. Turns out that there was no “penetration of the U.S. electric grid.” Turns out that a Burlington Electric employee discovered that his notebook computer, which had never and would never be connected to the grid, had a virus on it. And that virus was probably written in Russia. It’s the same type of virus that lifted John Podesta’s emails. It’s the same type of virus that could lift my emails if I clicked on a “Free Gift From Amazon!!” link. That’s it. That was the “attack on our country and what it stands for.” A Burlington Electric employee clicked on a bad link inside a scam email and downloaded a virus.

So was this Washington Post article fake news?

This may surprise regular Epsilon Theory readers, but no, I don’t think it was. It was fiat news, which is to “real news” what fiat currencies like dollars and euros and yen are to “real money” like a gold coin. Fake news is something different. Fake news is counterfeit news, which is to fiat news what counterfeit bank notes are to fiat currencies.

I think this distinction between fiat news and counterfeit news is an important one. Why? Because when we conflate fiat news with counterfeit news we talk past each other. If we equate the Washington Post’s obviously partisan slanting of news with Russia’s obviously interventionist creation of news, as if both are simply purveyors of “fake news”, then we end up in the ridiculous position of apologizing for one, tacitly or explicitly, when we complain about the other. Democrats (and they’re mostly Democrats) justifiably upset about Russia stealing DNC emails and interfering with our election inevitably find themselves required to defend the Washington Post as some paragon of journalistic integrity. Republicans (and they’re mostly Republicans) justifiably upset about the Washington Post casually equating criticism of the Obama administration with being a treasonous stooge inevitably find themselves required to defend Russia as some falsely accused innocent abroad. So long as both Russia and the Washington Post are evaluated on the same simplistic dimension (is it fake news or real news?), we are forced into contortions of cognitive dissonance to criticize one without tarring the other.

My view: both Russia and the Washington Post deserve as much tarring and as much criticism as humanly possible. My view: both Russia and the Washington Post are bad actors. My view: both Russia and the Washington Post present a danger to a well-functioning American democracy. But they present different dangers, with different dynamics, with different strategic interactions, and with different likely policy responses, because they operate on different dimensions of Information Theory. Oh yeah, one more … my view: there are lots of Russias and there are lots of Washington Posts out there.

Russia is in the counterfeit news business. They are trying to influence our political process to their sovereign benefit, just like the United States is in the counterfeit news business inside Russia and every other corner of the world. Russia is always a foe to a status quo American regime, regardless of which party is in the White House, as their sovereign self-interest requires constant competition. If you trust Putin, you are a fool.

The Washington Post is in the fiat news business. They are trying to influence our political process to their institutional benefit, just like the Wall Street Journal and every other mainstream media institution is in the fiat news business. The Washington Post is never a foe to a status quo American regime, regardless of which party is in the White House, as the regime bestows on them the authority to issue fiat news. Still, if you trust the Washington Post, you are no less a fool.

The fiat news business is booming. As a result, the counterfeit news business is booming, too. And if the history of fiat money and counterfeit money is any guide, we ain’t seen nothing yet.

The fiat news business is a centerpiece of Epsilon Theory, from “Uttin’ On the Itz” to “Catch-22” to “The New TVA” to “My Passion Is Puppetry” to “When Narratives Go Bad”, so I won’t repeat all that here. But I’ll repeat some. This is from “Stalking Horse”, one of my all-time favorite Epsilon Theory notes, back in September 2014. I think it holds up pretty well as a definition of fiat news, or what I (and the Fed) have called “strategic communication policy” in the past:

“Once you start thinking about what’s happening in markets and the world as an inextricable weave of fundamental events and political efforts to shape our interpretation of those events to achieve a political end, you start to see stalking horses everywhere. A Fed QE program ostensibly to reduce unemployment and help Main Street? Stalking horse. A regulatory Big Data program ostensibly to identify brokers who churn accounts? Stalking horse. A Chinese banking program ostensibly to liberalize currency exchange rates? Stalking horse.

And it’s not just actual programs or actual market behaviors like the Chinese purchase of U.S. Treasuries. When words are used for strategic effect rather than a genuine transmission of information you create a virtual stalking horse. This, of course, describes every use of words by every politician and every central banker. This is what Bernanke and Yellen and Draghi and Abe and Obama and Merkel mean when they refer to communication policy. Communication policy is the strategic use of words to shape perceptions and expectations. It’s a focus on how something is said as opposed to what is described. It’s a focus on form rather than content, on truthiness rather than truth. It’s why authenticity is as rare as a unicorn in the public world today.

