Republican Game Theory In The Age Of Trump

The Michael Flynn situation is bad. Really bad.

This post will outline Paul Ryan’s game theory on whether to investigate the Flynn situation further and the implications on the Republican party.

Vox provides a good summary of the facts. Here’s the quick version:

1. In December, during the transition, Flynn had conversations with the Russian ambassador to the US. Flynn told Russia that Obama’s Russian sanctions — the sanctions for interfering with the US election — would be revisited.

2. The NSA has for a long time eavesdropped on phone calls with foreign ministers. Flynn never tried to claim ignorance about or illegality of the NSA’s surveillance mandate.

3. Private citizens cannot negotiate with foreign ambassadors. This is a federal national security law.

4. You could argue the negotiations themselves weren’t that big of a deal. That’s probably true, but it doesn’t matter. The Russians knew that Flynn violated a major national security law. The Russians could have used this to blackmail him. Democrats and Republicans alike are outraged because Flynn voluntarily put himself in this situation.

5. In January, VP Mike Pence asked Flynn about his phone calls with the Russians, and Flynn assured Pence that Flynn didn’t break the law. As more information leaked and the press demanded answers, Pence told the press that all phone calls were lawful.

6. About 3 weeks ago, then Attorney General Sally Yates informed the White House that Flynn had violated national security laws.

7. About 1 week ago, Trump was asked about the situation and claimed 100% ignorance.

8. The Washington Post finally verified all of the details as information continued to leak, and hours after reporting the whole story, Flynn resigned Monday night February 13th.

9. Just hours before Flynn resigned, Trump’s senior advisor, Kellyanne Conway, was on national TV saying that Flynn had the full faith and confidence of the President.

Moreover, Flynn is the 3rd senior Trump aide with close ties to Russia to lose his job over Russian ties. The others, Paul Manafort and Carter Page, stepped down during the campaign. At this point, it’s impossible to argue that Trump’s team hasn’t been in active conversations with Russians for months, perhaps years. Since US intelligence agencies have universally condemned Russia for years — long before the 2016 election — Democrats are rightfully calling for substantial investigations.

Even if you don’t believe all of the above to be true, or that it’s exaggerated, or overblown, Flynn’s resignation is an admission of guilt, and a gauge for the magnitude of the situation. Why else would he resign after 3 weeks on the job? He knew he was done for, and decided not to drag out the fight.

So the question is, what should Paul Ryan, Speaker of the House, do? Broadly speaking, he has three options:

1. Openly condemn Trump, start a rigorous investigation, and fan the flames.

2. Say lots of nice things about Trump, that Trump is great, that there’s some law or technicality that says Congress must investigate these sorts of matters as a standard practice, and that he’s sure the outcome of the investigation will be benign.

3. Say that there’s nothing to worry about, choose not to start an investigation, say as little as possible, move on, and tell everyone to focus on the traditional Republican agenda.

Ryan chose #3.

His decision signals that he’s concerned about the outcome of the investigation and the impact the Republican party. Indeed, the outcome could be catastrophic.

So how bad can “bad” be in practice?

Let’s map out a scale of bad things that could happen, from worst to best, for Republicans:

(Note that the House can impeach the President with a simple majority, but the Senate requires 2/3 to remove the President from office. Currently Republicans control the House 239–193 and theSenate is 52–48.)

1. The investigation definitively concludes Trump and the administration broke multiple national security laws, and Republicans in both houses of Congress cave and impeach and remove Trump from office. Although Ryan surely prefers Pence in the White House over Trump, this move would likely rip the Republican party in half or perhaps a 1/3–2/3 split between Trump’s base and mainstream Republicans. This would be an unmitigated disaster for Republicans. It could take a decade to recover. This situation is extremely unlikely though. Congressional Republicans have repeatedly demonstrated that they are ok with Trump’s constitutional violations (see the Emoluments clause of the Constitution). It feels inconceivable today that 19 Republican Senators would cave.

