In a recurring newsletter published by The Atlantic writer Derek Thompson, he made an interesting point about two related stories in the news -- the collapse of cryptocurrency exchange FTX and a supposed ethos of "effective altruism" that was promoted by two of the principals involved in FTX's downfall, Sam Bankman-Fried and Caroline Ellison.
https://www.theatlantic.com/newsletters/archive/2022/11/sam-bankman-fried-ftx-crypto-effective-altruism/672247/In Thompson's commentary - which is recommended reading -- he refers to both cryptocurrency and the focus on effective altruism as cults. As Thompson explains it, cryptocurrencies reflect a cult he criticized from the outside as a technology "in search of a use case" clouded with ever-changing jargon that required a leap of faith from the uninitiated to accept. Effective altruism also reflects a cult -- one Thompson says he partially bought into -- because it requires people espousing it to accept all of the following premises:
- Giving vast sums of wealth to charities is its own awesome obligation and requires unique skills
- The uber-rich have already demonstrated expertise in MAKING money which is a good indicator they are likely to also possess expertise in SPENDING large sums effectively through charity
- Given the two extremes of a) doing nothing to correct wealth inequality and b) adopting draconian tax laws to actively redistribute money from the uber-wealthy to governments or directly to populations, a concept of letting the uber-wealthy keep control of their wealth while encouraging philanthropy managed to somehow guage its "effectiveness" to steer money into "effective" charities rather than "ineffective" charities is a reasonable middle ground.
Whether Thompson's concept of analyzing these trends using concepts related to cults is appropriate or not, both of these topics are worth a more detailed analysis -- particularly when the facts for each topic are related to each other in ways that cut through the myths promoted by advocates of both.
Cryptocurrency
Thompson's description of cryptocurrency as a solution in search of a use case is a VERY appropriate description. In a nutshell, cryptocurrencies are intended to support the following needs:
- allow creation of tradeable assets in digital form to act as currency without the involvement of central banks controlled by governments -- cryptocurrency advocates believe central banks are too eager to "print money" that exceeds the natural productivity growth of the country's economy, reducing the value of the currency
- use blockchain technologies to act as a highly decentralized but indestructible / irrefutable ledger clearly establishing ownership of digital assets at any point in time to facilitate transactions and eliminate fraud
So the algorithms for creating cryptocurrencies prevent a central banker from firing up printing presses and "stealing" from the public by printing sheets of twenty dollar bills to pay off government debts. The blockchain based ledger prevents someone from suddenly rigging computer logs to say THEY own YOUR bitcoin with "serial number" 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2 that's worth $16,485 cuz in order to do that, they have to originate updates to more than half the ledger copies in the world showing that coin was transferred to them before any of the systems in the ledger cry foul and reject the bogus transaction.
That leaves two problems unsolved.
We've prevented evil central bankers from printing money but why is anyone willing to burn $179 dollars worth of electricity in a data center worthy of being given an asset supposedly worth $16,485 dollars? What if rogue actors and rogue nations are infecting millions of computers with viruses to run in the background on someone else's bill to perform mining calculations? They're not "forging" the coins per se -- they are running all of the calculations required to "mint" a coin. But is value being delivered appropriately under circumstances where the compute for minting was stolen? That's identical to someone breaking into the US Mint and running the presses for their own private benefit. And it's happening. Only three US based crypto-mining firms responded to a 2022 Senate committee request for data on their energy consumption and greenhouse gas implications but electricity usage of those three alone equated to 1.6 million tons of greenhouse gases -- the equivalent of 360,000 cars. Residential electric bills are going up because increased electric demand at nearby data centers is requiring purchase of electricity across the grid at spot rates.
The ledger concept theoretically eliminates forgery of actual crypto coins and forgery of ownership -- helping to confirm the coin as a SYMBOL is valid -- but that has nothing to do with the VALUE imputed to that coin at any given point. The VALUE of the valid SYMBOL of money still requires other forces at work, none of which are provided magically by use of a crypto currency.
For a SYMBOL to effectively serve as a MEDIUM OF EXCHANGE, legal / social forces must exist that allow (require?) acceptance of one of those symbols to settle a debt. That's literally the definition of "legal tender". At the moment, cryptocurrencies are ALLOWED as mediums of exchange in many industrial economies but crypocurrencies are only treated as legal tender in about eight large countries.
