One evening a few weeks ago, I was on a Zoom call with a bunch of academic, think tank and Fed economists for a Bitcoin discussion. A lot of names you’d know if you’re familiar with those circles, the most famous one being Paul Krugman (who, btw, I found to be charming, genuinely open-minded, and surprisingly humble about the entire enterprise of academic economics). I had been invited to be on the anti-Bitcoin ‘side’ of the discussion, but they needn’t have bothered. Because there was no pro-Bitcoin side.
Krugman led with a simple question – what’s the use case for Bitcoin? Not a theoretical thing, but an actual use of Bitcoin to solve a problem in the real world? – which led to an hour-long, extremely earnest and altogether unsatisfying conversation about financial transfers out of Venezuela, trade settlement and securitization on a blockchain, and Taylor Swift’s ability to control the scalper/resale market for her concert tickets.
All of which are real things. All of which are interesting things. All of which are good things. But none of which are what got 20 busy people on a Zoom call at 8 pm on a Thursday night.
None of which ARE Bitcoin.
Now, to be fair, there were no old-school Bitcoin maximalists on the call, or if there were, they were too intimidated to make an Austrian economics, hard money, neo-goldbug, Bitcoin-is-the-inevitable-global-reserve-currency argument in front of Paul Krugman. LOL.
But I finally couldn’t take it anymore.
Is this really why we got on the phone tonight? To talk about a novel form of digital rights management? To talk about payment transfers out of authoritarian third-world countries? Are these REALLY our questions about Bitcoin?
Answer: of course not. What got these academic, think tank and government economists on the phone that night was Bitcoin trading at $50,000. The question that everyone truly cared about, but a question that everyone danced around for the better part of an hour, was this: Is there any there there in the price of Bitcoin?
To which everyone, including the supposedly pro-Bitcoin contingent, said no. Not just no, but no, no, no. The price of Bitcoin was an illusion. The price of Bitcoin was the madness of crowds. The price of Bitcoin had no connection to any fundamental economic activity, just like gold had no connection to any fundamental economic activity, and thus – to this audience – could have no inherent value by definition.
I think this is very wrong. And I’ll tell you, like I told this Zoom call, why I think there is a lot of inherent value in Bitcoin.
Because Bitcoin is good art.
Or better yet, because Bitcoin is elegant and beautiful fashion, sitting at the intersection of art and commerce.
Most importantly, because owning Bitcoin has been an authentic expression of identity, an extremely positive identity of autonomy, entrepreneurialism, and resistance to the Nudging State and the Nudging Oligarchy.
I’ve been saying that Bitcoin is art for more than six years, from The Effete Rebellion of Bitcoin (Feb. 2015) to Too Clever By Half (Feb. 2018, my most popular note ever!) to Riding the Cyclone (June 2018) to The Spanish Prisoner (July, 2019), and it’s been a very frustrating place to be. Frustrating because public stances on Bitcoin are almost immediately turned into cartoons – either you’re the grumpy grandpa “Bitcoin is worthless!” cartoon or you’re the laser-eyed cultist “Bitcoin will be the world’s reserve currency!” cartoon, with no room in between.
The value-deniers, like the Zoom crowd the other night, think I’m agreeing with them when I say that Bitcoin is art. I’m not. The true-believers think I’m trolling them when I say that Bitcoin is art. I’m not. The creation of good art is – in my opinion – what we are put on this earth to do. It is our highest calling. It is my highest praise.
There is lasting value in good art, because it is a very scarce thing and it never gets used up.
Bitcoin is itself an NFT, a unique digital art work instantiated on a blockchain. It’s the most valuable NFT in the world. I don’t mean a Bitcoin, obviously that’s a fungible thing. I mean THE Bitcoin … the 21 million Bitcoins that make up the Bitcoin Project. The notion that Bitcoin would ever “go to zero” is ludicrous. Good art is always worth something. But how do we measure that something … how do we put a price on the value of good art at this particular moment in time? It’s a REALLY tough question.
There are no cash flows to art. There are no fundamentals to art. There is no “use case” to art.
There is only story. There is only narrative. There is only common knowledge – what everyone knows that everyone knows – about the value of art, common knowledge that emerges from our social interaction with story and narrative.
In every respect that matters, Bitcoin IS Epsilon Theory.
The Epsilon Theory Manifesto (June 2013)
Our times require an investment and risk management perspective that is fluent in econometrics but is equally grounded in game theory, history, and behavioral analysis. Epsilon Theory is my attempt to lay the foundation for such a perspective.
So yes, I’ve been saying that Bitcoin is art for a long time now. But what I haven’t been saying – or at least not as loudly – is that bit about identity, and that’s the part that needs to be shouted today. So here it is again, this time a little louder …
Most importantly, owning Bitcoin has been an authentic expression of identity, an extremely positive identity of autonomy, entrepreneurialism, and resistance to the Nudging State and the Nudging Oligarchy.
This, too, IS Epsilon Theory.
Clever Hans (Oct. 2017)
Trainers don’t break a wild horse by crushing its spirit. They nudge it into willingly surrendering its autonomy.
Because once you take the saddle, you’re gonna take the bit.
Why am I shouting about identity?
Because the artistic Bitcoin identity I admire and value has been subverted by the neutering machine of Wall Street and the regulatory panopticon of the US Treasury Dept.
Because what made Bitcoin special in the first place is nearly lost, and what remains is a false and constructed narrative that exists in service to Wall Street and Washington rather than in resistance.
Yes, the Nudging State and the Nudging Oligarchy strike back. They always do when it comes to money. Not with imperial stormtroopers or legislative sanction, but with golden handcuffs and administrative surveillance.
It’s not that the State and the status quo institutionalization of capital – call it Wall Street, for short – have any desire to ban Bitcoin. Why would they do that? No, far better to accommodate and swallow Bitcoin, like they have every other financial “innovation” for the past 1,000 years. Far better to neuter the censorship-resistant and anonymity-preserving aspects of Bitcoin, and turn it into another gaming table in the Wall Street casino.
In my dystopian vision, Bitcoin isn’t banned or criminalized. Pfft. That’s a rookie, weak State move. No, I see a future where everyone buys Bitcoin. Where you are encouraged to buy Bitcoin. Where Bitcoin is sold to you morning, noon and night. Where normie economists get on conference calls late at night because they’re Bitcoin price-curious.
Except it’s not really Bitcoin.
Instead, it’s Bitcoin! TM — a cartoon version of the OG Bitcoin, either a Wall Street-abstracted representation of the price of Bitcoin or a government-painted version of Bitcoin in Dayglo orange. Either way — abstracted or painted — your Bitcoin! TM is trackable and traceable, fully KYC and AML and FBAR and SWIFT and every other US Treasury acronym-compliant. Either way, your Bitcoin! TM has all the revolutionary potential of a bumper sticker and all the identity signaling power of a small tattoo on your upper arm.
Bitcoin!TM doesn’t stick it to the Man … Bitcoin!TM IS the Man.
Welcome to the MMXXI Hunger Games.
Hunger Games (Feb. 2021)
You’ve been told that the odds are ever in your favor. You’ve been told this for your entire life.
More and more, you suspect this is a lie.
This is no “democratization” of Wall Street. You’ve been played. Again.
The abstracted version of Bitcoin! TM is a Wall Street specialty.
What is Bitcoin! TM in abstracted form? It’s a securitization or representation of Bitcoin ownership that promises the price appreciation of Bitcoin without the hassle of Bitcoin ownership. It’s a casino chip that represents the price of Bitcoin. Michael Saylor, for example, is only too happy to sell you a MicroStrategy casino chip. Or maybe you’d prefer to play on the Canadian crypto ETF felt? Or try your luck at the wheel of a Morgan Stanley private fund?
