Yes, Kevin Hassett Would Be a Very Bed Fed Chair

Lying liars who lie and knowingly and deliberately say whatever—whatever—lies they believe are to their immediate advantage are not the kind of people who should chair the Federal Reserve. Any questions?

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Time to fire up the WayBack machine and run the videotape. Why economists shake their heads and sigh when Kevin Hassett’s name is brought up, and talk about how great a waste of it all it is.

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Back before 2000, Kevin Hassett and James Glassman spent their days telling lies.

Back then, they spent their days telling lies about what bog-standard present-value finance calculations said was then the “fundamental” value of the stock market.

They claimed that:

  • IF—if, which nobody does—you believed the appropriate equity risk premium vis-à-vis US Treasury bonds was zero,

  • THEN the fundamental-value price-earning ratio for stocks should be 100,

  • and the “fundamental” value of the Dow-Jones Index was not its then-current 9000,

  • but four times as much: 36000.

  • HENCE you should be happy going all-in on stocks at anything up to four times their then-current price.

  • And in fact you should go all-in, or mortgage your house and buy even more, in order not to miss the near-term 300% profit from being all-in the DJIA as it imminently converged to what they claimed was its fundamental value over the next three to five years after 1998.

That was the title of their book: Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market <https://www.amazon.com/Dow-36-000-Strategy-Profiting/dp/0609806998>. That was their claim: “our analysis justifies a Dow of about 36,000—not in five or 10 years, but right now.”

(Relative to inflation, a DJIA of 36000 in 1998 corresponds to 72000 today; relative to the size of the economy, A DJIA of 36000 in 1998 corresponds to 108000 today; relative to corporate profits, a DJIA of 36000 corresponds to 180000 today. The DJIA this AM is one quarter of that, just as the DJIA back in 1998 was ¼ of what it was then. The Glassman-Hassett valuation claims were off by a factor of four then. Their methodology is still off by a factor of four now.)

Of course it did not happen.

If you had bought the Dow at 9000, and if you were forced by liquidity to sell at the trough over the next half-decade, you did not quadruple but instead lost 20% of your money.

If you had been unlucky enough to buy at the peak and be forced by liquidity to sell at the trough, you lost 40%.

When challenged by people who said that their math seemed, wrong, Glassman attempted a partial walk-back:

I never made such a claim [of a quadrupling]. I said that dividends are probably a lower bound for cash flow to investors and that official earnings are probably an upper bound…. Accept[ing] your definition of cash flow as dividends… the market is not overvalued…. The market should be roughly 50 percent to 100 percent higher [than he currently is]. Using the outer bound (reported earnings), the market should be 300 percent higher…

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Which partial walk-back, of course, involved a big bold-faced lie.

Glassman (and Hassett) had not claimed that the fundamental value of the Dow then at 9000 should be in the range of 13500 to 36000—“roughly 50 percent… higher… [to] 300 percent higher”. Glassman and Hassett had claimed that their fundamental analysis: “justifies a Dow of about 36,000–not in five or 10 years, but right now.”

Hassett, to my knowledge, did not at the time attempt even a partial walk-back when challenged.

The extremely sharp Clive Crook <https://web.archive.org/web/19991231025452/http://www.slate.com/Dialogues/98-04-29/Dialogues.asp?iMsg=1> called Glassman and Hassett on this at the time:

You’re wrong, plain wrong…. I can imagine reasons for thinking the Dow should be at 36,000… [that] would be logically admissible.

This is not the kind of argument you’re making.

Your reasons for believing that the Dow should be at 36,000 are wrong in the same way that it’s wrong to say two plus two equals five.

That, in fact, is almost literally what you are saying. According to you, my mistake is that I’m implicitly predicting zero real growth in earnings and dividends. Indeed, you think the market as a whole is making the same error. The fact that earnings have grown faster than inflation for decades is “little understood,” you say. If only this record of growth were recognized, the Dow would be already be priced at 36,000…. Can you seriously believe that this has been going on decade after decade without the market’s noticing? Doesn’t that strike you as just a little unlikely? Of course it’s been noticed, very much noticed–so adequately noticed, in fact, that the prospect of real growth in both earnings and dividends is already fully priced into the market.

You fail to see this because you haven’t understood your “simple finance formula.” To get your estimate of 36,000… where your formula says “payout,” you have taken this to mean earnings…. [But] if companies pay out every cent of their profits to shareholders… how will they… grow?… Growth requires investment, and that must be paid for by stockholders…. In the real world, of course, this is exactly what they do. Companies pay only some of their earnings out as dividends. As a result, they grow…. The right measure of value is the sum of discounted dividends. This fully captures the effect of capital appreciation because dividends are themselves growing along with the worth of the company…

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Crook was and is entirely correct, except in one thing.

That one thing? I know that in Hassett’s case it was not “because [he had] not understood [his] ‘simple finance formula’…” There is no “not understood”. Hassett understood and understands the Gordon fundamental-valuation finance equation very well. (Glassman, I am not so sure.)

The “payouts” Gordon fundamental-valuation equation (a) takes current dividends as payouts and divides them by the difference between the required rate of return and the growth rate of dividends. If you want to use earnings rather than dividends, there is an alternative “resources” equation you can use (b) which takes earnings as resources and divides them by the required rate of return. Resources can either be paid out now, or used to produce growth and so higher profits that can be paid out in the future. Add the value of (a) current payouts to the value of (b) growth produced by investment, which is © the difference between resources and payouts. When you do that addition “payouts” cancel, and you are left with the value of resources. (And you then have to add on a term capturing the company’s ability, if it has one, to make investments with above-market returns.)

Glassman and Hassett took the “resources” from (b) and pretended they were the “payouts} from (a).

They thus double-counted retained and reinvested earnings both as a source of current cash flow and as a driver of profit growth. A given dollar of earnings can be either cash-flow paid out to investors or reinvested to drive profit growth, but not both.

THIS IS NOT SUBJECT TO DEBATE.
THIS IS 2+2=5.
IT IS A LIE TO CLAIM THAT THE TOTAL RESOURCES A COMPANY HAS TO DEPLOY FOR PAYOUTS AND FOR INVESTMENT ARE PAYOUTS, AND SHOULD BE VALUED AS PAYOUTS, PLUS ASSUMING GROWTH WILL CONTINUE.
IT IS A LIE TO CLAIM THAT THIS IS AN ISSUE ABOUT WHICH THERE CAN BE DEBATE.

In Hassett’s case, at least, this is a deliberate, conscious, malevolent lie.

Plus—plus!—to get to their Dow 36000 number then, they had to make the highly counterfactual assumption that the equity risk premium really ought to be not smaller but zero. And, to justify the prediction that the DJIA would go to 36000 over the next three to five years, that whatever factors had been causing the actually-existing risk premium were about to completely stop.

Why did Glassman and Hassett tell these lies back then?

Nobody could ever advance an explanation other than that they wanted to get noticed and sell books.

And Hassett, at least, has not changed his MO in the past three decades.

Here he is, still telling lies, today about the Bureau of Labor Statistics:

Marcus Nunes: The “Smiling Contrarian” <https://marcusnunes.substack.com/p/the-smiling-contrarian?utm_source=post-email-title&publication_id=274427>:” ‘who is a strong contender for Fed Chair!… The president who tried to overthrow an election is now threatening to undercut or destroy—with similar accusations of “rigging”—any institution that could document his failures or malfeasance. The BLS, who dared release bad employment news, is the latest target.

Last Friday, the Bureau of Labor Statistics reported that job growth during Trump’s term was much lower than previously estimated. Trump responded by firing the bureau’s commissioner, Erika McEntarfer. He claimed, baselessly, that the numbers were “rigged,” and he falsely alleged that the bureau had waited until after the 2024 election to issue a similar revision of job numbers under Joe Biden.

Donald Trump: “In my opinion, today’s Jobs Numbers were RIGGED in order to make the Republicans, and ME, look bad — Just like when they had three great days around the 2024 Presidential Election, and then, those numbers were “taken away” on November 15, 2024, right after the Election, when the Jobs Numbers were massively revised DOWNWARD, making a correction of over 818,000 Jobs — A TOTAL SCAM. Jerome “Too Late” Powell is no better! But, the good news is, our Country is doing GREAT!…”

Kevin Hassett, the director of the National Economic Council, a possible (even likely) appointee for Fed Chair made up a story to keep himself in Trump´s good graces.

Hassett knows the bureau isn’t partisan. He also knows it revised Biden’s job numbers two and a half months before the 2024 election—not afterward, as Trump pretended. In fact, BLS delivered the bad news about Biden’s numbers on August 21, 2024, in the middle of the Democratic convention. That was the day before Kamala Harris delivered her acceptance speech. The timing for Democrats couldn’t have been worse!

On Meet the Press, following the release, Kristen Welker asked Hassett whether he had evidence that the BLS numbers were “rigged.” Hassett said yes. The “hard evidence,” he told Welker, was that the revision of Biden’s numbers “came out after he withdrew from the presidential campaign” on July 21, 2024. Hassett said this was part of “a bunch of patterns that could make people wonder” about the bureau’s trustworthiness.

He corrected Trump. The revisions did not come after the election, but more than two months before, in August. But to give it a “Trump spin”, he said that it came after Joe Biden dropped out of the race! (as if that were relevant!).

After the Sunday shows, critics chastised [this is good] Hassett. He could have backed down. But on Monday, when CNBC’s Andrew Ross Sorkin pointed out that the 2024 revision preceded the election, Hassett repeated the same maneuver. The revision “was after Joe Biden had withdrawn,” Hassett told Sorkin. He concluded, “It’s a massive failure of our data agencies to be making willy-nilly changes that are difficult to understand and often have apparently partisan patterns.”

What you notice, in all those interviews, is that Hassett is always smiling, even when h’s speaking!

Hassett became a “household name” when he co-wrote (with James Glassman) the book Dow 36,000 at the peak of the dotcom bubble in 1999, saying stocks could “quadruple tomorrow and still not be too high”.

Alas, the Dow soon sank into a 10 year “drought”, bottoming when the “Great Financial Crisis” hit.

Hassett resurfaced as markets bottomed, accusing President Barack Obama of declaring a “war on business” and warning: “No wonder that markets are imploding around us.” Within weeks, an 11-year bull market began, only interrupted by Covid-19, as the Dow was on the cusp of breaking above Hassett’s 36000 mark!

The chart illustrates.

All in all, for Trump, Kevin Hassett seems the “perfect Fed Chair appointee”!…

Money Fetish
The “Smiling Contrarian”
The president who tried to overthrow an election is now threatening to undercut or destroy—with similar accusations of “rigging”—any institution that could document his failures or malfeasance. The BLS, who dared release bad employment news, is the latest target…
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Back before 2000, I thought that Kevin Hassett had close to destroyed his career by showing that he was a person who was willing to tell bald-faced lies about his analysis, double-down when challenged, and then double-double-down again when challenged more, for no reason other than to sell books.

I might have said some things to people who had been on the faculty of the University of Pennsylvania when Hassett went to graduate school there about unprofessional behavior of some of their Ph.D.’s, and how this might reflect some deficiencies in the “moral education” part of the curriculum. I might have said to Allan Meltzer that it was unprofessional of him to have given the book a blurb, even though Allan claimed that his “every stock owner should read this book” blurb had been intended as snark. (Which, I must say, they might have taken with very good graces.)

But it did not matter for his career as a hewer of wood and a drawer of water for Republican politicans.

Professional Republican politicians seem to have been attracted to an “economist” with a demonstrated reputation for being willing to say absolutely anything for some short-term benefit he perceived. Various Presidents and Boards of the American Enterprise Institute similarly had no problem with Hassett. He had a career. His willingness to say whatever he thought he was incentivized to say was a thing people on the other side of the aisle found very pleasing.

Never mind that his elders and peers in academia would always shake their heads and sigh when his name came up. Never mind that in the circles in which I moved and move, the principal reaction to Hassett is a kind of pity—a waste of talent, and someone who cannot but look back at his life and see a life wasted. The general reaction seemed to be to judge Hassett more-or-less as Platon had his character Sokrates argue in the Politeia <https://www.perseus.tufts.edu/hopper/text?doc=Perseus%3Atext%3A1999.01.0168%3Abook%3D9%3Apage%3D577> that we should judge a tyrant: as a person who was actually in the condition of the most wretched slave. And we should lament the waste of it all. Why? Because for Kevin, as for the tyrant:

His soul [must] be filled with relentless groveling and no choice. The best and most reasonable parts of his mind are slaves to a small part of it. And that small part of his mind, which is the worst and the most frenzied, ruthlessly bosses him around… You [have to] say that that is the lot of a slave…. That is the mind that, least of all, does what it truly wishes. Rather, always yanked around by the relentless itch of neediness, it ends up tangled in chaos and regret…. He is doomed to be perpetually hungry, tormented by cravings he can never satisfy…. more than half-mad by the internal yelling of his own urges…. Such a person is far and away the most wretched one possible…

Refer a friend

And if the mental imbalance of such a person is such that he does not recognized how pitiable his situation is? Then that only makes him more pitiable still, and it all even more of a waste. One is driven to give him the advice given by Dean Wurmer in Animal House: “that is no way to go though life, son…”

And it would be really, really unfortunate for the country and the world were any senator to vote to confirm a Kevin Hassett as Fed Chair.

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Apple Computer's Different-Drummer "AI" Path Considered

The way, financially, for a company to win the ChatBot game in a profitability sense is—probably—not to play. Cupertino’s AI contrarianism of betting on the device, not the cloud; and on the routinized use-case, not the wide-open ChatBot, is—probably—not just defensible as a bet, but a bet at favorable odds…

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This at least looks, to me, relatively clear: Apple’s AI strategy is not a problem.

The company’s bet on on-device channeled intelligence, its focus on privacy and user experience—are all, I think, not just defensible but shrewd choices.

The trouble is execution. Siri is still a punchline. Apple’s AI features, when they appear, too often feel like demos or afterthoughts. It doesn’t just work. And what they have actually shipped, if it were to work, would lead to the reaction: why is this? magic that made the iPhone, AirPods, or Apple Pay category-defining. The major risk for Apple is not that it’s playing the wrong game, but that it is not playing hard enough. If Cupertino wants to cash in on its favorable-odds bets, it needs to kick its AI execution up not one, but two gears—fast. Otherwise, all the strategic discipline in the world will amount to little more than a footnote in a case study on missed inflection points.

Back when I was a wee’un, Michael Spence once said from the front of the classroom: “if this were a real business-school rather than a liberal arts class, we would now spend twice as much time on how a corporation would proceed to structure itself to execute this corporate strategy as we have on how a corporation should formulate it, but we are on the north side of the river, and we need to move this course on…” Smart words. Very smart man.

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The very sharp (except for his beliefs that advertising-supported business models are good things in the Attention Info-Bio Tech Economy, and except for the belief that near-monopolies established by winning the game of advancing infotech should then be allowed to flourish largely free of governments’ cutting them back forever) Ben Thompson reviews Apple Computer’s “AI” strategy. He says smart things:

Ben Thompson: Cook’s AI Comments; Apple’s AI Strategy <https://stratechery.com/2025/apple-earnings-cooks-ai-comments-apples-ai-strategy-redux/>: ‘The first takeaway is how relatively tiny that [Apple total capital expenditure] number is compared to Apple’s Big Tech peers; $4 billion annualized CapEx is less than half of how much Google increased their CapEx on their earnings call for this fiscal year…. What is the roadmap?… From Cook’s opening remarks… “We see AI as one of the most profound technologies of our lifetime…. Apple has always been about taking the most advanced technologies and making them easy to use and accessible for everyone…. We’re integrating AI… in a way that is deeply personal, private, and seamless, right where users need them. We’ve already released more than 20 Apple Intelligence features, including visual intelligence, cleanup, and powerful Writing Tools. We’re making good progress on a more personalized Siri…. Apple Silicon is at the heart… [of] powerful Apple Intelligence features… run[ning] directly on device…. Our servers… deliver even greater capabilities while preserving user privacy through our Private Cloud Compute architecture. We believe our platforms offer the best way for users to experience the full potential of generative AI… right on their Mac, iPad, and iPhone…”.

Cases and content that Apple is uniquely positioned to provide and access… not is any sort of general purpose chatbot…. [but] focused on specific use cases… [in a] problem space that… is constrained and grounded… where it is much less likely that the AI screws up… a space… useful, that only they can address, and… “safe” in terms of reputation risk. Honestly, it almost seems unfair — or, to put it another way, it speaks to what a massive advantage there is for a trusted platform. Apple gets to solve real problems in meaningful ways with low risk, and that’s exactly what they are doing…

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I think this gets it right.

  • Apple avoids paying the NVIDIA tax…

  • Apple also avoids paying inference-cloud bills to a large degree by putting a large share of Apple Intelligence on-device…

  • Apple doesn’t have to spend money competing in the ChatBot market…

  • And Apple makes two favorable-odds bets:

    • One bet is that on-device (with occasional reaching out to Apple private clould) low-latency privacy-secured actual doing of useful tasks will be something very valuable, and something where Apple can maintain at least parity with Android…

    • A second bet is that the other, “ChatBot”, side will be a case where the fact that people are using OpenAI’s or Google’s or FaceBook’s or Anthropic’s ChatBot (because Apple does not have one) will not really matter. As Thompson says lower down, “we will still need devices to access AI, and Apple is best at devices…”

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The so-called “NVIDIA tax”—the premium all other platform oligopolies are now paying, and will continue to pay, as NVIDIA exercises its pricing power in a moment of panicked, must-have-now AI infrastructure demand—is, right now, a huge deal that Apple very much wants to avoid paying. The scale is enormous: NVIDIA’s gross margins have soared to the 70–75% range, a figure that would make even the most rapacious of monopolists blush. The A100 and H100 GPU chips—the backbone of large-scale AI inference and training—are selling for $25,000 to $40,000 apiece, and sometimes more in spot markets, with actual production costs a tiny fraction of that sum even as NVIDIA has to rely on TSMC which has to rely on ASML as essential sole suppliers. The result? Even the largest hyperscalers—Microsoft, Google, Amazon, Meta—are funnelling billions and tens of billions a year into NVIDIA’s coffers, both because Jensen Huang’s team has invented a better mousetrap, and because his team has has, by force of early vision and relentless execution, created a de facto standard and an ecosystem (CUDA) that locks in demand and raises switching costs to vertiginous heights.

The magnitude: NVIDIA’s data center revenue for the most recent fiscal year exceeded $50 billion, up from $15 billion just two years prior—a threefold increase, almost entirely attributable to AI demand. It is not as though TSMC has tripled its fab throughout at actually making NVIDIA’s chips, after all. The company’s market capitalization now rivals that of the oil majors at the peak of their powers. For every dollar spent on cloud AI compute, a substantial slice—estimates range from 20% to 40%—is captured as economic rent by NVIDIA, rather than being competed away or reinvested in broader innovation. Why? Because Google, Microsoft, and Meta believe they must burn tens of billions a year on cloud-based AI.

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Apple, by contrast, has—so far—largely avoided this tax. By designing its own silicon (the M-series chips) and focusing on on-device inference, Apple sidesteps the need to rent vast fleets of NVIDIA-powered servers for AI workloads. Instead, it invests in its own private cloud infrastructure, powered by Apple Silicon, and keeps its capital expenditures at a fraction of the scale now required of its peers. This is not a detail. It is instead a huge bet that the locus of value in AI will, for its customers, remain at the on-device edge—not in the cloud.

The broader implication is clear: as long as the AI gold rush continues, and as long as CUDA remains the lingua franca of machine learning, NVIDIA’s pricing power will persist, and the tax will be levied on all who lack the will or the capability to defect. Apple’s escape from this regime is, I think, both remarkable and fragile. Should the center of gravity in AI shift decisively back to the cloud, or should NVIDIA’s lock on the ecosystem weaken, the calculus may change. But for now, the NVIDIA tax stands as a monument to the power of technological path dependence—and to the rewards of vertical integration, if one can afford it. And to the astonishing success of Apple Silicon as hardware.

Apple also avoids paying inference-cloud bills to a large degree by putting a large share of Apple Intelligence on-device—a strategic decision with both technical and economic resonance. Google, Microsoft, Meta, and Amazon have all built their AI offerings around cloud-based inference, which requires massive fleets of NVIDIA-powered GPUs—even for Google—humming away in data centers, racking up not only hardware costs but also ongoing operational expenses for power, cooling, and bandwidth. These costs balloon into the billions of dollars annually, with, given competition, no clear road to covering even their marginal costs.

Apple, by contrast, leverages its vertical integration and prowess in custom silicon to run as much AI as possible directly on devices—iPhones, iPads, Macs—using the M-series and A-series chips, with the marginal cost of inference is borne by the user’s own device invisibly in the monthly electric bill, not by Apple directly. By architecting Apple Intelligence to work “on the edge” Apple sidesteps the recurring cloud inference bills. It, too, is a favorable-odds bet that the future of AI for most consumers will, for both privacy and cost reasons, live primarily on their own devices.

Plus Apple doesn’t have to spend money competing in the ChatBot market, which feels to me like a repeat of the video-streaming wars. In those, every large media company took a huge amount of money and set it on fire, with YouTube and Netflix being the last ones standing and the only ones, I think, with the potential to be profitabe. Perhaps this is a windfall benefit from strategic discipline.

Perhaps this is luck.

In any event, there is a revealing contrast with its Big Tech peers. Consider the arms race underway among Google, Microsoft, FaceBook, Amazon, Open AI, and more: each is pouring billions and tens of billions into developing, training, and marketing ever-larger, ever-more-general-purpose ChatBots, all in the hope of capturing the next great platform shift in human-computer interaction. These efforts are not cheap. Training a state-of-the-art large language model (LLM) can cost hundreds of millions of dollars in compute alone, and that’s before you factor in the ongoing costs of inference, the armies of prompt engineers, the content moderation teams, and the relentless marketing spend to convince the world that your chatbot is the one to use.

Apple, by contrast, has chosen to sit this particular race out, while focusing its own engineering resources on tightly-scoped, privacy-preserving, on-device AI features that enhance the user experience without the reputational and financial risks of chatbot hallucinations.

This is a bet that the real value for Apple’s customers lies in seamless, reliable, and private AI augmentation, not in chasing the latest ChatBot hype cycle, in a world where the chatbot market is still searching for a sustainable business model.

Apple’s refusal to play is a bet, but at least for now it looks to me like a not-unshrewd bet.

There are really two bets. And I would not say right now that either is at unfavorable odds for Apple.

The first is that on-device, low-latency, privacy-secured doing of useful tasks—think: transcribing voice memos, classifying photos, summarizing messages, or even generating suggested replies—will turn out to be not just useful, but a key source of phone platform value. Gaining an edge here over Android because Google is chasing ChatBot ASI might well be a key differentiator. Maintaing parity with Android here would allow other differentiators to shine through. Here Apple is betting on its own silicon, its control of the hardware-software stack, and its reputation for privacy.

The iPhone, iPad, and Mac, running Apple’s M-series and A-series chips, are already capable of impressive feats of on-device inference, and the company is banking that users will prefer AI features that don’t require their data to be shipped off to some distant data center—especially in a world where privacy regulation and reputational risk are rising.

The second bet is that the “ChatBot” side of the AI market—where users interact with OpenAI’s GPT, Google’s Gemini, Meta’s Llama, or Anthropic’s Claude—will turn out to be a space where Apple’s absence will not matter much at all. Apple’s wager is that, as Ben Thompson puts it, “we will still need devices to access AI, and Apple is best at devices.” So long as the device remains the locus of user attention and agency, Apple can afford not to play, just as it decided not to play vis-à-vis Google search. Focusing its own resources on making the device experience seamless, private, and delightful might well be a better path than building for ChatBots what Safari is to Chrome, or what Google Maps is to Apple Maps.

Let others burn capital chasing the next shiny object, and then, if and when it matters, swoop in and integrate the best.

Apple’s AI playbook is refreshingly contrarian: say no to the chatbot arms race, double down on silicon, and let others light money on fire in the cloud. The “NVIDIA tax” is for other companies; Apple’s bet is that users want fast, private, on-device intelligence, not cloud-powered hallucinations.

But the problem isn’t the vision—it’s the follow-through. Apple needs to stop treating AI as a side project and start executing.

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Notes on SubStack These Days

The Substack Paradox: community, control, the myth of lock-in, golden handcuffs, platform power, writer agency, exit, & voice…

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I went to the SubStack Party at Shotwell’s Saloon <https://www.shotwellsbar.com/> in San Francisco’s Mission neighborhood <https://missionstreetsf.com/> last week. SubStack CEO Chris Best <https://substack.com/@cb > gave a little talk. I took notes. He said the right things.

I then took my notes and fed them into the skill-prompt I call “thucydides-speech” I have on my Dia Browser <http://diabrowser.com> installation. This is what came out:

SubTuringChrisBestBot: What is the real engine of our shared endeavor? It is tempting, in an age of digital marvels, to attribute success to the cleverness of algorithms, the robustness of code, or the magnitude of capital investment. But such attributions, while comforting to the technocrat and the financier, miss the mark.

The true foundation of Substack’s vitality is not the machinery humming in the background, but the active engagement, criticism, and care of its users.

Every bug report—no matter how minor—every complaint about statistics that refuse to align, every suggestion for improvement, these are not mere irritants, nor are they distractions from the “real” work of platform-building. On the contrary, they are the lifeblood of the collective project. Each is a signal, a pulse, a demonstration that the community is alive and alert, unwilling to accept mediocrity, and eager to shape the environment in which it dwells.

I say this is not mere rhetoric. The platform’s vitality depends, in the most literal sense, on the willingness of its writers and readers to invest not just their time, but their energy, and—dare I say it—their emotion, in making it better. If the users were to withdraw their attention, to resign themselves to passivity, the site would become a mausoleum of abandoned newsletters and silent comment sections. It is the ongoing, sometimes unruly, sometimes passionate, sometimes exasperated participation that keeps the platform alive.

It is easy, in the age of scale and automation, to forget this. The myth persists that progress is a function of size, that the larger the network, the more inevitable the improvement. But the history of human endeavors—whether in Athens or in San Francisco—teaches us otherwise. The real engine of progress is the community itself: the people who show up, who argue, who demand better, who offer their labor and their criticism in equal measure.

Substack’s achievements—such as they are—derive not from a passive audience, but from a citizenry of active participants. You are not mere consumers, here to be fed content by invisible hands. You are the authors of posts, the sources of critique, the shapers of the ecosystem with every comment, every suggestion, every act of engagement. The platform’s team is acutely aware of this; their appreciation is not a marketing ploy, but a recognition of dependence.

Let us not deceive ourselves: the economics of digital platforms may be driven by network effects and economies of scale. These are the iron laws of the marketplace. But the soul of any platform—its animating principle—resides in the feedback loops of care, critique, and collaboration. Without these, there is only stagnation.

The work is ongoing. Let us, then, continue as we have begun: active, critical, invested—not because it is easy, but because it is necessary for the health of the community, and for the promise of the project we have chosen to build together…

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And this is the “thucydides-speech” skill prompt:

please take the highlighted bullet point notes and expand them into a talk, following the procedure of Thucydides: Since it is difficult to remember the exact words that were spoken, either those which one heard myself or those which were reported at second hand, the idea is to make the speakers say what, in your opinion, was called for by each situation, while keeping as closely as possible to the general sense of what was actually said.​

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What do I think of this?

First, register this: These are not Chris Best’s words. These are not Chris Best’s thoughts. These are not, really, thoughts at all. These are a remix of sentence and paragraph fragments constructed by a new cultural summarization technology that presents you with a blurry jpeg of a fragment of the text of the internet. To the extent that there are ideas and thoughts behind these, they are the thoughts of the people who wrote the words on which the models have been trained, perhaps in a way similar to the way in which the motions of the character Gollum in the Lord of the Rings movies are distorted reflections of the underlying motions of the actor Andy Serkis.

Ascribe these to an entity of some sort I will call SubTuringChrisBestBot.

And, well, it really does not sound much like Chris Best. It sounds more like Perikles of the Athenai, if he worked for a SOMA San Francisco startup today. (That is not necessarily bad.)

And it does, I think, accurately convey the vibe I got from the event: that the writers on SubStack who showed up and the staff of SubStack who showed up are seriously invested in the project, as a way of pushing back against clickbait social-media shouting-class rage-engagement slop, and pushing for a rational, thoughtful infosphere of accurate information, rational discourse, and public reason. All are damned certain that they are not just hoping to do well but actively doing good.

So I left more encouraged and hopeful about SubStack and its future than I had been before. Assibayah it has.

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Some More Stray Thoughts Gleaned from Conversations at the Event:

Which may or may not be based in reality:

  • Normalizing the “tip jar” is the key difference between SubStack and earlier weblogging efforts: that is the reason that one might hope that the SubStack information ecology will be stable and expanding long-term, while the weblogging information ecology was not.

  • Front-line workers for SubStack have no idea what SubStack is going to do with its new money other then bank it and so extend the runway.

  • But they do say that the newsletter-distribution-and-weblog-website-with-an-easily-tuneable-tip-jar core of the system makes figuring out what other surfaces they should work on a complex problem, and when they have to solve because they cannot lose their core identity without losing their essential mindshare edge as the central place to run a weblog in the 2020s.

  • The problem of finding ways so that potential audience members can discover what SubStacks would enrich their lives is the central, largely unsolved one.

  • In particular, adding any discovery layer within Substack that is more than rely on individual writer shout outs runs, very quickly, that any attempt to cast a broad net winds up, suggesting that people read either (a) writers who are very eager, for what seem like minor failures to toe some line, to drive others out in the wilderness to be food for Azazel; or (b) writers who are very eager to classify others as a blight on humanity who need to be removed from the gene pool, humanely (or not) not; or © both.

  • The “Nazi Bar” problem is worse than the “cancellation two-minute hate problem”, but both emerge remarkably quickly whenever you attempt a wide-net discovery layer that is anything other then a defensive crouch.

  • The problem of figuring out how to balance capturing enough of the value-added for the true fans that writers can eat without destroying the usefulness of the SubStack for the non-true fans is the second, still largely unsolved one.

  • And without free-subscriber non-true fans to serve as a SubStack’s marketing department, the paid subscriber numbers will be astronomically unlikely to look good in the long run.

  • The large free audience is not just an amplification play, but essential as the ground in which a healthy crop of paying subscribers can grow..

  • The solutions? The line is that it lies in a combination of improved platform design, smarter algorithms, and the active cultivation of networks to connect the right readers with the right writers. But the confessed reality is that the strategy is to hire 100 people (so far), cook huge amounts of spaghetti, and throw it against the wall in clumps to see what sticks.

  • Workers for SubStack are very curious about academic publishing—a system with a very broken business model but one in which there are a large group of people who are institutionally driven to write frantically, and then find some kind of audience.

  • Is SubStack a way to shift from traditional academic publishing to the open web, fulfilling the university’s mission?

  • And nearly everyone at the event is firmly committed to the creation of a rational, accurate information- and analysis-full public sphere.

  • The perennial questions about whether a 10% revenue cut can ultimately support a profitable business model.

  • The belief that a company with only $45 million in current recurring annual revenue—and spending $20 million a year or more on its people—has any business raising $100 million, no matter how much of that is actually not just a 9% upside equity share but super-senior debt as well.

  • A general belief that BOND, The Chernin Group, Andreessen Horowitz, Rich Paul, Jens Grede, Mood Rowghani, and the others are to some degree using this not as an investment so much as a public-relations reputation-washing effort, given some of the other things they have been doing.

  • Lots of curiosity about Mood Rowghani.

  • Substack’s current structure is fundamentally a one-to-many broadcast model, centered on essays and newsletters. There is growing demand for more interactive, community-driven formats—such as live video and richer discussions—that existing technology does not yet fully support. And that raises all of the issues of para-sociality as applied to (very minor degrees of) celebrity.

  • Navigating and surfacing meaningful content amid near-infinite digital “noise” is a persistent and growing challenge in the online information ecosystem, only growing larger with the tsunami of AI-slop now bearing down on us.

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For the Next Month: Going All-in on The Browser Company's Dia-AI

& we will see where we get, and whether we need… ROADS! From searchbox to sidekick: is the humble web browser the secret to mastering the potential of MAMLMs as natural-language interfaces and as superbig-data, superhigh-dimension, superflexible-function classifiers, rather than being mastered by it? Perhaps I can tune Dia Browser so that it truly remaps the web for my cognitive benefit…

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I have decided to embark on a month-long experiment going all-in using Dia Browser <https://www.diabrowser.com/>.

I have decided to explore if I can actually use GPT LLM MAMLM ChatBots—General-Purpose Transformer Large-Language Model Modern Advanced Machine-Learning Model ChatBots—to manage my current very bad case of information overload.

I also hope it will help me critically assessing the real limits and potential of MAMLMs.

Specifically, I hope to gain some insight into how I might be wrong in my current judgment that they can only be of substantial yet strangely limited usefulness—that their simulacrum of intelligence is in fact a place where Sokrates’s observation that no matter how much a statue looks like the person it cannot speak is in fact correct. Think of them as, say, doing for prose roughly what spreadsheets did for accounting—important, mind-blowing, but not Chicxulub.

