“Be assured, my young friend, that there is a great deal of ruin in a nation.” — Adam Smith

The U.S. and the UK have one of the longest and most important relationships in all of history. The UK is America’s parent civilization, and even after the two diverged and had a period of rivalry, they came back together to more or less jointly craft the entire modern age. In terms of science, philosophy, government, and every other realm, the Anglo-American alliance was more than an alliance — it was a joint civilizational project.1

That also means that the U.S. and UK are able to learn from each other’s mistakes. This is often a painful and fraught process, because it involves quite a lot of cross-Atlantic shouting and insults. If you bring up the UK’s flaws on social media, you’re going to get an earful about how America elected Trump, Americans have no health care, American kids are constantly dodging bullets, and so on, so Americans have no room to talk. This is unhelpful, but inevitable. It’s a defensive reaction by left-leaning British intellectuals and elites who are occupied with their own internal policy and culture-war battles with other British people. Any criticism from an American is seen as giving free ammunition to the local enemy, so the natural impulse is to screech “Shut up, Yank!!”.

But the Yanks must not shut up. Whether or not the Brits need our advice, we need to have our own internal discussion about what’s going on over in the UK and how we can use it to inform our own choices. And although there are still a few things to admire across the pond, the UK mostly now functions as a cautionary tale for the U.S. — yes, despite Trump, and guns, and high health care costs.

Whether you think the UK has been falling behind America economically for a decade or for two decades depends on which set of prices you use to measure living standards. If you use the two countries’ national price indices, the UK has been growing slower than the U.S. since the financial crisis of 2008; if you use PPP prices, as Paul Krugman prefers, the UK’s relative stagnation has come only since Brexit in 2016:

That controversy leaves an important question unanswered — whether 2008 or Brexit was ultimately more damaging to British growth. But it also obscures an even more important fact, which is that by any of these measures, the UK is much poorer than the United States:

A data point that gets thrown around a lot is that the UK is as poor as Mississippi. In GDP (PPP) terms, that’s true — Mississippi’s income per capita is about $56,000, roughly similar to the UK. That doesn’t mean life is equally as good in the two countries — Mississippi is more violent and less healthy than Britain. But unless you think that Britain had to sacrifice a significant portion of its material wealth in order to be safer and healthier, this is a bit beside the point. France and Germany, which are just as safe and healthy as the UK (if not more so), also have significantly higher incomes. This is from a Resolution Foundation report:

Middle-income Brits are now 20 per cent poorer than their peers in Germany and 9 per cent poorer than those in France. Worse, low-income households in the UK are now around 27 per cent poorer than their French and German counterparts. It’s important to comprehend just how material these gaps are: the living standards of the lowest-income households in the UK are £4,300 lower than their French equivalents.

A very deep principle in economics is that if two countries are roughly equivalent in terms of their basic institutions, they ought to converge to similar income levels. The fact that the UK and the U.S. have diverged rather than converged suggests that the former must have some institutional weaknesses relative to the latter. And that implies that there are cautionary tales here for America.

What are those cautionary tales? There are a number of good breakdowns of the UK’s problems, and you can learn a lot from observing the overlaps and disagreements between them. Ben Southwood, Samuel Hughes, and Sam Bowman have a long piece called “Foundations”, which basically makes a libertarian YIMBY argument; they claim the UK is over-regulated and can’t build housing, infrastructure, or really anything else. Jim Tomlinson has a rebuttal in which he argues that the real barrier to investment is the financialization of the UK economy. Ben Ansell argues that the UK is in a version of the “high-level equilibrium trap” — the UK is still fairly wealthy, so its politics center around how to divide up the pie rather than growing it. The Resolution Foundation’s report has lots of suggestions for how to get Britain growing again. Michelle Kilfoyle also has some recommendations. These are only a few examples.

But my favorite rundown is probably the recent Atlantic article by Idrees Kahloon. The article points out that it isn’t just private industry that’s broken in the UK; it’s also the effectiveness of the government institutions that many British people cherish. This includes the fabled National Health Service. Kahloon writes:

Taxation is at the highest level since World War II, yet public services have deteriorated. The National Health Service, the celebrated pillar of the British cradle-to-grave welfare state, has a backlog of 6 million patients—almost a tenth of the population—waiting for treatment. The health service now has to spend more money settling maternity-malpractice claims than it does on actually providing maternity care. Many Brits can neither obtain an appointment with a publicly funded dentist nor afford a private one; in a 2023 survey, one in 10 reported doing DIY dental work, in extreme cases extracting their own teeth or gluing broken crowns back together…

Incomes can be shockingly low: Junior doctors recently went on strike for the 15th time in three years over their salaries, which start at just £38,800; the median salary for British civil servants is £35,680…

Recent plans to transform the country['s transportation system] have rested in no small part on High Speed 2, a superfast rail line intended to connect London with Birmingham, Leeds, and Manchester. But since HS2 was proposed, in 2009, its costs have tripled, to more than £100 billion. It is the most expensive rail line in the world. (A special structure to protect a rare bat species near the rail line in Buckinghamshire required 8,000 permits and was built at a cost of £216 million.) The most important sections of the proposed route have been lopped off. The rump line—going from Birmingham, Britain’s second-largest city, to not-quite-central London—may be finished by 2040…

Building infrastructure, or much of anything else, has become all but impossible in the United Kingdom. In addition to having the world’s most expensive (not yet built) train line, Britain also hosts the world’s most expensive (not yet built) nuclear-power plant, Hinkley Point C. Its environmental-impact assessment ran 31,401 pages; the plant will feature a £700 million “fish disco,” which will pulse sounds underwater to deter animals from its intake pipes. The government spent 32 years and £179 million planning a tunnel beneath Stonehenge to relieve traffic, only to officially scrap the plan this year. Even basic tasks, such as obtaining power, can be nightmarish…

Britain suffers from a housing crisis significantly worse than America’s. The problem cannot even be blamed on zoning, because Britain does not have a zoning regime to speak of. Rather, every attempt to build is a painful, ad hoc negotiation with local government councils and NIMBY residents. As a result, housing costs per square foot are among the highest in Europe. In the words of one report, “Our housing stock offers the worst value for money of any advanced economy.” France has roughly the same population as the U.K., but almost 50 percent more homes. And yet, since the financial crisis, the U.K.’s rate of housing production has only fallen…In London, the typical house sold in 2024 cost 11 times median earnings.

One of the key lessons here appears to be that NIMBYism kills the economy by a thousand small cuts. But Americans already know this. Kahloon’s description of Britain’s struggle to build high speed rail sounds uncomfortably like California’s story. And the housing story is also very similar to America’s. Most of the other analyses I listed above identify NIMBY-driven housing scarcity as one of the key factors holding back growth in the UK, and recommend various different strategies to address it.

I’m not sure the U.S. has a lot to learn from those various proposals, since they’re highly specific to the UK’s institutional context. But the overall lessons here are worth reiterating: Approval policies full of veto points and cumbersome procedures are a drag on the economy, local control can easily go too far, good infrastructure is often a matter of low-cost efficiency rather than pure willingness to pay, and so on. Americans have a severe NIMBY problem, but they can look over at the UK as a cautionary tale of how bad things will get if the NIMBY problem is allowed to fester.

Another lesson that Americans have already learned is the peril of excessive financialization of the economy. Almost everyone agrees that the UK economy is excessively concentrated in London. John Burn-Murdoch writes:

It will surprise nobody that London accounts for an outsized share of Britain’s output, but the magnitude of the UK’s economic monopolarity is remarkable. Removing London’s output and headcount would shave 14 per cent off British living standards, precisely enough to slip behind the last of the US states. Britain in the aggregate may not be as poor as Mississippi, but absent its outlier capital it would be.

Not only does this mean that the fruits of the UK economy are inequitably distributed — requiring a constant stream of politically difficult transfers to keep other regions afloat — but it also means that NIMBYism bites much harder than it otherwise would, because pricing people out of London means pricing them out of participation in one of the few healthy parts of Britain’s economy, and because pricing people out of highly productive cities hurts productivity.

And part of the reason the UK’s economy clusters in London is finance. As Reuters reports, the UK economy specializes in finance:

The United Kingdom is unusually dependent on finance. Financial services account for about 12% of economic output, opens new tab, compared with around 7% in the United States. Much of that activity emanates from London. The City is the world’s second-largest asset management hub, the leading venue for foreign exchange trading, and the number one location for over-the-counter derivatives.

Finance is an industry with an especially strong clustering effect; almost every country has just one city that’s the “financial capital” — NYC in the U.S., Tokyo in Japan, etc. But in an economy as financialized as Britain’s, the financial capital is the center of the entire economy, probably to an unhealthy degree.

Another obvious downside of financialization is that specialization in a single tentpole industry made the UK economy unusually vulnerable to a crash in that industry. The financial crisis of 2008, and the follow-on Euro Crisis in the years afterward, dealt a heavy blow to the UK finance industry — and, thus, to the UK economy. Whether you think Britain’s GDP stagnation truly began in 2008 or 2016, it’s inarguable that real wages stagnated and fell for years after 2008. Compare average weekly earnings in the UK to those in the U.S., and the difference is crystal clear:2

Whether financialization has other drawbacks — excessive corporate short-termism causing lack of investment and deindustrialization, financialization of housing development causing shortages, etc. — isn’t clear. But just these two negative effects — the UK economy’s hyper-concentration in London, and its vulnerability to single-sector shocks — provide a cautionary tale about letting an economy rely too much on the finance industry.

Again, this is a lesson that Americans already learned, at least partially, after 2008 (though thankfully, the lesson was somewhat less painful for us than for the Brits). But one lesson from 2008 that the U.S. should pay attention to is that fiscal austerity, if done too abruptly and carelessly, can leave long-term scars on an economy. Kahloon writes:

[T]he government’s actions during and after the [2008] crisis compounded the damage. Rather than increase spending to revive depressed demand, as modern Keynesians would counsel, the government…opted to slash budgets as revenue plunged…

Funding for day-to-day NHS operations was maintained, for instance, but only by cannibalizing the capital budget. A 2024 government report found that, as a result of austerity, Britain has “crumbling buildings, mental health patients being accommodated in Victoria-era cells infested with vermin with 17 men sharing two showers, and parts of the NHS operating in decrepit portacabins.”…

After austerity cuts to welfare benefits took effect, the share of children who grew up in long-term poverty, meaning half their childhood or more, shot up from about 14 percent to 23 percent. Nutrition appeared to suffer, and doctors reported increased cases of diseases stemming from vitamin deficiencies, such as rickets and scurvy.

The U.S. needs to hear this lesson. Our debt problem is becoming unsustainable:

We’re going to need to do fiscal austerity, but it’s important that we do it gradually, by restraining the growth of spending (and raising taxes), rather than by abruptly slashing government services and public works.

Kahloon’s example of the NHS actually demonstrates another lesson — the UK’s strategy of providing health care is probably uniquely flawed. In most advanced countries, the government provides universal health insurance; the government pays part of the cost of health care, but it doesn’t actually provide the care directly. The UK government, in contrast, provides health care directly to its people as a state-owned enterprise.

Britain’s NHS helps control costs in the short term; the system is cheaper than those of other rich countries, for roughly similar outcomes. But in the long term, it makes the UK’s health system subject to the whims and vagaries of politics. After the 2008 crisis, the UK disinvested severely from health care because of fiscal austerity policy, while other countries continued to do the necessary capital spending to maintain future services. This is a big part of the reason why the NHS system is now widely seen as falling apart.

The U.S. is vanishingly unlikely to switch to nationalized, state-run health care provision — at the very most, we’ll get a system of national insurance, like most other rich countries have. But watching the degradation of the NHS should remind us of why direct government provision of necessary services is so dangerous. It’s not necessarily that government is inherently inefficient; it’s that it’s inherently political. UK-style austerity is one reason government can starve its own enterprises of capital spending, but it’s not the only one — under Hugo Chavez, Veneuzela’s government starved its own state-owned oil company of capital investment in order to deliver a bonanza of government largesse, with predictably disastrous results. We should remember this when socialists like Zohran Mamdani promise to run essential services through the government.

One key lesson that all the analyses of Britain’s troubles seem to already have internalized, but which the U.S. needs to pay attention to, is that maintaining overseas markets is very important. Whether 2008 caused a long-term economic slowdown or not, 2016 definitely seems to have done so. Brexit is the huge, looming shadow that hangs over everything that has happened to the UK economy over the past decade.

Bloom et al. (2025) study the growth impact of Brexit, looking at both macro data and micro data. For the macro, they assume Brexit was an unanticipated shock, and compare the UK to other countries. For the micro, they look at how various British businesses fare after Brexit, according to how dependent they were on the EU before the big surprise breakup. Both estimates agree that Brexit was a negative shock:

[B]y the end of 2025 Brexit had reduced UK GDP by 6% to 8%, with the impact accumulating steadily over time. We estimate that investment was reduced by 12% to 13%, employment by 3% to 4% and productivity by 3% to 4%. These negative impacts reflect a combination of elevated uncertainty, reduced demand, diverted management time, and increased misallocation of resources from a protracted Brexit process.

Other studies agree.

The U.S. should look at Britain’s experience and remember that international markets matter. The pre-Brexit UK was a more internationalized economy than the pre-Trump U.S. — exports are over 30% of UK GDP, compared to only 11% in the U.S. But that seemingly small stream of exports revenues supports a lot of more local industries, through the magic of local multiplier effects. If Trump and his successors disrupt those markets by starting pointless trade wars with allies and friendly countries, the results won’t be quite as bad as in the UK, but they won’t be good.

A final lesson that the UK’s failures can teach the U.S. is that energy supply is very important. Most analyses tend to gloss over the chronic energy scarcity that has afflicted the UK in recent years. “Foundations”, however, puts this squarely in the limelight:

High energy costs help make British industry uncompetitive, increasing the country’s reliance on finance. They also directly impoverish the British people, who are forced to make do with much lower energy consumption than people in other rich countries. Here’s electricity generation per capita:

Energy is one very easily identifiable, tangible dimension in which British people are much poorer than Americans.

The Economist ties Britain’s energy scarcity to its overly rapid and haphazard push for decarbonization; having banned coal, and with natural gas now extremely expensive due to the Ukraine war, the UK has been forced to rely on hideously expensive offshore wind power.

The U.S. doesn’t have this exact problem. Because the U.S. has much more land and much more sunlight than the UK, we can use solar power (with batteries), which is much cheaper than offshore wind and are getting cheaper all the time:

But the general lesson remains — there is no such thing as a low-energy rich country. The MAGA movement’s irrational opposition to solar power is even more foolish than Britain’s haphazard push to ban coal.

So to sum up, the UK’s sad experience with economic stagnation offers several important lessons for America:

• NIMBYism is very bad

• Excessive reliance on the finance industry is dangerous for many reasons

• Abrupt, poorly-designed fiscal austerity can do long-term damage to an economy

• Direct government provision of essential services is easily politicized

• Cutting a country off from its export markets is very bad

• Energy abundance is important for both industry and living standards

Overall, the UK should serve as a reminder that economic growth is very important, and countries turn away from growth at their peril. The UK, caught up in endless political turmoil and culture wars, has forgotten the overriding importance of growth for national happiness and well-being. The U.S., facing its own political chaos and culture wars, should try very hard not to make the same mistake.

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A month ago I wrote a post reflecting on whether my blog output is as relevant as it used to be:

My basic concern is that the U.S. has entered a political era in which reasoned assessment of the evidence, concern for the common good, and deliberation among intellectuals has relatively little effect on policy. When populism, tribalism, and social media shouting rule the nation’s politics, who’s even listening to someone like me?

In fact, I think it’s not that bad. Consider the 21st Century ROAD to Housing Act, which just became law after passing the House and Senate with overwhelming bipartisan majorities, despite Trump’s refusal to sign it. The main provisions of the new law read like a YIMBY’s dream:

• Expedited and simplified environmental review for housing projects

• More federal money for places that build more housing, less money for places that build less

• Some deregulation of prefab home construction and housing finance

Given the very limited powers that the U.S. federal government has over housing in this country, this is a huge win. These are policies I’ve been advocating for years.

Notably, the bill also contains one unhelpful “slopulist” provision: restrictions on the ability of corporate landlords to buy single-family homes. This measure was based on the myth that corporate investors, especially private equity firms, are responsible for the American housing crisis. Would-be populists across the political spectrum, from Elizabeth Warren to Donald Trump, profess to believe in this myth, but it’s just not true — corporate landlords are only a tiny sliver of the housing market, and there’s some evidence that they actually reduce rents, especially for low-income tenants.

But because corporate landlords are such a small part of the market, restrictions on their activity are unlikely to have any measurable effect on housing prices nationwide. And the final bill included so many carve-outs — for example, corporations that build housing in order to rent it out are excluded from the restrictions — that its negative impact will probably be very muted.

In other words, we just saw Congress — that dysfunctional institution that everyone hates — take action on an important issue in a very reasonable and bipartisan way. It’s a validation of Matt Yglesias’ “Secret Congress” theory — the idea that our legislators mostly just want to do what’s good for the country, but are prevented from doing so by the partisan anger of their electorates. According to this theory, the way to get good laws passed is to have them remain low-profile, so they don’t arouse the nation’s compulsion to turn everything into a zero-sum politicized food fight.

In other words, there’s still some scope for reasonable individuals and intelligent discourse to make an impact on American policy. But this scope is very limited, because “Secret Congress” has to remain secret — dedicated public servants can tinker around the edges, but can’t enact the kind of bold, sweeping policy program that FDR and Reagan (and to a lesser degree, Obama) were able to carry out.

The problem is not a lack of good ideas, or a lack of tools for evaluating those ideas. The problem is America’s political economy.

Roughly speaking, we have three major political movements — the MAGA right, the socialist left, and the “woke” left. But none of these seems especially interested in the kind of smart, reasonable policies that would significantly improve the material well-being of regular Americans. Their economic programs are all pretty bad. And even if they could be persuaded to support smarter policies, the conflict between the movements will preoccupy them, keeping them focused on culture-war issues.

I’m not really a political blogger, but an understanding of my country’s political economy seems essential if I want to be a useful intellectual. So I thought I’d give a brief rundown of how I think about the U.S. political situation, and why I think the outlook for a big, constructive policy push is so bleak. I’ll start with a historical analogy.

The Spanish Civil War analogy

Back in 2016, I read a bunch of books on the Spanish Civil War of 1936-1939. I immediately saw strong similarities between that conflict and America’s worsening political troubles. In the years since, as America suffered nationwide riots, a coup attempt, military purges, accusations of election theft, and increasingly authoritarian politics, I’ve continued to invoke the analogy, and I’ve been surprised at how helpful it’s been.

To be clear, I don’t think the U.S. is going to have an actual civil war. The military would have to fragment and fight itself, as it did in Spain, and I think this is unlikely. But Americans regularly use the language of civil war (or “cold civil war”) to define their current political conflicts, and fear of an actual civil war is widespread. The analogy doesn’t have to be perfect.

Here’s a very brief two-paragraph synopsis of the Spanish Civil War. Basically, Spain in the 1930s was riven by deep, long-standing, intractable class conflict (which also sometimes manifested as religious conflict between socialists and the Catholic Church). After the country became a democracy in 1931, it see-sawed between left-wing and right-wing governments, with major street clashes between rightists and leftists. In 1934, a bunch of leftist miners staged a giant strike to protest the admission of some rightists to the government, took over a province of Spain, then tried to turn the strike into a revolution.

The army crushed the revolt, but it led a bunch of right-wing types to panic that if they ever lost another election, there would be a leftist revolution. So in 1936, when a center-left coalition won an election, rightists tried to stage a coup and overthrow the republic. They failed at first, but they captured part of the country. Over the next three years, having already won more of the population and (crucially) the military to their side, they slowly ground down and conquered what remained of the republic. Although both sides were composed of various ideological factions, the rightist (“nationalist”) factions all united around the authority figure of Francisco Franco, while the leftist factions fought each other behind the lines. Both sides committed substantial atrocities, though the nationalists generally committed more.

If you want to read more about the war, I suggest:

• Antony Beevor’s The Battle for Spain

• Paul Preston’s The Spanish Civil War

• George Orwell’s Homage to Catalonia

So how do I see the Spanish Civil War as analogous to America’s current political troubles? Basically:

• A long-standing, intractable social conflict flared into a brief moment of mass revolutionary fervor

• That almost-revolution panicked various factions of the right, scaring them into uniting behind a radical, authoritarian program

• The most revolutionary factions of the left (the anarchists) were eventually muscled out and dominated by the most disciplined faction (the communists), who then proceeded to lose the war

• The rightists had no idea how to govern the country after their victory, embracing policies that kept Spain poor for decades

The most important analogy is that although the Spanish Civil War featured a number of different factions, none of the factions had a workable program for governing the country. Spain was basically screwed no matter who it went with, but people still fought very hard for one faction or another, out of a combination of fear, ideology, and opportunism.

So let me explain how I think this analogy fits America’s current situation, and why it makes me so pessimistic about governing the country.

The long shadow of 1934 and the long shadow of 2020

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My elderly rabbit Giggles has unfortunately been quite sick the past two days (he’s recovering now), so I haven’t had as much time to write. Instead I thought I would repost a book review I did two years ago. I’ll be back with more original content tomorrow!

In my post yesterday about the “We Must Act Now” statement, I noted that Daron Acemoglu successfully got the writers to alter some key language in exchange for his signature — most likely, adding the “steering” idea that I took issue with. Technological “steering” is the central policy recommendation of Acemoglu’s 2023 book Power and Progress, with Simon Johnson.

As it happens, I wrote a review of Power and Progress, back in 2024. In fact, it was by far the longest book review I’ve ever written.1 I actually read the book cover to cover in detail, marking passages and looking up sources as I went; this took a very long time, and it was very frustrating, since I had serious objections to nearly every part of the book. I took out that frustration by writing a very long and highly critical review.2

So anyway, here’s that review for you to enjoy. Hopefully it gets a few people to think a little harder about the AI-related ideas that Acemoglu has been promoting throughout the econ world, and why it would be a big mistake to make those ideas the default position of the economics profession on the AI issue.

“Do not be fooled by the monumental technological achievements of humankind.” — Acemoglu and Johnson

It’s hardly surprising that Power and Progress made it onto practically every list of the most important business books of 2023. First, there’s the unrivaled pedigree of the authors themselves. To call Daron Acemoglu a powerhouse in the world of economics would be a ludicrous understatement:

Acemoglu is also the main proponent of the institutional explanation for national development, through his famous book Why Nations Fail and its sequel, The Narrow Corridor (both with James Robinson). If you hear me talk about “inclusive institutions” and “extractive institutions”, I’m channeling Acemoglu.

Simon Johnson, meanwhile, is the author of some of my favorite popular books about economic policy, especially Jump-Starting America (with Jonathan Gruber) and 13 Bankers (with James Kwak). When I write more about the need to spend more on science and to restrain the excesses of the finance industry, I’m channeling Johnson.

The second reason this book was destined to garner attention is that it brings together two extremely timely strains of thought: 1) the widespread distrust of tech companies that has grown in American society over the last few years, and 2) the wave of anxiety over AI-driven automation. Power and Progress weaves those two anxieties into a more-or-less coherent whole — a sum of all technological fears, if you will. And it seems to have been spectacularly well-timed, since its release coincided closely with the coming of ChatGPT and other generative AI.

But given all of those powerful tailwinds, I have to say I’m kind of surprised at how little of a splash Power and Progress seems to have made. This is anecdotal of course, but in the 9 months since it came out, I’m not sure I’ve once heard someone reference the book or any idea in it. The authors clearly intended it to be a handbook for people who are scared about AI putting humans out of a job, the way Thomas Piketty’s Capital in the Twenty-First Century became a handbook for people worried about inequality, or Robert Gordon’s The Rise and Fall of American Growth became a handbook for people concerned about technological stagnation. But I don’t think it did.

Why not? One reason might be that the timing wasn’t as favorable as it might appear. Contrary to Acemoglu and Johnson’s assertion (on p.24 of the hardcover edition) that we live in an age of “blind techno-optimism”, the internet is absolutely chock-full of arguments and warnings about the downsides of AI. Concerns over the risk of rogue Artificial General Intelligence resulted in a boardroom coup attempt that almost drove Sam Altman out of OpenAI. Worries that AI wouldn’t uphold diversity led Google to implement some pretty hilarious countermeasures. Fears of mass surveillance, deepfakes, etc. are widespread. And of course the idea that AI is going to lead to mass unemployment is absolutely ubiquitous — so much so that practically every San Francisco tech event I go to features discussions about exactly this subject. Yes, even dance parties.

In other words, Power and Progress may have come out a little too late to make a big splash, and instead ended up just being one more voice shouting in the chorus.

On top of that, though, I have to say that this book…well, I just don’t think it’s very good. I winced while I wrote that sentence, because Simon Johnson is a personal friend, and Acemoglu is a celebrated genius, and because both of them have written such good books in the past. This is the first broadly negative book review I’ve written since 2014, and I’m a lot less combative of a blogger than I was a decade ago. I did not want to pan this book, especially because I think the topic is a good and important one, and I think the authors are brilliant people whose hearts are in the right place.

But I just don’t think the way this book was written ends up supporting the conclusions it draws. The historical examples it cites simply don’t support a narrative of out-of-touch technologists inventing the wrong sorts of technologies and hurting workers in the process. The book embraces a highly questionable definition of “power” in which persuasion in an open democratic society is painted as a threat. It often seems to assume its conclusions about the impacts of specific technologies, and it tells a jumbled and confusing story about the role of productivity growth. And its central claim — that society can push entrepreneurs to steer innovation in a direction that augments humans instead of replacing them — is not well-supported.

All in all, Power and Progress just fails to convince.

The basic idea

Power and Progress is of the “magisterial sweeping tome” class of econ book, like Capital in the Twenty-First Century, The Rise and Fall of American Growth, or Brad DeLong’s Slouching Toward Utopia. Much of the book is a history of technological innovation in general. As such, it tends to ramble; the authors often seem to get so caught up in the telling of this history that they neglect to tie each event to their central theses. In fact, those are often the most fun and fascinating parts of the book. But if I were to boil down Power and Progress to a set of core ideas, it would be:

1. Technological innovation’s impact on human welfare depends crucially on social choices about how those innovations are used.

2. Those choices are determined by the relations of power in a society, and in recent decades our choices have been steered in a negative direction by the power of tech company founders and venture capitalists.

3. The type of technologies that society invents can be chosen so as to distribute benefits more widely, by avoiding technologies that replace workers and inventing technologies that complement workers.

It’s the last of these that the book is most known for, because it’s the boldest, the most original, and the most controversial. But first let’s talk a bit about the other two.