Look, I understand why politicians and bankers have completely abandoned authenticity, an uncommon quality even in the best of times. The Great Recession was a near-death experience for the global economy, and slamming a syringe of adrenaline into the patient’s heart — which was basically what QE 1 did — doesn’t happen without long-term side-effects. To switch the metaphor around a bit, this was a war to preserve the System, and as Aeschylus said 2,500 years ago, the first casualty of war is truth. I really don’t think Bernanke or Draghi came into office thinking that their public statements would become the most powerful weapon in their arsenal, or that they could train markets to respond so positively to words presented strategically for effect, but there you have it. This is what worked. This is how the war was won.

So … I understand why politicians and bankers have adopted a stalking horse technique to shape market expectations and behaviors, but that doesn’t mean I have to like it. And while I am happy to condone the use of emergency powers to win a war and save the world, I am not at all comfortable with their continued use once the crisis is over. Unfortunately, I believe that is exactly what has happened, that “strategic communication policy” has mutated from an emergency measure designed to prevent an economic collapse into a standard bureaucratic process designed to maintain financial stability. Is this banal assumption and routinization of power a natural bureaucratic response to a crisis, something we also saw in the aftermath of the Great Depression? Yes, but I’ve got examples going the other way, too. Lincoln suspended habeas corpus in 1861, and good for him. But in early 1866 — less than a year after Lee’s surrender at Appomattox — the U.S. government stood down and restored Constitutional protections. I am really hard-pressed to understand how the exigencies of recovery from the Great Recession, now more than 5 years on, are somehow more deserving of ongoing emergency policies than the immediate aftermath of the freakin’ Civil War.

Wait a second, Ben. Are you seriously equating the government’s use of “strategic communications” to a suspension of Constitutional protections? Doesn’t that seem a tad over the top? Yes I am, and no I don’t think so. The bedrock assumption of limited, representative government is that we, the people have an inalienable right to make an informed decision about who will make policy decisions on our behalf. Of course this is an imperfect process, and of course the information we use to make these decisions will be mediated and skewed by all sorts of competing interests. But it makes a big difference if the government itself is fully committed to mediating and skewing this information. And it makes all the difference in the world if relatively apolitical institutions like the Fed and various regulatory authorities — institutions which have been granted a vast array of powers over the years precisely because they have been viewed as relatively apolitical — now embrace the highly political act of mediating and skewing information in service to their own particular visions of stability and status quo preservation. This is the danger of strategic communication policy. This is the price we pay for a loss of authenticity within our most important institutions.”

Like I say, holds up pretty well, particularly after this last election cycle. If I rewrote it today, the only change I’d make is to explicitly add news organizations like the Washington Post or CNN to the list of privileged institutions that “now embrace the highly political act of mediating and skewing information in service to their own particular visions of stability and status quo preservation.”

So where does it all go from here? I’ll take a cue from the history of fiat money and its counterfeits and hazard three predictions. After all, prices and news are both just signals when seen through the lens of Information Theory, and the same dynamics and “laws” should apply to both.

First, there’s no reason to believe that the breadth and scope of fiat news won’t grow to the same level of ubiquity as fiat money. There’s really no such thing as “real money”, i.e., gold and silver as a medium for exchange or a store of value, in existence in the world today. That used to be the meaning of gold, but those days are long gone. Today fiat money completely and utterly dominates all global commerce and exchange. Why? Because it supports the existential aims of government: taxation (sovereignty), price control (stability), and liquidity provision (growth). Without the invention of fiat money, global GDP today would be at … I dunno, maybe mid-18th century levels? Something around there, I’d guess. Fiat news serves exactly the same existential aims of government, just in a less overt (but more powerful for being hidden) fashion. There’s just too much at stake for status quo regimes, what with modern referenda like Brexit and national elections like we just experienced in the U.S. and are forthcoming this year throughout Europe, for regime institutions to do anything other than double-down in their embrace and promulgation of fiat news.

Ten years from now we will be awash in “news” to a degree that we can hardly imagine today. That’s what happened with fiat money, and that’s what I think happens with fiat news. The exponential growth in fiat news is still ahead of us, not behind us.