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Back up:

Modern Advanced Machine-Learning Models are, primarily:

  • Very big-data, very high-dimension, very flexible-function classification analyses.

  • Natural-language interfaces to structured and unstructured databases.

And then the rest of the technological and societal knock-on from the coming of General-Purpose Transformer Large-Language Model Modern Advanced Machine-Learning Models—GPT LLM MAMLMs:

  • Platform oligopolists spending money and resources at a scale relative to the then-size of the economy that has never before seen in any General-Purpose Technology build-out…

  • Why? Not to make or to try to make more money, but to buy insurance to guard against Christensenian disruption of their current platform-oligopoly profit flows…

  • Not FILTH—Failed in London? Try Hong Kong!—but FICTA—Failed in Crypto? Try AI!: The post-crypto boom way of separating gullible VC from their money for the benefit of engineers, speculators, utopians, and grifters…

  • Auto-complete for everything on super-steroids…

  • Highly verbal electronic-software therapists, sounding boards, coaches, pets, and… THIS IS A SAFE-FOR-WORK WEBLOG!…

I have written about this a bunch. Most recently: for the Milken Institute Review here: <https://www.milkenreview.org/articles/behind-the-hype?IssueID=58>

But I had more to say that would not fit into that piece! And that got left ln the cutting-room floor!

Specifically, about GPT LLM MAMLM ChatBots:

GPT LLM MAMLM ChatBots merge the first two, the primary aspects of MAMLMs, to create a new summarization cultural technology for the internet, plus whatever else is in their training data.

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I think of GPT LLM MAMLM ChatBots doing for prose roughly what spreadsheets did for accounting—important and mind-blowing, and a destroyer of many not-that-interesting jobs. But not world-shaking. That is what I think. And I think I have good reasons for thinking so.

But I might be wrong.

I think that because the core of a GPT LLM ChatBot, after all, is a huge neural network that is trained to emulate the language-response patterns found in its training data. In practice, that means that its telos is to become a closer and closer approximation of the typical Internet s***poster.

Yes, in addition to neural-network initial training, there is post-training RLHG, RAG, DPO, PEFT, LoRA, PPO, SFT, RM, IFT, and I am sure there will be at least five more such acronyms in common use in a year. But these are all merely (merely!) rough-and-ready ways to try to get the typical internet s***poster that is the ideal GPT LLM ChatBot to behave: to nudge it into a state in which the training data it sees around its attentive core is dense, and in which that training data was constructed by smart, informed people trying to communicate true and important stuff. Actively trying to strip the thing down so that it does not wander off into internet woo-woo land—that is an active area of “research”.

Witness Andrej Karpathy here:

Andrej Karpathy: <https://x.com/karpathy/status/1938626382248149433/>: ‘The race for LLM "cognitive core" - a few billion param model that maximally sacrifices encyclopedic knowledge for capability. It lives always-on and by default on every computer as the kernel of LLM personal computing. Its features are slowly crystalizing…. atively multimodal text/vision/audio at both input and output. - Matryoshka-style architecture…. Reasoning, also with a dial.… On-device finetuning LoRA slots for test-time training, personalization and customization…. It doesn't know that William the Conqueror's reign ended in September 9 1087, but it vaguely recognizes the name and can look up the date. It can't recite the SHA-256 of empty string as e3b0c442..., but it can calculate it quickly…. Super low interaction latency… private access to data and state, offline continuity, sovereignty ("not your weights not your brain")…. Do people *feel* how much work there is still to do. Like wow.

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And here:

Andrej Karpathy: <https://x.com/karpathy/status/1937902205765607626>: ‘+1 for "context engineering" over "prompt engineering"…. In every industrial-strength LLM app… the delicate art and science of filling the context window with just the right information…. Science because doing this right involves task descriptions and explanations, few shot examples, RAG, related (possibly multimodal) data, tools, state and history, compacting.… Art because of the guiding intuition around LLM psychology of people spirits…. Vreak up problems just right into control flows - pack the context windows just right - dispatch calls to LLMs of the right kind and capability - handle generation-verification UIUX flows - a lot more…. The term "ChatGPT wrapper" is tired and really, really wrong…

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Thus I tend to dissent from things like Torsten Slok’s claim that “AI” is going to deliver faster measured real GDP growth here in the U.S. over the next five years:

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And I have explained why I see the GPT LLM category of MAMLMs as limited to roughly spreadsheet—far below microprocessor—levels of impact:

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I see them as such because, at bottom, I see them as what I was taught in third-grade math to call “function machines”: essentially “autocomplete on steroids”. (It is still the case that the best comprehensible introduction to this (for me at least) that I have been pointed to is still Alessandrini & al. (2023).) But the results are very, very impressive indeed across a number of dimensions. And every time I reach this point, I am again unable to avoid quoting Shalizi (2023, 2025):

Cosma Shalizi: ‘Attention’, ‘Transformers’, in Neural Network ‘Large Language Models’ <http://bactra.org/notebooks/nn-attention-and-transformers.html>: ‘"It's Just Kernel Smoothing" vs. "You Can Do That with Just Kernel Smoothing!?!": [That] takes nothing away from the incredibly impressive engineering accomplishment of making the blessed thing work…. nobody [before] achieved anything like the[se] feats…. [We] put effort into understanding… precisely because the results are impressive!…

The neural network architecture here is doing some sort of complicated implicit smoothing across contexts… [that] has evolved (under the selection pressures of benchmark data sets and beating the previous state-of-the-art) to work well for text as currently found online.… Markov models for language are really old…. Nobody, so far as I know, has achieved results anywhere close to what contemporary LLMs can do. This is impressive...

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Why are large language models (LLMs) so astonishingly effective? First, because of scale. Trained on vast datasets and operating in thousands of dimensions, they capture the statistical patterns of human language. When you request a summary or script, the output is not true understanding, but a “cultural average”—how people have written such things before.

The high dimensionality of these models’ internal representations is important too. Doing math like “king + woman - man ≈ queen” is not just a clever parlor trick, but evidence of deeper structural regularities and even meaning encoded in the vectors and matrices. There is an emergent flexibility and richness come from the neural network’s ability to classify and interpolate across a vast, multidimensional space.

What does this mean in practice? LLMs excel at compressing, interpolating, and representing the latent structures of human language and knowledge. They are, as the phrase goes, “autocomplete on steroids.” Their outputs are plausible, coherent, and often insightful, even though they lack genuine understanding or grounding in reality.

In my view, LLMs’ “unreasonable effectiveness” is likely to have arisen from five main factors. First, their scale—massive data and computation—enables them to learn what hand-crafted rules cannot. Second, their statistical machinery allows them to interpolate between immense numbers of examples, producing plausible continuations for prompts that bear only a family resemblance to things they have seen. Third, their training uncovers latent structures that make language compressible and predictable, echoing Plato’s dream of “carving nature at its joints.” Fourth, their high-dimensional embeddings allow for analogical reasoning that mimics superficially much the way humans think. Fifth—and perhaps most important—a huge amount of real human thought is preserved in language pattern-correlations.

Still: A great deal of time, energy, and effort has been spent training my 50W-drawing wetware that fits inside the small breadbox-sized bone enclosure at the top of my spine. That had better be better at true cognition—at searching out, absorbing, processing, and then signaling and conveying information. It is, after all, a full Turing-Class entity. If a blank-slate neural network orders-of-magnitude less complex trained to emulate a typical internet s***poster can steam-hammer-to-John-Henry me, that time, energy and effort has been largely wasted. That seems very unlikely. No. If you are actually going to build a Turing-Class sEntity, attention, scale, and a blank-slate neural network to train are highy unlikely to be all that you need.

Thus think of them as the next step in the long tradition of tools that let us offload rote, repetitive, or formulaic parts of knowledge work, freeing up our attention for higher-order thinking. It is the next step in a process that started back when the first task of a scribe in writing a document was mixing the clay for the cuneiform to the proper consistency and smoothness, and the sudden ability to import papyrus to Sumer from Tawy was a true godsend.

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And yet, even if GPT LLM ChatBots are merely neural-network Markov-chain without AGI emergence Sub-Turing mimics of human minds, they are powerful cultural technologies for search and summarization above all, and also for link-following, code-snippet generating, ritual, milestone-marking, translation, genre-riffing, outlining, brainstorming, and more.

These models are not reasoning agents. They cannot verify facts and are prone to hallucinations—confidently generating plausible-sounding nonsense. But they do have strengths. They are calculators for language, not philosophers. They are tools for offloading cognitive drudgery, not engines of new insight. This is a real and a big productivity gain, especially for those who already know what “good” looks like and simply need a first draft or a nudge in the right direction. They are not magical.

But, still: They are remarkable. And useful.

GPT LLMs should be considered remixers and redistributors of existing culture, offering highly powerful affordances for access, recombination, and dissemination. There are dangers: the sheer persuasive power of a natural-language interface to humans tuned to human-sounding language primed to over-attribute intentionality. But if we guard against those, all of a sudden we now have a better way of funneling the firehose of information into a form in which we can make sense of it. We can distill the vast, chaotic sprawl of the territory human textual production into a manageable, if inevitably lossy, map. And while the map is not the territory, some maps can be very good and useful indeed.

Thus these things are immensely useful for search and research. I do not know to what degree to blame Google’s pursuit of advertising profits at all cost and to what degree to blame SEO search-arbitrage attention jackals for the degeneration of Google search, but even in its present something like ChatGPT is a better search engine than Google search as long as you tell it to act like a high-quality search engine. Witness Joe Weisenthal:

Joe Weisenthal: ChatGPT Is Becoming My Default Search Engine <https://www.bloomberg.com/news/newsletters/2025-07-17/chatgpt-is-becoming-my-default-search-engine>: ‘The same type of query on Google isn’t nearly as useful…. The actual links that Google turns up (the old, core search business) is not nearly as helpful…. To be fair… Google is better… if I just want to find a Wikipedia page… or if I’m looking for a very specific phrase…. But for a range of queries, o3 from ChatGPT increasingly feels like a strictly better experience…

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The act of using a GPT LLM to query the internet should not be thought of as an act of delegating thought, but rather of curating and steering a process of retrieval from the memory of the Anthology Super-Intelligence that is Humanity’s Collective Mind. collective memory retrieval; the user’s judgment remains indispensable. GPT LLMs promise to democratize access to cultural and intellectual resources, enabling non-experts to interact with and synthesize information in ways previously reserved for the highly literate or technically skilled. They also promise to greatly amplify the cognitive information-surveying and information-acquisition capabilities of those skilled in their use. They are, I think, going to provide us with much better whips and chairs for trying to tame informational overload than we had even five short years ago.

Thus whether or not I am wrong about the limits of these ChatBots, natural-language interfaces to structured and unstructured datastores promise to be very useful indeed to somebody like me who is both a huge user of datastores and a very sophisticated user of natural language. So how can I quickly and easily gain the maximum amount of facility with these tools so I can use them for good, and not either let the potential benefit I might draw from them wither on the vine, or, worse, find somebody else using them to hack my brain for my detriment?

These issues are now even tremendously important because we do now have true information overload. This problem has been building for quite a while. If one is a white-collar worker—if one is a front-end node to and in the Anthology Super-Intelligence of Humanity’s Collective Mind—one’s tasks, whether it is that of trying to enrich or emprestige your employers so they pay you, or enrich your life—fall into three groups:

  1. The business of thinking through an issue once you have gathered your sources of information.

  2. The issue of then getting your conclusions disseminated in a form in which they are neither evanescent nor unpersuasive.

  3. The issue of finding and assembling the information that you need to actually do your thinking.

Think of these as the signal, the process, and the funnel. Someone who wants to succeed and be useful to society in my business needs to be able to do all three, and to be able to do all three very well. I want very much to be able to do a better job in making sure that I read more of what I should be reading and from people who are not in the circle of usual suspects

The problem is the funnel. Dealing with the funnel is becoming an increasingly large part of our jobs. And here is where the hope that our modern information technologies understood as cultural technologies of summarization and classification may of great help.

I do not understand how these things work (but does anybody?). I do not understand how to use them well. There is too much to read. There is too much to experiment with. And yet, as Cosma Shalizi says, we “clearly… need to wrap… [our] head[s] around it, before… [we soon] become technically obsolete…”

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And so I am going to try to spend the next month going all-in on The Browser Company’s Dia Browser <https://www.diabrowser.com/>. What is Dia Browser? One of legion coming down the pike:

M. G. Seigler: Begun, the AI Browser Wars Have <https://spyglass.org/ai-browser-wars/?ref=the-spyglass-column-newsletter: ‘Dia ushers in a new day for the web browser.… You could basically just use Dia as a slightly cleaner-looking version of Chrome… and never touch the AI elements…. [But] if Dia is going to succeed, it will be because of AI. As such, they're now in a foot race…. Google… every other browser… dabbling in some level of AI… Perplexity and… OpenAI…. Anyone who uses Dia should see why all of these players will build their own browsers. Extensions aren't going to be good enough here, you have to go deeper to fully control the experience and have full vision into what's going on in that browser…

Dia Browser is, with a “@” denoting a link to another browser tab:

Chat with your tabs… Hey Dia…
Write with your tabs… Make this @JuneNewsletter sound on-brand @BrandVoice…
Learn with your tabs… Explain this to me like I’m five @Singularities…
Plan with your tabs… Compare @TuscanVilla @IlCasone in a table with price, proximity, to best coffee…
Shop with your tabs… Convince me not to buy this @VintageFendiBaguette… <https://www.diabrowser.com/>

The idea is that with every webpage you visit you can then immediately, seemlessly ask a question related to it, also bringing in whatever else you think is potentially relevant to the answer you get. The hope is to make the interaction-feedback loop as tight as possible, and then see what develops.

Dia is The Browser Company’s second project. The first was their power-user browser Arc: <https://arc.net/> “The Chrome Replacement You’ve Been Waiting For!” The Browser Company’s ambition with Arc Browser was never just technical—it was anthropological. Their goal was to make the browser feel like a home on the internet, personal and customizable, letting users shape the technology to fit their lives to extend and adapt their browser into a digital home.

Dia Browser aims at this with a twist: empowering users—even those with no coding experience—to build their own tools and workflows by what is now called “vibe coding”. The bet is that one of the true promises of MAMLMs is in providing natural-language in-the-moment tool-building for simple bespoke software to help us navigate the messy, context-rich decisions of real life—like planning a trip, balancing preferences, or making sense of ambiguity.

Traditionally, browsers have served as “funnels for intent”—the search box where users express what they want—and as platforms for running webapps. But why should the browser omnibox link only to legacy search engines? Why not route intent to other digital experiences, webapps, including those powered by AI? Perhaps most value now lies not in the browser itself, but in what can be built atop it. The goal is a personal assistant—an “intelligence layer”—that sits across all devices, learns from user context, and helps manage tasks, not just tabs. In this new landscape, context, memory, and personalization may be the true differentiators and wisdom amplifiers.

The Browser Company found that users of the alpha version quickly found their way to writing their own simple prompts for the ChatBot in the right pane of the browser window to act on the webpage in the left to automate or streamline their daily tasks: new tools, workflows, and automations, mini-agents and micro-applications that users could build for themselves, or frictionlessly adopt and then modify.

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Perhaps the browser is about to undergo a radical transformation in this age of MAMLMs. Perhaps a good way for it to take advantage of natural-language interface and stupendous classification capatilities is for it to stand in the middle, intercepting and interpreting my intent, turning the searchbox into a launchpad for personalized, context-aware assistance and assistants. Perhaps context, memory, and customization become key. The Browser Company thinks its Dia Browser could soon become my most valuable ally in dealing with information overload.

Is The Browser Company right?

I think I need to experiment enough to see.

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Our Chaos-Monkey, Dementia-Suffering, Cognitively-Addled President, & the Bureau of Labor Statistics

The day the economic-statistics numbers died: dementia-addled chaos-monkey Trump’s assault on statistical independence. A political purge of America’s economic thermometer is not good. Especially since Republican senators have decided to use Trump’s outburst to call for “BLS reform”. & so we watch the Bureau of Labor Statistics becomes the latest casualty in Trumpist America’s war on reality…

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In a spectacle equal parts farce and tragedy, chao-monkey dementia-suffering cognitively-addled President Trump has sacked the nation’s chief labor statistician for reporting unwelcome numbers.

The integrity of America’s economic data is now gone. The United States just crossed a new Rubicon in the politicization of economic facts. When official data are recast as political liabilities rather than neutral facts, the consequences ripple outward: from financial markets to the Federal Reserve, from policymakers to the public. The episode underscores a deeper crisis—truth itself became a partisan casualty long ago, when the George W. Bush administration did its full-court press of lies on Iraq, if not before. And when truth itself became a partisan casualty democracy’s dashboard went dark.

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Well! As of yesterday morning, I decided that is no longer sufficient to call Trump a chaos monkey. That does not describe him. The right dit escription is now. "dementia-addled chaos-monkey”:

Kevin M. Kruse: <https://bsky.app/profile/kevinmkruse.bsky.social/post/3lvb636dx4227>: ‘This past week, the 79-year-old president announced he’s ended six wars (some that have been going on for centuries), asserted that windmills drive whales insane, called for Beyoncé to be prosecuted, claimed Obama committed treason and complained a convicted pedophile “stole” teenage girls from him… July 31, 2025 at 5:44 AM…

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But even for me today did come as a surprise!

As of today, the economic statistics reported by the United States government are no longer reliable:

Donald Trump: ‘I was just informed that our Country's "Jobs Numbers" are being produced by a Biden Appointee, Dr. Erika McEntarfer, the Commissioner of Labor Statistics, who faked the Jobs Numbers before the Election to try and boost Kamala's chances of Victory. This is the same Bureau of Labor Statistics that overstated the Jobs Growth in March 2024 by approximately 818,000 and, then again, right before the 2024 Presidential Election, in August and September, by 112,000. These were Records - No one can be that wrong? We need accurate Jobs Numbers. I have directed my Team to fire this Biden Political Appointee, IMMEDIATELY. She will be replaced with someone much more competent and qualified. Important numbers like this must be fair and accurate, they can't be manipulated for political purposes. McEntarfer said there were only 73,000 Jobs added (a shock!) but, more importantly, that a major mistake was made by them, 258,000 Jobs downward, in the prior two months. Similar things happened in the first part of the year, always to the negative. The Economy is BOOMING under “TRUMP" despite a Fed that also plays games, this time with Interest Rates, where they lowered them twice, and substantially, just before the Presidential Election, I assume in the hopes of getting "Kamala" elected - How did that work out? Jerome "Too Late" Powell should also be put "out to pasture." Thank you for your attention to this…

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If I were J.D. Vance I would invoke the 25th Amendment immediately. Every hour that he delays magnifies his manifest unfitness for his current, or any office whatsoever.

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It will be interesting to see how or if they try to walk this back over the weekend.

Who on his “Team” did Trump direct to fire BLS Commissioner McEntarfer? What did they say in response? Is a public tweet enough? If so, does the public tweet have to be in the present tense—“I direct”? After all, when Trump says “I have directed” he could then say afterwards that he had been lying.

Does someone in the White House actually have to tell Labor Secretary Lori Chavez-DeRemer? Does that person have to be Trump, personally? In person, by phone call, or in writing? And how does the Labor Secretary then proceed?

And why are Senators Susan Collins and Bill Cassidy now demanding that the BLS postpone its real-time employment data for a month, so that the July survey estimate would come out not on the first Friday of August but the first Friday of September?

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Macroeconomy Now Below "Stall Speed"?

Job creation slows, dementia-addled chaos-monkey tariff risks continue, data-center construction booms with little ability to rapidly move resources into that part of the construction-investment sector, and so the likelihood of stagflation in the near-term future rises. The U.S. economy is growing, but no longer fast enough to clearly outrun the shadow of rising unemployment, and yet inflation risks driven by supply and narrow sector-bottleneck shocks rise as well…

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Job creation in the U.S. has slowed to a crawl, with recent months averaging just 35,000 new payrolls—a figure well below what’s needed to keep unemployment from rising. Yet inflation risks are not falling but growing, stubbornly present, amplified by dementi-addled chaos-monkey tariff-shock and other supply-chain uncertainties, plus sectoral-investment surges that may well run into inflation-producing bottlenecks. With Federal Reserve policymakers now publicly divided and the macroeconomy below stall speed, the risks of policy missteps and unexpected shocks loom large. The macro stakes are high.

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This AM we have the U.S. Bureau of Labor Statistics:

BLS: Employment Situation Summary <https://www.bls.gov/news.release/empsit.nr0.htm>: ‘Transmission of material in this news release is embargoed until 8:30 a.m. (ET) Friday, August 1, 2025…. JULY 2025: Total nonfarm payroll employment changed little in July (+73,000) and has shown little change since April…. The unemployment rate, at 4.2 percent, also changed little in July. Employment continued to trend up in health care and in social assistance.… The unemployment rate has remained in a narrow range of 4.0 percent to 4.2 percent since May 2024…. The number of long-term unemployed (those jobless for 27 weeks or more) increased by 179,000 to 1.8 million… 24.9 percent of all unemployed people….

Revisions for May and June were larger than normal. The change in total nonfarm payroll employment for May was revised down by 125,000, from +144,000 to +19,000, and the change for June was revised down by 133,000, from +147,000 to +14,000. With these revisions, employment in May and June combined is 258,000 lower than previously reported…

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  1. Over the past three month—only 106,000 new payroll jobs, seasonally adjusted; that is only 35,000 per month.

  2. Since the end of last year—only 597,000 new payroll jobs, seasonally adjusted; that is only 85,000 per month.

(2) may, actually, not be a slow-enough rate of growth of payroll unemployment to put upward pressure on the unemployment raite and thus on the difficulty of finding a job. Jared Bernstein quotes Jed Kolko on this point:

Jed Kolko: 25-5 As US Population Growth Slows, We Need to Reset Expectations for Economic Data <https://www.piie.com/sites/default/files/2025-07/pb25-5.pdf>: ‘US population growth has slowed sharply in the past 18 months, as the immigration surge of the early 2020s has ended and the population continues to age. Fewer jobs are needed to keep up with the growth of the labor force…I estimate the breakeven rate of monthly payroll growth in the jobs report needed to keep up with the labor force has fallen from 166,000 jobs in early 2024 to 86,000 jobs in June 2025…

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Smack-equal to what we have seen so far in 2025. An economy not at stall speed for the year as a whole so far, but worryingly close, and slowing down significantly over the past three months.

And Jared Bernstein—very sharp, but who, since he had worked for Biden since 2009, is one of those really ought back in 2022 to have been telling me to start pushing hard for a new candidate for president, and did not—summing up the sitch:

Jared Bernstein: Job Creation Slows To A Crawl: Monthly Avg: 35,000 over Past 3 Months <https://econjared.substack.com/p/job-creation-slows-to-a-crawl-monthly>: ‘The big news is the payroll revisions… “employment [growth] in May and June combined is 258,000 lower than previously reported."... [Plus} manufacturing employment is down three-months in row…. US manufacturing depends on imported inputs… [so] Trump’s escalating trade war exacerbates this…. Kicking up the effective tariff rate to somewhere around 18%… will hurt, not help, our manufacturers….

A few brighter spots: —Wage growth remains solid, at 3.9%, handily beating inflation. —Layoffs have been slowly trending up, but we’ve yet to see a spike that’s commensurate with severe labor market deterioration.

Chris Waller was one of the dissenters on the Fed’s decision earlier this week to hold interest rates where they are. One of Waller’s key motivators for cutting rates is his view that the labor market is weakening… “while the labor market looks fine on the surface… downside risks to the labor market have increased. With inflation near target and the upside risks to inflation limited, we should not wait until the labor market deteriorates before we cut the policy rate….” Chair Powell… took the other side… repeatedly describing the labor market as solid…. Today’s report obviously leans Waller’s way…. But… slower labor supply… deportations and considerably slower immigration….

Hard data—growth, jobs, inflation—are [now] starting to show what happens when the economy is relentlessly subjected to destructive economic policy…

Jared’s Substack
Job Creation Slows To A Crawl: Monthly Avg: 35,000 over Past 3 Months
I well know that today is yet another Liberation Day (I was talking about it on Morning Joe at 6am!), but it’s also jobs day, so let’s dig into the jobs data, recognizing that the two are related, as I stress below…
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A word about Waller: I think it unprofessional right now to assert, unqualified, that “upside risks to inflation are limited.” The recent history of U.S. inflation should make everyone humble: we have seen how quickly how what we judge small transitory shocks—whether from supply chains, energy prices, or geopolitical disruptions—can morph into much larger cost pressures self-sustaining for a time, and threatening to exit the transitory mode for the persistent one. Plus a professional central banker must always keep a weather eye on all potential sources of risk, and never unduly minimize any of them.

To declare, as Waller did, that such risks are “limited” is to attempt to lull markets and policymakers into complacency—precisely the opposite of what a prudent monetary authority should do. At the very least the standard of professionalism would require a nuanced and conditional framing: “While recent data suggest upside risks to inflation are moderating, those risks could return—particularly if supply constraints return or if aggregate demand surprises to the upside.”

I would have liked to see something like: If the enormous uncertainty about future tariff increases were to be removed, then upside risks to inflation would be significantly reduced. The message that the Fed should be sending to Donald Trump right now is this: if you are serious about lower interest rates, give us policies that make a lower interest rate path prudent.

Fed Governors, even tempted to go the extra mile in currying favor with Donald Trump, perhaps out of hope that their fealty will land them in the big chair at the Federal Reserve—really should behave better. Remember Arthur Burns in the early 1970s, whose willingness to accommodate the Nixon administration’s political imperatives did lasting damage to the Fed’s credibility and amply watered and fertilized the sprouting Great Inflation of the 1970s. The central bank’s power is mostly a power of narrative and expectation management. Once the perception takes hold that policy is being tailored to the whims of the incumbent or the ambitions of a would-be Fed Chair, little can be done, and what can be done quickly becomes very costly. Fed Governors must always remember who their true constituency is: not the president du jour, but rather the long-term economic and financial heualth of the republic. Now matter what a corrupt Supreme Court may claim, Fed Governors have their 14-year terms precisely because they are not instrumentalities to carry out the whims of an underbriefed chaos-monkey executive-branch president with dementia, but rather independent technocratic powers making decisions about coining money and regulating the value thereof as directed by the congress.

All that is to say: A false claim that upside inflation risks are limited is not helpful.

Today, the sources of potential upside risk to inflation are not low: chaos-monkey dementia-fueled tariff craziness continued, renewed energy shock, a reversal in globalization, an unexpected fiscal expansion, or, as we are already observing, the AI-driven data-center construction boom that is channeling a torrent of investment into the real economy. Central bankers need to never dismiss these risks out of hand, but to take the prudent course, which is to acknowledge uncertainty and to keep all options on the table, rather than to lull the polity into a false sense of security that may soon prove costly.

And yet, that said: Waller has, I think, a sound desire to become Fed Chair. rooted both in personal ambition and in a genuine conviction that, among the names likely to appear on a hypothetical Trump short list, he would be the most responsible and competent steward of U.S. monetary policy. In my view, he is correct. I would breathe somewhat easier, at a disaster (probably) averted, if Waller were to become Fed Chair next year. Waller is not like those whom one might politely call “mercurial” or “ideologically-driven” who might catch Trump’s chaos-monkey dementia-addled eye. He has the analytic and procedural norms that keep monetary policy on an even keel in his bones. The prospect of someone with his background and temperament at the helm is, in this fraught moment, a source of some comfort—if, admittedly, of only some and rather cold comfort.

Refer a friend


A note on one of the things creating upside inflation risks right now:

Consider the sheer magnitude of the data-center construction boom fueled by the current AI bubble.

This is a phenomenon that, I think, deserves far more attention from both policymakers and market-watchers. The scale is staggering. Over the four years 2024-2027 we now expect to see more than $1.8 trillion spent building not bricks-and-mortar but rather generator, wire, silicon, plywood, concrete, pipe, and steel data centers worldwide. The hyperscalers and others are each pouring tens of billions of dollars into new facilities globally, in a frantic bid to secure the computational horsepower and energy infrastructure needed to train and deploy ever-larger natural-language models. This is not your garden-variety tech cycle; it is a capital expenditure arms race, and the urgency is driven less by exuberant optimism for future profits than by a defensive fear—fear that failing to provide customers with the lowest-latency inference and the highest-quality training will mean irrelevance in the next platform transition.

The result is a wave of demand for construction labor, steel, concrete, specialized semiconductors, and, most crucially, power—already putting upward pressure on input prices in regions like northern Virginia, Texas, and the Pacific Northwest. Historically, such sectoral investment booms have had the power to push up wages and prices even in the absence of broad-based consumer-demand surges. The AI data-center surge is not a sideshow: it is a macroeconomic force that could well become a significant contributor to inflation dynamics in the quarters ahead, and one that the Fed ignores at its peril.

The investment triggered by other bubbles died off as businesses saw themselves as unlikely to make profits from further investments, even with the extraordinary investment-financing terms that the bubble’s irrational exuberance offered them…

Not this time: these AI data-center investments are defensive insurance, not attempts to massively grow their profits. That is, unlike the dot-com or fiber-optic booms of the late 1990s, or the shale oil bonanza of the 2010s, the current wave of capital expenditure is less about chasing speculative upside than about preempting existential risk. The buidlers are not betting on blue-sky demand projections or the hope that “if we build it, they will come.” Instead, they are acting out of fear that, should they fail to keep pace in providing the lowest-latency inference and the highest-quality model training, they will be left behind in the next technological paradigm shift. This is primarily a race to avoid irrelevance and the loss of their current tech oligopoly-platform profits, not to seize new territory.

The result is a remarkable stickiness to investment, even as financing costs have risen and macro uncertainty abounds. The willingness to sign multi-year power purchase agreements, lock in supply chains for specialized semiconductors, and pre-commit to massive construction contracts all reflect this insurance logic. It is a dynamic that, I think, makes the potential inflationary potential of the current boom more persistent and less susceptible to the usual self-correcting mechanisms that have tamed previous bubbles.

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And the magnitude of this bubble-driven boom has a consequence. Normally I would react to a jobs report like this by stating that there is now at least a 50-50 chance of a near-term recession. But not this time. I cannot make any sort of likely recession call—not with this going on.

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BOOK PROJECT: History of Economic Thought

One project I might spend a solid month on this fall is to try turn my history of economic thought lecture notes into a ms. for a relevant “history of economic thought” book—that is, a book that starts with (a) the need, if we are to be prosperous, to both have and coördinate a societal division of labor at scale, (b) the value of the market system as a way of achieving that coördination, and (c ) all the things that go wrong made interesting and relevant by placing individual prominent thinkers who analyzed them, sequentially, the centers of our attention
At the moment, I am up to sixteen who must be covered if you have a sense of where markets work and where they do not. Start with Adam Smith on market coördination, and go on from there
The notional course the book might be for (which I very much doubt I will ever teach) would be two quarters course. The first tranche would cover market success and then, running through thinkers chronologically, market failures of maldistribution, unemployment, innovation, externalities, and domination. The second tranche would cover more subtle market failures.
Here is a taste—the current version of the week 2 lecture notes, on Adam Smith.
What do people think? Would getting out the whip and the chair and

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J. Bradford DeLong: Lecture Notes: Economic Thought:

  1. Introduction: Large-Scale Production Coördination, Distribution, & Utilization in the East-African Plains Ape via the Societal Instrumentality of Markets

  2. Adam Smith & Miraculous Markets

  3. Karl Marx & the Rise of the Techno-Bourgeoisie

  4. John Maynard Keynes & Aggregate Demand

  5. Joseph Schumpeter & Creative Destruction

  6. Karl Polanyi & Non-Property Rights

  7. A.C. Pigou & Economic Spillovers

  8. William Beveridge & Social Insurance

  9. Eric Williams & Domination Societies

  10. Intermission: The State of Economics as of World War II

  11. Resumption: More Subtle “Market Failures”

  12. W. Arthur Lewis & Developed Underdevelopment

  13. Paul Samuelson & Public Goods

  14. George Akerlof & Adverse Selection

  15. Robert Shiller & Behavioral Finance

  16. David Card & Employer Monopsony

  17. Claudia Goldin & Feminist Economics

  18. Herbert Simon & Cybernetic Systems

  19. Danny Kahneman & Slow-Enough Thinking

  20. Paul Romer & Rivalry, Excludability, & the Attention Info-Bio Tech Economy

  21. Conclusion: Between Market Economics & Management Cybernetics: Managing the Societal Division of Labor at Scale


J. Bradford DeLong: Lecture Notes: Adam Smith:

1. Smith’s Human Nature

Adam Smith starts with the observation that humans are largely but not exclusively self-interested creatures: we are, largely but not exclusively greedy. Yet we have a complex and sophisticated societal division of labor. And that division of labor is essential to our prosperity. Indeed, it is essential to our survival: drop one of us into the Sierra Nevada, even in summer—or even in our environment of evolutionary adaptation in the Horn of Africa—and we will quite likely die. Drop 100 of us, and we will quite likely survive, and even flourish.

