Sunday, July 25, 2021

Moving Porn

[Meta disclaimer: When I look back at some of the posts I've written that I think I got wrong, they're often in the category of what I'd call "therapy posts" - trying to universalise or rationalise some thought process of my own as a general life lesson, especially if I'm trying to convince myself that my actions make sense. I resolved at some point to try to stop writing those. I don't think this is one, but I'm not always a good judge of these matters, at least at the time.]

As Covid worries seem to fade into the rearview mirror, and life slowly gets back to normal, I find myself reflecting on the the strange way that being at home for a long period of time strongly exacerbated the idea of moving porn. Not as in emotionally touching depictions of sexual acts, but the fantasy, sometimes followed through on, that a better life awaits if only we move to somewhere else. 

This is always a hard one for me to think about. I don't want to say that everyone should just stay where they are. It is obviously, trivially false that every place is as good as every other place. So there really are changes in life happiness to be had for certain people in moving somewhere else. Indeed, I've had at least one myself, that I'm very glad about. 

In my case, after enough months of roaming around the same apartment, I had a strong desire to just get out. Maybe temporarily, but probably permanently. I started writing this post back when these feelings were still there fairly strongly, but already subsiding. From the number of stories about this, I don't think I was alone in this. Covid seemed to really send this urge into overdrive among a certain class of aspirational mobile white collar worker. 

There are two stories that can be written about this. The first, and most discussed, is the role of remote work. Covid made lots of educated people's jobs suddenly remote, so they could now move anywhere, at least temporarily. The big obstacle to moving is generally the coordination aspect - a city you want to live in, where you know people, where you can get a good job, where your husband or wife can also get a good job. Take away two of those conditional statements, and the choice set gets a lot bigger. 

But the second part is the one that I think is more interesting. The professional class were also, as a rule, more likely to comply with lockdowns and general social distancing. The net effect was a whole lot of people who hadn't actually spent any time in person with many (or any) of their friends or relatives, for maybe a year at a stretch. The effect of this was to enormously crank up the background sense of ennui and isolation that seems to be a large part of modernity. 

I remember this being one of the stranger aspects of educated Americans when I first moved here. If you grow up in Europe or South America or Asia, you are generally from somewhere. Your sense of place is typically a city. Whereas I'd meet quite a number of Americans whose story was something like "Well, I was born in Cleveland, and lived there for the first two years, then I was in Chicago until age 8, then we moved to Phoenix, then I went to college in Atlanta...". The typical educated American, by the time they reach graduate school, might be on their fourth set of friends, between high school, college, and first work stretch. Their parents may or may not still be living in the place where they were when they were born. 

In other words, the background feeling for a lot of people in the educated classes is already a vague sense of social isolation. Your friends, even your good friends, might pack up and move in a year or two's time. You have to keep investing in new friendships in order to maintain a steady state inventory. 

I can only guess, but I think this feeling is rather widespread, at least to a certain extent. But if it is, then moving cities to try to escape the sense of ennui you've developed is a very high risk strategy. You feel isolated and unhappy because you don't have enough close friends and family. It might indeed be hard to make friends where you are. But when you move to somewhere new, you go back to square one. Rather like changing lines in the customs queue at the airport, you'd better hope the new one is faster, because you start out at the back. 

I don't know how to balance out these two stories in terms of their prevalence. The first one is just a good news story - people can finally leave San Francisco (a city that is desperate to disprove the Lebowski dictum that the bums always lose) and go somewhere less shambolic, while still keeping their tech job. The latter is much less obvious. If your problem was that being rootless made you unhappy, digging up what shallow roots you currently have is not obviously going to help matters. Ironically, it resembles San Francisco's way of dealing with the homeless - the ameliorative steps to solve the current problem in fact just lead to the problem getting worse.  

In terms of telling these two versions apart, one aspect that is striking is the sense of where all these newly mobile people actually wanted to go. It tended to be the same places. Austin, Miami, or sometimes Nashville.

Don't get me wrong, I like all these cities! But still, it's striking that these form such a focal point for a large number of people who are all starting somewhere quite different. To hazard a guess, the main linking factor seems to be "better weather, some fun nightlife, increasingly trendy so my friends won't look at me too weirdly, but still cheaper than NY, SF, or Boston." They are always cities that are described as fun. Which seems to be a shorthand for sociable and full of interesting people to hang out with.

But if the problem you faced in Dallas or wherever is that you weren't able to meet people to hang out with, how exactly do you plan to find your fun circle of friends once you get to Austin? I'm not saying it's impossible. I'm just saying that most of the credible plans you would implement to solve this problem in Austin could also have been implemented to some extent in Dallas. 

The only exception to this rule is if the place you're moving to already has more old friends and relatives in it than the place you're at (and they're likely to stay there). To me, I think this is generally the only good reason to move to a place to escape ennui. 

The fact that all these people wanted to move to the same places tends to imply that this wasn't what was at stake. Maybe Austin helped a ton of people suddenly solve the coordination problem of where to live at the same time. But I don't think that's what's going on.  

If I'm right (and I'm not sure I am), I suspect a bunch of these people are going to wind up disappointed.

How can one tell if this seems like a credible description of one's mindset? I suspect that one telling aspect is the question of how specific and detailed are the ideas of what exactly you plan to do differently when you get to Austin. It's a Saturday. You're in your somewhat larger house, now that you don't live in the Mission any more. You've got the whole day ahead of you. What are you going to do that you can't do in San Francisco? Next day is Sunday. Same question. Then the weekend after. And so on.

I have a feeling that if you don't have a clear answer to that question, you are probably going to find that Austin does not make you as happy as you imagine. 

I would be delighted to be wrong. Austin, Miami and Nashville are all in fact cool cities. I hope everyone who moved there finds it awesome, and pities us saps that stayed put. But I can't help but wonder about the Last Psychiatrist's description of some of how change is often not really change at all

The unconscious doesn't care about happiness, or sadness, or gifts, or bullets.  It has one single goal, protect the ego, protect status quo.  Do not change and you will not die.  It will allow you to go to college across the country to escape your parents, but turn up the volume of their pre-recorded soundbites when you get there.  It will trick you into thinking you're making a huge life change, moving to this new city or marrying that great guy, even as everyone else around you can see what you can't, that Boulder is exactly like Oakland and he is just like the last guys.

Lest this all sound like meandering, there is a concrete prediction that can be made here. If I'm right, I expect the number of relocations to drop fairly quickly as life gets back to normal. If you haven't packed up and moved by now, I'll guess that you're not going to. Because as people actually start hanging out with their friends again, they'll slowly remember that the place they're in isn't actually as bad as it seemed in April 2020 when it felt like we were going to be locked up forever.

If you're still on the fence, take advantage of the warm weather to invite all your friends over for a party first. It did me a world of good. 

Sunday, March 28, 2021

The Lessons of Bitcoin

Bitcoin is, without any question, one of the most remarkable financial stories of our lifetimes. Simply by running some code on your laptop back in 2010, or putting a few grand into the earliest bitcoin markets, you could be worth hundreds of millions or billions of dollars today. Even quite a bit later in the process, a bold bet that you hung on to could have easily brought you life-changing amounts of money. 

Did you make life-changing amounts of money from Bitcoin?

I didn't. 

I think about that quite a lot.

I made good money from it, in the category of "moving some moderate financial milestones forward a couple of years", which is great. I bought it around the time I wrote this, which still summarises my thoughts on it pretty well. I sold it in February 2018, not long after I wrote this, which I also still like. Short run, the sale was a good call. Longer run, it was a catastrophe.  

If I'd played my cards better and more boldly, at earlier times, I could have ended up with "fuck you" money. For someone writing a pseudonymous blog in 2021, that sure would be handy.

This may sound like a humblebrag, but I promise it's not meant that way.  Internally it feels much more like failure. Chances to make life-changing amounts of money do not come along very often. This was one, and I missed it.

Bitcoin was almost unique in the sense that, to become fabulously rich:

i) you didn't need to have very much money early on (in fact, at the start, you didn't need any at all, just some kind of computer)

ii) you didn't need to risk very large amounts of your wealth to make it happen

iii) everything you needed to do it was publicly searchable on the internet

iv) chances to wind up happily rich persisted for years, including after you probably first heard of bitcoin.

