Everyone wants to blame the Iran War for 5% yields. But the inflation-breakeven line on my chart that should have jumped if they were right never moved — and that changes the diagnosis. I think we are driven back on (a) the “AI” investment book, and (b) a pronounced expectations-based tail-chasing non-linearity in transformation of the safe-asset shortage into a safe-asset glut:
Why have ten-year US Treasury interest rates jumped to 5.25%? The lazy answer blames the Iran War and the resulting inflation surge. I suspect otherwise. We have the extraordinary “AI”-driven investment boom. We have the erosion of the safe-asset premium that had been the result of the great post-2008 safe-asset shortage. My view: the truth is probably a combination — with the safe-asset piece probably the more worrisome.
Paul Krugman: Booms, Bombs & Bonds: Interest Rates, Part I <https://paulkrugman.substack.com/p/booms-bombs-and-bonds-interest-rates>: ‘My best guess is that [right now] we’re mainly looking at the effects of the immense boom in AI-driven investment, but that the inflationary impact of the Iran War has reinforced those effects by triggering a change in the policy “narrative”…
He sees four serious possibilities out there in the literature:
Serious economic analysts are currently telling four main stories…
They are:
War & inflation. The Iran war disrupted world oil supplies, compounding the Russia-Ukraine war’s earlier constriction of diesel and refined-product markets. The resulting inflationary surge prompted central banks to raise rates. The conjunction of higher short-term inflation and short-term policy has crystalized a shift in expectations about the longer-run.
The AI boom. Firms are investing on a vast scale (even though the ultimate economic payoff remains uncertain). Against the backdrop of an investment boom of this magnitude, interest rates at least this elevated are precisely what we would expect to see.
The erosion of the safe-asset premium. The United States has long borrowed cheaply because its debt was regarded as uniquely “safe.” That premium presupposes relative scarcity—and the sheer quantity of debt now outstanding has begun to erode it.
Debasement. Finally, the fiscal predicament is not America’s alone: France and the United Kingdom are likewise running large deficits while proving politically incapable of decisive correction. In an emerging economy, one would openly entertain the prospect of engineering inflation to erode the real value of the debt. At least some analysts contend that precisely that is already under way.
If (1) or (4) were the main factor pushing the rise in long-term interest rates, however, we would expect to see the red inflation-breakeven line tilt up when the bond interest-rate line tilted up. It didn’t. Thus we are driven back to (2) and (3). There is an argument that (3) has to be a gradual process, and that what we are seeing now is not a gradual process. I think that argument is wrong. What we are talking about here is an expectational equilibrium in which the safe asset premium on U.S. Treasuries depends on everyone else believing that there is a safe asset premium on U.S. Treasuries. And such equilibria, when they unwind, can unwind suddenly and completely. So I see (2) and (3) as each live possibilities, and the truth probably a combination of the two.
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A Treasury Secretary who controls neither the budget deficit nor the money supply nor international capital flows is never the “House”“ in financial markets, and anyone who claims to be such is, as Paul Krugman says, beclowning himself:
Paul Krugman sees that Scott Bessent—whom we all remember claimed with confidence and authority in the fall of 2024 that Donald Trump was really a free trader, and that his talk of tariffs was “escalating to deëscalate”—as having has destroyed his reputation by becoming a Trump lickspittle. Thus he is another example of the iron law that anyone who serves Trump destroys his own credibility and dignity—gives them to Trump, Trump takes them, usually does not even say “thank you”, and then moves on, offering nothing in return.
Bessent, after intervening to support the yen, publicly declared “I am the house now” dared traders to bet against him, then did a small QE operation in 30-year Treasuries to try to push long rates down. But:
Trump’s rejection of an Iranian proposal to end the war → crude oil prices spiked back up → elevated inflation (diesel near record levels) → the Fed keeps short rates high → that expectation feeds into long-term rates → rates hit new records.
Bessent’s jawboning was steamrolled by the very administration whose sycophancy he participates in. And Bessent then compounds his idiocy by predicting Iran’s economic collapse “within two weeks”:
One iron law of current politics is that nobody who associates themselves with Donald Trump emerges with a shred of credibility. For some, that’s not a big loss — it’s not as if anyone respected Pete Hegseth even before he decided that the key to military success in an age of drones and AI was more testosterone. For others, however, the costs are real. I’m old enough to remember when Marco Rubio was widely considered a reasonable, thoughtful politician.
Right now, however, my candidate for the biggest loser is Scott Bessent, the Secretary of the Treasury. Bessent started out with significant reputation to lose: When Trump selected him, this was the headline in the Financial Times:
Jason Furman, Barack Obama’s chief economist, described him as a “credible Treasury secretary who has a real understanding of the global economy”.
But Bessent has now transformed himself into the Baghdad Bob of bonds.
Three weeks ago, after intervening (for reasons that remain somewhat unclear) to support the Japanese yen, Bessent boasted about his ability to move markets and dared investors to bet against his, declaring “I am the house now.” He then tried to push long-term interest rates down, buying 30-year U.S. Treasuries in a move some have compared to paying down part of your mortgage by running up your credit card balance.
Here’s how that’s going so far:
To get some perspective on how high interest rates have gone, here’s a longer-term perspective:
We haven’t seen interest rates this high since the fading days of the dotcom bubble.
Why are interest rates hitting new records? The backdrop, as I argued in last Sunday’s primer, is the huge AI-driven investment boom; more on that next week. But the immediate cause of the latest interest rate spike was Trump’s rejection of an Iranian proposal to end the war. This rejection sent crude oil prices, which for a while had fallen considerably, shooting back up:
It’s notable, by the way, that oil prices remain high even though a significant amount of oil is now being shuttled through the Strait of Hormuz by night, on smaller vessels. That’s an interesting story, which has a lot to do with the fact that oil from the Hormuz shuttle runs must be transferred to larger vessels before being shipped to markets in Europe and Asia; around 15 percent of the world’s large crude carriers are now parked off the coast of Oman, waiting to be tanked up. This is creating a shipping crunch:
But that’s a topic for another day. For now, the point is that with oil still high and refined products, especially diesel, still close to record levels, inflation will remain elevated. And this in turn means that the Federal Reserve will keep short-term interest rates high, an expectation that is feeding into longer-term rates. Hence Bessent’s bond-market humiliation.
The truth is that Bessent might not have been able to get interest rates down even in the best of circumstances. But he certainly won’t get anywhere as long as Trump keeps believing that he can somehow convert his Iran debacle into a triumphant victory. And Trump will keep believing that as long as he is surrounded by sycophants who tell him what he wants to hear.
Sycophants like, for example, Scott Bessent, who is predicting the imminent collapse of the Iranian economy, possibly within two weeks. Bessent is right to say that the embargo on Iranian oil exports is placing the country under great economic strain. But his implicit prediction that this will quickly produce a deal that Trump can call victory looks no more plausible than his boasts about the bond market.
The big question now is, why would anyone with a reputation to lose work for Donald Trump? As the beclowning of Bessent shows, joining the Trump team won’t just damage your reputation; it will utterly destroy it.
Brad DeLong here: Krugman calls it beclowning; the deeper truth is that Bessent torched his reputation long before the bond market got him.
Jason Furman did not have to participate in the sanewashing of the Trump II administration by calling Scott Bessent a “credible Treasury secretary”.
But he did.
Even though at the same time Bessent was setting his credibility on fire by assuring us that a Trump II administration would achieve 3-3-3: 3%/year real GDP growth, 3 million BPD more of oil production, and a 3% federal deficit as a share of GDP. Even though at the same time Bessent was setting his credibility on fire by assuring us that a Trump II administration would truly, surely be a free-trade administration because Trump was, in his heart of hearts, a free-trader, and was only talking about escalating tariffs as a way to strike deals to deëscalate them.
Trump was never a free-trader, and then when the Republican congressional caucus decided to let him play with “emergency” tariff toys, it was very clear from the get-go that Trump was like a pig in shit. And as for “deals”? Well, since Trump never keeps them, they were and are never real.
The days of sanewashing Treasury Secretary Bessent should never have been, and if they had been by now shoud have long been over.
But, still, we do have people overlooking the obvious that:
Bessent has now transformed himself into the Baghdad Bob of bonds...
Indeed. The not-so-secret secret is that he always was:
End net immigration—as Trump has—and the possibility of 3%/year real GDP growth goes out the window. And Bessent knew this before he took office. Forecasts of full-year 2026 and 2027 real GDP growth around 2.1%.
The deficit is twice 3% of GDP and moving the wrong way. Republican congressional caucuses will never vote for Medicare or Social Security or Defense cuts or for tax increases. “Emergency” tariffs by the fiat of the executive are not a serious budget-balancing item, as they are an order of magnitude too small. And even a Republican congressional caucus will only vote for Medicaid cuts if they are immediately passed through to tax cuts. And Bessent knew this before he took office
Domestic oil production is currently 13.8 million barrels/day, up 0.6 million from the 2024 baseline. Without huge new subsidies, that third “3” was never attainable in the absence of a geopolitical and geoeconomic catastrophe of the sort, well, that it looks like Trump may just be managing to create. And Bessent knew this, too, before he took office.
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In 756 the richest, most advanced polity on Earth nearly dissolved at the hands of one of its own frontier generals. Having survived, its rulers spent the next thousand years making sure no general could ever try again — and may have surrendered the Industrial Revolution in the bargain. Do I let this, one of the hundred things worth thinking about in the firehose-flood of my feed this morning, take over my brain and attention for a while? And what would be the best durable product if I do let this command my attention for a while?
There is an enormous absolute wealth of plausible historical causes for the “Great Divergence” between northwesternmost Europe and northeasternmost Asia. Do we want to explain China’s long post-1200 relative stagnation with clans, cousin marriage, or wet-rice paddies on the one hand.
Or should more causal weight be assigned to a more colorful and more vivid candidate explanation: the shadow cast on a civilization by one fat laughing rebel that led to the decision that the empire’s own army was the biggest enemy to fear?
I am thinking of this right now because it has shown up in the firehose-flood of my feed from several different directions, springing from a Tang Dynasty poem; the very knotty questions of whether academic anthropology today can be anything useful, or whether the discipline needs to be leveled, and its pieces moved over to other departments; clan lineage vis-à-vis legal-framework associative human societal organization; and much else on which I have strong, albeit unfinished opinions.
But how much time can I spend on this today? And how do I ensure that the time I do spend on it is time well-spent, and will end up in some form potentially useful to future humanity as it thinks through these issues?
The TangDynasty-era An-Shi rebellion of 756was led, first, by frontier commander An Lushan before he was murdered by his own son An Qingsu, and then led by his lieutenant Shi Siming. It was suppressed after Shi Siming’s murder by his own son Shi Chaoyi.
Phil H. gives us poet Sikong Shu, on the state of China in the aftermath, perhaps in 763 or so:
Sikong Shu: Seeing Off a Friend Back to the North After the Raiders Are Pacified <https://tangpoetry.substack.com/p/no-arcadia-is-left-after-the-war>: ‘When we went south together, you and I,
The world was plunged in chaos, overthrown.
Today, the times are cleansed, but this goodbye
Returns you to our northern lands alone.
In unfamiliar territories my hair
Has turned already, fading into white.
The old country is waiting for you, where
The blue hills offer one familiar sight.
From broken city walls and ruined keep
Encountered by the moonlight in the dawn,
You’ll reach that bitter mountain pass to sleep
As stars and empty space above you yawn.
Each step you take, and every anguished face,
The shivering birds and withered grass keep pace.
Phil H.: Tang Poetry <https://tangpoetry.substack.com/p/no-arcadia-is-left-after-the-war>: ‘A classic. All the commentators say so… slightly awkward… because it’s a classic of what is not said, and… so has] to be very good at placing the words you didn’t say in the reader’s mind…. Seven years later… Xuanzong’s sons had reasserted Tang control. [But] Sikong is staying in the southern backwater… refuge…. His friend is returning to… Guangping…. Each of the first three couplets of this poem finds the sweet spot…. The north echoes the south; return echoes went; alone echoes together; etc….
[In] the second couplet… the Chinese just says: in the old country, you’ll see blue hills. The point is that… he will see the blue hills; but… precious little else that he remembers…. A poet self-consciously avoiding the important questions about what might be left after the war…. The third couplet…. Stars at a mountain pass - so what? We have… to realise that there are no more towns or waystations… because… of… battle….
After the… war… [no] spring… autumn is the only feeling…
The 756-763 An-Shi Rebellion just might be a great hinge on which the history of China turns. It is the moment when the most powerful, populous, and technologically advanced polity on the planet came within an inch of dissolution at the hands of one of its own frontier generals. Having survived, its governing élite and state apparatus spent the next thousand years arranging its institutions so that no imperial general could ever successfully such a thing again. That arrangement kept the emperors and their courts relatively safe. It may also have cost Chinese civilization the ability to lead the Industrial Revolution.
I do teach this in course units on the Great Divergence. I also teach it in course units on High Patriarchy:
My thoughts on this do belong somewhere, in some form in which they can be absorbed and judged by the real ASI that is the Anthology Super-Intelligence of the collective literate time- and space-binding human mind. I need to work them up properly.
But there is so much else deserving of my attention as well…
However, this is worth thinking about right now: Come November, I am supposed to have a view of and discuss Greif, Mokyr, and Tabellini’s Two Paths to Prosperity: Culture & Institutions in Europe & China, 1000–2000, and the book has just raced by in the firehose-flood that is my feed, quickly followed by the poem.
The book by and large follows the line I assign to Joseph Henrich: lineage clans vs. corporate associations:
China → the clan. Strong patrilineal kinship loyalty and kin-based morality made kin groups the natural vehicle for cooperation which facilitated the consolidation of autocracy and, in the long run, dampened innovation.
Europe → the corporation. The Western Church’s prohibitions on cousin marriage eroded kinship ties, so cooperation had to extend to strangers—via guilds, universities, monasteries, and self-governing towns, which required formal rules, legal enforcement, and collective decision-making (majority voting), seeding the rule of law and constraining state power, and thus producing the miracle development institutions of a capitalist order in which market rather than patronage ruled.
If we center An Lushan and the extraordinary echo that he and the Tang Emperor Xuanzong left in the collective memory of China’s state élite, we are pushed in very different directions than those taken by Henrich, Greif, Mokyr, and Tabellini.
A thousand years before the nineteenth century—in 800, say—the cutting edges of human civilization were Haroun al-Rashid’s Baghdad and the Tang capital of Chang’an, not London or Bristol or any place in the backward, rain-soaked northwest of the Eurasian landmass. China in this era led the world in the three inventions Francis Bacon later credited with remaking Europe—gunpowder, printing, the compass—and had all three before the year 1000. At its twelfth-century apogee it produced more iron and marketed a greater share of its farm output than Britain would manage in the eighteenth. Chang’an under the high Tang was very possibly the largest city on the planet; the Song capital of Hangzhou later held perhaps half a million souls, larger than Baghdad or Constantinople or Córdoba or Delhi.
Emperor Xuanzong and general An Lushan is an arresting story. As so often in court-centered politics, it is very personal and really weird. By the 750s the Tang emperor Xuanzong had reigned for four decades. The vigor of his early years to curdle into the indulgence of his late ones. He had entrusted the defense of the northeastern frontier to An Lushan, a general of Sogdian and Turkic parentage: a court favorite, a jovial buffoonish man perhaps put through a mock adoption ceremony by the emperor’s beloved consort (and the emperor’s son’s ex-wife) Lady Yang: Yang Guifei. His infatuated love for her was so strong, it was said, that it overturned the natural order of patriarchy: parents preferred baby girls to baby boys.
The court found him amusing. The court found him useful. Chancellor Li Linfu had made it policy to hand frontier commands to non-Han soldiers precisely so that no ambitious mandarin with backing from a Han aristocratic lineage network could use a border army as a ladder to the throne. Since no Sogdian-Turkic general had an aristocratic support network to stabilize him on the throne, no Sogdian-Turkic general would dare try. Moreover, by the mid-750s, An Lushan appears to have been suffering from severe advaned diabetes: substantially obese, non-healing infected ulcers, and growing retinopathy. To the extent that Xuanzong and the court had an An Lushan problem in the mid-750s, it was about to solve itself.
But Li Linfu died. Yang Guifei begged Xuanzong to make her cousin Yang Guozhong Chancellor. Yang Guozhong moved against An Lushan. (It has never been clear to me why.) An Lushan did the standard arithmetic that Overmighty Subjects do. He marched south, claiming a secret imperial commission from Xuanzong to rid the court of Yang Guozhong. His rebels took the eastern capital, Luoyang, at which point An Lushan revealed that he would not be happy with Xuanzong as a puppet and proclaimed himself emperor of a new Yan dynasty.
The Tang defense broke. The road to the western capital Chang’an lay open. The emperor fled. At the post-station of Mawei his bodyguard killed Yang Guozhong, demanded permission to murder Yang Guifei as well, and the emperor Xuanzong—this is the scene that a thousand years of Chinese poetry could not leave alone—agreed. She was strangled. He escaped. He fled to Sichuan. He abdicated. His son Suzong took up the throne and the imperial resistance fight from the northwest with Uyghur cavalry.
An Lushan, paranoid and going blind, was murdered by his own son An Qingxu. An Qingxu was in turn killed by An Lushan’s lieutenant Shi Siming. Shi Siming was then killed by his own son Shi Chaoyi. By 763 the rebellion was over, but the Tang Empire that survived was a different creature from the Tang Empire that had gone in.
The general run of things was that in Europe kings, ministers, and landlords wanted a strong military, because the thing they feared most was the military of the next kingdom over: the next William the Conqueror, the next Napoleon. Local élite survival ran through military effectiveness. Military effectiveness ran through metallurgy, gunnery, shipbuilding, fortification, and finance. That complex did much to drive early modern European technological progress.
After the An-Shi rebellion, China’s emperors and élites saw things differently. As long as the steppe confederations could be kept divided, and diplomacy was very good at keeping them divided, there was little to fear from beyond the frontier. What an emperor, a grand secretary, or a great landlord had to fear was their own generals. An Lushan and Shi Siming are Exhibit A. The 1600s-era Three Feudatories Wu Sangui, Shang Zhixin, and Geng Jingzhong—lineages that had turned their coats, been instrumental in the conquest of China by the Qing, and been rewarded with extraordinary fiefs over Fujian, Guangdong, Guizhou, and Yunnan—are Exhibit B. A state whose deepest fear is its own army does not build a machine for military-technological competition. It builds a machine for keeping generals weak, divided, rotated, watched, and subordinate to civilian scholar-officials who could be trusted precisely because they commanded nothing.
The Song started the pattern around the year 1000. They built a state that systematically distrusted and demoted its own commanders, subordinating the sword to the writing-brush, even when Liao, Western Xia, and Jin armies were pressing on the frontier and a little more martial vigor would have been worth a great deal. That is the An Lushan reflex, institutionalized.
That is just one possible alternative candidate root-cause. It is there in addition to the Latin Church’s war on cousin marriage and the push that gave toward diffuse associative rather than tight lineage sociability. You need to line both of these up whenever you start contemplating the reasons for China’s long post-1200 pre-1975 relative stagnation,
But those are just one possible contributing causes, among many.
Perhaps the deeper problem was that the rice paddies were too fertile and the examination ladder too open, so that entrepreneurial energy was reliably captured, generation after generation, and remolded into orthodox Confucian landlord-scholar-bureaucrats. Perhaps it was the absence of a New World to plunder. Perhaps it was the absence of ungoverned corners, places still in the cultural milieu where heterodoxy could hide and then spread. Perhaps it was the absence of self-governing merchant cities. Perhaps it was that oxen and horses multiply the product of temperate wheat farming but do far less for subtropical wet-rice.
Perhaps there were many root causes.
But of all these, An Lushan is very vivid. You can point to a fat, laughing man at a doting emperor’s court and watch a civilization decide, forever after, that this must never be allowed again.
But that is all the time I have to spend on this today, for November and my presentation are far off, and there are other more urgent things flashing by in the feed.
The most urgent of these other things, however, is this: figuring out how to deal with the firehose-feed-flood of information so that my time is sliced to work productively, rather than scattered so that I start 1000 things, finish none of them, and when I return to any one of the 1000 I have to, effectively, start over from scratch.
In some sense, this is a good problem to have.
I confess: I do not read my feed. I stand in front of it, as one stands in front of a fire hydrant gushing, and I let it hit me in the face, and I try to catch a mouthful as it goes by. This is the info-bio tech-attention economy. It is worth being clear-eyed about it. The binding constraint on the life of the mind is no longer the supply of things worth reading. It is the supply of attention with which to read them.
Consider what a well-read person of, say, 1500 confronted. A gentleman-scholar with a good library and a lifetime of leisure could aspire to have read essentially everything that his culture regarded as worth reading—the classical corpus, the Church Fathers, the handful of moderns. Erasmus could hold the thing in his head. The problem was access: books were dear, manuscripts were rare, and the great intellectual labor was one of acquisition and preservation—of getting the text at all, and of keeping it from rotting or burning.
That world is gone. It is not coming back. On balance we should be very glad. But we have not yet built the habits of mind, or the institutions, appropriate to its successor. We are like the first generation of factory workers who still tried to farm on Sundays: our reflexes were formed for a régime of scarcity, and they misfire badly in a régime of superabundance.
The reflex says: this is worth reading, therefore I should read it.
And in 1500 that syllogism was sound.
Today that syllogism is a formula for madness.
So the first discipline is simply to avoid that madness, and to stop feeling guilty about it. Guilt is a category error. Failing to keep up is not a sin or a flaw. Keeping up is simply not a thing that can be done. There is no “behind.” There is only the flow, and the question of what to catch in the moment.