How can animals that are by nature greedy nevertheless cooperate on a large scale? That is the deep moral-philosophical question that we can see both of Smith’s big books—his Theory of the Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations—as aimed at. As Robert Heilbroner puts it in his The Worldly Philosophers, Smith:

is interested in laying bare the mechanism by which society hangs together. How is it possible for a community in which everyone is busily following his self-interest not to fly apart from sheer centrifugal force? What is it which guides each individual’s private business so that it conforms to the needs of the group? With no central planning authority and no steadying influence of age old tradition, how does society manage to get those tasks done which are necessary for survival?...

Adam Smith says that our ability to create and maintain a complicated societal division of labor that is so productive rests on four facets of human nature:

  1. language: in that we are an anthology intelligence—what one of us knows or learns, pretty quickly all of us within and many of us without earshot will quickly learn;

  2. hierarchy: in that we tend to form and respect dominance hierarchies in which we can command and obey;

  3. gift exchange: in that we bind ourselves together by forming gift-exchange relationships—what Adam Smith called our “natural propensity to truck and barter”: we firmly expect to be and are very happy when we trade favors with each other, and we are uneasy when we feel as though we are always giving or always receiving, for we want the exchange of gifts and favors to be reciprocal, and roughly balanced.

  4. benevolence: in that our weak sense of fellow-feeling and empathy can be trained up to be quite strong and govern our decisions in gives us a powerful bias toward choosing win-win arrangements.

The Wealth of Nations, of course, is about (3). But that does not mean that (1), (2), and (4) are secondary in the mind of Adam Smith the moral philosopher. (1), (2), and (4) become secondary only when we read Adam Smith as he would not have and his peers would not have. (1), (2), and (4) become secondary only when we read Adam Smith as an economist.

But the Wealth of Nations is about (3). And there is enough in (3) to fill a huge book.

Back in our environment of evolutionary adaptation, we could form gift-exchange relationships only with a few: our close neighbors, our good friends, and our near kin. Trust, you see, is necessary for a long-term gift-exchange relationship, and short-term such relationships are rare because each has to have and be willing to give up something the other wants or needs right now. And since we are largely self-interested, trust is hard to generate and maintain without other binding social ties.


2. From Human Nature to Human Society

Hence the key importance of the human cultural invention of money in forming our large-scale human society: money means that any one of us can make a short-term one-shot exchange relationship with any other one of us, someone who we may well never see again. Money, you see, is manufactured trust, and it allows us to extend our societal division of labor to encompass, indirectly, nearly everybody else in the world.

For example, consider the 30-foot bronze statue of Athene Promakhos— Athena Fighting-in-Front—that the council and people of Athens had cast and installed on the Acropolis around -450. The Greek geographer Pausanias wrote that anyone approaching Athens by sea by day could see her gleaming helmet and the tip of her spear as soon as they had rounded Sounion Head at the southern tip of Attika.

70 tons of bronze supposedly went into the statue, which survived until 1204—63 tons of copper, 7 tons of tin. Copper was abundant.

But where in the -400s were the artisans of Athens to find 7 tons of tin?

The historian Herodotos states that he could find nobody in Athens who knew where the tin was coming from: all anyone could say was that the ships had picked up the tin, already mined, in Sicily, and that they thought it came from “tin islands” in the ocean on the other side of Europe. But he could find nobody who would claim to have actually seen these tin islands, or this ocean on the other side of Europe. So he doubted the stories.

The answer, of course, was that the tin was in Cornwall, at the southwestern tip of the island of Britain.

The societal division of labor, as governed by the market, was a mechanism that “knew” that 7 tons of tin needed to be mined in Cornwall and then shipped, probably via the English Channel-Seine-portage-Rhone-Mediterranean route, to Athens via Sicily. And so it happened. But, apparently, nobody anywhere in the value chain knew its entire extent. The market knew things that no human individual knew. And this was almost 2.5 millennia ago: the market knows much, much, much more now.

Language, weak dominance, gift exchange, and money have enabled us to progress from perhaps 10,000 of us 70,000 years ago living at a global average living standard of perhaps three 3.5 dollars a day to today’s worldgirdling societal division of labor now 7.5 billion strong, with a global average standard of living no about $35 a day. We are now, collectively, on average, at least 10 times as well-off and 750,000 times as numerous as we were 70,000 years ago back in the environment of evolutionary adaptation when we last passed through a Darwinian bottleneck.


3. The “System of Natural Liberty”

Adam Smith was a genius because he had a truly game-changing insight into how our societal division of labor should be organized.

As far as the production and distribution of our collective material wealth is concerned, you see, most of what we need and want is both excludible and rival. If something is “excludible”, that means we can assign it an owner—some one of us can be designated to control it, and to decide on its use, or decide to transfer “ownership” of it to something else. If something is excludible, we can push the decisions about how it is to be used out to the periphery of society, to the people on the ground who know what is going on, rather than have the decision made by some centralized bureaucracy clueless because of its inability to reliably judge information conveyed to it at third- or fourth-hand.

Having “ownership” thus makes sense, if information about what is going on is dispersed and hard to assemble: giving control to people on the spot is then a very good idea. If something is “rival”, that means that one person's use of it forecloses the opportunities of others: if I am using this iPhone, you cannot be using the same iPhone. If a good is rival, that one of us is using it diminishes the opportunities and possibilities available to others. That makes them poorer. Thus it makes sense to charge a price for somebody using a rival commodity. That makes them feel in their gut the effects of their decisions on the opportunities open to others. Charging prices is a way to align individuals’ incentives about whether it is worth it for them to make use of a commodity with the effects of their decision on the overall well-being of the society.

Hence, Adam Smith argued in his Inquiry into the Nature and Causes of the Wealth of Nations, the wealth of nations is most greatly enhanced by following the dictates of what he named the System of Natural Liberty —“liberty” because it leaves people free to do what they wanted with their labor and their possessions, “natural” because it conforms with human nature, "system" because it can be and is extended to the status of a general principle.

Let people decide what they want to do with their things and their labor, and they arrange themselves in a large highly-productive societal division of labor. Self-interest focuses people on creating value. Competition curbs any distracting focus of self-interest on accomplishing exploitation.

This “System of Natural Liberty” is, Smith argues, very good.

As Heilbroner summarizes:

Self-interest… drives men to action…. [But] a community activated only by self-interest would be a community of ruthless profiteers. This regulator is competition, the socially beneficial consequence of the conflicting selfinterests of all the members of society. For each man, out to do his best for himself with no thought of social cost, is faced with a flock of similarly motivated individuals who are in exactly the same boat…. A man who permits his self-interest to run away with him will find that competitors have slipped in… will find himself without buyers in the one case and without employees in the other. Thus very much as in the Theory of Moral Sentiments, the selfish motives of men are transmuted by interaction to yield the most unexpected of results: social harmony…. The… market is that it is its own guardian. If output or prices or certain kinds of remuneration stray away from their socially ordained levels, forces are set into motion to bring them back to the fold. It is a curious paradox which thus ensues: the market, which is the acme of individual economic freedom, is the strictest task master of all…

This leads to a fraught question: Is this a theological point?

Is the fact that acting “naturally” in the sense of giving market exchange free rein produces good results evidence that there is a benevolent Providence out there?

Is this a teleological point? Are, in some sense, money and giftexchange aimed at creating prosperity? How is it that processes that are not human—that lead to consequences not desired directly by any human —have a mind of their own, and lead to good ends?

It is indeed a marvel that, as Smith puts it, in his theory at least:

[While] every individual… endeavours… to direct that industry that its produce may be of the greatest value… labours to render the annual revenue of the society as great as he can…. He… neither intends to promote the public interest, nor knows how much he is promoting it…. He intends only his own security…. He intends only his own gain…. In this, as in many other cases, [he is] led by an invisible hand to promote an end which was no part of his intention…

It is a marvel. But what kind of a marvel is it?

Note that it is not that Smith is opposed to government. Government is necessary to protect property, and to enforce contracts: people—most people—will respect others’ property and keep their own contracts, most of the time. But for the non-most people and at the non-most times we need the police, hence we need government. We need public works. We need public 6 2019-11-21 4339 words education. We need national defense. Adam Smith is very clear on all of these. In fact, Book V of the Wealth of Nations on what the government should do and how it should do it is the largest of the five parts of the book.

But, Smith is certain, attempts of some centralized bureaucrat to undermine the System of Natural Liberty in its proper sphere—to direct who should do what when and where—were likely to produce not wealth and prosperity but poverty and misery.


4. Adam Smith & Poverty

Adam Smith loathes poverty.

Adam Smith is eager to create a society in which there is no poverty. Adam Smith spends a substantial amount of time investigating the course of poverty over time. For example, he takes time and care to write:

During the course of the last century, taking one year with another, grain was dearer in both parts of the united kingdom than during that of the present…. It is equally certain that labour was much cheaper. If the labouring poor, therefore, could bring up their families then, they must be much more at their ease now.

In the last century, the most usual day-wages of common labour through the greater part of Scotland were sixpence in summer, and fivepence in winter.… Through the greater part of the Low country, the most usual wages of common labour are now eight pence aday; tenpence, sometimes a shilling, about Edinburgh….

In England, the improvements of agriculture, manufactures, and commerce, began much earlier than in Scotland. The demand for labour, and consequently its price, must necessarily have increased with those improvements. In the last century, accordingly, as well as in the present, the wages of labour were higher in England than in Scotland. They have risen, too, considerably since that time, though, on account of the greater variety of wages paid there in different places, it is more difficult to ascertain how much…. Not only grain has become somewhat cheaper, but many other things from which the industrious poor derive an agreeable and wholesome variety of food have become a great deal cheaper.

Potatoes… cost half the price which they used to do thirty or forty years ago. The same thing may be said of turnips, carrots, cabbages; things which were formerly never raised but by the spade, but which are now commonly raised by the plough. All sort of garden stuff, too, has become cheaper….

The great improvements in the coarser manufactories of both linen and woollen cloth furnish the labourers with cheaper and better clothing; and those in the manufactories of the coarser metals, with cheaper and better instruments of trade, as well as with many agreeable and convenient pieces of household furniture…

Which he then cross-checks with elite gossip:

The common complaint that luxury extends itself even to the lowest ranks of the people, and that the labouring poor will not now be contented with the same food, clothing, and lodging which satisfied them in former times, may convince us that it is not the money price of labour only, but its real recompense, which has augmented…

Having established that poverty has diminished, he next launches a fullbore attack on all those who claim this is a bad thing:

Is this… to be regarded as an advantage or as an inconveniency?… Servants, labourers, and workmen… make up the far greater part…. What improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable…

And then he makes a strong appeal to human solidarity, and to the reciprocal obligations humans undertake by entering into the gift-exchange relationships that knit society together:

It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged…

It is but equity, besides…” This is a very strong appeal to human solidarity. It is coming from someone often seen as and sometimes dismissed as an apostle of human self-interest.


5. Adam Smith & Inequality

5.1. Inequality Generated Outside the Market: Smith’s first way of minimizing the importance of inequality—or at least minimizing the responsibility of the market and of the economy for fighting inequality—is to argue that inequality springs from politics and sociology rather than from market economics. Inequality arises from the role that hierarchy and command-and-control play in the mixed-up processes that are human society. The society of England becomes more unequal because William the Bastard from Normandy and his thugs with spears—300 families, plus their retainers—kill King Harold Godwinson, and declare that everyone in England owes him and his retainers 1/3 of their crop. The society of England becomes more unequal because Queen Elizabeth I Tudor grants a monopoly over trade with America to Sir Walter Raleigh. Why? Because he had successfully flirted with her. These are not economic processes. These are not closely connected with the “system of natural liberty” that is the market economy.

Indeed, the system of natural liberty is only one way you can organize society. Societies can be organized as ones of feudal lords and peasants, as priests and worshippers, robbers bands and their victims. But these ways of organizing society are impoverishing and, Smith claims in his very naming of his system the “System of Natural Liberty”—unnatural. Dugald Stewart quotes from one of Smith’s lectures that, at least in the lecture hall at Glasgow in 1749, Smith was blunt:

Little else is required to carry a state to the highest degree of affluence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things…

I believe that the later Adam Smith would note that “tolerable administration of justice” covers a lot of ground: the later books of An Inquiry into the Nature and Causes of the Wealth of Nations are very long indeed: Book III on how the historical development of Europe has let it to deviate from the System of Natural Liberty is 43 pages, Book IV on errors being made in 1776 by the governments of Europe is 273 pages, and Book V on what governments should and should not do is 276 pages—a total of 592 pages on what governments should, should not, and have unfortunately done, with only a total of 346 pages laying out Smith’s analytical system and its conclusions, among them that:

All governments which thwart this natural course, which force things into another channel, or which endeavor to arrest the progress of society at a particular point, are unnatural, and, to support themselves, are obliged to be oppressive and tyrannical…

As Heilbroner puts it:

The great enemy to Adam Smith's system is not so much government per se as monopoly—in any form. “People… meet[ing] together… [and] the conversation ends in… some diversion to raise prices.”… If the working of the market is trusted… anything that interferes… lowers social welfare. If, as in Smith’s time, no master hatter anywhere in England could employ more than two apprentices or no master cutler in Sheffield more than one, the market system cannot possibly yield its full benefits…. If, as in Smith's time, great companies are given monopolies of foreign trade, the public cannot realize the full benefits of cheaper foreign produce. Hence, says Smith, all these impediments must go…

5.2. Wealth Inequality Prevents Worse Damage: Adam Smith’s second way of minimizing the importance of economic inequality is to claim that it is a relatively gentle alternative to other forms of inequality that will emerge if economic inequality is reduced. Smith argues in Book III of the Wealth of Nations that the rise in inequality in market income and consumption went along with reduced inequality in social status and hierarchy—and in reduced societal violence as well. Great landlords who cannot earn and spend their wealth in the city will focus on arming and maintaining retainers, and the result will be that they will “make war according to their own discretion, almost continually upon one another, and very frequently upon the king; and the open country still continued to be a scene of violence, rapine, and disorder”. But once there are luxuries to be purchased by wealth earned by selling produce to the growing cities, “it was impossible that the number of their retainers should not as gradually diminish, till they were at last dismissed altogether”, and so peace came to the countryside.

As John Maynard Keynes was to write a century and a half later: “It is far better for a man to tyrannize over his bank balance than over his fellow citizens…”

5.3. Smith Gets Snarky, Stoic, and Cynical: 5.3.1. Snarkism: Adam Smith’s next way of minimizing the importance of economic inequality is to snark. The aim of wealth is to make you happy. Smith thinks that what wealthy women wish they could buy is beauty, and what wealthy men wish they could buy is strength. But who are the beautiful and strong in England? Adam Smith tells us in an aside on nutrition on the good qualities of the potato:

The chairmen, porters, and coal-heavers in London, and those unfortunate women who live by prostitution, the strongest men and the most beautiful 11 2019-11-21 4339 words women perhaps in the British dominions, are said to be, the greater part of them, from the lowest rank of people in Ireland, who are generally fed with this root [the potato]…

The rich aren’t doing a terribly good job of using their wealth to promote human flourishing, are they? And there is the implication that the rich are none too happy.

We see Smith, and what he is doing here, I think.

5.3.2. Stoicism: But Adam Smith’s main way of minimizing the importance of economic inequality is to assume the philosophical pose of the stoic. You work hard. You sacrifice your peace and leisure in order to get rich. And what does that get you as you age? Adam Smith writes that to the aging, looking back at a life in which they have sacrificed their ease and their happiness in order to gain wealth:

Power and riches appear then to be, what they are, enormous and operose machines contrived to produce a few trifling conveniencies to the body, consisting of springs the most nice and delicate, which must be kept in order with the most anxious attention, and which in spite of all our care are ready every moment to burst into pieces, and to crush in their ruins their unfortunate possessor. They are immense fabrics, which it requires the labour of a life to raise, which threaten every moment to overwhelm the person that dwells in them, and which while they stand, though they may save him from some smaller inconveniencies, can protect him from none of the severer inclemencies of the season. They keep off the summer shower, not the winter storm, but leave him always as much, and sometimes more, exposed than before, to anxiety, to fear, and to sorrow; to diseases, to danger, and to death…

Who then benefits from all the industry and toil of the upwardly-mobile? Adam Smith argues that it was, somewhat paradoxically, the poor. The rich sacrifice their true happiness to set in motion enterprises. And the commodities produced by those enterprises are principally consumed by the poor:

The earth by these labours of mankind has been obliged to redouble her natural fertility, and to maintain a greater multitude of inhabitants…. The proud and unfeeling landlord…. The capacity of his stomach bears no proportion to the immensity of his desires, and will receive no more than that of the meanest peasant. The rest he is obliged to distribute among those, who prepare, in the nicest manner, that little which he himself makes use of… all of whom thus derive from his luxury and caprice, that share of the necessaries of life, which they would in vain have expected from his humanity or his justice…

5.3.3. Cynicism: Last, Adam Smith minimizes the importance of economic inequality by claiming that there is little or nothing to be done about it. Human nature is such that people will seek to create, and then to obey, those whom they will call their superiors. It is the view expressed by Calvera in the movie The Magnificent Seven. Chico asks Calvera:

And the people of the village? What about them?

Calvera responds:

I leave that to you. Can men of our profession worry about that? If God did not want them to be sheared, he would not have made them sheep!

As Adam Smith puts it in his Theory of Moral Sentiments:

A stranger to human nature, who saw the indifference of men about the misery of their inferiors, and the regret and indignation which they feel for the misfortunes and sufferings of those above them, would be apt to imagine, that pain must be more agonizing, and the convulsions of death 13 2019-11-21 4339 words more terrible to persons of higher rank, than they are to those of meaner stations. '

Upon this disposition… is founded the distinction of ranks, and the order of society. Our obsequiousness to our superiors more frequently arises from our admiration for the advantages of their situation, than from any private expectations of benefit from their goodwill…. We desire to serve them for their own sake, without any recompense but the vanity or the honour of obliging them…

To attempt to eliminate inequality is, for Smith in his cynical mode, like trying to bail out the sea: make society equal, and people will find somebody to look up to, and then figure out a way to give their money away to the rich.

So that is Adam Smith: worry about prosperity and wealth, yes; trust the (properly managed) “system of natural liberty”, yes; worry about poverty and want, yes; worry about inequality, not so much.


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The Engineer-Dictator Temptation: Lawrence Dennis, the Great Depression, & the Fascist Road Not Taken

Could the United States had followed Germany and France down the path to fascism in the 1930s? Consider the dark logic of Lawrence Dennis, the failures of liberal reform, and the contingent heroism that kept America on a different course. The 1930s were a hinge in world history, and Lawrence Dennis was the Cassandra of American collapse. His warnings, his authoritarian prescriptions, and the counterfactuals of FDR’s survival all force us to ask: how close did we come to the abyss?…

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This AM the very sharp Zack Beauchamp gets into the WAYBACK machine and gives us a tour back to 1935, and the extremely interesting Lawrence Dennis. He was a brilliant and deeply complicated figure, who diagnosed the Great Depression as the death knell of liberal capitalism and offered a chillingly candid blueprint for American fascist reform, critiquing parliamentary drift, calling for antrammeled unitary technocratic executive, envisioning a “middle-class revolution” that would subordinate property and liberty to the needs of the state.

Consider the failures of German and French social democracy, the near-misses of American history in 1933, and the ever-present temptation of the engineer-dictator. I think we need to take Lawrence Dennis at least as seriously now as people did then. Dennis then saw only three possible futures for America: communism, chaos, or authoritarian reorganization. Reading Dennis makes us confront the limits of pluralism, the dangers of elite despair, and the persistent allure of strongman solutions in times of economic and political breakdown. For the 1930s were a crucible for democracy, and Lawrence Dennis was its most unsettling American prophet.

I still have my Dennis notes from Slouching Towards Utopia here on my hard disk!

Even though not a single word about Dennis made it into the final book!

So let me drag my notes out!

Now let me dust them off:

Lawrence Dennis (1893–1977) was raised in Atlanta as an evangelical child prodigy—he was preaching sermons before he was ten. He went on to Phillips Exeter Academy, Harvard, served as a captain commanding a military police company in France and World War I, and held posts in the U.S. diplomatic service in Central America. He quit the diplomatic service because he objected to the U.S.’s opposition to the Sandanistas.

In the 1930s,, surveying the wreckage of the Great Depression, he concluded that liberal capitalism was not merely ailing but terminal. Dennis became the country’s foremost homegrown theorist of fascism, arguing—first in The Coming American Fascism (1936), then in The Dynamics of War and Revolution (1940)—that the United States required a centralized, technocratic state to manage its economic affairs, and that the old verities of constitutional government and individual rights were, at best, quaint relics of the eighteenth century. Put on trial for sedition during World War II (the judge died of a heart attack, and the new judge declared a mistrial),

Dennis spent his later years as a consultant and writer, largely shunned by polite society.

That he was also Black “passing”—itself a thing that is a very weird facet of American one-drop anti-Black racism—added yet another layer to the life of an already very complicated man

Dennis back in 1935 saw three and only paths for America going forward:

  • Soviet Union-style communism,

  • chaos,

  • fascism.

But why?

Why couldn’t the system that had developed and worked moderately well in western Europe from 1849 to 1914 and in the United States from 1865 to 1929—the Belle Époque-Gilded Age pseudo-classical semi-liberal order—have been raised from the briny deep, put into drydock, structurally repaired, given a fresh coat of paint, and sent back out to sea?

Because, Dennis explained, the liberal capitalist system simply could not be sustained:

Lawrence Dennis (1935): Fascism for America <https://sci-hub.se/https://journals.sagepub.com/doi/abs/10.1177/000271623518000110>: ‘Fascis[m is]… the inevitable alternative to chaos or communism…. ‘The orderly processes of the liberal capitalist system call for adjustment of the financial difficulties through bankruptcy, mortgage foreclosures—putting the country through the legal wringer… adjustment of market, price, and wage[s]… without Government subsidy to production curtailment or to subsistence of the unemployed. There is not a serious-minded man in the country who would long keep his head on if he tried to put the country through the wringer of orderly capitalist readjustment. Therefore I say the system is doomed…. The plea of the conservatives for a return to the Constitution is absurd when the strict enforcement of constitutional property rights would precipitate civil war. Every economic adjustment today rests on Government interventions in new and innumerable forms…

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But couldn’t it be reformed to be workable via normal procedures?

Dennis thought not.

Dennis asked his audience not to delude themselves. People needed to recognize that the endless parade of majority congressional votes—each wrangled from the machinery of procedure, lubricated by organized interest-group pressure, relentless lobbying, and the ceaseless jockeying for re-election among a multitude of anxious officeholders—did not, in aggregate, amount to anything like the necessary steady hand on the wheel of state. Checks-and-balances had Madisonian charm, but was not governance but rather drift, fragmentation, and paralysis. Congress was always be paralyzed by interest-group factions, corrupted by plutocratic money, with representatives cowering in fear of offending some key single-issue voters come the next election. The “playing politics” creaking Enlightenment-orrery mechanisms of representatives and votes and courts under liberal governance simply could not deliver the needed goods:

Lawrence Dennis (1935): Fascism for America: ‘Liberalism cannot achieve a governmental pattern of intervention which can… work… result[ing] mostly from the play of individual and competitive initiatives in a relatively free market… If Mr. Roosevelt is to play politics he cannot increase taxation and lower wages enough to put the unemployed to work…. He therefore rides the dollar toboggan of inflation, and goes on smiling and fishing with the Astors.… A state which has to fight minority group pressures in the electoral campaign and minority economic interests in the courts cannot plan orderly economic processes…. The result of the play of minority and private interests in the electoral and court games is not a conspiracy of welfare but a conspiracy of chaos….

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And this “toboggan of inflation” would end in a hyperinflationary crash, followed by, if not fascism, then chaos or communism.

And with respect to communism, Dennis said: no thanks, please!:

Lawrence Dennis (1935): Fascism for America: ‘Of the communist values… most important… is that human welfare demands the liquidation of the élite… a euphemism… being stood up before a Communist firing squad. I find the bourgeoisie of this country too numerous and too strong to be liquidated except in one of the bloodiest and most prolonged civil wars…. I should not like to be liquidated…. The liquidation of so large and useful a group of persons would be a greater loss to the rest of the community than the advantages any dictatorship of triumphant proletarian revolutionary leaders could possibly vouchsafe…

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So what was Dennis’s alternative?

Lawrence Dennis (1935): Fascism for America: ‘The authoritarian scheme… [is] the planning of a central authority, which must always be really a council of persons, charged with this function…. The keynote is… centralization of control… scrapping… separation of power. Government… no longer… checking and balancing or playing a game of the individual versus a state… An executive council representing a mandate from the people to do a managing job.,,, The end of the… congressional system… [with] policies… the results of power group pressures…

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“Energy in the unitary executive” TO THE MAX! And to what end? This:

Lawrence Dennis (1935): Fascism for America: ‘Forc[ing] the insurance companies and the institutional investors to finance at low rates of interest a large part of the present capital-goods deficiency… [with a] government[al]… will and the power to levy a current income without borrowing to match its current outgo…. Success… in achieving sound financing… would depend largely on… state intervention… control…

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For under Lawrence’s fascism:

Lawrence Dennis (1935): Fascism for America: ‘A private property right is only a right to do what the state from day to day may decide may be done…. The investor could be assured of his principal… and whatever rate of interest, if any… secure[d] sufficient savings. The manager… could… retain something… as a bonus for efficient and successful management. Ownership and management would lose their present legal rights to win court victories over the state and to obstruct its policies, but in exchange they would derive… security from labor trouble and [ruinous predatory] competitive practices…

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And people should not worry about the “property rights” of investors. They would remain effectively untouched:

Lawrence Dennis (1935): Fascism for America: ‘As far as the millions of stockholders, bondholders, depositors, and insured having an interest in corporate affairs are concerned, fascism will not materially modify their rights or liberties, for the very good reason that, as it is, they have de facto no rights or liberties to be modified except the rights to sell their rights of ownership if they can find a buyer and to take what management gives them. These rights will undoubtedly be left to them…

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“Fascism” was thus, for Dennis, at bedrock the end of the false belief that government is founded upon possession of inalienable rights. Rights were damned alienable. Were alienable at government request. For the needs of the many outweigh the needs of the one.

From the perspective of the courts, the contrast Dennis saw was most stark: Liberalism rested on the proposition that the welfare and security of the individual were best preserved by robust, vigilant courts—what Dennis likes to call “active and powerful judicial restraints”—standing ever-ready to check the ambitions of the state and shield private citizens from governmental overreach.

Fascism, by contrast, in Dennis’s telling, flipped the script: it held that the true guarantor of individual well-being is not the independence of the courts but the vigor, competence, and single-minded purpose of the state apparatus itself—the “strength, efficiency, and success of the State in the realization of the national plan.” In short: for the liberal, courts were the bulwark; for the fascist, it was the executive’s capacity to deliver on grand designs—to Make America Great Again.

And this transformation would not have been seen as a loss:

Lawrence Dennis (1935): Fascism for America: ‘Individuals who have been beaten by the depression in the free market do not want liberal liberties to do things they cannot as a practical matter do, and liberal liberties for others to do things to them which the others can and actually do, and which the victims do not like to have done to them. The liberal critics of fascism are apt to stress the question of liberty…. The people who want a New Deal or a new system are not entirely enchanted with their present liberties. Liberty is a word to be used by people fighting for something they do not have; it is not a good propaganda word for people to play with who are fighting to keep something they have…

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And if you were a young whippersnapper wanting to rise and have a career, or an old fogey hoping for a comfortable retirement, you needed to get on the train:

Lawrence Dennis (1935): Fascism for America: ‘IThe élite of the present order can assure their leadership or liberties only by… joining the offensive on the technological problems of social organization and production. The political instrument of government must be directed by an executive council representing a mandate from the people to do a managing job… the end of the parliamentary or congressional system, under which governmental decisions and policies are the results of power group pressures…

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That was Dennis’s argument back in 1935. The people would elect a president who would run the executive as a plebiscitary dictator setting goals and directions for the country. Government would be done by councils of smart and capable technocrats telling the big corporations what they needed to do to Make America Great Again. The police would deal politely with anti-American non-public-spirited wannabe John-Galtish recalcitrants, while also providing security from labor trouble and ruinous predatory competitive practices. And all would be as well as it could be—certainly better than Soviet-style communism, or the interest-group court veto-driven paralysis of any attempt to continue the Gilded Age Order.

Zack comments this morning:

Zack Beauchamp: Fascism for America <https://link.vox.com/view/608adc2191954c3cef02cb34ocrry.dn9/84c0b10c>: ‘The Great Depression was proof that liberalism had run its course — its emphasis on free markets and individual liberty unable to cope…. Te only question was whether communism or fascism would win the future. And Dennis was rooting for the latter….

Two central errors in Dennis’s work that have direct parallels [today]….

The first… is a claim that a recent crisis is a product of unchangeable and unreformable liberal philosophical commitments…. Patrick Deneen… argues that the… rise of… Trump augurs liberalism’s collapse… that is, he believes, a necessary product of liberalism’s philosophical commitments to meritocracy and individualism… because “liberalism’s conception of liberty created both a new ruling class and degraded the lives of the masses”… [by] weakening of the ties that bind humans together….

The second… is an idealization of liberalism’s alternatives…. Catholic integralism… [with] the state… tasked with using its power to further the spiritual mission of the Church… requir[ing] truly extraordinary amounts of coercion to be implemented in a country that’s 20 percent Catholic (and most American Catholics are not themselves far-right)…. Right-wing religious regimes have a poor track record when it comes to protecting the rights of non-believers…

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Well, yes. Anti-liberal régimes have very poor records indeed—at the very least, records bad enough to make everyone except grifters and the delusionally insane cling to the liberalism of fear. It is not attractive to think of an America in which Adrian Vermeule and his peers cheer on:

  1. the hunting-down and imprisoning of users of artificial birth control

  2. (because they believe that back in 1968 that then-71 year-old grifter Giovanni Battista Enrico Antonio Maria Montini had special insight into the Mind of The One Who Is, binding on all peoples of the world will-they nill-they),

  3. and the close scrutinization of every single red-state miscarriage,

  4. while trans people are beaten in the streets for the crime of existing,

  5. and green-card holders, H1B visa holders, dreamers, and everyone else whose papers are not in perfect order—ahem, Elon Musk; ahem, Melanija Knavs—tread very warily indeed:

  6. lest their employers drop a dime the day before payday and have Marco Rubio and Kristi Noem take action and deport them immediately.

You say we already have (3) through (6 here in this America today? I guess we do.

And as for the inability of the modern avatar of what has descended in the legitimate line from Enlightenment-Era liberalism to reform itself again, that does indeed hang in the balance. I note that we did it in the 1930s: constructed the social-democratic New Deal Order that had a powerful affinity with the mass-production mode of societal organization and that drove the greatest boom generation after World War II that the world had ever seen. Can we do it again? It is in our hands.

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I will point out that Dennis’s judgment in the 1930s that the Belle Époque Order as reconstructed after WWI could not reform itself, and that fascism was its future destiny, was correct for Germany and correct for France.

German social democracy could not reform itself to deal with the Great Depression: Rudolf Hilferding, the former finance minister and a leading theorist of the SPD, squashed Wojciech Woytinsky’s ambitious proposal to rally the party around a program of large-scale public works and deficit spending—essentially, a German New Deal. Woytinsky, an economist of considerable vision, had argued for state-driven investment to break the cycle of unemployment and deflation, but Hilferding and the party establishment clung to orthodox fiscal rectitude and the gold standard, fearing inflation and the loss of bourgeois confidence more than mass immiseration.

The result was paralysis: the SPD, while notionally the party of labor, proved incapable of adapting its ideology to the new economic realities, and so Germany’s democratic left found itself outflanked by reactionaries and radicals alike. When the crisis demanded innovation, the party’s leadership offered only caution and incrementalism—a failure that, in the end, opened the door to Hitler’s seizure of power. Thus the collapse of German social democracy in the face of the Great Depression was not merely a matter of bad luck or external pressure; it was a tragedy of intellectual and organizational rigidity.

Hilferding’s refusal to break with economic orthodoxy left the SPD unable to offer a plausible alternative to Brüning’s austerity, which was driving millions into the arms of the Nazis and Communists. The party’s fear of alienating centrist voters, and its lingering trauma from the hyperinflation of 1923, led it to defend a status quo that was already visibly collapsing. In the end, the SPD’s commitment to parliamentary procedure and fiscal discipline proved to be a straitjacket—it was, arguably, the last chance to save German democracy from the abyss. In the end, the party’s failure was not just tactical or ideological, but existential.

Analogously, six years later in France, Leon Blum’s Premiership was aslo a failure. He could not keep his Front Populaire coalition together to make his attempt at a New Deal successful in France.

When the Popular Front—a grand coalition of Socialists, Radicals, and Communists—came to power in 1936, hopes ran high that France might finally break out of its economic stagnation and political sclerosis with a program of sweeping social reform, much as Roosevelt’s New Deal was doing across the Atlantic. Blum’s government did indeed enact significant measures: the 40-hour workweek, paid vacations, collective bargaining rights, and wage increases for workers.