For a symbol to effectively serve as a STORE OF VALUE for a wide range of economic participants, those participants must rely upon some power to be capable of ensuring currency origination isn't being cranked up (printing for paper money, "mining" for crypto) via fraudulent means unbeknownst to the masses that is actually devaluing each unit. Participants must also trust the operation of operators acting as "money changers" converting between currencies or allowing exchanges with fractions of whole currency units are not manipulating balances to create money out of thin air.
In the case of FTX, it wasn't operating as a "miner" running crypto mining processes on thousands of computers to create new coins. FTX operated as an exchange, to allow people to trade in and out of ownership of crypto coins and -- given the unwieldy valuations -- divide ownership of whole coins into fractional shares with prices more suitable for those with only tens or hundreds of dollars to "invest." Essentially, FTX was operating as a combination of traditional bank (where owners of coins deposited their assets online) and a trading firm (where owners would purchase crypto coins from each other and across other exchanges). But the trading function also included sales of options and derivatives (uh oh…) which technically have nothing to do with the original purpose of crypto-currency but bring with them the exact same types of risks as government issued currencies. And, as depositors and regulators have now discovered, FTX was also operating as an investment bank by allowing crypto coins on its books to be "borrowed" by a second firm Alameda Research, operated by CEO Caroline Ellison, on-and-off girlfriend of FTX CEO Sam Bankman-Fried.
So what was so new about this crypto / FTX business model? FTX created a retail front to collect "other people's money" into retail accounts equivalent to checking and savings accounts, then allowed what was essentially a high risk hedge fund to "borrow" those retail assets without the consent or knowledge of the owners to speculate on other investments. Like countless meltdowns before, the scam worked great as long as all of the bets paid off. When bets went south, there were no funds to return to the retail accounts and when the retail account owners needed their money, they found nothing left.
Glass-Steagull anyone?
In short, all this new fangled cryptocurrency "technology" purported to eliminate incompetent central governments and central banks from jury-rigging financial markets to suit THEIR goals still required the same types of retail intermediaries like FTX to function which exposed crypto assets to the EXACT same type of fraud that was perfected in the 1920s. It was outlawed in the 1930s under Glass-Steagull, allowed back into existence with the horrendously flawed Commodity Futures Modernization Act of 1999 and destroyed trillions worldwide in the 2008 meltdown. I can't help but wonder how many FTX account holders have heard of Glass-Steagull. I wonder how many have heard of CFMA. I wonder why so many were dumb enough to buy into a parallel financial system built upon the idea that money should be free from government regulation while having no understanding of WHY such regulations were adopted in the past and WHY oversight is required.
The fact that Sam Bankman-Fried, Caroline Ellison and the dozen or so other close associates of theirs operating these firms out of apartments in Hong Kong and more recently the Bahamas not only destroyed fifteen billion dollars (and counting) of "investor" money but spent considerable time pushing their goals of giving back their paper wealth via "effective altruism" just adds a second bitter taste to the core fraud they executed.
Effective Altruism
Unlike crypto currencies, effective altruism is definitely not a solution in search of a problem. The world definitely has a problem with hyper extreme wealth inequities. The question is whether effective altruism is a viable means of correcting such inequities in ways which not only flatten the distribution of wealth but actually benefit society as a whole.
Recapping from the introduction, evaluating effective altruism starts with three key premises underpinning the concept:
- Giving vast sums of wealth to charities is its own awesome obligation and requires unique skills
- The uber-rich have already demonstrated expertise in MAKING money which is a good indicator they are likely to also possess expertise in SPENDING large sums effectively through charity
- Given the two extremes of a) doing nothing to correct wealth inequality and b) adopting draconian tax laws to actively redistribute money from the uber-wealthy to governments or directly to populations, a concept of letting the uber-wealthy keep control of their wealth while encouraging philanthropy managed to somehow guage its "effectiveness" to steer money into "effective" charities rather than "ineffective" charities is a reasonable middle ground.
There's nothing controversial about the first premise. Charitable work is like any other work and managing millions and billions of dollars worth of chartable work involves people, goals, communications and measurement of outputs, all of which are subject to incompetence and deceit and experience in detecting and managing such problems.