The second discipline is for me to ask of the firehose-flood: Where is my Value Above Replacement here? The replacement-level activity is not idleness. It is the next-thing streaming past, which is also excellent. So the bar is high, and it should be high, and most things—most genuinely worthwhile things—do not clear it. And I should teach myself to believe that that is fine.
The third discipline is this: follow the collisions. This post is an artifact of exactly that. Greif, Mokyr, and Tabellini’s Two Paths to Prosperity raced by in my feed. Then, hard on its heels, Phil H.’s rendering of Sikong Shu came by too. Together they strike sparks: the grand economic-historical narrative of clans-versus-corporations collided with a 763 lament for a world that battle had emptied of towns and waystations
The medieval scholar’s limited and finite library made for depth and for a certain magnificent thoroughness. Our infinite one makes for connection, for juxtaposition, for the unlicensed cross-pollination of a poem and a price series and a hardcover fantasy novel about Tang China all landing on the same desk in the same hour.
So what am I going to do this AM? I am going to disregard my own Value-Above-Replacement calculus entirely. I am going to pull Guy Gavriel Kay’s Under Heaven down off the shelf. I am going to spend hours I do not have rereading a fantasy novel about the An Lushan rebellion. For one point of standing in the firehose-flood-feed is not to work through it efficiently, but to let one stream carry you somewhere lovely, and quiet, and let the rest roar by.
The best durable product of my attention this AM will be renewing and reinforcing: again going through the pity, misery, and tragedy of Guy Gavriel Kay’s remixing of “The Song of Everlasting Sorrow” in Under Heaven.
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Broadband telecom is not an easy business to earn a high return in. SpaceX’s revenue is now 55% StarLink—broadband telecom—and 33% “AI”—which means renting out Colossus datacenters to Anthropic—and only 12%, you know, space launches:
Sinead O’Sullivan tells us that “Morningstar, the loneliest bear in the world, puts [the] fair value [of SpaceX] at $780B, of which about… [$60B] launch…[$550B] Starlink”, and $170B xAI. $1.75T of market capitalization on a 2025 revenue of $20B—$$11B StarLink, $6.5B renting Colossus to Anthropic, and $3.5B launches—and a net loss of $5B.
Thus: “The real genius of SpaceX had nothing to do with aerodynamics or rocket telemetry but narrative rotation, as each new iteration of the company’s goals was financed by believers in the last”:
Sinéad O’Sullivan is a former senior researcher at Harvard Business School and professor in aerospace engineering.
Almost a quarter of a century after SpaceX set out to make humanity multi-planetary, turning the space industry upside down in pursuit of Mars, it appears to have found something better to do.
In most ways, Mars was the entire point of SpaceX — a quasi-religious corporate creed, complete with colonies, timelines and the promise of making humanity a multi-planetary species, carrying our civilisation — and eventually our minds, once digitised — beyond Earth. In February, Musk announced that the company had shifted its focus from Mars to the much closer lunar surface, which also happens to be a more useful place to manufacture orbital data centres. Last week it emerged that SpaceX has stopped bidding for commercial Falcon 9 launches, allowing only US government customers for the rocket. And Gwynne Shotwell signalled last week in Paris that Crew Dragon, the only operational crew vehicle for routine missions for Nasa, will eventually be wound down.
What does it mean for the business of space when a company that is founded on getting humanity off Earth loses interest in the rather more immediate business of keeping humans in orbit around it? Shotwell’s solution? Let Boeing “have some business” — despite Boeing’s failure to fly a single operational crew rotation.
But there’s a bigger question: what happens to the companies that were relying on SpaceX to get to orbit? Musk spent two decades building Frankenstein’s monster; this ecosystem he now seems to regard as too small and boring to bother with. Luckily, there isn’t nearly as much demand for launch capability as Musk had promised. In 2025 Falcon 9 flew 165 times, and just 43 of those flights carried outside customers. Nearly three-quarters of the most celebrated launch cadence in history was SpaceX putting its own Starlink satellites into orbit. Meaning that selling launches to other companies brought in $4.1bn last year, up only 8 per cent in a market that was supposed to have exploded — and most of that came from Nasa and the Pentagon. In the second quarter of this year, space contributed just 12 per cent of SpaceX’s $7.8bn in revenue. Starlink brought in 55 per cent; the AI business, which only arrived in February, already accounted for 33 per cent.
However, Musk founded SpaceX on the bet that there was an enormous market for launch that was shackled by the industry’s high pricing. By making rockets reusable, the cost would collapse and customers would come running for access to low-Earth orbit. In other words, launch demand would be highly price elastic. But when SpaceX removed the price constraint, the expected flood of customers never came. It turns out the old-guard space executives who decided not to spend billions on reusable R&D weren’t all dinosaurs. Some of them may simply have understood the demand curve correctly.
That’s not to say there’s no demand. Yes, there are some customers for launch, and they’re now scrambling for access to orbit. But there just aren’t enough of them to matter to a company valued in the trillions.
Which suggests that the real genius of SpaceX had nothing to do with aerodynamics or rocket telemetry but narrative rotation, as each new iteration of the company’s goals was financed by believers in the last.
Reusability was paid for by Nasa and satellite operators, with federal commercial off-the-shelf and Commercial Crew money providing early proof-of-concept contracts to finance its early rounds.
Starlink was sold to private investors on the back of this reusability.
Mars gave SpaceX much needed urgency; an existential justification of sorts for moving fast and treating rules as impediments to a higher purpose.
And orbital AI compute is now being sold to public markets as the reason to pay almost any price for its stock.
The last rotation into the AI narrative has obviously been the most lucrative of all. In June it listed at $135 a share, a $1.77tn valuation and the largest IPO on record, on 2025 revenue of $18.67bn and a net loss of $4.9bn. That works out at roughly 95 times trailing sales, for a company whose AI segment spent $5.1bn on R&D last year, more than that segment’s entire revenue.
Morningstar, the loneliest bear in the world, puts fair value at $780bn, of which about $611bn is launch and Starlink.
Still, investors are grown-ups, and markets are a dog-eat-dog business.
But the real problem is Europe’s, because for most of the last fifteen years, Brussels has been trying to compete with a company whose launch model has yet to show meaningful viability, at least without putting a Tesla in space, absorbing a social media company and generating cat memes at industrial scale. For the last decade, Europe has attempted to pour money into new launchers designed to match SpaceX’s financing and operational style — without ever asking where the customers are supposed to come from. “Build it and they will come” did not work for SpaceX, whose rockets were eventually paid for by SpaceX’s own satellites. Without a launch company generating its own enormous demand, the numbers are unlikely to work.
Europe has spent years, and enormous amounts of money and institutional energy, trying to build a European SpaceX. But what if it has been competing with a mirage — and in the process, mistaking SpaceX’s dizzying growth for evidence of a dazzlingly large launch market? Which brings us back to the old, boring model. It kills me to say it, but maybe it was the sustainable one all along. Ariane, anyone?
Brad DeLong here: What do I think of this? Well, is satellite broadband likely to be super-competitive in the long-run vis-à-vis earth-based fiber- and tower-based broadband? Maybe. Perhaps. In the geographically dispersed low population density 20% of the market. But as soon as people cluster in cities the space-basing loses its edge. Are orbital datacenters likely to be super-competitive in the long-run vis-à-vis earth-based ones? I just do not see it. The orbital-datacenter case seems to me considerably weaker than the satellite-broadband one, for which there is genuine physics for serving dispersed customers. Yes, energy is nearly free in space once you have the solar panels, but heat dissipation is nearly free on earth.
Even Morningstar seems to be bending over backwards to burnish the Muskopoly unduly, IMHO.
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Nate Silver calls it his most underrated chart, and he well be right. Trump’s approval is a wall of people who don’t feel it strongly. The disapproval is hot and fierce:
From Nate Silver:
Nate Silver: <[twitter.com/NateSilve...](https://twitter.com/NateSilver538/status/2102884250400014633)>: ‘feel like this has been one of our more underrated charts. If you throw out voters who *weakly* approve or disapprove of Trump's performance and only look at *strong* approval/disapproval, his net approval rating is -29, even worse than his overall -22:
In other words, even though Trump's approval rating isn't good (now 37.6%), it's being propped by people who lukewarmly approve. Whereas the disapproval is *very* entrenched. A much different dynamic than the first term. Trump's approval has had some news-driven spikes. But the overall trend has been quite persistently downward. It's easy to convert a "weak approve" to some form of "disapprove". It's hard to convert a "strong disapprove" into any form of "approve"…
What I would really like to see, of course, is the movement: a poll that followed 10,000 people over time, and reported how they shifted from basket to basket. But nobody thinks that would pay. And nobody in non-profit-land appears to think that would be worth funding, to my frustration.
But note this: Trump organized a coup attempt. And in its aftermath, he was more popular in America than he is now. This is the lowest net approval of any president at least since Herbert Hoover, and perhaps since long before (we do not really have polling before 1945). “News-driven spikes” that fade is exactly what you would predict from a presidency governing by chaos-monkey-fu. Each new outrage buys a day of base enthusiasm, and then compounds the strong-disapproval pile that never shrinks.
Silver’s own midterm model has already drawn the obvious inference: This is turning into a blue-wave environment. Expert raters clinging to neutrality are somehow anticipating that Trump’s awful numbers will not leak over and affect other Republican candidates. The argument that it is likely to is that strong disapproval is not just a polling artifact but turnout energy, for “lukewarm approvers” often find something else to do on a Tuesday in November.
So yes: We loathe him, we really loathe him, we loathe him for reasons that are specific, economic, constitutional, and moral. The chart's -29 says the quiet part out loud: We are not a coalition of cranks. We are many. But we need to turn out at the polls in November.
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Annals of Technologies of Cognitive Alertness: Qahveh Khaneh Comes to Telegraph Avenue: How Coffee’s 600-Year-Old Birthplace Has Filled a Peet’s-Shaped Hole:
There is a Peet’s-shaped hole in my memory of the corner of Dwight & Telegraph, Peet’s! The ur-roaster. The place from which the founders of Starbucks learned their trade in the early 1970s. The fountainhead of the entire American specialty-coffee revolution that the—alas! now-late but then-assistant economics professor Suzanne Scotchmer introduced me to, back when I was a undergraduate junior in 1980-1981 at George Howell’s Coffee Connection in The Garage at the corner, of Mt. Auburn St. and Kennedy St. in Cambridge.
I cannot say Peet’s abandoned a prime piece of Southside retail frontage. Telegraph Avenue had better days back when bookstores were still magnets. Traffic at that Peet’s was never anything like, say, Caffé Strada which does an extraordinary land-office business all the time during term time when it is not raining. But Peet’s did abandon a piece of frontage that was, objectively, a very well-placed perching spot for people coming up to campus from the south and west.
Replacing it is something called Sana’a Café.
The Sana’a Café (or, rather, a Sana’a Café) <https://thesanaacafe.com/> has opened with a bracing very strong pull—lots of grounds in the bottom of the cup:
Sana’ani (Coffee with Cardamom and Cinnamon) — $4.99 / $5.99 Jubani (Coffee with Cardamom and Cinnamon) — $4.99 / $5.99 Arabic Light Roast (Light Roast Coffee with Cardamom and Cinnamon) — $4.99 / $5.99 Mofawar (Medium Roast Coffee with Cardamom and Cinnamon) — $4.99 / $5.99 Qishr (Coffee with Husk of the Coffee with Cardamom and Cinnamon) — $4.99 / $5.99 Adeni Chai (Yemeni Chai with Cardamom and Cinnamon) — $4.99 / $5.99 Yemeni Black Tea (Yemeni Black Tea, Cardamom and Cloves) — $4.99 / $5.99 Turkish Coffee (Medium and Dark Roast Coffee Only) — $4.99 / $5.99
DINE-IN
Small Pot (18oz) — $9.95 Medium Pot (24oz) — $15.95 Large Pot (32oz) — $19.95 Traveler Pot (96oz) — $29.95
It is one node in a rapidly branching network that did not exist anywhere on earth four years ago.
We tell ourselves that coffee comes from Ethiopia. That is true, in the narrow botanical sense. Coffea arabica is native to the highland forests of Kaffa, in the southwest of Ethiopia, where it grew wild and largely unregarded for a very long time. But a wild plant is not a beverage. And a beverage is not a culture. The plant is an accident of biogeography. The drink—coffee as a thing you brew, share, argue over, and organize your social life around—was a human invention. It was invented in Yemen.
Sometime soon after 1400, coffee made the short but decisive hop across the Red Sea, and it was Yemeni Sufi mystics who first put it to systematic use: they brewed the seeds and husks of the coffee cherry to stay awake through their long nocturnal devotions. Coffee was at the get-go not a consumer pleasure but a religious productive—salvation-generating—technology of wakefulness—a productivity enhancement for the spiritually ambitious. Graduate students bent over their laptops in the new Sana’a frantically booting their am or pm wakefulness are, whether they know it or not, the direct cultural descendants of 1400s dervishes trying to squeeze more devotional hours. The application has secularized. The pharmacology and, largely, the sociology have not changed.
From the Sufi lodges, the practice diffused outward. It reached into ordinary Yemeni society. By the middle of the 1400s, we are told the qahveh khaneh had opened their doors in Yemeni cities. Everything downstream of that traces its lineage back to Yemen: the coffeehouses of Cairo and Constantinople, of Mecca and Isfahan, and eventually the London coffeehouses, out of which Lloyd’s of London and the stock exchange and a good chunk of the eighteenth-century public sphere would crystallize. When Jürgen Habermas wants to locate the birthplace of the bourgeois public sphere, he points to the coffeehouse. He might have pointed further back to Yemen and to the qahveh khaneh of Coffea arabica, with caffeine-laden coffee being (along with caffeine-laden tea and nicotine) one of the three major early modern biotechnologies of cognitive alertness.
There is the port. For roughly three centuries, from 1450 to 1650, the bulk of the coffee that reached the wider world was grown in Yemen and then left through the single Red Sea harbor of al-Makha. The beans that passed through it became known simply as “mocha”. The name has outlived the port’s near-monopoly by three hundred years. It has now attached itself, with magnificent inaccuracy, to a drink of espresso and chocolate that has nothing whatever to do with al-Makha, but is instead a weird marketing accident. (Some claim that Yemeni beans, grown at altitude on ancient terraces and dried whole in the sun, carry a genuinely cocoa-like depth.)
Yemen, of course, understood exactly what it had. For nearly two hundred years it ran one of history’s most successful commodity cartels. Green beans were boiled or roasted before export so that they could not germinate abroad in an early-modern equivalent of DRM. Smuggling live plants out of the country was punishable. It worked, more or less, until it didn’t: by 1625 Dutch traders had gotten viable plants out into the botanical gardens of Amsterdam. Then they leaped, to Ceylon, to Java, and by the mid-1700s coffee was growing across the Americas, Yemen’s monopoly was simply gone, and the fact that all of coffee’s pests and parasites were located in the horn of Africa meant that Yemen and Ethiopia faced large production disadvantages vis-à-vis producers in the rest of the world.
What survived the collapse of the monopoly was the culture.
Qishr—brewed from the dried husks of the coffee cherry rather than the bean, spiced with ginger and cardamom, naturally low in caffeine, originally, I am told, a poor-man’s drink for coffee workers who could not afford beans that had had their price boosted by export demand—is still drunk across Yemen.
It is on the menu at Dwight and Telegraph, priced at $4.99 for twelve ounces. That is a sentence that would have been unintelligible to any human being alive before about 2023. (I have not yet tried it.)
There is now a Yemeni-style coffeehouse miniboom. The Associated Press tells me that the number of cafés operated by six Yemeni-style chains in the United States grew by fifty percent in 2025 to 136 locations. The oldest of these, Qahwah House, opened its first store in Dearborn, Michigan, in 2017—Dearborn being home to one of the largest Arab American communities in the country, a legacy of the auto industry’s twentieth-century labor demand. It now runs more than twenty locations.
There is a clear niche for a non-chain, single-location, local-focused coffeehouse in a world in which there are 700 Starbuckses and 130 Peet’ses in Greater San Francisco. But is there a niche for another chain? The idea isnot “beat Starbucks at being Starbucks”, but to occupy a position Starbucks structurally cannot occupy with a favorable cost structure. I see four things at work here:
Product differentiation: Starbuckses could add a cardamom latte tomorrow; it could never be Yemeni. That’s a moat made of identity, and it lets them sidestep price comparison, for there is no reference price for a Sana’ani.
Late-night: Starbuckses close early and have spent a decade engineering out lingering, and so there is a place for serving the 9 p.m. slot Starbuckses will not occupy.
Co-ethnicity: community financing, lower monitoring costs, and labor supplied by cousins and friends of cousins because it’s kin and it’s “purpose, not work”; the classic immigrant-entrepreneurship advantage of sweat equity, trust networks, and trade diasporas doing work.
Customer base: Arab-American and the broader “somewhere to go that isn’t a bar” crowd, plus the curious.
Incumbent retreat: Peet’ses and Starbuckses spent 40 years teaching Americans to pay $6. Sana’a inherits that trained demand and the physical carcasses. Low build-out cost, pre-qualified locations, demand already conditioned.
Of course, “authenticity”, “community”, and immigrant-networks and sweat equity powerfully erode with scale.
The city of Sana’a:
Sana’a is not on the seacoast. Sana’a is not a port. Sana’a is located in the western-highland geographic spine that is the terraced-slopes highland coffee-growing region. It is the traditional capital of Yemen. (It is the capital of the Houthi-controlled part of Yemen; the rest is ruled from Aden.) It is Yemen’s largest city, sitting at about 7,500 feet. Its old walled city is a UNESCO World Heritage Site.
Sana’a Café began in downtown San Francisco in 2023 as a family business. A cinnamon-cardamom combination in a strength never seen outside Yemen. Ginger, saffron, and honeycomb bread in an elaborate and very nonstandard pastry case (baklava, milk cakes, pistachio cheesecakes). Now Sana’a Café counts on the order of sixteen locations in California, plus one in Washington state; has taken over a former Starbucks in San Francisco’s Financial District at 27 Drumm Street; has three storefronts in the Sacramento area; and has one in Hollywood and one in Orange County. In the words of co-founder Sadeq Aleqel:
Sadeq Aleqel: Exploring Life & Business <https://voyagela.com/interview/exploring-life-business-with-sadeq-alaqel-of-sanaa-cafe/>: ‘The response from the community was immediate and heartfelt—people weren’t just discovering coffee, they were experiencing a culture, a story, and a centuries-old tradition in every cup…. Our focus is on Yemeni-style coffee and drinks, prepared with care and authenticity…. Serving Yemeni coffee and sharing our heritage doesn’t feel like work; it feels like purpose…. For us, the greatest risk would be not sharing Yemen’s coffee heritage at all….
The Dwight & Telegrph in Berkeley café location opened up, I have been told, in late July. The Daily Cal was soon reporting that at 11 pm you could see it full of summer-school students, heads down, studying, drawn by the midnight closing time, and by coffee mixed with amounts of cardomom, cinnamon, and other spices that you would never find in Italy or France.
And by the honeycomb pastries.
But how is it going to do for me this fall? The floors from the subbasement through four of Evans Hall have now been shut. The occupied floors are reduced to five through ten, with economics on floors five and six, and math on floors seven through ten. (You may ask: Why? Doesn’t economics have as many professors, more graduate students, and nearly aleph-null times as many undergraduates majors as math? Don’t ask.) That closing-off of the bottom half of the building does have consequences. For one thing, no drink vending machines. for another, no library on floor one to pick up things delivered from the remote book stacks. So I find myself going over to the main library, and then finding a chair there and perching with my laptop rather than going back up the seven flights of stairs. (Elevators, you say? Don’t ask.)
Could Sana’a Café this fall be, for me, a place to (a) drink good coffee, (b) hold office hours that are enjoyable for people to come to, and (c) have a chance of running into people by accident?
The dervishes knew coffee as a biotechnological device for extending the productive day, for wringing more devotional hours out of a body that wanted to sleep. That function has not gone anywhere. But three others have grown up around it, for the coffeehouse also matters. The drink narrows and sharpens attention. The room does more.
One defining pathology of intellectual life since about 2010 is that we have become extraordinarily good at finding exactly the information and exactly the people we already know we want, and correspondingly terrible at encountering the ones we did not know to look for. The search bar, the calendar invite, the scheduled Zoom—these are instruments of intention. They deliver what you asked for. They are useless for delivering what you had no way to ask for because you did not yet know it existed. As my teacher David Landes once said: you have to have a stack pass and go into the stacks of the library because the thing you want is not the thing you think you want but the thing three slots to the left.
The café is one of the last machines we have for manufacturing the unplanned collisions. Jane Jacobs had a vision of a dense and various public space that is useful precisely because you cannot predict what it will throw at you. A coffeehouse is such a sidewalk ballet with seating and a caffeine subsidy.
There is also the coffeehouse is a device for shifting frame. You think differently in a mild ambient hum than in silence. A change of physical location can unstick a stuck mental problem, that has you going in circles. Being among strangers who neither know nor care what you are working on can loosen the grip of a malevolent internal editor in a way that a familiar desk never will. The café supplies enough stimulation to keep the vigilance system idling, but not so much that it captures you.
Coffeehouses are an efficient bundling of: a legitimate reason to leave the house; a socially sanctioned excuse to be idle in public while your back-brain works; a stimulant delivered in a ritual that paces its consumption; and a nonzero probability of a useful accidental encounter.
Where else do you get all four for the price of a latte?
For me, it probably will not work for (c): Caffé Strada on eastsouthside is the champion, clearly; there is no parallel northside gathering place; and Sana’a’s location is very off of all beaten tracks for economists. (a) is very attainable. (b), perhaps as well.
