Column: How Sam Bankman-Fried exploited the ‘effective altruism’ fad to get rich and con the world
The most uplifting aspect of the Sam Bankman-Fried story was always that he guided his way to a putative cryptocurrency fortune of more than $16 billion by following a philosophy of charitable giving known as “effective altruism.”
Interviewers were dazzled by Bankman-Fried’s account of the epiphany he experienced over a lunch with Will MacAskill, around the time he was graduating from MIT.
A British philosopher, MacAskill advocated a version of “effective altruism” asserting that, if life’s purpose was to do good, then the moral imperative is to make as much money as one can, and then give it away. MacAskill compressed this viewpoint into the edict, “earn to give.”
Sam and FTX had a lot of goodwill – and some of that goodwill was the result of association with ideas I have spent my career promoting...I am ashamed.
— William MacAskill
According to Bankman-Fried, the encounter inspired him to alter his post-graduation goal away from joining a nonprofit and toward going into finance, eventually founding what was one of the world’s leading cryptocurrency companies, FTX.
Adam Fisher, the author of a credulous profile of Bankman-Fried published in September by the venture firm Sequoia Capital, which invested in FTX, asked his subject how much money would be too much: “So, is five trillion all you could ever use to help the world?”
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The denouement of this story is now well-known. Bankman-Fried’s crypto company has collapsed in a whirlwind, amid indications that it may have defrauded customers who deposited their funds with FTX to buy cryptocurrencies. Billions of dollars are missing.
The corporate repairman hired to untangle the disaster, John J. Ray III, says that from an operational standpoint FTX was a mess from top to bottom.
That points to the question of what the debacle says about “effective altruism” in principle and practice. The short answer is: nothing good.
FTX and effective altruism existed in a sort of symbiotic relationship. Bankman-Fried posed as a world-beating philanthropist. During an appearance in May before a House committee, he boasted about personally committing to “donating 99% of his wealth.” Among other philanthropic initiatives, he testified, his company had launched the FTX Future Fund to invest in “ambitious projects aiming to improve humanity’s long-term prospects.”
Effective altruism institutions that had depicted Bankman-Fried as a star donor — including the Future Fund — are now acknowledging that they may not have the money to honor grants they had promised recipients. Some that had lionized Bankman-Fried have scrubbed their encomiums from their websites; Sequoia similarly removed Fisher’s lengthy piece from its website.
Yet the siren call of Bankman-Fried’s wealth blinded MacAskill and his colleagues to the void at the center of the cryptocurrency concept itself: It’s a field rife with fraud and chicanery and lacking any cogent case for its usefulness. That Bankman-Fried would exploit his image as a philanthropist to obscure the flaws in his enterprise seems almost predetermined.
Sam Bankman-Fried’s $16-billion fortune was always a myth. The mystery is why venture firms and the financial press thought it existed.
The entire Future Fund team resigned on Nov. 10. Around the same time, leaders of the movement have felt obligated to state outright that the precept of earning to give “in no way justifies fraud,” as MacAskill tweeted.
The impulse to specify this obvious precept suggests the vacuousness at the heart of effective altruism. Let’s take a look at what it’s all about.
To begin with, there’s nothing new under the sun when it comes to laundering wrongdoing through conspicuous displays of spiritual piety or good works. Consider the Gilded Age robber baron Daniel Drew, one of that era’s outstanding stock manipulators and con men, who rarely missed a Sunday in church or was seen in public without a well-thumbed prayer book in hand.
To outsiders, reported a biographer, Drew appeared “modest and unassuming, a kindly, pious gentleman, reticent and humble to a fault.”
He founded Drew Theological Seminary in Madison, N.J., with an ostentatious pledge of $500,000; its formal opening in 1867 was attended by “the largest group of Methodist intellectuals and theologians ever assembled,” including nine bishops and four sectarian university presidents.
But when the time came for Drew to make good on the gift nine years later, he was bankrupt. He died in 1879, still owing $250,000 on his pledge, forcing the seminary into a panicky round of fundraising to avoid extinction.
The institution he founded lives on today as Drew University, with an associated theological school, but it rather downplays how its namesake and original benefactor made his money.
Other eminent philanthropic works and institutions — the Ford and Rockefeller foundations, the 1,800 Carnegie libraries across the U.S. — are also products of their creators’ desire to wipe their slates clean for posterity.
Sam Bankman-Fried wanted to make cryptocurrency look legitimate. He only added to the evidence that it’s not to be trusted.