Why does Wall Street loooove abstracted forms? Because there are no fundamental limits to how many of these Bitcoin! TM casino chips Wall Street can sell. It doesn’t matter if all the OG Bitcoin HODLers keep on HODLing. It doesn’t matter if the vast majority of all the Bitcoins ever mined never get caught up in the Wall Street neutering machine. There are an infinite number of games that can be created around the price of Bitcoin as a reference point, just like there are an infinite number of bets that can be made on a football game. There are an infinite number of rehypothecations and derivative representations that can be made off the millions of margined Bitcoins that have already been captured by Wall Street-custodied accounts.
The only limiting factor on how many of these Bitcoin! TM casino chips Wall Street can sell is the effectiveness of the narrative they have created around Bitcoin itself, that Bitcoin is a “hedge against inflation” and a “store of value” that is uniquely positioned to “protect your portfolio” against “dollar debasement” because it is “hard money” immune to “money printer go brrrr”.
It’s rather artistic in and of itself, right? Selling an unlimited number of Bitcoin! TM casino chips off a meme slamming unlimited fiat money printing? Creating an unlimited number of entertaining market games and venues where we can use our Bitcoin! TM casino chips?
If these narratives and casino games sound familiar, it’s because this is exactly the same process of abstraction, securitization and leverage that Wall Street has been using for the past twenty years with precious metals.
What is the GLD ETF? It’s gold! TM. What is a unit in an ETF basket of gold miner stocks? It’s gold! TM. They and their many kin are securitizations of gold ownership that promise the price appreciation of gold without the hassle of gold ownership. They are casino chips that represent the price of gold.
I’m old enough to remember when people bought and sold gold coins in private transactions. I guess we’d call that peer-to-peer today. I’m old enough to remember when well-meaning people would have earnest conversations about gold as a reserve currency, just like well-meaning people today have those earnest conversations about Bitcoin. I’m old enough to remember how quickly those conversations died out after State Street launched GLD in 2004 and took in a billion dollars in a few days. Turns out people didn’t really want the grumpy grandpa identity of owning physical gold in some Mad Max world as much as they wanted gold! TM in their financial portfolios as an abstracted insurance policy against central bank error.
It’s exactly the same with Bitcoin! TM today.
You think “institutional adoption” is driven by a spirit of personal autonomy, entrepreneurialism, and resistance to the Nudging State and Nudging Oligarchy? You think Paul Tudor Jones and Mike Novogratz want to BITFD? LOL.
The ONLY difference to Wall Street between gold and Bitcoin is that gold! TM is tired and Bitcoin! TM is wired.
The king is dead. Long live the king!
This is the artistic genius of Wall Street – the creation of new product to trade and new assets to manage, all through the alchemy of securitization and leverage. This is Flow.
It’s like Ash said about the chest-bursting xenomorph in Alien – you may not admire the creature itself, but you gotta admire its purity. Unclouded by conscience, remorse, or delusions of morality. Yep, that’s Wall Street.
Ditto the US Treasury.
If there’s a Western governmental institution that is more unclouded by conscience, remorse, or delusions of morality than the US Treasury, I am unaware of what that institution might be. But unlike Wall Street, which is motivated by Flow, the US Treasury has an entirely different (but highly compatible!) goal.
The goal of the US Treasury is to see all of the money in the world.
That’s really all it is. That’s what Anti-Money Laundering (AML) regulations are all about. That’s what Know Your Client (KYC) regulations are all about. That’s what Report of Foreign Bank and Financial Accounts (FBAR) regulations are all about. That’s what the Treasury-led Society for Worldwide Interbank Financial Telecommunications (SWIFT) is all about. That’s what the Bank Secrecy Act (BSA) is all about. None of these programs are really about taxes. None of these programs are really about catching crooks or fighting terrorists. All of these programs are really about information for information’s sake regarding the greatest source of power in the world and the raison d’etre of every government on Earth: money.
The US Treasury is the Eye of
— a gigantic panopticon tower that sweeps the world with its unblinking gaze, seeking out the owners of power, i.e. money.
The US Treasury can’t see Bitcoin. It can, however, see Bitcoin! TM.
The giant all-seeing eye of the US Treasury is primarily built on two regulatory structures — the Bank Security Act (BSA) to compel transparency and reporting by financial institutions on their clients and themselves, and the Report of Foreign Bank and Financial Accounts (FBAR) system to compel transparency and reporting by individuals on their financial institutions and themselves. There are a dozen more acronyms and programs involved here, all overseen by Treasury’s Financial Crimes Enforcement Network (FinCEN), but to keep things simple I’m going to refer to all of this as the BSA/FBAR regulatory panopticon.
Everything in plain text in the next two paragraphs is regulatory policy as it currently stands with the BSA and FBAR. Everything in bold italics is a new policy proposed in the past few months and expected to go into effect shortly. Taken together, I think it will be clear how Treasury uses the combined BSA and FBAR instruments to mark your Bitcoin with a DayGlo orange fluorescent paint and create their highly visible version of Bitcoin! TM.
BSA — If you are in the business of money in any way, shape or form (what Treasury calls a “money transmitter”), and you do any of that business in the US, then you are subject to the Bank Secrecy Act. Note that this money transmitter designation and BSA jurisdiction explicitly includes peer-to-peer exchanges that work with self-hosted wallets. If you are subject to the BSA, then it is your affirmative obligation to collect complete identifying information regarding clients who transmit or receive more than $3,000 over your systems, and to collect and immediately report to Treasury complete identifying information regarding clients who transmit or receive more than $10,000 over your systems – including any cryptocurrency (“convertible virtual currency”) transmitted to or from a self-hosted wallet.
FBAR — If you are a US entity (citizen or resident, any type of US-registered corporate or trust structure, etc.) and you have any sort of account (banking, securities, custodial, etc.) with any non-US money transmitter, anywhere in the world, and at any time during the course of the year, you have in the aggregate across all accounts more than $10,000 in value in those accounts – including the value of any cryptocurrency holdings (“convertible virtual currency”) in those accounts – then it is your affirmative obligation to report complete identifying information regarding each of those accounts to the IRS in a Report of Foreign Bank and Financial Accounts (FBAR).
I think the intent here is crystal clear. Whatever rules were in place yesterday regarding transfers of dollars or rubles or pesos through US-touching money transmitters or by US entities … well, now those exact same rules are going to apply to Bitcoin. As soon as your virtual currency holdings land in any financial institution that cooperates with or does business in or is regulated by the United States … BAM! your Bitcoin is painted DayGlo orange and becomes the Treasury-preferred form of Bitcoin! TM.
When these regulations go into full effect, as I understand them, the only remaining safe harbor for keeping your Bitcoin hidden from the BSA/FBAR Eye of Sauron will be to maintain a self-hosted wallet that never connects with a money transmitter that does business in the US.
That’s a safe harbor for the moment, but ultimately nothing is safe from the Eye of Sauron. While 2019 guidance explicitly states that “a person conducting a transaction through an unhosted wallet to purchase goods or services on their own behalf is not a money transmitter”, and so is not subject to the Bank Secrecy Act directly, the December, 2020 proposed rule-making doc also included this doozy of a comment.
The Treasury Department has previously noted that “[a]nonymity in transactions and funds transfers is the main risk that facilitates money laundering.”
The Financial Action Task Force (“FATF”) has similarly observed that the extent to which anonymous peer-to-peer permit transactions via unhosted wallets, without involvement of a virtual asset service provider or a financial institution, is a key potential AML/CFT risk in some CVC systems.