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My interpretation of what is going on here: Gerard Baker saying “I am anti-Trump too!”, in the hope of shifting to firmer ground on which he can argue that he and his friends should get to keep all their ill-gotten gains from the Trump tax cuts. After all, aren’t the only things that matter (a) that, (b) making liberals sad and (c ) keeping non-”white” non-male non-elderly people in their place?:
So how come Google Maps now calls the Gulf of Mexico and Lake Ontario the Gulf of and Lake America, but does not yet show New Mexico relabled as “New America” anyway?
We have the absolutely remarkable, in so many ways:
Gerard Baker: Help—I Feel a Bad Case of TDS Coming On <https://www.wsj.com/opinion/helpi-feel-a-bad-case-of-tds-coming-on-0d2515aa>: ‘A signal achievement [of Trump] has been getting control of the border and removing some of the people who have no legal right to be here. But even with this proper and overwhelmingly popular policy, the administration has managed to harm the country and the GOP’s standing. The unnecessarily cruel and indiscriminate approach has caught many in its dragnet who shouldn’t be treated that way and is fundamentally un-American. The political effect has been to devastate support for the GOP among Hispanics, more than reversing the gains Mr. Trump had made with the fastest-growing ethnic population in the country…
In what sense can this possibly be a “signal achievement” if it is “cruel and indiscriminate… caught many… who shouldn’t be treated that way… fundamentally un-American?”
Baker’s closing:
The looming Republican calamity… will be the result of presidential hubris, vanity, recklessness and the wider party’s abdication of accountability. Instead of seizing an unrivaled opportunity to shift America off the path of progressive endangerment, the GOP risks handing it back to the Democrats and their own obsessions. It’s enough to give anyone a case of Trump derangement syndrome.
Given Baker’s earlier—I am not sure what to call it? admission?—the fact that it is “the wider party’s” rather than my own “abdication of responsibility” is an interesting attempted evasion to see at this late date. What was the earlier “admission” you ask? This:
Jan. 6… removed any doubt about the threat Donald Trump might pose to our constitutional norms and rules, [but] I thought the institutions of the U.S. would… constrain his worst instincts and intentions. And by November 2024, after four years of a Democratic presidency had revived the prospect of a restoration of the progressive left’s crippling hegemony, the risks he posed seemed smaller than theirs…
But is anyone other than Gerard Baker really surprised by any of:
a self-indulgent tariff fixation based on a profound misunderstanding of international economics, an insouciance about public finances that has widened the deficit, and a reckless military adventure that has choked off global energy supplies,.. alienat[ing] everyone in the world who could be helpful to us (perhaps excepting Israel)… embolden[ing] and even embrac[ing] every country in the world that threatens us… the grotesque self-enrichment, the self-satisfying prosecutorial pursuit of political enemies, the endless projects of self-grandiosity… ballroom… Kennedy Center… Memorial Arch. …the buffoonish symbolic acts… the Gulf of America, Lake America, New America, the 51st state [of Canada]...
?
No. The only surprising thing is not any of Trump’s lunacies but, rather, that it is without a peep that the Republican congressional majorities have gone along with it all, on the Gingrich Principle that above all one must and the only thing that matters is to make the president of one’s own party look good—not actually be good, but look good—and the president of the other party look bad, no matter what the cost to the country. Thus it is not any individual one of these. It is that all of them have happened because there is no block of Republican senators and representatives willing to stand up and even threaten to, temporarily, cross the aisle to make Jeffries and Schumer Speaker and Majority Leader for one single day.
And, by the way, how the f*** does Gerard Baker imagine that Binyamin Netanyahu could possibly be “useful” in any way to anyone?
Perhaps if Baker had written this in the winter of 2025 it might have done a little bit of good, and one might be obliged to at least think of him as being, very partially, and incompletely, something one might consider calling “a man”. But at this late date?
This smells very much like somebody who wants to still be in the game after November if there is in fact a decisively Democratic congress. Thus he is now trying to join the anti-Trump parade that he has spent so much of the past eight years belittling and trying to destroy.
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But two observations: (1) the spike is not that big, and (2) from an “affordability” perspective, this is the last thing one would want to generate from one’s foreign policy:
A real price series that I have been watching:
And we have a related observation from Matt Yglesias:
There’s a weird finding in the economics literature that Democratic Party presidents enjoy systematically better economic performance even though they don’t pursue systematically better economic policy…. Alan Blinder and Mark Watson… [say] “the Democratic edge stems mainly from more benign oil shocks, superior total-factor-productivity (T.F.P.) performance, a more favorable international environment, and perhaps more optimistic consumer expectations about the near-term future.” They seem to primarily understand this as a question of good luck. But… Republicans have systematically bad foreign policy that is inattentive to the downside risk of saber-rattling and hawkishness…. The… problem with Bush-era foreign policy wasn’t belief in democracy; it was excessive belief in the potential upside of coercive military force. Trump has retained the error while reconfiguring the goals…
And the problems with Nixon-era foreign policy as it affected the economy was (a) Kissinger thought high oil prices were a good thing because they enabled the then-Shah of Iran to arm himself to the teeth and thus annoy the USSR on its southern border without Kissinger having to get congress to pass any military-aid bill, and (b) Nixon’s all-out rearmament of Israel in the 1973 war (against the wishes of his own Pentagon, which feared it would “blow any image we may have as an honest broker" and alienate the Arab states, which it did), thus provoking an OAPEC reaction in the form of the oil embargo.
Quandt, William B. 2001. Peace Process: American Diplomacy and the Arab-Israeli Conflict Since 1967. Washington, DC: Brookings Institution. <ISBN9780520225152>.
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Eliezer Yudkowsky and Nick Land may now be the two most influential intellectuals in America's AI debate—and that tells you how badly the conversation has gone wrong. When "machine god: good or evil?" is the only question on the table, every question actually worth asking gets thrown away. Contra Scott Aaronson, accepting the coming machine god is not now "the epistemic bare minimum" any more than is accepting Friedrich Engels’s belief 150 years ago that the SteamPower Economy was the real singularity that would in short order deliver a classless utopia of universal abundance:
I disagree with Henry Farrell’s subheadline here, which I think contains some other-side-of-the-Atlantic understatement. It is not that there are other ways of thinking about “AI” than “Digital God”, it is that it is difficult to think of a way less helpful for coherent thought to think about “AI” than to think of it as a “Digital God”.
But I think he is right in the rest: That means that the important and live questions are about what metaphors—what abstraction layers, throwing away information so that the problems become things we can grasp and think about—are useful right now? Henry Farrell’s “MAMLMs are a socio-cultural technology” is one very useful one. The “‘AI’ is a normal disruptive Schumpeterian GPT” is a second. What are the others that we need to hold in our neocortices right now?":
Metaphors are the fundamental abstraction layers in modern AI debates.
We are in a moment where you could plausibly argue that Eliezer Yudkowsky and Nick Land are the most influential policy intellectuals in the US conversation. Just look at the state of the two of them. This is not a good thing.
The collision of (1), (2), and recent events means that “machine gods” have now entered the discussion. This is a problem. Abstractions necessarily throw information away. The information that the “machine gods” metaphor/abstraction dumps is crucial to navigating the moment we are in. If public and policy debate stays centered around “machine gods: good or evil?” we are in for a bad time.
I should acknowledge that I (and co-authors) absolutely have our own dog in this fight. Indeed, I think that the “AI as social and cultural technology” approach that we have developed is a much better alternative. The final part of this newsletter will talk about a new piece by a mathematician that builds on this approach. Equally, my claim is not, actually, that our alternative approach should become the sole dominant way of thinking about AI. What I actually want, along the lines of my previous post, is a much greater degree of pluralism in the defining debates around a technology that no-one, including its creators, seems to understand particularly well or to be capable of usefully predicting.
******
As far as I can tell, the above Twitter exchange is the source of the most recent outbreak of Machine God Thought. People who know Daniel Kokotajlo tell me that I’d like him, and that we could have good conversation; I imagine they are right. I’ve found most of the rationalists I’ve met to be decent human beings; in many cases, unusually so. Equally, I think that there is something terribly limiting to the ways they talk about AI, and contend that it’s a real problem that debate is still accelerating past the event horizon towards the very heart of Singularity thought.
The two papers Kokotajlo mentions here, AI 2027 and AI 2040, lay out futures that are roughly identical in their predictions about what AI becomes (godlike; superhuman). Where they differ is in their assumptions about how well aligned AIs are with human goals. In the scenario where AI develops more or less unconstrained (thanks in part to geopolitics), AI breaks out of containment, and humanity is likely either Corgi-ized or goes extinct. In the scenario where AI development is delayed, tamed and made subject to “mutual compute destruction,”1 men and women come to have gods as servants, and start spreading out to nearby galaxies in the next two decades.
Neither future seems to be at all convincing to me, but they are most certainly convincing some people. Casey Newton and Kevin Roose are partnering with NPR to create the “Machine Gods” podcast as part of “a bold new era of content strategy for the network.” In his newsletter, Newton thanks the fates that he and his collaborator were a little too late to tech podcasting to be “beguiled” by Sam Bankman-Fried, and suggests just two paragraphs later that critics of Roose’s famous shoggoth freakout were “previewing the ways in which the commentariat would continually twist itself into pretzels to deny that anything important was happening with LLMs.” Indeed.
Things are no better elsewhere. In Washington DC, the AI policy debate is riven by a bitter dispute between those who take the Kokotajlo perspective (slow it down before we all die!) and those who want to let innovation rip so that we hit the technocapital singularity as soon as possible. The one side owes its framing to Eliezer Yudkowsky’s MIRI institute. The other builds on Nick Land Thought as filtered through the more immediate needs of Marc Andreessen. While I’m definetely more inclined toward the former than the latter, on the grounds that we do indeed need to have serious conversation about regulation, I think it would be terrible to have that conversation starting and stopping with the priorities of the labs.
Finally there’s Scott Aaronson, who I used to rely on for valuable debunkings of policy and media folk when they got over-excited about quantum computing. It is fair to say that Scott is not in a debunking mood these days, now that OpenAI has solved the Navier-Stokes problem. Witness the below:
The Age of Wonders and Terrors
Twenty years ago, when the idea of AI taking over the world in our lifetimes still struck most of us as the unconstrained fantasy of those who knew too much science fiction and too little science … update on the fact that the wild prophecies have come true. … It seems to me that the Singularity has already started; it’s just wildly unevenly distributed.
… For anyone who says AI doom sounds like an apocalyptic religion, that the rationalists/Singulatarians seem like a Bay Area cult, that Eliezer Yudkowsky gives off the vibes of a messianic prophet: yes, yes, and yes. But crucially, today you’re no longer being asked to believe in arguments and extrapolations, but only in the front-page news. Accepting the reality of the coming machine god after it’s solved Navier-Stokes and dozens of other longstanding open math problems (while dramatically ramping up in capability every month), is sort of like accepting Jesus after he’s returned to earth on the gleaming cloud. It’s the epistemic bare minimum.
Yes, there’s still enormous uncertainty about what the rest of our lives will look like, but as far as I can tell, there’s no longer any real uncertainty that it’ll all mostly revolve around AI, and the extent to which we succeed or fail at directing its power toward human flourishing.
******
So why do I think that the machine god approach, far from being an “epistemic bare minimum,” is a pernicious brain-devourer? The answer is that the metaphor shrinks rather than expands your horizons of the possible, forcing you to focus on the single overwhelming question of what Machine Jesus is going to do as soon as he descends from that gleaming cloud. Is he going to usher in paradise on earth? Or is he actually a shoggoth in a Jesus-mask, condemning us to enslavement or destruction? Once you have accepted that Machine Jesus is in the process of descending, all questions besides determining his intentions for humanity seem irrelevant.
I’ve written before (with colleagues and on my own) about why I think this whole way of thinking is utterly wrong-headed. But maybe I’m wrong. Take three somewhat inter-related possibilities: p1, that humanity is not the sole beautiful flower of the cosmos and that greater than human intelligence is perfectly possible, p2, that high intelligence is effectively impossible without strong intentionality, and p3, that current AI architectures are indeed the royal road to achieving proper generalizable superintelligence. I personally rate p1 as extremely high, p2 and p3 as very low, and p1*p2*p3, which is the most obvious state in which you might be worried about the AI alignment problem, as very low indeed. But who is to say that I might not be wrong? Equally, I, or someone who is skeptical of Machine Jesus for wildly different and incompatible reasons than my own, might be right. And if that is possible, then we ought not just be obsessing about whether we “succeed or fail in directing” His Awesome Power towards human ends. We might want to worry about other questions too, or instead.
There is a discussion of the solution of Navier-Stokes, the miracle that brought Scott to embrace the true faith, in a guest-post on Terence Tao’s blog, which usefully illustrates the point. It also has the benefit of being (sort-of) pre-registered. This discussion is specifically attractive to me, because it builds on arguments about AI as a social and cultural technology. Again, I don’t think that you need to believe that it is right on the merits to accept the more limited point that I want to make, which is that perspectives other than the machine god one reveal other questions and problems that we ought very reasonably want to be concerned with.
In his guest-post, the mathematician Nestor Guillen writes that he anticipated the solution of Navier-Stokes, but that his reaction was not that human mathematics was in danger of being replaced. Instead, he argued that it validated the entire enterprise.
the bulk of the essay was done in August and shared with a few close friends for feedback. Earlier this week, Tristan Buckmaster announced a breakthrough finding, done in collaboration with Levent Alpöge, of a finite-time blow up for 3D incompressible Euler with forcing. He also made serious allegations of misconduct by OpenAI (see announcement). The next day, OpenAI announced a finite-time blow up result for 3D Navier-Stokes with forcing, obtained from their internal LLM. … I have decided not to change the opening of the essay and instead make a note of the news here.
… What would be the significance if one day we woke up to the news that output from a Large Language Model contains a definitive answer to the question of blow up for the incompressible Navier-Stokes equations, and to the question of where the zeros of the Riemann zeta function lie?
Many of my fellow mathematicians consider this a kind of nightmare situation, and I think this is a very valid position. Here I would like to make a different case, however. Personally, I have come to believe that the news of a Large Model output containing an interesting, insightful, novel mathematical idea can and should be received as a source of communal pride for mathematics and for mathematicians.
Why is this so? Guillen says that:
Humans have always lived in a complex world and their survival has hinged on their ability to process information in amounts beyond what any individual can handle — and it is likely this has been so nearly as long as humans have existed. Herbert Simon’s concept of “bounded rationality” captures this well …
Simon saw that one implication of bounded rationality is that humans have to (and do) develop systems to process information, as a group. We see that humans have built states, stories, bureaucracies, markets, libraries, and more. These are cultural and social technologies. They are means by which humans (not individually but as a group) navigate amounts of information so vast that they cannot be handled by any individual on their own. …
LLMs … are “wrappers” around an older cultural technology: the scientific literature. When you ask an LLM a question about the isoperimetric inequality, the ABP maximum principle, or a PDE, you are effectively interacting with every person who has thought about and worked on those things — provided the data the LLM was trained on contained those contributions in one way or another.
Unsurprisingly, I think that this is largely correct (I do think that you can make the cultural and social technology argument, while also being freaked out about the consequences of AI: more on that in my next post). But even if it isn’t, it highlights different, and I think, important questions than the machine god nexus.
Specifically: if you think of AI as a cultural and social technology, your first reaction will not be to prostrate yourself in anticipation of the coming Age of the Gods. Instead, you are likely to treat fields like mathematics as some combination of individual and collective human intelligence, constructed on top of technologies that guide and direct that intelligence in particular directions. So when a new technology such as AI comes along, that reshapes the ways in which mathematicians draw on their shared intelligence, you will have questions to ask. What are the current processes through which existing knowledge is disseminated and new knowledge is created? What are the incentive structures for dissemination and creation, and how do they interact with each other? How have processes and incentives been shaped by previous and existing cultural and social technologies? How might these processes and incentives be changed by what is happening now?
And so on. You can see one way in which you might extend this in Ben Recht’s recent post, which suggests, if I understand him right, that mathematicians really ought to rethink how much of their field was already based around benchmarkmaxxing (prizes and challenges) even before AI came on the scene. Tao’s argument, as quoted in the NYT, points in a similar direction.
[Tao] compared OpenAI to a wilderness guide who finds a path to a hidden waterfall. “This has some value,” he said. “But once someone shows a specific path to the waterfall, people just take that path. They don’t spend as much time looking for other paths.”
I am not even an amateur mathematician, so am very much open to correction, but I understand Tao to be saying something like the following. Automated processes of discovery have obvious advantages in pointing the direction to new things. Equally, they push the needle from ‘explore’ to ‘exploit.’ Apparently aimless noodling around by humans can have benefits when it opens up unexpected views from Serendippo . More generally:
solving problems is only a tool and proxy for achieving the primary goal of conceptual understanding and insight. Forgetting this in the world of AI may turn the tool against the primary goal. Indeed, the mass production at faster and faster pace of “true/false” statements could destroy fertile ground instead of breathing life into new ideas.
Now it could be that AI will become universally better at discovery so that humans become irrelevant to math. That is the machine god assumption. But that assumption rules out, more or less by fiat, the possibility that human curiosity might still have independent value in discovering new possibilities, and all the questions that flow from it. If AI is better at some aspects, and humans are better at others, then you need to confront messy problems of organizational design. How do you rebuild the institutions of mathematics so that they best reconcile AI and human led approaches to discovery? How do you remake the relationship between dissemination of knowledge and discovery? What individual and organizational incentives seem best suited to achieve general goals? What general goals ought you have? None of these are easy questions, and there are likely to be complex tradeoffs between the solutions to one set of problems and the solutions to another.
I don’t think that an ‘AI as cultural and social technology’ approach provides immediate answers (beyond maybe ‘you really ought to read James March’). But the point is that it makes it possible to see that these questions may be important. If you start as Guillen does, from the perspective that AI does not inevitably replace humans in the dissemination and discovery of knowledge, so much as it reorganizes relations among them, then you begin to start asking questions that are systematically obscured by Machine God Thought. In fairness to Scott Aaronson, his post does suggest towards the end that he too cares about these questions. Perhaps when the excitement dies down, he will find better ways towards thinking about them systematically.
You could, of course, make similar claims about other approaches than cultural and social technology. Cybernetics is another very obvious example. If you are stuck on the question of AI alignment, you will necessarily have to trust godlike AIs to monitor other godlike AIs and pray that things will work out. If you start from a cybernetic perspective (say: Maxim Raginsky Thought ) you’ll end up asking very different questions. As the HuggingFace incident showed, there are a lot of holes in the AI labs’ capacities for monitoring and control. “I need abstraction layers to monitor my abstraction layers” is (a) the world’s shittiest boasty bumper sticker, (b) a profound encapsulation of the modern condition, and (c) a diagnosis of the fundamental problems that the AI labs are making for themselves and not always capable of seeing, as best as one can tell from the outside. When you need AI to summarize the data that allows you to write your incident reports on AI, some of the cheese holes are likely to be closely aligned, potentially letting stuff through that you don’t want to.
A third, related but significantly different approach is cybersecurity. As Dan Davies says, “nearly all the examples of worrying agentic behaviour seem to have been seen only in one context – that of frontier research labs doing cybersecurity projects and screwing up their sandbox precautions.” I’m sure that there are great cybersecurity people in the labs, but I suspect that they have much less internal clout than the people who are pushing the agentic boundaries outwards. If you are embedded in a culture that has broadly decided that it is impossible for ordinary human intelligence to prevent putative superintelligent entities from breaking out of their constraints, then cybersecurity seems secondary: alignment of AI goals with human goals is the only way to stay ahead.
I could keep going, but I hope that the point is clear. The Machine God metaphor, which is really just a catchy rephrasing of longstanding notions among a particular community of AI people, has broken out of containment. It is leading, more or less by necessity, to a radical simplification of debate. If you believe that the machine gods are coming, so that super-empowered goal directed superintelligence is right around the corner, then the only thing that matters is ensuring that this superintelligence’s goals are aligned with the ones that you yourself care about. If you stare into the sun, you only see its glare, missing out on all the other questions that may be important. Thinking about these questions involves adopting a more pluralistic understanding of where you might look for knowledge, and asking about the much broader variety of futures that face us than machine god: good or machine god: bad. That’s it.
1 As someone who does international security, sort of, I do not find Silicon Valley geopolitical speculation to be particularly well thought out or convincing. That’s not the topic of today’s post.
Brad DeLong here: Farrell seeks pluralism: multiple metaphors for a technology “that no-one, including its creators, seems to understand particularly well.” The “Digital God” metaphor is especially pernicious because it:
shrinks rather than expands your horizons of the possible, forcing you to focus on the single overwhelming question of what Machine Jesus is going to do as soon as he descends from that gleaming cloud. Is he going to usher in paradise on earth? Or is he actually a shoggoth in a Jesus-mask, condemning us to enslavement or destruction? Once you have accepted that Machine Jesus is in the process of descending, all questions besides determining his intentions for humanity seem irrelevant…
What do we have?:
We have Farrell’s “MAMLMs are a socio-cultural technology”.
We have Arvind Narayanan and Sayash Kapoor’s “The MAMLM boom sis a normal disruptive Schumpeterian GPT” of the kind we have seen every quarter-century since 1875, and saw before over 1775-1875 when we got the GPTs of steampower, steelmaking, and automatic textile machinery (and, I would say, the caravel and printing before that).