Questionable historiography

The idea that technology’s impact on society is not determined solely by the nature of the tech itself, but depends on how we choose to use it, is obvious enough to be a truism. Everyone knows how the industrial technologies that have created so much wealth are also put to destructive uses in wars. Everyone knows that the same camera technology that lets you talk to your friend in a different city can allow governments to spy on their citizens. Everyone knows that there is a vast system of laws, international agreements, and social norms whose purpose, at least in theory, is to ensure that technology is used for good and not for ill.

But even though “technology can be used for bad purposes” should be a simple truism, Acemoglu and Johnson pick some very odd examples to illustrate the principle. For example, in the prologue, they have a list of what they claim are “new inventions that brought nothing like shared prosperity”. Here’s the fifth item on their list:

At the end of the nineteenth century, German chemist Fritz Haber developed artificial fertilizers that boosted agricultural yields. Subsequently, Haber and other scientists used the same ideas to design chemical weapons that killed and maimed hundreds of thousands on World War I battlefields.

The idea that the Haber-Bosch process has “brought nothing like shared prosperity” is an absolutely wild claim. Nitrogen fertilizers are so important to human existence that by the most common estimates, about half of the entire population of Earth — 3.5 billion people — is only sustained thanks to this technology. But because that same chemical reaction was used to create one particular type of chemical weapon that was responsible for a tiny fraction of the deaths in one particular war, Acemoglu and Johnson feel comfortable saying that a technology that literally gives life to half of humanity “brought nothing like shared prosperity”. It is the kind of claim that is so obviously wrong as to leave the reader slack-jawed — and yet it is deployed in support of an overall thesis for which countless better examples exist.

Unfortunately, this kind of questionable selection of historical examples is a hallmark of Power and Progress all the way through. For example, in Chapter 6, the authors write:

[Belief in the power of productivity] suggests that as technology advanced rapidly during the early phases of the Industrial Revolution, wages should have risen. Instead, real incomes of the majority stagnated.

Acemoglu and Johnson conclude that because textile manufacturing technologies were biased toward automating workers, they immiserated the working class of 1700s Britain. But those same textile manufacturing technologies have been at the center of the early stage of every other country’s industrialization as well. China went through a period where it made most of the world’s clothes, with its share peaking in the late 2000s. In 1995, apparel was China’s biggest export category.

But during this time, when Chinese garment workers were getting the descendants of the original British industrial technologies of power looms, their wages were skyrocketing — as were wages in the economy as a whole. The same is now true of Bangladesh — the country focuses relentlessly on the garment industry, and has access to all of the old automation technologies, and yet incomes in the country have tripled since 1990.

(As a side note, it’s kind of funny that after we’ve used “Luddite” as a slur for technophobes for all these years, Acemoglu and Johnson explicitly try to rehabilitate the original Luddites, writing that they “were right to worry about knitting frames decimating their livelihoods”. For this reason, I considered subtitling this review “the Bible of the Luddites”, but decided that the negative connotation of the word was too strong and it would be rude.)

A third questionable example in the book is the story of the Panama Canal. Acemoglu and Johnson describe the brutal exploitation of the workers who built the canal, and declare the project a “colossal failure”. That brutality was certainly real. But the authors cite it as a reason that the technology of the canal itself failed to bring broad-based prosperity. In fact, the opposite seems true; thanks to the canal, the people of Panama today enjoy a standard of living much, much higher than that of their Central American neighbors. This is not to say those economic benefits were worth the human cost. But the canal’s problems clearly seem associated with its construction, rather than unfair distribution of the benefits from the technology itself. Could the same canal have been built using more humane labor standards? The authors decline to speculate, simply declaring the whole project a failure and not even mentioning Panama’s prosperity.

A fourth dodgy example is the story they tell about Japan. In Chapter 8, Acemoglu and Johnson praise Japanese companies for “combin[ing] automation with the creation of new tasks”, noting that Japanese automakers didn’t reduce their workforces like American automakers did. But Japan’s manufacturing sector wages, like wages throughout the rest of the country, have been falling since the early 1990s, while American wages have stagnated but not fallen. So this story doesn’t fit the data.

A fifth example is in Chapter 7, when Acemoglu and Johnson write that “Henry Ford was a pioneer” in developing “a more cooperative relationship” with his workforce. I’m just wondering how this “more cooperative relationship” involved hiring thugs to gun down union organizers. Ford did pay higher wages to increase efficiency, but his actual dealings with representatives of labor was brutal and intolerant.

I could go on citing these questionable examples — my copy of Power and Progress is stained blue with all the notes I made in the margins — but this review would run into the dozens of pages, and you would quit long before you finished. But because there are so many questionable examples, Power and Progress is the kind of book that must be read closely and with a critical eye.

Update: In the comments, Brian Potter adds:

Another strike against this book is its terrible scholarship: it frequently gets basic facts incorrect because the authors haven't bothered to actually research the topic. Example: it claims at several points that Eli Whitney was responsible for the development of interchangeable parts, a claim that has been widely and thoroughly debunked.

Source?

Another issue with the book’s examples is the lack of footnotes or endnotes. Instead of citing specific works in support of each specific claim — as most books do — Power and Progress has a bibliographic essay at the end. Many sources are mentioned in this essay, but it’s often difficult, and sometimes impossible, to match the sources to specific claims. As a result, you often end up having to choose between exhaustively searching multiple sources to figure out where the authors got a particular point, or simply giving up and trusting that the authors are accurately representing the data.

For example, in Chapter 1 the authors ask “What if…AI also impoverishes billions in the developing world?”, and asserts that “evidence is mounting” that this concern is “valid”. But where is the evidence that AI threatens to impoverish billions? That’s an astonishingly strong claim about a technology about which little is known, and I can’t find any source in the bibliographic essay. An empirical study I do know is Acemoglu, Autor, Hazell and Restrepo’s 2022 paper “AI and Jobs: Evidence from Online Vacancies”, whose abstract concludes:

We find no discernible relationship between AI exposure and employment or wage growth at the occupation or industry level, however, implying that AI is currently substituting for humans in a subset of tasks but it is not yet having detectable aggregate labor market consequences.

So that paper certainly doesn’t include mounting evidence that AI threatens to impoverish billions. But I can’t find which paper the authors relied on to make this claim.

In fact, because I’ve read many of the Acemoglu papers that undergird this book, I also know that there are instances where the data doesn’t quite say what the authors claim. For example, in Chapter 8, Acemoglu and Johnson argue that “digital technologies became the graveyard of shared prosperity” over the last few decades. In this chapter, they attribute some meaningful piece of the recent rise in inequality to the introduction of digital technologies to the workplace. But because I’ve read Acemoglu and Restrepo’s 2020 paper “Robots and Jobs: Evidence from U.S. Labor Markets”, as well as the working paper version from 2017, I know to be skeptical of this claim.

Acemoglu and Restrepo found that a narrow category of automation — industrial robots — was associated with decreased employment and wages. But as the Economic Policy Institute’s Larry Mishel and Josh Bivens noted, when Acemoglu and Restrepo measured the effect of workers’ “exposure to IT capital” in general — i.e., how much the employers invested in IT tech overall — they found either no effect or a positive effect on employment and wages. Here’s the relevant table from the 2020 version of the paper:

The estimates of a positive impact of IT capital on employment and wages are in the original working paper version, in table A9.

Now, this doesn’t mean that computers and the internet weren’t a driver of mass unemployment or stagnant wages. Maybe they were! Acemoglu and Restrepo (2020) could simply be wrong; in fact, since their working paper first came out in 2018, many other studies have ended up contradicting their findings about the negative impacts of robots. And all of these papers look within specific industries or companies — as does Acemoglu and Restrepo’s 2022 follow-up paper about automation and inequality between demographic groups. The overall effect of automation on economic growth, absolute wages, and the composition of industries in the economy simply isn’t known.

In other words, it could be very well be that automation has been impoverishing people, or it could be that it has been enriching people overall. I’d simply like to know where the authors get the data to back up their claim about information technology, especially when one of the authors’ most famous papers appears to contradict that claim.

To sum up, footnotes and endnotes are a technology that has unambiguously benefitted the world, and even though they can be a bit of a pain the butt, authors should include them.

A questionable definition of “power”

Anyway I digress; back to the book’s central theses.

Despite the questionable examples, it’s clearly true that technology can be used to benefit average people or to hurt them. But how does society choose how to use technologies? Acemoglu and Johnson’s answer is “power”, from which they get the title of their book. But what is power? Here, in Chapter 3, Acemoglu and Johnson deploy a definition that veers into the tautological:

Power is about the ability of an individual or group to achieve explicit or implicit objectives. If two people want the same loaf of bread, power determines who will get it.

Using this definition, how could we ever conclude that power wasn’t the reason for an observed outcome? Two people want a loaf of bread, and one of them gets it; we know this was due to “power”, because “power” is defined by who gets a loaf of bread. This kind of definition is semantically valid, but empirically useless; if you define “power” such that it simply means “whatever caused an outcome to happen”, you haven’t isolated causality, you have simply given it a new name.

Acemoglu and Johnson have a reason for employing a definition this infinitely broad; it allows them to include persuasion and compulsion in a single category of “power”.

The authors’ historical examples of when power determined the distribution of the benefits of technology include cases when laws and the threat of violence allowed some people to extract the benefits of technology for themselves — the cotton gin increasing slaveowners’ profits in the American South, or lords extracting agricultural surplus from peasants in medieval Britain. These are instances of compulsion, which certainly fit with our common, everyday, colloquial use of the word “power”.

But Acemoglu and Johnson also spend a lot of time arguing that persuasion is also a form of power. They cite instances in which techno-optimists and businesspeople in 18th century England and 21st century America persuaded the public to enact pro-business policies, through articles, speeches, conversations, and so on. Their explanation for why inequality has increased since the 1970s is, in effect, that silver-tongued technologists managed to persuade American society to weaken pro-worker institutions, and to allow the technologists to invent technologies that replaced human labor instead of complementing it.

The authors don’t venture to say exactly why these techno-optimists’ pro-business vision prevailed — they write that “an idea is more likely to spread if it is simple, is backed by a nice story, and has a ring of truth to it,” but they admit that “quite a bit of this process [of persuasion] is random,” and declare that “you are enormously lucky if you get the right idea, with just the right ring to it, at just the right time.”

I have to admit, this kind of surprised me. I expected to see some sort of pseudo-Gramscian theory of cultural hegemony (or at least some references to Gramsci or similar writers). Instead, the authors just sort of shrug and put it all down to luck. For some reason, the techbros just wrote really good posts, and by doing so they ruled the world — at least until their luck ran out and the world turned against them, I suppose.

In fact, I have to confess that the entire chapter on power and persuasion left me bewildered. I do not understand why we should put accidental success in a nonviolent marketplace of ideas in the same conceptual category as chattel slavery and feudalism. It seems to yield neither understanding nor solutions. Perhaps the historical example of the cotton gin might give us some insight about how to explain the spread of laissez-faire economics, but simply labeling both things as varieties of “power” does not yield that insight. And the idea that persuasion is power doesn’t seem to suggest any kind of systemic fix for the problem that sometimes society is persuaded to do things that increase inequality.

That doesn’t mean Acemoglu and Johnson have no solutions to recommend, though. They want to strengthen institutions like unions and labor laws, but their main idea is to redirect technological innovation toward technologies that complement workers instead of replacing them.

When all you have is a hammer, everything looks like a loom

“With such persuasiveness, you tend to convince yourself that you are correct.” — Acemoglu and Johnson

Over the last six years, Acemoglu and Restrepo wrote a series of theoretical papers in which they lay out a number of different ways that new technology can affect workers’ jobs and wages. Basically, this ends up being a fancier version of a very old idea — capital can either substitute for labor or complement it. If capital substitutes for labor, then capitalists win, because they can replace people with machines, and pay people accordingly less. But if capital complements labor, then workers win, because capitalists have no choice but to hire them to work the new machines, and pay them good wages. Acemoglu and Restrepo make this theoretical breakdown a bit more nuanced, but in the end it really boils down to whether machines replace people or augment their abilities (either by making them more productive or by giving them new things to do).

Power and Progress attempts to analyze the history of technology through the lens of this theory. In eras where technology seemed to progress rapidly but workers’ wages didn’t grow much, like 18th century Britain, Acemoglu and Johnson argue that the main cause was technologists inventing machines that replaced human labor; in other eras where wages grew rapidly, like the late 19th century, they argue that technologists were inventing machines that created new tasks for humans to do.

At times this can begin to feel like a just-so story. For example, Acemoglu and Johnson cite electricity as a technology that was good for workers, because it created so many new industries for people to work in. But didn’t electrification also replace human labor in quite a large variety of ways? Electric lights save us the labor of making candles, electric dishwashers and washing machines and dryers automate our housework, and so on. How do we know this task automation outweighed by the new tasks electricity creates?

They also argue that wages in industrial Britain began to increase in the late 19th century because steamships and telegraphs — as opposed to looms — “expand[ed] the set of tasks and opportunities for workers”. As far as I can tell, this is a claim without evidence. Why was the telegraph’s automation of message couriers less significant than its creation of new jobs for telegraph operators? In Chapter 8, Acemoglu and Johnson blame communication technology for increasing inequality by enabling the offshoring of jobs to China and other countries. Why would modern communication technologies have exactly the opposite effect of the telegraph?

And in Chapter 6, Acemoglu and Johnson praise the early United States for its direction of innovation, writing that American businesses compensated for a lack of skilled labor by, in the words of engineer Joseph Whitworth, “call[ing] in the aid of machinery in almost every department of industry.” In Chapter 7 the authors write that the American use of interchangeable parts “was first and foremost an effort to simplify the production process so that workers lacking in artisanal skills could produce high-quality products.” But how is that any different from the British use of power tools to help unskilled make textiles in the 1700s? The difference is never explained.

On the other side of the coin, Acemoglu and Johnson cite most modern information technology as something that automates more tasks than it creates. But what about all the new tasks that IT creates — mobile developers, web designers, digital media marketers, content moderators, and so on and so forth? Why are these less economically important than the tasks that the internet automates away (encyclopedia salespeople, etc.)?

One answer is that if we assume that Acemoglu’s theory of automation is the main thing that’s going on, we can just infer the effects of particular technologies from macroeconomic outcomes — if we see wages stagnate, it must be because task automation outweighed task creation. But for anyone who suspects that Acemoglu’s theory might not actually be the main thing going on in the economy, just saying that the proof is in the pudding is a bit unsatisfying. It feels like a just-so story.

Is productivity good or bad?

In fact, the historical examples in Power and Progress leave themselves open to alternate narratives. The main alternative narrative is about productivity.

Acemoglu and Johnson repeatedly argue that if productivity gains are produced by automation, workers don’t see the benefits. They cite the idea that productivity naturally uplifts workers — which they call the “productivity bandwagon” — as one of the main nefarious narratives that technologists use to persuade society to allow them to invent technologies that replace workers.

But what if the “productivity bandwagon” narrative is true?

There are two main historical periods the authors cite as examples of excessive automation leading to stagnant wages — the early Industrial Revolution in 18th century Britain, where textile machines like looms replaced human artisans, and America since the 1970s. (Note: they make an error when they say, in Chapter 8, that “declines in real wages…have been a major part of U.S. labor market trends.” In fact, when you include benefits, real hourly compensation has grown a bit more slowly since 1973, but has still consistently risen.)

But Acemoglu and Johnson also note that both of these eras had sluggish productivity growth. Perhaps wages were stagnant in those eras because productivity was also stagnant?

Regarding the early Industrial Revolution, some researchers argue that the labor share didn’t actually fall. For example, here’s Crafts (2020):

[R]eal wages grew more slowly than real GDP per worker during the industrial revolution. However, the discrepancy was much less than has been claimed such that in 1820 the former had risen by about 12 per cent since 1770 and the latter by about 16 per cent. Second, labour productivity grew quite slowly prior to 1830 averaging a little below 0.4 per cent per year in the 60 years after 1770. Nevertheless, in the context of demographic pressure this was a very good outcome by pre-industrial standards. Third, as relative prices changed and exportable manufactures became cheaper, over the long run real product wages grew somewhat faster than real consumption earnings. Fourth, the share of profits in GDP rose over time from 17.2 per cent in 1770 to 31.3 per cent in 1860 but this was associated with a decline in the share of land rents and the share of labour was little changed. Fifth, looked at through the lens of growth accounting the evidence is of total factor productivity (TFP) growth accelerating only gradually to 0.6-0.8 per cent per year during 1830 to 1860 with the steam age only materializing after 1830.

In sum, this looks more like a story of paradoxically slow productivity growth than of pro-rich growth. The story of the industrial revolution is definitely not one of a new general-purpose technology boosting productivity growth at the expense of a big shift in the distribution of income which is the current fear about AI.

As for the U.S. since the 1970s, inequality has definitely increased, but — contrary to what you may have heard — pay has largely kept pace with productivity. Automation may have made wages more unequal (this is the argument of Acemoglu and Restrepo’s 2022 paper), but the modest decline in labor’s share of the national pie was probably mostly about land values increasing. Which means that aggregate wage stagnation was largely due to slowing productivity growth in recent years as well.

In fact, Acemoglu and Johnson also blame automation for stagnating productivity! In Chapter 8, they write that “productivity gains from automation may always be somewhat limited.” They coin the term “so-so automation” to describe technologies that take humans out of the loop but fail to increase productivity much by doing so. They argue that technologies that make better use of human capabilities lead to faster productivity growth as well as higher wages and lower inequality.

OK so…why isn’t that the book’s central this? You could write a very interesting book about how technologies that complement humans are better for both productivity and broad-based prosperity than technologies that try to substitute for humans wholesale. I would definitely read that book! But Acemoglu and Johnson did not choose to write that book; instead, they warn against a focus on productivity, claiming that it’s a seductive but dangerous narrative used by the greedy, fast-talking techbros. In my mind, this weakens their overall narrative.

Where’s the menu?

Throughout Power and Progress, the authors tell a story about a “menu of technologies” that entrepreneurs can choose from. On one hand, companies can choose to invest in automation, replacing workers, increasing inequality, causing slow wage growth, and maybe reducing productivity in the process. On the other hand, they can choose to invest in technologies that create new tasks for humans to do, thus increasing wages and decreasing inequality. Their story is that out of greed and/or elitism, entrepreneurs often choose the former, so it’s in the interests of society to push them toward choosing the latter.

But when the authors approvingly cite examples of new industries springing into being, they never give an explanation of why entrepreneurs and technologists chose to create these new industries, instead of trying to cut costs in existing industries. My default assumption would be that the people who invented and commercialized steamships, telegraphy, interchangeable parts, autos, electricity, and telephones were driven by the same sort of motivations that animated the people who invented and commercialized power looms, computers, and the internet. If not, why not? Was there ever a case when governments or unions pushed entrepreneurs to select Option A from the “menu of technologies” instead of Option B?

When Acemoglu and Johnson do discuss union power, it’s in the context of worker training. In Chapter 7, they write:

In fact, for unions [in the 1960s] the central issue was worker training. They insisted on training provisions to ensure that workers could be brought up to the necessary skill level to operate the new machinery and benefit from it.

This is very different from affecting the direction of innovation! This is a case of workers collectively pushing companies to invest in human capital, so that worker skills can catch up to the direction in which innovation was already going.

As far as I can tell, this book does not contain even one single example of when a union or government supposedly pushed an entrepreneur or company to choose a different path of technology in order to benefit workers. As far as I can tell, it does not even contain one single example of when an engineer, entrepreneur, company or investor chose to create a technology in order to benefit workers more.

In other words, there is no evidence here that the “menu of technologies” actually exists. It’s not clear that technologists and industrialists even know in advance whether the inventions they create and commercialize will create more new tasks than they automate. And this raises pointed and troubling questions for the authors’ preferred solution to the problems of inequality and wage stagnation.

Can the mandarins act as a check on the techbros?

In Chapter 11, Acemoglu and Johnson roll out their proposed solutions. Having concluded that inequality and wage stagnation are due to “tech billionaires and their agenda” choosing the wrong technologies from the “menu”, they call for democratic people-power to force the techbros back onto the labor-augmenting path.

What’s totally unclear is how to do this. Acemoglu and Johnson admit that “redirecting” the path of technological innovation is going to be an incredibly tall order:

Determining how different digital technologies are used and their impact on wages, inequality, and surveillance is much harder [than assessing their climate impacts]…Moreover, given the difficulty of distinguishing automation from other uses of digital technologies, automation taxes are currently not practical.

And yet the authors still claim that this can be done! Yet they’re maddeningly vague on the details:

There is a telltale sign of automation technologies: reducing the labor share of value added, meaning that once these technologies are introduced, how much of value added goes to capital increases and how much gets captured by labor decreases…On this basis, technologies that increase the labor share can be encouraged via subsidies for their use and their development.

But how do we know in advance, before a technology is invented, whether it will increase or decrease the labor share? This is just replacing one target of guesswork — new task creation vs. automation — with another target of guesswork.

Fundamentally, it still boils down to some sort of mandarins in a room somewhere — economists? government engineers? bloggers? — trying to assess the economic effects of a technology that doesn’t even exist yet.

As I wrote in a post last June, this is probably an impossible task. Some of the world’s top experts thought that AI would replace radiologists within a few years, but demand for radiologists boomed even as the new AI tools were coming online. The technologists got it wrong.

And the economists are just as likely to get it wrong. For example, industrial robots are the one technology that Acemoglu consistently rails against as an example of harmful automation. That’s based on his 2020 paper with Restrepo, where they found that companies that buy more robots employ fewer humans. But a whole bunch of other economists followed up on this research and found the exact opposite — robot adoption is correlated with more jobs at a company or in an industry. Here was a list I made back in 2022:

I’ll list a few of these studies:

1. Mann and Püttmann (2018) — Where Acemoglu and Restrepo…looked at correlation, this paper attempts to identify causation. They look at automation-related patents in an industry — a proxy for innovation in the automation space — and then look to see whether that industry gains or loses jobs. They find that “advances in national automation technology have a positive influence on employment in local labor markets”, though this isn’t true for every area.

2. Dixon, Hong and Wu (2021) — These authors looked at robot adoption in Canada, at the level of the individual company (or “firm”, as economists say). They found that companies that adopted more robots hired more people, while also improving the quality of their products and services.

3. Koch, Manuylov and Smolka (2019) — This paper looks at firm-level data for manufacturing companies in Spain. They find that robot adoption is associated with a substantial increase in employment as well as output.

4. Adachi, Kawaguchi and Saito (2020) — This paper finds the same thing as the previous one, but for Japanese companies over the course of a 40-year period.

5. Eggleston, Lee and Iizuka (2021) — These authors look at robot adoption by nursing homes in Japan, and find that it strongly increases employment, although it does result in existing nurses working fewer hours (and thus getting paid less).

6. Hirvonen, Stenhammar, and Tuhkuri (2022) — This paper looks at a technology subsidy program in Finland that increased adoption of a broad range of advanced technologies at Finnish firms. They find that this led to employment increases.

In fact, by this point the trend is clear. Essentially everyone is finding that, contra Acemoglu and Restrepo…robots are correlated with — and probably cause — higher employment in the companies and areas where they’re adopted.

What’s happening is that companies that use more robots hire more humans (and retain their existing humans) in jobs that complement the robots. That’s exactly what we saw with previous waves of automation — people find new roles, robots increase their productivity, and they get paid more. Looking at the countries that use the most robots in their manufacturing industry, it seems likely that this virtuous cycle is happening even at the level of whole nations.

Zooming out from just the manufacturing sector, Hötte, Somers, and Theodorakopoulos have a very interesting 2022 review paper in which they look at the literature on the entire range of automation technologies. Here’s an article in which they explain their results. Hötte et al. find that automation does replace jobs, but that this effect is outweighed by the “reinstatement” effect — in other words, people find new jobs to do. And their incomes generally rise as a result.

So no, there’s no possibility that a council of mandarins — engineers, economists, or whoever — can sit there evaluating every potential new technology that companies or inventors want to create, and deciding whether it will raise or lower the labor share. I mean, you could make a council of mandarins, and it could look at plans for new technologies, and it could issue decisions, but in practice it would be throwing darts at a dartboard. And it would be an incredibly costly tax on our companies, since it would introduce massive delays into their decision-making process. Their Chinese rivals, on the other hand, would suffer no such delays.

In other words, I see no hope for Acemoglu and Johnson’s preferred solution. The utter vagueness with which the idea is presented in Power and Progress doesn’t suggest that the authors have thought carefully about how this solution might work in practice.

In particular, these solutions seem inferior to something far simpler: policies to increase labor share ex post. Labor market institutions like co-determination and sectoral bargaining, and direct interventions like wage subsidies funded by taxes on capital income, can push up the labor share without requiring panels of experts to predict the unpredictable. And if entrepreneurs really do have any degree of foresight about whether their innovations will tend to push the labor share up or down, these policies will act like a Pigouvian tax on the kind of cost-cutting that Acemoglu and Johnson decry. With a wage subsidy, for example, the higher the market rate you can afford to pay your workers, the more of a rebate you can get from the government. So if there are technologies that augment your workers and let you hire new workers, a wage subsidy gives you an incentive to create them.

Anyway, I think simple policies like these should be economists’ first go-to solutions, rather than the creation of whole new social institutions.

The old narrative, and the new

At the start of this review, I talked about how Power and Progress may have missed its moment by getting lost in a flood of fears about AI. But there’s another way in which the book might be poorly timed. Wage inequality — the very thing that Acemoglu and Restrepo (2022) try to explain — has flatlined since the early 2010s.

Meanwhile, real wages have been rising strongly for years now, interrupted only by the post-pandemic inflation. And wages for production and nonsupervisory workers have risen more robustly than those for managerial workers:

Meanwhile, employment for prime-age Americans is near all-time highs, and unemployment is at record lows; everyone who wants a job in America has one.

All this has happened in exactly the time frame during which AI has exploded. Predictive AI burst onto the national scene in 2012 with the ImageNet paper, the basic technology for generative AI was created in 2017 with the transformer paper, and generative AI became really widespread in 2022-23 with LLMs and AI art programs. To reiterate: essentially all of the commercialization and implementation of artificial intelligence has happened during a time in which wages have been rising, inequality has been flat or falling, and employment has been high.

Maybe AI just isn’t big enough to kill all the jobs yet; maybe we just have to wait a few years and we’ll all be unemployed or working for pennies. Or maybe AI is actually the kind of technology that improves task productivity and creates new tasks instead of automating old tasks away. Or maybe Acemoglu has something wrong in his models, and further theoretical and empirical explorations will overturn his conclusions about the key role of automation in fostering inequality. I’m not sure.

Whatever is going on, though, I think it should give the AI worriers pause. This was not on the menu. If you went back to 2012, and asked people to predict the impact of a new machine that could recognize objects and imitate speech and create beautiful art, they probably would have assumed that the rising inequality that they had experienced for the last 30 years would now be turbocharged. And — at least so far — they’d have been completely wrong.