FATF members have specifically observed that unregulated peer-to-peer transactions “could present a leak in tracing illicit flows of virtual assets,” particularly if one or more blockchain-based CVC networks were to reach global scale.
Importantly, as explained below, while data contained on some blockchains are open to public inspection and can be used by authorities to attempt to trace illicit activity, FinCEN believes that this data does not sufficiently mitigate the risks of unhosted and otherwise covered wallets.
That last paragraph doesn’t mince words. Even if the blockchain facilitating a crypto currency allows for “authorities” to trace transactions, “the risks of unhosted and otherwise covered [i.e., hidden from the Eye of Sauron] wallets” are too great to let stand. LOL. I think we all see where this is going.
The response I get from the Bitcoin and larger crypto community to what seems to me to be the clear intent and path of Treasury regulations is always this: well, good luck enforcing that!
Unfortunately, that’s the evil artistry of panopticons like the Eye of Sauron or Treasury’s BSA/FBAR regulatory structure: we are driven to willingly enforce their discipline on ourselves.
A panopticon is an institutional structure that creates a permanent feeling of being watched. Maybe you are and maybe you aren’t at any given moment. But you’re never sure that you’re NOT being watched. And if you ARE being watched, then you better ‘fess up and cooperate before you get your head stuck on an orc’s pike. Did I mention that the penalty for a willful failure to make an FBAR report was the greater of $100,000 or 50% of the unreported foreign assets?
Moreover, a panopticon structure allows you to see the behavior of others. And they of you. If the discipline imposed by the Watcher includes obligations to snitch — and that’s exactly what the Treasury requires here, with obligations on money transmitters to report on clients, and obligations on clients to report on money transmitters — a panopticon sets up a classic Prisoners Dilemma game, where the only equilibrium is for both the money transmitter and the client to volunteer information about the other.
Once you start looking for panopticons in our modern world, you will find them everywhere. And of course there’s an Epsilon Theory note on this.
Panopticon (March 2014)
“Transparency” has little to do with freedom and everything to do with control, and the more “radical” the transparency the more effective the control … the more willingly and completely we police ourselves in our own corporate or social Panopticons.
You’re not opposed to “transparency” are you? Why would you be opposed to “transparency” unless you have something to hide? You’re not a … a … terrorist-lover, are you? No, I didn’t think so.
It’s not just that Wall Street and the US Treasury dominate policy.
Far more perniciously, they also dominate narrative.
And that’s why I’m writing this note.
Frankly, I doubt that the policy battle can be won. This has been my view since I first started writing about Bitcoin, and nothing has happened to change my mind. On the contrary, Treasury’s moves to make crypto visible and controllable have happened faster than I thought they would. I mean, I’m hopeful that we are at least at some point of policy equilibrium with the proposed rule changes to BSA and FBAR, an equilibrium that will at least allow self-hosted crypto wallets to exist in peace. But hope, unfortunately, is not a strategy.
Too Clever By Half (Feb 2018)
The inevitable result of financial innovation is that it ALWAYS ends up empowering the State. When too clever by half coyotes misplay the meta-game, that’s all the excuse the State needs to come swooping in.
Just as they did with Bear and Lehman in 2008. Just as they’re doing with Bitcoin today.
So, no, I don’t think I can help much in the policy battle.
But I think I can help a lot in the narrative battle.
Or rather, the Narrative Machine can help.
Inception (April 2020)
The systematic study of narrative, what we call the Narrative Machine, can be used for analysis, yes, but also as an active instrument to reclaim our autonomy of mind and our generosity of spirit.
Everything else is commentary.
I know you don’t believe me, but we’re going to change the world … you and me.
The Bitcoin narrative must be renewed.
Bitcoin has been an authentic expression of identity, a positive identity of autonomy, entrepreneurialism, and resistance to the Nudging State and the Nudging Oligarchy.
It can be again.
Wall Street and Treasury are running a psyop with their creation of Bitcoin! TM, and it’s necessary to think about Bitcoin in those psyop/narrative terms if the goal is to preserve an active community with an identity of autonomy, entrepreneurialism, and resistance to the Nudging State and the Nudging Oligarchy in the context of Bitcoin specifically and crypto more generally.
That’s my goal, anyway.
I’m not in this for Bitcoin-as-global-reserve-currency. I’m not in this for Number Go Up. I’m not in this for “store of value” against that gosh darn “dollar debasement”. I’m not in this for Flow. I’m not opposed to any of those things, and I don’t think you’re a Bad Person if those are your things. They’re just not my things. I’m in this for Bitcoin as good art and the inspiration it provides to a community that shares my values and goals for making a better world.
Phase 1 of this anti-psyop campaign is to identify Schelling points (game solutions that people arrive at by default in the absence of direct communication … also called focal points) so that people who share this goal of community organization and narrative reclamation can find each other.
I think that one of these Schelling points is maintaining a self-hosted wallet and the capacity for peer-to-peer connections away from the Eye of Sauron.
Starting today, Epsilon Theory will accept Bitcoin as payment for all annual subscriptions through our BTCPay server. It’s a plain vanilla Raspberry Pi set-up. We’re not holding ourselves out as crypto mavens. We’re signaling an identity of autonomy, entrepreneurialism, and resistance to the Nudging State and the Nudging Oligarchy in the context of Bitcoin.
Phase 2 of this anti-psyop campaign is to use the Narrative Machine to measure and visualize the narrative archetypes and story arcs of Bitcoin! TM. In exactly the same way that there are only, say, a dozen archetypal scripts for every TV sitcom episode ever filmed, or in exactly the same way that there are three acts to every modern movie screenplay, so is there an underlying structure and a finite number of underlying archetypes to the media coverage of every market entity.
We believe that we can measure these narrative structures and archetypes as they apply to Bitcoin! TM, and map those structural dynamics to market behaviors.
Seeing is believing, and I think there is no better way to prove the existence of Bitcoin! TM, in both its Wall Street-abstracted and its Treasury-painted form, than to show the psyop in action. I think this sort of analysis and visualization will get a lot of people who would otherwise be quick to dismiss our claims to take a fresh look at the ways in which we have been nudged.
Phase 3 of this anti-psyop campaign is simply to call things by their proper names. That starts with locating the value of Bitcoin in its elegant art and its ability (like all elegant art) to inspire great things away from the art itself. Yes, great things away from Bitcoin itself, so that even if Bitcoin! TM dominates financial markets (which it will), the story arc of Bitcoin doesn’t end there, but generates a thousand new initiatives to improve our world.
We don’t have to tell a story of price. We don’t have to tell a story of apocalypse. We don’t have to scold or “educate”.
We can tell an Old Story of autonomy of mind and generosity of spirit within a new context of Bitcoin and crypto.
You know, a couple of thousand years ago, a really smart guy — the most subversive, revolutionary guy you can imagine — had a good line. Render unto Caesar what is Caesar’s.
Bitcoin! TM definitely belongs to Caesar. It’s part of his game. But Bitcoin doesn’t have to be. It can be part of our game. Still. Again. And that will change everything.
A Truth That’s Told With Bad Intent
That’s Isaac Newton in William Blake’s painting, one of the major villains in Blake’s philosophy. Why? Because Newton was a modeler, a proponent of Science with a capital S, the most repressive force in the modern age.
I think Blake was absolutely right.
Our narratives of COVID-19 are all lies.
They are lies of a particular sort, political narratives that have a nugget of truth within them, but are told with bad intent. They are told this way because it works. Because the nugget of truth hides a deeper, unpleasant truth. And a Big Lie.
Some are narratives of the political left. Some are narratives of the political right.