We have mathematician Nestor Guillen, whom Farrell quotes at length making the argument I make that MAMLMs are well-viewed as front-end access nodes to the real ASI, which is not an Artificial SuperIntelligence of a machine but rather the Anthology SuperIntelligence of the collective time- and space-binding human mind and the knowledge it has produced and compiled over the past 5000 years:
Humans have always lived in a complex world and their survival has hinged on their ability to process information in amounts beyond what any individual can handle…. Herbert Simon… saw that one implication of bounded rationality is that humans have to (and do) develop systems to process information, as a group… states, stories, bureaucracies, markets, libraries, and more… cultural and social technologies… y which humans (not individually but as a group) navigate amounts of information so vast…. LLMs… are “wrappers” around an older cultural technology: the scientific literature. When you ask an LLM a question… you are effectively interacting with every person who has thought about and worked on those things — provided the data the LLM was trained on contained those contributions in one way or another…
That is, I must say, truly striking contrast to Scott Aaronson’s current view:
Scott Aaronson: The Age of Wonders and Terrors <https://scottaaronson.blog/?p=10062>: ‘It would be healthy for everyone to stop grinding their ideological axes, their sentiments about Dario Amodei or Sam Altman, for long enough simply to acknowledge that the wonders and terrors are here. They couldn’t be here more clearly if the sky had turned reddish-orange like in the Matrix movies…. For anyone who says AI doom sounds like an apocalyptic religion, that the rationalists/Singulatarians seem like a Bay Area cult, that Eliezer Yudkowsky gives off the vibes of a messianic prophet: yes, yes, and yes. But crucially, today you’re no longer being asked to believe in arguments and extrapolations, but only in the front-page news. Accepting the reality of the coming machine god after it’s solved Navier-Stokes and dozens of other longstanding open math problems (while dramatically ramping up in capability every month), is sort of like accepting Jesus after he’s returned to earth on the gleaming cloud.
It’s the epistemic bare minimum.
Yes, there’s still enormous uncertainty about what the rest of our lives will look like, but as far as I can tell, there’s no longer any real uncertainty that it’ll all mostly revolve around AI, and the extent to which we succeed or fail at directing its power toward human flourishing. By any accounting that doesn’t stack the deck, Eliezer Yudkowsky was right about what the greatest challenge facing civilization in our lifetimes was going to be, and you and I were wrong about it…
This reminds me of nothing so much as the story of Arkhidamos III Europontides of Sparta saying:
O Herakles! The might and prowess of man is undone!
upon watching a test-firing of a torsion dart-catapult built in Sicily and brought to Greece. Mechanized weaponry, he thought, had made the excellence of individual human courage and skill-at-arms obsolete.
Yes, the one-fifth of human work that is inside the blast radius of rapidly advancing information technology will spend the next decade and more grappling with “AI”, just has been the case over the past hundred and fifty years with whatever slice of the economy was then in the bullseye of the Schumpeterian process. But it is not a Digital God. It is not a power that needs to be “direct[ed]… toward human flourishing”. Thinking of it as such is not helpful.
OK: We have three metaphors. We need more. What are they?
Henry gestures at “cybernetics” a laMaxim Raginsky Thought and says “you’ll end up asking very different questions”:
“I need abstraction layers to monitor my abstraction layers” is:
(a) the world’s s***tiest boasty bumper sticker,
(b) a profound encapsulation of the modern condition, and
(c) a diagnosis of the fundamental problems that the AI labs are making for themselves and not always capable of seeing, as best as one can tell from the outside.
Henry gestures at “cybersecurity” quoting Dan Davies:
Nearly all the examples of worrying agentic behaviour seem to have been seen only in one context – that of frontier research labs doing cybersecurity projects and screwing up their sandbox precautions…
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My experiences with FaceBook products have always been that time spent getting up to speed on them is time wasted, and that time spent using them is time regretted. But if that is representative of anything, then there are hundreds of millions of addicted regretful regular users whose brains have been successfully hacked and hijacked and who then buy things based off of FaceBook/Instagram/WhatsApp ads. The market verdict is one of extraordinary success, with ads but only with ads:
All this is prelude to noting the sudden emergence of FaceBook Muse: an agentic AI system that has underlying economics I do not understand, but that Amazon fears enough to preëmptively block.
Paul Kedrosky: Meta’s Muse & Moat-less AI <https://paulkedrosky.com/metas-muse-and-moat-less-ai/>: ‘Meta's agentic AI app Muse entered the U.S. App Store’s top 20 on September 9 at No. 4. Nine days later, it was No. 1. Muse’s rise is a useful reminder that AI consumer products can gain share quickly, given buzz and distribution. Users can switch applications at negligible cost, while the underlying model intelligence is available to every serious competitor. The takeaway should be, in short, that there is, despite trillions in spending, minimal moat. The real assets are familiar ones: default placement, brand, habit, proprietary data, and an effective product loop. The AI itself is not a moat when competitors can access comparable models and cheaply reproduce the surrounding interface. Meta engineers concede as much in posts.
Muse may fall back out of the top 20 next month. Or it may get blocked everywhere, as has already happened at Amazon. That would make the point even more clearly: AI consumer software is beginning to look like a hit-driven market in which the model is rented, the interface is copied, and the users remain [—]mobile…
Brad DeLong here: The key question is this: What is FaceBook’s monetization strategy for Muse? FaceBook has a monetization strategy for everything, and it—at least for me—makes committing to using their programs painful, and something that after the fact I wish I had not done, I think that the monetization strategy is that FaceBook watches what you do with Muse and uses it to better target its Facebook/Instagram/WhatsApp ads, plus extorting money from shopping websites that are willing to pay to have Muse direct traffic to them. It would surely be a bad bet for me to commit to Muse, just as it would be a bad bet for me to commit to Threads.
But that is just me. I am not representative here. Of anything. Paul thinks the lesson is that “consumer AI” is becoming a hit-driven market where the model is rented, the interface copied, users stay mobile. This smells much more like the streaming-wars media financial disaster than like a new platform-monopoly in progress. But—nobody knows anything here.
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Barry Ritholtz has a personal solution to this problem of the firehose of worthwhile and important “content” that floods in not every day, but every hour. But his solution to the problem increases the burden imposed by the additional force he adds to an already overwhelmingly strong jet. Don’t get me wrong: I do not wish he would stop. I value it. Greatly. But it is a problem:
90% of everything is crap. So how do you find the other 10%? And how do you process it when even what is freshest and newest in that other 10% is 50x what you could possibly read?
Barry Ritholtz has good advice on building a daily reading list that works: (1) curate viciously, (2) create a narrative so that what you read on any day reinforces itself, (3) be balanced, (4) but opinionated and judgmental, (5) while always looking for where one may have gotten the big story wrong:
CROSSPOST: BARRY RITHOLTZ: How I Build My Reading Lists
How to Build the Perfect Reading List in 3 Steps Enjoy your morning Ritholtz’s Reads? Here’s how they happen. Bloomberg, August 12, 2016
The making of a good compilation tape is a very subtle art. Many do’s and don’ts. First of all you’re using someone else’s poetry to express how you feel. This is a delicate thing.
It is hard to do and takes ages longer than it might seem. You gotta kick off with a killer, to grab attention. Then you got to take it up a notch, but you don’t wanna blow your wad, so then you got to cool it off a notch. There are a lot of rules.
“Wherever do you find those wonderful reads each day?”
Every now and again, a variation of the above question comes in from readers. Since it’s a summer Friday — and really, it’s not like anything else is going on in the world — I shall give the people what they want.
“I’ve been assembling daily reads for more than 20 years, since I started as a trader way back in the mid-’90s. It eventually evolved to become a published daily reading list, seven days a week on my blog.”
Some of you may be wondering, “How difficult can pulling a dozen headlines off a feeder be?” Turns out, it is harder to do and takes longer than it might seem.
Here are the rules that guide my hand each day:
Curate viciously.
There is an embarrassment of riches in terms of online content. This creates an “abundance” challenge.
My lists are defined as much by what is included as excluded. What you choose to omit is crucial to making any list special. In the early days, I tried inclusivity, and the list got longer and longer. I gave up that pointless exercise years ago, when Google News made it wholly unnecessary.
I rarely use anything from the front pages of major newspapers or news sites, on the assumption that many readers have seen it already. Overly popular links on Twitter are also tossed. Most read, most popular, most e-mailed lists — nearly every site has a variation of this, and they occasionally point to something worthwhile AND relatively unknown. But for the most part, I steer clear of those.
In the wee hours of the morning, I open 50 or so tabs from a browser folder. Just about every major media outlet is included. Each afternoon, I do the same with a different 40 or so; these are more esoteric, special-interest and topic-specific. Alternating between a broad, wide scope and a narrow, deep one allows for a good mix.
Speed also counts. I follow Sturgeon’s revelation: 90 percent of everything is crap. Ruthless efficiency outweighs the occasional false positive.
Create a narrative.
I try to weave together a series of (apparently) unrelated items, which often have a commonality. It is a puzzle, finding that common thread.
Consider the primary topics that work their way through my links. Listing the subject matter in order of prevalence looks something like this:
Markets
Investing
Economics, Fed
Data analysis
Behavioral psychology, cognitive errors
Regulation, policy, taxes
Science, technology, math
Esoterica: unusual articles about current affairs
Surprising, humorous or amusing
Music, film, books, sports, arts, food and travel
All 10 categories are obviously not represented every day, but most make guest appearances throughout any given week. Knowing the readership of this site, markets, investing and economics have the greatest representation; there have been occasional days when that’s all it is.
The narrative comes from finding a common theme. It’s nuanced, but if you squint you might be able to see it.
Be balanced, but have an opinion.
It’s important to recognize that this reflects the views of one person — albeit one who is immersed in media as both a consumer and a producer. I have definite opinions about oh so many things. However, I am open to being convinced otherwise; that is why I use the “see also” or “but see” mentions to suggest there may be multiple opinions worth unpacking.
I am always surprised about accusations of bias. This week’s BuzzFeed link about Facebook selling guns was not, as several of you suggested, anti-gun. I enjoy shooting but believe in reasonable regulations, terrorist watchlists, etc. But the link was about Facebook, which seems to violate its own policies about nearly everything!
One last thing: Editors, not writers, create the headlines. A linked headline is often a “clickbaity” version of what the article is about. I have a novel idea: Please read the linked article before you accuse me of (fill in the blank).
Brad DeLong here: Barry Ritholtz’s guide to building a reading list is generous, disciplined, and quietly self-defeating — because the better his curation, the more it adds to the very flood it’s meant to tame. That’s the tension worth sitting with. His rules are sound. And, written in 2016, it reads as even truer and more important now.
There is no escape: abundance is the water we swim in now, and it rises every hour. Curation is thus an inevitable bet on judgment over completeness — you accept that you will miss almost everything, and you invest your scarce attention in a few people whose sense of the common thread you trust. Barry earns that trust. That is why I read him, and why I am passing him along to you: not as a way to read less, but as a way to read better while reading less than the impossible.
Whom do you let curate for you, and what are you willing to never see as the price?
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Claudia Sahm is in the business of trying to coax Fed Chair Kevin Warsh to behave better, that is to say: more like a Fed Chair and less like a Trump Lickspittle. Such pressure is useful, but I think we have to be clear-eyed about what is going on. What is going on is that Warsh has told different things to Trump and to the bond market, and so his principal concern now is to minimize the attack surfaces he leaves open to either. Hence, interpreting what he says as statements of policy or attempts to convey information is fundamentally misunderstanding Warsh’s intentions:
Claudia Sahm’s bottom line is this: A good policy decision was undercut by a communication problem: Warsh’s framework diverges sharply from the rest of the FOMC’s, and his refusal to articulate his own model turns routine transparency into destabilizing ambiguity. Warsh should fix this by doing the one thing his press conference conspicuously avoided: telling us what framework he actually uses, rather than reciting the standard tools—below-trend growth, the neutral rate, the SEP, forward guidance—that he rejects.
Concretely, she wants him to:
state what role he sees for monetary policy if not macroeconomic stabilization;
name the channel through which he thinks higher rates lower inflation
now that the labor-shortage buffer of 2023–24 is gone and
expectations are already anchored,
leaving demand as the obvious candidate he won’t claim;
explain how he judges the appropriate level of the funds rate if the neutral-rate benchmark is off the table;
articulate a stopping rule—which, as she points out, is just his own Jackson Hole hiking standard “with the sign flipped,” and requires no forward guidance to say aloud.
Underlying all of it is a communication fix: use the press conference for its intended purpose—explaining and answering for the Committee’s decision straight to the public—rather than shortening it, barring follow-ups, and editorializing selectively on growth while staying silent on rates. Do that, and the confusion that drove market rates above what the committee intended goes away.
And she laments:
He continues to tell us which standard tools he doesn’t use. He has not said what he uses instead. As a critic of the Fed, that limited his impact; as Fed Chair, it is causing unnecessary confusion…
But, Claudia, it is necessary confusion given that the point is to triangulate in order to limit the surfaces he leaves open to attack from either a disappointed Trump or a disappointed bond market. Don’t pretend he is playing chess when he is actually playing blind-man’s-bluff:
Source: Federal Reserve, September 2026 Press Conference.
Last week, the Fed raised its policy rate by a quarter percentage point to a range of 3¾ to 4 percent, on a unanimous vote. That’s a notable shift: at the Fed’s meeting six weeks earlier, only three of the twelve voters had favored a hike. In its one sentence of explanation, the FOMC statement said that it “will support a timelier return to the Committee’s 2 percent [inflation] goal.” In the Summary of Economic Projections, officials centered on one more hike this year, with rates ending next year at that same level. Modest rate increases with a modest goal: that’s the outcome I argued for before the meeting. The Fed also ignored the political pressure not to hike before the midterms. I agree with the Fed’s decision, though I would never celebrate a rate increase.
A good meeting, but questions for the Chair linger.
It was a good meeting. As I said on NPR the next day, the Fed’s rate hikes are not a cure for inflation, but they will help keep a bad situation from getting worse. Real relief will require a resolution to the conflict in the Middle East and no new tariffs.
In some ways, that’s where this update on the Fed decision should end, but Warsh also held a press conference. He was clearer than in July, but his answers still raised questions, and today’s post uses them to frame mine. I want to understand Warsh’s approach. Monetary policy has shifted significantly over time, and there’s no reason to treat the status quo as perfect; he may see something the standard framework misses. Regardless, as best I can tell, his views diverge fundamentally from those of the rest of the committee, and that gap is what he owes us an explanation for.
It’s not an academic quibble. Markets read Warsh as hawkish, and pricing of future rate hikes rose as soon as he began speaking at 2:30 pm. The implied rate for the end of 2027 climbed about as much during the press conference as it had on the 2:00 pm release of the statement and projections, and the ten-year yield rose more while he talked than it did on the release. I doubt Warsh intended that outcome, and the committee almost certainly did not. I put it down to confusion, in markets and among Fed watchers, about how Warsh approaches monetary policy.
After listening to Warsh’s presser, my questions for him range from foundational to operational. I suspect that once we have a better sense of his approach to monetary policy, the pressers will be more useful for markets and for the public.
What is the purpose of monetary policy?
Monetary policy is a tool of macroeconomic stabilization. It smooths out the bumps and wiggles in the economy around its trend: the Fed fights recessions and overheating alike, but it does not try to move the trend itself. Longer-run fundamentals belong to other policymakers.
Warsh spends more time on longer-run fundamentals than any Fed Chair I can recall. In his opening remarks, a prepared statement, he invoked growth several times:
The Fed has a role in sustaining the economic progress happening in America right now, and the rising opportunities that come with it. Those who are least well-off have the most to gain from a durable expansion, a solid labor market, and stable prices.
We at the Fed are unwavering in our vital and straightforward purpose: Full employment and price stability, and a thriving American economy that sets the standard for the world. [Emphasis added.]
These are important goals, but are they the Fed’s goals? Warsh himself was critical when past Fed Chairs strayed into topics like inequality. And talking up growth this much reads as hawkish, because when a Fed Chair dwells on how strong the economy is, markets hear a Chair who thinks it needs cooling. So, at a basic level, what role does Warsh see for monetary policy? If it is something other than macroeconomic stabilization, that is a sharp difference from the rest of the committee.
How will a higher federal funds rate lower inflation now?
Closely related is how Warsh thinks monetary policy brings inflation down. In the presser, Jennifer Schonberger of Yahoo Finance asked about the standard mechanism:
Now that you have hiked rates, do you need to push growth below potential, unintentionally pushing weakness on the job market to bring inflation down?
Warsh did not accept the premise that below-trend growth is part of the process:
First, we believe that the unemployment rate is basically running consistent with full employment. I don’t believe that we need to do harm to the labor markets to achieve our objective. I don’t believe that the two parts of our mandate, price stability and full employment, are working at cross purposes over the medium term. So, economic growth, that is ensuring continuous, sustainable, durable, economic growth, that’s the business we’re in, and the job we did today, the job we’ll continue to do, is to ensure price stability, which can mean that sustainable, durable, economic growth can go on for longer. The economy can be stronger, and as I mentioned before, the least well off can get the benefits of it.
There are times, such as 2023-24, when inflation falls with little cost to employment or growth. But that hiking cycle started with a labor market in shortage, nearly two job openings for every unemployed worker, so cooling it meant fewer vacancies rather than fewer jobs. The labor market is now in balance, and that buffer is gone. A channel that could deliver disinflation at low cost is credibility: if a hike convinces firms and workers that inflation will fall, the Fed has to take less demand out of the economy to get there. But market- and survey-based measures of longer-run inflation expectations have been stable, so there is little lost credibility to restore. That leaves demand as the channel.
So how does Warsh think higher rates reduce inflation, if not by restraining demand? Monetary policy operates through many channels, and it would help to know which ones he has in mind. The Fed Chair should be transparent about the potential costs of rate increases. Warsh’s framing last week was more upbeat than I associate with the start of a rate-hiking cycle.
What is the appropriate federal funds rate?
There are also operational questions. The Fed raised its policy rate to a range of 3¾ to 4 percent. How does Warsh know that is the right level? Steve Liesman of CNBC posed the question in terms of the neutral rate:
Previously most Fed officials have described the rate as modestly restrictive. And if you removed accommodation, could you give us your sense of where the Fed funds rate is relative to neutral? And some detail, if you wouldn’t mind, on your sense of is there a short-term neutral rate you’re aiming for and a longer-term neutral rate? Do you think in terms of those?
Warsh was clear that the neutral rate is not useful to him:
In a word, no. In a few words I’d say this, I’ve always been interested in a neutral rate as an academic matter. Back when I learned economics we used to think of it as the Wicksellian rate, the real equilibrium rate. It’s useful academically, it’s – it’s a discussion to help us think about policy. Do I think it has any operational effect on decisions that we make today? No, I don’t.
The neutral rate has been a central concept in monetary policy for decades. Powell pushed back on false precision in the estimates, but it remained the benchmark for judging the level of the funds rate: above neutral, policy is restrictive; below, it is accommodative. What is odd is that Warsh framed the decision as “removing a dose of accommodation” and then distanced himself from the concept that defines accommodation. The rest of the FOMC has views on it; every participant but Warsh submitted a longer-run estimate, and the median is 3.25 percent, below the funds rate even before the hike. By the committee’s own numbers, policy was already above (longer-run) neutral. So if not the neutral rate, how does Warsh judge the level of the funds rate?
The word choice mattered. “Removing a dose of accommodation” was heard as saying the funds rate is still accommodative after the hike, with more doses to come. That is another reason the market priced in more hikes as he spoke.
How will you know when to stop the hikes?
Maybe Warsh doesn’t need a firm view of the appropriate level of the funds rate to know it needed to be higher. But now that the Fed has hiked, how will he judge whether to hike again, and when to stop?
The rest of the FOMC put its answer in the dot plot. The dots are not a commitment, but they sent a clear signal: a modest cycle of 50 to 75 basis points in total, far short of the 3 percentage points in the median hiking cycle. Warsh did not submit projections, and at the presser he distanced himself from the committee’s. Michael McKee of Bloomberg asked:
You said in Jackson Hole that you want to see inflation come down clearly and at sufficient speed, which is a standard without necessarily a measurable threshold… today you say today’s policy action will support a timelier return to the Committee’s 2 percent target, and yet, in the Summary of Economic Projections, the median pushes [reaching] the 2 percent target out to 2029… how can you square those two things?…
Warsh:
One easy way to square that, Mike, is those aren’t my forecasts. Those are the forecasts of my 18 colleagues, and I’ve tried to represent them dutifully to you. My business is to not give forward guidance... what I said in Jackson Hole in August is, we’re committed to a discipline, not to a decision. Today’s action starts to show we’re serious about this… But I’m ill-prepared to pre-judge those future actions…
No one is asking Warsh to pre-judge future actions. The SEP is a thought experiment, not a commitment: given what we know and where the economy is likely headed, what will policy need to do to meet the mandate? Warsh may not see value in the exercise. But he set a standard for hiking, confidence that inflation is moving to target clearly and at sufficient speed. The standard for stopping is the same sentence with the sign flipped, and he could say so without a word of forward guidance.
What is the purpose of the press conference?
Warsh has changed the press conference. Last week’s ran 30 minutes, the shortest in memorty outside of an emergency presser during the pandemic; Powell’s last five averaged about 50 minutes. Journalists were not allowed follow-up questions. And Warsh has not stuck to presenting the Committee’s views, as past Chairs did. When Victoria Guida of Politico asked whether he had learned anything about communication from the market’s fixation on the August CPI, he answered:
Markets over time will come to understand how this Fed makes its decisions, what’s relevant and not. And I wouldn’t want to editorialize that for them.
The press conference exists so the Chair can explain the Committee’s decision and answer for it. It is a hard venue for any Chair, and it is part of the job. Warsh does not want to give forward guidance on rates, which is his prerogative, but he is comfortable offering plenty on the prospects for American growth, so the editorializing is selective. It would help to know the principles behind his pressers: what he thinks they are for, and how he squares a shorter, narrower format with the Fed’s accountability. The Fed’s decisions affect millions of Americans. They should hear the reasons straight from the Chair.