Yet the coalition was riven by ideological rifts and mutual suspicion:

  • the “Radicals “feared Communist revolution more than they desired social progress,

  • the Communists were wary of “bourgeois” reformism,

  • and the Socialists were caught in the middle, trying to hold the whole edifice together.

When Blum attempted to launch a program of public works and government-led investment to combat the Depression—his own version of the New Deal—he ran headlong into a wall of resistance from the business community, the financial sector, and, crucially, the Bank of France, which refused to countenance deficit spending or currency devaluation. The coalition fractured under the strain, with the Radicals peeling off and the government collapsing in 1937. Thus, the French attempt to construct a New Deal analogue foundered not on lack of vision, but on the shoals of institutional conservatism, elite intransigence, and the inability of the left to maintain a united front.

And so the stage was set for the conquest of France by fascism. The failure of Leon Blum’s administration led to substantial grumbling, along the lines of “better Adolf Hitler than Leon Blum”. May and June 1940 saw France’s swift and humiliating military defeat by Nazi Germany. That marked a decisive turning point in French political history. Marshal Pétain, the aged hero of Verdun from World War I, was called upon to form a new government as the country reeled from military disaster and the exodus of millions of refugees.

Pétain’s regime, soon headquartered in the spa town of Vichy, swiftly dismantled the institutions of parliamentary democracy, immediately dissolved the National Assembly, and initiated a program of “National Revolution” that abandoned the republican ideals in favor of authoritarianism, Catholic traditionalist integralism, and collaboration with the Nazi occupiers. The original revolutionary “Liberty, Equality, Fraternity” was erased and replaced by “Work, Family, Fatherland”.

Under Pétain, France became, for the first time in its modern history, a state openly committed to reactionary values and the suppression of political dissent—a regime that interned Jews, persecuted Communists, and sought to “cleanse” French society of the supposed degeneracies of the interwar years. The Vichy government’s capitulation to fascist ideology was not merely the product of foreign occupation, but the culmination of years of political polarization, elite disillusionment with democracy, and the failure of the French center and left to mount an effective defense of the Republic. It was both the consequence of German military might, but the endpoint of a long process of democratic decay and elite retreat from republican principles. Only Charles de Gaulle and a handful of others urged resistance in June 1940. The overwhelming majority of deputies and senators, traumatized by the scale of defeat and convinced that further resistance was futile, voted to grant Pétain full powers to draw up a new constitution.

Many conservative elites, business leaders, and Catholic intellectuals had long yearned for a regime of “order” that would restore hierarchy and discipline to a society they saw as enervated by decadence and class conflict. Pétain’s ascent was thus greeted by many not as a national tragedy, but as a necessary, even redemptive, correction.

And so within a matter of days, the machinery of republican government had been replaced by an authoritarian “Etat Français,” with Pétain as “Chef de l’Etat,” wielding near-absolute authority. The Vichy regime rapidly set about dismantling the achievements of the Third Republic: labor unions were suppressed, the press was censored, and the principle of secularism was eroded in favor of a Catholic-inflected nationalism. Most infamously, Vichy willingly participated in the persecution of Jews, enacting its own anti-Semitic statutes and facilitating the deportation of tens of thousands to Nazi death camps.

Indeed, Dennis’s judgment that fascism (or communism) was the future was correct for every place except Switzerland, Belgium, the Netherlands, Denmark, Sweden, Norway, Iceland, Canada, New Zealand, Australia, Great Britain, Ireland, and the United States.

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And in the United States, at least, I believe it was a nearer-run thing than we recognize today.

Suppose Lillian Cross had not hit assassin Giuseppe Zangara with her purse on February 15, 1933. Suppose his bullet had then found the brain of president-elect Franklin Delano Roosevelt rather than the lung of Chicago mayor Anton Čermák. Suppose Roosevelt had died and Čermák lived.

Then America’s history in the Great Depression years of the 1930s and the world’s history since would have been very different. For “Cactus Jack” John Nance Garner would then have become president eighteen days later. He was a conservative go-along get-along Democrat from the rural far south of Texas, first elected to the U.S. House of Representatives in 1903. He focused on local issues and party organization rather than championing national progressive reforms, quietly building seniority and influence. He did support measures like the graduated income tax and the Federal Reserve System, but generally aligned with the southern-conservative Bourbon wing of the Democratic Party—those who were not Republican because they remembered that Lincoln had freed the slaves. In the 1920s, Garner rose to Democratic whip and then minority leader, and was known for his skill at legislative maneuvering and coalition-building.

Garner became Speaker of the House when the Democrats retook control of the chamber in 1931, and then Vice President in 1933. Initially a key ally in passing New Deal legislation, he later broke with Roosevelt over issues like deficit spending and the expansion of federal power and became a rabid anti-New Dealer.

But in our timeline, in this branch of the multiverse, on March 4, 1933, it was Franklin Delano Roosevelt took hold of the US government, broke the gridlock in US politics, and started to experiment with ways to solve the economic problem of the Great Depression. The next day FDR forbade the export of gold and declared a bank holiday. Within four days the House and Senate had convened, and the House unanimously passed Roosevelt’s first bill, a banking reform bill, the Emergency Banking Act, that arranged for the reopening of solvent banks, as well as the reorganization of other banks, and gave Roosevelt complete control over gold movements.

The second bill Roosevelt submitted to Congress also passed immediately. It was the Economy Act, cutting federal spending and bringing the budget closer to balance.

The third was the Beer and Wine Revenue Act, a precursor to an end to Prohibition—the repeal of the constitutional amendment banning the sale of alcohol.

On March 29 he called on Congress to regulate financial markets.

On March 30 Congress established Roosevelt’s Civilian Conservation Corps.

On April 19 Roosevelt took the United States off of the gold standard.

On May 12 Congress passed Roosevelt’s Agricultural Adjustment Act.

On May 18 Roosevelt signed the Tennessee Valley Authority Act, creating the first large government-owned utility corporation in the United States.

Also on May 18, he submitted to Congress the centerpiece of his first hundred days: the National Industrial Recovery Act (NIRA). All factions within the newly constituted administration won something in the legislation: Businesses won the ability to collude—to draft “codes of conduct” that would make it easy to maintain relatively high prices, and to “plan” to match capacity to demand. Socialist-leaning planners won the requirement that the government—through the National Recovery Administration (NRA)—approve the industry-drafted plans. Labor won the right to collective bargaining and the right to have minimum wages and maximum hours incorporated into the industry-level plans. Spenders won some $3.3 billion in public works.

And so the First New Deal entailed a strong “corporatist” program of joint government-industry planning, collusive regulation, and cooperation; strong regulation of commodity prices for the farm sector and other permanent federal benefits; a program of building and operating utilities; huge amounts of other public works spending; meaningful federal regulation of financial markets; insurance for small depositors’ bank deposits along with mortgage relief and unemployment relief; a commitment to lower working hours and raise wages (resulting eventually in the National Labor Relations Act of 1935, or Wagner Act); and a promise to lower tariffs (eventually fulfilled in the Reciprocal Tariff Act of 1935).

The devaluation of the dollar, plus the NIRA, did break the back of expectations of future deflation. The creation of deposit insurance and the reform of the banking system did make savers willing to trust their money to the banks again and began the re-expansion of the money supply. Corporatism and farm subsidies did spread the pain. Taking budget balance off the agenda helped. Promising unemployment and mortgage relief helped. Promising public works spending helped. All these policy moves kept things from getting worse. They certainly made things somewhat better immediately and substantially better soon thereafter.

But aside from devaluation, monetary expansion, an end to expectations of deflation, and an end to pressure for more fiscal contraction, what was the effect of the rest of Roosevelt’s “first one hundred days”? It is not clear whether the balance sheet of the rest of that period is positive or negative. A full-fledged policy of monetary inflation and mammoth fiscal deficits that might have pulled the country out of the Great Depression quickly—that did pull Hitler’s Germany out of the Great Depression quickly—was not really tried. Consumers complained that the National Recovery Administration raised prices. Workers complained that it gave them insufficient voice. Businessmen complained that the government was telling them what to do.

Progressives complained that the NRA created monopoly.

Spenders worried that collusion among businesses raised prices, reduced production, and increased unemployment.

Hoover and his ilk declared that if FDR had only done as Hoover had been doing, everything would have been better sooner.

In the face of such criticism Roosevelt kept trying different things.

If business-labor-government “corporatism” did not work—and was blocked by the mostly Republican-appointed Supreme Court—perhaps a safety net would. The most enduring and powerful accomplishment of the New Deal was to be the Social Security Act of 1935, which provided federal cash assistance for widows, orphans, children without fathers in the home, and the disabled and established a near-universal system of federally funded old-age pensions. If pushing up the dollar price of gold did not work well enough, perhaps strengthening the union movement would: the Wagner Act set down a new set of rules for labor-management conflict and strengthened the union movement, paving the way for a wave of unionization in the United States that survived for half a century. Massive public works and public employment programs restored some self-esteem to workers and transferred money to households without private-sector jobs—but at the probable price of some delay in recovery, as firms and workers saw higher taxes.

Other policies were tried: Antitrust policy and the breaking-up of utility monopolies. A more progressive income tax. A hesitant embrace of deficit spending—not just as an unavoidable temporary evil but as a positive good. As the decade came to an end, Roosevelt’s concerns necessarily shifted to the forthcoming war in Europe and to the Japanese invasion of China. Dr. New Deal was replaced by Dr. Win the War. In the end the programs of the Second New Deal probably did little to cure the Great Depression in the United States. But they did turn the United States into a modest European-style social democracy.

Much followed of consequence. That Franklin Roosevelt was center-left rather than center-right, that the length of the Great Depression meant that institutions were shaped by it in a durable sense, and that the United States was the world’s rising superpower, and the only major power not crippled to some degree by World War I—all these factors made a huge difference. After World War II, it had the power and the will to shape the world outside the Iron Curtain. It did so. And that meant the world was to be reshaped in a New Deal rather than a reactionary or fascist mode.

Individuals acting in particular ways at precise places at precise moments, not just thinking thoughts but finding themselves with opportunities to make those thoughts influential, matter profoundly. Their deeds in such moments even shape the Grand Narrative of an entire long century.

Without FDR, what?

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But let me return to Lawrence Dennis, for while he strikes Zack Beauchamp as very wrong, he strikes me as right, but right not in our timeline but rather in many many timelines in the multiverse very close to ours:

Read today, Lawrence Dennis’s “Fascism for America” is equal parts time capsule and fever dream, as it crystallises a temptation that seems today to forever lurk at the edge of democratic capitalism: when the machine misfires, summon the engineer-dictator.

Dennis Great Depression not as an episodic downturn but as a structural heart attack induced by liberalism’s own operating system. Markets allocate capital? Not when banks cower behind excess reserves. Judicial protections secure property? Not when foreclosure courts would liquidate half the Midwest. Congressional politics balances interests? Not when every lobby raids the Treasury for emergency relief. Add it up and liberalism, Dennis claimed, was simply incapable of the macro-coordination modern economic life required.

That diagnosis, ex post, was not entirely crazy. Keynes in Cambridge, Hansen at Harvard, Marriner Eccles at the Fed—all were also groping toward the insight that an under-employment equilibrium could persist unless the state acted forcefully.

Where Dennis swerved onto the dark path was in supposing that the only effective action had to be not merely activist but authoritarian. His “solution” was textbook corporatism: nationalise credit, marshal savings through compulsory channels, dictate investment priorities, abandon both judicial review and congressional appropriation, and thereby jump-start full employment via ten-billion-dollar construction drives.

Dennis did understate the informational and incentive advantages of pluralism. A planning board can set quotas; it cannot, as Hayek would later emphasise, replicate the fine grain of decentralised signals. Dennis’s own plan dissolves into vaguery the moment it confronts questions like “Which factory first? At what real wage? Using which relative price of steel?” Mussolini’s Italy never cracked that code; Stalin’s USSR managed brute-force industrialisation only by sacrificing consumption and liberty on a scale Dennis politely ignores.

Third—and most important—Dennis pretended that he could erase politics via giving absolute power and energy to a plebiscitary president. Why, he asked, should elites hesitate? Private property would survive—owners would simply be told what to do with it. Workers would gain jobs and “security,” a word he repeats with hypnotic insistence. The only losers would be the lawyers and the sentimentalists who worshipped parchment. The masses, Dennis insisted, cared nothing for eighteenth-century verbiage; give them pay-packets and they will salute any flag you wave. Let the president set the goals for society and tell people to fall in line, and people would.

Dennis did miss that his plan would merely move politics from legislators to courtiers. Who selects the “executive council”? How are errors corrected when neither courts nor elections can bite? His assurance that elites would patriotically align profit with plan is less an argument than an incantation. The twentieth-century record, from Nazi rent-seeking to Soviet nomenklatura privilege, suggests that unchecked hierarchy petrifies quickly into predation.

Still, Dennis’s 1935 “Fascism for America” remains a remarkably candid manifesto for authoritarian reorganisation in the midst of the Great Depression.

Dennis begins by noting the convergence of otherwise antagonistic observers—conservatives such as Herbert Hoover, moderate socialists, and Communists—on a single point: liberal capitalism, as embodied in the American constitutional order, is tottering. In his reading, the Depression discredits the liberal state’s reliance on private investment, judicial safeguards, and congressional bargaining. Dennis envisions a “middle-class revolution” that would supplant checks-and-balances with unified command. The authoritarian state would nationalise credit, enabling unlimited but carefully budgeted public investment in order to absorb the jobless and modernise the nation’s capital stock. Simultaneously, it would compel private owners to operate under strict state directives: profits and interest would be permitted only when aligned with the national plan, and any defiance would trigger managerial replacement. Courts would become clerks, enforcing rather than reviewing administrative orders.

Dennis goes all-in with the totalitarian conviction that “order” and “welfare” can be ensured only by concentrating political, economic, and cultural power in the hands of a single hierarchy. Religious institutions, the press, and radio would have to amplify, not challenge, state objectives. A national fascism, led by the current élite but forced to sacrifice laissez-faire prerogatives, can preserve civilisation and even deliver higher living standards through disciplined production. Yet this window is narrow: if the “ins” refuse to adapt, the “outs” will dismantle the old order violently.

Dennis is scornful of liberal paeans to individual liberty. The masses, he argues, have never read Locke or The Federalist; their loyalty is malleable, shaped by propaganda and conditioned by economic security. In the same vein he mocks conservative faith in the Constitution, likening it to Jacobite nostalgia for Bonny Prince Charlie—romantic, futile, and destined for irrelevance once the next crash vaporises banks and savings.

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And it is at this point that I need to remind you of the importance for the successful construction of the social-democratic New Deal Order of not just Roosevelt but Keynes, who had a plan to avoid fascism and communism alike by delivering stable full employment and a not-too-inequitable income distribution via the lightest of light-handed (or light-fingered?) central-planning adjustments to the economic mechanism.

The Great Depression was the twentieth century’s greatest case of self-inflicted economic catastrophe. As Keynes wrote at its very start, in 1930, the world was “as capable as before of affording for every one a high standard of life.” Yet, he said, “we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand.” Keynes feared in 1930 that “the slump… [might] pass over into a depression, accompanied by a sagging price level, which might last for years with untold damage to the material wealth and to the social stability of every country alike.” He then called for resolute, coordinated monetary expansion by the major industrial economies “to restore confidence in the international long-term bond market… and to restore [raise] prices and profits, so that in due course the wheels of the world’s commerce would go round again…”

Nobody followed his direction in 1930, save for Takahashi Korekiyo in Japan, who took the Keynesian path without knowing what it was. He pulled Japan out of the Great Depression very early through bold, proto-Keynesian policies: abandoning the gold standard in 1931, aggressively lowering interest rates, and using the Bank of Japan to finance deficit spending on public works and government programs. Takahashi’s policies led to a rapid recovery in Japan—well before the U.S. or Europe—but his later attempts to rein in military spending led to his assassination in 1936.

But the dominant reaction to Keynes and his ilk in 1930 was to reject him, as a con artist, for, as Winston Churchill’s private secretary, P. J. Grigg, put it, “an economy could not forever by government financial legerdemain live beyond its means on its wits…” The claim instead was that mass unemployment was an essential part of the process of economic growth, and that attempts to artificially keep the unproductive from experiencing it would only store up more trouble for the future. We saw this revived during the Great Recession of the 2000s. when thinkers like the University of Chicago’s John Cochrane welcomed the prospect of a recession because “people pounding nails in Nevada need to find something else to do”: he thought recession unemployment would be a welcome spur. Keynes had anticipatorily snarked back long before. Activism and reflation were nevertheless “the only practicable means of avoiding the destruction of existing economic forms in their entirety.”

Moreover, Keynes snarked further, if his critics were even half-smart, they would have understood that successful capitalism needed the support of an activist government ensuring full employment, for without that, only the lucky innovators would survive, and only the mad would attempt to become innovators. Growth would therefore be much slower than necessary: “If effective demand is deficient,” he said, the entrepreneur was “operating with the odds loaded against him.” The “world’s wealth” had “fallen short of… individual savings; and the difference has been made up by the losses of those whose courage and initiative have not been supplemented by exceptional skill or unusual good fortune.”

Austerity and orthodoxy and laissez-faire were, in the conditions of the world after 1914, deadly destructive mistakes. And the persistence of the Great Depression, no matter how big the budget cuts, showed that Keynes was right. He wrote in 1936, with more than a hint of sarcasm, that his proposals for the “enlargement of the functions of government” that were required in order to adjust “the propensity to consume and the inducement to invest” might seem “a terrific encroachment” on freedom “to a nineteenth-century publicist or . . . contemporary American financier.” But, in fact, they were “the condition of the successful functioning of individual initiative.” His policies and his alone would produce a world in which not just capitalism but individualism, personal liberty, and personal autonomy—which I believe the extremely bisexual Keynes valued immensely—could survive, for the other authoritarian system options obtained full employment only through great regimentation of society.

The underlying message of Keynes’s is that the government needs to intervene on as large a scale as needed in order to shape the flow of economy-wide spending and keep it stable, and, in doing so successfully, guard the economy against depressions while preserving the benefits of the market system, along with human economic liberty and political and intellectual freedom.

The only substantive difference between a Keynes and, say, a Milton Friedman was that Friedman thought that central banks could do all this alone, via monetary policy by keeping interest rates properly “neutral.” Keynes thought more would be required: the government would probably need its own spending and taxing incentives to encourage businesses to invest and households to save. But those incentives alone would probably not be enough: “I conceive,” he wrote, “that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment, though this need not exclude all manner of compromises and of devices by which public authority will co-operate with private initiative.”

And so Dennis was wrong. Then. In our timeline branch of the multiverse.

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Notes on Google's Attempt at Self-Disruption

Can Google sustain itself this way, as it makes a very high stakes bet on transforming itself from gateway to gatekeeper?…

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This is, at some level, gonzo:

Rich Holmes: Google is destroying its own business - and still winning <https://departmentofproduct.substack.com/p/google-is-destroying-its-own-business>: ‘Google delivered an impressive earnings call that told a curious tale of a company that is both destroying itself and winning at the same time…. Google users who encounter an AI summary are less likely to click on links than those who don’t. Just 8% of users who saw a page with an AI summary clicked on a link vs 15% who didn’t. 26% of users ended their browser session after seeing the AI summary vs just 16% who saw pages without the summary.… [And yet] search revenue hit a record $54.2 billion in Q2, up 12% year-over-year…

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Google is destroying its own business - and still winning
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Ben Thompson offers a vey positive analysis for the future of Google-as-a-money-tree, concluding that perhaps its opportunities to turn MAMLMs into a sustaining innovation are braked primarily by its own caution:

Ben Thompson: Rumors of Google’s Demise… <https://stratechery.com/2025/rumors-of-googles-demise/>: ‘I’ve repeatedly laid out the theoretical case for why AI is potentially disruptive to Google, starting with 2023’s AI and the Big Five. It remains something to monitor. Once again, however, I have to come to Google’s defense: all available metrics suggest that the company is doing quite well. Indeed, I would go further: you can make the case that the company’s biggest mistake is not going harder!Pichai and Chief Business Officer Philipp Schindler worked extremely hard to not answer questions about search volume and especially search click-through rates, which was telling in its own right…. Pay clicks were up 4% and search revenue was up 12% makes it clear that Search growth is primarily being driven by higher prices…

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And Alistair Barr spotlights exactly how big is Google’s unexpectedly aggressive investment in AI infrastructure:

Alistair Barr: Tech Memo July 25, 2025 <https://l.businessinsider.com/s/vb/bS9v95B>: ‘Big Tech is in an AI arms race, each company trying to outspend the others on data centers, GPUs, networking gear, and talent. Engineers can be let go. But the infrastructure? That’s permanent. If the AGI dream fades, you’re stuck with massive, costly assets. So when Google announced it would hike capex by $10 billion to $85 billion in 2025 eyebrows went up.… It’s no shock when Elon, Zuck, and Sam flex on capex. But Google? That’s surprising…. Will these swelling bets pay off?… Since May, Google’s monthly token processing (the currency of generative AI) has doubled from 480 trillion to nearly a quadrillion. Search grew 12% in Q2, beating forecasts. Cloud sales surged 32%. CEO Sundar Pichai said Google is ramping up capex to support all this growth. But it’s still a huge gamble…

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Huh…


What do I make of this?

Here is an attempt at a take:

Google’s decision to incorporate AI-generated summaries directly into its search results represents a profound shift. Google had functioned as a gateway, directing users outward to a vast constellation of third-party sites, via its blue links. Now this is upended, as outward traffic is halved, with implications for publishers, e-commerce platforms, and information providers who have built their business models around the expectation of Google-driven traffic. They are unsustainable on their old patterns should the AI-summary become the destination and not just the gatekeeper.

In the pre-AI era, the company’s dominance was already formidable; most online journeys began with a query in the search box. But by answering more questions directly—whether through featured snippets, knowledge panels, or now AI summaries—Google transitions from being a mere index to an oracle. This is history rhyming with how the social networks, by keeping users engaged within their platforms, siphoned attention away from the broader web, to our great detriment. AI summaries perform a similar enclosure, but with the added imprimatur of algorithmic authority.

And yet Google is now claiming that, so far, even as the total volume of outbound clicks declines, the value of each remaining click rises. Advertisers, desperate for access to the dwindling pool of users who actually leave Google’s domain, find themselves bidding up the price. For Google, this would be a masterstroke—extracting greater rents from advertisers while providing users with what appears to be a more efficient search and knowledge acquisition experience.

The missing piece: When users encounter an AI-generated summary on Google and subsequently click through to an advertiser’s website, what do they then do? Their post-click behavior becomes a crucial determinant of value for advertisers. Are these users are simply verifying the AI summary’s accuracy before bouncing? Or does the AI summary act as a primer, sending only the most motivated, high-quality traffic onward—users primed to engage, convert, or purchase? This dynamic has analogues in the past history of digital advertising: consider the shift from indiscriminate banner ads to targeted, intent-driven search ads in the early 2000s, which dramatically increased both the value-per-click and the efficacy of online marketing.

Plus the AI summary may change user expectations and behaviors in ways that are difficult to anticipate or measure.

Back up: Google’s fear is being disrupted by a firm with a MAMLM that stands between individuals and the web as a whole—that serves as an intermediary that crawls the web once, and then does RLHF and RAG to be a better summarization and brainstorming agent than an individual checking on Google search-result blue links can.

This MAMLM would not simply index the web and provide links, but would synthesize, summarize, and even brainstorm on demand, offering users answers and insights far richer than what can be gleaned from clicking through a list of blue links. In this world, the user’s primary and monetizable relationship is not with the open web, nor even with Google, but with the AI intermediary itself—a shift that would render Google’s core business model, and the web’s traditional architecture of discovery and monetization, increasingly obsolete.

Google’s response: if anyone is going to disrupt our business by doing this, it is going to be us. We will spend whatever it takes to pre-empt such disintermediation by directly building and deploying our own AI summarization and answer-generation capabilities directly into our flagship search product. We will thus cannibalize its own legacy business and simultaneously define the next paradigm—one in which the search page itself becomes the user’s destination. One thinks of IBM’s embrace of the PC, or Apple’s willingness to let the iPhone kill the iPod. But the stakes here are higher, and the feedback loops more treacherous. For Google, the logic is as brutal as it is clear: better to risk undermining the golden goose than to have it stolen outright by a new breed of algorithmic upstart.

The vague outlines of the developing situation are, so far, confused:

Perhaps the new regime promises greater value for users, as the MAMLM-as-summarization-engine does its work: instead of wading through a swamp of SEO-chaff and clickbait, the user is presented with a concise, context-aware answer—sometimes even a synthetic argument or brainstorm—without ever needing to click away from the search results page. For the harried, time-constrained knowledge worker, this is a godsend. Imagine a world in which one confronts not a list of blue links, but a cogent synthesis, drawing on JSTOR, Wikipedia, and the latest Substack polemic, all in one go. Frictionless knowledge, delivered at the speed of thought, with the AI acting as both librarian and tutor.

At the same time, Google claims it is seeing “equal value” from monetizing AI-summaries as from monetizing search, on its side of the ledger, at least so far. Even as the volume of outbound clicks falls, advertisers are bidding up the price of each click that remains. Is the theory that these are now higher-intent, more motivated users, pre-filtered by the AI? Are they just so starved for traffic that their willingness to pay is great? Trading quantity for quality, or exerting monopoly power? So far, their auction model is holding up—though one wonders how long that equilibrium can last, and what happens if advertisers start to see diminishing returns.

But the losers in this brave new world are the websites.

Less traffic flows to the underlying sources, as users are increasingly satisfied by the AI’s answer and see little need to click through to the original. For the vast ecosystem of publishers, bloggers, and even e-commerce sites that have built their business models on the back of Google-driven traffic, this is an existential threat. The web risks becoming a substrate for AI extraction, rather than a living network of destinations. And then we get a new form of SEO, dedicated to maximizing AI-slop.

Plus: While the promise of greater value for users is seductive, but. The MAMLM-as-summarization-engine promises to collapse the search-and-scan process into a single, authoritative-seeming paragraph. This promises, for the user, a productivity revolution: research that once took hours now happens in seconds. But there is a price: obscured nuance, flattened debate, and consensus prioritized over dissent. Moreover, there is the loss of “productive friction”—the serendipity and discovery that comes from wandering through primary sources. Roaming through the stacks of Widener Library, the book you wanted was not the one you had the classification code for but the one three to its left—something you could only learn with a stack pass. The value proposition for users is a Faustian bargain, and we have seen such bargains before.

There are two roads:

First, if “AI” intermediaries are not the future—if it turns out that the grand experiment with AI intermediaries—MAMLMs, summarizers, chatbots, whatever you want to call them—amounts to little more than a high-tech cul-de-sac, Google will have burned through eye-watering sums of capital for what, in retrospect, will look like an overreaction to a phantom threat. The company will have spent nine figures on data centers, GPUs, and armies of engineers, all to defend against the possibility that its search business would be leapfrogged by a new digital oracle. Google’s expenditures will have functioned as a kind of “strategic insurance”—a hedge against a disruption that never materialized. But the sunk costs are not entirely wasted. Google, at the very least, will have acquired technical capabilities, organizational muscle, and a deeper understanding of the AI landscape—assets that can perhaps be redeployed as the technological winds shift.

Second, if “AI” intermediaries are the future of digital knowledge navigation, Google is not only betting the farm, but buying up the neighboring counties as well. The company is investing in this transition at a scale that outmatches all rivals. The bet is that in a winner-take-most environment, scale and speed are everything. By moving first and moving big, Google positions itself to capture whatever monetization opportunities arise. This is so as long as “sufficient quantity has a quality all its own”. History is full of examples: Microsoft’s dominance in operating systems, Amazon’s in logistics, or even Google’s own early days in search, when scale begat quality, and quality begat scale, in a virtuous (for the incumbent) cycle.


It is interesting to watch: As AI-powered summarizers threaten to interpose themselves between users and the web, Google is racing to become its own self-disruptor. If you can trade volume for value, and open discovery for algorithmic enclosure, it will. If it turns out to be a dead end, it will have built enormous infrastructure-layer data-processing tools that can be turned to other purposes. Will it get a healthy ROI on those? No. But the enthusiasm of AI-addled investors is keeping this commitment from causing any financial blowback.

Of course, this strategy risks eroding the web’s ecosystem of content creators, fragmenting user journeys, and triggering regulatory backlash. Advertisers pay more for each precious click, while publishers see their traffic decimated. For users, the promise of instant answers is seductive, but the long-term consequences for information quality, diversity, and innovation remain uncertain.

But Google has decided that these things are not its problem now, but somebody else’s.

With lots of further questions. Here are five:

  • Will advertisers eventually balk at escalating costs, or will the law of diminishing returns force a reckoning with the current model?

  • Is there a potential for a counter-movement—perhaps a new “open web” alliance—seeking to reassert the value of outbound linking and decentralized discovery?

  • Could publishers respond by designing landing pages specifically for “AI-primed” visitors—pages that acknowledge the summary, offer deeper context, or present unique value not captured in the initial answer?

  • Might we see a bifurcation of the web: one layer optimized for human navigation and engagement, another for AI ingestion and synthesis?

  • How can users maintain agency, critical thinking, and serendipitous discovery in a world where the MAMLM’s output is tailored, persuasive, and frictionless?

  • How will Google’s internal culture—famously risk-averse and bureaucratic in its later years—adapt to the demands of continuous, existential self-cannibalization?


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A Note on the Closing of the Path to Future U.S. Hegemony—Economic, Political, Geostrategic, Cultural

From hegemon to has-been, remarkably quickly too. But think, post American hegemony, not Chinese hegemony but rather (hopefully peaceful) balance-of-power, and of influence, global politics. Trump’s chaos-monkey nature, internal dysfunction, and strategic myopia have indeed opened the door. When the world’s policeman hangs up his badge and becomes a mafia extortion-racket chieftain, the world notices. China may well have an opportunity for hegemony, but it is unlikely to walk through the door…

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The answer is: Yes, the path to future U.S. hegemony is now closed.

America’s grip on global leadership didn’t slip—it has been rapidly pried loose by incompetence, distraction, and a studied indifference to history. It is now being deliberately chosen, piece by piece, by those who mistake chaos for strategy and retreat for renewal. The end of U.S. hegemony wasn’t inevitable, and could be being accomplished so quickly only by a strange régime of chaos monkeys, kleptocrats, and grifters. China could seize the initiative to become the new hegemon of a new and different ordo saeclorum. But I think it is no more likely to grasp this nettle than the U.S. was back in 1920.

The long arc of U.S. global dominance, from 1945 to 2020, has ended not with a bang but with a series of self-inflicted wounds. Domestic dysfunction, foreign policy vacillation, and the willful neglect of alliances are now swiftly undermining American influence, credibility, and leadership. What will be left is a vacuum, most likely to be only partially filled, and filled by a balancing of power chaos rather than any new order structured by hegemony. Not Beijing’s ambitions but Washington’s abdication are likely to be at the fore here.

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Noah Smith has a nice piece about how Donald Trump and his grifter-enablers are doing a huge number of things to accelerate China’s relative technological, economic, and geopolitical rise, and how now “the path to hegemony looks a lot smoother for China than it did nine months ago”. He gives good, cogent reasons:

Noah Smith: Trump is enabling Chinese power <https://www.noahpinion.blog/p/trump-is-enabling-chinese-power>: ‘An incompetent, selfish, inwardly focused administration is making America less of an obstacle to China’s rise…. Beginning in Donald Trump’s first term… it seemed as if the world was moving into Cold War 2…. Trump had a reputation as a China hawk… [but] now seemed to have abandoned the idea… against… TikTok divestment… cancel[ing] the bipartisan CHIPS Act that represented America’s best hope of retaining meaningful semiconductor manufacturing capacity. Why would Trump switch from a China hawk to an appeaser?…

As in so many cases, Trump’s actual policies… have been inconsistent, confusing, and sometimes hastily reversed…. Why did Trump cave on H20 chips and design software? The most obvious reason is that Trump has simply chickened out yet again. China has been hurting the U.S. with its own export controls on rare earths…. [hat] bodes ominously for the strategy of economic containment that Biden’s people developed….

China… has a natural advantage in scale… key to reducing manufacturing costs…. The only way for the U.S. to rival China’s scale would be to essentially combine its markets with those of other countries… U.S. allies…. It is exactly those allies that Trump is attacking with his latest round of tariffs. Having backed off of his China tariffs after finding that country to be too hard a target, Trump is looking for wimpier countries to bully….