They are all narratives of betrayal, meaning that they seek to excuse or promote policies designed for institutional advantage rather than the common good.
Clockwise from Donald Trump, that’s Fox’s Sean Hannity, the CDC’s Robert Redfield, Surgeon General Jerome Adams, Speaker of the House Nancy Pelosi, Harvard President Larry Bacow, the White House’s Larry Kudlow, and Vox co-founder Ezra Klein. They all get their moment of shame in our magnum opus on the ubiquitous institutional betrayals here in the early days of the pandemic age – First the People.
How do you recognize a political narrative of betrayal?
It’s always based on a model.
A political narrative of betrayal is always a top-down application of social abstraction, where a behavioral model is treated as the thing unto itself, falsely elevated as the subject and object of policy, rather than relegated to the analytical toolbox where it belongs. A political narrative of betrayal will always use “model” as a noun rather than “model” as a verb. A political narrative of betrayal always BEGINS with a prescriptive model of mass behavior – a model that by the most amazing coincidence serves the institutional advantage of the narrative creator – and ENDS with a forced fit to the individual citizen.
All political narratives of betrayal start like this, with a disembodied, modeled abstraction like
- “the American way of life” or
- “the economy” or
- “the market” or
- “public health” or
- “national security”.
An abstraction that is then defined for you in such a way as to logically require the willing abdication of your individual rights, first as an American and ultimately as a human being.
A political lie always starts by establishing a disembodied, modeled abstraction like “the economy”. From there, the political lie will then start talking about the “sacrifices” that we citizens need to make for this disembodied, modeled abstraction.
Nothing makes me angrier.
Nothing makes me angrier than a politician like Chris Christie, a man whose idea of personal sacrifice is a regular order of fries, shaking his finger at us and telling us how reopening the local Arby’s is just like fighting Nazi Germany, how OUR deaths then and now are a “necessary sacrifice” in order to “stand up for the American way of life.”
The American Way of Life™ does not exist. It’s not a thing.
What exists is the way of life of Americans.
Start with the individual American. Start with their political rights. Start with the citizens themselves. This is how a legitimate government acts in both words and deeds.
The government’s job – its ONE JOB – is to protect our individual rights in ways that we cannot do ourselves. That’s not an easy job. At all. There are trade-offs and gray areas, and clear-eyed/full-hearted people can disagree on how to accomplish that job. But it is the job.
Its job is NOT to create “alternative” facts like modeled seasonal flu deaths or modeled herd immunity or modeled COVID-19 deaths in nudging service to institutional goals. Its job is NOT to champion the rights of the politically-connected few and ignore the rights of the politically-unconnected many. Its job is NOT to deny the rights of any citizen in service to a politically convenient abstraction like “the American way of life” or “the economy” or “public health”.
When individual rights conflict in unavoidable ways or we are faced with an immediate and overwhelming threat to our system of individual rights, a legitimate government based on the consent of the governed may be forced to decide which citizens’ rights must be temporarily suspended. This is a legitimate government’s last resort.
Today it is our government’s first resort.
Today it is the first choice of our political leaders – White House and statehouse, Democrat and Republican – to decide which rights to prioritize and which rights to deny in service to THEIR conception of what society should look like. All wrapped up in a nugget of truth told with bad intent.
This is how an illegitimate government acts.
Model-driven Narrative #1
Whatabout the Flu?
- Political goal: COVID-19 threat minimization.
- Truth nugget: The seasonal flu is a nasty (and mitigatable) disease.
- Deep Truth nugget: We are shockingly blasé about all sorts of largely preventable deaths, and we warehouse our elderly parents in horrible places.
- Big Lie: This isn’t a big deal.
- Policy prescription: Wash your hands, boys and girls!
- Embedded model: Laughably inaccurate models of seasonal flu deaths, designed to nudge popular adoption of annual vaccinations.
As the US death toll mounts, this narrative fades farther and farther into the background of our collective memory, but “Whatabout the Flu?” dominated the early weeks of American policy debates. And while it’s easy to find examples of this narrative from the political right, let’s not forget that CNN and Vox were beating this drum as hard as they could when Trump was shutting down some flights from China.
People don’t believe me when I tell them that we don’t actually count flu deaths, that the numbers thrown around by the Dr. Guptas and the Rush Limbaughs are taken from CDC models of pneumonia deaths. But it’s true. Basically we count pediatric flu deaths and hospitalized adult flu deaths, multiply by six, and intentionally generate an inflated flu death total. Why intentional? Because you need to be nudged into taking your annual flu vaccine.
If we compare, for instance, the number of people who died in the United States from COVID-19 in the second full week of April to the number of people who died from influenza during the worst week of the past seven flu seasons (as reported to dethe CDC), we find that the novel coronavirus killed between 9.5 and 44 times more people than seasonal flu. In other words, the coronavirus is not anything like the flu: It is much, much worse. – Scientific American (April 28, 2020)
On an apples-to-apples, counted deaths versus counted deaths basis, there is no comparison between COVID-19 and the flu. It’s pure narrative. Pure hokum. All based on a laughably inaccurate model. All geared towards the political lie of COVID-19 minimization.
Model-driven Narrative #2
- Political goal: Preservation of economic status quo.
- Truth nugget: Massive unemployment is devastating.
- Deep Truth nugget: Massive unemployment is particularly devastating to incumbent politicians.
- Big Lie: In the meantime, we can protect the olds and the sicks.
- Policy prescription: Hey, you’ll probably be fine! I mean … probably.
- Embedded model: Laughably inaccurate models of COVID-19 infection spread and severity, designed to nudge fantasies of V-shaped recoveries in the stock market and commercial real estate prices.
Again, it’s easy to find examples of this narrative from the political right, but let’s not forget that the most prominent national example of “Herd Immunity!” policy is driven by the leftwing Social Democrats – Green Party coalition in Sweden. Again, the politicization of these narratives is not a left/right thing, it’s a power thing.
It’s a high-functioning sociopath thing.
What do I mean by sociopathy and division?
I mean the way our political and economic leaders beat the narrative drum about how this virus prefers to kill the old rather than the young, as if that matters for our policy choices, as if older Americans are lesser Americans, as if we should think of them differently – with less empathy – than Americans who are more like “us”.
I mean the way our political and economic leaders beat the narrative drum about how this virus prefers to kill those with “pre-existing conditions”, as if that matters for our policy choices, as if chronically ill Americans are lesser Americans, as if we should think of them differently – with less empathy – than Americans who are more like “us”.
I mean the way our political and economic leaders beat the narrative drum about how this virus hits certain “hotspot” regions, as if that matters for our policy choices, as if hotspot regions are lesser regions, as if we should think of Americans who live there differently – with less empathy – than Americans who are in “our” region.
And once you stop thinking in terms of trade offs, once you stop thinking in terms of probabilities and projected mortality rates and cost/benefit analysis and this expected utility model versus that expected utility model … once you start thinking in terms of empathy and Minimax Regret … everything will change for you. – Once In A Lifetime
Model-driven Narrative #3
Flatten the Curve!
- Political goal: COVID-19 threat maximization.
- Truth nugget: Lockdowns prevent a surge in cases which can overwhelm the healthcare system.
- Deep Truth nugget: When we’ve got everyone freaked out about staying alive, there’s no end to the crazy authoritarian stuff we can get away with.
- Big Lie: We can get R-0 down to zero.
- Policy prescription: You’ll find these ankle monitors to be surprisingly light and comfortable to wear!
- Embedded model: Laughably inaccurate models of COVID-19 deaths, malleable enough to serve the political aspirations of both the White House and their opponents.
