Sam Bankman-Fried, disgraced founder of a bankrupt crypto empire, was a big proponent of effective altruism. Does his deception reflect badly on the philosophy he claimed to believe in?
Even by the scam-riddled standards of crypto, the FTX collapse stands out.
FTX was founded in 2019 and grew to become one of the largest cryptocurrency exchanges in the world. At its peak, it claimed a million active users and was valued at $32 billion. That made its founder, the then 27-year-old (!) Sam Bankman-Fried, one of the youngest billionaires in the world, with a net worth estimated at $16 billion.
Sequoia Capital, a venture-capital firm which invested in FTX, published a fawning profile of Bankman-Fried in September 2022. It was dripping with flattery like this:
After my interview with SBF, I was convinced: I was talking to a future trillionaire. Whatever mojo he worked on the partners at Sequoia—who fell for him after one Zoom—had worked on me, too. For me, it was simply a gut feeling. I’ve been talking to founders and doing deep dives into technology companies for decades. It’s been my entire professional life as a writer. And because of that experience, there must be a pattern-matching algorithm churning away somewhere in my subconscious. I don’t know how I know, I just do. SBF is a winner.
This turned out to be a truly legendary case of bad timing. Barely a month later, FTX imploded spectacularly, taking its founder’s fortune with it.
It was a brazen, and not especially clever, scam. Bankman-Fried had been secretly siphoning customer deposits to his hedge fund, Alameda Research, which lost the money on bad bets. As soon as FTX customers tried to withdraw, doom was inevitable.
John J. Ray, the bankruptcy lawyer managing FTX’s liquidation, said that he had never seen “such a complete failure of corporate controls” in his career. The closest thing to a balance sheet that Bankman-Fried could produce was a shoddily slapped-together Excel file that literally had a cell labeled “Hidden, poorly internally labled [sic] ‘fiat@’ account”—with a balance of negative eight billion dollars!
A means to an end
What makes this more than an ordinary story of greed and hubris is Bankman-Fried’s stated motivation. As the Sequoia profile (since deleted, for obvious reasons) emphasizes, he was a proponent of effective altruism, the rationalist philosophy which says we have a responsibility to do the most good possible. It claimed that the colossal wealth he was accumulating was just a means to an end:
Not long before interning at Jane Street, SBF had a meeting with Will MacAskill, a young Oxford-educated philosopher who was then just completing his PhD. Over lunch at the Au Bon Pain outside Harvard Square, MacAskill laid out the principles of effective altruism (EA). The math, MacAskill argued, means that if one’s goal is to optimize one’s life for doing good, often most good can be done by choosing to make the most money possible—in order to give it all away. “Earn to give,” urged MacAskill.
…SBF listened, nodding, as MacAskill made his pitch. The earn-to-give logic was airtight. It was, SBF realized, applied utilitarianism. Knowing what he had to do, SBF simply said, “Yep. That makes sense.” But, right there, between a bright yellow sunshade and the crumb-strewn red-brick floor, SBF’s purpose in life was set: He was going to get filthy rich, for charity’s sake.
Prior to FTX’s collapse, Bankman-Fried gave away tens of millions of dollars: to media organizations, to politicians of both parties, to charities, to scientific researchers.
Now the recipients of his largesse are in an awkward position. That’s especially true for MacAskill himself, whose Center for Effective Altruism received almost $14 million.
Is this money the proceeds of a crime? If so, do these people have a duty to give it back? What does effective altruism recommend in a case like this?
Was the FTX scam motivated by effective altruism?
FTX’s downfall is a stain on effective altruism. That’s inescapable. The only question is how big the splashback will be.
If Bankman-Fried was cynically using the tenets of EA to burnish his image and attract investors, this would be a garden-variety affinity fraud. In that case, the only fault of his EA colleagues who took his money is that they didn’t ask enough questions about where it was coming from.
The more troubling possibility is that he believed it himself, and thereby deemed his actions justified. After all, if saving the world is your aim, any means ought to be acceptable—up to and including stealing money from people who foolishly expected to strike it rich gambling on digital tulip bulbs.
Bankman-Fried himself has an opinion on this. In a startlingly candid interview with Vox, he disavowed his previous statements on ethics, calling them a “dumb game we woke westerners play” so that “everyone likes us”.
However, for that reason, we shouldn’t rely on his own excuses and explanations of his behavior. If he’s admitted that he was lying before, why should we trust him now?
What’s allowable for the greater good?
I’m a utilitarian myself, and I believe that human happiness and well-being should always be the goal. Nothing about the FTX story changes that.
“For the greater good” is a principle that’s been twisted and misused to serve bad ends—but the same is true of literally every other philosophy and religion. Evildoers will grasp at anything to justify themselves.
This shouldn’t discredit the principles themselves if they’re fundamentally sound, and I believe this one is. Of course the greater good should be what we want! If the greater good isn’t the goal of your morality, then what is? The lesser good?
The key insight, which many utilitarians miss, is that human beings are fallible. We’re frequently mistaken in matters of fact, susceptible to flattery, and swayed by emotion. We excel at inventing clever rationalizations for why it’s morally right to do what serves our own interests.
That’s why our moral choices have to be tempered with skepticism and restrained by guardrails—core principles like honesty and transparency and fairness—rather than doing whatever seems best in the heat of the moment. That’s why theft and fraud aren’t acceptable, even if you plan to do something good with the money.
Likewise, I don’t believe effective altruism itself is disproven by this. We should donate to causes that yield the most good per dollar, like vaccines and clean water and anti-malaria bed nets, rather than vanity projects that make good photo-ops but create little or no improvement in anyone’s lives. That’s another fundamentally sound principle that isn’t marred by the bumbling of Ponzi scammers and crypto-bros.
If there’s a lesson we can take from Sam Bankman-Fried’s downfall, it’s that we should be intensely skeptical of people who claim their goal is to get rich so they can save the world. Lofty principles make an excellent disguise for grubby, self-serving motives. (We should’ve already learned this lesson from the mega-wealthy churches who claim their only desire is to save souls.)
All else being equal, if you’re a billionaire, it’s obviously better to give your money to worthy causes than to spend it on mansions and private jets. However, it would be better still to have no billionaires—in other words, a world without such extreme concentrations of wealth.
Massive inequality has a distorting influence on politics, making some people’s voices count more than others. A more equal world would inherently be more democratic. In such a world, people would be better able to advocate for their own needs, rather than depending on the paternalistic generosity of a few super-rich individuals who think they know what’s best for everyone.