Now, because of culture-war concerns, Trump is attacking government research…. An attempt to push Chinese talent out of America… ends up strengthening China and weakening the U.S…. Every day… a new policy that will weaken America’s hand against China. For example… [shipbuilding]…. “the NSC shipbuilding office closing… [and] zero follow-through on Trump’s State of the Union promise to open a dedicated White House shipbuilding office…”. This doesn’t seem like deliberate Trump administration sabotage of America’s naval power; it’s too chaotic and involves too many bad actors and competing interests. Instead… simply… extreme incompetence…. The U.S. is purging its diplomatic corps.…

Trump himself is too irresolute, cowardly, and focused on personal enrichment. Too many of his subordinates harbor an isolationist view of geopolitics. The administration in general is too incompetent, too bereft of human capital, and far too focused on prosecuting domestic culture wars by burning down any institution they see as harboring wokeness…. With Trump making America more and more of a geopolitical nonentity, chaos agent, and wild card, the path to hegemony looks a lot smoother for China than it did nine months ago.…

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Trump is enabling Chinese power
Beginning in Donald Trump’s first term in office, and then especially during the Biden administration, it seemed as if the world was moving into Cold War 2. A U.S.-led democratic bloc was facing off against the “New Axis” — a China-led bloc that included Russia, North Korea, and possibly Iran. The contest promised t…
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“Hegemony” comes from the Greek “hegemon”—a term that, in its original context, denoted the leader of a coalition, the primus inter pares whose authority derived not from mere brute force but from the capacity to organize, coordinate, and, crucially, to provide. It is more a manager of alliances—not strong enough to dominate, yet powerful enough to lead, while being restrained enough to maintain the consent (or at least acquiescence) of those it leads rather than having its throwing its weight around trigger the formation of a countervailing balance-of-power coalition. “Hegemony” is neither a birthright nor a permanent condition; it is a practice, fragile and perishable, dependent on the continual renewal of both material capabilities and the legitimacy of leadership.

My old teacher Charlie Kindleberger used the term “hegemony” to denote the unique and indispensable role played by a dominant power in stabilizing the international economic system in his 1973 The World in Depression, 1929–1939, which remains the gold standard of comparative economic history. Kindleberger powerfully argued that it was the absence of a willing and able hegemon—specifically, the United States’s failure to take on that role—in the interwar years that was was the root cause of the Great Depression’s depth and duration. Britain, the previous hegemon, had become too weak. America, the rising giant, was too parochial and inward-looking. Kindleberger’s insight was that global order is not self-organizing. It requires a state willing to provide public goods—market access, liquidity, coordination, and, when necessary, a lender of last resort. Without a hegemon to shoulder these burdens, the system devolves into beggar-thy-neighbor policies, competitive devaluations, and, ultimately, collapse. His analysis was not merely historical: it was a pointed warning to all who would assume that international capitalism can function without leadership. Kindleberger’s vision of hegemony is not about domination, but about responsibility—the willingness to act, often at some cost to oneself, for the stability of the whole.

Robert Keohane broadened the concept beyond the study of purely international economic order in his 1984 After Hegemony: Cooperation and Discord in the World Political Economy. (Ironically, Keohane’s central point was that even though the U.S. could no longer be a successful hegemon its previous building of institutions like the IMF, the World Bank, GATT, and the UN meant that the international order it had constructed would continue—but the U.S.’s ability to be a successful hegemon was then rising, and would not fall back to below its 1970s level until the 2016 election of Donald Trump.) In the hands of Keohane and others like Stephen Krasner, Susan Strange, and John Ikenberry, “hegemony” became a framework for analyzing not only the provision of economic public goods, but also the construction and maintenance of security alliances, the shaping of international norms, and the creation of durable institutions. “Hegemonic stability theory” posited that the presence of a dominant, rule-setting power—be it the British Empire in the 19th century or the United States in the post-1945 era—was essential for the functioning of a liberal international system. When the hegemon was strong and engaged, the world saw relative peace, open markets, and institutional innovation; when the hegemon faltered or withdrew, the system became vulnerable to fragmentation, rivalry, and crisis.

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We can think of hegemony as having four dimensions:

Geostrategic hegemony is the condition in which a single state possesses sufficient military power, willingness, and ability to shape the security architecture, strategic alignments, and conflict outcomes across the globe. Having the largest army and the most advanced technology helps. But the key is being the indispensable power whose preferences, red lines, and guarantees structure the choices of others. The United States, for example, achieved geostrategic hegemony in the post-World War II era by stationing troops across Europe and Asia, underwriting alliances like NATO and the U.S.-Japan Security Treaty, and establishing itself as the ultimate arbiter in crises from Berlin to Korea to the Persian Gulf. This status enabled Washington to deter rivals, reassure allies, and, at times, impose order (or disorder) according to its own interests and values.

Political hegemony is the condition in which a single state or actor possesses the capacity to set the rules of the game for the international political system—not merely through coercion or the threat of force, but by shaping the institutional architecture, agenda, and norms that govern how states interact. It is about being the “rule-maker” rather than the “rule-taker,” the actor whose preferences and priorities are encoded in the treaties, organizations, and informal practices that structure world politics. Political hegemony is not simply a matter of having the most votes or the loudest voice; it is about the ability to build coalitions, set agendas, and define what is legitimate or illegitimate conduct on the world stage. This form of hegemony is inherently dynamic and contested: it requires constant investment in diplomacy, alliance management, and the maintenance of legitimacy, and it is always vulnerable to challenge from rising powers, revisionist actors, or shifts in the underlying distribution of capabilities and ideas.

Economic hegemony is when a single nation both has the power and steps up to set the rules and provide the public goods that underpin the global economic system. This is not simply a matter of having the largest GDP or the deepest capital markets—although those certainly help—but of being the anchor of international finance, trade, and payments. The economic hegemon is the country whose currency serves as the world’s reserve asset, whose markets are open to imports, whose banks provide liquidity in times of crisis, and whose policymakers are looked to for coordination and leadership. Britain in the nineteenth century, with the pound sterling as the global means of settlement and London as the world’s banker, played this role. The United States assumed the mantle in the twentieth century, first hesitantly and then decisively after World War II.

Cultural hegemony is the ability of a dominant society or state to shape, define, and naturalize the values, beliefs, tastes, and everyday assumptions of others—so thoroughly that its worldview becomes the default or “common sense” for much of the world. This is not simply about exporting pop music, movies, or fast food, although Hollywood and McDonald’s are certainly part of the story. Rather, it is about setting the terms of aspiration and legitimacy: what counts as modern, desirable, or even normal. In the twentieth century, American cultural hegemony became manifest in everything from the global spread of English, to the adoption of blue jeans, to the near-universal aspiration to “middle-class” lifestyles and consumer culture. More subtly, it was visible in the spread of liberal individualism, the valorization of entrepreneurship, and the framing of democracy and human rights as universal ideals. When it works, it is the quietest and most enduring form of power: it shapes not just what people do, but what they want.

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We had U.S. hegemony in all four dimensions from 1945 to 2020—with some signs of it cracking in the 1970s, and then again in the 2000s as George W. Bush degraded the Western Alliance to a “coalition of the willing”, and then again in the late 2010s as other powers and global citizens frantically tried to figure out how to corral the chaos monkey-nature of Donald Trump I. Do we still have it today? I would argue no:

Culturally, from the rest of the world’s perspective the country of mass shootings by AR-15 that can elect Donald Trump twice is not anything that anybody outside the United States will aspire to and see as a legitimate example of what is desirable, modern, and normal. It’s not something any group of other people save for other countries’ own neofascist grifting would-be élites would want.

Economically, the grave damage done by Trump to American public- and nonprofit-sector science will be a huge handicap.

But there is more. Add to that the near-cessation of immigration of the talented and the entrepreneurial. And add to that the near-enserfment of non-citizens: It is not just those without proper papers who now have to be willing to cut their wage demands enough that their employers do not have an incentive to drop a dime to ICE the day before payday. H1B visa=holders must be similarly wary, and similarly eager to go the extra mile to make sure their employers are getting enormous surplus. Plus green-card holder permanent residents: all Kristi Noem has to do is ask, and Marco Rubio will then immediately revoke your green card and deport you for no reason at all save that someone with in some Trumpist affinity does not like your face.

The creation of such a massively exploitable labor underclass of non-citizens (and citizens who don’t look white enough) is not a full-fledged Jim Crow like the system that kept the American South relatively very poor and its Bourbon aristocracy so dominant in the century after the Civil War. But it definitely does trend in that direction.

No: the likelihood that the American economy will be strong enough to support economic hegemony in the future is now low. More important, the United States will not be trusted to follow-through. And a leader needs the confidence of others that there will be follow-through. American economic hegemony is gone.

Politically, do not make me laugh. The rule of chaos-monkey Trump is that there are no rules. The concept of hegemon simply does not apply. We have, rather, balance-of-power international politics, in which the power that thinks it has predominant force is often surprised by the strength of the countervailing coalitions its attempts to throw its weight around assembles.

And geostrategically? Under Trump, there are no red lines: TACO. There are no guarantees: Trump’s word is simply not good. There are barely preferences. The likelihood that Trump’s Pentagon can manage the creation and maintenance of an effective force rather than degenerate into a free-for-all wealth-diversion feast is very low. There is lots of money in the Pentagon to grab. Prime contractors know how to grab it. Plus all of those kitchens in Vienna, Virginia will not remodel themselves. Remember that this is already the Pentagon that could spend $2.3 trillion on the War in Afghanistan from 2001 to 2021, and end up with Afghani anti-Taliban forces much weaker than the Northern Alliance had been in August 2002. Without adult supervision. I would be very wary of expecting anything good from sending the U.S. military as it will have become in 2029 into harm’s way.

Hegemony is not a birthright. It is a practice, renewed daily by choices—some grand, some mundane. The U.S. had immense resources, allies, and reservoirs of goodwill in 2016. But these assets have and are now being squandered at an extraordinarily rapid rate, definitely in part by simple malice, but even more so by neglect, confusion, and the ever-present temptation to turn inward.

Some people say that come 2029 we can simply rewind things back to 2016, and pretend that nothing in between ever happened. Right.

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But that U.S. hegemony is gone does not mean that China’s hegemony is next.

Hegemony as we have known it is, after all, a post-1870 thing, with the rise of the British Empire in the world of full economic globalization. From 1815 to 1870 Britain was predominant but not hegemonic. From 1643 to 1815 France was the most powerful militarily and the most emulated cultural power, but not hegemonic as it was again and again constrained by the balance-of-power formation of counter “grand alliances”. And from the suppression of the Comuneros in 1521 and the Germanias in 1522 to 1643, it was imperial Habsburg Spain that was predominant, but again its throwing its weight around created constraining countervailing coalitions. It requires an international environment culturally, economically, politically, and strategically conducive for it to emerge: one like the post-1870 fully globalized world, or the Aegean Sea between -478 and -454, when Perikles moved the Delian League’s treasury from Delos to Athens, and began embezzling its funds.

China does, as Noah Smith notes, have enormous obstacles to making the 2000s a Chinese century, or even to its own successful economic development and long-run political stabilization. It faces internal power struggles, demographic headwinds, and the limitations of authoritarian governance. Plus it is hard to see China putting the global-cultural and geostrategic jenga blocks in place here—although the economic and political blocks could be attainable, should things break right in terms of economic growth and political stability, and should the Chinese élite be interested in the project.

But they will probably not be. The maintenance of hegemony is an exercise in self-discipline. It requires investment—in alliances, in research, in human capital—and a willingness to subordinate short-term interests to long-term stability. The alternative is a world in which the rules are written elsewhere, or rules are written not at all. Both Britain and the United States developed foreign-policy élites in the 1860s and 1940s, respectively, that were powerful and committed to the hegemonic prospect. I do not see analogous patterns developing now within China.

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Losing Friends, Hobbling Manufacturing Businesses & Workers, & Sabotaging Growth with One Inept Chaos-Monkey Tariff Trick

A masterclass in self-destruction as Bessent, Lutnick, Greer, Hassett, Vought, Miran, Navarro, Miller, and all the other grifters try to retcon the chaos-monkey social-media posts of Trump into a policy, pushing up inflation, fueling corrupt cronyism, & causing America’s decline in both prosperity and in ability to shape the world for our safety…

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Today we have Paul Krugman saying that as a result of Trump’s tariffs U.S. autoworkers’ products now are disfavored relative to Japanese autoworkers’ products:

Paul Krugman: The Art of the Really Stupid Deal <https://paulkrugman.substack.com/p/the-art-of-the-really-stupid-deal>: ‘What the heck were the Trumpists thinking?… Trump announced… a big trade deal with Japan… [got] a 0% score… reaction from the manufacturing sector, both management and labor….

This deal… leaves many U.S. manufacturers worse off than they were before Trump began his trade war…. How did this happen?… Trump’s negotiators probably had no idea what they were doing, and didn’t realize that in their frantic rush to conclude a deal they were agreeing to tariffs that would be highly unfavorable to U.S. manufacturing. Why were they frantic?… He and his people were surely anxious to make some major announcements before his self-imposed deadline of Aug. 1…. And of course they may also have hoped that a splashy trade deal would move the news cycle off Jeffrey Epstein…

Paul Krugman
The Art of the Really Stupid Deal
Earlier this week the Trump administration triumphantly announced that it had scored a big trade deal with Japan. Now the reviews are in, and the deal basically received a 0% score on Rotten Tomatoes. And I’m not talking about the reactions of economists; I’m talking about the reaction from the manufacturing sector, both management and labor, which Trum…
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We also have Anne Krueger noting that deals are not deals, and tariff rates have no systemic rationale whatsover:

Anne Krueger: Trump’s Self-Defeating Trade Agenda <https://www.project-syndicate.org/commentary/trump-tariff-war-makes-no-economic-sense-by-anne-o-krueger-2025-07>: ‘The unpredictability of Trump’s trade policies poses a grave threat…. Trump announced a trade deal with Vietnam that imposes a 20% tariff on Vietnamese imports… [that] contain no Chinese components; otherwise, the rate jumps to 40%…. [That is] far higher than the 11% that Vietnamese policymakers – caught off guard by his announcement – reportedly believed they had negotiated…. Adding to the uncertainty are Trump’s tariff hikes and new restrictions on commodity imports. Since January, the US has raised steel, aluminum, and copper tariffs to 50% and imposed a 25% tariff on auto parts. Although he claims that his deal with China will ensure US access to rare-earth minerals, their status remains in limbo…. The entire process has been marked by confusion and inconsistency…. The increasingly visible rise of crony capitalism, as a steady stream of foreign officials and American business executives descends on Washington to lobby for tariff exemptions and protections…

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We have Alan Wolfe on the bewildering unpredictability of the chaos monkey, and the response to deepen globalization everywhere but with the United States:

Alan Wolfe: Is US tariff policy reshaping the world trading system? <https://www.piie.com/blogs/realtime-economics/2025/us-tariff-policy-reshaping-world-trading-system>: ‘What the US tariffs will be and on which products, either in blanket fashion (President Donald Trump campaigned on having 10 or 20 percent tariffs on all but China, whose products would be tariffed at 60 percent) or by country of origin or product sector is unknown….. The blanket tariff at 10 percent or above is part of the US negotiating position, with tighter restrictions on named product sectors as varied as semiconductors, lumber, pharmaceuticals, polysilicon, and copper. Adding to the unpredictability, Trump has threatened, and in a few cases has already obtained agreement to the imposition of, much higher across-the-board tariffs for individual countries…. One can only conjecture how soon and to what extent these costs in terms of inflation or availability of products will become apparent….

Major participants in world trade, including Canada and the European Union, speak in favor of diversifying their trade…. Sweden and some forward-looking trade experts have suggested… a closer economic relationship and policy coordination between the European Union and the countries of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP)…. 39 countries… build[ing] on WTO rules while achieving even freer trade…. The United States will increasingly face trade discrimination in foreign markets…. [Even with a] one-way zero tariff deal, as it reportedly has achieved with Vietnam and Indonesia… countries can resort to a myriad of nontariff barriers to impede imports…. For the best part of a century, the world relied on leadership from the United States to shape the rules of the world trading system. That task, at present, now falls to others…

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And we have questions but no answers as to whether there even was a Japan-U.S. trade deal at all:

Balazs Penz: The $550 Billion Enigma at the Heart of Japan’s Trade Deal <https://www.bloomberg.com/news/newsletters/2025-07-25/the-550-billion-enigma-at-the-heart-of-japan-s-trade-deal>: ‘The trade deal that US President Donald Trump celebrated as the largest in history becomes the more puzzling the more layers are peeled back. The centerpiece is Tokyo’s pledge to set up a $550 billion US investment fund…. The White House said over $550 billion will be invested under the direction of the US, and Trump said… 90% of the profits will be given to America…. Shigeru Ishiba, on the other hand, said Japan would offer a mixture of investment, loans and loan guarantees up to a maximum of $550 billion…

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It is very clear, reading between the lines, that there are now bureaucrats in Japan who will be tasked with coming up with ways to relabel the current flow of investment from Japan to the United States and add government blessing to them over whatever period is needed to make the total add up to $550 billion—or is it $400 billion?

And, no, foreigners are not paying the tariffs. Exporters to the United States are not cutting their margins significantly. Krugman again:

Paul Krugman: The Art of the Really Stupid Deal <[paulkrugman.substack.com/p/the-art...](https://paulkrugman.substack.com/p/the-art-of-the-really-stupid-deal>): ‘You want to look at are import prices — the prices foreign producers are charging America, prices tracked by the Bureau of Labor Statistics. If Trump were right, we’d be seeing a large fall in import prices, offsetting the tariff hikes…. What we actually see is… foreigners don’t seem to be paying any significant share…. So far, the burden seems to be falling mainly on U.S. businesses…. The Institute for Supply Management’s report on manufacturing… [shows that] we’re currently experiencing cost inflation at levels not seen since the summer of 2022:

So far, these costs haven’t been fully passed on… but once businesses see how high tariffs on Japan and Europe are after they’ve made deals, their willingness to absorb the tariffs rather than passing them on to consumers will evaporate.

Paul Krugman
The Art of the Really Stupid Deal
Earlier this week the Trump administration triumphantly announced that it had scored a big trade deal with Japan. Now the reviews are in, and the deal basically received a 0% score on Rotten Tomatoes. And I’m not talking about the reactions of economists; I’m talking about the reaction from the manufacturing sector, both management and labor, which Trum…
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This is in no way a shrewd exercise in mercantilism.

This is not even a risky but somewhat coherent experiment in economic nationalism.

This is chaos-monkey chaos unleashed on the patterned global division of labor that is a substantial part of the bedrock underpinning our prosperity. The spectacle has been, by turns, comic and tragic—a Monty Python sketch reimagined as a trillion-dollar policy disaster, with the global economy as its unwitting straight man. It is not a break with the past but a leap into the void.

The administration has cited every conceivable rationale—national security, job creation, deficit reduction, even the prosecution of foreign leaders—without ever deigning to submit its actions to the discipline of economic logic. The result is a system in which more than 10,000 tariff classifications can be and are adjusted at a moment’s notice, producing a combinatorial explosion of uncertainty for every firm, worker, and consumer engaged in cross-border commerce.

Higher tariffs have not reduced the trade deficit, except to the extent that they reduce investment in America while also leading American consumers to spend less and save more. The trade deficit arises when there is a financing gap between desired investment by businesses and savings provided by Americans interested in holding something other than government bonds. That gap is an opportunity for foreigners to invest in America. But in order to get the dollars they need to finance that investment, they need to sell us more goods and services than they buy from us. Voilà: trade deficit. To the extent that Trump’s tariff policies succeed in raising household savings, they risk recession by weakening consumption spending. To the extent that Trump’s tariff policies succeed in reducing investment in America, they make economic growth slower and us poorer. For Trump’s tariff policies—unbacked as they are by any complementary macroeconomic policy adjustments—to be part of a policy mix that actually reduced the trade deficit would be an even greater disaster than the ongoing breaking of the production-network links that support prosperity. Fortunately for us, they are unlikely to do so.

But recent macroeconomic modeling from the Penn Wharton Budget Model does project that the latest Trump tariffs would reduce long-run U.S. GDP by about 6% and average wages by 5%, inflicting lifetime losses on middle-income households that far exceed those from an equivalent corporate tax hike. And this is without fully incorporating the consideration that U.S. tariffs have triggered a cascade of retaliatory measures from major trading partners. This threatens to lead to an escalating cycle of trade barriers and counter-barriers that would fragment global supply chains that touch the United States. Those that route around the United States are, if anything, growing stronger and more valuable.

And, of course, a court system that took Congress as the first branch seriously—that required that the findings-of-fact set forth by Trump necessary to trigger the powers given him under the trade laws were in fact made in good faith—would have already stopped this: stayed tariff imposition on the grounds that ultimate success in justifying the findings-of-fact in a court was extremely unlikely. But four Supreme Court justices believe that Trump has much more powers than a British king had in the 1700s. (Not, mind you, that Biden had such powers, or that a future Democratic president would have such powers.) And two Supreme Court justices are terrified that if they get Trump mad he will move against them and start a fight that they would lose.

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MILKEN INSTITUTE REVIEW: Behind the Hype: What "AI" Is & Isn't

In the summer 2025 issue of the Milken Institute Review. Silicon dreams & nightmares & the real sakes of the AI frenzy comprised of machine minds, human motives, & a lot of tangled hype…

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The arrival of Modern Advanced Machine-Learning Models threatens or promises to disrupt time-honored patterns of white-collar work, but it has already upended the entire calculus of Silicon Valley’s platform power plays. Platform behemoths spend tens of billions to defend their turf. Investors chase dreams of AI riches that may never materialize. This is not your grandfather’s automation. The battle is for control of the mammoth profits thrown of by the “info” side of the Attention Info-Bio Tech Economy we are now building. The rules are being rewritten in real time.

Those betting on the next AI unicorn need to first ask themselves if they are joining the real revolution real, or dreaming feverishly of a rerun of crypto speculation. With understanding of what it really is—and isn’t—they may save themselves from being the next casualty of tech’s latest gold rush: economics, illusions, and realities behind the most overhyped hype cycle thus far in this millennium.

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Behind the Hype

by j. bradford delong

illustrations by thomas kuhlenbeck

brad delong is an economist at the University of California, Berkeley, and creator of the blog Grasping Reality. He was deputy assistant secretary of the Treasury in the Clinton administration.
Published July 24, 2025
DeLong J Bradford What AI Is And Isnt 2

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Less than three years ago, OpenAI, the nonprofit research organization focused on artificial intelligence, released what it viewed as a preview of incremental advances in the field along with a public demonstration of the technology. That’s not how the world received it, though. ChatGPT’s arrival was a cultural-financial-entrepreneurial-technological sensation, overnight conjuring our current AI-soaked (haunted?) world.

Stop a moment here to separate the signal from the noise. Recognize that the people who speak of AI as the keys to the universe are not trying to make you smarter. They are, for the most part, people trying to protect their own interests, which may or may not mesh with the public’s.

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Reality Bytes

A half century ago Drew McDermott, the pioneering computer scientist at Yale, called the term “artificial intelligence” a misrepresentation. He preferred the term “wishful mnemonics,” which, of course, never caught on. A more neutral moniker back at the dawn of the digital age would have been “complex information processing.” Today, it would be more accurate to call the phenomena “modern advanced machine-learning models” or MAMLMs.

But whatever you call it does not change the fact that AI has revolutionary economic and social potential even if it never translates into artificial general intelligence that bypasses human capacity and sends white-collar workers shuffling toward the soup kitchen.

To get a more nuanced sense of what AI is and where it is heading, it’s important to understand the basics of two aspects of the evolving technology:

  1. Natural-language interfaces.

  2. Big-data, high-dimension, flexible-function classification analysis. (Yikes; but stick with me here.)

  3. No less important, it makes sense to trace through the less-than obvious motives of the internet platform companies that are throwing tens of billions at AI.

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NOTE TO SELF: On Katie Martin's "Magificent Seven" Today

Engines of growth reshaping the world, but then increasingly becoming rent collectors. The fortunes of the “Magnificent Seven”. What happens in the New Reality of Big Tech? And what are the answers to the natural questions about competition, equity, and the future of innovation?…

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Aiden Reiter & Hakyung Kim: The Magnificent 7 growth slowdown <https://www.ft.com/content/3769fe15-f122-4fb5-874f-5ee48bca2bed>: ‘he market’s three-month recovery has been driven by Big Tech: From a market cap perspective, the Mag 7 is now 31 per cent of the S&P 500, also near an all-time high…. Nvidia[’s]… earnings growth in 2023 and early 2024 is too off the chart…. Tesla[’s]… earnings are all over the place and a clear outlier…. Investors have often punished Mag 7 stocks for earnings results that were great, rather than astounding…. Bank of America predicts the Magnificent 7 is only expected to keep its earnings growth edge over the rest of the S&P 500 for another 18 months: That deceleration is concerning…. Slowing earnings growth, and the high potential for bad guidance on tariffs and capex, will be a challenge…

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The “Magnificent Seven”, in the Katie Martin-coined phrase, are: Nvidia (22% of the Mag 7), Microsoft (20%), Apple (17%), Amazon (13%), Google (12%), Facebook (10%), and Tesla (6%).

They are 31% of the S&P 500 with nearly $20 trillion in market capitalization.

Pause and let that sink in.

That is staggering. Their dominance is a testament to the extraordinary value creation (or is it value capture?) as we leave the globalized-value-chain era and enter the era of the attention info-bio tech economy. Scale, platform-construction, network-effect, and technological-moat effects have propelled a bare handful of firms to heights that would have seemed fantastical just a decade ago and are fantastical now. hat a mere seven firms now account for nearly a third of its value is both a marvel of innovation (but what kind of innovation?) and a striking concentration risk.

Over the past five years, they have delivered an astonishing average real annual return of 26%, in stark contrast to the more modest 7% average real annual return posted by the remaining 493 companies in the S&P 500. This yawning performance gap is the central fact of contemporary equity markets, driven as it has been by technological advance, technological disruption, market power, and—especially in the case of Nvidia—a near-monopoly on the infrastructure of the AI revolution. Meanwhile, the broader index has trudged along at a pace more consistent with historical norms. The 26% real annual return for the Magnificent 7 is not simply the result of clever management or product innovation—it is the mathematical outcome of a system in which the spoils of growth accrue disproportionately to those who control the key levers of technology and data.

The sources of value for today’s tech titans—especially the Magnificent 7—can be classified into four interwoven categories:

  • (i) genuine productivity gains, as these firms deploy cutting-edge technology to automate, optimize, and scale operations;

  • (ii) rent collection from their platform ecosystems, whereby network effects and user lock-in allow them to extract ongoing economic value from expanding value created by platform participants;

  • (iii) rent collection by “tightening the screws,” or leveraging their dominant market positions to squeeze suppliers, partners, or customers locked into their platforms—often through pricing power, restrictive contracts, or data control;

  • and (iv) the “gonzo meme stock” phenomenon, in which valuations are propelled less by underlying fundamentals and more by narrative, speculation, and the collective enthusiasm (or mania) of retail investors.

All four of these elements are present, in varying proportions, across the Magnificent 7, shaping both their current profitability and their future prospects.

To begin, the first source—genuine productivity gains—remains foundational, particularly for firms like Nvidia and Microsoft, whose technological breakthroughs in AI chips and cloud infrastructure have enabled entire new industries and made existing processes vastly more efficient. These productivity gains are quantum leaps in computational power, data processing, and software capabilities, which in turn drive broader economic growth.

However, even as these firms innovate, they also benefit from the second source: platform-based rent collection. Apple’s App Store, for example, extracts a significant share of revenue from every transaction on its platform, while Amazon’s marketplace fees and Google’s advertising auction model similarly skim value from vast digital ecosystems. This rent-collecting dynamic is amplified by network effects: the more users and developers an ecosystem attracts, the harder it becomes for rivals to compete, and the more entrenched the incumbent’s position.

The third source, “tightening the screws,” sees dominant firms use their market power to impose terms that maximize their own profits, sometimes at the expense of suppliers, partners, or even consumers. Nvidia’s recent pricing strategies for AI chips, for example, reflect a recognition that it faces little meaningful competition in the short term; Apple’s relentless negotiation with suppliers and its push to grow “services revenue” are similarly designed to extract every available dollar.

Finally, the fourth source—the gonzo meme stock phenomenon—is a product of the current market zeitgeist. Tesla’s valuation, for instance, has at times seemed detached from traditional metrics, buoyed instead by the cult of personality around Elon Musk and the willingness of retail investors to buy into a narrative of limitless disruption. This speculative fervor can create extraordinary volatility and, at times, disconnect the market price from underlying economic value.

These four sources of value interact and reinforce. And the result is a tech landscape in which profitability and market capitalization are driven as much by structural dynamics—platform lock-in, regulatory arbitrage, and speculative enthusiasm—as by traditional measures of productive contribution.

Nvidia & Apple are primarily a mesh of (i) & (iii): a blend of genuine productivity gains and aggressive rent-collection strategies. For Nvidia, its dominance in the GPU market—particularly as the indispensable supplier of chips for machine learning and large language model (MAMLM) applications—has allowed it to not only drive technological progress but also to extract economic rents from the entire AI ecosystem. Firms across industries now find themselves with little choice but to pay Nvidia’s premium prices if they wish to participate in the AI revolution, cementing Nvidia’s position as both innovator and gatekeeper. Apple, meanwhile, continues to improve the technical sophistication of its hardware, but the company’s corporate strategy has shifted: rather than focusing solely on product excellence, Apple now leverages its market power to squeeze suppliers and maximize the extraction of “services revenue”—from App Store fees to subscription bundles—transforming its ecosystem into a formidable rent-generating machine.

Together, Nvidia and Apple illustrate the duality at the heart of the current tech landscape: genuine innovation and productivity gains are inseparable from the structures of rent extraction and market power. Both companies have built platforms that are indispensable to their respective domains, but the rewards they reap are as much a function of their strategic positioning and ability to control chokepoints as of their technical prowess. For investors, this means that future returns may depend less on the next breakthrough device or algorithm and more on the continued ability of these firms to maintain their bottlenecks and enforce their tolls. For the broader economy, it raises questions about competition, innovation, and the long-term sustainability of such concentrated power.

Microsoft’s principal source of value in the current tech landscape is primarily (ii): its prowess as a creator and provider of the enterprise platform that makes IT easy for businesses, and then rents, particularly through its cloud-compute services, as demands for IT expand with technological progress and general economic growth. The company’s Azure cloud platform has become an essential utility for enterprises and startups alike, offering scalable computing power, storage, and AI tools without the need for firms to build and maintain their own infrastructure. By lowering the barriers to entry for digital transformation and enabling rapid deployment of machine learning and data analytics, Microsoft positions itself as an indispensable intermediary—one whose services are deeply embedded in the workflows of its clients. This strategic positioning allows Microsoft to extract ongoing economic rents from the growing value created by the platform community it hosts, as customers become increasingly locked into its ecosystem of software, cloud, and AI offerings. The rise of Azure is the core here. Microsoft’s cloud-compute services are not just a convenience for customers; they are the linchpin of a new platform-centric mode of value capture in the digital age.

Amazon, Google, and Facebook derive their remarkable profitability primarily from (ii) and (iii): (ii) rent collection from their platform ecosystems and (iii) rent collection by “tightening the screws” on those dependent on their platforms. Each has constructed a digital infrastructure that is not only central to the daily experience of billions but is also designed to capture a portion of the value created by every participant—be they advertisers, merchants, app developers, or content creators. Their platforms are not going anywhere, but also are not changing in terms of what people do on them that can be a source of rent extraction. Thus overall growth continues to enlarge the scale. Plus there is the tightening of the screws—what Cory Doctorow has taught us to call the “enshittification” of their platforms as we have to wade through more and more SEO- and now AI-slop to do what we were initially looking to do. Is anyone having more fun wading through Google or Amazon search results or Facebook ad-ridden feeds these days than trying to find something actually useful on Apple’s IOS app store?

Amazon’s e-commerce platform, for instance, charges third-party sellers a variety of fees for access to its marketplace, fulfillment services, and advertising tools, effectively taxing the commercial activity it enables. Google, through its dominance in search and digital advertising, has built an auction-based system where advertisers must outbid one another for visibility, with Google extracting a margin from every transaction. Meta, as the custodian of the world’s largest social networks, monetizes user attention and data, leveraging its platform’s reach to command ever-higher prices from advertisers while simultaneously altering algorithms and policies in ways that reinforce its own power and profitability.

And Tesla.

I should stop there.

Tesla is now selling 15% fewer vehicles than it was a year ago, and Elon Musk claims that future profits will not come from Tesla as an auto-producer but as an “AI” company—that the future of Tesla is robotaxis, and then, beyond that, humanoid robots. But how much of the profits from Elon Musk’s ventures into humanoid robots, robotaxis, and, indeed, natural-language interfaces and actually working self-driving for cars will go to the 60% Musk-owned xAI rather than the 13% Musk-owned Tesla? Back in The Day, the Big Four of the publicly-held Central Pacific Railroad Company of California—Leland Stanford, Collis Huntington, Mark Hopkins, and Charles Crocker—were also the four owners of the privately-held Charles Crocker & Co. construction firm. What company did the Central Pacific pay to actually build the railroad? Crocker& Co. Who decided on the price? The Big Four. How much of the value committed by the investors in the Central Pacific was tunneled out to the Big Four by their setting a high price for construction services? How much do you think?

Maybe Elon Musk will be generous to the outside shareholders of Tesla. Maybe it will be Tesla and not xAI that is the corporate form that profits most from Musk’s humanoid robots and robotaxis. If there are profits. Maybe.