Of the three politicized narratives, “Flatten the Curve!” has morphed the most from its original form, as its early success in convincing even Donald Trump that lockdowns were necessary to prevent a healthcare system meltdown gave both its White House missionaries and its state house missionaries free rein to use this narrative to fill a wide range of policy vacuums.
The original goals of “Flatten the Curve!” – to prevent a surge in COVID-19 cases with the potential to overwhelm the healthcare system – were achieved. The flood in New York City crested … and fell. Other cities that seemed as if they might follow in NYC’s footsteps … did not. Mission accomplished! But in the grand tradition of other initially successful emergency government interventions (“Quantitative Easing!”, anyone?) “Flatten the Curve!” is well on its way to becoming a permanent government program.
Today, “Flatten the Curve!” has become the narrative rationale for a range of extraordinary executive actions – on both the left AND the right – that would make Lincoln blush. This is the narrative that will propel the Surveillance State into a permanent feature of American life. This is the narrative that will propel the final transformation of capital markets into a political utility. This is the narrative that will propel us into a war with China. If we let it.
If we let it.
Okay, Ben, how do we stop it? How do we turn this misbegotten process of political lying on its head? How do we reject top-down, model-derived policies and their narratives? How do we BEGIN with the biology of this virus and the rights of individual citizens and build a policy framework from THAT?
This virus is 2-6x more contagious/infectious than the seasonal flu (depending on environment), and 10-20x more deadly/debilitating (depending on whether or not your local healthcare system is overwhelmed). It hits men harder than women, and the old harder than the young. Those are the facts. They’ve been the facts since January when we first studied this virus. The facts have not changed.
Knowing these biological facts, what social policies would you design around THAT?
As a 56 year-old man in just ok physical condition, I figure I have a 1% chance of death or disability if I catch COVID-19 when my local healthcare system is in good shape, maybe 4% if my healthcare system is overwhelmed. Both of those odds are completely unacceptable. To me. Other 56 year-old citizens may feel differently. Other 25 year-old citizens may feel the same. Each of us has a right to life, liberty and the pursuit of happiness, and the legitimacy of our government is predicated on preserving those rights for each of us. Liberty and justice for ALL … imagine that.
Knowing these foundational rights, what social policies would you design around THAT?
If you’ve read notes like Inception and The Long Now: Make, Protect, Teach and Things Fall Apart: Politics, you know that I am a full-hearted believer in acting from the bottom-up, in bypassing and ignoring the high-functioning sociopaths who dominate our top-down hierarchies of markets and politics. I still believe that.
But it doesn’t work with COVID-19.
The core problem with any rights-based approach to public policy is dealing with questions of competing rights. Under what circumstances could your right to liberty and the pursuit of happiness come into conflict with my right to life? Under most circumstances, neither of us is forced to compromise our rights, because we have the choice to NOT interact with each other. If my laundromat requires you to wear a mask to enter, but you think wearing a mask is an affront to your liberty, then the solution is easy: go wash your clothes somewhere else. And vice versa if I think your restaurant does a poor job of enforcing social distancing and food safety: I’ll take my business elsewhere.
Let me put this a bit more bluntly. I think that COVID-19 deniers and truthers are idiots. I think that people who minimize or otherwise ignore the clear and present danger that the biology of this virus presents to themselves and their families are fools. And there’s no perfect way to insulate their idiocy and foolishness from the rest of us. But if these idiots and fools want to take stupid risks alongside other idiots and fools, if their vision of liberty and the pursuit of happiness is to revel in some death cult, but in a way that largely allows us non-death cultists to opt out … well, I believe it is wrong for a government to stop them. Yes, there are exceptions. No, this isn’t applicable on all issues, all the time. But I believe with all my heart that if we are to take individual rights seriously, then we must take individual responsibility and agency just as seriously. Even self-destructive agency. Even in the age of COVID-19. Especially in the age of COVID-19.
There are three common and important circumstances, however, where this choice to NOT interact doesn’t exist, where the rights of yes, even idiots, to liberty and the pursuit of happiness as they understand it will inexorably come into conflict with the right to life of those who understand all too well the highly contagious and dangerous biology of this virus.
Only government can provide the necessary resources and the necessary coordination to resolve these conflicts of rights peacefully and without trampling the rights of one set of citizens or another.
You have no idea how much it pains me to say that.
It pains me because I think there’s a snowball’s chance in hell that our government will do that.
Here’s how a legitimate government would deal with the three inevitable and irreconcilable conflicts of rights in the age of COVID-19:
Healthcare workers and first responders have no choice but to risk their right to life in caring for all citizens who are sick, regardless of the agency or lack thereof behind that sickness.
How does a legitimate government resolve this conflict?
By mobilizing on a war-time basis to provide personal protective equipment (PPE) to ALL healthcare workers and social workers and first responders and public safety officers and anyone else who must serve the sick.
Workers who believe that their employer does not provide sufficient protection against this virus have no choice but to risk their right to life in their return to work, as unemployment insurance typically is unavailable for people who “voluntarily” quit their job.
How does a legitimate government resolve this conflict?
By providing a Federal safe harbor to unemployment claims based on COVID-19 safety concerns, AND by maintaining unemployment benefits at the current (higher) CARES Act level throughout the crisis.
All citizens who use public transit or use public facilities have no choice but to trust that their fellow citizens share a common respect for the rights of others, even if they may differ in their risk tolerance and private beliefs regarding the biology of the virus.
How does a legitimate government resolve this conflict?
By mobilizing on a war-time basis to provide ubiquitous rapid testing in and around all public spaces, starting today with symptom testing (temperature checks) and required masking to limit asymptomatic spread, and implementing over time near-instant antigen tests as they are developed.
It’s just not that hard.
But it is impossible. Politically impossible.
So what do we do?
“I have no idea what’s awaiting me, or what will happen when this all ends. For the moment I know this: there are sick people and they need curing.”
— Albert Camus, The Plague (1947)
We do what we can. We howl our discontent. We resist. We help our neighbors. We make. We protect. We teach. We keep the small-l liberal virtues and the small-c conservative virtues alive in our hearts and our minds.
So what do we do?
For the moment I know this: there are sick people and they need curing.
