First of all, I really want to thank everyone for reading my blog. Two years ago today, I started Noahpinion with very little idea of how many people would be interested in getting my ideas in their inbox several times a week, much less pay to read even more posts! But the response has been really incredible. My initial goal for Noahpinion was to have 100,000 people on my email list; I’m now 95% of the way to that goal, and at this rate should hit it in less than a month. I’ll do my very best to keep providing you with useful analysis.
A special thanks, of course, goes out to all my ~7500 paid subscribers — thanks to you, I have the chance to do this as a job instead of just a hobby. And for everyone else, this post might be paywalled, but more than half of my posts will remain free to read as usual.
This year was a pretty turbulent one — from the war in Ukraine to the crash in tech stocks and crypto, to continued inflation, there has been no shortage of threats and chaos. And at the same time, we’re having to deal with the longer-term challenges of climate change and competition with China. So I thought I’d follow my tradition of reviewing seven major throughlines from the past twelve months, and linking to what I wrote about each.
The crisis of the 21st century
The last two centuries also began with major wars in Europe. In 1805, hearing of Napoleon’s victory at Austerlitz, William Pitt said “Roll up that map [of Europe]; it will not be wanted these ten years.” In 1914, at the start of World War 1, Edward Grey said “The lamps are going out all over Europe, we shall not see them lit again in our life-time.” I’m not sure if we had a similarly dramatic British quote to mark Vladimir Putin’s invasion of Ukraine, but the parallels are uncomfortable nonetheless.
Russia’s act of imperialist aggression didn’t lead to a world war (at least, not yet). But it did provide a moment of moral clarity that has united most of the world in condemnation. Europe came together to support Ukraine and sanction Russia, showing a level unity that it hasn’t shown since…well, maybe ever? Sweden and Finland joined NATO. In the U.S., a strange alliance of rightists and leftists teamed up to oppose American aid for Ukraine, but so far public opinion and bipartisan political support have remained solid. Thanks in part to Western weapons but mostly to the grit, ingenuity, and sacrifice of the Ukrainians themselves, Russia’s advances were halted and partially rolled back, and Russia was exposed as a weak and ailing power. Even China, which declared a “no limits” partnership with Russia before the war, has now been edging away from its flailing compatriot.
But the war isn’t over yet — Ukraine is still suffering grievously, Russia still controls 18% of its territory, and Putin continues to throw massive resources into the conflict. Only time will tell whether the West will remain resolute.
The big tech crash and the fall of crypto
A year ago, when I wrote my last Noahpinion birthday roundup, the U.S. tech industry seemed to bestride the economy like a colossus, and crypto was splashing crazy amounts of wealth all over the place. But it turns out that that was the peak. The Fed’s interest rate hikes sparked a huge selloff of public tech companies that brought them down from the stratospheric valuations they had reached in the easy-money pandemic years. Startup fundraising took a hit as well. Layoffs have begun, and tech worker compensation has begun to inch downward.
The hardest-hit companies were those whose business models were specifically suited to a pandemic world, like Zoom and Peloton. But a lot of companies turned out not to have quite the natural network effects and massive pricing power that their investors had hoped. There’s a feeling that the social/mobile tech boom of the 2010s has reached a natural ending point.
And then…there was crypto. The epic flameout of Terra/Luna in May sent shockwaves through the system, as well as massive declines in the prices of major cryptocurrencies. Despite the messianic boosterism, many “web3” companies turned out to be uneconomical or just plain Ponzis. Then came the biggest eruption of all (so far) — the spectacular evaporation of FTX, which turned out to be a gigantic fraud. Fortunately, the damage from the crypto crash was firewalled off from the rest of the economy by the fact that crypto only invests in other crypto, rather than in real productive assets. But this…um…seems like it doesn’t portend well for the future of the space. Hopefully those crypto players who are more interested in building technology than making a quick buck will pick up the pieces.
Inflation continues, but now the Fed is fighting back
In 2021, the Fed pretty much sat back and watched inflation run rampant, believing that it was due to transitory supply factors. In early 2022 it finally realized — along with the world’s other central banks — that inflation also had a substantial demand-based component, and it was only going to be “transitory” if central bankers took decisive action to bring it down. Interest rates began to rise very rapidly, sending shocks through the housing market and the stock market. But although asset prices have come down and new mortgage borrowers are feeling the pain, the rate hikes have so far now slowed the real economy very much. A soft landing, or at least a very mild recession, still seems like the likeliest scenario — a triumph for modern central banking, if so.
As for inflation itself, it’s still going strong, but there are some hopeful signs. The spikes in oil and gas prices resulting from the Ukraine war have now pretty much been reversed, thanks partly to a slowdown in China, while the supply chain snarls that marked the post-pandemic period have now mostly unwound themselves. So positive supply factors may allow the Fed to tame inflation without hiking interest rates to 8% or higher.
Decoupling and industrial policy
War, inflation, and financial fraud are short-term threats. But at the same time, the U.S. is having to deal with several longer-term challenges. One of these is the emerging geostrategic competition with China. Under its dictatorial leader Xi Jinping, China now seems set on trying to supplant American hegemony. This, plus the threat of a war over Taiwan, has been enough to cause America to abandon the strategy of engagement and economic integration that had characterized its China policy since the days of Nixon. Trump’s economic protectionism wasn’t enough to push America and China to abandon their symbiosis, but geostrategic competition trumps all.