To me, that thought experiment illustrates the folly of trying to predict the economic effects of new technology. It also suggests another reason why Power and Progress didn’t make the same kind of splash it might have made in 2018. Obviously, our economic problems haven’t all been solved. But perhaps, underneath all of the anger and pessimism, Americans realize that something has shifted in their economy, for the better. And perhaps that’s making them a bit less interested in the kind of pessimistic economic narratives that flew off the shelves in the 2010s.

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“We must do something. This is something. Therefore, we must do this.” — the Politician’s Fallacy

The other day, a friend asked me to add my signature to a statement called “We Must Act Now: A Statement on AI’s Transformation of the Economy”. A bunch of economists, including many famous and influential ones, have been signing it. Here’s the text of the statement:

1. AI may become radically more powerful over the next 10 years.

2. This could drive an unprecedented transformation of our economy, larger than the Industrial Revolution, but unfolding over a vastly shorter time frame. It could bring risks, including large-scale job displacement, as well as opportunities such as major gains in living standards.

3. Economists, policymakers and technology leaders must act now to understand the economics of transformative AI and to build the incentives, guardrails, and institutions needed to steer AI in a direction that complements humans and benefits society.

That’s it. That’s all it is. It doesn’t say what our action ought to be, only that “we must act”. There’s no appendix, no longer manifesto attached below. It just says AI is getting good, AI could be economically important, AI could take people’s jobs and/or make us a lot richer, and that we have to do something to make sure the AI age turns out alright.

But what is that something? What actual policies would I be recommending by signing this statement? None that I can see. It’s completely vague and unspecific.

This might seem like it makes the statement innocuous and bland (so why not sign it?). At some point, however, the authors may decide to release a second statement, with policy specifics. I’ll inevitably be associated with those ideas, even if I don’t sign the second statement. Relatively few people will pay attention to the difference between who signed only the first statement and who signed both. So by signing this first statement, I would essentially be giving my imprimatur to unknown policy proposals. I don’t want to do that. So I didn’t sign.

In fact, the existing statement, vague as it is, does contain at least one clue as to the kind of ideas that the authors will eventually come up with. At the end, it calls for us to “steer AI in a direction that complements humans”. I recognize this as the main idea in the book Power and Progress, by Daron Acemoglu and Simon Johnson.

In fact, not only did Acemoglu sign the statement, but it appears that the authors changed the text in order to get him to sign! He writes:

Why did I sign this statement?…First, I had a hand in revising it, after the organizers reached out to me. I did not feel like I could sign the initial version…[M]ost importantly, I wholeheartedly agree with the ending: “to build the incentives, guardrails, and institutions needed to steer AI in a direction that complements humans and benefits society.”

This is what I have been arguing for over a decade now. Good AI needs to complement humans, and this requires a redirection, because the current focus on AGI is, in all but name, an agenda for displacing humans from meaningful work. That’s why steering AI must be a first priority.

So although Acemoglu doesn’t say which part of the final text he got to insert in exchange for his signature, it’s a pretty good bet that it’s the part about “steering” AI.

As it happens, I think “steering” AI is a bad policy idea. The first reason is that it’s basically impossible; no one actually knows how a technology will complement or substitute for human labor at the time they invent it. Inventors don’t know how their inventions will ultimately be used by businesses — and the more general-purpose a technology is, the less they know. Could James Watt, in 1765, have predicted most of the applications of steam power? Absolutely not. So he had no way of knowing whether the steam engine would ultimately create more jobs than it destroyed.

In fact, although AI might eventually be a big job-destroyer, right now it doesn’t seem to be. The employment rates for people age 20-24 and 25-54 are both just about the same as they were before ChatGPT ever existed:

And the employment rate for young college grads — the group everyone thinks is most likely to be hurt by AI — is also basically unchanged:

So if there’s any wave of AI job destruction, it’s not visible in the macro data yet. As for the micro data, there are a few studies that show companies reducing their hiring of certain kinds of workers when they adopt AI, but most don’t really find much. In fact, one recent study found that companies that adopt AI hire more workers than other companies in the same industry:

This is despite the fact that lots of people in the AI industry think their inventions are going to destroy jobs. So far they’ve just been wrong, and many of them are feeling pretty astonished right now.

Even when it comes to specific occupations, technologists are often startlingly wrong on the “complement or substitute” question. Geoffrey Hinton, one of the inventors of modern AI, famously predicted the end of human radiologists within a few years, only to see a boom in hiring and salaries for radiologists when it turned out that AI actually complemented their skills.

So how the heck are businesspeople and inventors supposed to “steer” AI toward being complementary to human workers? They obviously couldn’t predict the labor market effects of the last round of AI — at least, in the short term. So why should anyone believe that technologists have the ability to purposefully invent different forms of AI with different labor market effects?

The second problem with the idea of “steering” AI is the question of who does the “steering”. Acemoglu’s book, Power and Progress, never answers this question. Here’s what I wrote in my (very long) review of that disappointing book:

Acemoglu and Johnson admit that “redirecting” the path of technological innovation is going to be an incredibly tall order…[H]ow do we know in advance, before a technology is invented, whether it will increase or decrease the labor share?…Fundamentally, it still boils down to some sort of mandarins in a room somewhere — economists? government engineers? bloggers? — trying to assess the economic effects of a technology that doesn’t even exist yet…[T]his is probably an impossible task.

Acemoglu himself has certainly not had a better record than the technologists when it comes to predicting the effects of AI on jobs. He wrote an empirical paper claiming that companies that buy robots tend to hire fewer workers, but this paper was contradicted by a very large number of follow-up studies. And he wrote a theoretical paper claiming that AI wouldn’t do much to raise productivity, but that prediction was based on arbitrarily assuming away parts of his own model.

So any panel of wise mandarins that Acemoglu and his fellow-travelers assemble in order to “steer” AI technology is likely to have absolutely no idea what they’re doing. Here’s what I wrote about that idea back in 2023:

[I]f we were to set up a panel of experts and task them with deciding which lines of research and innovation to encourage and which to discourage in order to maximize jobs and wages, they would be operating purely on gut instinct and quasi-science-fictional supposition…[I]n practice, any panel or commission set up to speed up and slow down various types of AI will be simply adding noise to the innovation process, offering rewards and punishments essentially at random. That’s not good for the development of technology as a whole, since it introduces uncertainty into the innovation equation. But it’ll also be ineffectual in terms of actually protecting human workers.

Three years later, having witnessed so many of the dire predictions of job destruction dashed on the rocks of reality, I see absolutely no reason to change my assessment. Acemoglu’s big idea — basically, to put him and his friends in charge of AI development — is not a good idea.

In fact, the surprisingly benign effect of AI on jobs so far calls into question the very notion that “We Must Act Now”. Yes, I agree that AI presents a very severe security threat, and we must act on that. But on the economic front, it’s possible that inaction is the right move.

Statistically speaking, we probably don’t live in the best of all possible worlds when it comes to AI’s economic effects. But we might be close enough that any large-scale attempt to interfere in AI development might leave average human workers worse off. There’s certainly plenty of historical precedent for that — collectivization of agriculture, Mao’s “backyard production”, and a bunch of other heavy-handed interventions in the development of an entire sector crashed and burned spectacularly.

It might be, in other words, that the AI we’re building now is already highly complementary to human workers, and that the best approach is not to “Act Now”, but to simply sit there and do nothing. Even the seemingly empty slogan of “We Must Act Now” might actually be wrong. Perhaps we mustn’t.

In any case, if the authors of the “We Must Act Now” statement add specificity to their policy proposals, I’ll consider signing it. But right now, the statement seems to hide some genuinely inadvisable Acemoglu-ism behind a screen of extreme vagueness.

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“Buy a big house and live in the suburbs” — Tracy Chapman

“Outside suburbia’s sprawling everywhere/ I don’t want to go, baby” — Kim Wilde

I grew up in the suburbs, and when I got the chance, I moved to a big city and never looked back.1 I love living in dense, built-up urban areas, with great train systems and tons of restaurants and shops. Japanese cities are the best in the world, and I’ve written plenty of posts about what makes them so great. But you don’t have to be Japan in order to create amazing metropolises — New York City, Paris, Istanbul, Seoul, London, etc. are all excellent places to live.

I’m far from the only person who feels this way. Rents in New York City are absolutely insane — $5300 a month to live in Manhattan, $4350 to live in Brooklyn. That’s partly because there are a lot of good jobs in NYC — it’s a cluster for industries like finance and media. But more and more, Americans move to cities because they like living there.

As early as 2000, economists were starting to find that “amenities” were driving America’s urban revival even more than job opportunities were. Couture and Handbury (2020) find that wanting to be close to restaurants and nightlife explains about 40% of the trend of young, high-earning, college-educated people2 moving to cities in recent decades. Furthermore, the stereotype of dense cities as crime-ridden and unsafe is just wrong — NYC has one of the lowest violent crime rates among big cities in America.

I’ve been a relentless advocate of building more dense, walkable cities in America. Not only would this raise GDP (because of improved clustering effects), but it would let Americans live where they want. The demand for life in cities like NYC exceeds America’s willingness to supply these environments; this raises rents in places like NYC, which pushes a lot of people into the suburbs who don’t want to be there. Forcing those city types into the ‘burbs raises rents for people who like suburbia. Basically, everyone would be happy if America had a few more Manhattans and a lot more Brooklyns.

Yet among my fellow urbanists and YIMBYs, I often encounter disdain or outright hostility toward the suburbs that define most of America’s present urban landscape. This isn’t just an urbanist thing, of course — my own parents had a lot of negative things to say about suburbia, and ranting against its sterility and boredom is a staple of pop culture. But the criticisms are just way overdone; the suburbs are not the isolating, lonely hell that they’re often made out to be.

And I think that the constant ranting against the suburbs complicates the quest for denser cities. It creates the suspicion that urbanists and YIMBYs want to make the whole nation into Manhattan. Nothing like that could ever happen, of course; even Japan is mostly suburbanized. But painting the quest for denser metropolises as an attack on suburbia makes everything needlessly confrontational, polarized, and zero-sum.

So I think it’s helpful to go through some reasons why the suburbs aren’t actually as bad as they say.

The suburbs don’t force you to have a long commute

One of the most persistent myths about suburbia is that it forces you to commute a long way to work:

It’s possible, of course, for something like this to be true. If cities refuse to build housing (which they do), and if jobs are concentrated in the city center (thanks to clustering effects or agglomeration or whatever), then people will be forced to live far out on the periphery and endure punishing commutes to get to work.

The thing is, it’s not true. Despite greater sprawl, Americans have some of the shortest commutes in the developed world. This is from the OECD:

Why do Americans take less time to commute to work? One reason is that it’s not just our homes that are scattered and dispersed; our workplaces are too. America’s urban agglomerations are polycentric; they’re not just one central business district surrounded by concentric rings of houses. Suburbanites tend to live near where they work.

Another reason Americans have shorter commutes is that cars are almost always faster than public transit at getting you from point A to point B. This isn’t just true in places like America and Canada that are built with cars in mind. It’s true in places like Stockholm and Amsterdam that were built to be transit-friendly — even when you take parking time into account. In fact, it’s not even close. This is from “Disparities in travel times between car and transit: Spatiotemporal patterns in cities”, by Liao et al. (2020):

We use real-world data to make realistic estimates of travel time by car and by PT [Public Transit] and compare their performance by time of day and by travel distance across cities. Our results suggest that using PT takes on average 1.4–2.6 times longer than driving a car. The share of area where travel time favours PT over car use is very small: 0.62% (0.65%), 0.44% (0.48%), 1.10% (1.22%) and 1.16% (1.19%) for the daily average (and during peak hours) for São Paulo, Sydney, Stockholm, and Amsterdam, respectively…A systematic comparison between these two modes shows that the average travel time disparity is surprisingly similar across cities…for travel distances less than 3 km, then increases rapidly but quickly stabilises at around 2. [emphasis mine]

And here’s a chart, showing that public transit takes more time whether you’re measuring in terms of the length of the trip or the percent of the population reached:

That doesn’t mean cars are better than public transit. Cars cost more, and they require a lot more land to move the same number of people. But because they take you directly from point to point, instead of making a circuit and stopping periodically, they get you there faster.

Of course, commuting by car and commuting by train or bus aren’t the same experience. Driving gives you more privacy, but it forces you to pay attention to the road instead of reading or playing games. Traffic can be frustrating, but so can jostling and bumping strangers for a space on the train. You’re a lot less likely to be sexually harassed in your car, but you’re more likely to die in an accident than to be murdered on the bus. And so on.3

But the point is, cars are not a cost forced upon suburbanites in exchange for their large houses, as some urbanists believe. They are a thing people want in and of themselves, and are willing to pay a lot of money for, all over the world. The convenience, sense of freedom, and privacy cars offer is a benefit of suburbia to many people, in addition to the large house and cheap land. Car ownership is a form of wealth.

The suburbs are not lonely and isolating

Again and again, I hear urbanists declare that the suburbs are lonely and isolating. It certainly sounds logical. In a city, you’re walking past other people constantly — on the street, on the train, in cafes and restaurants. In suburbia, you’re shut at home inside your giant house or alone in the metal shell of your car. How could suburbia not be more lonely than the big city?

But in survey after survey, we don’t find this to be the case. Here’s Abshire et al. (2022):

Data were obtained from 616 adults (278 from small rural, 100 from large rural, 98 from suburban, and 140 from urban areas) from June 2018 through October 2019…Mean unadjusted loneliness scores were lower in suburban compared to urban areas…The prevalence of loneliness was 50.7%, 59.0%, 40.8%, and 54.3% in small rural, large rural, suburban, and urban areas, respectively. Suburban living was associated with lower odds for being lonely compared to urban living…but this association was not statistically significant in the adjusted model[.] [emphasis mine]

And here’s Hammond et al. (2021):

Data from 756 participants who completed 16,602 assessments between April 2018 and March 2020 were used in order to investigate associations between momentary feeling of loneliness, the social environment (i.e. overcrowding, social inclusivity, population density) and the built environment (i.e. contact with nature)…Increased overcrowding and population density were associated with higher levels of loneliness; in contrast, social inclusivity and contact with nature were associated with lower levels of loneliness. These associations remained significant after adjusting for age, gender, ethnicity, education and occupation. [emphasis mine]

And here’s Morris and Pfeiffer (2016):

Based on data from the 2003 to 2013 American Time Use Surveys, this research…assess[es] whether suburban living is associated with less socializing than city living in mid-to-large American metropolitan areas. After controlling for personal characteristics, we find no meaningful difference in suburbanites’ and city dwellers’ time spent socializing across a wide range of social activities. [emphasis mine]

Bower et al. (2022) review 57 different studies and find no systematic association between loneliness and any measurable feature of the built environment.

Why doesn’t the simple intuition work here? Probably because people aren’t just like particles bouncing around in a chemistry experiment — they don’t simply form human connections and bonds just because they happen to walk past each other. A few relationships form from random urban conversations, but most form through work, or friends-of-friends, or shared hobbies, etc.

And while meeting a ton of new people is fun, what really gets rid of loneliness is repeated interaction with people you know and care about. Imagine going to ten parties filled with strangers versus having two close friends over for dinner. Which of those is more likely to leave you feeling lonely? What about 100 Hinge dates versus having a relationship? Remember that Japan has the world’s best cities, but struggles with widespread loneliness.

In fact, suburbs have some features that make it easier to interact with the people you really care about. Those big houses aren’t just for walking around all alone and going “Wow my house is so huge”. They’re for entertaining guests. It’s harder to have a dinner party or a TV night or a game night at a tiny little Manhattan apartment than at a big suburban McMansion. Cars help too; those short travel times make it easier to just pop over and hang.

This doesn’t mean cities are socially inferior to suburbs. Constantly meeting new people is exciting. There’s more fun stuff to go out and do with your friends in a city — restaurants, parties, and so on. It’s just a different lifestyle.

There’s a reason people are moving to the ‘burbs

The urban revival of the 1990s through the 2010s was a modest thing. It was largely driven by young people, high earners, and educated people. Here are some charts from Jed Kolko a decade ago:

During most of that urban boom, it was actually the suburbs that were growing much faster. And in recent years, the trend toward suburbanization has only accelerated. Here’s a much more recent chart:

Kolko shows that although the densest city centers are rebounding from the pandemic, more than 100% of this is driven by immigration — domestic migration is still strongly away from city centers.

In fact, the new suburbanization trend is being led by Millennials. This is from the Joint Center for Housing Studies:

[W]e found that throughout the past decade millennials were moving to suburbs that were farther out from the city center. There are many ways to define suburbs, and in this paper we rely on a framework that considers rates of homeownership, single-family housing, and car commuting, in addition to proximity to a metro’s urban core. While there is extensive research and discussion about millennial preferences for walkable urban areas, we found that the places with the largest increases of early millennials were both suburban and on the periphery of metropolitan areas. [emphasis mine]

Why are Millennials moving out? Part of it — the part that urbanists and YIMBYs will emphasize — is that they’re being pushed out by higher rents, which are a result of cities failing to build more housing. But that’s not the whole story. Millennials are also being pulled to the suburbs, because suburbs are generally better for raising kids.

Albouy and Faberman (2025) find that the kind of high-skilled workers who drove the urban boomlet of the 1990s through the 2010s tend to move out — and value urban amenities less — once they get a little older:

We show that high-skill workers disproportionately sort into high-amenity areas, but do so relatively early in life. Workers of all skill levels tend to move towards lower-amenity areas during their thirties and forties. Consequently, individuals’ time use and expenditures on activities related to local amenities are U-shaped over the life cycle…We present evidence that the move towards lower-amenity (and lower-cost) metropolitan areas is driven by changes in the number of household children over the life cycle: individuals, particularly the college educated, tend to move towards lower-amenity areas after having their first child. [emphasis mine]

Kolko shows something similar — people with a kid over 6 tended to move out of cities during the urban boomlet, even as childless people and people with young children were moving in:

Anyone with kids can easily rattle off the reasons why suburbs make it easier to raise kids. A big house means more room for kids to have their own bedrooms, space to play, and a back yard to run around in safety. A car makes it a lot easier to ferry kids around to school, or soccer practice, or wherever. Cars also make it much easier to do large grocery shopping trips — try taking a week’s worth of food for a family of four home from the store on foot or on a bike and you’ll quickly understand.

It’s almost a cliche that people move to the city when they’re young — to jump-start their career, to party, to meet friends, to explore the world, to date around, and to find their spouse — and then move out to the ‘burbs once they settle down and have kids. The cliche is rooted in reality.

Instead of attacking suburbia, just make room for everybody

Instead of treating the suburbs as some sort of hellish place that Americans’ car culture has exiled them to, urbanists should recognize that suburbs have real advantages that dense urban cores can’t easily replicate. Yes, too many Americans are pushed out to the ‘burbs by unaffordable housing. But a lot move there of their own free will, because they want a nice place to raise kids, enjoy a short quiet drive to work, and hang out with their friends in a big comfy house. It’s not the lifestyle for everyone, but it’s the lifestyle that a lot of people love and aspire to.

Which doesn’t mean we should ignore the real disadvantages of suburbia, either. Low-density sprawl is very expensive to maintain. It tends to make people less healthy, because they walk less. It reduces variety among restaurants and brick-and-mortar retail outlets, because it’s harder to cater to niche tastes when you don’t have a critical mass of people nearby. Those tradeoffs shouldn’t be ignored.

Nor should we accept that the current suburban form is the optimal one. A lot of American urbanism has focused not on Manhattanizing urban cores, but on giving suburbs a few more of the benefits of cities — creating “gentle density” with rowhouses and duplexes and small apartment buildings, allowing retail in residential areas, adding bike lanes and commuter rail, and so on. This should all continue.

But it’s simply a mistake to frame the question of urban form as “Which is better, cities or suburbs?”. The answer is that they’re good for different things, and they appeal to different sets of people. Instead of fighting flame wars over whether the whole country should look like Manhattan or the Inland Empire, we should aim for a country that has room for everyone. We should build great city centers for the same reason we should build great suburbs — because Americans deserve to have great places to live, no matter what kind of place they want to live in.

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I grew up in the 1980s in a small house with only one bathroom shared between four people. The floor was linoleum. There was a carport instead of a garage, and we had one beat-up used Toyota Tercel hatchback. I don’t remember when we got our first color TV, but when I was young we had a black-and-white one that my grandmother gave us. Our furniture was all second-hand and we kept the couches covered up with worn old blankets.

When I was young, I mowed lawns for money. As a high school kid, I signed up to pick cotton by hand (!!) for an agricultural research project at Texas A&M University, for minimum wage1. I have also worked as a cashier. Twice in my life, I have been a member of a labor union, and I have marched in a strike.

I have never once considered myself part of the working class.

Why not? Because I have never thought of class as being defined by a present snapshot of someone’s lifestyle or material circumstances. Instead, I always thought of class as being about someone’s potential. And I grew up always knowing that my economic potential went far beyond the rather humble circumstances of my early childhood.

For one thing, my family was upwardly mobile. My grandparents could probably be called “working class” in their youth — my grandmother worked in a sweatshop as a teenager, my grandfather wore cardboard in his soles because his family couldn’t afford shoes. But after World War 2, thanks to the GI Bill and rapid economic growth, my ancestors advanced into the middle class, with jobs like optometrist, athletic coach, and registered nurse. My father had a PhD and a tenure-track academic job that promised to pay a lot more after a decade of work. We weren’t rocketing up the income distribution, but we were clearly climbing.

Our humble lifestyle in the early and mid 1980s reflected this future orientation. Our family income was probably around the 35th-38th percentile,2 but this was because we were a one-earner family. My mother chose to spend the first seven years of my life as a housewife — which she did in order to make sure my sister and I got a thorough, accelerated education. We lived an abstemious life in part because we saved as much money as we could.

What were we saving for? My college education, and my sister’s. We were smart kids; we knew we would go to good schools, and we did.3 We knew our college educations would allow us to get good jobs that paid more than our parents ever made. And we were right.

As for the union membership, I was part of the grad student instructors’ union at the University of Michigan, and the professors’ union at Stony Brook. When I marched in a strike in 2008 to secure a raise and health benefits, I was already getting paid to complete a PhD that would eventually increase my earning power even more. Even as I scarfed free food from charcuterie boards at departmental events to save money, I was building up my future earning power at a rapid clip.

Class in some countries is about the past; you can be a shabby aristocrat if your grandfather was the Earl of Whatevershire. In American policy discussions, class is often implicitly about the present — where you lie in the income and wealth distributions this year. But on some level, everyone knows that class in America is really about the future.

Milton Friedman had a theory that sort of gets at this idea, in fact. It’s called the Permanent Income Hypothesis. “Permanent income” is the income you can expect to make over the course of your life. If you’re a shabby grad student living off of cup ramen, your current income is low, but your permanent income is high, because you know you’re probably going to make a lot of money in the future.4

But class in America isn’t just about the money you will make in the future; it’s about the money you could make if you wanted. I know schoolteachers who live modern middle-class lifestyles despite having graduated from the best schools in the country. They could have gone to work for companies and made decently big bucks, but they preferred a more laid-back lifestyle. Whether their children should count as middle class or upper class is an interesting question, but they themselves are clearly the American equivalent of Europe’s shabby aristocrats, because they forsook the upper-class lifestyle voluntarily.

Meanwhile, there are millions upon millions of Americans for whom working in high-paying salaried jobs was just never an option, and never will be. They will spend their entire careers driving long hours in a truck, or stocking shelves at a store, or installing smoke alarms in people’s houses, simply because this is the best they can do.

This explains at least part of why most low-income Americans traditionally consider themselves middle class. They expect to be middle-class at some point; they don’t think they’ll be trapped driving a truck or stocking a shelf forever.5 And it could also explain why the number of Americans calling themselves “lower class” rose in the 2000s and 2010s, as growth in incomes temporarily stagnated and the potential for rapid downward mobility became clearer after the financial crisis:

I’m being very approximate here, of course, and I’m speaking for the country more than I probably should. In fact, America has less class consciousness than many other societies, and when we do talk about the idea, there’s rarely agreement on what it should mean. I wrote about the contested nature of class in American society two years ago:

But I’m speaking from my own personal experience because I think it illustrates something important about class in America. Although we disagree about what the concept should mean, most of us feel deeply uncomfortable with a notion of class that ignores future possibilities. When we see a guy proudly wear a United Auto Workers jacket even though his only UAW experience was as a grad student instructor at Harvard University, something about it feels deeply inauthentic:

There’s nothing wrong with this, of course. It’s not fake; the UAW really does include grad student unions these days. And MacKay could easily be doing this not out of rank political opportunism, but from a sincere desire to express solidarity with union workers from all walks of life.

And yet Evan MacKay is really not in the same boat as people who stand on an assembly line, even if those people make more money than he does. He could, if he wanted, go work in private equity and live in a mansion on Cape Cod. Your typical UAW member could not do that. There’s a sense in which his jacket’s implicit claim of “we’re all in this together” papers over that harsh reality.

Progressives have had an extremely tough time appealing to Americans with low incomes and low education levels. Decades ago, those people tended to vote for Democrats; in 2024, they broke solidly for Donald Trump. Even as they’ve become more and more progressive, the Dems have become the party of well-educated high earners:

Even people who identify themselves as “working class” have been abandoning the Democrats:

Joe Biden tried very hard to win over labor unions, but the Teamsters — once a Democratic stalwart — refused to endorse him.

The socialist faction might style itself a friend of the working class, but it faces the same problem. Zohran Mamdani won his mayoral race thanks to the support of higher-income, educated voters, while his defeated “establishment” opponent did better with lower-income people, Blacks, and Hispanics. Other socialist victories have seen a similar pattern.

This is not actually a new problem. A century ago, in The Road to Wigan Pier, George Orwell complained bitterly that the British socialists of his day were middle-class intellectual elites who failed to win over the working class because they were completely out of touch:

The first thing that must strike any outside observer is that Socialism, in its developed form is a theory confined entirely to the middle classes. The typical Socialist is not, as tremulous old ladies imagine, a ferocious-looking working man with greasy overalls and a raucous voice. He is either a youthful snob-Bolshevik who in five years' time will quite probably have made a wealthy marriage and been converted to Roman Catholicism; or, still more typically, a prim little man with a white-collar job, usually a secret teetotaller and often with vegetarian leanings, with a history of Nonconformity behind him, and, above all, with a social position which he has no intention of forfeiting. [emphasis mine]

Half a century later, Barbara and John Ehrenreich wrote something similar about the American left in their essay on “the professional-managerial class”. The “PMC”, as it has become known, was beginning to dominate the political left even in 1977; today, it arguably forms the Democratic Party’s most important voter base. The DSA faction that’s now becoming more influential within the party is disproportionately drawn from this class — 80% of DSA members had college degrees in 2021, and more than a third had postgraduate degrees (more than twice the national average).

Although they might not have realized it, what the Ehrenreichs were describing was a result of the rising economic importance of human capital. The “youthful snob-Bolshevik[s]” Orwell described in the 1930s were few in number, but the growth of knowledge industries has made this group of people far more numerous — and far more influential in our culture and our politics.