The second premise that billionaires ipso facto possess skills across a variety of disciplines involving an organization managing billions of dollars of charitable work is where reality begins undermining the viability of EA. On the surface, this premise sounds obviously true and arguing the opposite sounds flawed. The billionaire MADE their billions running a firm spending billions and may still be running the firm -- it would appear obvious they KNOW how to do it well. In reality, billionaires who retain control of the firm that made them a billionaire often remain siloed in their skill set -- as a finance whiz, an engineering whiz, a marketing whiz, etc. They remain in control because they may have been smart enough to control the company's structure as it evolved to ensure they retain voting control. They might have been the best person to lead the company at one phase of its growth but FEW executives have the breadth of skills and emotional intelligence to evolve their management philosophy as the company grows from tens to hundreds to thousands of employees. They may HAVE the top job but that doesn't mean they are the BEST person for that job - or a new job of effectively spending money across a wide swath of potential charitable causes.
Anecdotally, it seems obvious that many of the largest fortunes made in the last thirty years involved technology firms -- software, hardware, biotech, e-commerce. Anecdotally, it also seems true that a large proportion of charitable giving involves research into means for correcting multi-generational problems of education, basic water and sewage systems in third world countries (or Lowndes County, Alabama), development of clean energy technologies, genetics and cancer therapies, etc. It is likely that many extremely fortunate but "narrow" billionaire CEOs would not have specific affinity to a role managing efforts involving significantly different work. Even a billionaire with engineering / manufacturing expertise might not have the aptitude for managing basic scientific research -- a discipline significantly different than applied engineering.
But, come on, it's their money… Shouldn't billionaires have the right to spend their own money as they see fit? That's the core of the third premise and the premise of EA most in need of debate.
There are over seven billion people on the planet. There are three thousand three hundred eleven people on the planet worth over one billion dollars. There are one hundred and ninety two people on the planet worth over ten billion dollars. At most, billionaires amounting to 0.0000453 percent of the population control 3.5 percent of the world's wealth.
If money was only a way of keeping score on how well someone's working career went, income inequality to this extent wouldn't be a concern. This inequality IS a concern because wealth increases one's influence over one's government and the world in general. The United States included some lofty language in its founding documents professing to create a democracy where "one man, one vote" was the guiding principle. Of course, it took nearly two centuries to explicitly include ALL men and women in that goal and we have Supreme Court justices who would love to roll some of that back but that's a different topic.
Most countries already operate with a "one dollar, one vote" model in their politics already, to disastrous effects. Rather than seeing policy ideas from a wide range of perspectives, only policies benefiting the already powerful even get discussed, much less enacted. Adopting the same "one dollar, one vote" model in science, research and charity is equally likely to artificially narrow the range of ideas considered when so much funding power is concentrated in so few people. Consider some real examples. Is Bill Gates likely to have all of the best ideas on improving education? Even education about technical topics like math and computer science? There are twenty content creators on YouTube I could name in five minutes who have hundreds of videos each with millions of views PROVING they know more about how to educate kids about technology. Why should Bill Gates get a $1 million dollar "vote" on that debate and those twenty creators get no vote? Bill Gates MIGHT reach out to people in that field but if the issue is so important, wouldn't it be preferable for funding for such research to START with a wider spread across more possible contributors?
The core flaw with EA is that it may reflect a subliminal goal of "guilt washing" -- after earning a fortune by ruthlessly competing with enemies and imposing poor pay and crappy working conditions on one's own workers, maybe EA is becoming popular for encouraging the idea one can "undo" all of that damage at the end of a career by giving some or all of it back to charities aimed at correcting the problems created by the deeds that earned those billions. Think of the Sackler family donating BILLIONS to charities... After earning those billions selling needless opioids and triggering a 30 year epidemic of drug addiction and death for 760,000 people and still killing roughly 69,000 per year. Maybe the Sackler family SHOULDN'T have earned all of that money in the first place.
Or maybe EA isn't "guilt washing" at all. Maybe EA is a cynical tactic to placate a gullible public while continuing work against the public's interest. A cost of doing business. Consider David H Koch, who has generously funded science programming on PBS for decades. Over the same decades where millions of viewers heard "David H Koch" as a sponsor at the beginning and end of episodes of Nova illustrating how science was making progress for mankind, David and his brother Charles funded over 90 different astroturf-style pseudo organizations which sowed doubts about climate change science with the public, media and politicians and worked to block meaningful regulations on greenhouse gas emissions. They devoted over $145 million to this effort to TRASH science between 1997 and 2018 while claiming to SUPPORT it on public television.
In the case of FTX and Alameda Research, the theory of EA as cynical tactic to delay the recognition of malfeasance certainly seems to apply. It may take a while for the courts to determine the facts but the appearances have all the makings of a complete fraud -- both in the core businesses and the public charitable face adopted by the leaders, Sam Bankman-Fried and Caroline Ellison.
WTH