But at least as I see it, the story of Tesla is of a meme-stock company. And the meme-stock aura surrounding Tesla is a double-edged sword. While it has enabled the company to raise capital cheaply, attract top engineering talent, and command a level of media attention unmatched by peers, it also introduces risks. The disconnect between valuation and fundamentals makes the stock susceptible to sharp corrections. Moreover, the focus on narrative over execution can obscure operational challenges.

Now, do not get me wrong about the Magnificent 7: the creation of their respective technology platforms—Apple’s iOS ecosystem, Microsoft’s Windows and Azure cloud, Google’s search and advertising infrastructure, Amazon’s e-commerce and AWS, Facebook’s social networks, Nvidia’s AI hardware stack, and, ahem, Tesla—are truly extraordinary leaps in wealth creation. They have delivered enormous societal benefit. These platforms fundamentally reshaped the digital landscape, enabling new industries, business models, and forms of communication, while driving productivity gains and consumer surplus on a scale rarely seen in economic history. The rise of the smartphone, the democratization of cloud computing, the global reach of social media, and the explosion of AI capabilities can all be traced back to the foundational work done by these companies in building and scaling their platforms.

But over the past five years, and looking forward:

The increased profits and soaring valuations of the Magnificent 7 are less a direct reflection of their own productive innovation and more an indicator of two intertwined forces: (a) the prosperity generated by real economic growth elsewhere in the economy, and (b) their enhanced ability to collect, scale, and extract economic rents from their dominant positions. As the broader economy has expanded—driven by consumer demand, capital investment, and global trade—these platform firms have positioned themselves at critical chokepoints, enabling them to capture a disproportionate share of the value created by others. Their business models increasingly rely on leveraging network effects, data control, and platform lock-in to extract recurring fees, commissions, and advertising rents, rather than on delivering ever-greater leaps in genuine productivity or consumer surplus. This shift is evident in the way Apple’s services revenue has outpaced hardware growth, Google’s ad auctions have become ever more lucrative, Amazon’s marketplace fees have multiplied, and Microsoft’s cloud subscriptions have locked in enterprise customers.

Plus, at present, the Magnificent 7 are deeply engaged in the build-out of massive artificial intelligence and machine learning model (MAMLM) infrastructure, a technological transformation that promises to generate enormous user surplus for those individuals and organizations who can effectively harness the capabilities of advanced GPT LLMs and similar AI tools. The productive potential here is vast: AI models can automate complex tasks, generate creative content, accelerate scientific discovery, and unlock new business models across industries. However, the economic gains from this transformation are likely to be distributed unevenly. While users who master these tools may reap significant benefits, the lion’s share of profits is poised to accrue to infrastructure providers—most notably Nvidia, whose GPUs and specialized chips are the indispensable hardware backbone of modern AI. The costs of building, training, and operating these models—especially the massive electricity bills for data centers—will further erode margins for most players, meaning that, for investors, the return on capital in the broader AI ecosystem may be modest, with only, cough, Nvidia, able to capture increasing profits at scale.

Moreover, what is good for the Magnificent 7 is increasingly no longer good for the broader economy. Once heralded as engines of innovation and productivity, these firms are now more frequently encountered by other businesses and sectors as collectors of costly economic rents rather than as providers of ever-more-valuable services. As their dominance has grown, the Mag 7’s interests have diverged from those of the wider marketplace: their business models rely on extracting value from their privileged positions atop digital platforms, supply chains, and data networks, often at the expense of smaller competitors, suppliers, and even consumers. This shift is evident in rising platform fees, more restrictive contractual terms, and the growing use of proprietary ecosystems to lock in customers and partners, all of which serve to transfer wealth from the rest of the economy to the tech giants’ balance sheets.

The Magnificent 7—once the undisputed engines of market returns and the very symbol of American technological dynamism—have become a study in contrasts. Their performance and narratives are now sharply differentiated, shaped by a mix of sector-specific challenges, competitive pressures, and the rapid pace of technological change. Some, like Nvidia and Microsoft, are riding the wave of artificial intelligence and cloud computing, while others, such as Apple and Tesla, are grappling with slowing growth, regulatory headwinds, or shifting consumer demand.

This divergence signals the end of an era when these companies could be treated as a single, unified trade or story. Investors and policymakers must now move beyond simplistic narratives. Instead, they need a more nuanced, case-by-case analysis that carefully weighs the true sources of value—distinguishing between genuine innovation and the extraction of economic rents. It is also crucial to assess the risks that come with market concentration and to evaluate the prospects for continued productivity growth in a landscape where the easy gains of platform dominance are fading.

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Policy Uncertainty Not "AI"-Automation Is Almost Surely Behind the Bulk of Recent Graduates' Job Discontent

Why are new college graduates finding it harder than usual to get a foot in the door, even as unemployment rates stay low? Do not (yet) focus on “AI”…

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Whatever is making new college graduates these days think that their life is unusually difficult for their labor market segment, it is almost surely not “AI”. Amanda Mull:

Amanda Mull: What the Tough Job Market for New College Grads Says About the Economy <https://www.bloomberg.com/news/articles/2025-07-17/tough-job-market-for-new-college-grads-is-worrying-for-us-economy>: ‘Ernie Tedeschi… [says] hiring rates for new grads are… in line with the latter half of the 2010s…. “We still see low unemployment, and we do see pretty solid job gains,” says Allison Shrivastava, an economist at… Indeed…. But it… isn’t as lush as it was in the recent past…. [And] graduates in computer science, computer engineering and graphic design all have unemployment rates at 7% or greater…. Nathan Goldschlag… [says] the new-grad unemployment rate… “is low for things like accounting and business analytics, which… when you’re coming from the AI space… are ripe for automation”….

Stochastic uncertainty…. Companies are waiting as long as they can… in hopes of catching a glimpse of what tariffs and AI and inflation and anti-immigration policies will do to their business, which means many are delaying hiring. “Everything is just kind of stalled out and frozen,” Shrivastava says…

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And Paul Krugman:

Paul Krugman: Bad Times for College Graduates <https://paulkrugman.substack.com/p/bad-times-for-college-graduates>: ‘What we’re looking at now isn’t the worst job market college graduates have ever seen. It is, however, the worst such market compared with workers in general that we’ve ever seen, by a large margin…. Young workers always have higher unemployment than workers as a group. College graduates always have lower-than-average unemployment. But normally education trumps age: Even recent college graduates have relatively low unemployment. But not now…

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Although “bad” is relative, relative to other groups, to other countries, and tro previous booms only. Plus things do indeed still look very good in the health-care sector. The aging of the American population, combined with rising demand for mental health and other medical services, has kept job growth in health care robust, even now. But health care is only 1/6 of the economy.

Derek Thompson <https://www.theatlantic.com/economy/archive/2025/04/job-market-youth/682641/?gift=o6MjJQpusU9ebnFuymVdsJ1qwI70CnAkjDXBfrYqvHw> reports that the gap between total and recent-grad unemployment went from 3%-points in the depressed economy of 2012 down to 1%-point in the mid-2010s, which was markedly lower than the 1.75%-points typical of the 1990s. The gap went negative even before the plague. From 2014 to 2024, with zigs and zags, it fell from +1%-point to -1% point—a fall of 0.2%-points per year—before rapidly falling to nearly -2%-points today.

In tech, it actually may well be “AI”, or at least have an “AI” component,.

Tech has the most “AI” true believers by far. There are tech bosses saying, but we do not really knwo how representative they are, that workers should see this year whether ChatGPT instantiations can be their interns. Why pay for a junior analyst to draft reports or summarize documents when a large language model can do it in seconds? But similar fears have accompanied every wave of technological change, from the spreadsheet’s arrival in the 1980s (which, some predicted, would eliminate the need for accountants) to the earlier automation of switchboard operators and typists in the mid-20th century. The reality is that while some tasks are indeed automated away, new roles and new forms of work tend to emerge, though not always at the same pace or for the same people.

More important, probably, is that money that would go to new hires is instead going to buying NVIDIA chips. In the current tech boom, companies are pouring vast sums into the hardware that powers artificial intelligence—most notably, the high-performance graphics processing units (GPUs) produced by NVIDIA. These chips are the backbone of machine learning and generative AI, and demand has been so intense that NVIDIA briefly became the world’s most valuable company. For firms, the calculus is straightforward: Investing in AI infrastructure is seen as a ticket to future competitiveness, while hiring junior staff is a cost that can be postponed. The opportunity cost, however, is that young people seeking a first job may find doors closed—not because their skills are obsolete, but because capital is being allocated elsewhere. For a college freshman, this is a reminder that macroeconomic trends and corporate priorities—often far removed from undergraduate coursework—can shape the contours of the job market in unpredictable ways.

Thus there is still now hard and not even a semi-convincing soft narrative that “AI is to blame” for entry-level job scarcity. It seems to be almost surely, still, merely a convenient scapegoat. It is tempting, especially for the media and for anxious graduates, to pin the blame for a tough job market on the rise of artificial intelligence. After all, stories about robots taking jobs are both dramatic and easy to understand.

But hiring slowdowns are driven by broader forces: economic uncertainty, shifts in business investment, and the cyclical ebb and flow of demand. Blaming AI allows both policymakers and business leaders to avoid grappling with deeper, structural issues—such as the mismatch between what colleges teach and what employers need, or the long-term stagnation in productivity growth that has made firms more cautious about expanding payrolls, or short run policy uncertainty.

It is here that you want to place your bets on what is going on: Policy uncertainty—over trade, immigration, inflation, and technology—is driving the short-run piece of the jobs cycle. It has paralyzed business planning, reinforcing a cycle of hiring freezes and risk aversion that hits new entrants hardest. When companies face an unpredictable policy environment—say, uncertain tariffs on imported goods, shifting rules about work visas, or volatile inflation—they tend to delay major decisions, including hiring. A tech firm unsure whether it will be able to recruit international talent may postpone expanding its junior staff. Similarly, a manufacturing company facing the threat of new tariffs might hold off on bringing in new graduates until the dust settles. This risk aversion is particularly damaging for those at the start of their careers, who rely on a steady flow of entry-level openings to get a foot in the door.

The deeper sclerosis is this: risk aversion among both employers and workers, leading to fewer opportunities for mobility and advancement. In a healthy labor market, people change jobs frequently, chasing better pay or more interesting work, and employers are willing to take risks on new hires. Today, by contrast, both sides are playing it safe. Workers are staying put, afraid that if they quit, they won’t find something better—a sentiment reflected in historically low quit rates. Employers, meanwhile, are reluctant to hire or promote, preferring to “wait and see” rather than invest in untested talent. This mutual caution creates a feedback loop: With fewer people moving, fewer positions open up, and the market becomes stagnant. Job-change rates are abnormally low on both accessions and separations. “Just get your foot in the door” is much less effective when doors are not opening as quickly or as widely.

For the longer-run, the rise in the college wage premium is over, and a decline has (probably) begun. For decades, earning a college degree was a reliable ticket to higher earnings, as the labor market rewarded those with advanced skills and credentials. But in recent years, this “college wage premium”—the extra money earned by graduates compared to non-graduates—has plateaued and may even be falling. The reasons are complex: The supply of degree holders has grown faster than the demand for high-skill jobs, and technological change has not produced a corresponding surge in new, well-paying roles for graduates. The value of a degree is still strongly positive. But it is no longer increasing.

Plus: Today, the dominant corporate ethos is flexibility: Firms prefer to hire for specific needs, often on a temporary or contract basis, and are less willing to invest in employee development. This shift is driven by competitive pressures, shareholder demands, and the rise of management philosophies that prioritize efficiency over loyalty. For students entering the workforce, this means that career ladders have become career lattices—less predictable, more fragmented, and requiring more self-direction and networking to climb.

Bottom line: Unemployment is low overall. New college graduate unemployment is not high. But, compared to others, America’s newest graduates are finding it relatively harder to find jobs than they ever have before. Blame corporate reluctance to invest in talent, the start of what may be a long-term shift away from steady rising wage premiums for college degree-holders, and—likely most important—unprecedented policy volatility, and thus unusual risk.

That means weaknesses in young workers’ educational pedigrees are likely to shadow them throughout their careers. Those who start out behind—whether because of a less prestigious college, a lower GPA, or fewer internships—will find it especially difficult to catch up or leapfrog, even as their actual skills improve over time.

So pay attention in junior high school algebra, kids!

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Saturday Macro: Fed Independence as Your Screentime-Limit Phone App

I laugh at a metaphor from Joe Weisenthal. Legal independence is no shield against political winds—but so far this is one of the very few things Trump is doing that is still benign...

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Joe Weisenthal quotes the wise Carola Binder:

Carola Binder (2020): De Facto & De Jure Central Bank Independence” <https://www.suerf.org/wp-content/uploads/2024/01/doc_f2217062e9a397a1dca429e7d70bc6ca_11095_suerf.pdf>: ‘Legal CBI… is virtually orthogonal to frequency of political pressure. And there are plenty of examples of central banks with strong legal CBI that face political pressure…. I is political pressure on central banks, rather than legal independence, that seems to have more explanatory power for inflation. I find that even when the central bank reportedly resists the political pressure, inflation still tends to rise following an episode of pressure. Perhaps even if the central bank does not change its monetary policy in response to political pressure, the pressure damages central bank credibility. The possibility that it might respond to pressure leads to higher inflation expectations and in turn to higher inflation…

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And Joe writes:

Joe Weisenthal: <https://www.bloomberg.com/news/newsletters/2025-07-15/central-bank-independence-is-a-spectrum>: ‘Kevin Warsh, a longtime hawk who is now seen as a possible successor to Jay Powell, is suddenly a fan of rate cuts. FHFA Bill Pulte has been promulgating unfounded rumors that Powell might resign, while also criticizing him for not having cut rates sooner. OMB Director Russ Vought has slammed Powell for the Fed’s expenditure on office renovation. And of course Trump himself has criticized Powell’s rate policy repeatedly…. The Fed functions,,, as a somewhat independent body in Washington DC. But its status is still something like that screentime app, where the political will or desire to actually abide by these self-imposed institutional guardrails is starting to decay…. This could eventually have undesirable macro-economic effects…

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The question with respect to Kevin Warsh is, with respect to whether he actually becomes Federal Reserve Chair, who will he then double-cross? Will he double-cross his affinity, to whom he is well-known as a reassuring hard-money guy. Or will he double-cross Donald Trump as he attempts to fill the shoes of Alan Greenspan?

And I would say that the political pressure has already been effective. Under Biden, there was a very solid FOMC majority that thought it was worth running substantial risks to try to ensure that the inflation rate got and stayed on a path to kiss the 2%/year PCE-index inflation target. Since Trump’s election the average for the core PCE inflation rate has been 2.7%, and there seems to be no enthusiasm on the committee to push it any lower. They see themselves as now having much bigger fish to fry than 2% vs. 2.5% vs 3.0%.

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Mind you, I think this is a good thing. I have long thought that the 2%/year target was too low, and that the “credibility” you gained by sticking to it was a reputation for being unwilling to do the clearly right thing out of some combination of stubbornness and pride, and that was not the kind of reputation that you want to purchase. The danger I see is that the Federal Reserve will not hold the target line below 5%/year, or that markets will not believe that the Trump-pressured Fed will hold the target line below 5%/year.

This is an especially good thing because I think we have to look forward to a substantial downward shift in our real GDP numbers. Back before last November we had confidence that the trend real GDP growth number going forward would have a “3” as its first-digit handle. Now we will be lucky if it does not have a “1”: the “crackdown” on immigrants, the damage done to American science, and the breaking of production networks as the U.S. is forced into substantial decoupling from the globalized value-chain economy are all going to be substantial headwinds. Debt amortization burdens wreak havoc when nominal GDP growth is low. And now that real growth is likely to fall off, we need to stay above 2% per year inflation more than ever.

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Central Banking in the Age of Chaos-Monkey Tariff Threats: It Would Not Be That Hard for Fed Governor Chris Waller to Do His Job Professionally

& yet it seems to be beyond him to do that? I mean, the principal thing that even an obsequious Professional Republican economist should be doing right now is pushing Trump to end the tariff chaos-monkey threats of disruptive inflationary supply-side shocks, and turn to making headlines on other issues. It would be clearing a very low bar to have the ovaries to make that push. Yet that appears to be a bar Waller does not want to clear…

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This, from Fed Governor Christopher Waller, is unhelpful:

Maria Eloisa Capurro: Waller Says Fed Should Cut Rates Now With Labor Market on Edge <https://www.bloomberg.com/news/articles/2025-07-17/waller-says-fed-should-cut-rates-now-with-labor-market-on-edge>: ‘Federal Reserve Governor Christopher Waller said policymakers should cut interest rates this month to support a labor market that is showing signs of weakness. “With inflation near target and the upside risks to inflation limited, we should not wait until the labor market deteriorates before we cut the policy rate…. I believe it makes sense to cut the FOMC’s policy rate by 25 basis points two weeks from now…. Looking across the soft and hard data, I get a picture of a labor market on the edge…. Policy should look through tariff effects and focus on underlying inflation, which seems to be close to the FOMC’s 2% goal…”. Waller said inflation expectations remain anchored and wage growth isn’t accelerating, easing concerns of a persistent inflation effect…

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I understand that Waller (a) as someone primarily a professional Republican rather than a central banker feels he needs to bend the knee to Donald Trump, and (b) thinks that he would be a better Fed Chair than a Kevin Warsh, a Kevin Hassett, a Michelle Bowman, or a Scott Bessent, (c) is probably right on that, and (d) needs to be an enthusiastic Trumpist to stay in the running for the nomination. And so I would give him a bye for this if he had been an inflation dove under the Biden Administration. He wasn’t.

Thus this is a bad look.

On the policy merits, as I see them:

  • The Fed’s current interest rate configuration is highly likely to be above the neutral rate.

  • Hence the Fed should be putting the interest rates it controls on a downward path if risks are balanced.

  • Risks ain’t balanced.

  • Trump chaos-monkey tariff shocks continue—and the risk is that someday Trump will get mad at financial markets’ characterization of him as TACO, Trump Always Chickens Out, and a tariff-retaliation significant supply-shock spiral will start.

  • And we have just used up one of our bursts of transitory inflation, and we do not know whether inflation expectations turn from inertial to adaptive after one such, two such, or three such. But we do know that anchored inflation expectations can now resist one fewer transitory burst than back in 2020.

  • Hence the prudent thing, the professional central-banker thing, the work-for-the-American-people-rather-than-for-your-political-masters thing for the Fed to do is to stand pat, for now.

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It is only appropriate to “look through tariff effects and focus on underlying inflation” if there are no additional tariff shocks coming down the turnpike. But there are. Thus, had Waller wanted to serve the FOMC while advancing his Waller-for-Fed-Chair campaign, he ought to have combined his “Fed should cut” rhetoric with “tariff uncertainty needs to end and final tariff deals need to be struck before an August 1 deadline”.

He did not do that.

And his colleagues should be rightly pissed at him.

Better by far, I think, is Adriana Kugler:

Catarina Saraiva: Fed’s Kugler Says Appropriate to Hold Rates for ‘Some Time’ <https://www.bloomberg.com/news/articles/2025-07-17/fed-s-kugler-says-appropriate-to-hold-rates-for-some-time>: ‘Federal Reserve Governor Adriana Kugler saidbthe US central bank should keep holding interest rates steady “for some time,” citing accelerating inflation as tariffs start to boost prices.b“Given the stability in the employment side of our mandate, with the unemployment rate still at historically low levels, elevated short-run inflation expectations and goods inflation rising due to the upward pressure from tariffs, I find it appropriate to hold our policy rate at the current level for some time…. This still-restrictive policy stance is important to keep longer-run inflation expectations anchored…”. Kugler gave several reasons why a larger impact on prices from tariffs may still be coming, arguing some businesses are waiting to pass higher costs on to consumers due to built-up inventories and frequent shifts in trade policy. The Fed’s patient approach this year has enraged Trump…

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Bottom line: The Federal Reserve’s institutional credibility hangs on its willingness to resist succumbing to the Arthur Burns disease. The constant message from the Fed to the Executive needs to be that if the Executive wants the Fed to follow certain policies, it needs to adjust its own priorities and actions in order to make it prudent for the Fed to do so. Each opportunity to make that point that is missed is a slow undermining of the foundations of economic stability and growth.

The ghost of Milton Friedman is really displeased with Christopher Waller.

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Martin Wolf: On Thomas Mann & His "The Magic Mountain"

Progressive, melioristic liberalism once again on the brink. Revisiting Thomas Mann’s The Magic Mountain in an age of authoritarian revival. Or: why Martin Wolf thinks The Magic Mountain with Hans Castorp caught between Ludovico Settembrini and Leo Naphta, between Clavdia Chauchat and Mynheer Peeperkorn is the twentieth century’s most revealing novel—and why he’s probably right…

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Very strong endorse:

Martin Wolf: The Wolf-Krugman Exchange: AI Hype vs. Reality <https://www.ft.com/content/a8875a4c-759d-4ac3-bdbb-c48c7f7be73f>: ‘The most important novel of the 20th century, at least the most revealing… is Thomas Mann's The Magic Mountain…. The core of the book was the intellectual ferment going on in the first half of the 20th century between old fashioned, staid, civilised, liberal humanism, embodied, in this case, in the figure of a man called Settembrini, putting forward the sort of views I hold, and I'm beginning to feel are equally old fashioned. And on the other hand, Naphta, who is a Marxist revolutionary. But actually, when you push him, he turns out to be very similar to the far right revolutionaries…. The difference between Hitler and Stalin turned out to be pretty small when all things are done….

Mann puts forward the idea that the first World War was the beginning of the destruction that followed from this. It was written during the war and published shortly afterwards. So it's extraordinary how a book—novel, published hundreds years ago, can be so brilliant at describing the sort of things we are seeing right now and the challenges we are now seeing between pretty feeble, liberal, humanist-type people and passionate authoritarians…

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I was lucky enough to have taken The Magic Mountain along on my backpack in my summer of 1982 post-college graduation trip to Europe, and to have read it and reread it and then re-reread it—thus reading it for a third time—on intercity Eurail that summer. It ws the best book I have ever read. And yet, somehow, I have never been able to get back into it. And I have tried perhaps four times during the 43 years since. Yet more evidence that it is as much the reader as the book—that deep, active reading is indeed, even for those who are the most extremely skilled and well-trained professionals in it, a chancy, contingent, mysterious, and sorcerous process.

Some people recommend the audiobook. Perhaps I will try that next?

Mann himself, looking back from 1953:

Thomas Mann: The Making of The Magic Mountain <>: ‘I return to something I spoke of before: the mystery of the time element, dealt with in various ways in the book. It is in a double sense a time-romance. First in a historical sense, in that it seeks to present the inner significance of an epoch, the pre-war period of European history. And secondly, because time is one of its themes… as a part of the hero’s experience, but also in and through itself. The book… depicts the hermetic enchantment of its young hero within the timeless… [and] attempts to give complete presentness at any given moment to the entire world of ideas that it comprises… to establish a magical nunc stans…. But its pretensions are even more far-reaching, for the book deals with yet another fundamental theme, that of ‘heightening’, enhancement (Steigerung). This Steigerung is always referred to as alchemist.... The book, then, both spatially and intellectually, outgrew the limits its author had set. The short story became a thumping two-volume novel...

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What is the theme of The Magic Mountain? It is the inner significance—while it lasted—of the pre-WWI Belle Époque that we might date from 1849 to 1913.

At its core, The Magic Mountain is a “novel of ideas.” Set in a Swiss sanatorium before World War I, it stages debates between characters who represent competing worldviews—liberal humanism, revolutionary radicalism, rationalism, mysticism, and more. The protagonist, Hans Castorp, is exposed to these clashing ideologies, which mirror the intellectual ferment of early twentieth-century Europe. The book doesn’t just present these ideas; it dramatizes their appeal and their dangers, showing how easily the lines between left and right, progress and reaction, can blur. This makes the novel a microcosm of the broader crises that would soon engulf Europe.

At its core, The Magic Mountain is a parable of the unreason of ideological conflict, the seductions of extremism, and the fragility of liberal values.

At its core, The Magic Mountain is a coming-of-age novel. Hans Castorp’s journey is not just physical but spiritual and intellectual. He arrives as a naive young man and is transformed by his encounters with illness, love, death, and the great questions of existence. The novel suggests that true education is not about acquiring facts, but about grappling with ambiguity, mortality, and the limits of reason.

At its core, The Magic Mountain is a novel about how to find—or fail to find—meaning in a life lived in the shadow of inevitable death. And about how to live with uncertainty, how to balance progress and tradition, how to be truly alive, and wahta that might mean.

At its core, The Magic Mountain is a modernist wolf in traditional-narrative novel sheep’s clothing. Mann weaves together realism, irony, and symbolism, creating a text that is both accessible and endlessly interpretable. Things are what they appear to be. And then, again, they are not. The sanatorium itself becomes a metaphor for Europe on the brink of catastrophe. The characters’ debates echo the anxieties of a world facing the collapse of old certainties

I have long thought that I ought to have done a better job than I did in Slouching Towards Utopia in presenting the reasons that the Belle Époque went crash in 1914 and that we might date beginning to coalesce in 1849. It was the time of Liberal Progress with a capital-L and a capital-P. As John Maynard Keynes wrote immediately after its end:

John Maynard Keynes (1919): The Economic Consequences of the Peace <https://gutenberg.org/cache/epub/15776/pg15776-images.html>: ‘After 1870… larger proportional returns from an increasing scale of production became true of agriculture as well as industry…. More emigrants… to till the soil… more workmen… in Europe to prepare the industrial products and capital goods… to maintain the emigrant[s]… and to build the railways and ships… the resources of tropical Africa… and a great traffic in oil-seeds…. In this economic Eldorado… most of us were brought up…. What an extraordinary episode in the economic progress of man that age was which came to an end in August, 1914!…

[For] the middle and upper classes… life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages… [and] regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable.

The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life…

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Perhaps the place to start the aftermath of the failed Revolutions of 1848.

It was then that European reactionaries came to a sobering realization: the old order could not simply be preserved through repression or inertia. The famous quip of Tancredi in The Leopard that “if everything is to remain the same, everything must change,” captures the paradoxical attitude of the conservative elite. They recognized that to maintain their privileges and authority, they would need to adapt, at least superficially, to the rising demands for constitutional government, civil liberties, and economic modernization.

The pseudo-classical semi-liberalism that emerged was not so much a principled embrace of liberal ideals as it was a pragmatic concession to the new realities of mass politics and industrialization. In places like Prussia and Austria, this meant granting limited parliaments and suffrage while ensuring that real power remained concentrated among the aristocracy and monarchy. The result was a patchwork of reforms that placated some demands for progress without truly democratizing society—a balancing act that would prove increasingly precarious as the century wore on. Pseudo-classical semi-liberalism drove toward an order where the ruling maxim was the market giveth, the market taketh away: blessed be the name of the market. Only acceptance of that maxim would allow the coördination of society in a prosperous division of labor in which every could look forward to their children or grandchildren having enough. And if you rigged the distribution of property in the interests of those you favored, you could use that maxim to run the kind of society-of-domination an élite would want, and run it on the cheap as substantive gross inequality and exploitation was masked by the false mask of equal civil, social, and economic rights and fair voluntary exchange.

But to have accepted that the market giveth, the market taketh away: blessed be the name of the market maxim would truly have required the faith and patience of an Iyov. Rather than that Old Dispensation (which in Slouching I associate with Friedrich von Hayek) society could only function if there was, somehow, constructed a New Dispensation (which in Slouching I associate with Karl Polanyi): like all institutions made for humans, the market was made for man, not man for the market. But how, exactly? And how to get society to its Good Place, or one of its Good Places?

From 1849 to 1914 as the pseudo-classical semi-liberal order grew, balancing the interests of the aristocracy, plutocracy, middle classes, and working classes became a central challenge as Europe’s economy began to undergo the wrenching transformations associated with what Joseph Schumpeter later dubbed “creative destruction” as the coming of the SteamPower Age slowly—but they thought it was fast—upend edtraditional social hierarchies by creating new fortunes, new classes, and new urban centers. The ruling élite sought to maintain authority, wealth, and stability by sharing wealth and distributing power to forge uneasy alliances: landowners might support protective tariffs to appease industrialists, while middle-class liberals were courted with promises of legal equality and property rights.

Meanwhile, the growing working class was alternately repressed and coöpted, with reforms such as the extension of voting rights or the establishment of social insurance schemes. The emergence of these new class coalitions was not a matter of harmonious consensus but of constant negotiation and latent conflict, the echoes of which would reverberate throughout the late nineteenth and early twentieth centuries.

The period from 1770 to 1870 had already been a time of extraordinary social and economic upheaval. The twin shocks of the American and French Revolutions, followed by the Napoleonic Wars, had destabilized the old European order. The subsequent spread of industrial capitalism introduced new technologies—steam engines, railways, telegraphs—that transformed both production and daily life. Population growth, urbanization, and the rise of a literate public put unprecedented pressure on traditional institutions. The social fabric was stretched to its limits by waves of rural-to-urban migration and the emergence of a new, self-confident bourgeoisie. By the mid-nineteenth century, the contours of modern society were visible, but the mechanisms for managing its tensions remained rudimentary at best.

After 1870, however, the pace of change accelerated dramatically. The so-called Second Industrial Revolution brought electricity, steel, chemicals, and mass production to the fore. These innovations not only increased overall prosperity but also heightened volatility, as established industries were rendered obsolete and new centers of economic power emerged almost overnight. The resulting instability was not merely economic but political and social as well: old elites were threatened by upstart capitalists, while workers found themselves at the mercy of boom-and-bust cycles and the caprices of global markets. The rapid expansion of imperialism—Europe’s “scramble for Africa” and the carving up of Asia—was in part an attempt to export domestic tensions abroad. Yet these efforts only postponed the reckoning, as the interconnectedness of the world economy made crises harder to contain and their effects more far-reaching.

The resulting sense of insecurity and injustice fueled the growth of radical ideologies—socialism, anarchism, and eventually fascism—that promised to sweep away the old order altogether. The collapse of the Belle Époque in 1914 was less a sudden catastrophe than the culmination of decades of mounting tensions and not quite sufficient reforms.

As then, so now. And so The Magic Mountain is at least as relevant as ever, and more relevant than it was to the world from 1945-2015.

Debates over the proper balance between markets and social cohesion, between innovation and stability, remain central to contemporary politics. The tension between the market giveth, the market taketh away: blessed be the name of the market and the market was made for man, not man for the market. appears as sharp, dire, and dangerous now as it was then. The extraordinary material progress of the twentieth century was accompanied by the worst tyrannies and bloodshed in human history, a reminder that technological advance alone does not guarantee human flourishing. The so-called “Thirty Glorious Years” after World War II—marked by rapid growth, low inequality, and expanding welfare states—were the exception, not the rule. Their passing has left societies searching for new ways to combine growth with equity, a task made all the more urgent by the ongoing challenges of globalization, automation, and environmental crisis.

The central lesson of the past 150 years, I think, is that the management of creative destruction—technological, economic, and social—remains the defining challenge for any society that hopes to avoid both stagnation and catastrophe. And at its core The Magic Mountain is about a group of people ensorcelled at the top of a, well, magic mountain—people with not that much else to do than to think about how they will act when and if what enspells them is dissolved and they return to the world below.

Thomas Mann ends The Magic Mountain thus, with Hans Castorp in the middle of WWI:

Thomas Mann (1924): The Magic Mountain <https://archive.org/details/magicmountain00mann/>: ‘He gets up, he limps and stumbles forward on mud-laden feet, singing thoughtlessly:

And all its branches ru-ustled,
As if they called to me—

And so, in the tumult, in the rain, in the dusk, he disappears from sight.

Farewell, Hans Castorp, life’s faithful problem child. Your story is over. We have told it to its end; it was neither short on diversion nor long on boredom—it was a hermetic story. We told it for its own sake, not yours, for you were a simple fellow. But it was your story at last, and since it happened to you, there surely must have been something to you; and we do not deny that in the course of telling it, we have taken a certain pedagogic liking to you, might be tempted gently to dab the corner of an eye with one fingertip at the thought that we shall neither see you nor hear from you in the future.

Farewell, Hans—whether you live or stay where you are! Your chances are not good. The wicked dance in which you are caught up will last many a little sinful year yet, and we would not wager much that you will come out whole. To be honest, we are not really bothered about leaving the question open. Adventures in the flesh and spirit, which enhanced and heightened your ordinariness, allowed you to survive in the spirit what you probably will not survive in the flesh. There were moments when, as you “played king,” you saw the intimation of a dream of love rising up out of death and this carnal body. And out of this worldwide festival of death, this ugly rutting fever that inflames the rainy evening sky all round—will love someday rise up out of this, too?