Assuming you didn't make fuck you money from Bitcoin, it's worth pondering what the lessons of this are.

The most obvious instinct, which I fall into from time to time, is essentially just "if only" fantasies. If only I could somehow travel back in time and tell 2010 Shylock to start mining bitcoin! Or to put his life savings into it as soon as possible (and not sell it, and not store it on Mt Gox).

This is the worst kind of loser mentality, taking nothing but fantasy and daydreams from the story. Imagine I had all the future knowledge! Imagine I won the lottery!

But, as it turns out, you don't need to actually transform the question very much for it to be profoundly useful. 

Instead, one is much better off asking "what changes in behavior, mindset and reading habits would I have needed so that I would have actually discovered bitcoin on my own early on and invested in it?"

The reason is that this might actually help you find the next bitcoin. It's possible that buying bitcoin now will still make you rich, but it probably won't make you life changingly-rich (certainly not without risking your whole life savings on it).

The bad news is that it probably will require some hard work and luck. 

It's useful to break the question into two parts:

1. What realistic changes could I have made that might have caused me to come across bitcoin-like ideas earlier than I did?

2. What realistic changes might have shortened the time between first hearing about it and investing (or investing more, or holding it longer)?

At a high level, the answer to #1 is that you need to be reading weirder, different stuff. If you wait to read about an investment idea in the New York Times, it will be long after all the major gains have been made. 

To have been reading about it really really early, you had to be both technically very adept, and reading widely outside the box. Like this guy. Or this guy. Are your reading lists as varied and out there as blog.jim? Somehow I doubt it.

Strangely enough, you might have done extremely well multiple times over since bitcoin became popular even if you just learned the rather narrow lesson "I should learn up to the absolute cutting edge of cryptocurrency, so that I can meaningfully contribute to the small group conversations about what might be the next development in the crypto space". You might have gotten in at the ground floor on Ethereum, or Polkadot, or Chainlink, or a number of others. You might still get in on the next shitcoin to explode. 

In my case, the thing that tipped me over the edge for investing was in 2017 I finally got around to reading Moldbug's essays on bitcoin. I'd read through most of his archives starting in around 2013, but to my great regret, looked at the vaguely finance stuff and decided "eh, I already understand finance, I'm going to skip it." Ha! If there's a single lesson from Bitcoin, it's that in 2009 nobody much understood how money worked. As it turns out, Moldbug's description of bitcoin was entirely correct, he just seemed to me (certainly by 2017) to be wrong about the likelihood of the US government shutting it all down. It seems like hard work, and it's easier to just tax it and enforce know-your-customer requirements on fiat exchanges (which is what happened). 

A related lesson is "you should read more Moldbug, and consider investing in things he talks about, though still take what he says with a grain of salt". That still might yet be a highly lucrative lesson in the fullness of time. 

But I think the real place to improve is actually in #2. 

There are many people who heard about bitcoin back in, say 2013, and thought it sounded pretty weird, and probably likely to collapse. But if they were pushed on the issue at the time, you could have likely gotten them to agree that it was at least worth a punt for a few hundred bucks. 

The question is, how many people actually had that subsequent thought themselves? And moreover, how many actually followed through on it?

Smart people with all the information in front of them frequently fail at both hurdles. They fail to recognise the investment implications of the things they already know, especially when what they know to be true seems strange and unpopular to most people, and thus less likely to be priced in. And they fail to pull the trigger on it in a timely manner. 

The same is true, incidentally, from Covid. A few days after I wrote the post linked, I bought put options on the S&P 500. The thought process initially was "Huh, Covid could be a huge problem, I should buy N95 masks.". It took a couple of days for the follow-on thought (which should have been obvious) to occur "Wait, why am I hedging extreme left tail outcomes in goods markets, but not also hedging (and profiting from) moderate left tail outcomes in financial markets?". That also made me a decent but not life changing amount of money too, about a quarter of which I lost by holding onto my short positions too long instead of buying back in once I sensed that peak panic was passed (the losses are much larger in alpha terms, since you should include the opportunity cost of not being long in April and May 2020, which was huge).   

The thing that may or may not be surprising to you is that I know a fair number of people who read about Covid in early February 2020 and didn't act on it financially at all. I actually understand this. It took me several days to think of it, and I may easily have not done it, or not had the stones. Even when I did, I did it in a panicked and dumb way, just shorting the market. Not airlines, or cruise lines, or buying Zoom. Or, what would have been even better, credit default swaps (if you were one of the big boys ) or call options on the VIX if you weren't. I also managed to predict the wrong thing about Covid, namely that it was going to have a massively high death rate, and managed to screw up most of the market timing decisions I made over the course of 2020. One big good decision, managed to outweigh a considerable number of smaller bad ones, but I definitely didn't come out of 2020 thinking that I needed to do more market timing.

To be honest, the regular reading of weird twitter feeds is one of the things I miss since giving up twitter. It was a complete sewer, a cesspit of aggravation deliberately made to encourage rage-clicks and anxiety, run by people who hate me, and you, and everyone reading this. And yet, there is still material on there that you just can't find anywhere else. 

If you read the same things as everyone else, you will think the same things as everyone else. Not many of those people acquire life-changing amounts of money, except by pure chance.

Thursday, January 28, 2021

Some Thoughts Occasioned Upon Recent Fatherhood

Friends, I’m very happy to report that my daughter and firstborn child recently arrived into this world. The acute feelings of anxiety and then great relief at the birth itself slowly become replaced with the pleasant slight haze of the everyday. But since this journal is as much for myself as for my readers, I wanted to write down the thoughts I recall before they slip away.

Most people are more alike than they think. This is part of the reason why most heartfelt sentiments - whether joy at birth, sadness at the death of a loved one, celebration of someone’s birthday, and many others – end up sounding like clich├ęs. The more important something is, oddly the more likely your feelings are similar to everyone else’s. Because of this, sometimes the repeated forms are okay for the important sentiments. As a friend’s priest said about Christmas sermons – if you’re hearing anything genuinely new in it, it’s probably heresy.

I learned this the hard way when emailing friends about the birth. I said something about how she’d been sleeping well and eating a lot so far, and joked that one could obviously extrapolate this out indefinitely. From one or two slightly snarky responses, I realized too late that, even in jest, this is a little like the newborn equivalent of those ghastly “My child is on the honor roll at XYZ Elementary” bumper stickers, but for a much more emotionally fraught subject. (Which painful door would you rather open? “I’m a bad parent” or “My beloved child is just difficult, and experiencing misery that I can do nothing about”? Por que no los dos!) I’ve refrained from bring up the subject since then, and just instead reflect on the ancient Greek observation that no man should be declared happy until he is dead. You have a well-behaved child once they’re married with children of their own. 

Nonetheless, there was one part about my wife’s period of late pregnancy and birth that was quite striking, in a way that I wasn’t expecting.

There is a certain level of narcissism and egocentrism that is inherent to everybody. The way the Last Psychiatrist put it is quite memorable:

“The essence, the defining characteristic of narcissism is the isolated worldview, the one in which everyone else is not fully real, only part a person, and only the part the impacts you.”

I, like a lot of people, always wake up in my dreams just as I’m about to die. There is some fundamental stumbling block that cannot quite comprehend a world without me in it. If the only part of everything else that is real is the part that interacts with you, then your death is literally the end of the universe.

This much gets commented on quite a lot. One can intellectualise death, and imagine the world going on without you. But one cannot really feel it. It just doesn’t compute.

But the strange part, that I hadn’t really  appreciated, is that something similar happens (at least to me) at the early end too.

Having my own child was literally the first time I’d been forced to contemplate in concrete detail what my parents’ life might have been like around the time I and my siblings were first born. The standard way this is described is that until one has children oneself, one doesn’t quite realise how much thankless work goes into changing thousands of nappies and not sleeping properly for months on end.