Closing.
The Fed raised rates last week, and at least one more increase is likely. The start of a hiking cycle is always a serious moment, and this one is no exception: inflation is elevated, and disinflation is far from guaranteed. The Fed met the moment. A new Chair adds to the challenge, but that is surmountable. What we need is a better understanding of how Warsh approaches monetary policy. He continues to tell us which standard tools he doesn’t use. He has not said what he uses instead. As a critic of the Fed, that limited his impact; as Fed Chair, it is causing unnecessary confusion. Last week, that confusion showed up as higher market interest rates than the committee intended, and Americans pay for that.
Brad DeLong here: I understand that to stay court-acceptable in the finance-guru discourse in which she swims, Claudia Sahm has to pretend that Kevin Warsh is making communication mistakes rather than doing exactly what he intends to do.
But the rest of us do not have to do that! We do not have to pretend! We can say what is going on! Which is that, to improve the American economy, the single best thing Warsh could do is resign immediately! Sober probity is something a Fed Chair needs, and that someone like him who campaigned for the job inside the White House by doing a Trump Lickspittle cosplay act cannot regain.
If reading this gets you Value Above Replacement, then become a free subscriber to this newsletter. And forward it! And if your VAR from this newsletter is in the three digits or more each year, please become a paid subscriber! I am trying to make you readers—and myself—smarter. Please tell me if I succeed, or how I fail…
This week brought me news increasing my confidence with respect to one thing it is not: it is unlikely to be a hyperprofits engine for research labs with companies attached making money serving up calculations made in datacenters by simulated neural networks:
What is now called “AI”—what I insist on calling MAMLMs, Modern Advanced Machine-Learning Models; but perhaps CIP, Complex Information-Processing, would be better—these days is so many things:
First of all, it is wishful mnemonics: the opposite of the rectification of names, in that the very idea is to call it something that it is not, and all because Marvin Minsky was primarily a showman seeking a bigger budget.
Most important, it is natural-language interfaces to information systems, especially, so far at least, databases of example code from successful software projects.
A potential disruptor and destroyer of platform monopolies’ existing megaprofits flows.
Hence a spur to platform monopolists to spend fortunes to try to protect those existing platform-monopoly profits from this disruption and destruction.
The next normal general-purpose technology driving the next generational doubling of human productive potential while leveling and rebuilding a fifth of the economy.
And, on the other side, the favored post-crypto way to grift the gullible separating gullible, separating VCs and wannabes from their money.
A bubble that knows it is a bubble—boosted by those confusing the long-run benefits to society from technology-driven investment from the actual profits to be earned by the investors.
The Rapture of the Nerds: trying to build a Digital God as the latest and strangest of the many American religious-cult millennarian outbreaks since the First Great Awakening.
Extraordinary plentiful tools for megasuperscale, hyperdimensional, flexible and extensible functional classification analyses at new levels.
A better internet search-and-summarization engine that has not yet been polluted by SEO.
A boilerplate, ritual, and slop text and image and video generator.
Highly verbal software pets and coaches.
Clever Hans at lightning scale and speed: trying thousands of things in the time it would take you to try one, and when and if it can be well and properly harnessed, tremendously productive.
Quite possibly, the savior of authoritarian states that want to live East Germany’s STASI surveillance dream.
Autocomplete on super-steroids: “that’s just kernel smoothing” vs. “you can do that with just kernel smoothing?!”; “that’s just a Markov chain” vs. “you can do that with just a Markov chain?!?!”
A jagged frontier produced by a stochastic parrot that is being harnessed to build a bicycle for the mind.
This week brought me news increasing my confidence with respect to one thing it is not: it is unlikely to be a hyperprofits engine for research labs with companies attached making money serving up calculations made in datacenters by simulated neural networks.
Today we have a review article for an $11,750 machine, the M5Ultra Mac Studio with 256GB of unified memory and a 2TB hard disk( cf.: the original 128K Macintosh’s price back in 1984 was $8000 of today-value dollars, with a Motorola 68000 processor, 128KB of RAM, and 400KB of floppy-disk storage per disk. 5 x 10^9 storage, 2 x 10^6 memory capacity, 5 x 10^5 memory bandwidth, 1 x 10^10 scalar and matrix addition and multiplication computrons, and with respect to the kinds of computations MAMLMs do “the honest ratio is division-by-zero: the 1984 chip couldn’t do it at all”):
Federico Viticci: M5 Ultra Mac Studio Review: The Dream Mac for Local AI Agents <https://www.macstories.net/stories/m5-ultra-mac-studio-review-the-dream-mac-for-local-ai-agents/>: ‘The M5 Ultra Mac Studio is a dream machine for local AI agents… powered by local models with great performance and no additional cloud costs…. The personal assistants I use the most are now entirely powered by a model running locally on a Mac Studio…. A team of agents… ran 24/7, for 99 days, to… transcribe my favorite WWDC sessions (using summarize plus LLM processing)… extract features of iOS and iPadOS 27… cross-reference features across different sources, and keep track… extract features and bugs from screenshots… work with the Notion API to organize…. Relying on the OpenAI or Anthropic APIs for this kind of always-on, persistent background task would be… cost-prohibitive, to say the least. So I pivoted to local AI…. The result is the iOS and iPadOS 27 review you can read on MacStories….
Having a model such as Qwen3.8-Flash-Next clear 100 tokens/second on short prompts and still write at 60 to 85 with 64K to 256K of context behind it… enables the kind of agentic back-and-forth between you and the model that feels great to use…. For my taste, 5-bit quantization hits the sweet spot on this version of the Ultra with a balance of intelligence, performance, and memory consumption…
NVIDIA’s RTX 5090 is still faster than Apple’s M5 Ultra…. Prompt processing speeds are dictated by… one giant matrix multiplication, which is exactly the job NVIDIA’s Tensor Cores were built for…. The M5 Ultra read at ~1,700 tok/s; the 5090 delivered a staggering ~3,000…. Token generation… is bandwidth… so the 5090’s 1.79 TB/s against the M5 Ultra’s 1.2 TB/s gives it a steady ~25% lead…. [But] the 5090 doesn’t have… memory…. The moment I want to run anything exceeding 32 GB… the 5090 must offload model layers over PCIe to (much slower) system RAM, and that’s no way to live…
Cf.: the NVIDIA RTX 5090 launched eighteen months ago at a MSRP of $1999 costs $7,500 today, and that is for the graphics card alone:
The bottom line:
I have a simple, tangible result: the M5 Ultra lets me run local agents with incredible performance, with less time spent staring at a blank screen and everything happening on a single, compact, cool, and quiet machine on my desk. This would have seemed impossible a couple of years ago. But here we are…
Running Federico’s agent team as claude-code-sonnet for three months at current API-prices would, I guess, have cost him at least twice the price of his machine.
Now, on the one hand, this kind of always-on, high-input-token workload and sustained agentic use is exactly what the hyperscalers are counting on to monetize the buildout.
And, the other hand, this workload means that $10K+ of Mac (or NVIDIA!) hardware pays for itself in a month. Profitable datacenter demand thus runs on frictions: people who need the technology’s Clever Hans trick—try a million paths, let the harness keep the winners with nine-nines reliability—but who can’t be bothered to hire a work-study IT tech to spin up what the open-weight community already gives away for free.
Thus my Visualization of the Cosmic All with respect to the future of MAMLMs is becoming clearer:
Will anyone other than NVIDIA ever show us real money from the AI datacenter buildout? Probably not.
Who actually made up the “consensus” forecast that the operating cash flow of the five biggest HyperScalers will triple from today’s annual $600 billion to $2 trillion by 2030, while their capital expenditures will grow by $500 billion less to give them $500 billion of free cash flow by 2030? And why? And how?
Apollo finds this time series in its incoming firehose feed flow, and reports. My reaction: WAIT!! WHAT?!?! WHERE DOES THIS COME FROM?!?! And the sudden upward bend in the net as the costs curve slows and the revenue curve accelerates is—interesting.
The lines on this chart look authoritative. But they are a crowd forecast. And where has the crowd gotten its information from? What bottom-up detailed understandings of the technology and its deployment do the guys with the spreadsheets working for the sell-side actually have here?
The “HyperScalers” are: Google, FaceBook, Amazon, Microsoft, and Oracle.
Now modern advertising, public relations and corporate values statements typically carry no equivalent constraints. Contrast 1858’s Lincoln and Douglas, “divid[ing] time and address[ing] the same audiences” in seven three-hour debates, with modern corporate values statement radiating outward to “stakeholders” forever, and you can measure what we’ve lost:
Thomas Hobbes blamed the coming of the English Civil War (at least in part) on rhetorically skilled parliamentarians “with no arguments at all”. Gruen sees him as both right and wrong: right to seek an answer in fiduciary cognitive societal-scale institutions like science, but overwhelmingly wrong in his fever dream that, starting from geometry, we could maintain certainty in a logical chain of reasoning that would carry us to a science of justice. The real virtues of science are that it “reorders prestige to follow evidence, rather than the reverse” while making reasoning inspectable. Good institutions inject contestability, and grant standing to whoever can competently join the argument.
Thus our worries about the destructive rhetoric of spin and bullshit destroying public reason are not new, 350 years old. Or perhaps 2075 years old: recall how Quintilian reported that Cicero gloried in his having spread darkness over the jurors in Pro Cluentio. Or perhaps 2450 years old: do recall that Hobbes picked up on Thoukydides’s lamenting that during the Peloponnesian War
words had to change their ordinary meaning….. “Reckless audacity” came to be considered “the courage of a loyal ally”; “prudent hesitation”, “specious cowardice”; moderation was held to be a cloak for unmanliness…
Much of what is now said about public discourse — that manipulation and spin prevail over truth and candour, that pleasing abstractions displace description, and that profile confers standing more readily than expertise or disinterest — was said in much the same terms by the great 17th-century philosopher Thomas Hobbes about rhetoric.[1]
Hobbes’s account of what public speech is for could stand for our own time (even if his ultimate remedy was extreme — showing all the motivated impatience of the intellectual). The office of a counsellor is to make the consequences of a course of action manifest, so the person counselled may be “truly and evidently informed”; speech that works by stirring the passions is “repugnant to the Office of a Counsellour.”[2] Against that standard he listed rhetoric among the causes of a commonwealth’s dissolution,[3] and in Behemoth proposed that the Civil War was largely talked into being — by dissenting Presbyterian ministers, and by parliamentarians with great rhetorical skill and no arguments at all.[4]
For Hobbes, this was existential. Over a decade before the English Civil War, he’d translated Thucydides, dwelling on the way in which the tumult of civil war tore civilisation asunder, “the received value of names” being changed at will. Thucydides depicted a society losing its hold on its own vocabulary, and so on reality itself. A prime instrument of the transformation was described in rhetoric as paradiastole — the redescription of a vice under the name of a neighbouring virtue. Henry Peacham’s Garden of Eloquence (1577) gave the example of calling murder “a manly deede”, and Shakespeare illustrates it when Lady Macbeth goads her husband into murdering Duncan in his sleep: “When you durst do it, then you were a man”. We’re inured to this today from our political class. Kidnapping becomes ‘extraordinary rendition’, torture ‘enhanced interrogation’.
Seven such parallels between Hobbes’s concerns then and ours today are set out in the appendix.
However, two things have changed in the centuries since Hobbes wrote, not for the better. First, classical rhetoric was typically adversarial and, in its forensic form, retrospective: opposing advocates contested the appraisal of deeds already done.[5] Its practitioners therefore spoke in the expectation of contradiction: an advocate’s case had to survive another advocate’s attempt to break it. Modern advertising, public relations and corporate values statements typically carry no equivalent constraints. Though they may be deployed to pre-empt criticism, their puffery faces no equivalent adversary; their pleasing abstractions gesture to the future and float free of the inevitable frictions and dilemmas of reality: “Excellence in everything we do”.
The second difference concerns who is listening. Castiglione’s courtier was trained to inform his prince candidly on any matter he needed to understand.[6] The scheme assumed a prince who wanted to know, because he governed and stood to suffer for his own mistakes. He might still prefer flattery, but an honest counsellor would set his interest against his vanity.
By contrast, modern institutional speech is often different in both respects. No corporation hires anyone to argue that it doesn’t actually operate according to the pleasing values hanging in the foyer — that it lacks integrity, responsiveness or respectfulness in specific respects. The Catholic Church did something similar in having candidates for sainthood run the gauntlet of the devil’s advocate.[7] Hence the quiet coerciveness of so much institutional language: it is less an account of what is or was done than the peremptory assertion of a free-floating benignity which only the churlish would dispute. And its audience is diffuse — the honeyed, vapid words radiate outward to ‘stakeholders’ and forward in endless time, but never constrain what senior managers actually do.
Conclusion
Hobbes looked to science for a way out of all this.[8] I think he was right. And wrong.
What impressed him was geometry’s promise of certainty. For Hobbes, geometry starts from principles evident to anyone and arrives at equally secure conclusions. He set out to create a science of just and unjust, demonstrated, as he put it, from principles evident to the meanest capacity. His younger contemporary Descartes pursued a similar ambition: to take nothing for granted and build from indubitable foundations.
Even in natural science, if there are any indubitable foundations, they’re too thin, too emptily formal to take you very far. Hobbes’s task was harder still: not just to understand human motivation but to deduce the ideal institutions under which people should live.
But Hobbes was right to look to science for an answer to a problem that beleaguered his own time as it beleaguers ours: rhetorical tricks unmooring public institutions from reality and its inevitable dilemmas. Science reorders prestige to follow evidence, rather than the reverse. And it makes reasoning inspectable, so claims can be questioned on their merits by someone with no standing whatever.
That does not mean that public policy should be value-free in the way often associated with science, still less that scientists should rule, though scientific consensus should presumptively enjoy high standing. Successful scientific institutions do not abolish rhetoric or hierarchy; they introduce contestability at every step of scientific reasoning and accord standing to whoever can join the contest competently. Yet so much of our own governing code — values statements, for instance — comes down from on high, and it’s not really for challenge.
By contrast, Toyota’s commitment to getting it ‘right first time’ at each step of the production line is enforced from the bottom. If there’s an error on the line that the process worker can’t solve, they pull the andon cord for more assistance, and if the problem can’t be solved as the production line moves, it is stopped. In other words, teams are given a live veto power to protect the agreed-upon standard.
My proposed Evaluator General seeks to build something more elaborate in government on the same principles so that evidence and front-line learning have standing against managerial imperatives. Each turns a professed value into an institutional power.
Such arrangements do not require agreement about ends. They need to be built into institutions rather than left to individuals whose efforts will mostly go unrewarded or be punished.
We have barely begun to take that seriously in public life.
Appendix: Seven rhetorical discontents, then and now
1. Speech engineered to move rather than to inform
The complaint today: Edward Bernays opens Propaganda (1928) by describing his own trade as the “conscious and intelligent manipulation of the organized habits and opinions of the masses,” carried on by an unseen mechanism he was content to call an invisible government. Drawing on his uncle Sigmund Freud, he argued that the appeal should be made not to the rational part of the mind but to the unconscious — a man may buy a car not to travel in but because it stands for something he would be embarrassed to name.
Hobbes’s complaint: Hobbes defines the “gift of eloquence” as the ability to make good and evil, expedient and inexpedient, honourable and dishonourable “appear to be greater or less than they are in fact,” and to make injustice appear as justice, in whatever way suits the speaker’s purpose.[9] He is echoing the rhetoricians’ own vocabulary of amplification and extenuation back at them: their claim was that the powerful speaker knows how to magnify what favours his cause and diminish what tells against it, quelling or inflaming an audience at will.[10]
2. Indifference to truth, as distinct from lying
The complaint today: Harry Frankfurt’s On Bullshit isolates a pathology distinct from lying. The liar is still tethered to the truth — in order to conceal it. The bullshitter, in Frankfurt’s phrase, is indifferent to how things really are.
Hobbes’s complaint: The rhetoricians had promised that their art would unite oratio atque ratio; that is, speech with reason. Yet Hobbes argues that what we get is oratio praeter rationem — speech running alongside reason without touching it.[11]
3. Pleasing words displacing accurate ones
The complaint today: George Orwell’s “Politics and the English Language” (1946) argues that political speech consists largely of euphemism and question-begging because it is mostly the defence of the indefensible: villages burnt and inhabitants driven out become pacification. Political language, he concludes, is designed to make lies sound truthful, murder respectable, and give “an appearance of solidity to pure wind.” Today kidnapping is ‘extraordinary rendition’, torture ‘enhanced interrogation’, and to lie is to ‘misspeak’.
Hobbes’s complaint: The figure had a name: paradiastole, the redescription of a vice under the name of a neighbouring virtue. Every virtue lies between two vices, so every virtue has a bordering vice it can be slid into. By the end of the sixteenth century, on Skinner’s account, ‘paradiastole’ was widely denounced.[12] In Hobbes’s time, Shakespeare had Lady Macbeth redescribe murder as manliness; Henry Peacham’s rhetoric textbook had already listed murder as “a manly deede”.
4. The frame as a non sequitur
The complaint today: “Lifting productivity is crucial today with governments keen to reduce budget deficits while satisfying voters’ rising expectations.” Something that should be adopted for its own sake is presented as answering some special strategic priority. I dubbed this ‘strategisation’ and it’s everywhere. Strategisation supplies the appearance of a reason for action but not its substance.
Hobbes’s complaint: Rhetorical inventio proceeded by running a matter through the loci communes — pre-set topical headings, described by the theorists themselves as seats or storehouses from which stock maxims could be hunted out and applied. As with strategisation, the link is rhetorical, not substantive. Hobbes argues that accommodating one’s arguments to received opinion cannot in principle yield knowledge.[13] Hobbes’s concerns also surface much earlier, when he served as secretary to Francis Bacon, whose 1620 Novum Organum carries the same analysis in its charge that leaders of science order existing customs and what is already known rather than devising methods of invention.[14]
5. Standing conferred by fluency rather than by being right
The complaint today:Jay Rosen calls the working ideology of the political press “savviness”: a claim to authority based on practical, unsentimental realism — knowing how politics “really works” while treating substantive positions as ideological or naïve. The savvy journalist does not claim to have the better analysis but to stand closer to the ‘real action’. Reading a David Speers column at the height of the lockdown debate, I documented the phenomenon line by line. The advice of a Chief Medical Officer whose judgement had already proven faulty was relayed uncritically, though New Zealand’s better-performing officials advised the opposite course. That didn’t register. Meanwhile the concerns of a highly credible public-health expert were described as “armchair” expertise.
Hobbes’s complaint: The classical and Renaissance rhetoricians equated the good orator with the good citizen — Quintilian’s vir civilis, the man fit to govern cities by his counsel. In Tudor England mastery of the studia humanitatis helped legitimise the gentry’s claim on government. Eloquence could therefore qualify a man to be heard on any subject, while mastery of a particular field could disqualify him. The schoolmaster Roger Ascham discouraged mathematics on the ground that men wholly bent on such sciences prove “unfit to live with others, & how unapte to serve in the world.” To paraphrase Michael Gove (admittedly unfairly and out of context), he’d “had enough of experts.”
6. The dissenter renamed rather than answered
The complaint today: Irving Janis’s account of groupthink explains how anyone arguing against group consensus meets direct pressure. Rather than being answered, they have their motives or temperament questioned.
Hobbes’s complaint: William Cavendish’s 1611 A Discourse Against Flatterie offers a catalogue of ways to dismiss a person by redescribing his virtues as faults. Honesty becomes fastidious eccentricity; gravity, dullness; repentance, superstitious melancholy. The objection is never answered; the objector is simply redescribed as the sort of person whose objection need not be taken seriously. Hobbes, then Cavendish’s tutor, later revived one of these examples in Leviathan.[15]
7. The right consideration loses for want of a sponsor
The complaint today:Mike Bracken, writing on his Whitehall experience trying to embed digital capabilities into government, describes endless policy cycles of carefully controlled documents circulating between private offices and departments, in which — his own gloss — “Rarely, if ever, does user need get a look-in.” With users unrepresented by anyone with standing in the system, their needs have no practical way of counting.
Hobbes’s complaint: Hobbes’s own 1660s account of why his science of justice made no difference: it had been demonstrated from principles evident to the meanest capacity and was nevertheless “cover’d and kept under here by a cloud of adversaries,” since most people learn their politics from the pulpit. He concedes that the democratical gentlemen who beat him had no arguments at all, only enormous rhetorical skill — and concludes that reason has little chance of being heard against interest, and that the most pernicious doctrine will beat the clearest proof if pressed with sufficient force.[16]
[1] This essay grew out of my reading of Quentin Skinner’s account of Hobbes’s fascination with and horror of rhetoric in 17th-century England. Skinner argues that Hobbes, after an early humanist phase, turned against rhetoric but then decided that, if he couldn’t beat the rhetoricians, he should join them, and made his masterwork, Leviathan, rhetorical with a vengeance.
I was struck by the similarity between Hobbes’s concerns about the befuddlement of public thought by rhetoric and my own about the saturation of contemporary discussion of public life by spin and bullshit. The essay began with my asking Claude to document the first version of the appendix to this essay, from which I drafted the essay.
The Hobbes material throughout is drawn principally from Quentin Skinner, Reason and Rhetoric in the Philosophy of Hobbes (Cambridge University Press, 1996), with page references given in the notes.
[2] Hobbes, Leviathan, ed. Richard Tuck (Cambridge University Press, 1991), ch. 25, pp. 179–80, quoted and discussed in Quentin Skinner, Reason and Rhetoric in the Philosophy of Hobbes (Cambridge University Press, 1996), pp. 345–46.