Refer a friend


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The Iron InfoTech Law of Master & Servant: The Biggest Threat from MAMLMs Is Not Malevolent Machines, But Our Own Accidental Self-Pwnage

The real risks from “AI” we need to deal with NOW are how they are already hacking our brains to turn us into zombie cognitive slaves of people and systems that do not wish us well at all—with no Artificial Superi-Intelligence required. If you think capitalism is the “final boss” constraining humanity, you haven’t met the emergent properties of networked Kahneman System I stupidity. It is our own inability to filter, focus, and resist manipulation and brain-hacking that we need to most fear right now…

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I am on the side of the belief that there is enormous user surplus from the coming of MAMLMs because:

  • platform tech oligopolists will give the models away for free or nearly free because they are and will remain desperate not to be disrupted by the next generation,

  • and yet gullible VCs will continue to fund startups and keep the pressure on in the almost certainly vain hope that one of their gambling chips will wind up placed on the “winner take all” square,

  • so, predominantly, the immense value from natural-language interfaces to structured and unstructured benefits will flow down the production network as use-value and not be captured within the production network as exchange-value,

  • plus there will be some big value hits for the very big-data, very high=dimension, very flexible-function classification, prediction, and estimation capabilities that MAMLMs running on GPUs enable.

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And yet, and yet, and yet…

This tremendous potential jump in human machine-assisted cognition for human benefit and flourishing materializes, of course, only to the extent that these MAMLMs become our servants rather than our masters.

They need to be our tools to help us think smarter.

We need to avoid having them become the masters that hack our brains to our detriment. That might happen in several ways:

  1. Perhaps the malevolent will seek to hack our brains for their power or direct profit.

  2. Perhaps the sociopathic will seek to hack our brains because scaring us and glueing our attention and our eyes to screens is a way for them to extract a eye-dropper’s worth of money from each of us by selling our eyeballs to advertisers.

  3. Perhaps the bias toward creating MAMLMs that speak with assurance and conviction that makes them very persuasive will lead us to hack our own brains into idiocracy, because we are too stupid to be allowed to get into the bathtub given that we use Kahneman’s System I when we should be using System II, and thus metaphorically slip on the soap and crack our heads.

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No: Travis Kalanick is not going to uncover the Mysteries of the Universe and discover New Physics via chatting about quantum mechanics with Elon Musk’s Grok-AI. But he may well wind up turning himself into a drooling zombie-slave to MechaHitler:

Sifu Tweety Fish: <https://bsky.app/profile/sifu.tweety.fish/post/3lu3le3h7pc2o>: ‘time was you’d have to endow a whole institute to get to be a physics crackpot just because you’re rich and dumb:

Paul Waldmann: <https://bsky.app/profile/paulwaldman.bsky.social/post/3lu2bc223tc2e>: ‘My god these guys are such spectacular morons:

Matt Novak: Billionaires Convince Themselves AI Chatbots Are Close to Making New Scientific Discoveries <https://gizmodo.com/billionaires-convince-themselves-ai-is-close-to-making-new-scientific-discoveries-2000629060>: ‘The latest episode of the All-In podcast…. Travis Kalanick…discussed how he uses xAI’s Grok, which went haywire last week, praising Adolf Hitler and advocating for a second Holocaust against Jews. “I’ll go down this thread with [Chat]GPT or Grok and I’ll start to get to the edge of what’s known in quantum physics and then I’m doing the equivalent of vibe coding, except it’s vibe physics. And we’re approaching what’s known. And I’m trying to poke and see if there’s breakthroughs to be had. And I’ve gotten pretty damn close to some interesting breakthroughs just doing that…. I pinged Elon on at some point. I’m just like, dude, if I’m doing this and I’m super amateur hour physics enthusiast, like what about all those PhD students and postdocs that are super legit using this tool?… And this is pre-Grok 4…” Kalanick said…. “It’s like pulling a donkey…. It doesn’t want to break conventional wisdom…. You’re pulling it out and then eventually goes, oh, shit, you got something…” Kalanick said….

Palihapitiya went a step further…. “When these models are fully divorced from having to learn on the known world and instead can just learn synthetically, then everything gets flipped upside down to what is the best hypothesis you have or what is the best question? You could just give it some problem and it would just figure it out…”.

[Elon] Musk… suggested “general artificial intelligence” was close because he had asked Grok “about materials science that are not in any books or on the Internet…”.

Meta CEO Mark Zuckerberg announced Monday that his company was building enormous new data centers to work on superintelligence. “Meta Superintelligence Labs will have industry-leading levels of compute and by far the greatest compute per researcher,” Zuck wrote. “I’m looking forward to working with the top researchers to advance the frontier!…”

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I mean, rarely has so much self-pwnage been compressed into such a small space. One would think that such a self-pwnage concentration would collapse into a self-pwnage singularity, and cause a rip in the fabric of rthe cosmos itself.

That said:

This is a powerful piece of information on the side that the AI-Risks-Near-Term needs a lot more attention. Ignore fears about hypothetical superintelligent machines that might someday pose existential threats to humanity. We have many near-term fish to fry here and now. Social-media dynamics have already influenced elections, incited violence, and deepened social divisions. MAMLM dynamics pose at least an equal threat.

The bottleneck for MAMLM adoption in a way that could be called “successful”—a way that social-media adoption has not—requires the psychological, managerial, and institutional imagination to slot them into proper places in the distributed cognitive network that is the ASIHCM: the Anthology Superintelligence of the Human Collective Mind. In the case of MAMLMs, the challenge is not simply to deploy the technology, but to reimagine workflows, roles, and even the culture of institutions so that these tools augment human collective super-intelligence rather than substitute for it or undermine it. We do not need to build superintelligence. We need, rather, to figure out how to make our technologies boost rather than subtract from the superintelligence we have that we have been building since the invention of writing.

For MAMLMs to be “successfully” adopted, leaders must cultivate the psychological insight to understand how people interact with these systems, the institutional flexibility to experiment with new forms of collaboration, and managerial imagination to rethink job design and much else. The challenge is not that machines are so smart and so malevolent, but that humans are so gullible and easily manipulated—even when there is no conscious mind on the other side of the exchange trying to do the manipulation, but it is just an emergent property of the system.

It might even be comforting if the real risks and dangers of AI lay in the emergence of some sentient, malevolent machine intelligence. The more prosaic—and insidious—truth is that even “dumb” algorithms, simply optimizing for engagement, clicks, or profit, can produce outcomes that are profoundly manipulative. No human sat in a room and plotted to turn many YouTube viewers into conspiracy theorists; rather, millions of micro-optimizations, guided by feedback loops, led to an emergent pattern that exploited cognitive biases and vulnerabilities.

The “Silicon Law of Attention Conservation” is important here. As technology makes it easier to produce “content”—be it essays, videos, or social media posts—the volume of information explodes, but our capacity to pay attention remains stubbornly finite. In the pre-digital era, gatekeepers like editors, publishers, and teachers played a crucial role in filtering information and curating quality. Today, with the democratization of content creation, everyone is a publisher, and the deluge of information threatens to overwhelm our ability to discern what is valuable, true, or relevant.

The result is a paradox: even as access to knowledge expands, genuine understanding and insight become harder to attain. Algorithms that promise to help us filter and prioritize information are themselves susceptible to manipulation, bias, and optimization for profit rather than truth. Thus tools for proper attention and filtering become more important and much more valuable than ever. And yet this appears to be something we are quite bad at.

Developing the skills of critical reading, skepticism, and information triage is more important than ever. Yet these are precisely the skills that our educational and social systems have failed to construct at anything like the scale we need.

Thus the true revolutionary advance in human flourishing from the coming of MAMLMs may never occur: it may be a net minus. And, if it does occur, itwill be slow, uneven, and dependent on deep organizational, workflow, and feedflow changes. It will require much patience and institutional experimentation.

The hype cycle promises rapid, dramatic gains in productivity and creativity, the reality is that organizations must experiment—often through trial and error—with new ways of integrating these tools. This means reengineering information, in the knowledge-space, in the entertainment-space, and in the work-coördination space. Some sectors will adapt quickly; others will lag. The unevenness of this diffusion will create winners and losers, financial and non-financial, economic and non-economic. For individuals, adaptability, curiosity, and a willingness to engage with new technologies—not just as users, but as codesigners—will be crucial to thriving.

But do not think that this “final boss” we face—and that Calacanis, Palihapitiya, Musk, Kalanick, and it now looks like Zuckerberg have permanently succumbed to—is anything simple like “capitalism”.

The “final boss” is not or is not just the profit motive, but the entire architecture of modern society: bureaucracies, regulatory regimes, social norms, and cultural practices that shape how technologies are built, adopted, and used. Surveillance, manipulation, and exploitation are not the exclusive preserve of corporations; states and other institutions are equally capable of, consciously or unconsciously harnessing AI for their own ends and purposes, with “purpose” being either what some system was designed by some humans to do, or “purpose” in that the Purpose of a System is What It Does. Network effects, feedback loops, and emergent phenomena mean that even well-intentioned actors can become complicit in systems that produce harmful outcomes.

Success will require a very broad-based reimagining of how society governs, integrates, and responds to information-technological power and capability

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Is Zohran Mamdani the Second Coming of Vladimir Lenin?

No.

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I decided back in 1978 that the word “socialism” had been far too poisoned by Lenin, Stalin, Brezhnev, Mao, Castro, Kim Il Sung, and company and by too many left-winger cosplay intellectual wannabee revolutionaries too interested in making their bones, I decided that it was not worth trying to reclaim by anyone who did not actively want to be a Joker—and the nasty Heath Ledger version at that—in the public-reason conversation of the anthology super-intelligence of humanity’s networked collective mind. I decided that anybody calling themself a “socialist” and hoping to get elected to anything in America was, given that history, the principal author of their own misfortunes.

I have never found any reason to ever regret that decision.

Still, I find myself annoyed when my feed belches up someone like David Levey:

David Levey: Socialism Yesterday & Today, Mamdani, & the Democratic Party <https://davidhlevey.substack.com/p/socialism-yesterday-and-today-mamdani>: ‘I grant that many of today's young socialists are impelled by the best of intentions and that their version is based more on a distorted picture of an idealized European (mostly Scandinavian) "social democracy" (deriving from the late 19th-century German Marxist Eduard Bernstein), than on the strain coming down from Lenin and Mao…

David H Levey
Socialism Yesterday and Today, Mamdani, and the Democratic Party
1) Before getting to today's linked articles, a personal note on my relationship with socialism as an ideology: Despite having learned classical liberal economics at the U. of Chicago, including the privilege of being allowed, as a senior, to take Milton Friedman's legendary graduate-level Price Theory course, I entered a Marxist phase in the early 1960…
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But:

David Levey: Socialism Yesterday & Today, Mamdani, & the Democratic Party <https://davidhlevey.substack.com/p/socialism-yesterday-and-today-mamdani>: ‘It rests on a misconception of the economic systems of countries like Denmark and Sweden… very much free-market systems at their productive core…. Alison Schrager…. “The returns to an economic elite job have also increased relative to the cultural elite… [who] made their career choices—they could have worked in finance too…. The tragedy is they are making choices that will make their problems worse. Either that, or the public safety issue will make the city more affordable—but not in a good way…. Markets come for you eventually”…. Tyler Cowen… social psychology… socialist sentiment today is… negative… bad feelings about [the] rich and successful people, resentment, and a dark pessimism…. Mamdani is recycling a lot of the worst socialist-leaning policy proposals: rent control, government-run stores, subsidies, high taxes on upper-income people, and minimum wage hikes…. Rob Henderson… "luxury beliefs"…

David H Levey
Socialism Yesterday and Today, Mamdani, and the Democratic Party
1) Before getting to today's linked articles, a personal note on my relationship with socialism as an ideology: Despite having learned classical liberal economics at the U. of Chicago, including the privilege of being allowed, as a senior, to take Milton Friedman's legendary graduate-level Price Theory course, I entered a Marxist phase in the early 1960…
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My immediate reaction to Levey is this: GROW UP!

Of what Levey calls the “the worst socialist-leaning policy proposals”, that is:

  1. rent control,

  2. government-run stores,

  3. subsidies,

  4. high taxes on upper-income people, and

  5. minimum wage hikes,

a reality-based look at the situation here in the U.S today leads all except the blinkers and the grifters to say that we have:

  • (a) two full wins—more progressive taxes and higher minimum wages—

  • (b) two where the devil is in the details—“subsidies” (for what? how administered? how funded?) and government-run stores (where? in what sectors? how subsidized? how managed?)—

  • and only one-thing that I regard as a clear loser: (c) rent control.

That’s 3-2, +1 for Mamdani.

As opposed to the 0-5, -5 score for the typical sycophant to the grifter-klepto-crypto class that winds up being the Republican candidate for, well, pretty much everything these days.

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How has David Levey managed to fail to get the memo about the technocratic work on the minimum-wage over the past generation? That as we seek to make work pay for the working poor, a combination of the EITC (which has administrative complexities, money leaking to employers) and a minimum wage (which has simple enforcement, at least for citizens—H1-B visa holders, green-card holders, and those like Elon Musk and Melanija Knavs whose papers are not in order need to beware—and a possible disemployment effect offset by the EITC) is the sweet spot? Plus, it really, really looks as though employers have enough monopsony power via people’s unwillingness to abandon their local knowledge by changing jobs that minimum wages push market prices in the labor market toward, not away the competitive=economy price. How come Levey is ignorant of all that?

Similarly, how has David Levey failed to get the memo about the nonexistence of the Laffer Curve here in the U.S.? Professional Republicans have been making forecasts of how tax cuts are going to pay for themselves for two generations. You might want to be charitable and claim that those who were doing so over 1976-1986 were naïve and overoptimistic. But—except for tariff reductions in the context of the globalized value-chain economy—since 1986 ever single person making this argument has had no excuse for doing so, and has to be judged either a flat-out liar or having made a choice to be so ignorant or stupid to such a degree that we reach the Grand Unification of ignorance and stupidity.

Am I wrong?

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With government-run stores, we can go to the videotape":

Derek Thompson: <https://www.derekthompson.org/p/what-speaks-to-me-about-abundance>: ‘With groceries… you have a plan to build a small fleet of public grocery stores.What is the problem here that you think city run grocery stores specifically can solve?

Zohran Mamdani: There are two problems… affordability…. food deserts…. I've heard from constituents time and again that there simply isn't high-quality produce within a five-block, 10-block radius, but I can find five, six different fast food restaurants in that same space…. This is a proposal of reasonable policy experimentation where we're talking about five stores, one store in each borough… cost[ing] $60 million in total… ess than half of what the city is currently set to spend on subsidizing… City Fresh…. City Fresh… doesn't require the supermarkets receiving the subsidy to accept SNAP or WIC.It doesn't require them to engage in collective bargaining…. It's just about trying to assist in their continued operation…. I think that the scale of this pilot program is one where we… [gain] the ability to prove out… the conversation with you around how do we prove the effectiveness. Because if it is not effective at a pilot level, it does not deserve to be scaled up…

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If David H. Levey’s doctors are anything like mine, they are telling him every appointment that he has a behavioral-economics psychological failure every time he goes grocery shopping or to the restaurant: that his mind-body system cannot help but prioritize sweets and fats when it should be prioritizing protein, roughage, and vitamins and minerals. Every—every—every single sensible health economist right now is looking for ways to push back against this behavioral-economics psychological failure right now, which is the reason that it is not uncommon that we can find zero places with good produce (but shout out to Star Grocery and to Yasai Market here in Berkeley Elmwood) but six different fast-food restaurants within five blocks serving very yummy sweet, fatty, salty things within a five-block radius.

Is there any real objection to a pilot program to see if New York City can better spend some of the money it spends—with, as best as I can see, zero oversight and accountability—on City Fresh? Anyone? Anyone? Bueller?

As for Levey’s attack on Zamdani’s proposals for “subsidies”, that is too vague for there to be any need for any kind of response at all.

Look at Mamdani’s platform:

Zohran Mamdani: Zohran for NYC <https://www.zohranfornyc.com/>: ‘Freeze the rent…. As Mayor, Zohran will immediately freeze the rent for all stabilized tenants, and use every available resource to build the housing New Yorkers need…. Fast, fare free buses…. Zohran won New York’s first fare-free bus pilot on five lines across the city. As Mayor, he’ll permanently eliminate the fare on every city bus…. The Department of Community Safety…. Police have a critical role to play. But right now, we’re relying on them to deal with the failures of our social safety net—which prevents them from doing their actual jobs. Through this new city agency and whole-of-government approach, community safety will be prioritized like never before in NYC… mental health programs and crisis response…. No cost childcare… for every New Yorker aged 6 weeks to 5 years… and he will bring up wages for childcare workers… to be at parity with public school teachers….. City-owned grocery stores… focused on keeping prices low… we should redirect public money to a real “public option.” Housing by and for New York…. Zohran will put our public dollars to work and triple the City’s production of permanently affordable, union-built, rent-stabilized homes—constructing 200,000 new units over the next 10 years… address the legacy of racially discriminatory zoning, increase density near transit hubs, end the requirement to build parking lots…. Cracking down on bad landlords…. Overhaul the Mayor’s Office to Protect Tenants and coordinate code enforcement under one roof…. Taxes on big corporations and the wealthiest New Yorkers

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If you are a plutocrat or a wannabee plutocrat, and if you have neither terrified yourself into being unwilling to leave your apartment, become so low-energy that you do not want to leave your apartment, nor trapped yourself as a gullible fool working all the time in the belief your bosses will do you favors later on—if you are such a person, than these days it is much more pleasant for much more than half a year to live in Manhattan than in Miami Beach. It is also much easier to make more money in Manhattan as well. Ditto for corporate headquarters: a corporation moving its HQ out of Manhattan has long been a not-unreliable long-term bear signal (especially if it moves it close to where its current CEO wants to retire to). There is surplus there which any rational increasing-returns-to-urbanization cost-allocation process would take steps to capture.

Is there enough harvestable surplus given America’s current political economy for a Mamdani mayorality to see the building and maintain high-quality public housing on the scale NYC needs, the offering free childcare to every pre-K, the paying childcare providers public-school salaries, and the making public transportation free?

God no! Aspirations need to be tied to gettable resources, and political campaigns that think it is clever to overpromise really annoy me.

No. Is Zohran Mamdani the best person to manage the government of New York City for the next four years? God no! The job calls for, like, a manager—a superb manager who understands resource allocation and organizing bureaucratic processes, albeit one who shares the values, desires, and goals of New York City-dwellers.

But David H. Levey has no alternative candidate for Mayor of New York City with a realistic path to electoral victory in November at the general election who would be a better mayor, does he?

And so he has no business smearing Zohran Mamdani as a second coming of Vladimir Lenin.

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MOAR Pointless Sanewashing of Trump via the Myths of a Rational-Actor "Trump Administration" & a Consistent-Preferences Trump

Leading to fundamentally misinforming your readers about what has been going on in the Trump-Putin relationship over the past year. When journalistic wishful thinking meets geopolitical reality, the result is a narrative that misleads readers fundamentally. To write as if the Trump administration can be usefully modeled as a single agent with coherent and consistent preferences and goals that it tries to achieve via means-ends rational calculation and action is bad enough. To say that Vladimir Putin has “misplayed his cards” because he did not share your pointless either delusion or misrepresentation—that is worse…

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Sean Illing asks me what I think about SubStack.

I answer: I think I need to figure out the answer to deep questions about the role of information technologies over the past five years in enabling/hobbling the construction of the time-binding anthology intelligence that is humanity before I will be able to think about SubStack. I do think it is a better place to spend time than Twitter or TikTok or the Atlantic or the **shudder** MainStreamMedia.

And, lo and behold, across my screen right now comes something telling me that there is something called a "Trump administration" that can be usefully modeled a singular intelligent agent with consistent and coherent positions and goals that it pursues via some means-ends rational-actor process:

Julian Barnes: Putin’s error <https://messaging-custom-newsletters.nytimes.com/dynamic/render>: ‘Trump and Putin’s relationship has curdled. It’s a strange turn…. Putin badly misplayed his cards…. He turned a potential White House ally into a skeptic…. Trump [had] promised... to quickly end the war in Ukraine.... His administration was skeptical about Ukraine’s NATO aspirations, ready to let Russia control the Ukrainian territory it had taken, disinclined to spend a lot on Kyiv’s defense and even open to recognizing Moscow’s 2014 annexation of Crimea. It was a peace offering that achieved many of Russia’s war aims...

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This is pointless sanewashing.

Barnes seems to think that Trump had a position, that Trump would stick to that position, that there was a “Trump administration” that agreed with that position, and that it would pursue achieving goals via some rational means-ends calculation process. Thus Barnes seems to think that Putin had a very good chance, if he had coöperated with Trump, to get an ironclad peace in which he accomplished his war aims. But what are Putin’s war aims? As I understand them, they are:

  • (a) Russia gets legal recognition reversing Khrushchev’s mid-1950s award of Crimea to Ukraine,

  • (b) Russia keeps the territory it has conquered,

  • (c) NATO stops arming Ukraine,

  • (d) NATO provides ironclad guarantees that it will never accept Ukraine as a NATO member,

  • (e) Zelenskyi resigns, and is replaced by a more Putin-friendly Ukraine leader,

  • (f) Ukraine accepts these terms, and

  • (g) the European Union guarantees no monkey business.

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What do I mean by no European-Union monkey business? No EU membership for Ukraine with the construction of an integrated EU military, no EU “training” battalions scattered throughout Ukraine, and no supernational institutions to reverse the Verdict of Putin and Trump and History that Ukrainska Rus’ was, is, and forever will be a vassal state of Moskovskaya Rus’.

Those are Putin’s minimal war aims. After all, if all Putin wanted was a ceasefire-in-place, he would not have to negotiate that. Simply stop attacking. Simply tell Ukraine that air attacks on Russian units and territory will be met by threefold responses, but that otherwise the missiles and drones of Muskovskaya Rus’ will not fly. And it would be done.

Could Trump deliver on that deal? Maybe. Maybe not. He would have to apply full-court pressure to override bitter and vocal Ukrainian and European objections. He would have to be consistent. And he would have to want to keep his promises and remember what promises he made.

And even if Trump wanted to keep his promises, put the wrong five people in a room with him for an hour, and he would decide that it would be a good idea to make a sudden, complete, 180-degree pro-Ukraine face-turn.

Only if there was a Trump administration that would set out (a) through (g) as the U.S. proposed settlement, and then spend lots of real political capital to enforce it, would Putin have any incentive to negotiate with Trump.

And there isn’t.

Putin knows that there is no such thing as a "Trump administration" that could be usefully modeled a singular intelligent agent with consistent and coherent positions and goals that it pursues via some means-ends rational-actor process. Putin knows that Trump does not really have positions, and that if he did have positions he would not stick to them, and that there is no Trump administration that believes in those positions and tries to carry them out to achieve goals. Putin knows that do Trump a favor so he will reciprocate is simply not how things work in the chaos-monkey administration.

And so Putin does what he does. And, by his lights, he has not misplayed his hand. The US and the EU each have four times the productive capacity of Muskovskaya Rus’. Against this power imbalance, Putin’s only edge is that he cares more about achieving his goals and cares less about the economic and human costs borne by the people he rules. For him to accept Trump demands for deëscalation and ceasefires without (c), (d), (e), (f), and (g) attached weakens his position. For, given Trump’s weathervane-like nature, starting down the path of making concessions to Trump would get him nowhere but to ceasefire-in-place. And should Putin decide that he will settle for that, he does not need to make any anticipatory concessions to Trump for that to happen.

Why should any journalist cling to the idea of a Trump administration as a consistent, calculating entity? This framework is delusional, and cannot lead to any accurate understanding of the Ukraine situation. And to judge Putin as mistaken because he does not share this delusion makes matters worse.

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The Federal Reserve Today: Caught Between Political Theatrics, Economic Uncertainty, & Its Own Institutional-Personnel Caution

A dissection of the Federal Reserve’s current predicament: How Trump’s tariff gambit and Powell’s consensus management have left the Fed staring into the headlights. Tariff chaos, likely collapsing service exports, and a zero-upside (except for the superrich) tax bill: Trump is not getting lower rates solely because of his own policy and personnel choices…

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The very sharp Tim Duy sees the FOMC moving towards a rate cut in September, even if things go slightly wrong:

Tim Duy: US: June Inflation on Deck <http://sghmacro.com>: ‘Federal Reserve Chair Jerome Powell… anticipates higher inflation prints over the summer as it takes some time for costs to pass through supply chains. And… full impacts may not be felt until early next year…. This… week… June inflation data… [are] another step… confirming or denying the Fed’s expectations. We continue to see three main avenues that lead to a September rate cut… a weakening labor market… inflation overall/// soft, or even if inflation is hot, it is tied directly to the tariff impacts which the Fed increasingly views as transitory…. A key reason economic models expect tariffs should be a one-time price level change is… anchored inflation expectations. Fed officials have… cited the increase in survey-based measures of expectations as a risk…. However, survey-based inflation expectations have retreated…. [And so] the Fed remains on hold as it waits for this summer’s inflation data…

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I think this is not quite right.

Step back a minute: The Thune-Johnson-Trump tax-and-Medicaid-cut bill (I call it what it is, and I put Thune’s name first because his are the driving priorities) is a complete nothingburger, as far as incentives to invest and boosts to aggregate demand are concerned. The tariff chaos is a strong negative for disinvestment in America, as other countries’ decoupling from America-dependent value chains kicks in. Add to that the likely collapse of our education and other services exports, the likely collapse of immigration, and whatever deportations Trump’s goons accomplish that are more than just isolated media events. These are three hurdles that would normally mean that the FOMC should be aiming at a lower interest rate path then it had envisioned back before Trump’s election last November.

But nothing is normal.

The biggest non-normal for the FOMC is the tariff chaos.I t would be far from prudent to be certain that the tariff noise is all TACO—Trump Always Chickens Out—performative bullshit. Add to that that the FOMC is well-aware that we got away with a rapid-reopening post-plague and Putin-invasion supply-shock inflation burst in the early 2020s without de-anchoring inflation expectations, but it would be far from prudent to count on getting away with that again soon.

Thus the FOMC is paralyzed. And it is likely to stay paralyzed, pinned by its conflicting imperatives. I think it will take both a weakening labor market and evidence of still-anchored expectations and continued TACO-tariffs for the Fed to cut this fall.

You know, if Trump really does want lower interest rates—rather than somebody to blame should the economy go into a recession—he really has shot himself not so much in the foot as in the head, twice. The TACO Tariff Turmoil is not gaining him anything in terms of PR, but it is paralyzing the Fed and keeping it from cutting rates. And one reason for this paralysis is that Trump placed Jerome Powell in the chair, and he is a manager-consensus builder rather than a policy leader on rates.

7 ½ years ago Trump decided that the best person in the world to be Fed Chair was Jerome Powell.

He knew then that Jerome Powell was a Republican worthy, a super-manager, a person whose personal network’s center-of-gravity was other Republican worthies. He “judged” and “decided”—if those words still apply, or indeed ever applied, to his cognitive processes—that Jerome Powell was the best person in the world for the Fed Chair Job. Now Donald Trump thinks Jerome Powell is a disaster. But whose disaster is that? Who put him in the chair?

Had Trump wanted a Fed Chair whose mental center-of -ravity was open to the possibility that soft money policies were in fact, optimal, he had at least two super-candidates available 7 ½ years ago: Janet Yellen and Lael Brainerd. He rejected them both.

This is, putting it politely, a very strong evidence that Donald Trump is not competent at thinking through personnel appointments.

So if were one to give advice to Donald Trump on what he should do to choose his Fed Chair candidate, the only rational advice would be this: Sit down. Shut up. Find someone competent at personnel selection. Give them the baton. Then be quiet: you are not competent to do this aspect of the job of presidenting.

Of course, none of the grifters, sycophants, and liars surrounding him are telling him this—are telling him to assemble a committee and delegate the task.

But why isn’t anybody else giving him this advice. Why not Rupert Murdoch, for example? The family wealth of a Media Baron has a very high beta with respect to the overall health of the economy, does it not? Murdoch is not scared of Trump. Would it not be rational for him to tell Trump, politely, that this is an area (one of many) in which past experience demonstrates that you are incompetent to do the job, so find somebody who actually knows what they are doing and get out of the way?

And why doesn’t every Fed-Trump story lead with the most important fact about the Fed and Trump: that Jerome Powell—whom Trump now fears and loathes—was only a few short years ago the guy Trump was sure was the best choice in the world for the job?

It is one of so many mysteries.

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I am simply not qualified to write about Trump and his administration. I have no linguistic-analytical-rhetorical register that I can access that is appropriate to the sheer total batshittery...

I am simply not qualified to write about Trump and his administration. I have no linguistic-analytical-rhetorical register that I can access that is appropriate to the sheer total batshittery. I have been using “chaos-monkey”, but that is inadequate (and highly insulting to all real chaos monkeys, to whom I apologize). But Jeff Tiedrich may well have the proper register:

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Jeff Tiedrich: Hillary wrote the Epstein Files, claims area lunatic <https://www.jefftiedrich.com/cp/168230690>: ‘the Mad King knows a lot of things.

he knows it’s better to be electrocuted by a boat battery than eaten by a shark. he knows that windmills cause noise cancer. that exercise is bad for you. you can stop a hurricane by nuking it. magnets don’t work if they’re wet. he knows not to accept dinner invitations from Hannibal Lecter.

but of all the things the Mad King knows, here’s the thing he knows most of all: that the Epstein Files, which Pam Bondi just assured us have never existed, were written by Hillary Clinton.

I shit you not. look at the deranged batshittery Donny posted to his crappy app yesterday afternoon. get ready to take one of the the wildest rides of your life:

Donald J. Trump: ‘What’s going on with my “boys” and, in some cases, “gals?” They’re all going after Attorney General Pam Bondi, who is doing a FANTASTIC JOB! We’re on one Team, MAGA, and I don’t like what’s happening. We have a PERFECT Administration, THE TALK OF THE WORLD, and “selfish people” are trying to hurt it, all over a guy who never dies, Jeffrey Epstein. For years, it’s Epstein, over and over again. Why are we giving publicity to Files written by Obama, Crooked Hillary, Comey, Brennan, and the Losers and Criminals of the Biden Administration, who conned the World with the Russia, Russia, Russia Hoax, 51 “Intelligence” Agents, “THE LAPTOP FROM HELL,” and more? They created the Epstein Files, just like they created the FAKE Hillary Clinton/Christopher Steele Dossier that they used on me, and now my so-called “friends” are playing right into their hands. Why didn’t these Radical Left Lunatics release the Epstein Files? If there was ANYTHING in there that could have hurt the MAGA Movement, why didn’t they use it? They haven’t even given up on the John F. Kennedy or Martin Luther King, Jr. Files. No matter how much success we have had, securing the Border, deporting Criminals, fixing the Economy, Energy Dominance, a Safer World where Iran will not have Nuclear Weapons, it’s never enough for some people. We are about to achieve more in 6 months than any other Administration has achieved in over 100 years, and we have so much more to do. We are saving our Country and, MAKING AMERICA GREAT AGAIN, which will continue to be our complete PRIORITY. The Left is imploding! Kash Patel, and the FBI, must be focused on investigating Voter Fraud, Political Corruption, ActBlue, The Rigged and Stolen Election of 2020, and arresting Thugs and Criminals, instead of spending month after month looking at nothing but the same old, Radical Left inspired Documents on Jeffrey Epstein. LET PAM BONDI DO HER JOB — SHE’S GREAT! The 2020 Election was Rigged and Stolen, and they tried to do the same thing in 2024 - That’s what she is looking into as AG, and much more. One year ago our Country was DEAD, now it’s the “HOTTEST” Country anywhere in the World. Let’s keep it that way, and not waste Time and Energy on Jeffrey Epstein, somebody that nobody cares about. Thank you for your attention to this matter.

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What's Going on with Trump's Trade Wars? An Update

Monkey-chaos as constantly changing but ever-recurring kaleidoscope policy, with fake deals and real drama: the Trump performative tariff-threat theater of 2025 is a show running 24/7, and a Masterclass in the art of NO DEALS. When unpredictability becomes the only rule, allies become ex-allies bracing for impact & prudently decoupling, while markets overwhelmed with noise fail to process the information that ongoing decoupling lies behind day-to-day monkey-chaos media noise…

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We are now six months into the Second Trump Administration. tTe world has learned to expect chaos, not coherence. Forget “the art of the deal”—today’s trade regime is all smoke, mirrors, and random tariff math. Allies become ex-allies and begin to decouple. And financial markets sleepwalk.

It is now clear that Trump trade policy will never be clear—that there will be constant threats of tariffs and (sometimes) the imposition of tariffs for any reason that strikes Trump’s fancy at the moment, or for no reason at all. Chaos-monkey policy to the max.

Justin Wolfers puts it well on—**shudder**—Twitter, now the home of MechaHitler:

Justin Wolfers: ‘They've had 90 days to think about it, and all we got was the same old tariffs +/- a couple of random percentage points, a new insurrectionist support tax levied on Americans to show our allyship with Brazilian criminals, and yet another attempt to bully the extremely polite Canadians… <[twitter.com/JustinWol...](https://twitter.com/JustinWolfers/status/1944153885876105561>)

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No real “trade deals”.

There is and will be nothing that any previous administration or the press would ever have called a “trade deal” before.

None such can ever emerge from this administration.