But at least for me, it’s more than that. I just hadn’t given much thought to the subject. I have images of my parents’ life before me, pieced together from photographs, and stories they’d tell with my uncle sitting around the dining room table after dinner. But these tended to mostly focus on the period when they first met, before they got married. There were some stories after that, about their lives, living with my grandmother, buying a small shack in the countryside and planting trees there, and things like that. But then there was a large gap, a chunk of the map shrouded in cloud, of what it might have actually felt like when we children were first born.

And I think part of the reason for this (at least with me) is the narcissistic tendency. People are only real to the extent they interact with you. And the part of you that counts is the part you can remember. In my case, the earlies memories are from around age 3. When I’m forced to contemplate it, I simply have no empathetic concept of me before that time. To consider myself as a one-year old, or as a newborn breast-feeding, or while in the womb, is every bit as alien to the actual narcissistic self-conception as to think of myself as being dead. I can imagine it. But there is simply no capacity to relate. Without memory and capacity for self-conception, the chain of "I"-ness gets broken. 

Take away this inherent interest and understanding, and the parts of the characters immediately before I mentally appear on the scene simply don’t quite register. The stories my parents explicitly told me register, and those I feel warmly about. And indeed, I can think about times before I was even an idea, what my parents were like as children or teenagers. But the part that interacts with me, in the period where “me” is not something I instinctively empathise with, tends to be a strange and glaring gap.

Until my own child arrives. Then, I'm forced concretely to imagine all sorts of things I didn’t really consider. The scene of sea and sky suddenly inverts to a dizzying new perspective - one in which my parents are fully real, but I am only partially real, and only the part that interacts with them (since the part that is "me" doesn't yet exist). And one sees the whole path of the same scene repeating again and again. My daughter, currently totally helpless, having not the vaguest clue of what my wife and I do to keep her alive, and no real sense of gratitude or even contemplation, until one day, several decades hence, when (hopefully!) her own time comes to pay it forward with her own children, and the cycle repeats.

Thank you, Mum and Dad. At last, just a teensy bit, I understand. I suspect you knew this already.

Welcome to the world, little one. We’re so glad to have you.

Saturday, January 16, 2021

Tether - risky, but probably not for the reasons they keep telling you

I keep being forwarded this article that came out in Medium recently. It poses as a big expose of tether, the stablecoin that powers lots of cryptocurrency transactions. We learn that it's a scam and a fraud, and about to crash the price of bitcoin.

The very short tl;dr on tether is that it's a cryptocurrency whose value is kept at a stable $1 USD. Why would you want this? Well, lots of people want to transact electronically in something that's basically dollars, but without the insanely anachronistic mess that is the actual US banking system. But USG has aggressively gone after money laundering by controlling the interface of the banking system and crypto exchanges. In other words, control the fiat/crypto interface tightly, and the rest of legal compliance will follow (apparently). If you as a company anywhere in the world take money from the banking system, you get aggressive demands from USG officials that you comply with US "Know-Your-Customer" (KYC) anti-money-laundering legislation. 

So some exchanges like coinbase specialize in being places that comply openly with the law, where you can hold your crypto and feel like there's a lower chance that it will be stolen, because coinbase is possibly about to become publicly listed, a good hallmark of establishment reliability. And others specialize in the opposite of this - transact there while being less legible to US regulators, take on massive leverage on your trades, pay lower fees due to regulatory arbitrage of not complying with US financial laws. So far, they've been able to do this, barely, because they follow the golden rule of "never touching actual US dollars". Just exchange one digital asset (e.g. bitcoin) for another (e.g. tether), and you never directly interact with the standard financial system. So tether ends up being the numeraire good, the medium of exchange on lots of these platforms. Hence why there's so much demand for it.

It's important to note that the way tether is priced at a dollar is that tether, the company, will (so far!) redeem them for exactly a dollar. As long as this promise is viewed as credible, they'll trade at $1, and they roughly do. Tether rather speaks out of both sides of its mouth on this - in marketing materials they tend to emphasize that tethers can be redeemed for the same number of dollars, and in practice they pay out your redemptions, but in the fine print they say that this isn't necessarily, technically, something promised.

So far, so good.

Well, what's the claimed problem? Here's the article's summary:

Tether Ltd. also says one Tether is worth exactly one US dollar. Can they do that? Well they say they can, because they hold $1 worth of assets for each Tether. But are those assets actual dollars? No, they are not. So what if the assets go down in value? Don’t worry; they will not. Okay, but can we at least see the assets? No, you may not.

Who in their right mind would use something like Tether? Well, the short answer is that many people use Tethers to buy Bitcoin and other cryptocurrencies. The long answer, though, is astounding — but more on that later.

Because Tether sounds exactly like a currency fraud, it may not surprise you to learn that Tether Ltd. is currently under investigation by the Office of the Attorney General for the Southern District of New York. That investigation was announced to the public on April 25th, 2019.

As an aside, the Office of the Attorney General for the Southern District of New York are a pack of assholes who feel justified in arresting anybody on the planet who so much as looks at a financial transaction in a way they don't like, on the highly compelling theory that a) Manhattan has a lot of banks, and b) Manhattan is the center of the universe. If you are not utterly cynical about their press releases by now, I don't know what to tell you. 

And from there follows a very breathless and interesting read of all the ways that tether has been printing tether coins, and this is pumping up the price of bitcoin, and it's all likely to collapse because it's a giant scam. 

 "Nonetheless, based on this evidence, I concluded my risk was now too great. I was long Bitcoin up to my eyeballs; Bitcoin was clearly correlated with Tether; Tether was clearly being issued at a frantic rate; and that issuance had a high probability of being backed by nothing at all."

Have a read. There are a lot of interesting facts in there. In fact, if you feel yourself well versed in finance, go away and read the article and try and find the big glaring conceptual error in it, then come back.  

I am in two minds about this article. 

On the one hand, the author is likely right that tether has a non-trivial chance of being shut down by USG, that it fuels a large amount of leveraged trades in crypto, and that the loss of tether would likely cause a big deleveraging that would probably be disastrous for bitcoin prices

On the other hand, the reasons he thinks this will happen are moronic, ludicrous and risible. They are a great example of a certain kind of stupidity that is annoying prevalent in crypto communities. 

What is the first order problem with the whole discussion?

The gigantic blind spot is that he, like lots of crypto people, seems to not notice the obvious fact that tether is simply a bank. The tether coin itself is a demand deposit, just transformed into cryptocurrency form. It's hard to think of a cleaner example of the hypothesis that money itself started as debt that began to circulate. The company keeps a certain amount in reserves to fund these possible redemptions, and then invests the rest. This is how basically every bank in the world works.

The reason that so few people spot this is that the world is roughly partitioned into 

-people who like cryptocurrencies and who think that all "fractional reserve banks" are scams, and

-people who like mainstream banking, and think that cryptocurrencies are scams.

So as a result, the number of people who are both knowledgeable and agnostic on both fractional reserve banking and crypto is surprisingly few. 

And when you see it this way, a huge amount of the apparent mysteries immediately get resolved. This comparison ought to be obvious, but it’s not, because guys like this tend to have completely moronic ideas about what a bank actually is, and simply think that all banks of any form are “scams”, regardless of how well capitalized they are. He has some huge hard-on of this idea of himself as the narrator in the Big Short, but somehow never learned how a bank actually works. 

Go back to the quote above. Banks are partitioned into two types. Those where every dollar of deposits is backed by 100% literal cash US dollars in a vault, and those where it is “backed by nothing at all.”

Like…did you consider any other possible bank balance sheets? Are these the only two possible cases? 

His idealized type of bank (assuming he even realizes that this is what he's describing, which I doubt) is called a narrow bank. In practice you should be able to set up a bank that just takes investors deposits, in turn deposits them at the Fed, and earns the interest the Fed pays on reserves. Why can't you do that? Well, the Fed has denied licenses to such banks, with largely spurious reasons given as to why, in ways that smell like corruption, even to very mainstream economists like John Cochrane.

So since we don't have that option, every bank is a fractional reserve bank. To a banking agnostic, the crucial question is not "is it a scam engaged in maturity transformation?". Rather, the question is "given how well capitalized the bank is, how likely is it that there will be a bank run that causes depositors to not get paid back in full?".