The 236 millionaires and billionaires who have signed the “Giving Pledge,” a commitment to contribute most of their wealth “to address some of society’s most pressing problems,” are essentially signaling their intentions in advance, without waiting for the reading of their wills. (Among the signatories: Sam Bankman-Fried.)
Effective altruism in its modern guise originated in the work of philosopher Peter Singer, whose initial influence stemmed from his advocacy of animal rights and expanded into the view that we all have a moral imperative to prevent bad things from happening, if we can do so “without sacrificing anything nearly as important.”
Singer’s most famous thought experiment involved the imperative to save a drowning child, even if that meant muddying your clothes or even missing a crucial appointment. His argument was that there was nothing fundamentally different from saving that child and alleviating the suffering of children in far-off lands, say by donating any funds you have beyond what’s needed for the sustenance of yourself and those depending on you.
Life is more complicated than that simple formulation suggests, however. It raises infinite questions about how to prioritize problems to be solved, who we owe responsibilities to and how we factor in the source of our donations. Singer himself acknowledged some of this complexity by participating in exchanges with his critics that yielded a 640-page book, “Peter Singer Under Fire,” in 2009.
MacAskill has expanded on the bug he put in Bankman-Fried’s bonnet during that lunch by embracing what he calls “longtermism.” As he put it in a recent book, “What We Owe the Future,” the idea is that “positively influencing the future is a key moral imperative of our time.”
He concedes that the future, whether a generation ahead, or thousands or even a million years ahead, is “uncharted terrain” in which “we don’t know exactly what threats we will face or even exactly where we are trying to go.”
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“Exactly” carries a lot of weight in that line: The truth is, we don’t know anything about what threats we will face or where we’re going.
There’s a large component of hand-waving underlying the purported principles of effective altruism.
The Center for Effective Altruism, of which MacAskill is the chair, says it’s devoted to “using evidence and reason to figure out how to benefit others as much as possible.” Are there philanthropists anywhere on Earth who would cop to ignoring “evidence and reason” before deciding where to spend their money?
Turning to the movement’s defense that it never aimed to inspire Bankman-Fried or anyone else to commit fraud to assemble fortunes to give away — it only wants clean money — the “earning to give” camp overlooks that the accumulation of great wealth is seldom morally neutral.
The concentration of enormous wealth in ever fewer hands increases inequality because so much of millionaires’ and billionaires’ wealth has come at the expense of workers, customers, suppliers and communities. Timothy Noah of the New Republic incisively identifies the most distinctive feature of effective altruism as “the balletic deftness with which it tiptoes past targets likely to offend billionaires,” such as inequality.
Jeff Bezos’ pledge to give away most of his $121-billion fortune during his lifetime, for example, obscures salient facts about how he acquired that fortune in part by underpaying the employees of Amazon.com and, as has been widely reported, subjecting them to inhuman and abusive working conditions. (Balzac’s line, often paraphrased as “behind every great fortune lies a great crime,” is relevant here.)
Then there’s the related question of whether we want a small cadre of rich people — the 1% of the global population that controls nearly half the world’s wealth — to distribute their wealth according to their own personal preferences, as opposed to subjecting it to public, transparent judgments through government actions.
Among other issues, the rich tend to engage in charitable, tax-advantaged giving that reflects their own ideological preferences and personal interest, which may not reflect the public interest.
A cryptocurrency company thinks it will get a boost from putting its name on the Lakers’ arena. History begs to differ.
That’s why effective altruism, as a movement, tends to look like just another rationalization for the accumulation of wealth, in this case as the font of philanthropic efforts to benefit humanity into the limitless future.
There’s no reason to suppose that the promoters of effective altruism are anything but sincere in their convictions. As for the moneyed class that claims to believe in the movement, the jury is out. Interviewed via text messages by Kelsey Piper of Vox.com, Bankman-Fried seemed to acknowledge, as Piper put it, that “the ethics stuff” was “mostly a front.”
“Yeah,” he replied. “I mean that’s not all of it but it’s a lot. ... It’s what reputations are made of, to some extent.”
Bankman-Fried rode that horse about as far as it could go before breaking down, and his trusting admirers saluted as he galloped past. MacAskill, for one, admits to being humiliated by the experience.
“Sam and FTX had a lot of goodwill — and some of that goodwill was the result of association with ideas I have spent my career promoting,” he tweeted in the aftermath. “If that goodwill laundered fraud, I am ashamed.”
But will he absorb the lesson that was already taught by Daniel Drew, Henry Ford, John D. Rockefeller and Andrew Carnegie among countless other financial barons — that the getting of money comes first, and the giving it away an afterthought? The lesson was there to be learned long before Sam Bankman-Fried came on the scene, and he ignored it at his own peril.
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