The recent cryptocurrency collapse can be summed up in a single symbol: the spectacular downfall of one of the largest crypto exchanges, FTX, and its much-celebrated founder, Sam Bankman-Fried. Underneath all the technical complexity of crypto, this was a straightforward swindle: Bankman-Fried and his team simply looted their customers’ trading accounts in an attempt to cover losses on their own hedge fund investments. When it didn’t work and the liquidity of the whole exchange started to collapse, they pulled out their own funds—billions are still unaccounted for—and left their clients holding the bag.
But what makes this especially interesting is that Bankman-Fried has loudly proclaimed himself to be an altruist whose only motive for getting rich was to donate his wealth to worthy causes—a philosophy called “effective altruism.” Even better, he came from a family of reformist do-gooder academics. So is the story here that Bankman-Fried pulled off a massive con despite his seemingly virtuous rhetoric and pedigree—or because of it?
When we probe into this question, we find that this scandal has its roots in a whole bad philosophical neighborhood. The phenomenon of the altruist billionaire who turns out to be a psychopathic exploiter makes this read as if you put all the villains from an Ayn Rand novel into one story.
‘The Most Generous Billionaire in the World’
Effective altruism naturally implies the existence of ineffective altruism. The idea is that most of what people do in the name of helping others is done with excessive sentimentality: People are swayed by flattery or heart-tugging stories, and they give in ways that make them feel good about themselves. But in doing so, they don’t carefully weigh the most effective options and measure the real-world results. The effective altruists, by contrast, would actually run all the numbers to justify their decisions. They would be willing to fund creative and counterintuitive programs, “disrupting” the stodgy business of charity.
You can see how well this would play in Silicon Valley. It promises to do for do-gooderism what the tech bros think they are doing for everything else. But what really made effective altruism play well among tech elites is that it tells them it’s okay to get rich so long as you promise to give much of it away to “effective” causes.
Effective altruism originates with philosopher Will MacAskill. A puff piece published by one of Bankman-Fried’s funders describes the idea he took away from an encounter with MacAskill: “The math, MacAskill argued, means that if one’s goal is to optimize one’s life for doing good, often most good can be done by choosing to make the most money possible—in order to give it all away. ‘Earn to give,’ urged MacAskill.”
This is certainly a recipe for using altruism as cover for a scheme to get rich quick—and also as bait for suckers. Bankman-Fried, a man apparently without any lawyers to save him from himself, has even admitted to Vox reporter Kelsey Piper that his discussion of ethics was just “what reputations are made of,” a “dumb game we woke Westerners play where we say all the right shibboleths and so everyone likes us.”
Remember that the “con” in “con man” stands for “confidence.” The whole idea is to gain your victims’ confidence, convincing them you’re one of the good guys who would never rip them off—so you can then rip them off. And what better way to gain people’s confidence than to get yourself on the cover of magazines as an avatar of altruism, or to appear in viral videos as “the most generous billionaire in the world”? The more interesting question is whether Bankman-Fried was, at least in part, sincere.
The Greatest Good for the Greatest Number
Effective altruism is a new name, but it is just retreaded utilitarianism, the doctrine that the purpose of life is to pursue the greatest good for the greatest number, using supposedly scientific planning. The problem is that the greatest good for the greatest number is a collective goal. It measures the well-being of humanity on average, what Bankman-Fried called “the long-run aggregate utility of the world.” But the notorious thing about such collective, “aggregate” outcomes is that they often justify indifference and even cruelty toward individuals. As the communists used to say, you can’t make an omelet without breaking a few eggs, and by “eggs,” they meant skulls. “Effective altruism” can easily end up boiling down to the belief that the ends justify the means.
It’s perfectly reasonable to speculate, in the words of one observer from Bankman-Fried’s circle, that they “all thought they were doing the best utilitarian thing for the world,” and this was “a motivation they used as reason to keep doubling down.” After all, seeking the greatest good for the greatest number could very well justify taking disastrous risks with the money of a small elite of cryptocurrency speculators, not to mention the even smaller elite of venture capitalists who backed the exchange.
I mentioned that Bankman-Fried and his ilk sound like Ayn Rand villains: It’s the distinctive combination of loud, altruist pieties and underhanded wheeling and dealing. But this was part of Rand’s critique of altruism as a philosophy. By the standards of altruism, what is good for the collective—and by extension, what is good for the self-appointed representatives and guardians of the collective—justifies the sacrifice of actual individuals. If you set out to make money purely for your own well-being, you would be expected to show that you are offering value in return, providing a useful good or service for your customers. But if altruism is your justification for getting rich, if you are acting for the greater good to save the world—well, that’s an excuse that can hide a multitude of sins. That is certainly how it worked in practice, preventing a lot of people, particularly in the media, from asking tough questions.
Something Went Terribly Wrong
The reason I think there might be a twisted sincerity to Bankman-Fried’s utilitarianism is because he learned it literally at his mother’s knee. His parents are both Stanford Law professors with a left-wing bent. Joseph Bankman advised Sen. Elizabeth Warren on tax policy. But it is his mother, Barbara Fried, who provides the most revealing anecdote.
A professor with Stanford’s Center on Poverty and Inequality, Fried once wrote a “Boston Review” essay arguing against the assignment of individual blame for criminal wrongdoing. After all, “our worldviews, aspirations, temperaments, conduct and achievements—everything we conventionally think of as ‘us’—are in significant part determined by accidents of biology and circumstance.”
One presumes that this will be used as a brief in her son’s trial, offering him up more as a victim of society than as the perpetrator of a multibillion-dollar fraud. Better yet is this passage: “The next time something goes terribly wrong, suppose that instead of immediately asking who is to blame, we were to ask: How can we fix this problem? Fixing problems is costly. But as we have learned from the past 40 years, so is not fixing them.” So instead of “blame-mongering,” maybe we should just fix the problem by bailing out FTX?
“Something goes wrong”—what a marvelously passive phrase. Something went wrong, alright. We can see the kind of bad philosophical neighborhood Bankman-Fried grew up in, one in which utilitarian calculus can justify everything and no one is ever to blame for anything.
When the Tide Goes Out…
The exposure of large-scale fraud is to be expected when an asset bubble bursts. Cryptocurrency has been riding an inflationary boom and bust cycle: Cheap money from the pandemic “stimulus” years flooded into crypto, and now it’s flooding back out. Hence the irony that cryptocurrencies are supposed to be a hedge against fiat currency inflation, but instead, they are losing their value at an even faster rate.
There’s an old saying that when the tide goes out, we find out who’s been swimming naked. Fraud, mismanagement and outright embezzlement can all be covered up by the flow of cash in boom times. When the bust comes, everything eventually gets exposed. So this is not that extraordinary an event.
Yet it does teach us perhaps a broader lesson about altruism, utilitarianism and certain fashionable theories in academia. Because this con wasn’t just financial—it was philosophical.