Ben Hunt on the Role of Narrative
point you can go back to I think is the
1930s so that that’s why I really focus
on what I would describe as the role of
narrative it used to be I would call it
a you know I’ll use these kind of
academic terms I used to be a a weak
form narrative aesthetic that you know
oh yeah narrative and you know what
happens on CNBC and what the what they
you know what a politician says on
Bloomberg yeah that may be important in
a very short term but you know very
quickly the real world and earnings and
you know macro events that’s what’ll
will make the difference in markets and
I went from being I’ll call it that
again this week formed era to Vista to
what I’ll call is a semi strong
narrative this meeting well actually
these narratives can can overwhelm
reality for a for you know pretty long
time but ultimately reality will will
win out I gotta tell you Keith I’ve
become a strong form there to this today
the impact of air ative Xand forward
guidance for example with monetary
policy the CNBC talking heads are get up
there and they shake their finger at you
and they tell you how to think about the
world the the power of this now
augmented with as you’re describing
social media augmented by the 24/7
nature of financial news and political
I now think this can go on for a long
which gets back I think to your original
question of well you know what is the
timing of these massive shifts and
markets and how long do we have to play
this game of capital markets being a
political utility my answer is pry for
quite a bit longer yet yeah well I mean
a lot of people on you know whether I
like that or not that is the game that
we’re in and that’s the game that I’m
playing but still there’s like I said
there’s a lot of I find that there it’s
it’s it’s it’s weird to say but I
actually think it’s easier to make money
and markets like this with a lot of
noise than any other kind of market I
mean volatility to me is a good thing
and it sounds like that’s why you guys
did well in o8 as well I mean oh wait to
be up in o8 well done by the way means
that you have to be able to embrace the
non-linearity of volatility and
understand that you don’t even have to
be grossly exposed to the market to pick
the right parts of it in the right
companies and there’s an anti fragility
to of the 1930s that I think is
interesting that’s developing here not
only at the human level but obviously on
the things that they create like the
companies and that like how much how
much of that do you think about not to
use you know to borrow to Lebs word
obviously on antifragility but you’re
seeing that’s what’s developed the
fragile and the levered which are one in
the same thing and the anti fragile and
those are flushed with cash that are
actually growing in this period well so
I’m I’m a big fan of talib the writer
you know of course he’s blocked me on
Twitter so on a personal level you know
tell em can be but nothing that the
easiest guy to get along with but there
are teeth they’re actually showing in
this conversation I think you’d be
scowling at me like you you know he’d be
using f-bombs he made it and it anyway
but even but his you know he’s comes up
with some good things with some good
well sure and and my field in
academia was statistics and you know
that statistical analysis and so Talib
comes from the same background and so we
are in violent agreement on everything
he writes about how we
assume these you know small tails on the
distributions and everything he writes
about fragility and and like swans and
the the overuse of modeling the right
I’m in violent agreement with ever it
with with everything that’s that’s your
problem that’s why you get blocked
there’s only way for once eleven to live
but but here’s what I would say though
though keep in terms of the fragility or
lack thereof in the system right which
is that there are so many aspects
particularly of our political systems
today that I think are are terribly
fragile right what and and in a in a
larger sense I think they’re similarly a
fragility when it comes to monetary
policy in in this country but but and
this is a such an important caveat I
think that that all of the policy
developments at the in in every central
bank right not just that the Fed but
really led by the Fed all of their
policy initiatives has been to build a
wall against deflationary shocks
mm-hmm because because that that was the
shock of 2008 going into 2009 with a
nationwide decline in home prices in the
United States and the ten trillion
dollars worth of financial products that
were built on on top of that of that
edifice you had an enormous deflationary
shock which which again to my word
stripped off that pleasant skin of
capitalism and democracy to reveal the
the naked sinews of power beneath and
and there was a real risk of those those
true powers you know not surviving right
so I think that what the system has
developed over the last decade is this
phenomenal array of whatever it takes
instruments to prevent deflationary
meaning financial asset price declines
of of a large nature right and and so I
even this sort of deflationary shock the
shock of a pandemic which I you know
outside of a Thurman
clear war I can’t imagine a greater
deflationary shock than worth the world
is experiencing today I I think I
believe that these the Arsenal that
central banks have developed against
these sort of deflationary shocks will
be successful on its own terms meaning
that it will and we’re seeing this today
be largely successful in preventing
financial asset price declines of a
system shaking nature where where I
think this this Arsenal is quite fragile
however is not for deflationary shocks
or I think it’s very strong but for
inflationary shocks and I know it seems
crazy to talk about inflationary shocks
when you have an unemployment rate
that’s gonna go to twenty plus percent I
know it seems crazy to talk about
inflationary shocks when you have a
decline in global trade as we’re serious
as we’re clearly experiencing with with
with this this pandemic and yet and yet
I absolutely believe with it with the
Alcala the unholy merger that we’re
seeing today between the Treasury the US
Treasury and the US Federal Reserve
where today you know I think today the
the Fed started its bond purchases right
yep where and this is I can’t you you
really could not have said this with a
straight face in 2008 the last time we
had prices but the Federal Reserve is
going to start taking credit risk of
corporations that the Treasury is always
said on on these muni bond purchases
that the that the Fed is going to start
doing the Treasury saying oh we’re going
to take the first lost position on these
things I mean this is this is the
creation of a Bank of the United States
right back in going back to Hamiltonian
and Jacksonian days where the United
States government is now in the business
of printing money spending money taking
you know risk right taking economic risk
in the economy it’s it’s something we’ve
never seen before and my strong view
it’s not a 2020 event may not even be
2021 I think it may be 2021 but I think
that the inflationary shocks from this
are enormous undeniable and that the
system that we’ve established since 2008
is anti fragile is not I’m sorry is
quite fragile right it is incapable of
dealing with those sort of shocks and
and so that’s where you know to get
around to that question you’re asking
before when does the turning happen when
when does it all change I think that’s
when it all changes when the policies
that we’ve built up over the last you
know going on 11 years now proved
incapable of dealing with the political
changes that come from this marriage of
Treasury and Fed to create a true Bank
of the United States well I think even
the the MMT crowd themselves the
academics and otherwise would would
ultimately agree with your conclusion
there it’s all good you can merge you
can have this unholy marriage as Henry
the 8th type set up between the Treasury
and the Fed until you have a certain
level of inflation then then we’re gonna
change how we think about it or change
what we do whatever they say but the
whole point about inflation if you have
economic stagflation and inflation is
perpetuating that is of course the
people get pounded again and then they
get more and more pissed off so demand
falls corporate profits are falling yeah
the prices are rising but you don’t get
and again this kind of harkens back to
the to the very low multiples that
actually equities in credit get when you
get a chronic kind of a stagflation I
I’m one do you agree with that I mean
because there’s different you can have I
call it in my four quadrant model you
can have a beautiful inflation quad to
both growth real growth and inflation er
accelerating at the same time or you can
have quad 3 which is what I just said
with stagflation like what are you
saying it would be are you saying either
no I I am saying that I
the stag flayed look and this goes back
to to what we’re talking about at the
very beginning we are it’s important not
to let your feelings you know get it get
in the way of your analysis of this
stuff when you’re responsible for other
people’s money and yeah and I’d always
kind of relegated the the stagflation
aries scenario to oh that’s and that
that’s that’s just you being you know
pissed off at kind of this this
corruption of capital markets and you
know what are you talking about III at
this point now though Keith my this the
stagflation Airy scenario has gone from
my edge case something that okay there’s
a there’s kind of a trivial chance of
that happening but but but let’s not
let’s not go beyond that yeah that’s
frankly that’s now my base case that’s
now my base case scenario what what once
we have the 2021 either make America
great act if Trump is reelected with two
trillion dollars worth of you know
infrastructure spending that’s that this
monetized by the Fed or if it’s you know
Biden or the Democrat it’ll be the you
know the green act or the the no
malarkey act for all I know
itis but but in both cases is gonna be
the same and thing right it’s gonna be
two trillion dollars worth of you know
building ziggurats and you know filling
that’ll that that that will be directly
monetized I think at least half of that