2. The investigation definitively concludes Trump and the administration broke multiple national security laws, and the House impeaches Trump, but the Senate doesn’t remove him from office since the 2/3 barrier is so high. Democrats, in a state of fury, would likely show up in unprecedented numbers for 2018 midterm elections and take both houses of Congress with significant majorities, but almost certainly not 2/3 in the Senate (only 1/3 of the Senate is up for reelection in 2018). Democrats in Congress would immediately try to remove Trump in 2019 for any number of constitutional violations. Even if Democrats get to 60 in the Senate in 2018, Republicans could still comfortably block a Trump removal, and likely would to maintain party unity. Democrats would investigate Trump incessantly in 2019 and 2020 and likely find more wrongdoing, but probably not enough to break Republican ranks. In an unlikely but bizarrely best case scenario, this could even create a window for another Republican Presidential candidate in 2020.

3. The investigation definitively concludes Trump and the administration broke multiple national security laws, but Ryan chooses not to impeach Trump. Although the pressure on Ryan would be immense, he’s already signaled that he’s ok with Trump violating the Constitution. The net outcome would look a lot like #2 as Democrats go to the polls in 2018 in a state of fury.

4. Ryan simply chooses not to investigate, probably loses control of Congress in 2018 because of Trump’s erratic behavior and Republican’s already slim control of both houses. Democrats stonewall Trump for 2019 and 2020, but the Republican party escapes relatively unscathed. They recognize their present opportunity is unique and try to push through as much as of their agenda as possible before 2019.

5. The situation turns out to be completely benign, and Trump and Republicans stick it to Democrats for being trigger happy with not-fully substantiated allegations.

Ryan thinks he has a real shot at #4. I do too. But even if #4 doesn’t happen, the next most likely are #3 and #2, which are bad but not terrible outcomes for Republicans.

The Ultimate Lie

There’s been one common theme throughout Trump’s campaign: that the political establishment in Washington is corrupt, and that he as an outsider can “drain the swamp.” Trump’s final campaign ad is the perfect distillation of this message.

There are many lies contained in this ad. But by far the most salient lie is that Trump somehow represents any notion of change or that Trump is an outsider in any capacity.

Donald Trump is only an outsider in the sense that he has never held formal political office. Beyond that, he is no more an outsider than Hillary Clinton or any of his Republican rivals from the primaries.

If the Washington elite have willfully ignored electorate’s will in favor of rich elites economic interests, we have no reason to believe that Trump will act differently. Consider:

1. He attends the same parties as the Clintons.
2. He inherited an organization worth approximately $200M.
3. He would have been better off investing in index funds rather than running the Trump Organization. He could have made more money from his wealth than from actually working.
4. He names everything he touches after himself. This is one of the defining characteristics of the elite class.
5. He lives in a gold-plated penthouse of one of the tallest buildings in Manhattan.
6. He started a foundation in his own name, and asked for donations from others, and then spent that money on himself. That’s exactly the corruption he accused the Clinton foundation of.
7. He used legally dubious mechanisms to avoid paying taxes for over a decade.
8. He has stolen from thousands of contractors — most of whom were poor or middle class.
9. He defrauded thousands of people who paid to learn from him.
10. He’s been involved in over 3,500 lawsuits. This number is simply so staggeringly large that the only viable explanation is that he’s screwed over thousands of people whom he’s worked with.
11. He cheated on his 1st wife with who would become his 2nd wife. And he dumped his 2nd wife to marry a model who is 24 years younger than him. Trump has no interest in his family or children, only in sex with beautiful women.
12. While he was wearing a microphone, he bragged about how he could sexually assault women precisely because he was a celebrity.

How many middle-class men and women in this country have had the privilege to live a Trump-like lifestyle? Exactly zero. Trump has been a privileged, arrogant, insider who leveraged his money, power, and connections to detriment of those around him. He is the quintessential definition of insider.

Trump has made it clear that there’s only one thing he cares about in life: Donald Trump. At no point in his 70-year life has he shown a genuine, prolonged, material interest in helping or supporting anyone other than himself and his immediate family. Instead, he has gone out of his way on thousands of occasions to take advantage and harm those who were less fortunate and less capable than himself.