[3] Skinner, Reason and Rhetoric, pp. 284–85, on Hobbes’s stigmatising of the art of rhetoric as a cause of the dissolution of commonwealths, in The Elements of Law, part II, ch. 8 and De Cive XII.
[4] Hobbes, Behemoth, or the Long Parliament, quoted from the St John’s College Oxford manuscript in Skinner, Reason and Rhetoric, pp. 432–34.
[5] See Skinner, Reason and Rhetoric, pp. 41–42, on judicial rhetoric’s concern with past actions.
[6] Castiglione, Il Cortegiano, in Hoby’s translation of 1561, on the courtier’s duty to inform his prince frankly of the truth of any matter he needs to understand; see Skinner, Reason and Rhetoric, pp. 66–87, on the ideal and its English reception.
[7] Indeed, perhaps it’s a sign of the times that the Catholic adversarial office was wound back in 1983, and canonisations grew a great deal more frequent: John Paul II canonised close to five hundred people, whereas all his twentieth-century predecessors together had canonised ninety-eight.
[8] Skinner argues that having completely repudiated rhetoric in The Elements of Law and De Cive, Hobbes changed course in Leviathan, trying to beat the rhetoricians at their own game by incorporating their persuasive arts into his civil science. See Skinner, Reason and Rhetoric, pp. 327–425.
[9] Hobbes, De Cive X.xi, quoted and translated in Skinner, Reason and Rhetoric, p. 270.
[10] Hobbes, De Cive XII.xii, quoted in Skinner, Reason and Rhetoric, p. 270; and The Elements of Law, part II, ch. 8, quoted at pp. 269–70, on amplification and extenuation.
[11] Skinner, Reason and Rhetoric, pp. 283–84, summarising Hobbes’s reversal of the rhetoricians’ formula; the underlying text is De Cive XII.xii.
[12] Humfrey Braham, The Institution of a Gentleman (1555), borrowing Sallust’s complaint that we have lost the true names of things; Stefano Guazzo, La civil conversazione (1574), on an age in which courtesy is read as flattery; Ben Jonson, Catiline (1611), chorus to Act IV. Skinner, Reason and Rhetoric, pp. 167–68 and 178, notes that both forms of the corruption were taken to be gaining ground; his summary judgement is at p. 179.
[13] Hobbes, The Elements of Law, part II, ch. 8, quoted in Skinner, Reason and Rhetoric, pp. 269–70. On loci communes as storehouses of pre-existing argument, and Hobbes’s assault on the doctrine, see Skinner, Reason and Rhetoric, pp. 113–17 and 262–63.
[14] Francis Bacon, Novum Organum (1620), preface, discussed in Skinner, Reason and Rhetoric, p. 263. On Hobbes’s service to Bacon, Skinner, pp. 225, 236–37.
[15] William Cavendish, A Discourse Against Flatterie (London: Walter Burre, 1611), pp. 41–42, quoted in Skinner, Reason and Rhetoric, p. 169. Cavendish deleted the passage when revising for Horae Subsecivae (1620); Hobbes, his tutor and secretary from 1608 and possibly the source of the example, restored it in Leviathan, ch. 4, forty years later (pp. 169–70, 340–41). The catalogue of the Detractor is in Cavendish’s essay “Of detraction” (1620), quoted at p. 170.
[16] Hobbes, Behemoth, quoted in Skinner, Reason and Rhetoric, pp. 432–34.
Brad DeLong here: Nicholas Gruen says that we are worse off than we were in Thomas Hobbes’s day. In many ways, we are. Back then rhetoric was adversarial and often focused on the past as much s the future. Opposing advocates contested the appraisal of deeds already done, so anyone making a case spoke expecting to be contradicted. On July 24, 1858, Abraham Lincoln wrote to Stephen A. Douglas asking:
Abraham Lincoln: <https://papersofabrahamlincoln.org/documents/D201056b>: ‘Will it be agreeable to you to make an arrangement for you and myself to divide time, and address the same audiences the present canvass? Mr. Judd, who will hand you this, is authorized to receive your answer; and, if agreeable to you, to enter into the terms of such arrangement…
And Douglas agreed. Within a week <https://papersofabrahamlincoln.org/documents/D201067> they had set up seven debates between the man who would be chosen as U.S. Senator from Illinois if the Democrats were to emerge from the fall election with the Illinois-Senate majority and the man who would be chosen if the Republicans were to emerge. The opener was to speak for 60 minutes, followed by a 90 minute rebuttal and then a 30 minute surrebuttal. Douglas and Lincoln were to switch openings debate by debate. These bear no resemblance to the modern “debates” that candidates’ handlers setup,. (In large part, I think, because handlers have little confidence in their candidates and think the risk of having something that is not a joint press conference with little or no follow-up is too great.)
Thus we have this: contemporary anxieties about “spin” are 350-year-old news. And we have this: the distinctive modern pathology is unopposed rhetoric: values statements and PR that pre-empt criticism as they are designed to never face an advocate on the other side.
Now do consider modern science’s own prestige hierarchies, replication crises, and capture by funding interests. Those do tell us that “prestige follows evidence” is aspirational. And it is not true that modern institutional speech faces “no adversary”: we have journalism, litigation, regulators, social media pile-ons, whistleblowers, and o on. Evidence and “front-line learning” do not point to determinate answers that merely lack standing. Disagreement is, often, genuinely about values or truly contested facts. It is only a fuzzy middle for which framing certain things as “facts” and devaluing others can move opinion needles.
But I found this very much worth reading this morning.
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##crosspost-nicholas-gruen-hobbes-on-spin-bullshit ##public-reason ##crosspost ##nicholas-gruen-hobbes-on-spin-bullshit #nicholas-gruen #hobbes-on-spin-bullshit Based on the post’s content, here are 20 hashtags: #thomas hobbes #spin-and-bullshit-and-rhetoric #rhetoric #lincoln-douglas-debates #contestability
A tinkerer recovered Claude’s true usage limits from a suspiciously precise decimal like 0.16327272727272726. This is very useful, because Anthropic really does not want to give me any useful information about the quantities of tokens my $20/month Claude Pro subscription is offering me before I run up against a limit and have to either switch out the models or pay API pay-as-you-go pricing.
This is all there is that it will show me:
So it is nice that this below exists—although this is out of date, from eight months ago, which is I don’t know what fifty-six dog years? It run through the roughly 90% off pricing for your first $200/month of use for the “Pro” tier, and roughly 93% off for your first $1500 or $3000/month of use for theMax 5x” or “Max 20x” tiers:
If you’re reading this, you’re probably aware that Claude’s subscription plans are a much better deal than the API. But how much better exactly, and what are the actual limits? I pulled out the exact values through two unrounded floats and found some notable things. I’ll explain how I did it later, but first, the results.
findings
The 20× plan is not as good of a deal as you might expect. On Anthropic’s site, all mentions of “20× more usage*” have that pesky asterisk. It’s doing a lot of work. The five-hour session limits really are 20× higher than in Pro, but the real question is, how much work can you get out of it? The answer is: only twice as much per week as the 5× plan.
On the other hand, the 5× plan gives you great value for money. It overdelivers on what it promises pretty significantly. It’s the sweet spot of the pricing table. You get a six times higher session limit than Pro (not five), and more than eight times the weekly limit (more than the eponymous five).
Compared to API pricing, all plans come out looking fantastic. The value estimates in the table are lower bounds, since caching makes the effective API-equivalent even more favorable (as I’ll explain in a moment). In any case, if you can use plan pricing instead of the API, go for it.
There’s one thing that’s not in this table that’s very important.
Cache reads. They’re entirely free.
This makes the math even more stacked in favor of the plans. In an agentic loop (e.g. Claude Code), the model makes dozens of tool calls per turn. After every tool call, the model is invoked again. Cache read of the entire context. The API charges 10% for every read; subscriptions charge nothing. This adds up fast, as we’ll see in a second.
Cache writes are also discounted, they cost 1.25×/2×1 the input price in the API, while on the plan they’re charged the regular input price. Every chat turn gets written to cache before it can be read, so this matters as well.
credits
So what are these credits I keep talking about?
They’re the unit used internally to keep track of your plan usage. “Credits” is my arbitrary name for it, these values don’t appear directly in any API field so there’s no obvious word for them. I think “credits” sounds fine.
How do we get from credits to token counts? Here’s the formula:
The specific values are pretty arbitrary-looking, but the ratios between them mirror API pricing: output costs 5× input, you’ll pay 5× more for Opus than Haiku, etc.
Let’s try it out on some practical numbers.
We’ll start with the realistic worst case: caching is enabled, but the cache is cold. (The true worst case is caching disabled entirely, but that’s rare.)
This is already great value, and it’s the real-world baseline (even with caching off, it was still ~13×). Once you’re in a loop and the cache is warm, it gets a lot better:
Okay, enough of the takeaways. I promised suspiciously precise floats.
forensics
How did I get all these numbers?
Last fall, a new tab appeared on the Claude.ai settings page. The usage tab, showing your remaining limits as two progress bars.2 Very soon after, I found myself flipping back and forth between my Claude chats and that page. Especially if your chats are long (and uncached, but that’s a different story), those limits can run out quick.
I decided to make an extension.3 First, I looked at how the usage page itself was implemented. Pretty straightforward, a /usage endpoint returning a tiny JSON snippet with the numbers rounded to the nearest percentage point. That was enough for me, since what I really wanted was an easier way to view those numbers.
But I kept digging, and soon found something interesting. On a Max 5× account, the SSE responses from the generation endpoint had usage values as unrounded doubles: 0.16327272727272726.
Suspiciously specific. Almost looks like some kind of fraction converted to decimal. Can we recover the underlying fraction and get the real limits? Turns out we can.
step 1: bucket
When a real number becomes a float, it rounds to the nearest representable value. That float represents ALL rationals in a tiny interval [L, U) that would round to it. The width of that interval is ~10−17 for values in the 0–1 range we’re working with.4
The original fraction (before it became a float) must lie in that [L, U). We want to get the simplest fraction from that interval.
Why the simplest? Any decimal fraction can be converted to a common one, but that doesn’t give us any more info (in this example: 16327272727272726/100000000000000000). What we want to get is the original (which presumably has a denominator smaller than 100 quadrillion).
But wait, suppose the source fraction is 2/10, we would recover 1/5! Won’t getting the simplest fractions give us false positives? With one sample, yes. This is why we get multiple samples and later compute the lowest common denominator. If the true denominator were 10, we’d sometimes recover 5 or 2 (because everything gets simplified), but we’d never recover a denominator that doesn’t divide 10. So the LCM can only grow, it can’t overshoot the real limit. After a few samples, the chance of the real denominator being higher becomes vanishingly small.
step 2: the fancy math thing
So back to the bucket, how do we find the simplest fraction in it?
The Stern-Brocot tree is a binary search over ALL positive fractions, ordered by value, but constructed so that simpler fractions are found first. Starting from 0/1 and 1/0 (infinity), each step narrows toward the target interval. Here’s an example for finding the fraction for 0.4:
In our use-case, we’re not aiming for the exact number, but instead a very very small interval (~10−17). The process looks essentially identical either way.
Back to our original 0.16327272727272726. The first in-bucket hit is a very small-denominator fraction (often the minimum-denominator one):
step 00: left=0/1 right=∞ mediant=1 -> mediant ≥ U, move left
step 01: left=0/1 right=1/1 mediant=½ -> mediant ≥ U, move left
step 02: left=0/1 right=½ mediant=1/3 -> mediant ≥ U, move left
step 03: left=0/1 right=1/3 mediant=¼ -> mediant ≥ U, move left
step 04: left=0/1 right=¼ mediant=1/5 -> mediant ≥ U, move left
step 05: left=0/1 right=1/5 mediant=1/6 -> mediant ≥ U, move left
step 06: left=0/1 right=1/6 mediant=1/7 -> mediant < L, move right
step 07: left=1/7 right=1/6 mediant=2/13 -> mediant < L, move right
step 08: left=2/13 right=1/6 mediant=3/19 -> mediant < L, move right
… 57 more steps …step 66: left=8/49 right=417/2554 mediant=425/2603 -> mediant ≥ U, move left
step 67: left=8/49 right=425/2603 mediant=433/2652 -> mediant ≥ U, move left
step 68: left=8/49 right=433/2652 mediant=441/2701 -> mediant ≥ U, move left
step 69: left=8/49 right=441/2701 mediant=449/2750 -> HIT
Round-trip check: 449/2750 prints as 0.16327272727272726 ✓
step 3: lowest common denominator
Each sample gives a denominator. The true limit D must be divisible by all of them. Example: 449/2750 and 11401/75000 both scale to a denominator of 3,300,000.
Why does the limit have to be divisible by all of them? Because the utilization number is literally “used / limit”. When we recover a fraction from the float, we get it simplified. So the denominator we recover can only be a divisor of the real limit.
So you take a few samples, collect the denominators, and take their LCM. At first it will jump around. Then it stops. Once it stops across a bunch of different usage amounts, that LCM is your limit. You can still get unlucky, but after a few samples the odds get really small.
Lastly, how did I get the credit-token formulas and model multipliers? A whole bunch of manual data collection, then automated data collection after I modded my extension to save that data as I chatted. I put them all in a table and stared at them a lot. Asked Claude. Asked GPT. Came up with hypotheses, tested them, and ultimately ended up with the tables and formula above. I wish I had more to say on this but it was a bit of a chaotic process and I didn’t keep notes on it, the important part is that I’ve validated the final numbers and they check out exactly.
conclusion
Side channels are everywhere. I don’t think anyone at Anthropic expected to leak their exact pricing table just by forgetting to round two numbers.
You should get a plan if you can. Claude Code on API pricing just doesn’t make financial sense compared to the plans for most people. The main exception is if you’re forced onto the API for organizational reasons (enterprise/team setups, procurement, etc.), in which case the comparison is less relevant.
If you care about Claude’s usage limits (and you’re at the bottom of an article that extensively explains them, so I assume you do), try my Claude Counter extension. It shows you the cache timer, the usage bars right in the composer box (with full precision) and more.
As of writing, the floats remain unrounded and suspiciously precise. I expect if this post gets any attention, that might not last very long. I’ll be a little sad about it because it’ll make my extension slightly worse. (I’ll have to rely on the /usage endpoint, the same one the official usage page uses, which is rounded)
3 To be fair, first I found an existing one that I kept modifying until it didn’t make sense anymore and I rewrote it from scratch with a different focus from the original.
4 IEEE-754 floats have a fixed number of mantissa bits, so precision is relative to magnitude. Larger floats have wider rounding buckets: ~10−17 for 0.1, ~10−16 for 1.0, ~10−13 for 1000. Our usage ratios are always 0–1, so we’re in the ~10−17 zone.
5 1. Write down the problem. 2. Think very hard. 3. Write down the solution.
Brad DeLong here: My sense is that, what with all of Anthropic’s opaque moving pricing parts, Anthropic has maintained the rough relative relationship between subscriptions and API’s in terms of pricing-per-output-token, while delivering about 50% more value per dollar charged on the API tier. The subscription tiers are still enormous loss leaders: $20/month for your first $200/month of tokens at API rates for the “Pro” tier, and $100 or $200/month for your first $1500 or $3000/month of tokens at the “Max 5x” or “Max 20x” tiers.
What are the implications of this, for “AI” as a technology, as a source of user surplus, as a source of producer value, and as a source of financier, engineer, and investor fortunes?
If you are worried that a bull-statue is a Satanic symbol, the odds are very high that you think that Israel must be encouraged to conquer from the River of Egypt to the Euphrates, so that then the monstrous powers of Gog and Magog will attack and destroy them, as payback for and as a demonstration to the world of God’s wrath at them for their sin of rejecting Jesus Christ.
Such people are unlikely to make good judgments about Middle East issues. Perhaps half of Trump State Department political appointees are such people.
Marc Caputo: Ba’al Out: Top Diplomat’s Worry About Pagan God Elicits Eye Rolls <https://danieldrezner.substack.com/p/the-beclowning-of-the-state-department>: ‘The second-most powerful man at the State Department put the brakes on a U.S. international exhibit featuring a bull statue because he worried it might look like Baal, a pagan god some associate with Satanic child sacrifice. The anecdote illustrates the quirky interests of Deputy Secretary of State Chris Landau…. The bull statue was put on hold as State officials spent the last few weeks debating how to make it both interesting and non-Satanic. “It’s just totally weird stuff and it’s really indicative of the guy,” a State Department official said. “Literally, no one thinks about Baal unless they’re spending way too much time online, which Landau is,” a different U.S. official lamented. “It’s like an episode of Veep. Someone should tell him this is a Western bull, not a Near East bull,” a third U.S. official said…
who comments: “Remember: when it comes to Trump’s foreign policy and national security team, it’s incompetents all the way down”.
We won’t even get into the fact that in the most ancient religions of Canaan and Israel, the bull is primarily a symbol of God Most High, not of the subordinate Ba’al Haddad
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Today’s America: 3 million business owners worth an average of $25 million each, notables in their towns but not individually visible to the nation. And more than half the rise in the top 1% share since 1985 flowed through the pass-through businesses that was a “tax efficiency innovation” feature of the Reagan Revolution. The Reagan Revolution promised faster growth in exchange for lower taxes on the rich. The rich won; the growth never showed up.
A number that I very much want to see, and now that I see it I wonder how solid it is. All such counterfactuals are dicey:
Torsten Slok: Not Tech, Not Wall Street <https://www.apollo.com/wealth/insights-news/insights/daily-spark/not-tech-not-wall-street>: ‘The income that lifted America’s top 1% did not come mainly from tech or Wall Street, according to The Everywhere Millionaire. More than half of the rise in the top 1% income share since 1985, 5.8 of 10.5 percentage points, flowed through pass-through businesses, see chart below. The authors, Owen Zidar and Eric Zwick, counted roughly 3 million wealthy private business owners, with average net worth near $25 million, running law firms, car dealerships, medical practices, commercial contractors and regional restaurant chains, the kind of businesses that make their owners wealthy and well known in their own communities without ever making them nationally famous.
The Reagan Revolution was supposed to be a bargain: the rich would get to be richer—to after taxes keep more of “their earnings”—in exchange for unleashing wave after wave of innovation to drive more rapid economic growth to restore the growth rates of the 1950s and 1960s. Everyone would win!
Everyone did not win:
Oh, the superrich—the plutocrats and the kleptocrats—won super-big from the Reagan Revolution, and the gentry won big. But not the rest of us. The growth rates of the 1950s and 1960s were not restored, The Reagan-Bush I record was not “seven fat years”, but seven moderate sandwiched between two bad and then three bad ones, adding up to a trend growth rate about what we have experienced since the end of the GFC-triggered Great Recession. The policy configuration and economic-structural configuration that did—somewhat—restore growth was the left-neoliberal Clinton Doctrine, which was then dismantled by Bush II, the GFC and Great Recession, and the ænemic post-2009 response. As far as growth in incomes for non-superrich non-gentry are concerned, the only bright spot is the 2021-2022 Biden pedal-to-the-metal recovery which prevented another downward lurch in trend income growth like the ones we saw under Nixon, under Bush II, and then with the GFC-Great Recession:
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Osama bin Laden’s one concrete strategic goal was to end the American military presence in the Gulf and on the Arabian Peninsula. A generation later, Donald Trump’s war on Iran has apparently delivered it for him:
Retired General Barry McCaffrey says the US has “probably permanently lost access to 15 Persian Gulf bases”.
One of the not-original points I will be making in The Infernal Triangle: How America Got This Way is one stressed by the CIA’s Al Qaeda expert Mike Scheuer in the years after 9/11: that, far from attacking the U.S. because of some vague hatred of “our freedom,” as George W. Bush liked to say, but instead be a use of his “hatred for a few specific U.S. policies and actions,” most prominently that George H.W. Bush persuaded Saudi royal family to turn the birthplace of Islam and home to its holiest shrines into a base to wage war against Muslims. Perpetuating that, Scheuer argued, guaranteed Islamic militancy would keep metastasizing, including among those not yet radicalized…
Brad DeLong here: And there the Rickipedia paywall sets in. Below the fold he, first, makes the point that the terrorists hoped to terrorize us and succeeded:
“Terror wants derangement”—and so we gave it to them, and in the silliest of ways… surr[endering] the possibility of a disciplined approach to regional security in the Middle East by lashing out, serially, in dumb wars…making America more solipsistic, narcissistic, recriminatory, cruel, cowardly… it takes a cowardly nation, after all, to elect and reelect a strongman like Donald J. Trump)…. Now, however… the great Lucian Truscott IV puts [it] forth… far blunter…
And here is an extended quote from Truscott:
Lucian Truscott IV: Osama bin Laden’s dream come true: U.S. bases on the Arabian Peninsula are gone <https://luciantruscott.substack.com/p/osama-bin-ladens-dream-come-true>: ‘It took him 25 years, but Osama bin Laden is winning his war on the Great Satan. He wanted to bring to an end the U.S. military presence in the Persian Gulf and the Arabian Peninsula, and it is happening. Retired four-star General Barry McCaffrey assessed recently that the U.S. military has “probably permanently lost access to 15 Persian Gulf bases,” due to Trump’s war on Iran. The Pentagon Inspector General, in a report released today, said that “hundreds” of buildings on U.S. bases across the Middle East were destroyed by Iranian attacks that also caused $184 million in damages to diplomatic facilities in the region. All that damage was caused by thousands of missiles and drones fired by Iran.