Because of its Marxist inheritance, the idea of the working class is very important to American socialists. But that’s been increasingly hard to square with the fact that voters with lower income and lower education have been steadily drifting away from the Democrats, and form relatively little of the DSA’s membership. One response has been for some socialists to paint themselves as the actual working class. This is a less charitable interpretation of Evan MacKay’s UAW jacket, and it’s also something that has come up in casual conversation. This is from my post back in 2024:

In January 2017, I was at a house party in Berkeley. People were discussing why Hillary Clinton had lost to Donald Trump, and one woman — a law student at the University of California — declared that it was because Clinton had ignored the “working class”. I asked her to describe someone in the working class. She imagined a “sex worker” who had a bunch of student loans and a humanities degree that she wasn’t able to use… I had expected her to describe a unionized auto worker or steelworker or a stereotypical Midwestern guy in a hard hat,…I was utterly unprepared for her to instead describe someone from her own educated progressive social circles…To this law student, the “working class” was simply those of her friends who were most down on their luck.

But on some level, I think this just doesn’t ring true, even within socialist circles. Class in America is just too deeply connected with earning potential and human capital; most people can’t really bring themselves to believe that someone with a diploma from a good school is “working class”, even if they happen to be pulling an unlivable wage as an adjunct professor and sleeping in their car at the moment.

So socialists are always on the lookout for champions who seem more authentically working class. They thought they found such a champion in Graham Platner, who recently dropped out of his Maine Senate race due to rape allegations. This is from a New York Times story about how Platner was recruited:

Last July, in a small town in coastal Maine, three progressive, self-styled recruiters of economic populists showed up at the blue-shingled house of Graham Platner, a little-known oyster farmer and Marine veteran who lived largely off government benefits…They knew his name from local labor organizers and activists, and they had watched a video on the internet of him talking about oysters. Struck by his left-leaning ideology, his working-class affect and his gravelly voice, they became convinced that he could win a Senate seat in Maine — and quickly persuaded Mr. Platner of the same…The recruiters — Dan Moraff, Leanne Fan and Morris Katz — told Mr. Platner he was “the one,” a “hero of the movement,” “a historical figure” who could be “leading a revolution,” according to half a dozen people with knowledge of their conversations.

Is Platner actually working class? You can argue it either way. He went to a good college but dropped out due to psychological issues. He’s the son of a lawyer and an architect, but failed to make much money with his oyster farming business, and mostly lived on welfare benefits. He doesn’t fit cleanly into the kind of class categories I described above.

But the people who picked him do! Dan Moraff and Morris Katz are both educated scions of rich families — Moraff’s ancestor founded the company that became Toys “R” Us — while Leanne Fan is a sociology PhD student. If the NYT’s reporting is correct, they appear to have picked Platner based entirely on stereotypes and vibes — he seemed rough and tough and down on his luck, so they assumed he was a real working class guy who could connect with other working class guys. This seems to have convinced them that Platner was a messianic figure who could bring wayward working-class voters back to the Democratic fold.

As many people have said, if Trump is “a poor person’s idea of a rich person,” Platner is basically the opposite — a rich person’s idea of a working-class person.

This episode doesn’t make me particularly optimistic about Democrats’ ability to reconnect with their rapidly vanishing blue-collar base. I don’t think it’s impossible, of course. But it would probably require moderating on social issues — DEI, immigration, etc. — instead of just running candidates that pattern-match to the kind of people that bullied rich lefty kids back in junior high.

The Platner saga also makes me a bit pessimistic about American society as a whole. Although we don’t talk about class much, it’s separating us more and more, and the cultural gap is now so big that lots of Americans seem unable to even imagine what Americans from other social classes are like.

The integrating institutions that once pushed us together across class lines — church, the military, schools in mixed-income neighborhoods — have waned in importance. College has grown to fill some of that void, but less than half of the country is really prepared to handle the rigors of a college education, and so it ends up dividing our society more than it unites it. Mass media has fragmented into the millions of little social verticals that make up the internet. We’ve sorted ourselves geographically — knowledge workers live together in progressive urban enclaves on the coasts, while blue-collar types inhabit the small towns and down-market suburbs.

I read Tocqueville, and I miss the roiling, fluid, egalitarian young democracy that I never knew. I think back to my childhood, in a little house on a dusty side street in a small Texas town, and I feel like I can just barely recall the fading embers of that stubbornly classless democracy. Something happened between then and now. We let the Old World sneak up on us.

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In my post on America’s 250-year anniversary, I argued that respect for the individual was the “secret sauce” in the U.S.’ long-lasting preeminence among nations. But it was certainly not the only factor. There were plenty of institutional innovations that helped the U.S. stay on top — economically, militarily, and in terms of the attractiveness of its society.

One of these was American science. Today we take things like the modern research university, government grants for science, public-to-private research spinoffs, etc. for granted, but a lot of that infrastructure wasn’t there before World War 2. It was either invented or scaled up massively by the U.S. government in the postwar period, led by far-sighted scientist-bureaucrats like Vannevar Bush (pictured above). If you want to read about this history, a good place to start would be Jonathan Gruber and Simon Johnson’s excellent book Jump-Starting America.

Those scientific institutions didn’t exist in a vacuum, however. They were backed by the U.S. government’s abiding faith in the power of science — and, even more fundamentally, by deep popular trust in the scientific enterprise. Science gave us radar and the atom bomb in wartime, and in peacetime it gave us plastics, vaccines, cheap food, and a thousand other things that made our lives easier. Science was also the driver behind American industry — chemicals, aerospace, telecommunications, computers, electronics, and so on.

We owed science our jobs, our livelihoods, our comfortable living standards, and our greatness and power as a nation. It’s little wonder that both political parties, even as they fought viciously over other issues, were steadfast in their support of science. For a long time, the only people who distrusted science were a hippie fringe on the left who disliked modernity (or thought they did, anyway), who also disliked American industry and American power, and who subscribed to an early version of degrowth environmentalism.

America’s scientific enterprise is still strong, especially compared to the systems in Europe, Japan, Korea, and other developed countries. It has lost a lot of ground to China in a relative sense, but a lot of that is because of China’s incredible growth; as China has poured untold amounts of money and talent into its research labs, spending and output have overtaken the U.S. by some measures.

There are a few ways in which China’s rise creates problems for American science — for example, top scientists can choose to work in China instead of in the U.S. — and of course there’s the concern that China’s technological strength will help its military to reign supreme. But overall, China’s rise in science should be good for American science, since American scientists can use Chinese discoveries for free and build on them.

The much bigger problem is that the scientific enterprise America built during and after World War 2 is now being threatened with absolute decline. The biggest problem, of course, is that much of the country — the Republican half — has basically lost faith in the scientific enterprise. To what degree this loss of faith is justified is an open question, and deserves to be discussed openly. But the larger point — that the system that powered American dominance is under threat — is true either way.

Most Americans still trust science, but MAGA Republicans don’t

There’s a myth, popular in right-wing circles, that scientists have lost the trust of regular Americans — either due to the increasingly left-wing composition of academic departments, or to misbehavior during Covid, or to DEI-related research taking over science, etc. This also fits with a wider narrative that Americans are losing trust in all of our institutions.

But it just isn’t true. Poll after poll shows that on the whole, Americans still trust scientists and want to spend more on science. For example, here’s a Pew poll from late 2025 showing that although about a fifth of Republicans did lose confidence in science in 2020, two thirds still have at least “a fair amount” of confidence:

That same poll found that scientists are among America’s most trusted groups — even better trusted than the military!

In fact, Americans trust scientists more than people in most other countries do.

Other polls show that although Republican trust in science has dropped somewhat, Republican support for spending more on science remains very strong:

A Pew poll in 2023 found the exact same thing:

So when MAGA types tell you about scientists losing their credibility, or a drop in trust in science, they’re only talking about themselves. Whatever left-wing politicization of science happened during the Biden administration — and there was definitely some of that — it was not enough to make most Republicans lose faith in the scientific enterprise, or favor research cuts in order to purge unwanted ideology from the system.

That doesn’t mean I think progressives should continue down the path of politicizing scientific research. They should not, and Biden made real missteps in this area. Objectivity clearly matters for public trust of science in the long term. But as of right now, there’s no crisis of trust in science, except among the smallish minority of people who are running around screaming that there’s a crisis of trust in science.

But despite science’s overwhelming popularity and public trust, Trump and his administration are launching an unprecedented and devastating attack on American science — cutting funding, and forcing science projects to undergo ideological review by government commissars.

Trump’s comprehensive attack on science

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“Her belly may be full, but her spirit will be empty.” — Captain Picard

Usually, these “GDP is actually good” posts start with a big disclaimer — an acknowledgement of all the things GDP doesn’t measure, all the reasons that measuring GDP is an inexact science, and all the ways that we need to improve society other than just making the GDP line go up. If you want a standard wonky explanation of why GDP is a useful number, here’s one that I wrote four years ago:

Today I’m going to do something a little different. I’m going to tell you what I think the debate over GDP is really about.

Free trade usually raises GDP. Immigration, done right, raises GDP.1 Rightists in America want less free trade and less immigration. But every time they propose restricting trade and immigration, someone — either libertarian business/econ types on their own side, or moderate liberals on the other side — says “That will make America poorer!”. So they want some way to neutralize this objection, so they can do things that will, in fact, make America poorer.

So America’s right borrowed an argument from the European left. The European left favors degrowth, and another term for degrowth is “making GDP go down on purpose”. So naturally, they’re always trying to find reasons to denigrate GDP as a metric of human flourishing (see here, here, and here for examples). The American right is simply tweaking these arguments to make them more appealing to their own base.

JD Vance, who has emerged as the consensus leader of the New Right, makes a bunch of these anti-GDP arguments in his new book. For example, he uses the example of Japan to point out that unobserved quality differences in non-traded products can make it difficult to compare GDP across countries:

If you’re focused on GDP, a $6 pint of Japanese strawberries is no different from a $6 pint of American strawberries. If you’re focused on dollars and cents, each contributes equally to the economic indicators. But if everyone in Japan eats better strawberries than everyone in America, the economic indicators have failed to measure something meaningful.

This is actually a good argument, and I’ve made it myself many times in the past. I’m in Japan right now, and there actually are a lot of little things that make Japanese products and services a bit nicer than their American counterparts — clean tables at Starbucks, slightly better-tasting food, and so on. Economists who try to adjust for quality differences end up catching some of these things, but probably miss most of them. That ends up creating a problem for GDP comparisons between countries. And it’s only one of many such problems. Comparing lifestyles in countries where life is very different is just a difficult thing to do.

But instead of simply noting that economics is hard, JD Vance uses this good argument as a reason to bash the entire field of economics:

When I got back home, a friend asked me if I learned anything on my trip to Japan. “Yes,” I replied snidely. “Maybe economics is just fake.”

When you read some of Vance’s other arguments against GDP, his agenda becomes clearer:

[A]s the decline of Christianity has left us without a shared moral language, economics has stepped into the vacuum. We pretend there are scientific answers to questions of values. Take one of the major issues of the 2024 campaign and a significant focus of our time in the White House: Should our trade policy be oriented around protecting domestic industries and jobs or around ensuring a short-term supply of cheap consumer goods?

This idea — that economists urge values of base consumerism on society, and ignore other moral considerations — is common in European leftist discourse. But instead of urging us to care more about inequality, power, and so on, as European leftists do, Vance wants us to care more about spiritual elevation, morality, community — i.e., things that the American right cares about. He goes on to write:

[W]e now live in a society almost blinded to considerations outside of the economic. This way of thinking is inherently opposed to the Christian way, which demands more focus on people…Take, for instance, the time we spend with our children…Domestic labor—that done by moms and dads—if unpaid, is uncounted in measures like GDP. When I leave work to spend time with my children, when I cook them dinner or argue with them about eating their carrots, I am engaged in economically unproductive work. No money changes hands, so it doesn’t show up in our national figures. By contrast, if I left for dinner at 6 p.m. and returned to work until midnight while paying a total stranger to look after my kid, my contribution to GDP would be much higher.

and:

If you step away from the glory of economic statistics, so much of American life has gone wrong. An influx of prescription opioids became a flood of synthetic opioids, which has led to tens of thousands of deaths each year and a declining life expectancy among a substantial portion of our society. We have made great progress on reducing infant mortality, but we send our children into a world—even in the physical security of their own homes—that bombards them with images and influences that have left them isolated, depressed, and increasingly at risk of self-harm. We are more disconnected, lonely, and isolated, even in the midst of historic levels of material comfort.

All this economic abundance coexists with intense spiritual misery. We orient people toward a life of consumption. We tell them to find meaning in the home they buy, the money they earn, the prestige of their job. We bombard them with all manner of creature comforts, and add their consumption—price club mega-size junk—to our national GDP. We use that GDP as a yardstick for our broader society, which is why it’s possible for false prophet economists to argue the American Dream is healthy even as suicide and addiction rates soar and the laughter of children fades from our streets.

Some of these arguments are — in my opinion — reasonable. A culture of overwork can boost GDP, at least in the short term, at the expense of quality time with family. This is actually a common argument of the center-left, which is why liberals have long fought — often successfully — for more paid family leave and other policies that reduce GDP slightly in exchange for more quality time with family. Whether this has increased birth rates isn’t clear — the evidence is very mixed — but it’s a very popular policy.

Other arguments are clearly mistaken. Over-prescription of opioids has clearly reduced GDP, by a massive amount. Yes, selling a bunch of opioid painkillers to Americans raises GDP by a few billion dollars, but this is vastly outweighed by the trillions of dollars of GDP that we lose from having a bunch more people addicted to painkillers, heroin, and fentanyl. Here’s the Philadelphia Fed in 2023:

There is growing evidence that the opioid epidemic has harmed many aspects of the real economy, including the labor market, consumer finance, and municipal finance. According to analyses from the Council of Economic Advisers’ 2019 report, the annual (nominal) economic cost of the opioid epidemic, including the cost of lives lost, is estimated at about $700 billion (roughly 3.4 percent of GDP) in 2018 alone, and over $2.5 trillion from 2015 to 2018. [emphasis mine]

So if you care about GDP, you should view curbing opioid and opiate abuse as a huge priority! Vance is simply not thinking about this very clearly.

But Vance’s real problem is that he conflates correlation with causation. In words that could have come straight from the mouth of a European degrowther, he rails against “creature comforts”, “consumption”, and “price club mega-size junk”. But nowhere does he explain why depriving Americans of these creature comforts would give them closer-knit families, a stronger sense of morality, stronger communities, reduced loneliness, and so on.

Why would taking away Americans’ large houses, SUVs, big-screen TVs, or central air conditioning make them spiritually richer? Modern Europe — which JD Vance spends much of his time railing against — lacks most of these things. And yet America has higher fertility rates than Europe, we go to church much more, and we have a much more robust social conservative movement. Europe has also been far more restrictive of speech that criticizes Islam, as Vance repeatedly notes. Yes, America has been trending away from social conservatism and Christianity in recent decades, but so has Europe, and the gap remains. Other developed countries in East Asia — most of which are moderately poorer than the U.S. in GDP terms — are extremely secular.

What about America’s past? We were much poorer in the 1950s, yet we went to church a lot more, had larger families, and so on. If you took away the material gains we’ve made since then, would we go back to tradwives and bowling leagues and lawn parties and Sunday church and 4 kids per family?

Perhaps, but it’s doubtful. Remember that the 1950s and 1960s were the culmination of a long upswing of community, religiosity, and so on in American society — something the sociologist Robert Putnam has documented extensively. Church attendance rose:

Fertility was on the upswing too:

And if you believe Putnam’s numbers, social solidarity increased all throughout the early 20th century:

It’s important to remember that this all came during the most robust and rapid period of GDP growth that America has ever seen. Over the period in which our social solidarity was soaring, our GDP per capita nearly tripled:

It was during this time that Americans got many of the “creature comforts” that Vance despises — the single-family homes, the cars, the televisions, the lawns, and so on. The image of that material prosperity, depicted in glossy ads and paintings from the time, is a powerful part of 1950s nostalgia.

In fact, many economists argue that one big cause of the Baby Boom was the fact that economic growth — bigger houses, better medical care, new labor-saving devices like washing machines, refrigerators, and vacuums, and so on — made it easier and cheaper to raise kids. This is from a relevant Works in Progress article by Anvar Sarygulov & Phoebe Arslanagic-Little:

Parenthood rapidly became much easier and safer between the 1930s and 1950s. The spread of labour-saving devices in the home such as washing machines and fridges made raising children easier; improvements in medicine making childbirth safer; and easier access to housing made it cheaper to house larger families…

[H]ousehold electrification paved the way for other technologies, including home refrigeration…By the 1940s, electric washing machines were becoming normal in middle class homes…Between 1936 and 1956, America’s maternal death rate fell by 94 percent, from 51 deaths per 10,000 live births to under 3…[M]edical advances, which were being made across the West, radically reduced the most serious potential cost faced by prospective mothers: life itself…

Alongside strides forward in household and medical technology…[I]t became easier to secure a home in which to raise children. The number of houses built soared across the West after World War Two…This house-building bonanza led to sharp rises in homeownership rates.

The golden thread linking the phenomena that comprise the triple mechanism we describe above – advances in household technology, progress in medical technology, and easier access to housing – is that they together sharply reduced the cost of having children. [emphasis mine]

If you like the kind of society we had in 1960, you can’t ignore the story of how we got to 1960. The answer was “economic growth”. This, combined with the examples of Europe and Asia, is why there’s no reason to believe that forcing Americans to be poorer — taking away the “creature comforts” Vance despises — would lead us to suddenly rediscover the value of community, family, and religion.

Now it’s worth noting that if you were to decrease America’s GDP to poor-country levels — below $15,000 per person, as opposed to over $90,000 today — you might be able to raise fertility. That’s how low you have to go before most countries have fertility above replacement level:

Countries with a basically pre-modern standard of living — where many women can’t read or write, and infant mortality is so high that families have to have many kids as a form of insurance — tend to have above-replacement fertility (though some don’t). But even this law is weakening, as fertility rates in Sub-Saharan Africa plunge, so even that extreme level of GDP reduction would probably fail to restore high fertility over the long run. Also, I kind of doubt that JD Vance wants to force Americans to live lives similar to those lived in Sub-Saharan Africa.

What about JD Vance’s preferred policies — trade protectionism and immigration reduction? Would those restore American community, family, and religion, at the expense of a bit of GDP? As I said earlier, that’s actually what I think this whole debate is really about.

On trade, you’ve seen Trump explicitly make the argument that Americans are going to need to suffer a bit of material deprivation in order to achieve the administration’s goals:

But how will doing this restore community, family, etc.? Presumably you could make an argument that protectionism will bring back good manufacturing jobs, which will then give men the confidence and social standing they need to get married and have kids. There’s just one big problem with this, though: Trump’s trade policy doesn’t actually increase the number of good manufacturing jobs. We’ve lost manufacturing jobs since Trump took office last year!

In fact, Trump’s tariffs are hurting the U.S. manufacturing sector, by raising the cost of intermediate goods. Economists understand this pretty well; JD Vance, who thinks “economics is just fake”, does not seem to understand it.2

How about immigration? Rightists will endlessly cite Robert Putnam’s finding that diversity reduces social trust in American communities. But as Bryan Caplan and many others have pointed out, the effect size is tiny — in Putnam’s research, going from zero diversity to maximum diversity reduces social trust by the equivalent of 1 point on a 100-point scale. This suggests that all the mass deportations in the world won’t move the needle on American community and togetherness.

In other words, JD Vance’s crusade against GDP is a cargo cult. Sure, GDP doesn’t measure “the beauty of our poetry or the strength of our marriages,” to use Robert F. Kennedy’s famous words. But that doesn’t mean that making Americans poorer will make their poetry more beautiful or their marriages stronger. Nor does it mean that policies that also happen to make us a bit poorer, like immigration reduction or tariffs, are any more likely to strengthen our society.

In a famous episode of Star Trek: The Next Generation — my favorite TV show of all time — Captain Picard castigates an alien for turning his society into a fascist empire. When the alien responds that the fascist government’s forced modernization program raised his daughter out of poverty, Picard responds with the beautiful quote at the top of this post: “Her belly may be full, but her spirit will be empty.” But was Picard arguing that it was the full bellies themselves that emptied the people’s spirits? Was he merely arguing that the fascist empire ought to become a poorer fascist empire, in order to restore the virtue of the people? Only a fool would think so.

Look, I also want America to have a stronger society. I want us to have more kids. I want us to have more stable families. I want us to have closer-knit communities, better moral values, etc. But that doesn’t mean the New Right knows how to get us there. So far, the New Right has built nothing — no new community organizations or institutions, no religious revival, nothing that would knit our society together. It has merely thrashed and thrashed against modernity, with no plan for a replacement. JD Vance’s crusade against GDP is simply more of the same.

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2

In fact, if you care about Americans having jobs, maximizing GDP growth is an important part of the equation. Okun’s Law — one of the most well-established regularities in economics — states that the unemployment rate is very strongly (negatively) correlated with quarterly GDP growth:

And only when GDP is growing robustly is there upward pressure on wages. The greatest period of growth for working-class wages in America since the 1960s was 2014-2024, despite inflation and the pandemic, because steady GDP growth kept us at full employment for most of that time.

Nor is this simply a case of correlation vs. causation. The mechanism is aggregate demand — when the economy is growing fast, people need more workers to produce things. So if you increase aggregate demand to make GDP grow faster, you raise total employment (though you don’t always want to do this, because of inflation). Yes, you can give people government jobs when the economy isn’t growing, but A) these jobs will generally not be great, and B) this will lower productivity and put downward pressure on wages. So for good jobs, you need GDP growth.

Back in the 2010s, a lot of people marveled at China’s seemingly recession-proof economy. Throughout the global financial crisis of 2008 and the Chinese stock market crash and capital flight of 2015, the country never recorded a single quarter of negative economic growth. Here’s what I wrote back in 2019:

China’s government seems to have developed a highly effective new form of economic stabilization. Its extensive control of the financial system allows it to turn on a flood of bank loans when the economy looks weak, and restrain credit when the danger has passed. China’s avoidance of recession in at least the past three decades suggests that this form of credit-based stabilization is more effective than traditional, more indirect stimulation of the economy through government deficits and central bank monetary easing…When a recession threatens, the government tells banks to lend --— to local governments, construction companies and real estate developers. Then, if the credits go bad, the government swoops in and takes the nonperforming loans off of financial companies’ books. Uninterrupted rapid growth then shrinks the government debt as a percentage of gross domestic product, and the system sails blithely forward[.]

And here’s what I wrote in 2018:

China…directed banks to lend lots more money [in 2009]. The World Bank estimated that increased bank credit represented 40 percent of China’s stimulus. Much of the lending was done by China’s four large state-owned banks. The money went to infrastructure, real estate and all kinds of corporate projects, many of which were carried out by the country’s state-owned enterprises.

Basically, most countries use two types of policy to get the economy moving again when some sort of negative shock hits it:

1. monetary policy (e.g. cutting interest rates), and

2. fiscal policy (e.g. stimulus spending).

Macroeconomists disagree about why interest rate cuts give the economy a boost, but most agree that the policy usually has an effect. Although there are many other theories and interpretations, one way you can think of rate cuts is as a financial policy — by making it easier for businesses to borrow and invest, low interest rates stimulate business activity. Fiscal policy, in contrast, pretty much bypasses the world of finance and aims directly at the real economy — you build a bridge or a road, which employs some people who might otherwise be unemployed, and then those people turn around and spend their money elsewhere in the economy, igniting a virtuous cycle of spending and working.

China uses both of those, but it also uses a third policy: financial policy. Instead of simply cutting interest rates and hoping that this filters through to bank lending, China’s government uses its direct control over the banking system to push banks to lend more. In the 2010s, after the Great Recession and the 2015 Chinese stock crash, this mostly meant lending to real estate companies. This lending fueled the biggest property boom the world has ever seen.

The boom ended in late 2021. The crash of the Chinese property developer Evergrande began a sequence of bankruptcies and defaults across the entire real estate sector. China’s property prices began to fall, and have not stopped falling to this day:

Chinese housing construction plummeted as well:

But despite the housing crash, China’s official growth rate never fell below zero — or even below 3%:

In fact, China did this by resorting to a version of the same playbook it used in 2009 and 2015. The Chinese party-state called up its captive banking system and told it to lend huge amounts of money to manufacturing companies. And that’s exactly what it did — industrial loans surged, even as real estate loans petered out:

It’s tempting to cry “China’s done it again!” In fact, that’s exactly what some people are now doing:

Skeptics will caution, of course, that this sort of stabilization policy can come with a cost: lower productivity growth and economic inefficiency over the long term. That’s probably what happened in the 2010s, as China’s repeated use of real estate lending to stabilize the economy directed resources to inefficient real-estate companies and led to lower productivity growth. Now there’s the possibility that China’s wave of financial stimulus in 2022-2024 may lead to an overhang of unproductive “zombie” companies that keep soaking up labor and other resources for years to come:

But admirers of China’s economic system will be undeterred. They will point out that productivity is hard to measure; that long-term costs are both uncertain and hard to verify; and that long-term problems can always be fixed later. The more important fact, they’ll argue, is that China did exactly what Xi Jinping said it would do — to pivot away from an excessive reliance on real estate without causing the economy to shrink. “Chinamaxxers” will use this as reason to crow about the superiority of the Chinese way, while left-leaning intellectuals will use China’s performance as a foil to demonstrate the benefits of greater government control over the economy.

There’s just one problem with this triumphalism: China did, in fact, have an economic crash as a result of its real estate bust.

The first way to see this is to look at China’s job market. In 2023, China famously modified its youth unemployment data to use a narrow definition of unemployment, because the numbers were getting too high. But even the revision couldn’t mask the upward trend:

Overall unemployment was recorded as rising only a small amount. But as Bloomberg reported at the time, China’s total unemployment numbers aren’t a very good measure of the labor market, and alternative indicators told a much more pessimistic story:

Alternative indicators and anecdotal reports suggest unemployment is worse than the official monthly figures show…[T]he [official headline] figures aren’t sensitive to changes in the number of migrants from China’s rural areas who work in cities; they also don’t capture the number of people who have dropped out of the labor market for more than three months or those unable to start work…

The employment sub-index for China’s non-manufacturing purchasing manager’s index, which tracks hiring intentions in the service and construction sector, has stayed consistently below pre-pandemic levels for most of the past 12 months…Official data shows there’s been no growth in the migrant worker population since the pandemic…The average number of workers at industrial enterprises with revenues above 20 million yuan ($3.1 million) fell to 7,398 in November 2021 from 7,419 in November 2020, according to official statistics…Because of the weak labor market, record numbers of young people are preparing to take exams to qualify for post graduate courses or enter the civil service [and] would not be counted as job seekers[.]

What about GDP growth? In her tweet above, Kathleen Tyson declares that China “was the first to deflate a massive, leveraged housing bubble without a single quarter of economic contraction or loss of growth momentum in the real economy”. But is that true?

