One of the more dramatic recent developments in the world of finance has been the collapse of FTX – a multi-billion dollar crypto-currency exchange founded and run by American tech entrepreneur and celebrity Sam Bankman-Fried (or SBF).

The economics of cryptocurrency is not easy to understand, which makes understanding the collapse of FTX even harder. But in a nutshell, FTX and a sister company – cryptocurrency trading firm Alameda Research – stand accused of “fraud, dishonesty, incompetence, misconduct and mismanagement” that led to the loss of tens of billions in investor funds.

As the dust settles, commentators are asking what the FTX scandal means for the future of effective altruism, a philosophical and social movement inspired by utilitarian thought that was very closely linked to SBF. Leading effective altruist theorist William MacAskill played a role in lending ethical credibility to SBF and even connected him to potential investment partners.

Effective altruism aims to address humanity’s greatest problems using the most cost-effective, maximally beneficial interventions. Does the collapse of FTX reveal some underlying flaw in the effective altruist worldview? Or is it just evidence of the profound naivety of professional ethicists? These are pressing questions considering the influence that effective altruism has exerted in academia, philanthropy, and public policy.  

‘Worse than Enron’

FTX collapsed in early November after it was revealed that investor funds had been used to bail out Alameda Research. This move explicitly violated contractual agreements with investors and created a situation in which one failing financial operation was being propped up through investments from an equally troubled operation.

SBF maintains his innocence and has attributed the collapse of FTX to poor judgment and complex financial dynamics in the crypto-market. But investigations have unveiled massive financial irregularities in the way in which SBF financed his company. Alameda’s co-CEO Caroline Ellison – one of SBF’s business partners – has pleaded guilty to charges of wire fraud, conspiracy to commit commodities fraud, conspiracy to commit securities fraud and conspiracy to commit money laundering. As it turns out, Ellison and SBF were romantically involved – another ethical red flag in an already troubling narrative. 

Liquidator and new FTX CEO John Ray III says that “in his 40 years of legal and restructuring experience,” he had never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here”. This is coming from the guy who oversaw the liquidation of Enron.

FTX and effective altruism

The collapse of FTX is particularly awkward as so many public figures were linked to FTX in one way or another – either directly through financial dealings or indirectly through “donations” or involvement in SBF’s charity work. But perhaps one of the biggest losers coming out of this scandal is effective altruism.

SBF was an evangelist for effective altruism and built his reputation in part around a commitment to donate a substantial portion of his earnings to charitable causes championed by effective altruists. SBF ran a charity known as the FTX Future Fund, which had effective altruists such as William MacAskill on its board. Indeed, it seems that a major aim of the FTX Future Fund was to broaden the scope and influence of effective altruism.

SBF was a proponent of a kind of effective altruism known as longtermism. Longtermists argue that we ought not to be biased in our approach to social problems whether they occur now or will occur in some distant future. The idea builds upon an argument advanced by utilitarian philosopher Peter Singer in his 1972 essay Famine, Affluence, and Morality, which argues that physical distance ought not influence our judgment about our moral duties to other human beings. Longtermism argues that temporal distance also ought not influence our judgement about what we owe to others – be they people alive today or future generations. MacAskill defended this position in his latest book What We Owe to the Future.

More concerningly, it seems that MacAskill (and others) may have enabled some of SBF’s financial activities. Effective altruists secured funding to SBF’s early crypto operations and SBF hired effective altruists for his early ventures. There is published evidence that MacAskill introduced SBF to some of Silicon Valley’s most influential people (see, for example, this text exchange between Musk and MacAskill about SBF).

A failure to assess moral character and identify moral hazards

I recently read What We Owe to the Future and was impressed by MacAskill’s approach to existential risk and the great humanitarian problems of our times. It was an inspiring ambition: with the right data and foresight, we can deal with major problems facing our society like population decline and the prospect of a long-term energy crisis.