Yet, Trump presented himself as the only option that can help the common man from the tone-deaf Washington elite. And the media simply regurgitated Trump’s story and treated it as fact when his narrative couldn’t have been anything further from the truth. Trump positioned himself as anti-establishment. The media utterly failed to highlight that the entire foundation of Trump’s campaign was baseless and false. But Trump kept on repeating his story, and the media and the electorate came to believe that Trump somehow represented change when in fact nothing could be further from the truth.

In the weeks since Trump won the election, we can already see that Trump never intended to drain the metaphorical swamp. He is filling his cabinet with long-serving, establishment Republican figures. I understand it’s impossible to appoint 1,200 outsiders into the federal government in two months. But Trump is appointing establishment Republicans to most of the highest cabinet positions:

Chief of Staff — former RNC Chair Reince Priebus.

Defense — General James Mattis — a former general who was active in the 2003 Iraq Invasion. Congress actually has to give him a special pardon to serve.

Treasury — Steven Mnuchin — a former Goldman Sachs executive.

Health and Human Services — Tom Price — a six term congressional Republican.

Commerce — Wilbur Ross — a billionaire investor who has repeatedly bought out companies, fired staff, and milked the companies for profits.

Attorney General — Jeff Sessions — a Republican senator who was rejected for a federal judge role because he said that the KKK was better than marijuana.

Head of CIA — Mike Pompeo — a congressional Republican who has investigated Hillary Clinton over half-a-dozen times and found nothing of substance.

Transportation — Elaine Chao — wife of Republican Senate Majority Leader Mitch McConnell, and Labor Secretary under George W Bush.

Trump is in no way draining the swamp. He is not acting in the interest of the middle class. Instead, he’s appointing his friends and loyalists into positions of power, and preparing to give himself and the elite class of the US huge tax cuts while gutting the social safety net for the poor and lower-middle classes. He is actively trying to enact policies that will be detrimental to his base: the white working class.

By virtually every measure, now is the best time to be alive in the history of the world. This has been noted by many, including Warren Buffet and President Barack Obama. The Internet has dramatically expanded educational opportunities for everyone; people have more time to enjoy leisurely activities than ever before; medicine is saving more lives than ever before; humanity is on a path to automate almost all physically back-breaking work; globalization is lifting billions of people out of poverty.

Do not believe that Trump is the solution to America’s problems or to very real plight of working class. He doesn’t give a damn about you, your family, or this country. On thousands of documented occasions, he has made it clear that he only cares about himself.

Conspiracy Theories Don't Scale

Donald Trump is promoting yet another conspiracy theory. This time, he’s suggesting that the economy itself is a sham. He’s asserting that:

1. Janet Yeller, Chair of the Federal Reserve, has been a puppet of Obama, and that Obama has instructed her to keep interest rates artificially low to bolster the economy.
2. Unemployment figures reported by the Bureau of Labor Statistics (BLS) are outright and knowingly false. Trump suggests that the actual unemployment rate is over 40%, whereas the figure reported by the BLS is about 4%.

This isn’t the first conspiracy theory that Trump has promoted. He continues to deny the impact of carbon and climate change, he continues to state that Obama is a Muslim that wasn’t born in the United States, that the electoral system is “rigged”, among many other accusations.

There are lots of problems with conspiracy theories. But there’s a common thread I’ve observed in most of them: conspiracy theories don’t consider the challenge of human coordination and human propensity to leak facts. As a result, conspiracies don’t scale.

What do I mean by “scale?” Let’s look at a few high profile examples:

Enron — it the wake of Enron’s collapse, the SEC learned that only a handful of individuals who really knew what was going on prior to the collapse: Chairman Ken Lay, CEO Jeff Skilling, and CFO Andy Fastow. It seems that 1 or 2 of Arthur Anderson’s (Enron’s auditing firm) partners had some inclination of what was going on, but not more than that. On the eve of Enron’s demise, which ultimately destroyed tens of billions of dollars of value, only a handful of people knew knew the truth.

Bernie Madeoff — Bernie’s children turned him in after he admitted to them in private that his entire wealth management operation was a Ponzi scheme. Not even his children, both of whom were senior executives at the firm, knew of any fraud. In the investigation afterwards, it was discovered that Bernie ordered two junior staff members to produced fraudulent investment reports when clients requested redemptions. In a $65B fraud case — the largest in history — only ~3 people knew what was going on, and it’s likely that only Bernie knew the true extent of fraud.