The old system of the world, where China made the stuff and America did the research, is breaking down; in its place we’re likely to have world of rival economic blocs. Already that competition is heating up. Biden has unleashed truly massive export controls on China’s semiconductor and AI industries, and the bipartisan CHIPS Act is bringing back industrial policy in order to maintain U.S. semiconductor dominance. Expect the electric vehicle and battery industries to become a second front in this economic war.
The march of energy technology
The other big long-term threat we face, of course, is climate change, which doesn’t pause for war or stock market crashes. Frustratingly, much of the U.S. population seems relatively blasé about climate change, while those who do care about it passionately can often veer into unhelpful ideological sidetracks like degrowth or anti-capitalism. But luckily, a more effective solution is coming into focus, and smart people in industry, science and government are working hard to implement it.
This strategy is green energy technology. The incredible cost declines in solar power and batteries (not to mention green hydrogen) mean that we don’t have to choose between economic growth and decarbonization now — in fact, the cheaper green energy tech becomes, the more growth aids decarbonization, because it means more people buying electric cars, solar power plants, and other cool stuff like that. And decarbonization now aids growth as well, because the electricity produced by solar power is going to be cheaper than fossil fuel power ever was. A new age of energy abundance is at hand, and our main goal should be to make it come sooner. Luckily, Congress passed the Inflation Reduction Act, which committed huge subsidies to speed the adoption of green energy tech.
The slow rise of the Abundance Agenda
Energy is only one of many material goods that people deserve to have in abundance. In the 2010s, Americans were largely obsessed with battles over status and respect, but they’re starting to remember that the material world matters too. A whole lot of thinkers seem to be converging on the idea that government policy is needed in order to get America building stuff again. This push goes by many names, but my favorite is the Abundance Agenda, a term coined by Derek Thompson.
The biggest obstacle to the Abundance Agenda likely won’t be partisan or ideological in nature — it will be America’s parochial resistance to local development, also called NIMBYism. This reflexive anti-development thinking has entrenched itself across the country since the 1970s, and even some leftists and environmentalist groups subscribe to it. But fortunately, the forces of progress are slowly beginning to win the people to their cause — California, which in recent years has flagrantly failed to house its people, has recently been blitzing policies designed to encourage new housing. This YIMBY movement feels like the beginning of the actual on-the-ground implementation of the Abundance idea.
Meanwhile, across the Pacific, America’s top rival has spent the past year embroiled in crises of its own making. Between an ongoing crash in the all-important real estate sector, an ill-advised Zero Covid policy that focuses on social control instead of effective vaccination, and a series of ham-fisted and largely pointless crackdowns on various industries, Xi Jinping seems to be flailing. The country is now effectively in recession, and the favorable tailwinds that helped it grow out of previous crises are now mostly no longer in effect. This has given the U.S. a bit of a breather, helping to lower oil and gas prices while allowing the U.S. to focus on the war in Europe. But this will only be a temporary reprieve, as China is sure to get its act together eventually. It just goes to show that autocratic governance often is nowhere near as competent as its supporters are fond of claiming.
Looking ahead to 2023
At the end of last year’s update, I expressed a hope that progressives would find a way to appeal to the political center. As it turns out, they did. Economic issues were important, as was the GOP’s embrace of anti-abortion restrictions in the wake of the Supreme Court’s overturning of Roe v. Wade. But what really seemed to make the biggest difference — and which spoiled what otherwise could have been a red wave — was a popular backlash against the election-denialists supported by Donald Trump. Now the GOP is reevaluating Trump’s role as de facto party leader, and a closely split Congress seems like it’ll have to embrace bipartisanship. That makes me optimistic about the political direction of my country, for the first time in a long time. We’re not yet out of the era of unrest that began in the mid-2010s, but I think we may have seen the peak.
Economically, I hope — and suspect — that we’ve also seen the peak of inflation. I don’t expect the Fed to stop hiking rates until inflation goes back down to near its long-term target, though the pace of hikes will likely slow. Easing supply factors and crashes in asset markets will give the Fed a tailwind here.
In terms of technology, I’m still the most optimistic about various “atoms” tech, along with AI (which I suspect will have a big year in 2023). I’ll continue to try to identify cool innovations that I think could change the way we live — Three things I plan on writing about are heat pumps, next-generation robots, and space.
It’s still an exciting, crazy world out there. Stay tuned, and enjoy another year of Noahpinion.
This year, I also became a paid subscriber and I enjoy your blog posts very much. I started reading your blog articles since your early blogging days on macroeconomics. However, Noahopinion is a significant improvement and I wish you much success for the future. I am looking forward for more daily analysis.
Best greetings from Germany
Thanks for doing what you do, Noah. You represent a portion of the public not well served by modern journalism.
I share your optimism for the near future. I live in Arkansas, which is very red but traditionally Democratic. I think a healthy debate between conservatives and liberals about how to move forward will be beneficial. That wasn’t possible in the Trump days, maybe if we evolve past the division with a new batch of leaders we will get it in the 2024 election cycle.
Maybe that’s a tad too optimistic, but what we saw this month in the midterms gave me hope.