Suppose tethers are only backed 74 cents in the dollar by actual USD, a claim that’s floated around here. Here’s the question. They took in 100 cents in the dollar in cash. They now hold 74 cents. What does this guy think they did with the remaining 26 cents? Blew it all on coke?

No, what they very likely did is buy the exact cryptocurrencies that the guy laboriously shows that tethers are being used to purchase.

So at the time they bought it, their portfolio was most likely something like 74c cash, 26c BTC or whatever.

Now, a sensible risk weighting would assign a big haircut to these BTC assets, given how risky they are. Sure. But what this guy does, along with places who should know better like Bloomberg, is downweight every single asset that's not cash to a risk-weighted collateral value of zero. This is, to not put too fine a point on it, imbecilic. 

And the reason this is even more egregious is the following. Ex post, what happened to the price of that BTC? It went up like crazy. 

Assuming this much is roughly true, this would make tether among the best capitalized banks in the world. As a betting man, I’d wager pretty strongly that the value of their crypto is way higher than the missing 26c in the dollar or whatever of liabilities they owe, probably by a factor of 2-10.

Buddy, if you think tether is a scam, let me tell you about Citibank. 

So what do you do if you’re now a bank who's crazily over-capitalized, and holding a lot of crypto assets? Well, one option is to say “sod it, let’s print some more tether liabilities, and use those to buy more crypto”.

Absent government regulations, this is an entirely sensible thing to do. The timeline above explains every single “suspicious” fact that this guy points to.

The risk that tether, left to its own business operations, is about to go bust, seems quite low, as long as they’ve likely been using part of their cash to purchase crypto that’s since risen greatly in price. It's true, there hasn't been a proper audit, so we don't know for sure what they've been buying or holding. Maybe they really have just spent it all on hookers. But the strongest bet to me, for a variety of reasons (including those floated by tether skeptics) is that tether has been buying crypto assets. If they've bought some kind of diversified crypto portfolio before March 2020, happy days. Strongly well-capitalized banks do not tend to collapse in bank runs. I would wager quite heavily that, at current prices, they have way more crypto assets than they need to pay off every possible tether holder (even if, as is true, liquidating said assets all at once would cause a big price drop).

So what’s the actual problem with tether?

First, while they are a bank, they don’t say they’re a bank. They tend to imply, falsely, that they’re more like a money market fund, just holding cash and cash equivalents.

Second, if they are a bank, they run the risk of being regulated like a bank, and they sure as hell haven’t been complying with banking regulations, notwithstanding that they’re probably very well capitalized.

Third, their whole business model smells like know-your-customer violations.

All of this means that there’s a decent chance of them getting boned by some up-and-coming NY DA, running the same playbook as for Tradesports, and World Star Poker, and a bunch of others. Freeze assets. Destroy your business because you can't access any of your assets. You dip into some of the reserve cash to stay afloat. They declare you a ponzi scheme, improperly stealing customer funds, and say you collapsed for this reason. Whether you were or weren’t (and in the case of tether, there’s good reasons to think they have more assets than they need, not less), the proximate cause of the collapse is government.

Where this guy is right, is that tether fuels a lot of the levered bets people make on dodgy exchanges. Take away the tether that fuels these exchanges, and you probably get a massive deleveraging. I’d bet on this being a Mt Gox level event for BTC if it happens. If the only demand is now coming from unlevered, KYC compliant bets on Coinbase, that’s a big reduction in likely demand.

At the end, the big irony is that

a) he's right that you should be worried about tether, about the prospect of it being closed down, and the likely impact of this on BTC prices, but

b) the one thing tether gets the most flack for is the one bit that seems least likely to be true - being massively undercapitalized, and unable to pay back depositors. 

Friday, December 11, 2020

Last Thoughts on Voter Fraud

Winston Churchill once observed that a good definition of a fanatic was someone who can’t change his mind, and won’t change the subject.

On the subject of voter fraud, I like to think that I meet neither arm of the test.

On the first part, I feel like I’m definitely open to having my mind changed, but not many people engage with the better evidence on the subject, so I don’t often hear good arguments to the contrary. Then again, every fanatic on every topic feels the same way, so perhaps this doesn’t distinguish me very much.

But I can at least make sure I don’t fall foul of the second arm. Few things in this life, even if true, are worth driving away those near and dear to you, having friends of long standing view you as some crank and lost cause obsessive. My twitter feed the past month has been that of a single issue kook, which has gained me a lot of new followers, but I never really wrote to build a large audience, and definitely wrote for the sheer joy of being able to say whatever was on my mind, not for advancing a single cause.

To know if you’ve started to become viewed as a crank, you have to listen to the silences – the friends that don’t respond to your whatsapp messages when you send them something on the subject, the people on twitter who used to engage that you haven’t heard from for a while. You don’t have to change your beliefs about the election because others don’t agree with you, but you do need to value your audience, especially when they are friends and loved ones.

In finance, most trades are essentially neutral – if you buy a stock, and nothing happens, you stay flat. However, a famous trade in foreign exchange is the carry trade – borrow in low interest rate currencies, and invest in high interest rate currencies. There, if nothing happens to the exchange rate, you win (on the difference in interest rates). This term, “carry”, gets used broadly to describe any such trade with this property, where you win by things staying the same. An anti-carry trade is thus the opposite. If nothing happens, you lose.

Since the Wednesday morning after the election, it has been quite clear that Biden had a strong carry trade, and Trump had an anti-carry trade. Something fairly large had to happen to change the answer. The Supreme Court case with Texas was my last bet on what that something large might be. Related to my post earlier this year on how Republicans can’t get their appointed judges to stay conservative, the answer was depressing, if not surprising. The number of ways the outcome can change at this point is small, most of them would be highly alarming if they occurred, and not many of them seem to hinge upon a great new empirical analysis of voter fraud being written by me.

So having written much on the subject, this is my coda to the past month’s thinking, at least for the time being. Like the Dylan poem to which the title is an homage, it’s not that the issue is suddenly dead, it’s just a way of collecting one’s thoughts and drawing a line under a chapter that seems to be coming to a close. I will probably have more to say on the subject, like every addict, but the time for being a single issue author is passed. Please bear with me even if you feel heartily sick of the subject. I have spent an extraordinary amount of time thinking about these issues over the past month, and I feel confident I may yet be able to tell you something new, the things that at least I didn’t know before I started out. Without further ado, they are as follows.

The average American believes three things about voter fraud in his country.

First, he believes that there is very little of it, perhaps almost zero, and certainly not enough to swing an election.

Second, he believes that if there were a reasonable amount of it in general, he would have heard about it, from experts on the subject.

Third, he feels that if any single election had been fraudulent, said experts would be able to identify such fraud and bring it to light before it was able to decide the election outcome.

I am not going to have much to say about the first point, at least not directly. I suspect that by this juncture, the number of people who haven’t made up their mind about this is very small. My firm belief is that one’s priors on this should be quite wide, but that’s another subject.

Rather, I want to convince you that the second point, and especially the third point, are wrong.

While I don’t want to inflate my credentials here, I am one of those fortunate people (or unfortunate, depending on perspective) whose skills and training puts them in a good position to actually be able to empirically study the question of voter fraud. There are few academic papers on the subject that I would not back myself to be able to read and understand.

I have spent almost the entire past month digging into various ways of trying to find voter fraud. Much of that work has been out of the public eye, and not all of it was ever released officially to anyone. This is how data digging works – you do a lot of analysis for everything you actually write, in the “measure twice, cut once” manner.

And I can tell you, as someone who’s hunted very hard for it – voter fraud is extremely difficult to prove using only public data, whether it actually happens or not.

To which you might immediately think – that’s because there isn’t much voter fraud!

On the contrary. It is not at all difficult to find extremely alarming and weird anomalies in election data.

A good working definition of fraud is “wrong data entered for malicious reasons”. The big challenge is that a good working definition of data errors is “wrong data entered for innocent reasons”.