Second, while counterfeit news will continue to suffer the same official opprobrium and punishment as counterfeit money has endured over the centuries, we’re going to see a lot more of it in the years to come. In the same way that it’s easier to counterfeit fiat paper than gold or silver coins, so is it easier to counterfeit fiat news. I mean, the bang for the buck that Russia got from their email hacking and dissemination exploits in 2016 is just … staggering. What Russia did with counterfeit news is the same thing that the British did during the American Revolution with counterfeit dollars. It’s the same thing that the Germans did during World War II with counterfeit pounds. It’s the same thing that I’m sure the U.S. has done in more countries and more conflicts than one can easily count. But what Russia has shown is how easy and cheap it is to counterfeit news for yuuuge sovereign benefit when ALL news is constructed and slanted to some degree. Trust me, this lesson is not lost on China. Or Germany. Or France. Or India. Or Brazil. The Information Wars are just beginning, and the equivalent of hydrogen bombs are both crazy cheap to build and the technology is fully proliferated. There’s no putting this genie back in the bottle.

Is this a potential casus belli? Absolutely. Counterfeit strikes at the heart of what it means to be a sovereign government, whether or not we’re talking about money or news, particularly when the counterfeiting is done by another government. My guess is that the next level of counterfeiting, one that could spark a shooting war, will take the form of something like the Portuguese Bank Note Crisis of 1925, where the real printers of the real money were tricked into printing massive quantities of real notes for a fake customer. This was non-forgery counterfeiting, and it’s the future of sovereign-directed counterfeit news.

Third, Gresham’s Law applies to news as well as money, meaning that fake news drives real news out of circulation. When Thomas Gresham wrote Queen Elizabeth I in 1560 to deliver the bad news that “all your fine gold was conveyed out of this your realm” because her father Henry VIII had debased the currency by lowering the silver content of his coins, he didn’t mean that people packed up their gold and shipped it to France. He meant that people hoarded the old (good) silver coins and didn’t spend them. He meant that people hoarded their gold (or any trusted store of value) and refused to exchange them for Elizabeth’s coins. Elizabethan citizens lost trust in ALL commonly exchanged coins, no matter what the coins looked like or who offered up the coins, because Elizabethan citizens were good game players. If you’re willing to exchange an unknown silver coin for my bad silver coin (or something priced in bad silver coins), then either you’re stupid or that’s also a bad silver coin. Let’s assume you’re not stupid, so I’m going to treat your coin as bad regardless of whether it’s truly a good coin or not. And if you truly have a good coin, there’s nothing you can say to me that will convince me it’s a good coin. You can’t spend your good coin for fair value even if you wanted to. It’s exactly the same with news today. We know that the news has been “debased” through strategic communication policy, through the intentional slanting and mediation of primary news by officially sanctioned sources like Fed Chairs and CNN anchors in the service of stability and status quo maintenance. As a result, we’ve lost trust in ALL commonly exchanged news, no matter what the news is about or who offers up the news. Even though we’re awash in news, just like Elizabethan England was awash in coinage, the exchange value of ALL news has been diminished regardless of its “truth-content”. “Real” news today is diminished in value simply by the act of dissemination. You can’t spend your real news for fair value even if you want to, so it makes no business sense to spend real money to collect real news.

It’s this third point that is the most important, because it points to a potential transformation in the way that we THINK about news, a change in the IDEA of news as a social good. These transformations happen rarely — the invention of privacy, for example, in the 13th century — but they ARE inventions, no less so for being conceptual than the tangible invention of the steam engine or the semiconductor. And when these conceptual transformations do occur, they change the entire course of human civilization.

I’m using the social invention of privacy as a prominent example because I think that this transformation in the idea of news as a political good is connected with a similar transformation in the idea of privacy, both of which are being reinvented by technology. It’s no accident that Facebook is at the center of both.

Here’s the crux of Facebook’s Dec. 15 announcement on combating fake news:

Flagging Stories as Disputed

We believe providing more context can help people decide for themselves what to trust and what to share. We’ve started a program to work with third-party fact checking organizations that are signatories of Poynter’s International Fact Checking Code of Principles. We’ll use the reports from our community, along with other signals, to send stories to these organizations. If the fact checking organizations identify a story as fake, it will get flagged as disputed and there will be a link to the corresponding article explaining why. Stories that have been disputed may also appear lower in News Feed.