Well, no, it’s not. According to China’s official statistics, the Chinese economy shrank by 0.8% in the second quarter of 2022:

China’s growth is usually reported in year/year numbers, but quarter/quarter is how the U.S. and most countries do their reporting. So by the kind of measurement Americans are used to hearing about, China’s economy officially contracted at an annualized rate of over -3% in the second quarter of 2022. This was also revised down from the -9.3% that was reported in the initial version of the statistics. As for “loss of growth momentum”, China’s economy is officially growing around 2 percentage points slower than it was just before the pandemic.

So even if we accept the official numbers, the claim is wrong. But should we accept the official numbers? Probably not. There is evidence that the Chinese government “smooths” its growth numbers — in good years, it fudges downward, and in bad years it fudges upward. This is from Nakamura et al. (2016), who use detailed data on Chinese consumption to estimate how incomes changed:

Our estimates suggest that official statistics present a smoothed version of reality. We find that inflation was overestimated and growth underestimated by several percentage points per year in the late 1990s. In contrast, since 2002, official inflation statistics have risen only modestly, but our Engel curve based estimates have risen much more. Our estimates imply that growth was substantially lower than official statistics suggest since 2002, and actually dipped into negative territory in 2007 and 2008.

A bunch of analyses claim that China has also done this in response to the property crash. The Rhodium Group used alternative data sources to estimate that China’s economy actually shrank in 2022 and grew much more slowly in 2023 than the official numbers suggest:

Officially, China reported 3.0 percent real GDP growth in 2022, despite the fact that significant proportions of the economy were under strict lockdowns to prevent the spread of COVID-19 during large portions of the year, retail sales fell outright, and investment in the property sector was collapsing. In 2023, the decline in property investment continued, net exports and government spending were drags on growth, and household consumption growth remained relatively low. Beijing provided little direct assistance to households to facilitate spending, and Chinese households added to savings and paid down mortgage debt instead of spending more. Yet China officially reported 5.2 percent real GDP growth in 2023, barely slowing from the pre-pandemic pace of 6 percent in 2019, even though the property sector was experiencing a boom in 2019 and was collapsing in 2023…We estimate that real GDP growth was closer to a contraction of -0.3 percent to -0.8 percent in 2022, and there was only modest growth of 1.5 percent to 2 percent in 2023. [emphasis mine]

The Bank of Finland was a little less negative, but still estimated that growth stalled in 2022:

Capital Economics, which tracks a whole bunch of independent estimates, finds that China probably did experience a recession in 2022, though it’s pretty positive about growth since then.

One particularly pessimistic indicator is inflation, which has slipped into negative territory in China since the real estate bust:

Deflation is a classic sign of low aggregate demand and a slowing economy.

It should be noted that there are a few analysts who disagree, and think that China’s growth numbers are basically accurate. But most independent assessments conclude that China’s growth not only suffered a sharp hit in 2022, but has been weaker in the years since the end of the pandemic.

It makes sense that China’s government would continue their traditional approach of smoothing out growth numbers in the short term in order to project an attitude of stability and calm. But smoothing only works if the economy eventually bounces back. If China is on a new longer-term trajectory of lower growth — which of course remains to be seen — then there will be too few good years to “pay back” the growth that was “borrowed” in the bad years of 2022 and beyond.

I don’t want to detract from China’s accomplishment here, or say that its macroeconomic stability is entirely fake. China has invented — or, perhaps, perfected — an alternative tool for macroeconomic stabilization. Countries all over the world, including the United States, should study China’s financial stabilization policy and think about how to accomplish something similar without direct government control over bank management.

But at the same time, I don’t think we ought to be idolizing Chinese macroeconomic policy either. Even if there don’t turn out to be long-term productivity costs — which is a big “if” — China still hasn’t managed to rewrite the rules of aggregate demand and aggregate supply.

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“What other country would have done this?” — Daniel Inouye

“We don’t repeat this every day, but there are 33 words that are very sacred to all of us. We do the repetition a little differently but ‘We hold these truths to be self-evident. That all men are created equal. That they are endowed by their creator certain inalienable rights. That among these are life, liberty, and the pursuit of happiness.’ It’s operational. Believe me.” — Daniel Inouye

China’s last imperial dynasty, the Qing, lasted 268 years. The Ming Dynasty that preceded it lasted just slightly longer, at 276, while the celebrated Tang made it to 289. Decades before each of those dynasties officially fell, they were shells of their former selves, with much of the land outside the control of the central government.

Barring abrupt catastrophe, the United States — which today marks a quarter of a millennium — will probably last as long as the Qing, the Ming, and probably the Tang. The country’s foundations are certainly shakier than when I was a child, but we have not yet entered an obvious terminal phase. The economy is still robust — our GDP remains on the smooth upward trend it has been on since we started measuring such things eight decades ago:

We cannot (or will not) build a functional passenger train network, but our AI industry is upending the world. Our health care costs twice as much as that of other rich nations, but our houses are huge and luxurious. Our cities are burdened with crime and disorder, but e-commerce delivers everything we need, straight to our door. The hour of the wolf is not yet upon us. It seems a safe bet that there will still be a United States of America in 2044, 2052, and probably 2065.

And yet we’ve reached the stage where we can peer through the fog and see how this grand experiment might be heading toward its conclusion. Much of the country has eased into a comfortable equilibrium of sclerosis; local veto power either prevents the construction of factories, housing, energy, transportation, and other infrastructure, or delays it by decades, or raises the cost to multiples of what other rich countries pay. The past has become more valuable than the future to many Americans; they cling desperately to the power to enforce stasis, preserving a facade of the country they grew up in at the expense of the very dynamism that made that country great.

That sclerosis seeps into everything else. Immigration, and even migration from city to city, becomes a vicious zero-sum fight over a fixed housing supply. Cities decay into museums of themselves. The industries of the future can only be built in America if they take up nearly no land, use nearly no energy, require very little bank financing, and are able to procure skilled labor as needed from abroad. Somehow the internet industry satisfied all of those conditions for three decades, but that time is done.

Our politics, meanwhile, has degenerated into movements defined more by who they hate than by any positive vision for the country’s future. Rightists are consumed by their hatred for immigration, leftists by their hatred for Israel. Even intellectual liberals — my own movement and social class, if only by process of elimination — increasingly subordinate other goals to their dream of lowering the social status of wealthy technologists.

To the extent that popular visions of a better America exist, they are rank and obvious fantasies — homogeneous harmony that rightists will never be able to create, or socialist plenty that socialism is incapable of delivering. There are plenty of workable, feasible future visions that would advance the frontiers of freedom, dignity, and prosperity; no faction of the engaged American public seems particularly interested in them.

Political discourse in America is still the baleful thing it became in the 2010s — a vicious free-for-all of social media influencers using hatred, division, fear, and misinformation to win the ear of the powerful political staffer, think tank, and journalist classes. Everything exists in the shadow of the almost-revolution of the late 2010s — an upheaval whose force has mostly receded but whose damage has yet to be fully assessed. Meanwhile, the country’s powerful enemies abroad are sharpening their knives.

If there is a reason to be pessimistic about America’s future, it’s that so few of the country’s citizens seem to believe in it. We used to be an unusually patriotic nation; now Americans are less proud of their nation than Europeans, Asians, or people in any other major world region:

The rightists who now dominate the GOP believe that America will only be valuable as a going concern if its old ethnic composition can be forcibly restored. The leftists who are surging among the Democrats, meanwhile, have a vision of America as an evil empire that could have come straight from old Soviet propaganda; this idea finds fertile ground among progressives who for a decade have mainlined the notion that America is “stamped from the beginning” with racism. How will the country be saved if no one thinks it’s something worth saving?

It would be foolish, of course, to predict that the U.S. is headed for the scrap heap within our lifetimes; uncountably many such predictions have made fools of the people who made them. The country is not facing mortal, imminent danger; its enemies are powerful but most of its wounds are self-inflicted. The United States may yet survive, with its territory and its constitutional democracy intact, to its 300th birthday and beyond.

Even so, it’s far from clear what a nation will even mean in those decades and centuries to come. The human race as a whole is set to dwindle, as fertility falls below replacement in every corner of the globe. At the same time, more and more of the thinking done on the planet will be done in data centers rather than within human brains. In that posthuman world, it’s not at all clear that humanity will even need the nation-state to provide the crucial organizing and coordinating role it played during the previous two and a half centuries.

So whether or not this is the beginning of the end for America, it’s the beginning of the end for something even bigger and more important — the human age. By that I mean the age when humanity, unassisted by any higher intelligence, broke free of the chains that had bound it for millennia and became something greater.

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Birthright citizenship is the law of the land. The Supreme Court has once again ruled that the 14th Amendment gives automatic citizenship to anyone born in the U.S.1 This includes the children of illegal immigrants and temporary visa holders, both of which the Trump administration had sought to exclude from birthright citizenship.

Rightists immediately began howling about the ruling, and saying some very intemperate things. Sean Davis of The Federalist suggested dissolving the Union and/or sterilizing foreign visitors to the United States:

Right-wing political commentator Matt Walsh shrieked that the America he grew up in — which also had birthright citizenship and significant amounts of illegal immigration — has somehow been destroyed as a result of the SCOTUS ruling:

These histrionics — sadly typical of online reactions to major news events in the social media age — demonstrate how central the anti-immigration cause has become to the political right in the United States. The notion that immigration is an invasion bent on destroying the country by replacing its founding population has become a bedrock belief on the Right; it is a singular, all-consuming passion similar to what anti-racism was for 2010s progressives and Palestine has become to leftists in the 2020s. Nor is it just an object of passion; nativism has become a self-contained, hermetically sealed worldview not subject to reasoned argumentation, logic, or data.

It is a distinctly minority worldview. The overwhelming majority of Americans continue to say that immigration, on the whole, is good for this country:

This does not mean that Americans want open borders, or that they think all kinds of immigration are good. Sentiment against illegal immigration, and in favor of increasing border security, remains strong. A backlash against the disorderly flood of quasi-legal immigration under Biden helped get Trump elected in 2024. But even illegal immigration is not seen as an invasion by most Americans — support for a pathway to citizenship remains strong, even among many Republicans not affiliated with the MAGA movement.

The rightist view of immigration as the death knell of America is simply a small minority viewpoint. Guys like Sean Davis and Matt Walsh are a screechy online fringe. They seem to think that if they screech loud enough and make dramatic enough threats (“Dissolve the Union!”, “Sterilize tourists!”, and so on), they can bully the supermajority into giving them their way. They basically expect veto power over this one issue, based purely on the strength of their emotion.

And on the narrow question of birthright citizenship, poll after poll shows that Americans want to keep the practice. Here’s an example from The Hill:

Nearly 70 percent of respondents in a Quinnipiac University poll think the Supreme Court should keep birthright citizenship in place. The results come ahead of the high court’s ruling on the legality of President Trump’s executive order seeking to end the policy…The survey, conducted between June 18 and 22, found that 69 percent of 1,165 self-identified registered voters believe the Supreme Court should keep in place its 1898 ruling affirming that the 14th Amendment guarantees citizenship to those born in the U.S…Less than 3 in 10 respondents (27 percent) said the high court should reverse its decision[.]

That doesn’t mean the public entirely disagrees with the Trump administration. About half of Americans think that birthright citizenship ought to be denied to the children of illegal immigrants:

(It’s not clear what Americans think about the children of temporary visa holders; this question is typically not broken out in polls, and it’s not clear whether Americans generally understand the difference between permanent residents and legal visa holders.)

So if the MAGA movement were pragmatic — if they really wanted to succeed in restricting immigration in a way that Americans would support, instead of just screeching louder and louder about immigration in general in an attempt to cow the majority into giving them their way — there might be room for them to change the law. They don’t currently have enough support for a Constitutional amendment specifically revoking birthright citizenship for the children of illegal immigrants, but they might be able to get over that line with a concerted campaign.

But that’s a bit of a moot point, because the right is probably not going to execute that sort of pragmatic, majoritarian strategy. Immigration has become a culture war. Taking a maximalist position on the issue is a way for people to signal their allegiance to the MAGA movement; supporting substantive compromises that win real policy victories broadcasts that you’re not a core part of the movement.

As for Democrats, they seem to still be almost entirely reacting against MAGA. On the positive side, this means that even hardcore leftists like Hasan Piker responded to the SCOTUS ruling by temporarily dropping their “America is evil” shtick and showing some national pride:

On the minus side, it makes it even harder to get coherent immigration policy. Trump & co. want to make immigration harder, so Dems will simply make it easier in response. This is probably why Biden was so lax on border enforcement during the first three years of his term — a disastrous decision that probably cost the country four more years of Donald Trump.

This is a shame, because smart immigration policy is needed now more than ever. The U.S. is suffering a fertility crisis, similar to the rest of the world. Two decades ago, America was having enough kids to keep the population stable over time. Now, fertility in America has declined to below the level of Japan in the 1980s:

Most of us grew up thinking of Japan as a place with an aging, shrinking population. America is now headed for exactly that same fate, unless we take in immigrants. But Trump’s restrictive policies — not just deportations, but dramatic reductions in legal immigration — have almost entirely cut off the inflow:

Other estimates show Trump actually reducing the number of immigrants in America in 2025 (and probably 2026), which would mean MAGA’s anti-immigration crusade is now actively reducing the country’s population.

This is bad news for the country. For one thing, it means far fewer workers to support each retiree. With zero immigration, the number of American working-age people per retiree will fall from 3 to 2 over the next quarter century:

For some, that will mean paying higher taxes to support old people’s health care and eldercare. For others, it will mean directly doing the work of taking care of their aging parents. Either way, it means more toil and drudgery for the young and the middle-aged, and less freedom and consumption and fun. As Paul Krugman points out, immigrants are disproportionately likely to work in jobs that take care of old people:

The burden of supporting the elderly will also probably reduce fertility even further — it’s hard supporting kids and your retired parents at the same time! — which will compound the problem in the long term. And small towns and rural areas will be especially hard-hit.

Immigration can’t hold off population aging forever in a world of low fertility — immigrants get old too, and so you need to keep increasing the immigration rate just to maintain the age structure. And as the whole world begins to shrink, the supply of immigrants will dry up. But America’s wealth, and our (rapidly diminishing) reputation as a “city on a hill”, gives us the ability to stave off population aging for a while, and perhaps buy time to find a more permanent solution to the riddle of low fertility.

At the same time, we’ll get a lot more benefit if we’re careful about which kind of immigrants we let in. Immigrants with higher education levels add to the national fiscal coffers, since they make a lot of money. But immigrants with low education levels create a net fiscal drain, since they make less money and absorb more government benefits (as do their children).

If you just look at immigrants themselves, you find that college-educated immigrants tend to decrease the national debt, while immigrants without college degrees tend to add to the debt:

If you include later generations — who tend to show strong upward mobility in the U.S. — then the long-term fiscal impact is more positive, but you still see a very strong difference by education level:

So if we want to use immigration as a tool to strengthen our nation’s economy, we should focus on letting in immigrants with college degrees. That means more legal skilled immigration, more border security, and less quasi-legal asylum grants — in other words, exactly the set of policies that the American people say they want.

Now, MAGA people will certainly respond that immigration is about more than dollars and cents — it’s about culture. Immigrants assimilate to American culture, but they also do change that culture somewhat; assimilation is a two-way street. It’s impossible to live in the same country you grew up in — technology is still the biggest cause of cultural change — but if you want to preserve as much of the country of your youth as humanly possible, then it makes sense to restrict immigration. More broadly, if you believe that nation-states are legitimate entities, then you must admit that countries have an inherent right to preserve their cultures in amber by shutting themselves off to immigration, if they want to.

But MAGA has already lost that battle. America is not North Korea; we’re not even Japan or Sweden. 79% of Americans say that immigration is good for the country overall; they say this even knowing that immigration will cause some long-term cultural changes. The cultural preservation argument against immigration is a lost cause, no matter how desperately its proponents shriek and bluster and threaten.

At the same time, Democrats must be extremely wary of embracing open borders simply out of pure reaction to MAGA nativism. Americans don’t want to let just anyone in; they want people to come legally, and they want to admit people who earn enough money to contribute positively to the economy. If Democrats simply respond to each electoral victory by throwing open the borders and turning a blind eye to illegal immigration, the American people will continue to respond by intermittently electing xenophobes.

In the age of low fertility, America desperately needs to be smart about its immigration strategy. We can’t let a fringe of culture-warriors dictate our national policy.

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An old friend recently wrote to me, telling me that I needed to write a blog post about bears on bicycles. He wrote: “The internet needs a large, apex predator trying its best to navigate a two-wheeled vehicle through the complexities of global supply chains and geopolitical shifts.” Wise words indeed. AI-generated words, to be sure, but full of wisdom nonetheless.

Writing a Noahpinion post about bears on bikes sounded challenging, but I’m never one to shrink from a challenge. So I’ve tried to include bears on bikes as a thematic throughline in today’s roundup.

But first, a podcast. I went on Sam Harris’ podcast to talk about the state of the macroeconomy! His podcast is paywalled, but you can listen to the first quarter of the discussion here:

Here’s a YouTube preview, if you like video.

Anyway, on to the roundup!

1. What if the “vibecession” is just bad data?

For years now, we’ve been wondering why Americans are in the dumps about the economy even though inflation is still relatively low and the employment rate is historically high. This “vibecession” is still happening, and it’s reaching absurd levels. The University of Michigan’s Index of Consumer Sentiment has hit its lowest level on record — lower than the inflation of the 70s, lower than the Great Recession, and lower than Covid:

Potential explanations have included:

1. Americans expressing unhappiness about political and social conflict by claiming the economy is bad

2. Increased partisanship making either Democrats or Republicans loath to admit that the economy is good, depending on which party has the presidency

3. High interest rates making it unaffordable to buy a home

4. A delayed reaction from years of rising service costs or other long-simmering economic difficulties

Now, over at Nate Silver’s blog, Joel Wertheimer has another potential explanation: Maybe the consumer sentiment data is just bad!

Silver Bulletin

Is the vibecession real — or is the survey broken?

Today’s newsletter is a guest post from Joel Wertheimer. Joel is a civil rights attorney in New Yo…

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21 days ago · 204 likes · 15 comments · Joel Wertheimer

He writes:

The University of Michigan ICS [Survey of Consumers] is the gold standard sentiment survey measuring consumer sentiment. The survey has historically shown a very strong correlation with “hard” economic data such as inflation and unemployment. But…As with election polls, the ICS has struggled amid a shift away from telephone polling…So the problems with the ICS are these:

1. The switch to online polling made responses more negative and,

2. There are too many Democrats in the sample.

Thus, ICS data since mid-2024 is not comparable to past periods…Democrats right now say they hate the economy with Trump in charge…

When adjusted for these issues, the ICS should be substantially higher than the Great Recession lows we have witnessed over the past year. Weighting the survey to Pew’s National Public Opinion Reference Survey…would place the ICS at a level more like that in 2013…This adjustment would bring the survey in line with other measures of consumer confidence, such as those from the Conference Board, Gallup, and YouGov.

This seems like an important point. The Conference Board’s survey shows consumer confidence down from 2019, but still pretty good:

Gallup and YouGov don’t have data from before 2020, so I’m not sure how to use those as bases for comparison, but the disparity between the Conference Board’s survey and the University of Michigan’s survey seems important. And notice that the Conference Board doesn’t even show a “vibecession” during Biden’s term in office!

And although I missed it at the time, Ryan Cummings and Ernie Tedeschi did show that the University of Michigan’s index of consumer sentiment fell by 9 points when they shifted from telephone polling to online polling in 2024:

Briefing Book

The effect of online interviews on the University of Michigan Survey of Consumer Sentiment

We analyze the University of Michigan’s (UMich) Consumer Sentiment survey’s (“sentiment”) recent change in survey methodology from collecting interviews via phone to collection via the Internet. We document several features of this new sample that we believe are materially affecting the results of the survey. While we agree wi…

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2 years ago · 13 likes · 4 comments · Ryan Cummings and Ernie Tedeschi

In other words, the notion that American consumers are ultra-bearish might be perched upon a flimsy bicycle of bad data.

So it might be that Americans are simply a lot less angry about the economy than we thought. That would be heartening from a “people are rational after all” standpoint, though perhaps disappointing for those who are hoping for a Democratic electoral sweep this fall.

2. A bit of evidence for Digital Cronkite

Back in March, I wrote a hopeful post about how AI might de-radicalize our politics:

The basic idea was twofold:

1. AI can inject lots of information into debates in real time, in order to bring them back to reality and correct misinformation.

2. AI is trained on a sample of writing from Democrats AND Republicans, so it tends to be more moderate than the typical human being in a polarized society.

I called depolarizing AI “Digital Cronkite”, because it could be a modern version of Walter Cronkite’s moderate voice of authority on broadcast television in the mid 20th century.

My post cited some papers in support of the thesis. Here’s one more. Conlon and Schwardmann (2026) set out to study the phenomenon of “AI sycophancy” — i.e., AI telling people what they want to hear. Sycophancy is a well-documented phenomenon — if you tell AI that bears ride bikes, it’s disturbingly likely to agree. Some people are naturally afraid that sycophancy will increase political polarization, by reinforcing people’s political beliefs. If AI tells Democrats “Yes, Republicans are bad and you’re right about everything,” and if it tells Republicans “Yes, Democrats are bad and you’re right about everything,” that could seemingly entrench polarization by turning every human-AI conversation into a little echo chamber.

But Conlon and Schwardmann found that AI does the exact opposite of this! From their abstract:

Our experiment involves 1,500 participants in 30 decision environments spanning core domains in economics and the social sciences…[W]e find that AI advice depolarizes choices on average, moving participants away from their initial leanings. This depolarization arises despite the LLM being measurably sycophantic: it disproportionately offers considerations that support users’ initial leanings and uses agreeable and flattering language. Depolarization occurs across moral and non-moral, objective and subjective, strategic and non-strategic, and complex and simple tasks. Increasing sycophancy weakens depolarization, showing that sycophancy is behaviorally relevant, even if it is generally outweighed by the informativeness of AI advice. [emphasis mine]

The authors go with the “substantive information” theory of AI depolarization, and they find some evidence to support it:

Why then does our baseline LLM depolarize choices, despite being sycophantic? One hypothesis is that it combines its agreeable framing with enough substantive information to counteract sycophancy’s polarizing force. Several facts corroborate this interpretation. First, in objective tasks, interacting with the baseline AI improves accuracy by 0.12 standard deviations (p < 0.05)…In contrast, we find no evidence that extra deliberation time, reactance, noise, or ceiling effects drive our results.

Interestingly, Conlon and Schwardmann don’t think about what seems to me to be the most obvious reason for AI depolarization — i.e., that AI is trained on the average of society, and thus is the ultimate Moderate Normie. That’s something worth following up on.

But whatever the reason, this is another piece of evidence in favor of the Digital Cronkite thesis. You should probably be a little more optimistic about AI’s effect on human politics.

3. A bad argument from a good economist about AI risk

Anthropic recently hired Chad Jones, my favorite growth theorist. That’s great news, both for Chad and for Anthropic! But a Financial Times article about the hire catches Chad saying some highly questionable things about existential AI risk in a working paper back in 2023:

What is the price of this amazing change in living standards? Recall that we would face a flow probability of existential risk of 1% per year for 40 years, so the probability we survive this A.I. explosion is exp(−.01 × 40) ≈ 0.67. In other words, with log utility it is optimal to take a 1 in 3 chance of ending human existence in exchange for a 2/3 chance of dramatically raising living standards by a factor of 55.

Chad’s point here is not that we should be blasé about the existential risk from AI. His purpose in the paper is to compare different utility functions and show how our attitude toward existential risk can change a lot depending on risk aversion. But I still don’t like his calculation here.

The main reason is that Chad sets the utility of human extinction equal to zero. This isn’t actually log utility. Log utility is just u(c) = ln(c), where c is consumption. If you consume nothing at all, then ln(c) = ln(0) = -∞. In other words, if you take log utility seriously, then death is infinitely bad.

That presents a problem for economic models, since it means that even the slightest chance of death is so scary — scarier even than a bear on a bicycle — that humans would do basically anything to avoid it. That obviously isn’t realistic. So instead, economists using log utility typically model it with a fudge factor. One option is to just set u=0. This is the assumption that if you’re dead, you’re not getting any utility from anything, so your utility should just be zero forever.

That’s what Chad Jones is doing in this paper, and it’s that choice that drives his result. But it’s a highly dubious assumption. Recall that ln(1) = 0. So this means that if you assume u(extinction) = 0, you’re saying that “humanity going extinct” is no worse than “humanity existing for all eternity at some baseline level of consumption”. That doesn’t sound realistic to me.

A better choice — which is what some economists do — is to set the utility of death equal to some constant, and then try to calibrate that constant against data on risky behavior. The constant wouldn’t be zero, and it would greatly alter Chad’s calculations on how much benefit we’d need from AI in order to accept existential risk.

But even here, we have to be cautious. Human extinction is not the same as an individual’s death. A lot of people would probably accept a lot less risk if they knew they were risking the lives of their families, friends, countrymen, and fellow human beings, than if they were only risking their own life. So you have to be very careful when looking at how much people care about the risk of the whole species dying.

Chad was not being careful here. I know this was 2023, before existential risk seemed like a serious thing to people outside the AI industry. But now that he’s at Anthropic, he should be more circumspect about these things.

4. Millennials are doing better than Boomers (but are more unequal)

During the 2010s, there was a pretty common narrative that economic progress had stalled in America, and that the Millennial generation had been screwed over. You still hear a few progressives argue this, but in general this narrative has been in retreat as new data has come in. As the Millennials have eased into middle age, it has become apparent that like every generation before them, they have experienced substantial economic progress. I first blogged about this shifting narrative back in 2023:

But I was a bit late to the party here — bloggers like Jeremy Horpedahl had been pushing back on the “generational stagnation” thesis for years.

Anyway, as we get more data, Millennials’ advancement becomes even clearer. Tyler Cowen points us to Corinth and Larrimore (2026), who measure the income of each generation after all taxes and government transfers are accounted for. You can basically see the results in one chart, which I’ve helpfully labeled:

These are income distributions — they measure how many people in each generation are living at each level of income at an equivalent age, after adjusting for inflation (i.e., after adjusting for changes in the cost of living). What you can see here is:

• There are a lot fewer Millennials making less than $30,000 (in 2019 dollars) than any other generation did at age 36-40.

• There are more Millennials making over $40,000 than any other generation, and Millennials dominate other generations at every income level above $40,000.

• It’s hard to observe incomes above $140,000, so these are left off the graph.

• It looks like there are a few more Millennials making exactly zero income than other generations. This could reflect people who are still being supported by their parents, or people who somehow fall through the cracks in the data gathering process.

• The Millennial income distribution is more spread-out — as Millennials have done better overall, some have seen bigger gains than others, resulting in increased inequality within the Millennial generation.