directly monetized by the Fed and and we
go down this this path where you can’t
unring these bells and and and so and my
strong belief then is that what you end
up with is that your your process your
nomenclature that quadrant three it’s a
we’re mediocre growth because you’ve
pulled forward growth now for decades
there’s just no you know investment in
actual productive activities you’ve
transformed your capital markets again
into a utility not not it not a way of
channeling capital into real productive
growth and at the same time you
you know of course the United States
will be the best house in a in a in a
terrible neighborhood you know we’re all
going down this mmt path and so what you
end up with is a global stagflation Area
environment which again as you say just
accentuates the wealth inequalities that
have been built and exacerbated yes over
the last 40 years but particularly over
the last decade that’s I mean that
points many good points within the point
though on on productive growth I mean
actually back to your Burnet the
down point you know anybody knows that
first you know if you burn something
down you do have an opportunity to
rebuild something new particularly if
it’s with new capital with new
leadership you know that whole part of
capitalism gets missed in this whole
maybe not missed but I mean it’s
certainly not the consensus they’re like
okay it’s fine we’ll just you know have
these like you said these utilities
where we never burn anything down
therefore you can’t grow anything new
and that’s that’s to me you know that
that’s obviously a major problem in the
loop that we’re in but like you said now
we’re into the I guess you know it
trillions are starting to add up so you
do three trillion here and now the next
bill Pelosi’s bill I think she’s gonna
have to try to go first one and a half
to two trillion there and then another
two trillion there after you know we see
who gets elected it’s it’s an incredible
amount on any historical measure amount
of deficit as a percentage of GDP or
debt as a percentage of GDP I was
showing a chart last night you know
we’re actually in the number two
position chasing the Japanese on that
front both on the deficit spending and
on the debt do how do you think about
that and is it just well
well here’s what here’s what I don’t
think he that you know I would I don’t
think is that there’s this aha moment
where you know suddenly some bell rings
and the in the heavens and the the bond
vigilantes of the world say oh my god
this is too much and we’re going to
require that you know interest rates and
the interest rates start to go up in the
United States right that that is not
what I’m saying at all right in the in
the absence of a political narrative to
say oh my god this is terrible our
interest rates are going to go up
that that that that doesn’t happen this
is what I again wanted me about being a
strong form there to this right so that
that’s that’s not at all what I’m saying
I I don’t think that that the the
catalyst here is oh my god interest
rates are going to go through the roof
because the world is going to say oh the
United States is a bad credit risk right
again the United States is the worst
house in a bad neighborhood where but
you know where’s your strong nutty or
sound money you know alternative you
know the ECB please are you kidding me
so it that’s not what I’m describing is
the path that this takes what I’m
describing is the path you are leading
to about the zombification of an economy
as you’ve seen in in in Japan as I think
we are increasingly seeing it’s the
United States it it’s not that all this
money that’s being pulled forward
creates some crisis in the bond market
like you might see I don’t know in
what what what it leads to is this long
gray slog where we aren’t experiencing
real growth we’re just not and what and
what real growth we are experiencing is
being sucked out by the 1/10 of 1% to to
lead us to a world of you know bread and
circuses and in a world where that
divide between the haves and the
have-nots just gets more and more
entrenched in and and onerous unite how
does that change well frankly it changes
when you have a real world event like a
pandemic mmm-hmm that that can change it
if it’s not that it’ll be something else
like that ultimately you know I I laugh
about being a strong form narrative
issed that’s my market view that’s my
view as an investor have you as a
citizen as a human being is that these
real-world events this is how the
chickens come home to roost
it always altima boils down to politics
that ultimately we we will change but it
comes from the bottom up not from the
down mm-hmm I love that point and also
the point on Japan a lot of people that
are again you know they can get scared
out of their minds on debts and deficits
but they they often equate it to oh my
god you know Treasury yields are gonna
explode to the upside and the dollars
gonna burn yeah that’s probably the
worst position you could have had this
year throughout this period but again
the Japanese have had economics you know
nothingness for a long long time some of
them call it economic harmony by the way
and the and and you’ve never been paid
on that short position in Japanese
government bonds I’m not saying that
we’re gonna own Treasuries forever I
mean in fact I short Treasuries when
you’re in quad – you know quad – is when
the economy is legitimately accelerating
real real yields are rising and that’s
you know that’s the that’s where you
would get rid of that type of thing but
I do get you mean a lot of people a lot
of people are like always I guess there
are a lot of newsletter writers that
still make a living on this is you know
even even the bond King himself has been
saying bindings are gonna go up you know
back to when they stopped going up in q4
2018 so there’s a lot of noise on that
well Keith ah and what I would say is
that on the way to quad 3 right
stagflation you will absolutely develop
a wall street narrative that we’re in
quad 2 right right that that you know oh
man you know we’re this is this is the
best of all possible worlds because
that’s what Wall Street does you develop
narratives and stories that get people
to buy right that so so you’ll you’ll
have your chance right on the you know
to do whatever you want to on the bombs
in the quad – I do think the reality is
that stagflation Airy world you know one
last point about Japan I don’t think
that what Japan is doing is in in terms
of the way it’s handled it’s it’s it’s
monetary policies fiscal policy look I
Japan is a country that is literally
dying and I say that not pejoratively I
mean that from a demographic perspective
I I mean that and so the course that
Japan is taken and I I don’t think is
off-base for alcoholic kind of
end-of-life care right thinking in terms
of long periods of time for a country I
don’t think that’s the right policy for
the United States III have to believe
that real growth real productive growth
it’s still possible for the United
States I truly believe that in my heart
and that’s why I get so sad
when I see our policies following this
path that that puts us in a position
where real growth is is next to
impossible because we are pulling
forward so much of consumption and and
and everything else from the future real
economic growth from the future too to
try to plug the hole of this
deflationary gap today yeah all on we’re
gonna take some questions so please fire
them in the queue you they’re gonna get
voted on and I’ll ask them but on that
point before I take the first question
here Ben I think like what I heard too
was a father speaking because you know
when you have Millennials or kids that
are younger than that generation you
know you do think about the future we do
have a demographic curve in that cohort
that is upward sloping that is quite
unique in this world the UK has one you
know just by virtue of having an
immigration policy and it is okay but
again like if you are quite you know you
like you said you’re not saying
pejoratively I mean quite literally
dying like in Italy the compound
five-year kegger for the 35 to 54 year
olds in Italy is gonna be negative 2%
for sure for the next five five years
they’re dying right but if you’re
growing and you have to grow into a
world where there’s no way for you to
become who your parents were from a
capitalist perspective that is the worst
that’s the worst thing I could possibly
imagine for our kids I it kills me yeah
you’re so you’re so right you’re so
right Keith in and what I find in you
know there’s how to say this the the
audience I have with epsilon theory and
we’ve got about you know a hundred
thousand email subscribers and some
multiple of that you know on the website
thank you it’s skews young it does it’s
skews young you know it’s not the grumpy
grandpas is it’s not you know who are
who are saying kids right it it skews
young because what I find in my my own
children and and and what I find you
know this is why it’s so energizing to
me is that I find the Millennials and
the you know younger than that they get
it they really do get it and and and and
they’re not they’re not angry right I’m
the one who’s as burnt as the down
there they’re there saying no I don’t
wanna I want a chance to make a change
yeah and and and that’s why I think is
so important to provide new venues new
narratives new stories to to harness and
to try to not lead or organize that that
energy but to but to show a path to show
a path of real growth not this fake
growth and and that that we’ve we’ve
kind of trained ourselves to accept and
I’m very actually I know it doesn’t come
across that way in my writing and cuz I
do I am angry I am angry about a lot of
things but I’m also very hopeful I
really am very hopeful and it really is
that energy and that in that that
determination of the you know my
children in your children that I think
will get us through this yeah I mean
it’s anger is an important emotion if
you want to get to the other side I mean
to use people’s current vernacular on
narratives the other side you should
hear me yell at my dog yeah I’m angry
but I want that one thing I want the guy
to start to behave okay first first
question actually the one that’s got the
most votes here Ben we only have 10
minutes unfortunately I could talk to