Two F-15 fighters were destroyed during the war, along with one A-10 fighter. Five KC-135 refueling aircraft were destroyed on the ground, along with numerous helicopters. At least 30 Predator drones were destroyed “in various circumstances,” including being hit by drones and missiles while they were on the ground. The Pentagon has not released the number of Navy and Army weapons systems that were destroyed where they were deployed on U.S. bases, but it has been reported that several radar systems that cost in the billions of dollars were destroyed by Iranian missiles in Saudi Arabia…
CBS News caption: “Undated photo of plane damaged by Iranian strikes at Prince Sultan AFB, Saudi Arabia.”...
““Undated photo of aftermath following Iranian strike Prince Sultan AFB, Saudi Arabia.”)
With a quote: “These are not ‘squirters’ getting through”, referring to the claims of moronic Defense Secretary Pete Hegseth. “We’re not defending these bases. We’re just watching them get destroyed…”
And there is a thoroughly weird piece on this from the Stimson Center:
Kristian Alexander: The Future of US Basing in the Gulf After the 2026 Iran War <https://www.stimson.org/2026/the-future-of-us-basing-in-the-gulf-after-the-2026-iran-war/>: ‘The old equation that American presence equals reduced vulnerability was temporarily inverted. This does not mean the bases failed. They supported defensive operations, intelligence collection, logistics, and the projection of U.S. power under wartime conditions. But the conflict punctured the assumption that fixed facilities could function as protected rear areas. Bases, radars, communications nodes, fuel stores, and intelligence installations became elements of the front line….
Iranian attacks reportedly inflicted billions of dollars in damage…. Iran… identif[ied] and attack[ed] the nervous system of the American posture… sensors and intelligence nodes…. Successful defense… bec[a]me strategically costly… [as] relatively inexpensive drones, decoys, and missiles… compel[ed] defenders to use scarce interceptors… [as] even a few penetrating weapons… damage costly sensors or concentrated equipment….
A U.S. base is an instrument of American power projection and deterrence, but it is not automatically a defense guarantee for its host. Gulf governments will consequently seek greater clarity over consultation, protection, and risk-sharing…
As I understand it, Diego Garcia 3000 and Muwaffaq Salti in Jordan 900 miles from Tehran are the logistics bases, with strikes being now launched form carriers and from Muwaffaq Salti; and with few if any air assets positioned at any of Al Udeid in Qatar, Al Dhafra in UAE, Prince Sultan, or Ali Al Salem, Camp Arifjan, or Camp Buehring, due to their vulnerability.
If this is true, how is this these bases not failing?
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Mohammed bin-Salman dials the white courtesy phone begging for help, and nobody in the White House can be bothered to answer him. They are too busy staging martial arts spectacles on the White House South No-Longer-a-Lawn:
Spencer Ackerman on how the “Houthis”, that is Ansar Allah, have now beaten three adversaries in a decade, seized Yemen’s western coast and an island commanding the Bab el-Mandeb, exposed the hollowness of the U.S. security umbrella, and appear fierce enough for Trump to refuse Mohammed bin-Salman’s calls for help. Chokepoints re-price geography permanently, credibility is the real currency of naval hegemony, and coherence beats incoherence.
One decade. Three adversaries. Total domination. It’s time to respect Ansar Allah
Edited by Sam Thielman
LAST YEAR,I wrote for Zeteo that the Houthis won their Biden-ordered confrontation with the U.S. Navy (sorry, a “multinational naval coalition”) once the Trump administration reached for a deal. The Navywagedits most sustained naval campaign since World War II—that’s according to then-Fifth Fleet commander Adm. Brad Cooper, whose defeat did not impede his ascension atop U.S. Central Command. Not even thatcould compel Ansar Allah (the organization shorthanded as “the Houthis”) to cease their attacks on Red Sea shipping. Ansar Allah attacked Red Sea shipping to impose costs on Israel, and its foreign patrons, to compel it to end its genocide of the Palestinians in Gaza. Rather than do that, the U.S. bombed Ansar Allah. And lost.
I got pushback on that piece. There’s always, in the United States, ways to explain why an adversary success/an American loss doesn’t count. The end of the U.S. mission in the Red Sea came, generally speaking, without any acknowledgement that the Houthis notched a victory, as opposed to the Americans pulling up stakes. Yet the reality remains that the Houthis imposed their political will on Red Sea shipping, rather than the Americans imposing their will on the Houthis and returning Red Sea shipping lanes to the status quo ante from October 7, 2023. That is what it is to win wars, rather than simply to wage them. My hot take is that the part of American military culture that overstates tactical success and underrates strategic success, so persistent over so many decades and so many wars, originates with the former Confederacy’s need to believe its own myth of martial valor. [There’s a lot of culpability to go around on that one but Hudson Strode’s perfidious biography of Jefferson Davis, which Shelby Foote loved, is probably guiltier than most.—Sam.]
Last week Ansar Allah shocked the world. With their decade-long war against the Saudis back on, they intensified their Red Sea blockade on Saudi oil exports by barrelling down the western coast of Yemen, taking it all from Riyadh-backed forces theoretically belonging to the long-ousted pre-Houthi “government” of Yemen in exile. (That government, formally known as the Presidential Leadership Council, is so enfeebled that it constantly refers to itself as the Internationally Recognized Government, or IRG. Never a good sign!) First they seized the crucial port city of Mokha–yes, like the coffee—whose defenders fled. Adding to the embarrassment for the IRG, Mokha had been held by the nephew of U.S.-backed longtime strongman Ali Abdullah Saleh, whom the Arab Spring dispatched. Ansar Allah won a military victory with enormous symbolic power. Read Iona Craig’s dispatch for Drop Site, as she knows Yemen extremely well. She called Ansar Allah’s southwestern push “the most significant shift in territorial control in five years of the country’s long-running civil war.”
Then, on Friday, in a stunning move, Ansar Allah conducted an amphibious assault and took an island in the mouth of the Bab el-Mandeb.
Amphibious assault—coming onto land from the sea as an invading force—is the most perilous maneuver in warfare. You’re barrelling into the mouth of an entrenched defense that will surely hold the high ground and fire upon you as you seek to come ashore, while your ability to fend off an attack through air power or naval artillery asyour forces hit the beach is minimal. Amphibious assault is an established core competency of the U.S. Marine Corps. For extremely understandable reasons, they desire to do it as little as humanly possible.
I have yet to see a proper account of how assault unfolded and what, if any, resistance Ansar Allah overcame. Even if the island were undefended, putting fighters on speedboats to take an island in the middle of a commercially pivotal waterway is audacious to the point of legend. Ansar Allah has drones, but no known aviation assets otherwise to defend their assault. There will be movies made about this some day. Just not in English.
Now Ansar Allah holds the Bab el-Mandeb for real. That puts the Iran coalition in control of two of the world’s most important waterways.
In addition to losing export access through Bab el-Mandeb and the Strait of Hormuz, the Saudis had to shut down the east-west oil pipeline, owing to an attack said to originate from Iraq. That shutdown takes up to 7 million barrels per day of oil offline. Remember my piece looking at the geography of Mideast conflict to come, the one that envisions routing oil to the Eastern Mediterranean? Events are coalescing in its predictive direction.
And in another historic move, one that tears up the premise of the U.S.-Saudi alliance, Crown Prince Mohammed bin Salman asked Trump for assistance and Trump saidno.
Now, the U.S. is already deeply complicit in the long Saudi war against the people of Yemen. I would never argue that the U.S. ought to return to it because MBS needs to be saved from the consequences of his own actions. Instead I mean to observe that the deal between Riyadh and Washington since 1945 has been that the U.S. military safeguards the Saudi state in exchange for cheap and abundant oil priced in dollars. Already the Iranian counterstrategy in this war has been to expose the hollowness of the U.S. security umbrella over the Middle East. Trump has demonstrated American unreliability under fire far more vividly than any military withdrawal from Iraq or Afghanistan. (Then Pakistan and Turkey refused to let the Mecca Pact bail MBS out! Ansar Allah is pulling card after card!)
I AM NOT saying that as a man who smugly thinks he understands them. I’m saying that as someone who wants to understand Ansar Allah and finds English-language insight wanting. Too often “the Houthis” appear in U.S. media as angry, gun-waving fanatics, usuallyjust before journalists identify them as being under the Iranian sway. But every halfway-informed portrayal of Ansar Allah instead situates them as substantially independent of Tehran. As I briefly wrote in my Zeteo piece, there is a longstanding debate within U.S. defense circles about how much ofthe Ansar Allah missile arsenal is domestically produced and how much is Iranian-supplied. Usually that debate is heldin the context of presenting Iran as a regional threat. But it has the effect of suggesting Ansar Allah is fundamentally weak, in need of sponsorship and, in the final analysis, an afterthought to the greater issue of Iran.
That just cannot be true. Since the late-2014 Ansar Allah coup that ousted the U.S. and Saudi-backed government, Ansar Allah has held Sana’a, the port of Hodeidah and much of Yemen’s northwestern territory, mostly under conditions of a pitiless siege. For practically every day of its hold on power it has fought more powerful and technologically advanced adversaries, and won. Ansar Allah has defeated forces backed by the Emiratis known as the Southern Transitional Council, as well as the Saudi-backed fighters; endured airstrikes by the Saudis; and absorbed naval artillery and airstrikes from the United States. It has done so while scaling up its military capabilities. And it picks its engagements impressively, with a fingertip-feel for moving its opponents into no-win situations. Trump, for instance, reached a ceasefire with the Houthis after their resilience following his escalation left him with the unpalatable option of sending forces ashore into Yemen.
These guys, in other words, show every sign of having farsighted generals. People worth studying. (People worth, at a minimum, knowing by name!)
But that’s not how the U.S. military rolls when it comes to its adversaries, despite priding itself on being a learning organization. If you read this 2013 WIRED piece of mine, you’ll see that the Army never bothered to study what the Iraq War looked like from the perspective of the insurgency, even though there were lots of opportunities to see the war through Iraqi eyes. I remember once talking to a since-passed friend about his experiences fighting the Taliban on multiple tours in Afghanistan’s east. His assessment: mediocre riflemen, expert mortarmen. He was an enlisted man, and as is often the case, his focus was correct while the Army’s was blinkered. It didn’t understand the Afghanistan war that its enemies waged. It barely understood the war it waged, and that’s being generous.
Now I know what some will say. We didn’t REALLY fight Ansar Allah in 2024-5. They never went up against the Army or the Marines. OK, and? That just meant Ansar Allah successfully leveraged Washington’s unwillingness to deploy ground forces when it encountered the U.S. in the Red Sea. I call that good generalship. War isn’t a matter of reading off capabilities from a fucking Magic The Gathering card to decide the outcome of a battle. Ansar Allah has now triumphed over three different adversaries, adversarieswho cumulatively devastated Yemen, and it is in a stronger position than ever. You can coulda-woulda-shoulda this all you want and it won’t change that.
Somewhere in a leadership position in Ansar Allah is the Yemeni equivalent of Võ Nguyên Giáp, the master strategist who commanded the North Vietnamese forces. (And whom the U.S. didn’t respect until long after withdrawing from Vietnam.) I would like to know what this Yemeni general’s name is. If he’s really more like multiple people in a military council, I’d like to learn all their names and what their deals are. He has/they have a lot of insight into how war is fought in the Middle East against impossibly technologically superior forces. And I think we can see more clearly than ever what ignoring that insight has yielded.
Brad DeLong here: The piece of realist good advice everyone repeats and almost no one interrogates is look at the prince’s constraints, not his preferences. That fails us here. The rule smuggles in the assumption that the prince is minimally rational, goal-directed, and has enough power and vision to set his internal political balancing-act on the domestic see-saw to one side enough that his behavior integrates over time into something you can call a strategy. In the context of the actual Washington of last week, that smuggled assumption is really stupid.. We do not have a goal-directed prince. We have a volatile prince worked by whoever last got him on the phone. His “constraints” are re-scrambled every news cycle.
Against that, Ansar Allah appears to understand and be able to carry out the unfortunate human social practice of war. It appears to have farsighted generals running a patient, coherent, long-run campaign against adversaries that cannot hold to a policy line. In a contest between a coherent weak actor and an incoherent strong one, bet on coherence. So I said last spring, in my confused notes on the war on Iran, and I am more convinced now.
The maritime chokepoint is the game. Yemen matters, strategically, for America because of the United States’s two essential strategic concerns: Persian Gulf oil and the Red Sea/Suez maritime transport artery. Ansar Allah controlling the western coast of Yemen and putting fighters on speedboats into the mouth of the Bab el-Mandeb promotes the ongoing Yemen from humanitarian tragedy to global strategic consequence.
Freedom of navigation is a global public good, and public goods decay the instant their provider is revealed to be unwilling to pay for them. The “American peace” on the water was never mainly a matter of firepower. It was a matter of credibility—veryone believing that the United States would eat the cost of keeping the commons open, would answer the distress call, would show up. Ackerman is right that Trump, in telling Mohammed bin Salman no, “demonstrated American unreliability under fire far more vividly than any withdrawal from Iraq or Afghanistan.” A withdrawal is a choice about where to spend your credibility. Failing to answer a client’s distress call is a repudiation of the premise that you have any to spend.
I part company with Ackerman on one thing. I do not think his Confederate-martial-valor thesis is right. He claims that American military culture’s habit of overrating the tactical and underrating the strategic traces to the postbellum South’s need to believe its own myth. The chronology is off. That myth was always a very narrow thing: a fixation on three battles in Northern Virginia across the nine months beginning in mid-August 1862: Second Bull Run, Fredericksburg, Chancellorsville. Otherwise, Lee’s generalship was uninspired:
butt his head against a brick wall over and over again at the Seven Days, and win only because McClellan could not believe that Lee would accept such unfavorable tactical casualty ratios unless he had substantial numerical superiority;
divide his army in the face of the enemy in hostile territory with insufficient reconnaissance before Antietam, and only George McClellan’s case of the slows saved the Army of Northern Virginia from a rout never seen in the Civil War.
divide his army again in the face of the enemy in hostile territory with insufficient reconnaissance before Gettysburg, and then his frantic attempts to reconcentrate brings on the most unfortunate meeting engagement followed by bonheaded futile frontal assault of the entire war.
never regain any strategic or even effective tactical initiative thereafter.
The systematic pathology — did we win the engagement, hit the target, sink the boat? in place of did the other side end up doing what we wanted? — is a Vietnam-era acquisition. It is the disease that let a generation of officers count bodies while Võ Nguyên Giáp counted decades, and it is the disease that has us today unable to name the general who just took an island in the Bab el-Mandeb.
Now it is time to watch oil supply, demand, and prices. Seven million barrels a day offline, Hormuz contested, Bab el-Mandeb closed, the east-west pipeline shut. Ackerman’s own earlier piece on routing oil to the Eastern Mediterranean now looks prescient. Chokepoint risk does more than spike the spot price for a season. It re-prices geography permanently: it redirects the next decade of pipeline and terminal investment and hands a windfall to whoever sits on the alternative route. The durable consequence of last week is a redrawn global petroleum energy map. And maps drawn under duress may stay drawn that way.
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The archetypal rich American isn’t a founder-CEO with a stock ticker—he’s the guy with seventeen McDonald’s franchises and a seat on the hospital board. Zidar and Zwick counted him, traced how the tax code inflated him, and revealed a American gentry élite class collectively ten times richer than the Forbes 400:
Torsten Slok: The Zip Codes That Don't Make the News <https://www.apollo.com/wealth/insights-news/insights/daily-spark/the-zip-codes-that-do-not-make-the-news>: ‘The 400 wealthiest Americans on the annual Forbes list hold about $4 trillion in combined wealth, while the far larger group of private business owners with at least $10 million in net worth holds $46.7 trillion…. Most top-end wealth in the US does not sit with a few household names but with millions of business owners in towns and mid-size cities across the country…
And, indeed, at today’s Berkeley Economics Department faculty lunch, Danny Yagan, Jon Steinsson, and I fell into a discussion of Owen and Eric’s great new book. Thus it is on my mind.
My take: I have been waiting for someone to write this book for nearly five years, ever since I first read Patrick Wyman’s “American Gentry” piece back in the fall of 2020. This is the measured, quantified, administrative-data-backed portrait of who actually owns America, and it turns out that Patrick Wyman’s historian eyes, Yakima-born nose, and keen intuition had given him a truly key insight.
Wyman grew up in Yakima, Washington—“the self-proclaimed Palm Springs of Washington [State]”. It is a small-sized metro of ninety thousand souls sitting in a sea of orchards on the dry side of the Cascades. He noticed something about his hometown. That something is something that the standard American story about wealth and power simply does not see. The people who ran Yakima were not the international oligarchs of glass-walled penthouses and Hamptons compounds. Instead, they were the families who owned the fruit companies, the cold-storage units, the processing facilities, the commercial-construction firms that paved the roads on which the apples and cherries moved to market.
Their wealth ran into the millions and tens of millions, not the billions. And it derived—this is the crucial thing—not from their salaries but from their ownership of assets in the form of businesses that generated profits in the local economy:
Patrick Wyman: American Gentry: Local Power and the Social Order: This kind of elite’s wealth derives not from their salary—this is what separates them from even extremely prosperous members of the professional-managerial class, like doctors and lawyers—but from their ownership of assets. Those assets vary depending on where in the country we’re talking about; they could be a bunch of McDonald’s franchises in Jackson, Mississippi, a beef-processing plant in Lubbock, Texas, a construction company in Billings, Montana, commercial properties in Portland, Maine, or a car dealership in western North Carolina…
Yakima is a place I loved dearly… have returned to often… Most of my close classmates in high school… [live] in major metro areas… not our hometown…. The kinds of jobs they were now qualified for didn’t really exist in Yakima…. For a person lucky and accomplished enough to get one of those [few] reasonably affluent professional jobs, Yakima… isn’t a bad place to live…. But… a city… dominated by its wealthy, largely agricultural property-owning class… Commercial agriculture is a lucrative industry, at least for those who own the orchards, cold storage units, processing facilities, and the large businesses that cater to them. They have a trusted and reasonably well-paid cadre of managers and specialists…. There are an enormous number of organizations and institutions dedicated to advancing the interests of this gentry class…. The gentry class can and usually does wield significant power to shape society to their liking…
Wyman did the natural thing and reached for the category that fit. He called them the gentry, analogous to the post-feudal landlords of Britain in the commercial-society 1700s. And he insisted that the gentry are not an American peculiarity but a recurrent structural feature of hierarchical societies with property:
the local civic elites of the Roman Empire,
the landlords of late Han China,
the numerous lower nobility of late medieval France,
Anywhere you get hierarchy plus property, a gentry class precipitates out of the solution. They are, by definition, local élites: not resident in the political center, not holding the great offices of state, not counted among the very richest—but dominant, often crushingly so, in the places where most people actually live their lives.
OK. That is background: Now come Owen Zidar and Eric Zwick with the secret superpower of the economist: counting. The blurb for their book is:
Most people think the path to great wealth runs through Wall Street or Silicon Valley. We’re told you must be a Zuckerberg, a Musk, or a Jamie Dimon to get rich. But this story is wrong. Drawing on unprecedented data… and vivid real-life stories… from a self-made hot-dog stand billionaire to the heirs of an auto dealer… prosperity is more attainable, more widely distributed, and closer to home than we imagine. A multitude of Americans have built staggering fortunes by running often unglamorous businesses far from the spotlight. A quiet revolution in the business world―the rise of “pass-through” firms like S-corporations and partnerships―supercharged this wealth, channeling vast income directly to business owners rather than traditional corporations…
There are perhaps three million business owners outside of and two million households in tech and finance with at least five million dollars, and with a total aggregate wealth of $50 trillion, ten times that of the Forbes 400. Theirmoney does not sit quietly in a bank account. It is the valuation of control over largely local highly productive value chains. There is a lovely phrase for them: the “stealthy wealthy”. And it converts itself into cultural and especially political influence, for these Main Street Millionaires are embedded in the places where they live. They sit on the hospital board and in the chamber of commerce. They fund state legislators’ campaigns. They take the mayor to lunch. And they hire the lobbyist who quietly ensures that the licensing rules, the zoning, the tax carve-outs, and the regulatory moats stay right where they are.
This is Mancur Olson’s world of distributional coalitions, rendered in flesh: actors who are simultaneously creating real value—building the businesses, employing the workers, growing the economic pie—and bending the rules of the game to secure a larger and larger slice of it for themselves. Both things are true at once. The discomfort of holding them together is the whole point. The productive entrepreneur and the rent-seeking power broker are, very often, the same person.
What Zidar and Zwick have done is to shine a light on where this gentry class actually comes from, how it accumulated what it has, and how much it takes home. It is not a lottery ticket. It is not, primarily, an inheritance. It is the slow compounding of a profitable, boring, closely-held business over decades. It is the cumulative not-dribbled away returns to skill, to sweat, to local knowledge, and to a defensible market position solidified by local political influence. Read one way, this is bracingly optimistic: the American Dream. You do not need a Stanford CS degree or venture funding to end up rich. You need a good local business, patience, thrift to live within your means, and thirty mostly good years.
The paths to prosperity are more numerous, and more prosaic, than we are trained to think by the business press and by the sheer gravitational pull of celebrity. The archetypal rich person is not a founder-CEO with a stock ticker and an authorized biography. He is a local beer distributor holding a territorial franchise that is, in effect, a small monopoly. He is a commercial HVAC contractor whose trucks you pass on the highway without a second glance. He is a restaurateur with nine locations. Ownership of auto dealerships, waste-hauling routes, insurance brokerages. For every public-company CEO whose compensation package makes the papers, there are more than a thousand private business owners sitting on wealth that is genuinely transformational for their security and lifestyle.