The extremely hard part is thus not finding anomalous and suspicious patterns in the data, but proving with certainty that these arise due to malicious intent. Moreover, one has to rule out every possible innocent reason these errors could arise, where the functional form of errors is allowed to be incredibly vague. Further still, the counties and election officials are given almost every single benefit of the doubt. Moldbug is right on this point. The sovereign is he who determines the null hypothesis.

One can very easily find loads of extremely suspicious things in the data.

One can find 169 updates in the New York Times county-level election update data where the vote count in one category (in-person or absentee) actually decreased in an update. Here is one of the most suspicious, in Montgomery County, PA which still hasn’t been well-explained. You have not even heard of the remaining 168. Here’s the count by state:

    state |      Freq.     Percent        Cum.
         AL |          1        0.59        0.59
         AR |         12        7.10        7.69
         AZ |          5        2.96       10.65
         FL |          3        1.78       12.43
         GA |         24       14.20       26.63
         IA |         20       11.83       38.46
         ID |          1        0.59       39.05
         IN |          1        0.59       39.64
         KS |          2        1.18       40.83
         MA |          1        0.59       41.42
         MI |         21       12.43       53.85
         MS |          1        0.59       54.44
         NH |          1        0.59       55.03
         NJ |          4        2.37       57.40
         NM |          1        0.59       57.99
         NY |          3        1.78       59.76
         PA |          9        5.33       65.09
         SC |         30       17.75       82.84
         TX |         11        6.51       89.35
         UT |          1        0.59       89.94
         VA |         15        8.88       98.82
         WI |          1        0.59       99.41
         WV |          1        0.59      100.00

Several of the disputed and contentious states are heavily represented – Georgia, Michigan, Pennsylvania. But so are places you haven’t heard of. Arkansas. Virginia. Iowa. South Carolina.

(By the by, through my various digging, Virginia is my bet for “state with the most election fraud in 2020 that you never read about”, and not just because of the metric above)

Look at how much work went into the analysis of Montgomery PA, which covered one of these data points, trying to rule out every possible innocent explanation, and showing additional evidence that points to fraud. Do you think anyone is digging that much into the remaining 168? The NYT data can be downloaded in a bunch of places, and it's not hard to find these updates. I've looked at them, about half of them are quite small, less than 100 votes. Some of the rest look like a single set of ballots being reclassified from one category to another. But even after taking out all of these, there's a large number of these where frankly I have no idea what's going on, and I doubt you would either.

One can find vote updates that look like colossal outliers in terms of the fairly intuitive rule that updates can be either large, or unrepresentative, but not generally both. Here’s a long analysis of this. The most suspicious, in Wisconsin, Michigan and Georgia (surely a coincidence with the states identified on the metric above!), also came in the middle of the night, and were large enough to swing the election. The defenders argue that this is all just normal absentee votes. At least for Milwaukee, one can also find corroborating evidence in suspicious patterns in down-ballot races too, that at least don’t fit simple stories about mail ballots.

But suppose you don’t believe the New York Times data. That could all just be errors! Indeed. Couldn’t it all.

One can find 58 Pennsylvania registered voters born in the year 1800, 11 born between 1801 and 1899, and 25 born in 1900. Admittedly, these particular cases are more likely just errors - if this is voter fraud, it’s the stupidest form ever, since it’s going to stick out like a sore thumb. But it proves beyond any doubt that errors in this data do not get checked or corrected anywhere. And indeed, these implausible years of birth are in fact the mere tip of the iceberg of suspicious patterns in birthdays, which follow much more notable patterns indicating fraud involving round numbered days of the month and months of the year, plus month distributions that are too smooth. These patterns consistent with fraud are related to counties voting for Biden, including at record levels.

Or suppose you don’t believe statistics at all. You insist on hard evidence! In Wayne County, MI, you can find totally normal scenes from election night, like them boarding up the windows in the vote counting center to stop observers even seeing in. In Fulton County, GA, you had the insane spectacle that on election night, election officials sent all the observers home, telling them that counting was over for the night. In the press, dubious accounts were circulated implying that a burst pipe was the cause, although it turns out that may have been from that morning, or may not have happened at all. In any case, an hour later, they started counting again, with no observers in the room, using ballots in suitcases under a desk that had been delivered at 8:30am that day. Oh, and all this was caught on video. As part of this, you can also watch the officials scan the same set of ballots multiple times.  As has been noted before – if this were happening in a third world country, the State Department would declare it presumptively fraudulent. This isn't an exhaustive list. This is the ones I managed to remember and write down, while working furiously on other things over the whole period, and where the main allegations were actually caught on video. If you go through everything alleged in affidavits in lawsuit, many are much more shocking, though also harder to verify.

My point is not that you should believe this absolutely nails down fraud, let along how widespread you should infer the fraud to be based on these incidents. My point is to emphasise how difficult the task is, even if there were actually fraud. Fraud would look exactly like this. People switching votes back and forth to swing a total, or deleting inconvenient votes from the count. Bringing fake and colossally unrepresentative ballot dumps in during the middle of the night. Registering tons of fake voters to flood in mail ballots. Counting happening in secret after observers are sent home under false pretenses. Reports coming in from whistleblowers in affidavits.

But how sure are you that these aren’t just data errors in very noisy data? That someone incorrectly entered a vote total in a database, and later corrected it? That patterns in absentee ballots, while highly weird, represent odd preferences of mail-in voters? That the ballots in Georgia were all scanned regularly, and that the machine will never count ballots twice if they’re scanned twice, and that there’s not some innocent mixup as to why everyone was sent home? That the witnesses in the lawsuits were confused about what they saw?

If every benefit of the doubt is given to the other side, what's the chances you can ever overcome them all?

Suppose, like a number of readers, you are in the category of someone who still isn’t convinced. There’s some weird stuff going on, sure, but it doesn’t rise to the level of “fraud may have decided the election result”.

Three good questions to ask are the following.

1.      What kind of voter fraud do you have in mind?

2.    What evidence would actually convince you that there might have been this kind of voter fraud?

3.     What data is actually available, and based on this, how likely is it that this evidence might ever conceivably be discovered?

The first question, as it turns out, is actually the most important. Because fraud comes in many different types, and the likelihood of catching them varies enormously.

The most egregious type is to make up election returns out of whole cloth. In this version, the vote totals are plucked from someone’s head, and don’t correspond to any actual ballots or button presses in the real world.

This type is actually the most likely to get caught. Totally fake numbers leave lots of traces that can be studied by things like digit analysis via Benford’s Law. Only the most basket case third world countries do this. I think one can say with high certainty that, at the conservative end, this does not occur very often in US elections, and I would wager strongly in America does not occur at all.

The next category of obvious fraud is when some dictator reports winning 99% of the vote. Like Theodore Dalrymple observed about propaganda in communist countries, this kind of election is not actually meant to convince anyone, but rather to humiliate them, to insist on obvious lies and dare them to say differently.

But even here, most of the argument about fraud is already at the level of a smell test. Suppose you had to prove statistically that it was impossible that these election results in Cuba or Syria were genuine. How exactly would you do it? I suspect you’ll find it’s a lot harder than you might think. Bear in mind, in 2020 the “Norristown 2-2” precinct in Montgomery County had reported mail-in votes up to November 10th where Biden had won 98.7% of the two-party vote, across 150 votes. Please tell me how you plan to show that this number is genuine, yet Assad’s 88.7% of the vote is not. Not by digging up the raw ballots (though even here, if Assad can produce his fake ballots, you may still be out of luck). From your computer, which is what nearly all of us have had to do.

Or put it differently. Suppose that Assad in Syria decided to rig the elections, but instead of generating insane levels of support, he decided to replace all the genuine ballots with fake ones that showed him getting support levels between 60% and 71%, with turnout at 70% of the electorate. He has total control of the vote counting process.

You know this is bullshit. But that’s not the question. How would you go about proving it?

Almost anything below the first two cases – making up numbers whole, or 90% vote shares – is actually extremely difficult to prove, even if it’s occurring. I mean, he kicked out the observers, which is pretty bad. But so did Fulton County, GA, and kept on counting.

Let’s take some scenarios more likely to actually occur in the US.