In practice this means that four established fiat news institutions — Associated Press, ABC News, the Washington Post, and the Tampa Bay Times (Politifact) — together with a smaller media company, Snopes.com, will share the responsibility for determining what stories are “disputed” and dropped into the memory hole of a lower ranking in News Feed. More fact checkers, particularly more fiat news institutions, will undoubtedly be added to the list, as the process is designed to encourage fiat news institutional participation (The Poynter Institute, developer of the “Fact Checking Code of Principles” at the heart of Facebook’s efforts here, owns the Times Publishing Company, which in turn owns the Tampa Bay Times and Politifact). My sense is that these fact checkers can do a pretty good job of identifying counterfeit news (for example that’s why Snopes.com was started, albeit in an urban legend and email hoax context), but will fail miserably at policing fiat news, for obvious reasons. Not that Facebook cares about the distinction, of course, as they will become the preeminent fiat news provider themselves when all is said and done.

Facebook’s erosion of privacy settings and protections is a long-running saga, reflecting Mark Zuckerberg’s many public statements that privacy is “no longer a social norm.” He’s probably right, which is exactly my point in writing about it in this note and linking it to a change in social norms regarding political information and news. But my concern isn’t that Facebook prevents me from maintaining privacy with regard to other Facebook users. My concern is that Facebook prevents me from maintaining privacy with regard to Facebook and other regime institutions, both corporate and governmental, so that the fiat news I receive is curated and distributed to successfully elicit a specific response from me.

I know, I know … if you don’t want your actions and preferences exposed to The Controllers, don’t use Facebook. And I don’t. But in the same way that there are lots of Russias and lots of Washington Posts out there, so are there lots of Facebooks. Plus the Facebook and the Amazon and the Google are getting harder and harder to avoid. Each of these companies has designed a wonderfully effective Medieval wolf trap, complete with blood trail and bleating sheep, to lure all of us wolves into the pen, and I’m certainly no exception to that. It’s brilliant, really, even if horribly depressing.

What’s happening here is reflective of a prominent feature of American political culture, namely that we tend to trust anything technology or business related, and correspondingly mistrust anything that comes from the government. It’s a big part of the Trump phenomenon, as lots of people have noted, but it goes back literally a couple of hundred years. What’s Hamilton’s core appeal? He’s a self-made man, the highest praise you can offer in the American political tradition. My view, of course, is that it’s absolutely nuts to trust billionaires to devise or administer your social policy, whether it’s Donald Trump or Mark Zuckerberg or Eric Schmidt or Jeff Bezos or whoever, more or differently than you trust permanent members of the political class like the Clintons or the Bushes or whoever. Actually I take that back. I trust technology billionaires like Zuckerberg and Schmidt and Bezos LESS than I trust the Clintons and the Bushes when it comes to my political interests and democracy-supporting social policy, which is really saying something. Why? Because gridlock. I love gridlock. I love the checks and balances embedded in our political machinery, because it prevents government from doing as much as it otherwise would to interfere with and upend my life. There’s no gridlock at Facebook or Amazon or Google, and this is where you’ll find the road to smiley-face authoritarianism. Where are we going? It’s not George Orwell’s 1984. It’s Dave Eggers’ The Circle. A world awash in fiat news as administered by government-licensed technology behemoths with a dissemination “platform”. We don’t trust the news, and in the back of our minds we know we’re being played, but boy, is it an entertaining and compelling delivery.

So what’s to be done? Not much in a political sense. Proposing some “plan” to roll back Facebook and Google and Amazon’s usurpation of fiat news dissemination makes about as much sense as proposing a plan to roll back the Catholic Church in 1215. As a citizen pretty much the best I can do is ring the cow bell with Epsilon Theory and try to convince other citizens to see the world through the same Rashomon-esque lens. As Akira Kurosawa said, to be an artist means never to avert one’s eyes. Ditto for a liberty-loving citizen.

As an investor, though, I hope to do more than just add more cow bell. I think it’s possible to use new technologies to track and analyze the dynamic of fiat news dissemination, i.e., the Narrative, within the discrete social system of capital markets. It’s the same family of new technologies that Zuckerberg and Schmidt and Bezos are using to shape our entire society, just applied for analytical purposes rather than shaping purposes. Plus a wee difference in scale. I’m applying these technologies to a very specific social dynamic — the Common Knowledge Game — that I believe dominates policy-driven markets and story-driven stocks. I call this the Narrative Machine, and it’s the centerpiece of my investment activities for 2017 and beyond. Here’s the Epsilon Theory note that launched the project, and I hope you’ll find this a useful research project to track in the Brave New World ahead.

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