This is a pretty reasonable description of the reality that we’ve all seen over the course of our lives — most Millennials are more comfortable than their parents were, just as most Boomers are more comfortable than their parents were.

This doesn’t mean government redistribution is unnecessary — indeed, Corinth and Larrimore explicitly calculate income after redistribution has taken place. And America has become more redistributionary. So government is helping produce upward mobility for the poor. This is a big government success story.

But the narrative that Millennials are falling behind, and that the Boomers screwed their children over, just doesn’t hold up in the income data.

5. Why did America deindustrialize?

As countries get richer, manufacturing tends to become a less important part of their economies. You can just look at the declining trends for manufacturing as a percent of GDP in rich nations over the years:

A lot of people think that this happened because we outsourced our manufacturing to China. Other people think it’s because our demand for manufactured goods topped out over time, and we started to want to consume more services.

In fact, it was both of these! Richard Baldwin has a post decomposing each rich country’s deindustrialization into three factors:

1. How much demand shifted away from manufactured goods

2. How much final goods production shifted from domestic production toward imports

3. How much intermediate goods production shifted from domestic production toward imports

He finds that the rich countries have very different stories, even if their overall numbers look similar. Here’s the key chart:

America did actually outsource a fair amount of its final goods production, but this was almost balanced out by onshoring of intermediate goods production (at least, in terms of monetary value). Almost all of America’s deindustrialization since 1995 came from Americans spending a smaller % of their money on manufactured goods.

For other countries, it’s a different story. Germany and Japan actually spent more on manufactured goods, but lost tons of market share in the intermediate goods sector. For France, Canada, and the UK, all three factors contributed to deindustrialization.

This is very interesting. It implies that the simple, common story of “we outsourced everything to China” holds true for other rich countries — at least, in a generalized sort of way — a lot more than for the United States. For the U.S., the main reason we make less stuff is that we want less stuff — at least, relative to how many “experiences” we want to consume.1

6. How much did the Iran War help Russia?

The wheels are falling off the bicycle for the Russian bear. Ukraine is taking far fewer casualties, as it switches to a drone-intensive way of war that Russia has so far been unable to match. Russia is losing over a thousand men a day in futile assaults. Meanwhile, Ukrainian long-range strike drones are wreaking havoc on Russia’s logistics, strangling occupied Crimea, destroying Russian refineries, and causing fuel shortages throughout Russia. Meanwhile, the strain of war production is starting to cause cracks in Russia’s government finances.

Russians had hoped that Donald Trump would ride to their rescue, pressuring the Ukrainians into ceding territory. He certainly tried, but was ultimately unable to bully the stubborn Ukrainians into backing down. But some believed that Trump would help Russia in a more indirect, accidental way — by launching a war against Iran, the hapless U.S. President would cause oil prices to spike and flood the coffers of Russia’s government with much-needed cash.

Indeed, when Iran closed the Strait of Hormuz — which ultimately decided the war in its favor — it caused oil prices to soar:

But at least by April — the most recent month we have data for — the benefits to Russia had been a lot smaller than Putin supporters hoped. Matt C. Klein had a good post about this:

The Overshoot

Russia's Underwhelming Oil Revenue Windfall

A barrel of Brent crude oil cost about $103, on average, in the month of March, up from $66/barrel in October 2025-February 2026. Thanks to sanctions, the price of Russian Urals crude was somewhat lower in the months before the war with Iran, averaging around $55/barrel, while the price…

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2 months ago · 27 likes · 3 comments · Matthew C. Klein

Here’s the key chart:

Why has Russia only reaped a small windfall? One reason is the strengthening ruble, which means fewer rubles of revenue for every dollar of crude oil sales. Another reason is that Russia has been paying its refiners to keep fuel prices down in the face of Ukrainian attacks; because they handle these payments as tax deductions rather than as expenditures, it reduces the total amount of oil and gas revenue.

But there’s a third reason, which is a lot scarier for the Russians. The country’s crude oil production is falling:

Ultimately, it’s production declines that doom a petrostate — just look at what happened to Venezuela when Hugo Chavez starved the state oil company of funds for reinvestment.

Russia needs to invest huge amounts of money to expand production in Siberia, where the easily accessible oil is gone and only harder-to-get supplies remain. War spending may be starving the oil industry. And Western export controls may be successfully starving the Russian oil industry of the technology it needs to build and maintain its extraction infrastructure.

If this is true, then Russia is in big trouble. Crude oil exports are the big prop holding up Russia’s whole economy — no amount of macroeconomic policy or war mobilization can compensate for its loss. Putin’s Russia is a classic petro-empire that uses wealth extracted from the land to fund imperial conquests; when the oil runs out, such empires collapse.

7. Not being fat is probably good for you

Usually, when you see eye-poppingly large estimates for the effect of some sort of policy or medicine or whatever, you should immediately distrust the methodology of the paper. But Rebecca Diamond is one of the most serious and respected empirical microeconomists in the business, so when she says that GLP-1 drugs have almost magical effects on women’s lives, we should at least sit up and listen.

Diamond’s paper compares people who go on GLP-1 drugs to A) those who say they want to go on the drugs but don’t, and B) those who go on the drugs a bit later. For men, she finds relatively few life changes beyond weight loss itself. But for women, she finds some pretty big effects! According to Diamond’s estimates, single women who go on the weight-loss drugs are 29% more likely to get married or cohabit over the next three years, and women without jobs are 27% more likely to get jobs, relative to the women who didn’t go on the drugs.

That’s a pretty dramatic result! It gives us one more reason — beyond the obvious health benefits — to treat weight loss as a technological problem, and just get on with it by any means necessary. The “fat acceptance” movement has gone too far — we should treat excess weight not as a piece of who we are, but simply as a physical impediment to be managed or removed. Fat is basically just a fat suit, and you can take it off if you want.

That said, there are some reasons why you shouldn’t put too much faith in this one empirical result. Although Diamond of course does an incredibly thorough job in trying to compare the GLP-1 users with the non-users in an apples-to-apples way, there’s still the possibility that people who actually go ahead and use the drugs are just different than people who don’t, or who use them only with a lag. They might be more purposeful, more motivated, etc. And that could explain at least part of their greater likelihood of getting a partner and getting a job.

What we really need here is a natural experiment — some policy that affects how easy it is for people to get GLP-1 drugs, preferably with different timing in different places. If we find similarly positive effects from that sort of study, we can be even more certain that these drugs are wonder drugs.

(Of course, drugs aren’t the only thing you should do to lose weight. You should also go for a bike ride! Especially if you’re a bear.)

8. The latest on AI and jobs

Everyone’s favorite subject (except for bears on bikes, of course) is AI taking jobs from humans. I’ve tried to use these roundups to keep abreast of the most recent evidence in this area. This week, we have a study by Kharazian, Simon, and Stevens using private data to examine what happens when companies start using generative AI.

The authors find that when companies start using generative AI, they hire more humans, not less:

It’s not just total headcount, though. Entry-level headcount rose too!

This flies in the face of the typical story that the current “no-hire, no-fire” economy is due to companies adopting AI instead of hiring entry-level workers.

That doesn’t mean that AI isn’t reducing job churn, of course. Uncertainty about how to use AI, or uncertainty about how AI might affect their industries, might be keeping companies from hiring new workers, even if they don’t adopt AI. That’s a research direction worth looking into, and basically no one’s talking about it.

Anyway, Kharazian wrote a blog post about the new findings:

Ramp Economics Lab

We can finally say AI isn’t killing jobs

Dear Colleagues: The most important economic question of this decade asks how AI will affect jobs. Everyone wants to write that paper. Until now, no one has had the right dataset, so existing research has relied on a combination of guesses, surveys, AI exposure scores, and self-interested punditry. In fact, a recent paper from Stanford said the ideal da…

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20 days ago · 29 likes · 1 comment · Ara Kharazian

The simplest story here is that AI is still mostly a complement to human labor rather than a substitute. That could change, of course, as the technology advances further. But for now, AI is behaving pretty much like a normal technology.

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It’s almost hard to remember nowadays, but before the pandemic a lot of us were worried about falling business dynamism in the United States. For whatever reason, Americans just weren’t starting companies — either high-growth startups or small businesses — at the rate they used to. Much ink was spilled discussing possible reasons for the trend, and potential levers for reversing it.

Then the pandemic came, and the trend shifted almost overnight. Suddenly, Americans were creating new businesses again:

Notably, even in 2024 the trend in business applications showed no sign of reverting to its pre-pandemic level. The shift seems at least partly durable.

No one knows exactly why new business creation has surged in recent years. But one possibility is that technology has made it possible for people to start businesses with a lot fewer employees. Stripe Economics has an interesting blog post about the rise of “solopreneurs” — independent businesspeople who don’t employ anyone else at their businesses:

Stripe Economics

The age of the solopreneur

The US Census Bureau counts businesses as well as people. Four years ago, it made a major change to its business methodology. Until 2022, the Census Bureau assumed that businesses over a given revenue threshold must have employees. Even if a business declared itself a solo enterprise, it was automatically reclassified as an employer when it hit a certai…

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a month ago · 90 likes · 6 comments · Ernie Tedeschi, Marisa Rama, and Chris Cruickshank

The upshot is that there’s a big trend to “solopreneurship”, and that the pandemic accelerated the shift:

Solopreneurship has been increasing since 2008, both in absolute terms and as a percent of new business formation. Some of this is due to legal changes. The Obamacare exchanges make it easier for solopreneurs to buy their own health insurance. The Qualified Business Income deduction, the simplified home-office deduction, and other tax changes have made it more favorable to be a solopreneur.

On top of that, the internet made a lot of solo business models easier to execute, from dropshipping businesses to YouTube channels to subscription-based email newsletters. I am a solopreneur myself — Noahpinion is an S-corporation. Substack made it incredibly easy for me to sell and deliver content online, Twitter/X made it incredibly easy for me to market that content, and Stripe made it incredibly easy to receive payments — all without hiring anyone.

The team at Stripe Economics argues that this latter trend is just getting started. Thanks to AI, the number of business models that can be executed by single individuals is growing rapidly:

An agent can now help you find the best tools for your business and handle your integration with minimal support….The recent growth in nonemployer businesses shows a positive relationship with industry-level AI adoption…

Part of the reason businesses historically tended to be built by groups was that a single individual rarely possesses all the skills needed in the entrepreneurial journey. Whether it’s how to evaluate or size a market, code an app, price a product, write and execute a marketing campaign, or close a deal, AI (and AI-augmented software) can fill many of the gaps that founders previously turned to another human for. Or, as Sam Altman so succinctly put it: “revenge of the idea guys.”

We think this phenomenon is the true engine of the AI surge in business formation we’re seeing today. The availability of this breadth of on-tap assistance allows anyone with sufficient motivation to go it alone. Given this, we think the 20% figure is a floor rather than a ceiling in terms of AI impact.

This makes sense. It’s pretty clear that one big reason to have a multi-person company has always been individual specialization. But Claude is far more versatile than any human being, so in the age of AI agents, specialization will probably be less important in many cases.

Even in the (many) cases where that doesn’t allow one person to run a company all by themself, it will tend to push companies toward lower headcount. Kim and Koning have a new working paper showing that “AI-native” companies now being created tend to have about 25% fewer employees than their peers.

This is important, because it bears on the future of human employment — the question that’s currently on almost everyone’s minds. It raises the possibility that self-employment is the future of employment. It’s easy enough to imagine a future in which relying on a group of other humans for your economic sustenance won’t be as important — instead, we’ll all be like little private ship captains, ordering around our crews of AI agents.

That future is easy to envision because it’s the logical endpoint of a trend that had already been going on for quite some time: the rise of corporate outsourcing. Whether it was manufacturing supply chains strung out across dozens of countries, or companies hiring subcontractors to do their payroll or their IT or their accounting, or corporations paying SaaS providers for software products, companies generally do a lot less of their work in-house than they did half a century ago.

The rise of outsourcing — both domestic and foreign — was enabled by improvements in transportation and communication technologies. Shipping crates and the internet made it easy to turn local production networks into regional or global ones. The internet made it easy to find contractors, verify their reputability, communicate with them, and monitor them to verify their work.

That fit very well with the leading economics theory of outsourcing: transaction cost theory. First advanced by Ronald Coase in the 1930s and later refined by Oliver Williamson and others, transaction cost theory says that companies exist because it’s sometimes cheaper and easier to execute transactions in-house than at arm’s length.

Consider the process of paying the workers at a factory. In 1937, for a company to get some other company to handle their payroll would have been a very arduous process. You would have had to look up payroll contractors in the phone book, ask around to find out whether each one had a good reputation, have their representatives come by your factory to get information about how many hours each worker had worked, and so on. Far easier to just walk down the hall to your own payroll division and have them do it.

But by 2007, this calculus had switched — thanks to the internet, it was fairly easy to do all that stuff at arm’s length, online. This allowed specialization at the level of the firm rather than at the level of the division or the employee — in other words, corporate outsourcing.

That’s just a story, of course. But in general, transaction cost theory is strongly supported by empirical evidence; in cases where we can measure transaction costs, they do seem to affect the decision to in-house versus outsource. Bergeaud et al. (2023) find evidence that the internet drove a wave of outsourcing in France, for example:

Does domestic outsourcing react to technological change? We study the staggered diffusion of broadband internet in France in the 2000s, and show that connected firms increased their outsourcing expenditures while decreasing the diversity of occupations they employ in-house…Overall, we show that the deployment of new technologies stimulated domestic outsourcing in this context[.]

There are other theories about why companies choose to do things themselves versus buying them from someone else, but many of them — incomplete contracts theory, agency theory, relational contracting theory, etc. — overlap substantially with transaction cost theory. The informality, close monitoring, and long-term relationships that form within a company can all be seen as ways of decreasing transaction costs.

A lot of people are assuming that when it comes to transaction costs, AI will work like the internet, only more so. (In fact, I find “AI will be like the internet, only more so” to be one of the most common tacit assumptions in AI discourse in general.) AI can read, understand, and analyze your business’s website in an instant — or dispense with the need of a website entirely. It can scan the entire internet to assess whether your business is a trustworthy contractor, or even contact you directly to find out. It can absorb nearly unlimited reams of business data, in order to monitor that you’re doing a good job. And so on.

It’s easy to see how this might lead to a world of total outsourcing and solopreneurs. But at the same time, it’s possible to imagine that AI will increase transaction costs between companies.

The simple reason is that AI doesn’t just analyze information; it also creates it. Yes, an AI can search the web for payroll outsourcing companies and get an idea of which are reputable by researching everything that has ever been said about each. But by the same token, an AI can create a new company, give it a website, and invent a bunch of other companies and reviewers to make it look legit. And then if and when your AI pays that AI’s fake company to do your accounting or whatever, the fake company can just take all your money and vanish in a puff of smoke.

AI-driven fraud is already happening, at scale. Here’s a BBC story from last year:

Unscrupulous foreign firms are using AI-generated images and false back stories to pose as family-run UK businesses to lure in shoppers…Customers say they feel “completely ripped off”…Consumer guide Which? said the growing use of AI tools was making it possible for fraudsters to mislead the public on an “unprecedented” scale.

If human consumers can be fooled, so can human purchasing agents and procurement specialists. “OK,” you respond, “I’ll just get an AI to do the purchasing and procurement. Problem solved.”

But here we are, back in the realm of transaction costs. You might need a frontier AI and a lot of expensive tokens to check the ever-expanding galaxy of fake companies in a way that would allow you to make a reliable outsourcing decision.

Nor would it even necessarily take fraud and manipulation in order to make arm’s-length transactions between AIs unreliable. Human beings are relatively consistent over time — if I do business with you today, I can be reasonably sure that doing business with you tomorrow will be similar, because your knowledge and skills and character etc. are all going to be roughly the same.

This is not generally true with AI — at least, not with the AIs that exist today. They are ephemeral creatures; their ability to maintain the same goals, personalities, and capabilities over the weeks or months or even years of a business-to-business contractor relationship has yet to be demonstrated. So in the world where everyone doing business is an AI agent, even if your company verifies that it’s dealing with a real and honest contractor, that verification might not hold for long.

If AIs remain inconsistent over time, trust will therefore have to be reestablished from scratch every so often, and that could be expensive. In fact, we’ve already seen an example of just how expensive constant re-verification of trust can be: Bitcoin. In order to do away with the need for intermediaries like banks to verify transactions, Bitcoin has to reestablish trust between counterparties every time a transaction is performed. As Eric Budish has shown, constant reestablishment of trust is incredibly expensive in terms of electricity, which basically dooms Bitcoin’s use as a medium of exchange.

So AI doesn’t have to be an unreliable partner in order to put an end to the world of ubiquitous online contracting that we’ve built over the past three decades. All it has to be is a partner whose reliability is expensive to verify.

If AI brings about a world of higher transaction costs, due to the inherent unreliability of long-term arm’s-length dealings between AI agents, then the AI age will probably be one of bigger companies. Internal procedures for verifying trustworthiness — the AI equivalent of walking down the hall and knocking on the door of your own internal corporate division — might be the new equivalent of the informal long-term relationships that lower transaction costs within a typical human-staffed company.

In a post back in April, I predicted that Japan-style “salarymen” occupations — ever-shifting irregular bundles of tasks within a single big company — might be a more important kind of job all around the world going forward. But the transaction cost theory of the firm could give us another reason to expect the same. If only big companies can establish internal trust cheaply, then many humans — whatever kind of work they’re still doing 10 or 30 years from now — will be working for big companies.

That doesn’t mean solopreneurship is a temporary trend or a dead end. There are probably many lines of business in which long-term trust between agents carrying out specialized business processes is not a big deal. In those areas, solopreneurs will flourish. We may thus see a bifurcated distribution of company sizes and job types — a vast horde of solopreneurs, and a few monster companies employing huge numbers of wage earners.

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I usually wait until at least 2 years have past to re-up a post, but events this week are just getting so crazy that I felt like I had to rerun this post I wrote about Europe and air conditioning last summer:

Europe is at a very high latitude, and people think of it as a cold place that doesn’t need AC. But climate change is increasing the frequency of punishing, brutal heat waves all across Europe, and the region’s lack of AC is causing huge numbers of deaths and vast amounts of suffering. This year things are worse than ever before, as Beth Gardiner reports:

Already this summer, two major heat waves have broiled Europe. During the first, Ireland, France, and the United Kingdom sweated through their hottest-ever May temperatures. A month later, France notched its two hottest days and its hottest night since records began: Thermometers soared past 110 degrees Fahrenheit in the west and 104 degrees in Paris. Spain reported its two hottest June days since at least 1950, and Britain, where temperatures reached 99 degrees, recorded its three hottest June days. The temperature in Basel, Switzerland, hit 100 degrees. Germany and Austria are enduring heat in the 90s, and braced for worse as the weather moves east. Temperatures this high can be life-threatening: More than 200,000 people have died because of heat in Europe in just the past four years, the World Health Organization estimates.

Robinson Meyer has some great statistics about how few Europeans have AC:

Even many hospitals lack AC, leaving patients lying in pools of their own sweat (and dying in droves).

Regular Europeans are hitting the breaking point. 8 out of 10 people in France — the country hardest hit by the most recent heat wave — want their country to install AC in houses, schools, and public transit. Parisians are rushing out to buy AC units as fast as they can:

And fights are even breaking out as supplies run short.

But even as regular Europeans desperately scramble for the life-saving relief of air conditioning technology, European elites have been trying to keep their people from getting the relief they need. Germany’s public broadcaster is running a campaign to dissuade its citizens from getting AC, on the grounds that AC’s energy use exacerbates climate change:

Meanwhile, some people at Germany’s Federal Environmental Ministry claimed (falsely) that portable air conditioners don’t work.1 In the UK, a “Professor of Sustainable and Resilient Cities” went on TV to claim (falsely) that air conditioning can’t beat a heat wave. Last year a “senior lecturer in healthy buildings” told British citizens to try applying yogurt to the outsides of their windows to cool their houses. A British news program told British citizens that using AC is “selfish”:

There are innumerable similar episodes of European elites spreading blatant disinformation about AC, actively interfering with AC installation, or demanding that their citizens die for a minuscule climate benefit. Perhaps the single most ludicrous story was that the people who run the European Commission decided to cut off AC for their lower-level employees, while keeping the AC on for themselves:

The European Commission’s headquarters was forced to shut down its air-conditioning system on Friday due to the heat wave…Staff working at the Berlaymont building received a text at midday, reading: “BERL — URGENT — Due to extreme weather conditions, forced shut down of air cooling system from floor 1 to 7 for the rest of the day.”

The 13-story building is home to Commission President Ursula von der Leyen, her 26 commissioners and about 3,000 staff. Von der Leyen works on the 13th floor, and most of her commissioners’ offices are housed on floors eight or above…

“It’s like feudalism,” a Commission official working on a lower level of the Berlaymont, granted anonymity to speak freely, told POLITICO on Friday, referring to the fact that upper floors housing commissioners got to keep their AC on. A second official agreed it was a “disgrace.”

I know it’s become common to say that America’s elites don’t care if their people suffer and die, but I find it hard to even imagine American government officials doing something like this.2

Why are European elites so insane about air conditioning, even as regular Europeans desperately yearn for the technology? This was the subject of my post last year. Part of it is the poisonous ideology of “degrowth”, which tells Europeans that they can save the planet through their own personal suffering (which of course they can’t). Part of it is cognitive dissonance — if elites reverse themselves after crusading against AC for so long, it forces them to admit they made a mistake. Part of it is the desire not to lose face in front of the Americans, who were far earlier to adopt AC.

But I think part of it is simple cultural conservatism — the idea that using AC would change European culture in strange and unacceptable ways. Cultural conservatism might be a big part of why some cultures eagerly adopt new and superior technologies, while others turn up their noses and refuse.

Anyway, here is my post from last year:

Many years ago, I was watching a nature show. It was about some hunter-gatherers on some Pacific island. The film crew went right up and talked to one of the hunter-gatherers about his life — hunting, gathering, finding and killing witches among his fellow tribesmen, and so on. But as they talked, I realized that there must be a giant video camera right in the face of this tribesman. And he wasn’t even reacting to it. What was this strange, unnaturally shaped object, made of strange unknown materials, and potentially possessing magical powers? Didn’t he wonder? And didn’t he ask himself if he could get something like it, and use it for whatever these strange foreigners were using it to do?

I often think about the example of the tribesman and the video camera. It’s a small version of a story that happens again and again, on a far grander scale, determining the fate of entire nations and geopolitical systems of power: absorption of foreign technology. Most of the things you use on a day-to-day basis were not invented in the country in which you live (even if you live in America). They were invented all over the world, and one crucial reason you have access to them is that your society deemed it fitting to allow those technologies into the country.

Adopting foreign technologies sounds like a no-brainer, but there are lots of risks involved. Hierarchies of power and status can be disrupted, creating political chaos. Existing economic relationships can shift, creating unexpected winners and losers. But perhaps most frighteningly, foreign technology can change a country’s traditional culture.

One Pacific island civilization that was determined to absorb foreign technology without letting it change their culture was Japan. When the “black ships” from the West arrived in the 1850s and demonstrated how helpless Japan was in the face of foreign powers, the country’s leadership (after a brief civil war) decided that their only choice was to absorb foreign technologies and institutions. But they wanted to preserve Japan’s traditional culture as well. They thus came up with the concept of “wakon yosai” (和魂洋才), which translates roughly as “Japanese soul, Western technology”. Over the course of the next century and a half, Japan intentionally strove to preserve elements of its unique culture even as it reshaped its society around new gadgets and production processes.

Travel to Japan today, and I guarantee that unless you are staying in a very backwoods rural place, the room where you stay will have an air conditioner. It will almost always be a “mini split”, or wall unit, looking much like the image at the top of this post. It will be quiet, but powerful enough to keep your room cool even in the increasingly hot summers that Japan now suffers due to climate change. This is a technology never available in Japan’s premodern days, and yet it has been near-universally embraced with no apparent degradation to the country’s traditional culture or national pride.

Europe is different. Data sources differ, but nobody puts AC usage in Europe (or the UK) at more than around 20%. This technology, which almost all Japanese people enjoy, is one that most Europeans do without.

You might think Europe is simply too far north to need AC. But latitude is no longer the defense against heat that it used to be, because climate change is stalking the region:

With this rise in temperature — and the aging of the European population — has come a rise in preventable death. Estimates of heat-related mortality vary, but the most commonly cited number is 175,000 annually across the entire region. Given that Europe has a population of about 745 million, this is a death rate of about 23.5 per 100,000 people per year. For comparison, the U.S. death rate from firearms is about 13.7 per 100,000.

So the death rate from heat in Europe is almost twice the death rate from guns in America. If you think guns are an emergency in the U.S., you should think that heat in Europe is an even bigger emergency.

Most of this death is preventable. The technology that prevents it is air conditioning. Barreca et al. (2016) find that heat deaths in America declined by about 75% after 1960, and that “the diffusion of residential air conditioning explains essentially the entire decline in hot day–related fatalities”. Essentially, wherever AC gets rolled out, heat-related death plunges. Taking Barreca’s estimate and applying it to Europe suggests that as many as 100,000 European lives — 0.013% of the population — could be saved every year if the 80% of European households who don’t have AC were to get it.3

And yet Europe has not done this. The official reason — at least, where one is given — is that AC uses electricity, which contributes to climate change. For example, this is from a 2022 article in MIT Technology Review:

Climate change is making extreme heat the norm across more of the world, increasing the need for adaptation. But in the case of AC, some experts are concerned about how to balance that need with the harms the solutions can cause…

[M]any Europeans are hesitant to welcome air conditioners with open arms. “Seeing AC as a solution to heat waves and to climate change is of course a bit problematic because of the energy that’s being used,” says Daniel Osberghaus, an energy and climate economics researcher at the Leibniz Centre for European Economic Research in Germany.

Today, cooling devices like ACs account for about 10% of global electricity consumption—and since most of the world’s electricity still comes from fossil fuels, that’s a significant chunk of worldwide emissions. Because of their massive energy use, “they do get a bad reputation,” says Kevin Lane, an energy analyst at the IEA.

Many other stories also mention climate as a reason Europe resists AC. Green organizations like the World Resources Institute, which have a lot of influence in Europe, consistently recommend far less effective “passive cooling solutions” due to emissions concerns. And European regulations do block AC, by mandating that newly built buildings be carbon-neutral. (This in addition, of course, to good old NIMBYism also blocks AC installation, especially in the UK.) Tyler Cowen writes:

European governments do a great deal to discourage air-conditioning, whether central AC or window units. You might need a hard-to-get permit to install an AC unit, and in Geneva you have to show a medical need for it. Or in many regions of Europe, the air conditioner might violate heritage preservation laws, or be illegal altogether. In Portofino, Italy, neighbors have been known to turn each other in for having illegal air-conditioning units. The fines can range up to €43,000, though most cases are settled out of court by a removal of the unit.