You are an election official who is not being closely monitored. There is a list of eligible voters in your precinct. Suppose it is a normal year, with relatively few absentee/mail ballots. You have hidden a genuine ballot box of pre-filled in ballots, with genuine ballot papers, that you know contains 1000 votes total, of which 97% are for your candidate. All registered voters in your precinct are on a list, and get crossed off as they come in. You wait until polls close, and you can see the list of everyone who hasn’t voted. You cross 1000 names off the list, and bring in your pre-filled in box of ballots, mingling it with the main ones.

How do you propose to identify that in the data? If you had periodic updates, you can maybe find batches that look really anomalous, sure. That’s what this analysis did! And this one! The scenario wasn’t exactly the same, but it was similar. Did you find it sufficient proof?

In this particular variant, every voter is a genuine, registered voter. Every voter votes exactly once. Every ballot paper is a genuine ballot. Every vote corresponds to a ballot paper that can be counted and re-counted. No ballot gives any indication it was not cast by a genuine voter.

Let us agree on this much. Unless you catch the person in the act, this will be flat out impossible to detect just by looking at final election results. I actually don’t know how you’d prove it with any other data either. Don’t believe me? Propose a test. I’m all ears. I have heard stories from campaign operatives that this actually happens, I didn’t think up this idea myself.

But I’m not here to convince you to believe those stories. Suppose one accepts, as indeed you’re told, that there is no evidence of this kind of voter fraud. It’s true. There broadly isn’t. Now, ask yourself, what’s the signal to noise ratio of this kind of lack of evidence? If there were no voter fraud of this kind, we’d expect to find no evidence. If there were voter fraud of this type, but we lacked any realistic ability to catch it, we would also expect to find no evidence. So the lack of evidence tells us almost precisely zero one way or the other.

Especially germane to the current election, there are many types of fraud involving mail ballots. It is much easier for a person to send in mail ballots for someone else, than to turn up at a polling station and claim to be five different people of different ages. This mail then gets handled by postal workers, with a crazily weak chain of custody, from the same people that lead to your Amazon packages being stolen with reasonable frequency. This leads to a number of stories you can find for the search string “ballots found in the trash”. Meanwhile, signature verification on potentially fraudulent ballots got greatly weakened in 2020 in many of the key states, just as the number of mail ballots increased massively, as described in the Texas lawsuit. A discussion I had with a campaign operative (which I haven’t been able to verify, so I’m just reporting the claim, not asserting it) said that in Arizona, once the signature was verified on the envelope, the envelope got thrown away, making it impossible for anyone to verify after the fact what it said.

Don’t think about “was there fraud”. I’m not interested in the question of haggling over the specific details here of what precisely happened in each place, and you can make up your own mind on that. Rather, I care much more about the question of “if there were fraud, would it have been caught?”

And here’s the crazy part, if you’re sure that election fraud in general would have been caught. 2020 is actually the single best year in history to catch election fraud. Because unlike in the past, we have periodic snapshots taken by internet amateurs of the update of counts scraped from the NYT website, rather than just the final tally. We can also download a ton of stuff from the internet.

For most past elections, we can get final vote counts at the precinct level if we’re lucky, or the county level more likely. Votes by candidate. That’s it. You want to go back and find out if the 2016 election was fraudulent, that’s basically the overwhelming extent of the data you’ve got to work with. Oh, and four years later, that data is still riddled with errors, because it has to get kludged together from 3300 odd counties, with vastly different reporting systems.

Tell me what kinds of fraud you are confident you can identify from those numbers. Not just you, but “the experts” who study this stuff.

I understand enough about this data to know that while there are clearly some tricks one can do if one is clever, there are large and fundamental limitations to how much fraud you can ever hope to identify from this kind of data.

And that’s it. That’s basically what you’ve got. Or you can hope that someone does something dumb and gets caught in the act. But is that the state of the art strategy? How many would slip through the net for each one that gets caught, like in Fulton County GA? Not that anything is going to happen to the people in Fulton County, which also is quite revealing. In a year, I predict fairly confidently it will be one more rumored and then forgotten local story, and the videos will eventually disappear. Along those lines, if more evidence does come to light, you certainly can't publish them on Youtube, no matter what you find from here on out, as they've said that their policy is to delete all such videos. Big tech has spoken! The matter is closed. There is no evidence of voter fraud, and also, you had a total of four weeks to come up with any of it, before the verdict is entered for all time. 

I think there is a strong case to be made that, for many types of fraud, catching them is extremely difficult.

And so almost the entire question comes down to one of priors. We have no reasonable hope of actually identifying it from the data. Most people are sure it is extremely rare. I am not. The evidence demanded to budge their priors is enormous. That evidence will never be found, whether there is fraud, or whether there is no fraud.

And so finally, we get to the last question. Even if fraud could be caught, eventually, somehow, with enough time and analysis and manpower, would it be caught in time?

Reader, prepare yourself, because the next sentence may be shocking to you. 

The Trump campaign, in many respects, was not very well organized.

But I have come to have enormous sympathy for the sheer scale and difficulty of the task in front of them, even if they were well organized.

A campaign is not a permanent organization, but a bunch of operatives coming together for a particular period and task. I suspect, and it accords with the few anecdotal discussions I’ve had with people who’ve worked on them, that most presidential campaigns are a shitshow at the best of times, but some candidate has to win, so we assume after the fact that their campaign internally must have been great, when it probably wasn’t.

So what happens after the dubious election returns start coming in in the dead of night on Wednesday after the election?

You have a small staff. Most of it is lawyers and political operatives, not statisticians and data scientists. Everyone is absolutely frazzled. You are trying to put out a thousand fires. You are trying to coordinate dozens of people and teams. Everyone is demoralised and worrying about their employment future, since most were working on an implicit promise of employment in the administration if they won, which is now looking unlikely. You are trying to keep track of ten thousand different leads and reports coming in from all over the country. Half of them will be straight up wrong, either bogus third hand accounts, or claims from someone genuinely concerned but insufficiently skeptical and not probing into alternatives. Avoiding this is actually quite hard, to be honest. When one really wants to find fraud (or indeed any empirical result) it is psychologically difficult to then switch gears to convincing oneself of all the ways the hypothesis could be false, and then trying to find evidence of that.

Of the other half of the leads, perhaps 80% will be plausible, but either inconclusive, or admitting of multiple interpretations. Of genuine ones, they may be contained in a two hour video that’s not very well explained, and you don’t have time to watch the whole thing. They may be written down in some long technical piece that you don’t have the training to follow entirely, or which doesn't explain clearly what its doing. Even if you think it seems legit and you understand what it’s doing, you have to take a gamble that it’s not a coding error or bad data cleaning or some other screwup. They may be some anonymous whistleblower that you have to spend resources to try to find out if they’re fake or well-intentioned, if they’re right or wrong, if their claims are provable or unprovable.

Now, you have to figure out, can I get this in an affidavit? Is this author willing to go public? Will this convince a judge? Can I get an expert witness to testify, assuming a judge is even interested in hearing evidence, which often they're not? As far as I can tell, the statistical analyses I liked the most were all written pseudonymously. It is not a surprise that they didn’t find their way into the major lawsuits. The Williams professor who did a god damn confidence interval for the Matt Braynard analysis got dragged in the papers by his utterly contemptible colleagues. The chances that they would do this if he’d computed a confidence interval for literally any other survey in history are zero. Are you surprised that more people aren't signing up to put their professional reputations on the line for what's almost certainly a Hail Mary, and which won't even benefit them personally?

But even if you can find an expert willing to go public, how long do they have to generate such a report? You need to scramble to scrape and download the data straight away from lots of sources, and start analyzing it. Find the weird anomalies, dig into them, try to figure out which ones might be errors. Think of different ways to test them. Think of different data you might get that would corroborate this. Manually do more gathering, and cleaning, and merging. Think of which things might rise above the metric of “dubious” to “very hard to explain with anything other than fraud”. Run the results. Double check the results. Triple check the results, because if you start making false claims, you’ve actively hurt the cause (and you’ll feel like a total fool and fraud). Start writing the results up. Refine the writeup to make it less jargon-y. Try to balance the tension between “easily accessible to public readers”, “understandable to smart but busy and innumerate lawyers” and “detailed enough to withstand public scrutiny by hostile experts or readers”. Also, there’s dozens of different investigative angles you can take. Each one takes a few days or a week to look into, let alone write up, let alone actually get published. You’re pulling 80 hour weeks, but even so, there’s not many weeks you have. How many such analyses can you write? Meanwhile, you're working against the clock without knowing quite what the deadline is for "too late to matter", but you know it can't be very long. 