But MacAskill’s 2022 book has not aged well – in fact, it was out of date before it hit the bookshelves. That effective altruist thinkers have aligned themselves with reckless tech entrepreneurs like SBF exposes their embarrassing naiveite. MacAskill published a lengthy apologia on his Twitter page after FTX’s collapse. MacAskill said he thought FTX and SBF had been involved in financial misconduct and possibly fraud and expressed “shame” for any enabling role he may have played in SBF’s operations.

Some people think that SBF’s misconduct is a reflection of a fundamental flaw in the movement.

But Australian philosopher Peter Singer – who has been called the intellectual father of effective altruism – has argued that there is “no direct relationship” between what Bankman-Fried stands accused of and effective altruism.

It is hard to believe that SBF was driven by any philosophical framework given the flagrant character of the fraud that he is alleged to have carried out. We’re not just talking some minor fudging of the numbers, but rather a methodological misappropriation of funds right from the very launch of the FTX exchange in 2019. 

More plausibly, SBF used the squeaky-clean image of effective altruism to disguise his deceptive actions and reckless risk taking. It was a case of willful appropriation for the sake of crafting a false, do-gooder image rather than a direct enactment of the philosophy of effective altruism.

But the collapse of FTX exposes a catastrophic error of judgement on the part of effective altruists like MacAskill to identify SBF as a bad-faith actor. Leaving aside the glaring problems with SBF’s business model, SBF’s behavior and media antics were profoundly erratic and the culture at FTX headquarters in the Bahamas sounds sordid by all reports. Why didn’t MacAskill recognise this?       

It also exposes a failure to acknowledge the moral hazards and risks inherent in the means by which effective altruism pursued its charitable aims. Many are critical of the lack of regulation of cryptocurrency and argue that it has created a situation in which Ponzi schemes can flourish. Crypto has also been described as an enabler of organized crime. It is highly ironic that effective altruism would associate itself with crypto given that it is supposed to be an “ethical” approach to charity.

Effective altruists have been openly critical of religious charitable organisations given not only their commitment to controversial religious doctrines but also a supposed lack of transparency and a failure to bring about the greatest benefits given our limited resources. But time has shown that the supposedly independent and transparent effective altruist philanthropic movement is itself ethically compromised.

Back to virtue?

One of the common philosophical criticisms of utilitarian ethics is, namely, that it fails to recognise the place of moral character in our understanding of morality. Utilitarianism contends that morality is fundamentally about consequences and, namely, the maximisation of utility. The morality of acts is determined by the extent to which they measure up to this utility-maximizing ideal.

Perhaps the biggest lesson to be learnt from the FTX scandal is that moral virtue and character matter. We cannot limit our ethical lens to a quantification of outcomes and a maximization of benefits. Rather, we need to seriously think about the moral character of the actors involved and also the virtues or vices expressed in the manner in which we seek to achieve our goals. Someone’s charisma, intellectual acumen or entrepreneurial spirit are not enough to make them a good person. Nor is some vague commitment to donating a certain portion of one’s earnings to charity. Rather, one must be a person of virtue, and, specifically, ought to exhibit the foundational virtues of honesty, integrity, prudence, and justice that are essential if one is to contribute to the realisation of the common good.  

Conclusion

Peter Singer has downplayed the long-term impact that the FTX scandal will have on effective altruism. But the reputational damage for effective altruism of FTX’s collapse has been immense and it is hard to see the movement recovering any time soon. The carefully crafted ethical image that effective altruism relied on to gain support from university students, academics, and philanthropists has been gravely tarnished.

The focus of the movement now must, if anything, be inward-looking at how it can right the wrongs of its naive support for SBF rather than outward-looking at the rather ambitious attempts to avert so-called existential risks for humanity. In other words, its mantra should be “what we owe to those who trusted us” rather than “what we owe to the future”. What we need now from the effective altruist movement is a mea culpa and an acknowledgement that its methodology needs serious rethinking.