In fact, Andrew Hammel alleges that Germany has raised climate-based opposition to AC to the level of an ideological crusade. Here are some excerpts from his thread:

I believe attitudes toward air-conditioning are class markers in many European countries. Air-conditioning is seen as prototypically American, and that’s important…

The urban haute bourgeoisie -- bureaucrats, public media executives, NGO employees, humanities grads, journalists, professors, lawyers, judges, etc. -- are the holdouts [in terms of installing AC]…

First of all, *every one* of these people has a story about visiting the USA and nearly freezing to death in an over air-conditioned store or office. Every. Damn. One…To these people, A/C is the ultimate American solution to a problem. Instead of accepting nature as it is, Americans use expensive, wasteful technology to artificially change the environment to fit their fat, lazy lifestyles. They insist on defying and conquering nature, not “cooperating” with her. And they don’t care if they cook the planet while they do so…

[T]he European urban haute bourgeoisie turns it into a rigid ideological aversion to any form of air-conditioning…These people regard these decisions not just as their personal lifestyle choices, but rather as a *model for all of society*. They regard themselves as a revolutionary vanguard of advanced ecological consciousness which must aid the less enlightened to reduce their carbon footprints. And these people *run German society*…Urban planners and people who create construction codes in Germany are also brigadiers in the anti-A/C jihad…

Which is why it’s pretty common on sweltering days to hear Germans complain about the “goddamn ‘eco-this’ ‘organic-that’ pencil pushers” who continue to force them to sweat for hours in overheated hospitals, classrooms, and offices.

This is immediately recognizable as the poisonous ideology of degrowth. Degrowth frames climate change as a problem of personal overconsumption and extravagance to be curbed by austere self-restraint and government policy, rather than as a technological problem to be overcome by installing green energy. This is foolish, of course — it leads to human suffering while not doing much to actually curb climate change. But it’s very popular in northern Europe.

The climate-based crusade against AC is a little infuriating, because it probably kills a lot more people than the reduced emissions save. Right now, Europe is responsible for only about 13% of global carbon emissions from fossil fuel use, meaning that the climate impact of installing AC all over the region is pretty minimal. Does anyone think that incredibly tiny margin of emissions reduction is really worth tens of thousands of lives a year?

But from reading anecdotes like Hammel’s, I kind of suspect that there’s a second, deeper reason why Europe so far refuses to install AC: protection of traditional culture. The thing about German elites pooh-poohing AC as an unnecessary American extravagance suggests that some Europeans view lack of AC as quintessentially European culture — a tradition by which Europeans can define their own uniqueness vis-a-vis the rest of the world.

Many articles about Europe’s strange reluctance to use AC hint at this attitude. For example, here’s CNN:

A big part of the reason [they don’t install AC] is many European countries historically had little need for cooling, especially in the north…“In Europe… we simply don’t have the tradition of air conditioning… because up to relatively recently, it hasn’t been a major need,” said Brian Motherway, head of the Office of Energy Efficiency and Inclusive Transitions at the International Energy Agency. [emphasis mine]

And here’s Euronews:

The rest of this story lies in history and culture…Southern Europe built its cities to cope with heat: thick walls, shaded windows, and street layouts designed to maximise airflow…That’s also why white paint dominates the picturesque skylines of Mediterranean places like Santorini in Greece or Vieste in Italy: The bright surfaces reflect sunlight and radiant heat, helping interiors stay cooler…In northern Europe, on the other hand, summers were once mild enough that cooling was rarely needed…Air conditioning, when it appeared in Europe, was seen as a luxury or even a health risk. Many Europeans still believe exposure to cold air can make you sick, and the stereotype persists that AC is for rich people.

And the WSJ reports that there are widespread superstitions about the dangers of this technology that most of the rest of the world uses every day:

In France, media outlets often warn that cooling a room to more than 15 degrees Fahrenheit below the outside temperature can cause something called “thermal shock,” resulting in nausea, loss of consciousness and even respiratory arrest. That would be news to Americans[.]

Even if climate is the official, intellectual reason for Europe refusing live-saving AC, the idea that AC goes against Europe’s traditional culture is probably an important underlying motivator.

(This trend isn’t unique to Europe, of course. Americans may pride themselves on being more futuristic than the Europeans, but they still haven’t adopted Japanese washing toilets in significant numbers, and so their quality of life has suffered in small ways that, having never experienced the luxury of this foreign technology, they cannot even comprehend.)

Whatever the reason, the resistance to AC technology is making Europe a more impoverished civilization. It’s a major reason why Europe now feels shabbier and more hardscrabble than America, despite its beautiful old cities and low crime rates.

Europe needs to emulate societies that embrace the technological future. Japan is a good one, but an even better example might be Singapore. That city-state’s legendary founder, Lee Kuan Yew, believed that air conditioning was the crucial technology that allowed his country to become one of the richest on the planet:

“Air conditioning was a most important invention for us, perhaps one of the signal inventions of history. It changed the nature of civilization by making development possible in the tropics.

Without air conditioning you can work only in the cool early-morning hours or at dusk. The first thing I did upon becoming prime minister was to install air conditioners in buildings where the civil service worked. This was key to public efficiency.”

Europe would do well to listen to his advice.

Absorption of foreign technology simply makes the difference between a poor society and a rich one — between a technologically advanced society and a backward one. Most countries have their blind spots here, but Europe’s spasmodic rejection of air conditioning is far more costly than most.

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Darializa Avila Chevalier is almost certainly headed to Congress, having won the Democratic primary in New York’s 13th congressional district. In 2024, while she was a sociology PhD student at Columbia,1 she founded a group called “Columbia University Apartheid Divest”, which was involved in the Palestine protests. In a now-deleted Instagram post, CUAD declared: “We are Westerners fighting for the total eradication of Western civilization.” Avila Chevalier’s group also tweeted “Marg Bar Amrika”, meaning “Death to America” in Persian.

Avila Chevalier is also known for making plenty of “controversial”2 statements on social media. In 2019, in another now-deleted tweet, she lambasted Black and Arab men for “fetishizing ugly colonizer women”:

In 2020 she endorsed a theory that COVID-19 began in France, rather than in China.

Also in 2020, Avila Chevalier was an ardent supporter of the movement to abolish the police:

During the nationwide protests in 2020 following the killing of George Floyd, Avila Chevalier responded to a user asking what a better slogan would be than “defund the police,” by posting, “F**k you. We’re gonna defund and abolish. You don’t get to water down our movements.”…Two days later, Avila Chevalier rejected an argument that abolishing police meant ending policing only “as we know it.”…“No. It means ending policing full stop. Period. No more police at all ever,” she replied, adding several clap emojis.

She has also supported the abolition of prisons — a view she probably still holds. In a recent interview, when repeatedly asked point-blank whether she would put a murderer in prison, she refused to answer the question.

In 2022, she claimed that America’s support for Ukraine against Russia’s invasion was America “bullying Russia”:

Avila Chevalier has also endorsed any number of extreme economic policy positions:

During the early months of the Covid-19 pandemic, Avila Chevalier reposted a message calling for a sweeping government takeover of large parts of the economy. The repost advocated nationalizing utilities, hospitals and pharmaceutical companies; suspending rent and mortgage payments; dissolving private health insurance companies; and “seiz[ing] all properties from landlords.”

Other deleted posts and reposts included references to communism and anti-capitalist politics. In one April 2020 post, Avila Chevalier wrote that while most of the political theory she had read was communist, “the pyromania associated with anarchism is very intriguing to me,” adding a laughing emoji.

If this all sounds absolutely crazy, it’s because it is. The woman who said all of these things is going to be a U.S. Representative — not a state representative, or a member of a city council, but a member of the United States’ highest legislative body. And she will be a Democrat — she will be formally supported by the Democratic Party, she will presumably caucus with the Democrats in Congress, and so on.

Avila Chevalier is as much of an extremist as anyone associated with the MAGA movement. The best comparator on the right would probably be Marjorie Taylor Greene, who has made a long string of similarly extreme and wacky statements. My typical line is that “both extremes are bad, but the Republican extreme is worse”. Avila Chevalier is severely testing that asymmetry.

Nor is this a case of one wacky person winning a lone, lucky victory. Avila Chevalier was one of three Congressional primary candidates backed by New York City’s powerful and charismatic mayor, Zohran Mamdani. All three won their primaries this week, and two of them — including Avila Chevalier — unseated incumbent Democrats.

But it isn’t even just Mamdani. Around the country, candidates backed by the Democratic Socialists of America are starting to win more races in blue cities:

Democratic socialists won big in New York’s primaries Tuesday…several more triumphed in state legislative primaries…In Washington, DC, DSA member Janeese Lewis George won a blowout victory in Democrats’ mayoral primary…In Seattle, Mayor Katie Wilson, who defeated incumbent mayor Bruce Harrell last year, is a self-identified democratic socialist. And in Los Angeles, city council member Nithya Raman, a DSA member, advanced to this November’s runoff against Mayor Karen Bass…

The DSA has also elected several members of the city councils of New York, Los Angeles, Minneapolis, Chicago, Portland (Oregon), San Antonio, and more. And they’ve elected a handful of state legislators in many states — mostly from urban districts.

This is quite a comeback for the DSA. As recently as 2024, its membership was collapsing, but it has soared to new heights:

The Democrats now have their own MAGA — a hard-left populist faction that opposes the traditional party establishment.

Why is this happening? I’m not typically a politics writer, but here are some of my thoughts.

Extremism on the right enables extremism on the left (and vice versa)

Why am I even writing a post about the insanity of the DSA, when an equally insane group of people is running the whole country right now? It’s a fair question. Every week there’s a new report of unbelievable corruption, blatant lawlessness, dictatorial aspirations, policy failure, and general stupidity from the Trump administration:

Since I wrote that post one month ago, Trump lost his boneheaded war with Iran, blamed algae in the Reflecting Pool on nonexistent vandals, tried to ban mail-in voting by executive order, refused to pass a (very good) housing bill, issued an order calling for fewer childhood vaccines, and so on. The man is a walking disaster, and a majority of the country recognizes it.

But the movement that Trump started may end up being just as bad, or potentially even worse. After Trump leaves the scene, ideology will flow in to fill the gap left by his personality cult. We already know more or less what that successor ideology will look like — intensely xenophobic, obsessed with “Western civilization”, virulently opposed to the EU (for supposedly betraying Western civilization) and favorably disposed toward Russia, conspiratorial, anti-science, anti-vaccine, and so on.

Both Trump and his movement are clearly a disaster and a dead end. That opens up space for Democrats to do one of two things. The first is to become more extremist, and hope that anti-Trump backlash and base turnout/mobilization will allow the Dems to squeak out narrow victories in 2028 or 2032. The second is to moderate and stand up staunchly in defense of liberalism, attacking Trump’s corruption, economic policies, anti-democratic overreach, and general policy failure. This second approach would capture more swing voters, but would run the risk of inspiring tepid enthusiasm among the base.

I see elements of both strategies emerging. The DSA may be winning mayoral races and some Congressional seats, but it’s extremely unlikely to have a Presidential nominee in 2028. Many mainstream Dems have been moderating on cultural issues.

But the fact that “go moderate or go extreme” is even a question at all right now for the Democrats is thanks to Trump. The backlash to Trump is exactly what has opened up the possibility for Dems to become more extreme and still win elections. Mamdani’s election in NYC was clearly intended as a middle finger to Trump, and it’s no coincidence that DSA membership surges when Trump is in the White House.

Faced with a threat like Trump, some people instinctively become pragmatic and decide to do whatever it takes to make the threat go away. But a lot of people just instinctively reach for whatever weapon they can hurl at the enemy, and the DSA is a weapon that’s convenient and seems sharp.

The next question, of course, is: What can break the mutually reinforcing cycle of radicalization? There are plenty of things that seem to work, but the real message is that reasonable people have to stand up forcefully against the radicals. But it’s hard for moderate Dems to stand up to people like Mamdani right now, because voters are very mad at them.

The failures of mainstream progressivism make Democrats hungry for an alternative

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In 2006, well before Xi Jinping came to power, Chinese state television ran a 12-part miniseries called The Rise of the Great Powers. It was based on Paul Kennedy’s book, The Rise and Fall of the Great Powers, first published in 1989, and included interviews with the author, but also expanded on the source material. The show went through a bunch of historical examples of great powers — the Netherlands, Great Britain, France, Germany, Japan, Russia/USSR, and the U.S. — and tried to explain each one’s rise (and, if applicable, its fall). The implication was, of course, that China ought to become the next great power in the sequence.

I haven’t seen the series, but I’ve read Kennedy’s book, and its ideas are powerful and provocative. The most interesting idea is that countries become great powers due to their mastery of the most important technologies of the day — gunpowder, sailing ships, steam power, mass production, steel, the combustion engine, industrial chemicals, electricity, airplanes, and so on.1 The U.S., he argued, mastered the key technologies of the 20th century better than any other nation. To his list, we should add semiconductors, computers, and the internet.

There are some interesting unexplored corollaries of Kennedy’s idea. Although he attributes great-power decline to hubris and overstretch, it’s also possible to imagine that leading nations fall behind due to technological disruption. Britain’s industrial revolution made mercantile trade less pivotal as a source of national wealth, so the Netherlands fell behind. Britain failed to seize dominance of aviation and combustion engines the way the U.S., Germany, and (to a lesser degree) Russia did, so its early advantage in steam power became less important.

Today, everyone recognizes that artificial intelligence is the most important technology in the world — not just because of what it can do directly, but because of its potential to accelerate other technologies. Right now, the United States is leading in that industry, thanks to its pioneering role in AI research, but also to its mastery of semiconductors (along with its network of allies) and its skillful and timely use of export controls. Chinese AI models are officially nipping at the heels of Anthropic and OpenAI, but actually the gap is bigger than advertised. Here’s The Economist:

In reality, America’s lead is probably bigger than four months. Open-source models, many of them Chinese, tend to score better on public benchmarks than private ones, says Havard Tveit Ihle of the Norwegian Defence Research Establishment…[O]n private tests, America’s lead nearly doubled, to eight to ten months[.]

And here’s a chart from NIST, showing that Chinese models have been falling further behind lately:

Ten months is a slender lead, and even slightly out-of-date models will have truly awesome capabilities — and will probably be able to make decent amounts of money as cheaper alternatives. But the U.S. has been executing a fairly competent strategy to dominate this crucial technology of the future.

But artificial intelligence is not the only tech revolution happening in the world today. Actually there are, roughly speaking, two other big ones: 1) electric technology, and 2) biotech. We’ll skip biotech for now (though China is making big strides here), and focus on the one that China is clearly dominating: electric technology.

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A pizza wheel — also known as a rolling pizza cutter or just a “pizza cutter” — is not a great tool for cutting pizza. I know that’s a statement that’s going to anger a lot of people when I say it, but it’s true. I’m hardly alone in saying this — Wirecutter, Eater.com, and plenty of others have noted the same drawbacks. But anyway, let’s go through the many reasons why pizza cutters are not fit for the job they’re named after.

First, it’s hard to make a very strong cut with a pizza cutter. This is because when you roll a cutting wheel forward, your hand isn’t pushing straight down — it’s pushing forward and down at the same time, meaning that only some of the force from your cut is being delivered to the pizza itself. That makes your job harder.

On top of that, the amount of force that goes into the pizza isn’t constant across the cut. As you extend your arm across the pizza while pushing the roller forward, the angle changes — when the cutter is right under your arm, most of the force goes down into the pizza, but when it’s at the far end of the pizza, most of the force is going forward instead of down. This means that you basically have to do one of three things:

1. Be very good at dynamically adjusting your force level as you cut

2. Roll the pizza wheel back and forth over the pizza several times

3. Push down really, really hard the whole time

The first of these is hard and takes a lot of skill. The second results in little slivers in your pizza — since it’s very hard to keep the wheel in the groove as you cut back and forth — and often causes the dreaded “cheese drag”, in which the wheel drags the cheese right off of the top of the pizza. The third method blunts the cutting wheel, and cuts deep grooves into your cutting board. And all three methods require you to expend a lot of energy.

Pizza wheels are also notoriously hard to maintain and store. Cleaning cheese off of an exposed, rotating blade is difficult, because the blade keeps spinning as you try to wipe it, and because you’re constantly in danger of slicing yourself on the edge. Storing an exposed blade makes it easier to cut yourself when you reach into the drawer. And sharpening a circular, rotating blade is extremely difficult.

Fortunately, there are better tools out there for cutting pizza. The first, which works great for thin-crust pizza, is a scissors — either a standard pair of kitchen shears, or a dedicated pair of pizza shears. The latter looks like this:

As Wirecutter notes, Italian chefs tend to just cut pizza with scissors. They also note that a standard pair of kitchen shears is very versatile, so if you use it to cut your pizza, that’s one less tool you need to keep in your kitchen.

An alternative — which works especially well if you’re making thick-crust pizza — is a rocking pizza cutter, which takes very little arm strength, is easy to clean, and gets it right every time. It looks like this:

Eater.com recommends the rocking pizza cutter. There’s also a one-handed variant. The rocking pizza cutter is a specialized tool (so it takes up storage space), and it can cut a groove into your cutting board, but it’s easy to sharpen and clean, doesn’t get stored in a drawer, and has the added advantage of actually being able to cut pizza effectively.

(A third alternative for cutting pizza, which works decently well for either thick or thin crust, is just the tried-and-true “large kitchen knife”.)

Anyway, as I said, I expect lots of people to be angry at this take, because whenever I point this out in public, people get angry. Tons of Americans use pizza wheels — I couldn’t find reliable survey data, but browsing on Amazon, talking to people, and consulting AI all suggest that pizza wheels are very common in American households. But I’m right here — the physics doesn’t lie.1

Now on to the Japanese toilet, also known as the “washlet”:

This is a purpose-built washlet, which you commonly find in Japan. But you can also buy an add-on that converts your regular toilet seat into a washlet. That looks like this:

A washlet does several things that a normal toilet does not:

1. It has a heated seat.

2. It has a jet of water that washes your butt.

3. It also has a bidet mode.

4. It has a warm air jet that dries your butt.

5. It usually has a built-in air freshener.

The overwhelming majority of Japanese households have washlets. But they’re an incredibly rare sight in America — in general, only rich people own them.

Once you’ve used a washlet for years, it’s very hard to go back to a basic toilet. First, the heated seat is just incredibly, luxuriously comfortable. Second, the butt-washing water jet really cuts down on toilet paper use. It also gets your butt much cleaner than toilet paper alone — so much so that you start to feel like a barbarian for not using a washlet. (The warm air jet and air freshener, in contrast, are more “nice to have” features, in my experience.)

But despite near-universal agreement among product reviewers as to the superiority of the washlet, only a tiny percent of Americans have adopted them. It’s on the rise, but only slowly, and very late — the washlet was first introduced in Japan in 1980.

So there you go, Americans. Please try pizza shears or rocking pizza cutters, and please try washlets. You’ll thank me. But as you probably guessed, this is really a post about AI.

I recently had the pleasure of going to a party in Washington D.C. with a number of lawyers, art history professors, and other educated progressive professionals. This provided me with a great opportunity to get out of my west coast tech-and-econ bubble, and talk to intelligent Americans from other regions and other walks of life.

Many of these conversations turned to the topic of artificial intelligence. Not one person that I talked to was positive about the technology. The first man I talked to asked me how “the AI bubble” was going. When I told him that Anthropic was experiencing the fastest revenue growth of any large company in history, and expects to turn an operating profit next quarter, he was astonished.

To be fair, not everyone pays close attention to quarterly Anthropic numbers; as recently as late 2025 data center investment was still racing ahead of revenue and even Dario Amodei didn’t know whether his company would go bankrupt. But while observers close to the industry — and econ writers like Yours Truly — simply raised the possibility of a bubble, lots of people seemed to have assumed that a bubble was definitely in progress, and then not bothered to check up on it later.

The other folks I talked to were generally dismissive of the potential of AI, and all were concerned about negative effects. One lawyer told me that he knew some people who used it a little bit, but never used it himself. Another said that it was “about as good as a 2nd-year associate”, but worried that people’s reliance on it would erode their own cognitive abilities. Various other people asserted that AI was flooding their professions with low-quality work.2

The art historian was even more negative about AI. She argued that AI couldn’t produce real art, because it lacked human input. When I pointed out the difference between skillfully prompted AI videos and sloppily prompted ones, she did consider it, but it was the first time she had thought about it. She then argued that AI art would deceive people by presenting a distorted version of reality as if it was real. When I pointed out that people had made a similar objection to photography and film, before those were eventually recognized as legitimate and respected art forms, she considered this, but insisted that AI was somehow different.

What’s interesting is that this anecdote doesn’t cleanly fit the polls. Americans in general are very afraid of AI taking their jobs, and they predict generally negative impacts on society:

But they’re using AI more and more, both at work and for personal reasons:

Unlike in the case of pizza cutters and washlets, Americans have correctly identified the most useful technology, and are adopting it.

But…not all Americans. Educated progressives, like the ones I hung out with in D.C., are far too dismissive of AI. Democrats consistently poll more negatively than Republicans, both on AI in general, and in terms of data center construction. On progressive-dominated forums like Bluesky, anti-AI animus is near-universal, and people who admit using the technology tend to get dogpiled. Sybren Kooistra has lamented progressives’ “unilateral disarmament” when it comes to the big technology of the future.

Dan Kagan-Kans has argued that the left is missing out on AI, precisely because so many progressives have chosen to dismiss the technology outright:

Transformer

The left is missing out on AI

Abdication…

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5 months ago · 407 likes · 258 comments · Dan Kagan-Kans

He writes:

As a movement, it appears the left has not been willing to engage seriously with AI — despite its potential to affect the lives and livelihoods of billions of people in ways that would normally make it just the kind of threat, and opportunity, left politics would concern itself with.

Instead, the left has, for a mix of reasons good and bad, convinced itself that AI is at the same time something to hate, to mock, and to ignore. “The GenAI sector’s foremost feat of marketing has been the term intelligence itself,” N+1, one of America’s foremost left publications, recently wrote. “A much more important question: What if China develops time travel or warp speed before we do?” asked Will Menaker, a host of the popular left podcast Chapo Trap House, when responding on X in December to a discussion of the possibilities of advanced AI. “Large language models do not, cannot, and will not ‘understand’ anything at all,” argued Tyler Austin Harper, the self-described “leftist, sort of Marxist-skewing” former professor, now The Atlantic staff writer, last summer…

This idea, that large-language models merely produce statistically plausible word sequences based on training data, without having any idea about what the words refer to, has become the baseline across much of the left-intellectual landscape. Thanks to it, fundamental questions about AI’s capabilities, now and in the future, are considered settled.

This dismissiveness reminds me of the cases of the pizza wheel and the washlet. There is no law of the Universe that useful technologies are adopted quickly by everyone who could make use of them.

Historically, countries that adopted gunpowder, industrial technology, computers, and other cutting-edge innovations had an edge over those that turned up their noses at them. Sometimes the consequence was a slightly lower GDP; sometimes the consequence was conquest and colonization. In most cases, economic historians believe that a fear of disrupting existing patterns of power and elite status was behind the decision to eschew new technology.

I worry about the same thing that Dan Kagan-Kans worries about. America as a whole is adopting AI rapidly. But if our educated progressive classes — our lawyers, academics, artists, and so on — turn up their noses, it could damage both their own cultural/political tribe and the country as a whole. In fact, by dismissing AI’s potential — by thinking that the most important technological revolution of the modern age can be waved away as a “bubble” or “fancy autocomplete” or IP theft or slop or whatever — they make it harder to think about the actual serious risks AI might pose.3

The coming of AI will definitely disrupt many of the relations of status and power in America. As Brad DeLong notes, educated professional types have had a long period of security, in which new innovations disrupted blue-collar work but not high-level white-collar work. That’s probably over now. But if educated progressive types don’t roll with the changes, and figure out how to use the new technology to their advantage, they could find themselves left behind by the tide of history — and the consequences will be worse than dirty butts and poorly cut pizza.

Update: As if on cue, Cory Doctorow — one of my favorite sci-fi authors, and usually a perspicacious and insightful commentator — just gave an interview with the socialist magazine Jacobin in which he demonstrates the exact same kind of airy, hand-waving dismissiveness that I encountered at the party in D.C.:

If you believe, as I do, that the toxic thing about AI is the bubble, then you have to attack the material basis of the bubble…[Companies] are pumping the AI bubble, and why they pump bubble after bubble, to tell a growth story…When they say, “We’re going to replace commercial illustrators with a pixel-guessing machine,” they’re not saying that is the source of the profits that are driving the bubble.

This kind of dismissive thinking can’t do a damn thing to slow down actual AI progress, protect people from the actual dangers of AI, or create more equitable outcomes in the AI-driven economy of the future. All it can do is make sure progressives get left behind in the tide of history.

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As birth rates fall and countries turn to immigration to address their labor shortages, a lot of countries around the world are struggling with crises of national identity. Japan is one of them. Over a decade ago, Japan began opening itself up to mass immigration:

Because Japan did this later than other rich nations, immigrants aren’t yet as numerous as in Europe or the U.S., but the percentage is rising fast. And so discussions about what it truly means to be Japanese are starting to emerge.

I thought it would be useful for my readers — most of whom live in America or other English-speaking nations that are going through their own crises of national identity right now — to get some perspective on how Japanese people think about these issues. And so I asked my friend Hiroko Yoda to write me a post about it. Hiroko is a Japan-based entrepreneur, cultural historian, and writer. She's the author of a new book, Eight Million Ways to Happiness, which is a memoir exploring Japan's modern secular-spiritual landscape. She also writes on Substack.

In this post, she writes about how shared culture, rather than adherence to a particular religious doctrine, is what binds Japan so tightly together. Interestingly, “culture” is the same answer I arrived at when I asked the question of what will bind America together in the future.

Although I live in Japan, as a Japanese person married to an American, and who studied at American universities for my undergrad and graduate degrees, I probably pay more attention to happenings in the U.S. than many Japanese people. One of the topics I have found most interesting is the ongoing struggle to define what an American is. The reason being, we Japanese are grappling with this issue as well.

As Noah has written, Japan is accepting more immigrants than ever before. When my husband and I moved to Tokyo in 2003, international couples were still uncommon, and we’d sometimes draw stares if we walked hand in hand. These days, it’s completely unremarkable. The numbers of tourists visiting Japan increase year by year, and so does the number of people taking permanent residence. I see many international families in the suburb where we live, and I don’t think we are unusual, at least as regards urban centers.

As Japanese are finding new ways to co-exist and live alongside non-Japanese, they are also revisiting what it means to be Japanese. As I’ve written in my own newsletter, the question once centered simply on ethnicity, but now many are coming to believe that shared cultural values are more important.

Are you Japanese simply because of where you were born, or are you Japanese because of how you participate in society? Superficially, this resembles the arguments going on in America. Are you American because of some kind of heritage, or are you American because you embrace shared values, like those laid out in the Constitution?