9/11 — All together, only 15–20 people were involved in the planning of the 9/11 attacks. Of those, approximately 8 were pilots who actually flew the planes. No more than 10 others were involved. Based on what we know, the pilots didn’t even know what their targets were until weeks before the attack. All the pilots knew was that they were being recruited for a secret mission. Only a handful of Al Queda leaders actually planned the operation.

When you hear statements that fly in the face of common sense, the simple litmus test to think through is is “How many people would have to be lying for this to be true?” If that number exceeds 20, it’s likely a conspiracy theory, and nothing else. This is especially true when conspirators know that the truth is incriminating. As the number of people involved in a scandal grows, the truth will eventually leak. It’s simply human nature.

Let’s look at some of Trump’s claims through this lens. How many people would have to be lying for Trump’s statements to be substantiated?

False unemployment numbers from the BLS — dozens, if not hundreds of people work on these reports each month. There is a lot of transparency provided during the process. The process itself is scrutinized by many others. All together, hundreds of people are involved in this process, and it’s ongoing. It never stops. There is simply no way that hundreds of people are keeping secrets on this issue over the last 8 years of the Obama administration.

Climate change — even if you ignore all of the independent research done on the subject and only read the research of the EPA, the data is clear: climate change is real. The EPA has published dozens if not hundreds of reports on the issue, which represent the culmination of hundreds of researchers working for thousands of hours. There is simply no way all of these highly knowledgeable and intelligent researchers are producing reports suggesting there is a problem when in fact there isn’t one.

Electoral fraud — when Trump’s polling numbers began to dip in early August, he began to hint that, if he loses in November, that people should suspect that the electoral system is rigged. This statement is utter nonsense. Since votes are reported on a county basis to the state level, then if there were to be any fraud, state and county level officials would have to coordinate. Hundreds of county level and dozens of state level staff would have to knowingly commit fraud to make sure the numbers added up in plausible way to move the needle in favor of one candidate. There is no way that this many people can plan, in anticipation of losing, to adjust their votes, and to coordinate in real time on one day. It is simply not possible.

Conspiracy theories don’t scale. So please, when you hear people call out organizations, ideas, or movements as frauds, please just think: if this theory were to be true, what would it take to be true? If more than 20 people would have to conspire to make it so, then it’s overwhelmingly likely that the theory is false.

A World Divided... By Tech

I contend that this is the single most important graph in the world circa 2008 - 2020:

It explains many of the socioeconomic changes we’re seeing across the globe:

Nationalism and xenophobia in Western Democracies.

Massive growth of middle class in Asia, Africa, and Latin America.

The sharp accumulation of wealth among the world’s richest.

Why is this graph shaped the way it is? Why isn’t economic growth accruing more equally? Why is there a huge dip in the 70–90% range?

In short, the answers are technology and globalization. And globalization is a by product of improvements in technology. So really just technology. The only constant in the history of humanity is the progression of technology.

Beginning around 1980, it became economically efficient to begin manufacturing jobs overseas and in Mexico. This was due to a few major advancements in technology: shipping (in particular the standardization of containers), computers to coordinate global logistics supply chains (in particular databases to keep track of this stuff), the Internet (to empower people to communicate across the globe), and falling costs of plane and sea travel.

As the computer revolution continued, more jobs moved overseas: customer support, accounting, software development, and even law jobs. As the Internet has become ubiquitous, many traditionally local services have been abstracted to an API or a web interface whereby the user didn’t care who is doing the work on the other side of the interface. Video chat, faster Internet, and general acceptance of software interfaces have compounded this phenomena across many industries and services.

As these manufacturing and services jobs moved overseas, billions of people were lifted out of poverty. That represents the massive growth on the left 2/3 of the graph. The incredible economic good of globalization over the last 30 years cannot be overstated.