Now, consider the media environment you are operating in, if you are the Trump team. The same media that in 2016 was willing to report uncritically every breathless allegation of Russian interference, that was willing to circulate as evidence a single anonymous dossier of allegations about Trump and treat it as a basis for campaign wiretaps and impeachment, now is loudly insisting that a) the race is over, and b) “experts assure us there is no voter fraud”. Meanwhile, on the rare occasions they do report on the matter, they only focus on the most ludicrous witness statements and the most easily debunked claims. These are sure to circulate widely, so that by the time previously open-minded readers get around to seeing actual good evidence, they’re largely exhausted and cynical, and often won't even read it.

Partly for the fun of trolling, and partly just as an experiment, I started asking the Montgomery County twitter account, and its commissioner in charge of the election, Ken Lawrence Jr, why it was that their county looked so crooked on multiple dimensions, both in terms of having the most suspicious vote update in America, and the third most suspicious set of voter birthdays among Pennsylvania counties. They never answered. I tried poking newspaper reporters from multiple papers. Most didn’t bite. Ross Douthat, to his credit, linked to the Montgomery piece, admittedly in a one-liner in his NYT article on how weird it is that these kooks believe in conspiracy theories. I asked him in multiple places – have you, or any other journalist, actually just asked these guys in Montgomery County what their explanation is for it? Even just to get a response on the record? No dice. Nobody was interested. Hell, I couldn't even get a response out of the Pennsylvania Republican Party twitter account!

I didn’t really expect anything different, so my demeanour was mostly one of trollish entertainment, rather than disappointment. But at the end, even I found myself more cynical than I expected.

If you are Republican, and alleging voter fraud by the Democrats, the media will be actively opposed to you at every single step. How could they not be? These are the same people that have been writing about how Trump was Hitler for the past four years. Does any reasonable person expect them to voluntarily start digging into stories that might make Trump actually get another four years, when they can just turn a blind eye and end it all? Besides, if they start being called a voter fraud truther, it will be disaster for their career.

There is one more piece of the puzzle worth noting.

How many people do you think there actually were working on this, total, over the past month? At least on the data side?

The average person probably assumes that there must have been thousands of highly paid professionals working on it.

I estimate that the number is perhaps 40 at the high end, and maybe as low as 20. (If the sides had been flipped, it would definitely be more, perhaps a lot more, but I don't know). I’d estimate that nearly all of them were volunteers juggling other full time jobs. I personally knew about ten of them working on analysis, and there were a number of other excellent people helping enormously with data gathering and processing. 

That's it. That's the full extent of resources around the world that have gone into investigating from a statistical point of view whether the 2020 election may have been decided by fraud. With the time and resources available, it's remarkable we found as much as we did.

At least personally, I never really expected to change the outcome. The task was basically impossible, but damn it, we worked until the end anyway.

This is all one can ever do. 

To live not by lies, as Mr Solzhenitsyn put it.

And to fill the unforgiving minute with sixty seconds worth of distance run, as Mr Kipling put it.

To the ten, and to all those I know who helped  in the effort – friends, it was a true honour and pleasure to work with you.

Saturday, November 7, 2020

Evidence Suggesting Voter Fraud in Milwaukee

 I posted a version of this on twitter, but a) the writing format there is so ugly, and b) who knows how long that thread might last. So here it is for the record. 

I’ve been looking at the vote counts within Milwaukee, and there’s suspicious patterns in the data that need explaining. Proving fraud is difficult, but there’s a lot of irregularities here that point in that direction. First, the tl;dr, then the main analysis.

1. Democrat votes started increasing massively relative to Republicans after Tuesday night counts. This can’t be accounted for by explanations like heavily Democratic wards reporting later. When we look at the changes *within wards*, 96.6% of them favored the Democrats.

2. Democrats also improved massively against third party candidates, whereas Republicans and third party candidates showed similar changes to each other. Since there’s little incentive to manipulate third party counts, this implies that the big change after Tuesday night is in Democrat votes, not in Republican ones.  

3. When we compare different down ballot races, we find that Democrat increases within each ward were larger in races where the Democrat candidate was initially behind in the overall race on Tuesday night – that is, relatively more Democrat votes appeared in races where they were more likely to alter the outcome.

4. This result is easy to explain by fraud, but is much more complicated to explain by other explanations like Democrats mostly voting by mail. Most such theories predict all Democrat candidates should benefit in equal proportions within a ward, not that more votes come in exactly where they’re most needed.  

Ward-level vote counts are from the Milwaukee County Clerk at 7pm last night  and the archived version from the count as it stood on election night . 

This idea came from Spotted Toad, who’s been doing great work on this too. I’m looking at Presidential, Congress, State Senate and Assembly races. One way to look at what happened is to compare the percentage increase in votes for Republican Candidates versus Democrat candidates within each ward after election night.

For instance, suppose the Democrat candidate vote total went up 200% from initial counting to Thursday night. How much did the Republican vote total go up? If the distribution of votes before and after is the same, the percentage gains for each group should be similar, regardless of who was ahead.

This is very different from the normal reason where candidate totals in the entire state might change as counting goes on, as different reports come in from other parts of the city. That just shows that wards differ from each other. Rather, we’re testing whether the *same ward * should continue to find the same distribution of votes before and after Tuesday night. 

In other words, if the before and after distributions were the same, as votes come from the same pool, you’d expect that half the time, the Republicans got a slightly unlucky draw in the early votes, and end up improving their position (regardless of whether they ultimately win or lose). And roughly half the time, the Democrats should increase their votes by more. 

What actually happens? The Democrat candidate vote increases relative to the Republican candidate a crazy fraction of the time. The variable in question is percentage increase in Democrat vote totals for that ward (that is, the percentage change from Tuesday night to Thursday night), minus percentage increase in Republican vote totals. 

So a value above zero means that Democrat totals went up more than Republicans in that ward/race. A value of 500 means that the Democrats went up 500% in excess of the republicans (e.g. D votes grew 600%, R votes grew 100%). Here’s a graph of the histogram. 

You see an enormously right skewed distribution –tons of large gains for Democrats, very few gains for Republicans. Not only do Democrats very often increase more than Republicans, but when they do, it’s often by a colossal amount. 

Out of the 1217 ward/race combinations with non-missing early votes for both parties, 1037 saw relative increases for the Democrats, 37 saw relative increases for Republicans, and 143 were ties. Excluding the ties, the D “win” fraction here is 96.6%.  A remarkable feat!

Depending on how you assign ties, if this were a 50/50 coin (i.e. D and R were equally likely to gain relative to the other), the probability or p-value for this is between 10^-147 and a number Excel just lists as “0”.

So, this proves incontrovertibly that something about the count skews crazily towards the Democrats after 2am Wednesday. But it doesn’t prove what it is. Maybe they counted different types of ballots or something, but only starting at 4am. 

However, there’s one thing we can test – from which party’s votes is the weirdness coming from? We can answer things by looking at vote changes for other candidates – third party races, write-in candidates etc. 

We can be virtually certain that nobody is bothering to manipulate the vote totals for fringe, no-hope write-in candidates. These form a great placebo group – what might you expect the changes to look like for a group where nobody is manipulating the totals?

So let’s do the same thing as the earlier graph, but compare each part with “Miscellaneous”, which because the count is small, I aggregate together. I also limit the sample here to cases where there’s at least 5 votes for “Misc” in that ward by 2am Wednesday, to make sure that this isn’t coming from rounding (e.g. if you have only 1 vote, the minimum increase is 100%). 