you for hours but it’s not even a
question it’s actually no question just
a thanks to Ben for all of his work
providing PPE to frontline workers so a
girl well thank you and and I do want to
take a second on that because we we are
making I think a very successful effort
PPE personal protective equipment masks
particularly straight into the hands of
the doctors and the nurses and the EMTs
and the the firemen who need it so
desperately and you know to date we’ve
we’ve raised a lot of money we’ve we’ve
we’ve gotten more than 60-thousand in 95
masks to more than 600 clinics and
hospitals and fire departments all
across the country I mention this
because this is what I mean about
bottom-up action we can all do this
right we we don’t need to wait for
somebody to organize this we don’t need
to wait for some politician to tell us
oh you know do this and don’t do that we
don’t need any permission we know it
needs to be done and we can all make a
difference in this respect so so thanks
to the the the person who wrote in as an
opportunity to encourage everyone to do
mmm do that’s John Boyd 101 by the way
I’m the mad major in Oh Duluth start
with doing you know so that’s that’s
important here’s a here’s a there’s a
long question this is a I want to know
the answer to this selfishly Keith sees
the world through a mathematical lens
Ben can you talk about Epsilon theories
natural language processing and how
you’re framing narrative mathematically
how could narrative machine work in
concert with a quantitative signal like
Keith’s a great great question that I’d
love to explore that with you key at
some point yeah so you know that again
my background is statistics and math and
and and the like the the world we live
in as we know is you can apply those
math and those techniques to the data
that you collect in the world and you
know it’s it’s like the old story of the
guy looking for a lost quarter and he’s
looking for it underneath the street
lamp and the prison says well is that
where you lost the quarter he says no I
lost it over there but the lights good
and and and so we we we have these very
advanced mathematical techniques and you
know statistical approaches but it all
boils down to what are you applying it
on what’s the
you’re applying it on and so what we’ve
done for hundreds of years is we’ve
applied it to structured data we’ve
applied it to the things that we can
count in the world right – what we can
put on a spreadsheet yeah I’m old enough
to remember Lotus 1-2-3 right where’s oh
my god we got it spreadsheet now this is
fantastic so you know everything you get
off of Bloomberg it’s in the form of
structured data yep
what what what I’m trying to do in our
research program is trying to apply
these same old math techniques that have
been around for four decades right but
to apply it to things that are a little
harder to count in to measure it’s it’s
what we refer to as unstructured data
it’s all the it’s all the words that we
hear on CNBC at a given date you can
imagine that right is all the words and
articles that are published and you know
reuters and Dow Jones and the Journal
and Bloomberg on a daily basis it’s a
it’s a big data problem but today and
this has really been the the revolution
for my research over the last three or
four years because these are techniques
that I was trying to apply 30 years ago
and my doctoral dissertation but today
we can plug in to AWS Amazon we can plug
into Azure from Microsoft and I can get
as much computing processing power as I
want it’s like plugging and playing the
wall and getting electricity so the the
calculations we’re making the math we’re
applying it’s not complicated what’s
different today is our ability to have
all the words write all the words are
available in a data feed from my Dow
Jones or LexisNexis and then the just
the processing power to do the
calculations on it it’s all there at
your fingertips so again this is why I’m
hopeful that we can we can turn these
the tools of technology and science to
understanding our world better and to
see how narratives our form is it’s like
having a microscope and putting a you
know in the 1700s and saying oh I wonder
you know drop of dirty Tim’s river water
looks like if I put it under this new
machine I built the microscope yeah and
you look at the microscope you go oh my
god there’s a whole world alive in there
mmm I think that’s that’s the research
I’m trying to do and I think it’s a
great marriage with the sort of
structured data analysis that I that I
did I know you do Keith yeah I think
there I mean that is the kind of citing
a book this morning called the the
future happens faster than you might
these are the guys that wrote or at
least that give out the X Prize every
year but you know everywhere you look
we’re on the edge of things like that a
friend of mine dr. Richard Peterson
wrote inside the investor’s brain he’s
really focused on memes word threads you
know using you know predictive tracking
algorithms to drag that out I think
there’s a great collaboration there so
you know I will talk to you I will take
you up on that by the way well I have
time for one more question here that’s
and I knew is we’re gonna get this
question because we haven’t really
addressed it but this is from Eric what
specifically will it take for the dollar
to be toppled and from being and from no
longer being the world’s reserve
it’ll take a world war that the United
States loses and I mean I can’t say it
any stronger than that right I that
that’s the answer that I’ve ever been
able to hear on now and I like that I’m
gonna use that there there you go man I
mean the the dollar is is is part and
parcel of the United States military
might in the world I don’t know you know
a better way to say it than that
you know is it still saying you know
that governments today are insurance
companies with an army attached to them
I mean and that’s that’s what the United
States has become an insurance company
with an army attached to it and it’s
scrip right is the US dollar so you got
a you got either knock out the insurance
company you got to knock out the army
yeah on that script value on that like I
have a follow-up question I mean another
book I just recently finished which is a
history book called the splendid in the
vial and it’s a great book about you
know that moment in that particular
moment of risk in time and London
against Berlin and I was
to make the analogy between Washington
and Beijing a lot of people you know
we’ve had the through Citadis trap which
is another book about rising powers
attacking existing powers a lot of
people are getting a little closer on
this and and this might be a big last
question to ask you on on this ultimate
rising power China you know again
because that would be a sensibly the
night of status but again that would be
the potential threat there if you were
to have a World War is to have the
Chinese currency and the Chinese
themselves beat up on the US well so I I
can give you some examples of power
transitions as we call them that either
don’t happen like you know if you’d gone
back 40 years you’d be talking about
Japan Inc and Japan going to you know
past the United States as the largest
economy and the most important economy
in the world that didn’t happen the you
know Ashley Japan fell back and and so
there wasn’t that sort of power
transition there was really wasn’t a
risk of it being violent in any respect
you talk about the power transition
between the the United States overtaking
Great Britain right around the really
after the u.s. Civil War call it the
1890s like the 19th through the first
world war where you saw the United
States really come into its own as the
global superpower okay so I’m giving
examples of peaceful transitions
transitions that that don’t happen
they’re possible that they’re still
peaceful but to your point I can also
give you examples of transitions or near
transitions that that end up in war what
what I would say right and again it’s
it’s similar to you know you’re talking
about the fourth turning and India how’s
work absolutely there are cycles in
history absolutely there’s a recurring
pattern of what we call hegemonic powers
super powers and the countries that rise
in power to try to challenge them it’s
not preordained it’s not certain right
that that ends up in war and in military
conflict right that can absolutely
happen but it’s not preordained it
matters how we act right it matters the
stories we tell ourselves the narratives
have the leaders we elect as to how this
all plays out and the last thing I’ll
say about this is let’s remember that
the problem with the the Peloponnesian
War if we put ourselves in the position
of Athens right the good guys they lost
that war they lost that war and it was
because of their overweening pride their
sending of expeditionary forces out in
this case to Syracuse they’re
overextension of themselves and their
hubris and thinking that they could
control the world I think that’s the
lesson we need to learn from the front
acidities and the Peloponnesian War is
to avoid that overweening pride that
hubris that of course where the natural
winners and anything that I mean for
those of you this hasn’t kind of come
across to you yet or not you know given
his wealth of knowledge you at some
points that it’s not been hunt I thought
it was like Benjamin Franklin you have
that look kind of look a little bit like
the guy you’re on you have your own farm
I think you have a 45 acre farm you live
on yeah yeah you’re a good guy too
I mean I think that that’s another thing
that we need more of on Wall Street is
people that can actually translate or at
least go across the bridge between like
okay here’s what I want to do in the
market but here’s what I want to do is a
human being and and those can be you
know some different things obviously at
certain points along that bridge so you
know uh awesome having a conversation
with you man i I’ve been looking forward
to this Keith thank you thank you very
much for having me on
well I I genuinely appreciate it and I
know that the audience does too I wish
we I wish we had more time but I promise
to stop myself up good stop myself up
because I rant too at an hour so thanks
thanks for your time we appreciate it
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