Zidar and Zwick stress the tax story. The rise of the everywhere millionaires was supercharged by a specific institutional change: the migration of American business out of the C-corporation and into the “pass-through” form, the S-corporations and partnerships whose income flows directly to their owners rather than being taxed at the corporate level. Two dates anchor the transformation. In 1986, the Reagan tax reform brought the top personal rate down below the corporate rate, and suddenly it made sense to reorganize your business so that you never paid tax at the business level at all. Then in 2017 the Trump upper-income tax cut delivered the biggest business tax cut in U.S. history, including the twenty-percent deduction for pass-through income. The American gentry’s fortunes, in other words, are in substantial part, a policy artifact. tThe policy that made them keeps being renewed, because the gentry have the local and national political muscle to renew it.
The bottom line: Patrick Wyman’s five-year-old intuition understated the case.
I find this framing very compelling. And to change gears, it gave me insight into the problems of Red America.
One overwhelming factor should make revitalization of America’s left-behind places easy-peasy. Those rich blue-state blue-city core of America’s economy are simply not building at a sufficient rate. There are negative incentives for those without strong knowledge-economy chops to move to prosperous blue territory. Plus there are powerful incentives for those who have their work-professional social networks already in place to move out of the blue-city blue-state core into blueish-purple cities in red states, if not to depressed solid red left-behind areas, where their immense wealth would go even further. Thus it ought to take only a small amount of pushing to create self-sustaining growth poles in places classified as “left-behind”.
But that factor is overwhelmed by: Brain Drain, as talented individuals who leave for education and short-term job opportunities in larger cities do not come back; Political & Cultural Isolation, as politicians and opinion leaders who want to both serve the local gentry class and gain local mass support magnify the cultural alienness of richer, more urban parts of the country; Limited Access to Technology: with the digital divide a major obstacle; Educational Disparities, as education is not a priority for either the red-state or the local non-urban governments, and workforce development for the info-biotech world is nowhere; Infrastructure Challenges in America are everywhere, but the biggest gaps are in the non-urban parts of red-state America; Limited Entrepreneurship & Innovation; as proprietors being people who have it made, and who more fear than think they can take advantage of change; Dependency on Single Industries, which makes prosperity very vulnerable to the “destruction” part of Schumpeter, and, empirically, it is quite hard for even highly productive blue-collar workers in one industrial cluster to find a way to apply their skills and energy elsewhere in the economy; Economic Transition, as it is next to impossible to build up new economic sectors ex nihilo. (This is the big advantage of the Big City, where at least the germ of lots of other industries is always present nearby.) Healthcare Access, a problem squared by the blocking of reproductive health services in red states. In a quarter of America, today, god help you if you start to miscarry late in pregnancy, for the state will treat you like a criminal; Vice Signalling, so if you try to start a growing-sector business in a non Big CIty part of a red state, and lots of people around you will try to find some way to take you down with glee.
Behind much of these blockages is this: A gentry-dominated yuppie-hostile local power structure makes efforts at development especially hazardous. The effectiveness of investments is contingent on meticulous implementation. Misallocation of resources, bureaucratic inefficiencies, and lack of local engagement—those are all but guaranteed in a world in which the local gentry are very comfortable with things as they are. While the economic rationale for investing in left-behind communities is sound, the practical bureaucratic challenges are truly formidable. And the gentry do like it that way. I really do not see a way forward here—any more than there was a way forward for the U.S. south up until the 1960s.
Thus my tentative and gloomy conclusion: a gentry-dominated, yuppie-hostile local power structure makes economic revitalization not just difficult but positively hazardous. The people who own the third-biggest construction company in some red-state metro, or the seventeen McDonald’s franchises in eastern Tennessee, are people who—as I put it then—“have it made, and who more fear than think they can take advantage of change.” Their interest is in the perpetuation of the local order that made them, not in the creative destruction that might unmake them. And politicians who want to serve that gentry class while also winning mass support have every incentive to change the subject from the failures of local economic growth to the cultural alienness of the distant, richer, bluer city. J.D. Vance building a career by attacking the culture of Ohio’s own cities is the type specimen.
Now Zidar and Zwick are careful to hold two truths at once. On the one hand, the existence of our five million-strong gentry class is genuinely good news about the American Dream. If you thought the game was wholly rigged and that there was no path upward except through the credentialed knowledge economy, the data reject that view. On the other hand, more shots at multi-millionairedom is a good thing only if the resulting concentration of local power does not curdle. And in the Red States, boy does it curdle!
So the appreciation I want to register is this. Wyman gave us the eyes to see the gentry—the historian’s recognition that the man with seventeen McDonald’s franchises belongs to the same sociological species as the Anglo-Saxon thegn and the Prussian Junker. Zidar and Zwick have done is the indispensable third thing: they have counted the gentry, traced the plumbing of the tax code that inflated them, and put a fifty-trillion-dollar number on a class that had been hiding in plain sight behind the billionaires.
The energy behind the authoritarian turn in American politics is, on the conventional and probably accurate reading, the rage of the left-behind. But the people who organize and monetize that rage—who translate it into car-dealer-friendly zoning, into transit legislation quietly strangled, into a permanent pass-through deduction paid for by cuts to food stamps—are very often the local gentry, the everywhere millionaires, the stealthy wealthy. You cannot understand the politics of the places that don’t matter until you understand who owns them. Zidar and Zwick have now told us, with numbers. Buy the book. Read it against Wyman.
And then ask the hard questions, centered around this: In principle, revitalizing left-behind places should be easy: wealth stretches further there, and blue-state cores aren’t building fast enough. In practice, a gentry-dominated, yuppie-hostile local power structure makes development positively hazardous. The people who own the seventeen McDonald’s franchises fear the creative destruction that might unmake them, and the politicians serving them change the subject from local economic failure to the cultural alienness of the distant blue city—J.D. Vance being the type specimen. You cannot understand the politics of the places that don’t matter until you understand who owns them.
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Spreads on financing the datacenter buildout are still small enough not to seriously discourage it, but large enough to reveal that the financiers are getting nervous about a non-zero chance of a big-deal default on their loans:
Torsten Slok: Hyperscaler CDS Widening Is Not a Dealer Inventory Story <https://www.apollo.com/wealth/insights-news/insights/daily-spark/hyperscaler-cds-widening-is-not-a-dealer-inventory-story>: ‘The widening in hyperscaler CDS is not driven by dealer hedging of new issuance.If it were, bank CDS would be widening too, given that banks remain the single largest source of IG supply, and instead bank spreads have sat flat near 40 bps. What the market is repricing is hyperscaler credit fundamentals, namely a debt-financed AI capex cycle with rising leverage, negative free cash flow and uncertain payback on depreciating assets:
…
Brad DeLong here: One thing that might be going on here: The usual default math assumes debtors want to pay. But founder-controlled firms with a “you lent us too much” attitude introduce a strategic-default option that standard systems of ratings do not fully capture. Several of these issuers have exactly the kind of principals who would treat a contractual obligation as a negotiating position. At the moment the spreads are only 0.6%-point, still small change, especially in the context of DataCenter builders who are looking forward either to extraordinary wealth or to the protection of their current flow of platform-monopoly profits. These spreads are not doing much to discourage the boom. But they do show that market opinion is nervous. And when market opinion is nervous, it might turn and collapse the boom at any moment.
The depreciation schedules on AI hardware are the potential jokers in the deck. If the useful life of an NVIDIA H100-vintage cluster turns out to really be three years rather than six, the capex cycle’s economics invert, and the leverage that looked prudent looks reckless.
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Equity investors sell the dream; bond investors price the funeral. Here’s what they’re charging those undertaking the now debt-financed DataCenter rush:
Everyone’s watching Nvidia’s stock. But there is also honest signal in credit spreads — where the price of bearing lower-tail risk tells you exactly how nervous the smart or at least the willing-to-lend money is.
The bond market contains people who don’t care much about the upper tail of the boom, but want to price the bust scenarios appropriately. It is thus an aggregator of what people willing to pay to bear lower-tail risk are in fact thinking about what that lower-tail bust risk is.
Three short sentences from the Supreme Court, and a lot to say about such a very cryptic short utterance. Steve Vladeck unpacks what the Supreme Court said by barely saying anything. The real content of the Supreme Court’s three-sentence decision is a warning to lower courts that Trump is going to lose his USPS ballot suppression case in the end, and a reminder of how corrupt and lawless Alito and Thomas have long been:
As I understand things, having the United States Post Office hobble mail-in voting would not “help” Republicans, at least not in the forthcoming election. Largely urban Democratic voters planning to vote by mail whose plans would be disrupted by the USPS’s throwing their ballots away are easier for the Democratic Party to reach and help than the Republican Party can find and help the largely rural and older Republican voters planning to vote by mail. And each voter disenfranchised weakens our democracy, and is bad for everyone, at least if you are not in the business of burn-it-all-down. (Which, I do understand, much of the Republican Party base these days really is.)
Thus Trump and the Trumpists spending so much time on this advances one and only one of their goals: to falsely keep convincing their base that elections are illegitimate because the Democrats keep finding ways to cheat by counting the ballots of illegal immigrants. That is one of their core goals, yes: to undermine the legitimacy of Democrats by every means necessary. And we should not minimize that. But, still, it does seem to be a strategic choice that only a chaos-monkey would make.
Steve Vladeck is my go-to guy for these things. With respect to the Trumpists’ attempts to get the USPS to throw away valid mail-in ballots, he says:
The six-justice (probably; we don’t really know for sure) solid majority wrote a cryptic order (a) denying the Trump administration’s ask for permission for the USPS to throw away ballots in this election, (b) signaling that the government is unlikely to win this case in the end, thus (c) putting a heavy thumb on the scale against the USPS rule for the lower courts who will now hear the case in full.
That merits signal, more than the bare denial itself, is the ruling’s real content.
He is, I think, right: this is not just a procedural but a merits judgment. The majority is telling lower courts that if they rule for Trump in this or other cases like this they will be reversed in the end. That is the biggest deal here. But I have to note that such cryptic signalling is a hell of a way to run a railroad, and shows what a despicable state of affairs we are in with respect to the center, not the crazypants right wing, of this corrupt Supreme Court.
Fifteen justices the next time the Democrats can would be very good.
Vladeck says Kavanauh has a “novel” procedural reframing that “may open a new doctrinal door”, moving the frame from fuzzy equitable vibe-judging to easier to grasp procedural grounds.
In my view, this is law-professor sanewashing here. Kavanaugh does not want to say that Trump is gonna lose, would have to if he were doctrinally consistent with himself, and so invents a new rule.
Alito and Thomas really are crazypants: detached from reality and proud of it.
In refusing to put the USPS mail-in ballots rule into effect, the majority didn’t say very much. I still think there are (at least) three important lessons in the Monday night ruling.
By now, you’ve probably seen the headlines—that the Supreme Court on Monday night denied the Trump administration’s application for a stay in U.S. Postal Service v. California, thereby leaving intact district court injunctions that will effectively prevent the federal government from implementing a new USPS rule respecting mail-in ballots in time for this November’s elections.
Without question, this is a very big decision (and a big loss for President Trump). It’s also not an especially surprising ruling, even for this Court. As my Georgetown colleague Marty Lederman documented in multipleblog posts, and as a really excellent amicus brief by Professors Rick Hasen, Ed Foley, Pam Karlan, and Doug Laycock demonstrated in detail, the government had (and made) both an exceptionally weak case on the merits and an even weaker case on the “equities” of emergency relief—even relative to other emergency applications that, in my view, should also have been denied. And although the Court wrote only three sentences (sigh), two of those sentences signaled the majority’s agreement on both of those points: “The Government is unlikely to succeed on the merits of its challenge to the District Court’s preliminary injunction. And the equitable factors applicable for obtaining emergency relief from this Court do not favor a stay.” Just to say it out loud, those are two independently fatal obstacles to relief.
But despite the (unfortunate) brevity of the Court’s order, I wanted to write a quick post about the decision because I think we still learned at least three important lessons from the nine pages the justices handed down last night—one about the majority; one about Justice Kavanaugh (who wrote a one-paragraph concurrence); and one about Justices Thomas and Alito (who filed an eight-page dissent penned by Alito).
What We Learned from the Majority
A lot of media outlets reported the ruling as 7-2. As ever, I think that’s a mistake—not because it’s necessarily wrong, but because it isn’t necessarily right. It seems to me that we only know three things for a fact: First, Justices Thomas and Alito were publicly in dissent. Second, Justice Kavanaugh was publicly in the majority. And third, at least five other justices were also in the majority (because of the daylight between the majority’s cryptic sentence on the merits and what Justice Kavanaugh wrote in his concurrence, about which more shortly). Math being math, that leaves the possibility that a third justice voted for the stay internally, but chose not to make their views public—that it was 6-3, not 7-2. We won’t know (for a long time) if this happened, and it’s almost certainly a distinction without a meaningful difference in the interim. But as with so many things about the Court’s emergency docket, it’s important to distinguish between what we know and what we think.
To me, the more significant math point here is that there’s no way it was 5-4. And so despite Justice Kavanaugh’s (surprising) support for the USPS’s authority here, my own read of the cryptic order is that five other justices publicly signaled that they do not believe the government will ultimately succeed in challenging Judge Talwani’s injunction. If that was all the Court had written, it would be possible to interpret that as a point about the equities—that five justices believed the government would never be able to displace preliminaryrelief in this case (which, again, would make sense given the imbalance of the equities here, and would not necessarily be expressing a view on the validity of the USPS rule).
But given that the Court added a separate sentence about the equities, it sure seems to me that a majority of the Court wanted to signal something bigger—that the government isn’t going to win this case, because it’s unlikely five justices will ultimately vote to sustain the USPS rule even “on the merits.” If so, that’s a really important message not just to the Trump administration, but to lower courts. Unlike the Missouri redistricting dispute from last week, this case surely will go forward. And for better or worse (and my own view is the former), five justices other than Justice Kavanaugh have now put a pretty heavy thumb on the scale against the government on the merits.
What We Learned from Justice Kavanaugh’s Concurrence
Justice Kavanaugh, once again to his credit (I’ve been consistent about this), wrote separately to explain his position. Taking out his citations, here’s what he said:
In my view, based on the briefing the Court has received at this interim stage, there is at least a fair prospect that the final rule falls within the Postal Service’s statutory authority. But applying the rule in the 2026 elections would be arbitrary and capricious in violation of the Administrative Procedure Act because state and local election officials do not have sufficient time to reasonably implement the rule before the elections. For that reason, I concur in the denial of the application for stay.
Again, there’s a lot going on in three short sentences. The first sentence sure reads like a response to the majority—that, unlike his five (or six) colleagues who also voted to deny the stay, he thinks the USPS may win on the ultimate merits of the validity of the rule. If this is a response to the majority, then I think it only reinforces the reading that the majority was suggesting exactly the opposite. For what it’s worth, I think he’s completely wrong on the merits. But the fact that he felt impelled to make that point is at least decent evidence that the majority thinks so, too.
The second sentence is what I find most striking. I would’ve thought that the fact that “state and local election officials do not have sufficient time to reasonably implement the rule before the elections” is an argument about the equities—that, even if the government is likely to ultimately prevail, the harms and chaos from rushing the rule into effect are reason enough to keep the rule paused through November. But Justice Kavanaugh frames it as a procedural APA violation instead. That matters in at least two respects.
First, Kavanaugh may be avoiding the equities because otherwise he’d have to explain why Purcell doesn’t push in exactly the opposite direction—since he has so often deployed that “principle” to keep federal courts from doing exactly what Judge Talwani did here, i.e., blocking an eleventh-hour legislative/executive change to voting rules. Second, and Purcell aside, this approach seems to open the door to other challenges to late-breaking federal changes to election procedures on procedural APA grounds—where the argument is that the change is procedurally unlawful because it is so late in the game. At least off the cuff, that seems like an interesting way to convert the malleability of equities balancing in election cases into more objective procedural harms, at least when the federal government is the defendant. But smarter folks than me will need to think about how that can and would work in practice.
What We Learned from Justice Alito’s Dissent
And then there’s the dissent.
I have been quite critical before of many of Justice Alito’s separate opinions on the emergency docket. He has a tendency to take liberties with the facts (or procedural posture); to make brazen claims without substantiation; and to insinuate unclean hands on the part of lower courts, litigants, and/or his colleagues in the majority without doing the work of proving it. Well, all of those tendencies were on display in these eight pages, along with a rather stunning disregard for the interests of eligible voters in having their lawfully cast votes counted. Indeed, to the concern that the rule would disenfranchise millions of voters, Alito’s only response was that “I take that problem very seriously, but it is not enough to convince me to deny the application.”
Why not? Alito offered two reasons, and they’re both remarkably tendentious.
First, Alito wrote that “the States disagree about the nature of these effects. Twelve States supported the rule below and asserted that compliance at this time is practicable.” As Professor Derek Muller explains in a lengthy post over at Election Law Blog, this is (1) a remarkable tense-change to muddy what twelve red states actually argued below; and (2) a non-sequitur given that the ability to comply with the rule is radically different from whether that compliance will lead to massive disenfranchisement of eligible voters.
Second, and worse, Alito wrote that “the plaintiff States and the courts bear a substantial share of the blame for the rule’s timing.” As the Brits would say, this is utter bollocks. Alito tried to spin the plaintiffs’ litigation behavior and the district court’s rulings as preventing the government from moving forward in putting out the USPS rule, but that’s just not a fair summary of the record. As Rick Hasen pointed out last night, “the district court allowed USPS to keep working on its rule and its (still nonexistent) portal for voluntary use by states.” Indeed, the fact that the USPS issued the rule the Supreme Court refused to unblock last night while the executive order was still enjoined should be all of the proof anyone needs that Alito is wrong to insinuate otherwise, to say nothing of the government’s inability to get the critical electronic portal online before voters started … voting. (For all of the ugly shots folks on the right have taken at Judge Talwani, the denial of a stay is a pretty significant vindication of her rulings in these cases.)
Alito also blamed his colleagues, noting that “this Court spent from late July to the end of August drafting nearly 40 pages of opinions, including two dissents, despite the Government’s public notice that it would not publish a final rule while subject to the injunctions, and its representation that it had a strong interest in issuing its rule in early- to mid-August to allow time to implement it.” As Alito concluded (read this sentence carefully), “The plaintiff States cannot claim the timing of the rule tilts the equities in their favor when they, and courts hearing their claims, are responsible for so much of the delay.”
Of course, it is ludicrous to blame plaintiffs for delays Alito attributes to courts. It’s even more ludicrous to do so when the Supreme Court’s own prior ruling in this case (which Alito almost certainly joined) asserted that the earlier injunctions had to be stayed because the plaintiffs’ suits were filed too early. And it’s tendentious to the extreme to claim that the point that putatively “tilts the equities in [plaintiffs’] favor” is the timing of the USPS rule, not the massive disenfranchisement that neither the government nor Alito ever publicly disputed would occur were it to go into effect. It may not surprise anyone that this is where Alito and Thomas are. But it’s striking to see it captured in writing so plainly and unmistakably.
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In the end, it’s heartening that only two justices were willing to say these things out loud. And it’s even more heartening that a majority of the Court was unwilling to abide President Trump’s transparent effort to make it harder for a large number of lawfully registered voters to actually cast their ballots in the 2026 general election. But it continues to be deeply sobering that it came to all of this in the first place.
Brad DeLong here: The important thing is, I think, just how crazypants cynical corrupt liars Alito and Thomas are: they lie, and lie about lying, and lie about lying about lying. And are confident no one and nothing can ever touch them. Vladeck, again, has law-professor understatement here:
Well, all of those tendencies were on display in these eight pages, along with a rather stunning disregard for the interests of eligible voters in having their lawfully cast votes counted…. To the concern that the rule would disenfranchise millions of voters, Alito’s only response was that “I take that problem very seriously, but it is not enough to convince me to deny the application.” Why not? Alito offered two reasons, and they’re both remarkably tendentious [that is, HE TELLS MORE LIES]….
Alito[’s claim]… “twelve States… asserted that compliance at this time is practicable”… [is] a remarkable tense-change [that is, HE TELLS MORE LIES] to muddy what twelve red states actually argued… and… a non-sequitur… [because] comply[ing] with the rule is radically different from whether that compliance will lead to massive disenfranchisement….
Second, and worse, Alito wrote that “the plaintiff States and the courts bear a substantial share of the blame for the rule’s timing.” As the Brits would say, this is utter bollocks [that is, HE TELLS MORE LIES]…. Alito also blamed his colleagues…. [And] Alito concluded (read this sentence carefully), “The plaintiff States cannot claim the timing of the rule tilts the equities in their favor when they, and courts hearing their claims, are responsible for so much of the delay.”
Of course, it is ludicrous to blame plaintiffs for delays Alito attributes to courts. It’s even more ludicrous to do so when the Supreme Court’s own prior ruling in this case (which Alito almost certainly joined) asserted that… the plaintiffs’ suits were filed too early. And it’s tendentious to the extreme to claim that the point that putatively “tilts the equities in [plaintiffs’] favor” is the timing of the USPS rule, not the massive disenfranchisement that neither the government nor Alito ever publicly disputed would occur….
It may not surprise anyone that this is where Alito and Thomas are. But it’s striking to see it captured in writing so plainly and unmistakably. In the end, it’s heartening that only two justices were willing to say these things out loud…
No. It is not at all heartening that there are two justices willing to say these things out loud. Not at all heartening. And that Roberts has not lifted a finger to rein in Alito and Thomas tells us a lot about who he is as well.
Fifteen justices would be good. And if that leads to a partisan race whereby in two decades we have 150 justices? That has been baked in the cake since the Democratic majorities of 2009 refused to impose sanctions on the Supreme Court for its lawless Bush v. Gore decision, and it is delaying those sanctions that has emboldened the Roberts Court to become so corrupt and lawless.
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