The concept of a trade deal, at least in the lexicon of postwar American economic diplomacy, has meant a negotiated agreement with clear, enforceable commitments, often codified in treaty form and subject to legislative approval. These agreements—think NAFTA, the WTO, or even the modest U.S.-Korea Free Trade Agreement—are the product of painstaking negotiation, regulatory harmonization, and, crucially, mutual trust.

The current administration, by contrast, prefers the theater of “announcements” and “frameworks” that generate headlines but lack the legal force, technical detail, or institutional buy-in necessary to shape global commerce. The result is an endless carousel of press conferences and “victory” declarations, but little of substance that would meet the standards of any previous administration—or indeed, of any serious observer of international economic relations.

Why not? Because:

  • Trump cannot remember his promises to keep them,

  • Trump would not want to honor his promises if he remembered them,

  • Trumps’ sycophant-enabler-lieutenants’ promises do not bind him.

Credibility in governance has always been a cardinal virtue;. Acountry that keeps its word is a country that can “make deals”. A country that does not, cannot

But the Trump administration’s approach is that of making random non-credible threats to generate press coverage as its governing philosophy. Promises are made with abandon, forgotten as soon as they become inconvenient, and—crucially—no subordinate’s assurance can ever substitute for the leader’s caprice.

This is not simply a matter of personal style.

This is a structural defect caused by Trump’s Fox News-customer media-splash mindset that makes Trump, in a strange sense, powerless to shape the behavior of other countries in the U.S.’s or indeed in his own personal interest.

In the absence of credible commitment, foreign counterparts have no incentive to negotiate. They have no incentive to invest in the relationship with the US. Knowing that today’s “deal” may be tomorrow’s tweetstorm, they have every incentive to be prudent: to decouple, as fast as possible

For it is all performative—announcements and frameworks without binding substance. The much-ballyhooed “agreements” with the UK or Japan upon even the slightest inspection reveal themselves to be little more than restatements of existing understandings or vague promises to “explore” future cooperation, accompanied by random disruptions to globalized value-chains. The administration’s media apparatus trumpets each non-event as a “historic breakthrough.” And the press pretends to believe them. The net result is much less than a Potemkin village of trade policy: nothing behind the façades, which are themselves not impressive.

The administration’s tariff formulas are mathematically incoherent, based on fake calculations and no economic models whatsoever. One of the more remarkable features of the Trump trade wars is the open disdain for the arithmetic of international economics. Traditional trade policy—love it or hate it—has always rested on some foundation of economic analysis, however imperfect. I know: I built and ran models of NAFTA’s and WTO-creation’s likely economic effects for the Treasury.

The Trump administration, by contrast, has adopted formulas for tariffs that are produced by a random-number generator. The spectacle of White House officials brandishing cardboard signs with “tariff math” that no economist could defend would be comic, were it not so consequential.

Moreover, Trump administration’s disregard for law:

  • imposing tariffs with fake legal justifications,

  • negotiating “deals” that require Congressional approval but treating them as faits accomplis,

  • getting shadow-docket winks and nods to keep doing what he is doing from the Supreme Court

is absolutely appalling.

It undermines domestic rule of law:

  • Trump does something illegal,

  • a federal court enjoins it,

  • the Supreme Court uses the shadow docket to vacate the injunction,

  • the policy roles forward,

  • two years later a court finally rules on the substance

  • but by then the case is moot because the policy will have been randomly changed in the meanwhile.

Plus: American trade policy, for most of its postwar history, has operated within a robust legal framework: Congress delegates authority to the executive within clearly defined parameters, international agreements are subject to legislative review, and judicial oversight ensures compliance with statutory and constitutional norms.

Those allow us to negotiate frameworks for international trade that, while not win-win-win for everyone, have produced enormous surplus and fueled a substantial part of US economic growth.

The current administration, however, has repeatedly invoked fae and not even dubious legal rationales—national security, for instance—to impose tariffs on allies, and has treated the requirement for Congressional approval as a minor inconvenience rather than a constitutional necessity. This disregard for process has been abetted by a judiciary increasingly deferential to executive prerogative. The net effect is to erode both the domestic legitimacy of trade policy and the willingness of foreign governments to treat U.S. commitments as reliable.

America’s major trading partners—Canada, Mexico, the EU, and the UK—have now learned that appeasement and symbolic concessions gain them nothing.

Instead, they face perpetual policy whiplash and the risk of being targeted again at any moment. I

n the early days of Trump’s trade wars, some foreign governments hoped that symbolic gestures or limited concessions might secure a stable The renegotiation of NAFTA into USMCA, for example, was initially seen by Canadian and Mexican officials as a way to “get into the green bucket” of favored nations. Yet these efforts have been rewarded only with further demands and renewed threats.

The lesson is clear: there is no stable equilibrium to be found in appeasement.

Today’s concession is tomorrow’s proof of weakness, and the only constant is the unpredictability of U.S. demands. This has led America’s partners to adopt a more defensive posture, seeking to insulate themselves from American caprice rather than ingratiate themselves to it.

The U.S. stock market’s relatively muted reaction thus far reflects a mistaken belief that the chaos is temporary, and that TACO—Trump Always Chickens Out. Financial markets, ever the optimists, have tended to discount the long-term consequences of policy volatility, betting instead on the likelihood that the administration will ultimately back down before inflicting real damage. This “TACO” hypothesis—Trump Always Chickens Out—has some historical precedent; after all, many of the most draconian tariff threats have been quietly shelved or watered down after the headlines fade.

Yet this complacency is dangerous.

Markets are not omniscient; they are often slow to recognize structural shifts, especially when these are masked by short-term noise. The risk is that investors are sleepwalking into a world where the institutional underpinnings of American economic leadership have been irreparably damaged.

Markets are underpricing the risk of enduring institutional damage and long-term loss of American economic leadership. The deeper danger is not the immediate impact of any given tariff or counter-tariff, but the cumulative erosion of the institutions that have undergirded American economic preeminence since 1945. The postwar order—built on the Bretton Woods institutions, the GATT/WTO system, and a dense web of bilateral and multilateral agreements—depended on the predictability and reliability of U.S. policy. As these foundations are chipped away, the world becomes less willing to invest in the American project, and more willing to seek alternatives.

The process is gradual but inexorable, and by the time markets fully price in the new reality, the damage may be irreversible. In this sense, the stock market’s equanimity is less a sign of resilience than of obliviousness.

Even if TACO turns out to be true much more often than not, other countries cannot count on that, for they may well wind up in the “not”. And then what can they do?

Other countries must and will be prudent. While American investors may still believe that Trump will ultimately “chicken out,” foreign governments have little incentive to share this optimism. For them, the costs of being wrong are simply too high. P

rudence dictates diversification—of trade partners, supply chains, and strategic alliances. This is not simply a matter of hedging bets; it is a rational response to a world in which the United States is no longer a predictable anchor of the global system. The result is an acceleration of trends that, in a more stable environment, might have unfolded over decades: the rise of alternative trade blocs, the strengthening of regional supply chains, and a general movement away from dependence on the American market.

And Ontario may well find that its best response to some random Trump chaos-monkey action is indeed, on some hot summer day or cold winter night, to cut off electric power to Cleveland.

Thus countries are now accelerating the process of decoupling from the United States, seeking alternative trade partners and supply chains, as the unreliability of American commitments becomes a structural feature of the global economy. Mexico, for example, has begun to reorient its supply chains toward Europe and Asia, while the European Union is investing heavily in strategic autonomy—everything from semiconductor manufacturing to green technology. The logic is straightforward: in a world where U.S. policy can turn on a dime, it makes little sense to stake one’s prosperity on continued American goodwill. The long-term implication is a world economy less centered on the United States, with all the attendant consequences for American influence and prosperity.

The economic cost of these policies will be substantial: higher input prices, declining exports, capital flight, and a steady erosion of investor confidence—all pointing toward a more than “Brexit-magnitude disaster” for the United States. The analogy to Brexit is apt, if not understated. The United Kingdom’s decision to leave the European Union has, I think, reduced its GDP by at least 10% relative to trend, with further losses likely to accrue. The Trump trade wars threaten a similar, if not greater, self-inflicted wound. Tariffs raise the cost of imported inputs, making American manufacturing less competitive. Retaliatory measures by trading partners reduce export opportunities, while uncertainty drives capital to seek safer havens. Over time, these effects compound, leaving the U.S. economy smaller, less dynamic, and less attractive to investors. The warning from economic history is clear: nations that turn their backs on openness and predictability do so at their peril.

Globalization has been a major driver of American prosperity; the deliberate breaking of trade links for the sake of optics threatens to end this era for the U.S., even as the rest of the world continues to benefit from global integration. Since the late 19th century, American economic growth has been propelled by integration into the global economy—first through exports of agricultural and industrial goods, later through participation in complex global value chains.

The gains from trade are not merely theoretical; they are visible in the rising living standards, technological innovation, and geopolitical influence that have characterized the American century. To deliberately unravel these links, not in pursuit of strategic advantage but for the sake of short-term political theater, is to court decline.

The rest of the world, meanwhile, is not standing still. Europe, China, and other major players are deepening their own networks of trade and investment, positioning themselves to reap the benefits of a more multipolar global economy. If current trends persist, the United States may find itself not at the center of the world economic system, but increasingly on its periphery.

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LECTURE: Roots of How Ownership & Trade Have Made Us Truly Weird: "Property" & "Exchange" as a Coördination Mechanism at Societal Scale

My “roots of property, exchange, and the division of labor” lecture. It tries to make novel and strange the idea people think that they “own” things: to impress students with how just plain weird that is. And then there are the next steps: That people enter into reciprocal gift-exchange relationships with or using things they “own” is really weird. That reciprocal gift-exchange transforms into cash-on-the-barrelhead one-shot economic “trade” is perhaps the weirdest of all. Where do these things come from? And what are the chances that any Turing-Class intelligent social creature would ever develop them? And how much less efficient and functional as an action-taking anthology-intelligence could the East African Plains Ape possibly be without these social-institutional things that underpin the global-scale societal coördination mechanism we call the “market economy”?…

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What if we see the idea of “owning” something is one of humanity’s strangest inventions? Before markets, before money, there was a peculiar leap: the belief that things could be “mine” even when I’m not looking. Explore how property and exchange, far from being “natural”, are peculiar to the East African Plains Ape, are societal-scale technologies that turned us into a market-making species, and how that leap—property and exchange—became the foundation of our economic world and of a great deal of our success as an action-taking anthology-intelligence.

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That we believe in property and exchange is absolutely key to the “market” institutional mode of organizing the practical-action coördination side of humanity as a successful anthology intelligence. And that is not all that property is key to, for spheres of ownership, action, and control that can be readjusted are very important parts of our conceptual map for a great deal of our additional collective modes and mechanisms of societal organization. And these ideas—not just “I will growl and bite you if you try to drag this zebra carcasse I am eating right now away from me”, but that this is mine and it stays mine even if I am not right here growling—is really weird.

Where and how does it originate?

And why did it make sense for the first of the homines erecti who added this to their shared conceptual maps?

Doug Jones puts forward a not-unreasonable guess:

Doug Jones: My Handaxe <https://logarithmichistory.wordpress.com/2021/06/19/my-handaxe-6/>: ‘1,043 – 986 thousand years ago….. Acheulean tools… in Africa, and… India too…. The Acheulean hand axe probably tell[s] us something not just about cognition… [and] tool making, but… social cognition. You wouldn’t make a hand axe, use it, and abandon it. Nor would you… if the biggest, baddest guy… was immediately going to grab it…. Probably some notion of artifacts-as-personal-possessions… a social relationship….

Linguists have noted something interesting about the language of possession…. Expressions… are often similar to expressions for… locations…. “The Crampden estate went to Reginald.”… [It] didn’t go anywhere in physical space, but it still traveled in the abstract social space of possession….

What may be going on here: people (and many other creatures) have some mental machinery for thinking about physical space. That machinery gets retooled/borrowed/exapted for thinking about more abstract relationships…. Barbara Tversky’s recent Mind in Motion: How Action Shapes Thought…. For a while most of the evidence of repurposing spatial cognition for more abstract relationships came from linguistics, but there’s now some corroboration from neurology

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Adam Smith, in seeking to understand the foundations of economic life, looked for a principle that could serve as a secure starting point—something so basic and universal that the rest of his analysis could be constructed upon it.

He settled on what he called a “certain propensity in human nature,” namely, the propensity to “truck, barter, and exchange one thing for another.” This, for Smith, was not merely an incidental quirk of certain societies or a byproduct of particular historical circumstances, but a fundamental feature of the species. It is the drive to exchange, to seek out advantage through mutual agreement, that underpins the entire edifice of economic cooperation and, in his view, makes possible the complex web of specialization and interdependence that characterizes advanced civilization. Smith’s insight was to see that exchange is not simply a matter of swapping goods, but a social process that enables the division of labor and, through it, the astonishing productive powers of modern economies.

This “propensity to exchange,” Smith argued, is the root from which the division of labor grows. The division of labor—the process by which different people specialize in different tasks, each becoming more skilled and efficient at their chosen work—unleashes a cascade of benefits. It allows for the proliferation of skills, the invention of new tools and techniques, and the emergence of entire industries that would be unimaginable in a world where each person had to provide for all their own needs. But the division of labor does not arise in a vacuum; it is the necessary, though gradual, consequence of our willingness to engage in exchange. Only when people can reliably trade the fruits of their labor for the things they need from others does it make sense for anyone to specialize. Thus, the market, in Smith’s telling, is not an artificial construct imposed from above, but the organic outgrowth of a deep-seated human tendency.

What is especially striking in Smith’s account is his insistence that this propensity to exchange is rooted in human nature, and not found in the animal kingdom. Other animals may cooperate, they may even share resources within a group, but they do not—so far as we can tell—engage in the kind of deliberate, negotiated, reciprocal exchange that is the hallmark of human economic life:

Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog. Nobody ever saw one animal, by its gestures and natural cries signify to another, this is mine, that yours; I am willing to give this for that…

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The human capacity for exchange, for not just seeing the world in terms of “mine” and “yours” but for then negotiating the transfer of goods and services, is, for Smith, a defining characteristic of the species. It is this, above all, that distinguishes us from the rest of the animal world and makes possible the extraordinary complexity and wealth of human societies.

Yet, even as Smith’s formulation has become canonical, it is not entirely satisfying—at least not to us, looking back with the benefit of subsequent inquiry. To say that humans exchange because it is in their nature is to offer a description rather than an explanation; it risks devolving into a kind of evolutionary just-so story, as indeed all EvoPsycho stories are at best just one fine hair removed from.

Why did this propensity emerge? How did it become so central to our way of life? What cognitive, social, and historical developments made it possible for humans, and only humans, to build societies organized around property, exchange, and markets?

Smith’s insight remains profound, but it leaves open the deeper questions—questions that continue to animate research in anthropology, psychology, and the history of institutions. The challenge is to move beyond Smith’s starting point and to excavate the layers of contingency, invention, and adaptation that have shaped the idea of property and the practice of exchange into what they are today.

And even once one grants the propensity, there are still enormous leaps. Property is itself light-years away from the idea that, having acquired property, one might then give it away in some reciprocal gift-exchange mutual-obligation process to establish or reinforce societal bonds. Reciprocal gift-exchange is light-years away from one-shot arms-length exchange in some kind of market. And even exchange in a market at some kind of fixed fair “just price” is light-years away from a market economy, in which fluctuating prices are not regarded as prima facie evidences of evil exploitation but part of the luck of the game.

Plus all these leaps need to be backed-up, as they are not natural inevitabilities but contingent socially constructed arrangements, requiring constant upkeep by legal, political, and cultural institutions. Thirty years before Adam Smith wrote the Wealth of Nations and only one-hundred miles north of Adam Smith’s Kircaldy, after all, we have Diana Gabaldon’s Highlander, which is not a world of truck-and-barter in response to a natural propensity, but rather a world in which there are clan hierarchies to be respected, clan members and allies to be aided, clan enemies to be killed, and strangers to be robbed at pleasure.

However, once we have constructed this jenga tower on top of its foundations of reciprocity and ownership, one of very key pieces of humanity’s glory and power as an action-taking coördinated anthology-intelligence has fallen into place.

The true genius of the market system lies in its capacity to decentralize decision-making, to push choices and authority out to the periphery—out to the individuals and enterprises who are closest to the ground, who possess the granular, local knowledge that no distant central planner or bureaucratic committee could ever hope to match. In this way, the market harnesses and aggregates the dispersed intelligence of society, transforming millions of individual judgments, preferences, and bits of information into a coherent pattern of production and allocation.

The result is an astonishingly adaptive and responsive system, one that can, at its best, direct resources toward their most valued uses with a minimum of wasted effort. But, and this is crucial, this remarkable coördination is only truly effective for rival and excludible commodities—goods and services for which one person’s consumption precludes another’s, and for which access can be limited to those who pay. In these domains, the market’s invisible hand is real and powerful, allocating goods through the interplay of supply, demand, and price.

When markets are functioning well—when property rights are secure, when contracts are enforced, when information is sufficiently available—they become the central nervous system of a vast, intricate organism. They coordinate sprawling networks of production and exchange, linking together farmers, manufacturers, merchants, workers, and consumers in a web of mutual interdependence. It is the division of labor, enabled and deepened by the existence of wide and deep markets, that serves as the engine of productivity and prosperity. As Adam Smith observed, the specialization of tasks allows individuals to become more skilled and efficient, unleashing a flood of innovation and output that no autarkic household or command economy could hope to rival.

Yet—and this is a point too often ignored—the benefits of this productivity are not distributed evenly or automatically. Who gets what, and how much, is determined by the prevailing structure of bargaining power and the existing arrangements of property. The market does not guarantee justice, only efficiency; it delivers abundance, but it apportions that abundance according to the rules of the game, rules that are themselves the product of history, law, and politics. Thus, while the market is a marvel of coordination, it is never a substitute for vigilance about the distributional consequences it generates. into place.

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Of course, there are views of this held and debated by moral philosophers that are very different from the economist’s praise of the market economy as a societal-scale action-coördination mechanism that I have set out here.

The origins and meaning of property—why we think things can be “owned,” how property shapes society, and whether it is natural or constructed—have been central questions for moral philosophers for millennia.

Consider:

There is Aristoteles of Stagire: Property as natural and necessary, but ought to be used for the common good: Politics, Book II contains Aristoteles’s critique of Platon’s idea of total communal ownership, for:

  • “Property ought to be common in a sense but private speaking absolutely. For the superintendence of properties being divided among the owners will not cause these mutual complaints, and will improve the more because each will apply himself to it as to private business of his own; while on the other hand virtue will be exercised to make ‘friends’ goods common goods,’ as the proverb goes, for the purpose of use…”

There is John Locke: Property as a fundamental natural right, rooted in labor and self-ownership: In the Second Treatise of Government: Locke argues that property arises from labor:

  • “Though the earth, and all inferior creatures be common to all men, yet every man has a property in his own person…. Whatsoever then he removes out of the state that nature hath provided, and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property…”

There is Jean-Jacques Rousseau: Property is a group societal hallucination, or perhaps invention, at the root of inequality and the functioning of human societies-of-domination: The Discourse on the Origin of Inequality:

  • “The first man who, having enclosed a piece of ground, bethought himself of saying ‘This is mine,’ and found people simple enough to believe him, was the real founder of civil society. From how many crimes, wars, and murders, from how many horrors and misfortunes might not any one have saved mankind, by pulling up the stakes, or filling up the ditch, and crying to his fellows: Beware of listening to this impostor; you are undone if you once forget that the fruits of the earth belong to us all, and the earth itself to nobody…”

And there is Friedrich Engels: Property is a historical development, tied to class, patriarchy, and the state: a historical development tied to the rise of the unequal and oppressive class-based societies we know: The Origin of the Family, Private Property and the State:

  • “The first division of labor is that between man and woman for child breeding. And today I might add: The position of the mother of the family under the original communistic household was, as we have seen, a very honorable one…. The overthrow of mother-right was the world-historic defeat of the female sex. The man took command in the home also; the woman was degraded and reduced to servitude; she became the slave of his lust and a mere instrument for the production of children. This degraded form of the family, which is based on the supremacy of the man, was linked with the enslavement of women and the emergence of private property…”

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CROSSPOST: VIKTOR SHVETZ: Why Investors Shouldn’t Worry Too Much about the AI Bubble

Thoughts from Viktor Shvets, Head of Global Desk Strategy at Macquarie Capital and a favorite Odd Lots guest <https://www.bloomberg.com/news/newsletters/2025-07-08/viktor-shvets-on-why-investors-shouldn-t-worry-too-much-about-the-ai-bubble>. From Bloomberg Odd Lots. The views expressed in this article are solely those of Viktor Shvets and do not reflect views of Macquarie…

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<https://www.bloomberg.com/news/newsletters/2025-07-08/viktor-shvets-on-why-investors-shouldn-t-worry-too-much-about-the-ai-bubble>

Viktor Shvetz thinks about asset bubbles and the machinery of progress: why the AI hype at this moment is more feature than bug for economic growth and human progress. Fundamentals-minded investors wring their hands over AI valuations. But the historical script tells us that high-speed Schumpeterian creative-destruction has always demanded more than a bit of financial madness. From Arkwright’s mill to today’s data centers, every technological revolution has ridden a wave of speculative excess. The real risk for individual investors is in falling for the hype and putting all your chips into the pot. But the real risk for humanity, perhaps, lies not in investing too much but in failing to invest enough.

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Here’s what Viktor is thinking about…

In the aftermath of the dot.com bubble of the early 2000s, Carlota Perez, a British-Venezuelan scholar, published her groundbreaking study of interactions between technological revolutions and financial capital, where she convincingly illustrated that almost every major tech breakthrough required an asset bubble to progress, with capital markets creating a “powerful magnet to attract investment … accelerating what becomes the new economy,” by acting as the agent of massive creative destruction.

But in the process “all notion of the real value … is lost. Uncontrollable asset inflation sets in … while debt mounts at a reckless rhythm; much of it to enter the casino.” After an asset bubble bursts, governments step-in to facilitate “the recoupling of financial and productive capital” and “when this is effectively achieved, innovation and growth can take place … in a positive sum game.” This is a classic Schumpeterian analysis coupled with how inventiveness links to innovation and productivity via capital markets. Perez’s description fit perfectly with dot.com, from the early beginnings of the 1980s to the bubble of the 2000s, with its recalibration and the subsequent flowering of the internet, social and digital networks.

In the modern age, she identified five successive technological revolutions.

First, the classical “Industrial Revolution” starting with the opening of Arkwright’s mill in 1771, followed by the “Age of Steam and Railways” in 1829. That was followed by the “Age of Steel, Electricity and Heavy Engineering” with the Carnegie Bessemer steel plant in 1875. Then, the Age of Steel was replaced by the “Age of Oil, Automobile and Mass production” with the Model T in 1908 being the key milestone. Finally, Intel’s microprocessor in 1971 marked the very beginning of the Information Age.

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Technological revolutions, capital markets, bubbles and wars

While one could debate the importance or dating of specific technologies, there is no doubt that progress over the last two centuries represents the greatest break since the invention of agriculture from traditional economic, social and political patterns, as reflected in a range of income, longevity and healthcare outcomes as well as radically different political and social relations. Perez described these major shifts as the arrival of new “techno-economic paradigms.”

This is in tune with modern technologists (such as Sulieman Mustafa) who emphasize the importance of what they call “superclusters of innovation.” When such superclusters emerge, each new wave starts intersecting, buttressing, and boosting other innovations (like the impact of steam, electricity or combustion engines). The diffusion and sharp drops in marginal costs drive an ever-wider adoption, and while not a straight-line process, history teaches us that once a breakthrough had occurred, there was virtually no way of stopping waves of new products and innovation that ultimately has always led to comprehensive re-wiring of most aspects of life — for both good and bad.

Perez comes into her own by linking the human spirit that drives new ideas with capital markets and the critical role that money and asset bubbles play in facilitating and accelerating innovation. Whether it is railways, canals or dot.com, each supercluster almost invariably led to an asset bubble, loss of invested capital, debt moratoriums and frequent recessions or severe economic slowdowns.

However, ultimately, societies and businesses have always adjusted, leading to a significant rise in productivity and wealth.

Whereas prior to the first Industrial Revolution, labor productivity was virtually stagnant (growing less than 0.1% per annum), the first several waves of industrial revolutions boosted this to around 0.5% by the mid-19th century and then toward 1% by the early 20th century, and around 2% in the 1960s to 1980s. For several reasons, the Information Revolution has thus far depressed productivity back toward 1%, with neither computer nor internet revolutions leading to a sustained rise in labor or multi-factor productivity.

Technologists describe this as a U shape response. Productivity falls in the early stages as neither societies nor businesses understand how to best use technologies, and many of new innovations ‘kill’ the rest of the economy, one cut at a time. But eventually, as technology adoption widens, societies start to better match positives and negatives, yielding stagnating outcomes (the bottom of the U curve), before ultimately, technologies result in a sustained rise in productivity.

Historically, it took as long as two to three human generations to fully crystallize the benefits of new technologies. In the intermediate period, technological breakthroughs aggravated inequalities and inequities, causing flare-ups in social, polarization and geopolitical tensions. One could argue that the revolutions of the 1840s to 1860s were an indirect outcome of the first waves of industrial innovations while the long war of the 20th century (i.e. the Great and Second World Wars) were an aftershock of subsequent industrial waves. Equally, today’s extreme societal polarizations and geopolitical tensions are a direct outcome of the disruptive power of the Information Revolution.

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AI is far more disruptive than industrial revolutions

AI can be regarded as either a brand-new revolution (adding to the five identified by Perez) or perhaps more appropriately as the pinnacle and the escape velocity of the Information Age.

Kevin Drum, the late American journalist and blogger, once presciently summarized the difference between Industrial Revolutions and the Information and Digital Age: “The Digital revolution is going to be the biggest geopolitical revolution in human history …the industrial revolution changed the world, and all it did was replace human muscle”.

McKinsey Global Institute attempted to quantify that difference. Although clearly imprecise, they believe that the impact of the Information Age is likely to be 3,000 times the ultimate impact of the Industrial Age (i.e. 300 times the waterfront at 10 times speed). In other words, instead of just impacting one or two industries or sectors, the Information Age affects and distorts almost everything: from the functioning of labor and capital to societal interactions and the importance of such key elements as the nature of work and how we are informed or entertained, and even what is meant to be human.

The pressures are already evident in the declining premium for college education (including ‘hot’ areas like computer science) and the growing signs of white-collar employment disintermediation. Although today’s LLMs (large language models such as ChatGPT) are still highly structured (akin to microprocessors), they do not need to be better than humans. Given its exceptionally low cost and scalability, AI being ‘good enough’ is already sufficient reason for the propagation and erosion of marginal and, eventually, average demand and compensation for white collar employees.

It is only a matter of time — perhaps within a decade — before the fusion of AI with robotics, cloud computing, and 3D printing aggressively disintermediates blue-collar workers. Whether it is the ability to print houses and buildings, manufacture air conditioning units without moving parts, printing entire aircraft engines, developing self-healing pipes or the proliferation of autonomous trucks and taxis, opportunities for efficiencies and collapse in marginal costs are arguably even better than those in services.

As subsequent iterations get better (and today’s AI already outperforms most computer coders, aces general knowledge tests and human pattern recognition), these technologies will be deployed to reduce costs and improve efficiency. Although there are suggestions as to how we can turn them into augmenting rather than replacing humans, these are likely to fall on deaf ears. For sure, it does not mean that most jobs will disappear outright. Rather marginal utility and value of humans will inexorably deteriorate, and there will be a persistent fall in demand. As AI progresses towards Artificial General Intelligence (AGI), people will also gradually lose their role as the ‘brains’ of machines, something that kept humans on top by creating more complex and productive tasks for people to accomplish.

While most economists assume that there will be new jobs created that we cannot even envision today, I doubt it, at least not in a conventional sense. It is true that in the 20th century, a buggy driver became a truck driver, and a farmer turned into a factory worker. However, when there is no need for construction workers, taxi drivers, plumbers, writers or computer coders, it is not clear what other niches humans could occupy. It is far more likely that the relative value of people (in the eyes of other people, which is what matters) will be disconnected from conventional jobs or professions, and will take other forms, such as human qualities, religion, sports, and entertainment.

Eventually, a new balance will be established, and productivity will massively rise (perhaps to 5% or more) but not before societies and businesses adjust to what Perez described as the new “techno-economic” paradigm, which could take a decade or two. As McKinsey highlighted recently, in order to crystalize up to $18 trillion in AI productivity gains, societies will need to find that elusive equilibrium and business processes will need to be extensively rewired, not to mention, “workers will need support in learning new skills and some will change occupations.” That’s a gigantic understatement.

Politically, eroding marginal and average returns on labor will keep fanning social and geopolitical pressures. When combined with diminishing analytical skills (a recent MIT study suggested that extensive use of ChatGPT might result in markedly weaker cognitive skills) and declining writing and reading literacy (or what Adrian Wooldridge described as the return of The Middle Ages), the environment will magnify personality-driven politics and populism. Gustav Le Bon perfectly described this in the late 19th century as: “abusive forms of violent affirmations, exaggerations, resorting to repetitions and never attempting to prove anything by reasoning.” Today’s social media is far more dangerous than the yellow press, radio or broadcasting of prior eras.

All of this promises to be a perfect recipe for anger, frustration, grievances, and hence, deep and persistent polarization, both locally and globally.

The disruption is also becoming evident at a corporate level, especially in digital and software industries. While these are still dominated by second generation technology giants (such as Alphabet, Meta, Microsoft, Apple and Amazon), they are now aggressively challenged and, in many ways, disintermediated by a wave of new AI start-ups (such as Open AI, Cursor, Claude, Perplexity, Windsurf, Clay and Paradigm).

Unlike the conventional giants, which are still largely based on technologies that are at least twenty years old, the start-ups are built around and rooted in AI, relying to a far greater degree on intangible assets, which function very differently to conventional tangible capital by offering a much stronger operational scalability and greater synergies while delivering spillover effects. These enable new start-ups to grow much faster by breaking down barriers between industries and lowering Warren Buffett’s proverbial moats.

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How information revolution changes asset bubbles

This returns us to the original question: What does it mean for capital markets and the impact that economic, social and political forces might have on the creation and deflation of asset bubbles?

There is no doubt that investment in AI infrastructure (including data centers) is running considerably ahead of likely revenues — at least in the short term.

In the year to March 2025, five US hyper scalers (Meta, Alphabet, Microsoft, Amazon and Oracle) invested in capital expenditure and R&D totaling more than $500 billion, up 85% when compared to the run rate in 2021. This represented around 37% of revenues versus closer to 20-25% in the previous decade. While none of the players fully dissect individual categories, the bulk of it must relate to AI, with the current expectation of a rise in the investment rate to more than $1 trillion by 2029.

On the other side, while corporates report growing AI revenue streams, at this stage, these are mostly measured in billions (for example Microsoft AI revenue stands at approximately $15 billion), creating a perfect backdrop for Perez’s bubble of excessive investment, inflated values and limited revenues.

However, unlike prior revolutions, the Information Age massively shortens and accelerates business cycles. As described by one of the financiers: “Many start-ups are reaching up to $200 million in annual recurring revenues in less than couple of years, faster than [we have] seen before, and often with very nimble teams.” This is driven by AI’s scalability, synergies and spillover effects. As Charles Ferguson suggested, we might soon be in a position in which just a single start-up with as few as a dozen employees could cause an unprecedented disruption. Unlike dot.com, the time between investment and cashflows is measured in quarters, not years or decades, reducing strain on capital markets and valuations.

Also, for the first time ever in human history, investors are inhabiting a world of abundant, and not scarce, capital. Depending on how one measures overlapping claims and rapidly growing private capital and debt, the value of financial capital is at least five to six times that of the real economy (according to the Financial Stability Board) and potentially as much as 10 times. As with any oversupplied product, excess capital no longer has a price, explaining why yield curves and spreads have not been generating predictable outcomes. Although abundant capital makes the job of estimating things like neutral or risk rates harder, it does offer another layer of protection against a more brutal capital market repricing.

Finally, AI’s sheer size and depth of disruption yields unparalleled opportunities across numerous fault lines: everything from defense and security to transactions (such as the blockchain) and money; from robotics and automation to biotechnology; from education to news and entertainment; from fundamental research to innovation. Neither dot.com, the combustion engine nor even electricity was as pervasive nor as structural. This offers start-ups multiple niches and ultimately justifies some overcapitalization.

Of course, this does not mean that investors will avoid bumps along the road. As one recent book on disruption described it: “industrial revolutions pale in comparison to today’s convulsions … we have to rethink the assumptions that drive our decisions on such critical issues as consumption, resources, labor, capital and competition.” Anyone who does not overcapitalize today risks being left behind tomorrow, gasping for air. The atrophy of mean-reversion and conventional investment styles is another important side-effect with the ‘winner takes all’ mantra dominating the investment landscape, resulting in persistently high concentration of returns. This does not mean investors should just stick with the “Magnificent Seven” (indeed, AI can just as easily destroy as it can create) but rather having a razor-sharp focus on the next winners.


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