What are we predicting to find? Well, if it’s the Democrat total that’s being wildly inflated, Democrats should also be increasing relative to Miscellaneous. Meanwhile, if Republicans are just being counted as normal, then their changes should look similar to the Miscellaneous Group.

And that’s basically what we find. First, Democrats vs Miscellaneous. Visually, the picture looks even more crazily skewed than the previous one. In terms of counts, Democrats improve relative to Miscellaneous in 520 ward/race observations. They tie 89 times, and Miscellaneous improves in relative terms just 3 times. That’s not a typo.

This corresponds to p-values between 10^-73 and 10^-177. The fraction of Democratic “wins” here (520/523), excluding ties, is a ludicrous 99.4%. 

So how do Republicans compare with Miscellaneous? It turns out that while they’re not exactly the same, they’re far, far more similar to each other than either is to the Democrats . Other than a few outliers (because “Miscellaneous” has very few votes in total, remember), the distribution is fairly symmetric around zero. 

In terms of counts, Republicans improve relative to Miscellaneous 179 times, Miscellaneous improves 251 times, and there are 74 ties. As a result, which p-value you get here depends enormously on how you allocate the ties. Give them to M, and it’s 10^-11. Give them to R, and it’s 0.55, or almost exactly chance (253 vs 251). 

Excluding ties, the R “win” percentage is 41.6%. So under some measures, they look slightly worse, but this ends up being affected by questions of rounding and the small vote totals for M. What’s incontrovertible is that D looks wildly, wildly different from either of them.

This is exactly what the null would predict, if votes before look like votes after. So this *does* roughly hold, but only when comparing Republicans vs Miscellaneous. This story is also inconsistent with the driver being something Trump did, like telling all his supporters to vote in-person. If so, why do changes in Miscellaneous votes look about the same? The important difference after Tuesday night, whatever you think it is, is coming on the Democrat side.

So maybe you’re wondering – are there reasons other than fraud that the ballots might be different before and after? If the ordering is random and they’re drawn from the same pool, no. But if each ward counts different types in a different order (those at 9am versus 4pm, or in-person versus mail-in), then this could happen. 

Whatever is making the vote distributions different before and after, it’s a factor that’s overwhelmingly just impacting Democrats, not Republicans. If you think it’s about in-person versus postal voting, you have to hypothesize that Republicans look kind of similar to Miscellaneous in this respect. This is possible, but not nearly as obvious. 

But there’s another more important aspect we can test here. In particular, if some of these Democrat increases are due to fraud, we would expect that the increases should be larger *when the fraud is more likely to impact the race. And since these include lots of down-ballot races like State Assembly Representatives, we have quite a lot of variation here. 

Sometimes the Democrat is way up after early counting, at which point it doesn’t matter much if they post big relative gains after that. But if the Democratic candidate is down early on, jacking up the total becomes much more important. I’m assuming that if the Party wants to rig votes, they’d also like to win as many races as possible for the least amount of rigging.

In other words, the comparison is now between two different races at the same ward. A Democrat voter comes to the ballot box or mailbox, and sees a number of races. For some, like President, it’s going to be a close call. For others, it might be a heavy favorite for the Democrat. 

The voter is a Democrat, so presumably he’s inclined to vote Democrat for both. We can compare within a given ward which of the two races showed bigger improvement for the Democrats in that particular ward after Tuesday night. 

Sure enough, the increase in Democrats relative to Republicans (the variable in our first histogram) is significantly higher when the Democratic race-wide vote share is lower during the early counting. In other words, within each ward, late vote counts break more heavily to Democrat in exactly those races where the change in votes is likely to affect the result.

How big is this effect? Well, one way to measure it is to see how many races it impacted. There were 8 races where Republicans were ahead on a two-party basis on Wednesday morning. By Thursday night, half of them had flipped to Democratic. By contrast, there were 19 races where the Democrat was ahead, and not a single one flipped to the Republicans. 

And again, let’s recall what we’re observing here. It’s not that the races flipped because suddenly wards that were known to be heavy Democrat strongholds started reporting in. Rather, more votes started coming in for Democrats relative to the ratio that was coming in for that exact same ward the previous night. Moreover, within each ward, the votes also skewed more for races that the Democrats looked like they might lose. 

Importantly, this finding is surprisingly hard to explain with the commonly cited reasons for Democrats pulling ahead overall. For instance, one of the claims is that mail-in ballots are counted late, and these are more heavily Democrat. In general, this doesn’t explain why within the same ward, some races later skew Democrat more than others.

The key part is that for each voter, the decision to take a mail-in ballot is common to all races. In other words, a single voter can’t vote for some races by mail, and others in person. So if your claim is that the overall skew to Democrats is a mail ballot effect, most versions of this explanation predict that all races should be equally affected.

To simplify the logic, consider a stylized example where all Democrats and Republicans vote straight ticket. More Democrats vote by mail, and these are counted late.  This would predict that Democrats overall would improve, but the expected improvement is the same for all races, regardless of whether the Democrat is ahead or behind. 

More ballots come in Democratic, they each vote for every Democrat, so all Democrats increase in the same percentage terms. This isn’t what we find. In the data, within a ward, the important races go up more than the unimportant races.

And this prediction, that all races should be equally affected, holds for a lot of other variations too. Does the answer change if every Democrat voter has a 90% chance of voting for each Democratic candidate, if this attitude is the same between Democrats who vote in-person versus those who vote by mail? No. The increase should be the same in all races.

The answer doesn’t even change if Democrat voters in general can’t be bothered as much voting for shoo-in candidates, and only cast their votes for tight races. As long as this instinct is the same in Democrats who vote by mail and those who vote in person, there should be no difference across races in how much they break late towards Democrats.

What you need is something complicated. Democrat voters can’t be bothered voting for candidates they like but who they know are going to win anyway, AND this instinct is somehow larger in Democrat voters who vote by mail than those who vote in person, AND there has to be a larger share of mail voting by Democrats overall. 

This may sound like a confusing and complicated explanation. And it is! That’s kind of the point. We’re now a long way from the simple explanation that Democrats vote more by mail. It’s not impossible, of course, and we can’t rule it out. There are other variants on this story, but if you think this is all about mail-in ballots, there has to be some difference *within Democrat voters* who vote by mail versus in person.

In other words, the bare fact is that races swung much more towards Democrats exactly for those races where the Democrats were down on Wednesday early morning. To explain this with mail-in ballots needs a very complicated story. To explain it with fraud needs a very simple story – you commit fraud more where the fraud matters more. 

This is why the evidence suggests fraud to me, but your mileage may vary here. I’ve tried very much to stick to the facts, because I don’t have any special ability to interpret the numbers above. Whatever is going in is crying out for explanation, and the simple alternatives don’t do it. To me, it looks pretty suspicious. 

A final question worth pondering. What should our null hypothesis be here? When we say “there’s no evidence of it”, we’re claiming “no fraud” as the null hypothesis. But as I’ve argued (by metaphor), the system of vote counting is so rickety and broken that this is an incredibly difficult null to justify. 

A metaphor for the likelihood of voter fraud, for people who insist that it's a conspiracy theory, or there's no evidence of it.

Suppose Amazon wanted to know how many packages it had. Packages were kept in warehouses all over the country. The system was different in every warehouse.

Some people need to move packages around, and there's a list of who is allowed to do that in each warehouse. But if you go in and say you're that person, nobody checks. If someone else has already done that for you when you arrive, you just get another package.

Some packages get driven around by people in their own cars, some get moved around by the post office, some by volunteers or low paid government employees, and in each case they're largely unmonitored - there's no clear record of which ones left or arrived.

Packages are, by common consent, valuable for people to take. But nobody investigates closely what happens in each place, and very rarely are package thieves caught.

For what package system other than "votes" would this be considered a reliable and acceptable system?

For what important corporate outcome, if you proposed this setup as a manager, would you not be fired?

If someone told you there was no evidence of package fraud, how plausible would that claim be?

I find the possibility of voter fraud entirely plausible, and that belief has nothing to do which party you think is doing it. At a minimum, I feel strongly that this possibility needs to be investigated more seriously than it is, given the evidence above.