Investing in Silence: Indifference

The road to hell is notoriously paved with good intentions. But sometimes, it's paved with bad intentions as well. In both cases, they rely on society’s cultural indifference to understand and to take action.

The late Norm MacDonald told a joke about Bill Cosby where he asked if someone thought Cosby drugging women would tarnish his legacy. After they said, “Of course”, he observed that he thought the raping would have a much bigger impact.

Norm’s joke underscores that we often focus on the wrong things. With all the current discourse about Epstein’s island, the “why did they do it?” seems to evade discussion. The alarming truth is that the Epstein Rapists raped because they could. While retribution and blame are important, broader culpability emerges when we realize that they raped because they wanted to and knew that they wouldn’t face consequences. Epstein first supplied an estate in Manhattan and then grew the practice to a private island. It points to a growing awareness by Epstein of the number of wealthy and/or notable men who wanted to rape young girls and his further realization that by having the island, like like-minded people joining a club, cultural disapproval by society at large could turn into cultural approval by their smaller society. With society at large unaware, and investigation and prosecution unlikely on a private island, Epstein, avoided legal deterrents and perverted cultural deterrents to enable rapists to rape.

And that phenomenon can work in reverse as cultural norms promulgated and accepted by small groups are neutered and/or reversed as the group grows. "Genocide is bad and must be prevented" seems a self-evident truth that has been arrived to after witnessing the genocide of the Jewish, Armenian, Cambodian, Rwandan, and Bosnian people amongst others in our history. Just our 20th century history caused the United Nations to establish and refine international laws and conventions to limit the actions of superior armies. Yet, in the past two years, rather than rely on those cultural norms, “mitigating circumstances” allowed for Europe and the United States to join the Israeli government in suspending those norms and ideals and sidelining the United Nations as a governing body, as an enforcing body, and as a standard for action. This blog post has no desire to litigate the details because the point of the conventions is that mitigating circumstances don’t exist. It believes that whether it’s Pol Pot, the Turks, the Germans, the Hutus, or the Serbs, history would have been better if the dominating force didn’t engage in collective punishment. Today, in Gaza, multiple organizations have determined that a genocide has occurred, thousands of Palestinians have died, more will follow, and a generation will suffer from malnourishment, even as their society must deal with the many orphaned. The complete lack of infrastructure makes hope hard, the rebuild long, and societal re-establishment a maybe impossible task. Adding to the problem for the well-meaning is the inescapable fact that American investors benefited from it all economically whether they knew it or not.

A majority of a typical individual investor's investment dollars are invested in an S&P 500 ETF or index fund today. These investment options are popular because they are inexpensive. They are inexpensive because they simply act as pass-through vehicles of ownership of the largest companies in the United States. Among the largest companies in the United States are defense companies who have sold the bombs and ammunition used to suppress and impoverish millions in Gaza and their stocks have appreciated from the increase in their armament sales. Even if we were previously unaware, we are the profiteers of the unfolding genocide.

Earlier this year, I read The Moral Economy: Why Good Incentives Are No Substitute for Good Citizens by Samuel Bowles. The takeaway was that incentives are no match for culture. A good manager, a good investor, a good policy maker should evaluate and nurture Good culture if they want good outcomes - rather than trying to micromanage incentives. It’s, I think, an important lesson and one that conscientious investors should adopt. If we care about companies not being evil, we should expect it of them and of ourselves. For White Brook that means helpign clients invest in the index, but one that excludes defense companies. It seems like the absolute least we can do.

Individuals, when thinking about their investments, have a tendency to shift modes, from a person who is generally trying to do their best in the world, to a version of homo economicus they read about in a textbook or article or saw on tv. Compounding the problem is that investment professionals that many investors rely upon are in the habit of conflating black and white to see green for what amounts to a few extra pennies. We’ve all done it, few of us have learned from it. After all, we're an industry that took a morality tale about the evil of greed, in Wall Street, and turned it into a rallying cry and ideal that multiple highly successful firms were built around. For many investors however, what I outlined above are unintended or unknown consequences of our investments and our actions. If we want better outcomes in the world and for ourselves, it's important to not leave our moral selves behind and do what we can to be better.