Conversely, most of Western society benefited from globalization on two fronts: lower prices for goods, and greater selection of goods — the breadth of consumer goods to choose from today is simply staggering. This wouldn’t have been possible without an exponential growth in cheap and varied manufacturing capability across the globe.

Since ~2000, we’ve seen software begin to directly replace humans: Google obviated the need for thousands of local ad salesman at media organizations, Expedia/Orbitz obviated the need for travel agents, etc. In the last few years, we’ve begun to see computers take on roles and responsibilities that were traditionally reserved for humans: managing asset allocation (Betterment, Wealthfront, others), accounting (inDinero), law (Ross Intelligence), sales forecasting (Clari, many others), appointment scheduling (x.ai, Clara), logistics scheduling (Service Max, many others). And there are many jobs that are on the verge of automation: self-driving cars/trucks (and their massive support and tertiary industries), automated and prefabricated construction, automated food preparation, and more. These technologies explicitly displace jobs in a clear and obvious way.

The people who have been losing their jobs to globalization and technology have been in the lower middle and middle classes of Western Democracies. They comprise the majority of the huge dip in the graph above.

These people are unhappy. They feel some combination of: being left behind, that their home country isn’t great anymore, that immigrants are taking their jobs, that overseas working are taking their jobs, and that “the system” is rigged.

Many of these people were raised to believe that as members of the middle class, they would lead healthy, financially prosperous lives. That they were destined to fulfill the American dream. But the world has changed, and these people are no longer competitive on a global scale. These people have been economically stagnating for years, if not decades. And they are pissed off.

This economic stagnation has given rise to the the far-right xenophobia that fueled Brexit and Donald Trump’s campaign. This same economic stagnation has also fueled the far-left Occupy Wall Street movement the Bernie Sanders campaign.

The underlying causes of these changes are accelerating. Software is getting better, faster. Global, cheap cloud computing and Internet access means that once software solves a problem once, it can automate the problem anywhere in the world instantly at marginal cost. Data science is just being unleashed and will change almost every industry vertical by automating human decision making. And robotics and battery technology are finally becoming capable of replacing humans in narrowly-defined mechanical tasks.

Economic inequality is going to get structurally worse before it gets better. As far as I can see, the only solution to this massive inequality will be government redistribution of wealth (which is of course, rife with problems). The “haves” are literally separating from the “have-nots.” This is happening across many dimensions, but particularly along two axes: geography and age. Cities are becoming overwhelmingly liberal and progressive, and the countryside increasingly xenophobic and conservative (see the US presidential election map and the Brexit vote map). The old feel left behind, are are vying for the to make the world the way it was once (hence the slogan “Make America Great Again”). These divisions are becoming more pronounced as Western Democratic societies are aging due to falling birth rates and tighter immigration policies since 9/11.

In 30 years, I suspect we’ll look back at 2016 as the symbolic beginning of a new socioeconomic global era (though it’s likely that the 2008 financial crisis was the real catalyst; it just took 8 years to manifest into mainstream global scale socioeconomic politics). The rise of Trump, Brexit, broad Euro-skepticism, xenophobia, and authoritarianism (fantastic 6 minute video) represent massive shifts in socioeconomic and geopolitical structures across the globe. The reverberations through other countries have yet to be felt, but it’s clear that tensions are high across the globe. The Spanish and Italians have had unemployment rates of about 20% for years, with no indication of improvement on the horizon. The Chinese economy is slowing as they finished picking most of the low hanging fruit associated with industrialization. And we are still only at the cusp of what machine learning will do to job automation.

I love Marc Andreessen quotes, but I think he understated this one: “There will be two kinds of people in the world. Those who tell computers what to do, and those who are told by computers what to do.” This quote misses a 3rd category: people who no longer have anything to do because computers automated their jobs. As software and automation permeate manufacturing and services jobs globally, the countries that were lifted out of poverty by globalization will be forced to reckon with poverty once again because of globalization and software. There will be massive instability as this unfolds over the next 20 years.

Those with capital are investing in tech, which begets more capital. The virtuous (vicious?) cycle of capitalism is fueling the right end of the graph. And there are no signs that this will change. The dip in the graph above is the perfect representation of this division. Tech is dividing the world.