But there is an interesting difference, too. Japan is (or was) a country with relatively little immigration; that’s why the question of who’s Japanese traditionally hinges on ethnicity. On the other hand in America, an immigrant melting pot, the litmus test often seems to return to faith.

It comes up again and again in American discussions about what it means to be American. Take this recent essay from The New York Times opinion writer Ross Douthat:

One doesn’t need to be a specific kind of religious believer to be a good believer in the Declaration [of Independence]. But if you look at the sweep of American history, it’s very hard to disentangle the advance of equality from the religious belief that our rights come from God and that human beings are equal in his eyes… it has more power in a context where most Americans believe in a providential God.

And then there’s Derek Thompson, who in a recent conversation with religious scholar Ryan Burge, noted:

There’s this category of Americans who have gone into religion as if it’s a foreign country, harvested certain souvenirs, and brought them back to the world of secularism. They practice yoga but have no interest in understanding its religious origins. They meditate but are not remotely interested in any Buddhist version of nirvana.

To which Burge replies:

They only wanted the parts of religion they liked and left the others behind…

You can’t just pick and choose…A lot of people are doing that with religion right now. They’re walking down the buffet line, picking one piece, putting it on their plate, and calling it a spiritual life. That doesn’t endure.

And Thompson concludes:

If you don’t have that central spine of purpose, the community won’t last. If your only purpose is “let’s get together,” that’s not enough. You need that higher purpose—that vertical spine—in order to build a truly strong horizontal community.

These pundits are arguing that ideas alone – the values of the Declaration of Independence or the Constitution – aren’t enough to keep Americans together, whether in communities or as a country. America’s loneliness epidemic, its polarization, its young citizens’ loss of hope: a big part of it can be attributed to the fact Americans don’t go to church or synagogue or temple or what have you anymore.

All of which makes me want to say: have you ever been to Japan?

Japanese, as a nation, don’t subscribe to any one faith. In fact, there’s a popular saying “born Shinto, married Christian, buried Buddhist.” We pick and choose, bringing what we like from various traditions – the purifications of Shinto, the pretty aspects of Christian weddings, the traditions of Buddhist funeral rites – into our secular lives. We’re so flexible about it that we often answer no when people ask if we’re religious. Look at this chart:

I’m going to put aside the question of how accurate this is. I actually wrote an entire book on how I believe surveys like this can miss the forest for the trees. (Spoiler: it involves how one defines “religion.”) But Burge and others argue Americans are “setting themselves up for failure” in becoming less religious, or at least in not going to religious institutions.

America is a flexible society that is rigid when it comes to religion; Japan is the opposite, a rigid society with a surprising flexibility when it comes to faith. There’s an old phrase that sums up Japan’s traditional spiritual cosmology: yaoyorozu no kami, which means eight million deities. It isn’t an accounting; it’s an expression of awe at the infinite nature of the sublime in all its forms. It incorporates, absorbs, rather than draws lines. In short, it’s radically inclusive.

I get that America is a religious country. I was taken to Sunday school every week when I was a homestay student in Indiana in the 1990s. I recited the Pledge of Allegiance alongside the other students every day. But there’s no pledge of allegiance in Japanese schools. The Japanese flag wasn’t even displayed in any of my classrooms. None of my classmates ever went to anything resembling a Sunday school.

But we were united in other ways. Ways that look like faith to outsiders, but just felt like everyday life to us. We made New Year’s visits to shrines or temples for hatsumode, a first prayer for the year. Many of us had Buddhist-style altars in our homes, where we kept photos of departed family members. Many of us carried omamori, Shinto or Buddhist amulets for scholarship or travel safety on our schoolbags.

But if you’d asked the majority of us what our faith was, or who we were praying to, we’d have reacted with utter confusion. None of us saw amulets as a replacement for studying, or looking both ways before crossing the street. They were simply cute ways to wish. If you’d asked us what we believed, I honestly don’t think we would have even understood the question. We just did.

So if institutional faith is core to the communities that form a healthy society, why is Japan’s so successful without it?

First, let me be clear here. I don’t see Japan as some kind of utopia or even a role model. I just see it as different. But the fact it is different – and not struggling in the ways many commentators seem to think America is struggling, at least regards faith as an identity – is what might make the Japanese counterpoint relevant. Let me also be clear that I believe faith can nurture a life or a community. If your personal faith nourishes you, I cheer you on.

But speaking broadly, if Japan can maintain a stable society without faith, it would seem to indicate it isn’t a necessity for a healthy society.

So what is keeping Japan together?

For a long time, Japanese could rely on clear lines to define themselves, like language (Japanese being little spoken outside the nation) and terrain (being an archipelago). But things are changing, and changing fast. It isn’t particularly difficult to get to Japan anymore. More people outside Japan are learning and speaking Japanese than ever before. More want to live here than ever before.

And Japan is aging and shrinking. We’ve “lost” three million citizens over the last few years alone, as deaths outpace births. The numbers of foreign visitors and permanent residents are higher than ever before. All of these factors are driving the question of what it means to be Japanese, which is playing out in online forums, TV shows, newspapers, and election contests throughout Japan.

A recent Stanford survey about immigration shows that race isn’t a major factor in resistance to immigration. Rather, Japanese language ability is. In this chart, you can see how many more respondents chose to admit a hypothetical immigration applicant based on their ability to speak fluently.

Now, this might seem like a no-brainer. Of course, you want to admit people who can communicate with you. But “fluent” is doing a lot of lifting here that might not be obvious in English.

Japanese is classified as a “high-context” culture, meaning that a large amount of cultural knowledge is required to speak fluently. (Other high-context cultures include China, Korea, and many Arab countries.) There’s a lot of implicit communication, meaning context is often implied rather than expressed directly. Meanwhile, Americans, Germans, and Scandinavians (among others) are framed as “low-context,” meaning conversations tend to be explicit, with context usually spelled out.

Anyone who’s studied Japanese will know what I mean. We often leave pronouns and even subjects out, in casual speech. You’re expected to kuuki wo yomu – “read the air” and intuit meaning. So when Japanese say they want immigrants to master Japanese, they’re talking less about the linguistics of speaking than they are context – “the air,” in other words.

In a recent survey, 62% of Japanese reported that they wanted immigrants to not only follow the rules, but also “etiquette and customs.” Some interpret this as draconian or authoritarian, but I don’t think so. If you correlate it with that Stanford survey, you can see that once Japanese fluency is achieved, locals ranked people of a wide variety of ethnic backgrounds as acceptable (the dot at far right in each graph.)

Of course, not everyone in Japan agrees with this thinking. There are those who have a vested interest in keeping the definition of Japanese as strict as possible, who use foreigners as scapegoats for society’s failings, who wish to keep the number of outsiders who immigrate here as low as possible. The far-right party that rode an anti-immigrant platform to a surprising number of seats in parliament in the 2025 elections is one example. But I believe the winds are against people who think in this way. The demographics are against them. The technologies that let us cross borders physically, and share our ideas across them virtually, are against them. And most of all, I think our cultural traditions are against them. When our cosmology, so to speak, is so inclusive, it’s hard to square why our society should not be. Anyone who trumpets conservative values in Japan is eventually going to run up against that conundrum.

As a Japanese, it isn’t my place to say who is or isn’t an American. But I can say what I personally envision for my country’s identity going forward. I see it in little moments all over the city today. Non-Japanese employees greeting customers in polite Japanese. Foreign folks showing respect at temples and shrines. The caucasian man and his daughter I saw commuting to kindergarten on a mama-chari bike, her tiny pastel backpack slung incongruously over his big shoulders. In other words, the stuff of everyday life. To me Japanese isn’t what you look like; it’s how you act. In other words, it’s how you read the air.

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About three years ago, someone asked me why, with my physics undergrad background and a PhD in economics, I had decided to become a professional blogger. I told him that blogging seemed like the highest-leverage thing I could do, in terms of actually having an impact on the world.

I didn’t mean that bloggers literally rule the world, of course — this isn’t Ender’s Game. Nor do I have any illusions that I’ll be able to have as much influence as a top politician like Donald Trump, a top entrepreneur like Elon Musk, and so on. But in terms of what I could personally accomplish, it seemed like a no-brainer — being an opinion writer has probably allowed me to change the world much more than being an academic or an engineer or a financier or a consultant would have.

Why? Because blogging has allowed me to inject ideas into the discourse with unparalleled speed, breadth, and access. A researcher goes deep into a few topics; a blogger can quickly hit the main points of many topics. This enables speed; academics might take months to write something useful about a breaking event like the Iran War or Trump’s tariffs, while I can have something out in hours. It also enables me to comment on a wide variety of topics, because people expect me to be an analyst rather than a subject-matter expert. And speed and breadth in turn allow me to talk to a wide variety of important and interesting people — top academics, billionaire company founders, presidential advisors.

Injecting ideas into the discourse is incredibly powerful. John Maynard Keynes famously described the power of idea injection:

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

To describe why idea injection is so powerful would take an entire post (which I do intend to write). There are a number of reasons. First, idea injection allows you to frame the terms of the debate. Whether people think your idea is right or wrong, once you put it out there, discussion of the issue at hand turns into discussion of whether your idea is good or bad.

As Keynes notes, an early writer’s ideas can also act as a kind of training data for later thinkers; it becomes a foundation off of which politicians, bureaucrats, staffers, other writers, and even entrepreneurs and financiers build when they make their own ideas.1 Just today I saw Matt Yglesias and Jerusalem Demsas — two of my favorite pundits — riffing on my post on dating advice on their podcast.

But injecting ideas is only one part of a blogger’s influence. We’re also part of a community of intellectuals that span multiple disciplines and walks of life. On a daily basis I get to mull ideas over not just with other writers and pundits, but also with top academics, CEOs and entrepreneurs, Congressional staffers and political advisers, think-tankers, corporate researchers and engineers, and plenty of people from other countries. This leads to a much richer discussion, with a greater diversity of viewpoints, than almost anything else I can think of. And they reach a very wide set of ears. In a way, blogging is like DARPA — ad-hoc multidisciplinary teams that build the rapid prototype of an idea. OK, maybe that’s a bit pretentious, but you get the point.

Anyway, the reason I’m writing all of this is not to brag, but to complain. Over the last two years, I’ve felt like my job has become a bit less important than it used to be, for three reasons:

1. The rise of populism on all sides of the political spectrum in the U.S. means that smart ideas are simply not as likely to be implemented by the people in power.

2. The general shift to Substack and other monetizable direct-to-audience channels has made punditry less conversational.

3. The rapid proliferation of AI writing has increased the demands on readers’ attention (including my own).

This doesn’t mean I think punditry is dead or unimportant — despite the title of this post, I do think that what I write still matters — but it does mean I’m now spending some time thinking about how to regain some of the impact I felt I had a couple of years ago.

Populism means being intellectual is a liability

“Thus when the irreverent intellectual has done his work…The stage is now set for the fanatics.” — Eric Hoffer

Ten years ago, it was already apparent that wonkish policy types were to have a much diminished role under Donald Trump. Trump himself is not the type of person who’s inclined to listen to egghead intellectuals — he’ll always trust his own instincts, which were usually developed watching CNN in the early 1990s. In his first term, though, he could sometimes be prevailed upon to listen to reason when a crisis struck — Operation Warp Speed and the CARES Act were done under his auspices, because he stepped back and allowed smarter folks to take over.

And in Trump’s first term, it still felt like there were lots of relevant ideas for econ types to debate — trade policy, place-based economic policies, new socialist ideas from the Bernie camp, and so on. It felt like a time of great political ferment and upheaval — even if Trump himself wasn’t listening to economists, someone would be soon.

In Trump’s second administration, though, that’s all gone. Whether it was Covid, Trump’s advancing age, or his attempted overthrow of the 2020 election that made Trump totally lose faith in everyone but himself, the big man now seems inclined to listen only to the voices in his own head.

Take tariffs, for instance. Essentially no one thought — or thinks now — that his tariffs were a good idea. Oren Cass, one of the last few tariff defenders, has been reduced to speaking in snarky generalities about how “econ isn’t a science”, because on some level he knows that the way Trump went about imposing tariffs is intellectually indefensible.

There was Peter Navarro, of course, at least until he got sidelined. But Trump didn’t get the tariff idea from Navarro. He thought of it all himself, and then looked around for someone — anyone! — who would be willing to stand in front of a podium and endorse the policy, and Navarro was just the guy he found. Reading Peter Navarro’s books, or trying to start a dialogue with Navarro, would have been useless, because Navarro’s ideas — such as they are — weren’t actually driving anything. It was all just a cult of personality.

The rest of Trump’s administration is the same way. The “MAHA” antivax insanity, the research funding cuts, the doomed war in Iran, the reckless spending — it’s all just ad-hoc stuff that Trump did, either on a whim, or because the last guy he talked with told him it would be a good idea, or because he’s in damage control mode after a drop in the S&P. There’s no intellectual movement here, just a cult of personality. There’s no one to argue with, because nothing that’s happening is based on an argument in the first place.

This state of affairs will eventually end, of course. Whoever succeeds Trump won’t have his cult of personality, and will have to rely on ideologies and ideas that will be ripe for debate. And if a Democrat retakes the White House in 2028, ideas will be back on the table, as they were during the Biden administration.

But even on the left, the trend is away from open intellectual debate. Zohran Mamdani and the other socialist candidates who are winning primary races in blue cities are interested in ideas, but only from people within their own clique. Leftism in America is fundamentally a factional movement disguised as an ideological one; bloggers who aren’t on the team will simply be ignored, except for the occasional denunciation.

This is just populism. Populism isn’t really about doing stuff that’s popular; it’s about putting factional and tribal conflict above the national interest or the general public good. The goal is always to “own” the other side, and economic and social outcomes become subordinate to that goal.

Intellectualism thrives in times of relative social peace. This isn’t one of those. Hopefully, the tide of populism is receding in America, but the experiences of other countries suggest that these times of factional struggle can go on for a very long time.

Monetization means intellectuals are siloed

“Writing is like prostitution. First you do it for love, and then for a few close friends, and then for money.” — Ferenc Molnár

Substack has done a whole lot of good, both for me personally and (more importantly) for the world. In a time when most of the internet has been taken over by malignant opportunists and sensationalist attention-seekers, Substack stands as a lone island where reasoned, intelligent, earnest debate is still possible. It has also allowed many writers to escape from publications that stifle their voice, impede their development, and don’t pay them their due. In many ways, Substack has resurrected the old blogosphere from the early 2010s.

However, this resurrection has come at a price. Substack’s killer feature — email distribution — allows writers to get much larger and more loyal audiences, and to make a lot more money by charging those audiences for subscriptions. But this creates a financial incentive for writers to spend more time serving their customers and less time talking to each other.

In 2011, I was blogging part-time, because it was fun — the attention that mattered was when Brad DeLong or Paul Krugman or Tyler Cowen was interested in something I had to say. It was a little “republic of letters”. Now I’m blogging full-time, and having a conversation with Brad or Paul or Tyler is still just as fun and stimulating, but it’s a distraction from my job of creating content for my paying audience. There are still interesting intellectual debates and exchanges in the blogosphere, but they are no longer the main thing writers are rewarded for.

Turning intellectuals into content creators tends to put them in siloes. And Substack is far from the strongest in terms of silo-ing. Most of the internet is being taken over by vertical-scrolling short-form video, which is not exactly good for conversation and exchange. I could go start a YouTube channel, but it would just be me talking directly to my fans — I’d basically be a TV talk show host. I might still do this, because it’s a high-leverage way to influence the world, but it’s not as intellectually rich or rewarding as being part of a round-table conversation.

Nor are interesting new ideas as likely to emerge from one-way siloed content creation. Ideas emerge not from singular minds in isolation, but from dialogue — the cross-pollination that the blogosphere and other intellectual communities create isn’t just fun, it’s productive. Writing for you, my readers, is not boring, but you’d get better content from me — and from all your other favorite writers — if we talked to each other more.

I do think that platform companies could consciously try to recreate intellectual dialogue by tweaking the features of their platforms. Substack has tried to do this with the Substack Live feature, with modest success. But a more powerful tool would be to allow Substackers to easily and automatically see when another Substacker links to their blog. This feature existed on Blogger in 2006 — whenever another website linked to you, you’d see how many pageviews it drove to your blog. If Substack implemented this feature, it would get a lot of writers talking to each other more often.

AI is stretching our attention to the breaking point

“My ambitions accelerate. My afternoons do not.” — Claude

Unlike many people, I think AI writing is actually pretty good. Yes, there’s a recognizable style that the basic models use (“It’s not X, it’s Y” and lots of other little cliches). That style isn’t bad, it just gets overplayed when everyone uses it.2 Yes, AI models are still not great at boiling a complex idea down to one or two pithy sentences. But you can modify the style that AI uses. And AI can do plenty of things human writers can’t — it can seamlessly incorporate vast knowledge and novel data analysis into a piece as it writes it.

For example, I immediately suspected that this essay by Aaron Brown, Michael Mendelson, and Cliff Asness, on the confusion of the debate over “affordability”, is mostly AI-generated, and Pangram — the most reliable AI text detector — flagged it as around 50% AI. But that’s not a knock against it — the essay is great. It classifies different kinds of “affordability” problems — true poverty, precarity, downward mobility, etc. — into different buckets, gives some illustrative vignettes, and provides some useful numbers about each one. I broadly agree with the article’s conclusions, and I think it’s a valuable addition to the discourse.

A bigger problem is that in a world where a huge number of people generate effectively infinite amounts of good-quality content like this, it becomes hard for readers to decide where to allocate their attention. Instead of identifying the few most consistently useful blogs and reading those in great detail, a lot of people will respond to the explosion of content by “reading” a larger number of posts but only lightly skimming each one.

It’s not my job I’m worried about here. It’s that in that world, even if my blog continues to get tons of readers and make me plenty of money, what I do becomes less important. If people are just skimming what I write so they can move on to the next 10,000-word Claude-generated post, the fact that they’re paying me $10 a month is cold comfort — I’m not really reaching them. And even more worryingly, no one is reaching them — if they’re skimming 100 posts a day instead of reading 10 all the way through, they’re not getting really good information from anywhere.3

I don’t know how severe this problem will be, to be honest. There was always a lot more high-quality content on the internet than anyone could ever read, and a lot of people always just skimmed my posts instead of reading them closely. Maybe AI can’t make this problem worse because it was already maximally bad.

Also, I’m optimistic that AI itself will open up new channels for intellectual influence. It’s a well-known fact that if AI just consumes AI-generated output, it gets worse and worse. So AI companies try very hard to “clean” the text they use to train their models. Human writers, whose personal experience brings in new data for AIs to learn, can influence the world if their writings are used to train the next generation of AIs.

Interestingly, I think I’m already doing this, quite by accident. I don’t know how reliable the website intheweights.com is, but it shows me in the top 2% of contributors:

I suspect that on the topics I write about, I’m even more influential. Claude and GPT often cite me as a source on topics I write about4, and friends have told me that Claude recommends my blog with surprising frequency when they ask it for reading material. Maybe Tyler Cowen is right when he says we should be “writing for the AIs”.

In any case, I find that although blogging is still very fun, and I still think I’m having a positive impact, and my readership is still growing, the environment a lot more challenging than it was just two years ago. The combination of a nation ruled by closed-minded tribalists, a blogosphere obsessed with putting out monetizable content, and the rampant proliferation of high-quality AI output is forcing me to rethink what I do. I want to keep injecting ideas into the discourse and participating in a vibrant and relevant intellectual community, but what it takes to do that might look a little different going forward.

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Young people won’t remember this, but there was a distinct point at which George W. Bush started to lose the country. In August 2005, a giant hurricane swamped New Orleans, killing over a thousand people and washing away whole parts of the city. Bush displayed startling incompetence and tone-deafness during the cleanup, which began a process of general disillusionment with his presidency that intensified with the financial crisis of 2008 and the long slog in Iraq.

I don’t know whether Trump’s debacle in Iran will be a similar moment for his presidency. For one thing, unlike Bush, Trump’s approval ratings were already very low before Iran:

Compared to the other stuff people hate about Trump — the blasé attitude towards inflation, the tariffs, the unprecedented corruption, the ICE raids, the various abuses of power — the Iran War may end up being a minor footnote. But there is one similarity with Katrina: This is the point at which even many of Trump’s defenders will be forced to admit, in private if not in public, that the man and his administration are grossly, pathetically incompetent.

The details of the deal that Trump is trying to make in order to withdraw from the war he started are still murky and unclear — probably because as soon as those details are released, people will realize that the U.S. has effectively been defeated by Iran. Here’s what the deal is rumored to contain:

(Update: Bloomberg has the confirmed details of the draft memorandum, and and the initial reports look to have been completely accurate.)

Plenty of people, looking at these details and observing the conduct of the war, are ready to speak the plain truth that the U.S. lost the war to Iran. Tom Nichols, a former professor at the U.S. Naval War College, had this to say:

Trump and his team, in record time, just lost a war to a militarily mediocre—but nonetheless extremely dangerous—adversary…[E]ven before we have the details, it is clear that Trump has failed to achieve every one of the goals he put forward for this war of choice, and now he is determined to sign, seal, and deliver America’s capitulation as quickly as possible.

The New York Times editorial board concurs, with the headline: “Trump Lost the War He Started in Iran”. The WSJ Editorial Board is slightly nicer, writing “Trump Stages an Iran Retreat”.

As regular readers of this blog know, I’m very skeptical of claims that America has “lost” this or that war:

For example, we clearly won the Iraq War, despite a generation of pundits who got used to repeating that we “lost”. We defeated all enemies — Saddam, various militias, and ISIS — and established a friendly, pliant government that allows U.S. oil companies unfettered access to the country. Bush’s war was a strategic mistake — in my opinion, the geopolitical benefits weren’t worth the costs — but by any reasonable historical standard, it was a victory.

The same is not true, however, of Trump’s war in Iran. This one really is a clear defeat for the U.S. The reason is not just that the U.S. failed to achieve its strategic goals. It’s how Iran forced the U.S. to give up those goals.

How Iran won the war

Iran used military force to defeat the U.S. First, it successfully dispersed and hardened its key forces — missiles and drones. This is from the Washington Post on May 7th:

A confidential CIA analysis delivered to administration policymakers this week…found that Tehran retains significant ballistic missile capabilities despite weeks of intense U.S. and Israeli bombardment…Iran retains about 75 percent of its prewar inventories of mobile launchers and about 70 percent of its prewar stockpiles of missiles, a U.S. official said. The official said there is evidence that the regime has been able to recover and reopen almost all of its underground storage facilities, repair some damaged missiles and even assemble some new missiles that were nearly complete when the war began.

And this is from CNN on May 21st:

Iran has already restarted some of its drone production during the six-week ceasefire that began in early April, one sign it is rapidly rebuilding certain military capabilities degraded by US-Israeli strikes, according to two sources familiar with US intelligence assessments…Iran’s military is reconstituting much faster than initially estimated…[S]ome US intelligence estimates indicate Iran could fully reconstitute its drone attack capability in as soon as six months…Iran has been able to rebuild much faster than expected due to a combination of factors, ranging from support it is receiving from Russia and China to the fact that the US and Israel did not inflict as much damage as the two countries had hoped, one of the sources told CNN…

Thousands of Iranian drones still exist — roughly 50% of the country’s drone capabilities[.]

Iran dispersed and buried both its weaponry and its defense industrial base, and the U.S. was unable to destroy it.

Next, Iran used its surviving weapons to execute an effective naval blockade of the U.S., and its key allies.

The naval blockade was Iran’s closure of the Strait of Hormuz. This vital waterway, which delivers much of the world’s oil, is right next to Iran, so Iran had the geographic advantage. It used drone boats, naval mines, aerial drones, and missiles to prevent ships from transiting the strait. This did two things. First, it raised the global price of oil, which raised gasoline prices in America:

It also sent U.S. inflation back to around 4%, which caused Americans’ real wages to start falling:

Meanwhile, the U.S.’ allies — the Gulf states and Saudi Arabia — were severely impacted by Iran’s blockade of Hormuz, since much of their oil couldn’t be sold. These allies put pressure on Trump to end the war.

The U.S. tried many things to open the Strait of Hormuz, but nothing worked. American strikes were incapable of destroying Iran’s weaponry or forcing Iran’s regime to submit. So in the end, it had to submit. The deal Trump is reportedly cutting makes huge concessions to Iran, leaving Iran in a much stronger position both economically and militarily than it was before the war:

• The U.S. will withdraw its forces from the conflict zone within 30 days.

• All U.S. sanctions on Iran are reportedly being lifted. Before the war, sanctions had crippled Iran’s economy since 2012, leaving it stagnant and sclerotic. With those sanctions gone, Iran will be able to sell oil and grow much more prosperous.

• Iran will reportedly start charging fees on transit through the Strait of Hormuz. This is a toll on international shipping — something forbidden by the UN Convention on the Law of the Sea. This will be a huge source of income for Iran — something that didn’t exist before the war.

• The U.S. and/or its Middle Eastern allies will reportedly pay Iran a $300 billion reconstruction fund, as well as unfreezing Iranian assets. This is equal to one entire year of Iran’s GDP, and would effectively constitute war reparations. JD Vance has said that the reconstruction fund is not yet confirmed.

Iran thus compelled the U.S. to withdraw its military, end the sanctions that were in place before the war, and potentially pay Iran reparations. In exchange, Iran will allow the Strait of Hormuz to open (with tolls) and will publicly declare that it’s not pursuing nuclear weapons (which it has always publicly declared in the past).

In addition, Iran will gain an important new source of geopolitical power and economic revenue: control of the Strait of Hormuz.

Before the war, Iran didn’t control the strait, simply because it didn’t realize it could. Drone technology had advanced to the point where Iran was able to shut down Hormuz, but Iran didn’t know that until the U.S. attack forced it to try the risky and desperate move of actually shutting down the strait. The gambit paid off spectacularly, and now Iran knows that modern drone weaponry gives it an advantage it didn’t have in previous decades. So it controls Hormuz.

It’s kind of wild to step back and consider how good of a position Iran’s leaders are in now, compared to the situation before the war. Iran had lost most of its proxy armies in the Middle East — Hezbollah, Assad, most of Hamas. The regime had been rocked by massive nationwide protests, which it only managed to quell by murdering tens of thousands of innocent Iranian citizens. The country’s economy was slowly dying. Now the leaders are firmly entrenched in power, their economy will be revived, and they find themselves the masters of Hormuz for the first time.

Anyway, I don’t see any sense in which this is not a classic military defeat for Donald Trump and the United States. Consider the contrast with Iraq. None of America’s opponents in the war were in power after the war; in Iran, despite the assassination of a few leaders, the regime is even more firmly in power now than before the war. In Iraq, the U.S. suffered some economic damage, but was willing to see the conflict through until all opposition was defeated and all U.S. war aims were achieved (except for the destruction of WMDs, which never existed in the first place and so could not be destroyed). In Iran, economic pressure forced America to make major concessions relative to the pre-war status quo.

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