2026-07-08 11:56:06
“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.
“Done right” means getting immigrants who, on average, earn more than the native-born. This raises GDP by a composition effect — you have richer people on average. It also probably raises GDP by other means — increasing market size which increases returns to scale, boosting innovation and entrepreneurship, and so on. If you get mostly low-skilled immigrants, things get dicier — the composition effect reduces GDP because you’re importing poorer people, but the increased market size may still cancel that out. But in general, if you want higher per capita GDP, you should be selective in terms of who you let into the country. Total GDP, of course, is a different matter — if you want a bigger country, in order to be more powerful in military terms, then letting in tons of low-skilled immigrants may be worth it even if they reduce per capita GDP. And of course, there are distributional reasons to allow in low-skilled immigration — eldercare and so on. But basically, if you let in high-skilled immigrants, your society gets richer by pretty much every metric.
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.
2026-07-06 16:54:30
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:
monetary policy (e.g. cutting interest rates), and
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.
2026-07-04 17:31:52
“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.
2026-07-03 04:05:15
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.
With a few exceptions.
2026-07-01 14:31:00
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!
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:
Americans expressing unhappiness about political and social conflict by claiming the economy is bad
Increased partisanship making either Democrats or Republicans loath to admit that the economy is good, depending on which party has the presidency
High interest rates making it unaffordable to buy a home
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!
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:
The switch to online polling made responses more negative and,
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:
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.
Back in March, I wrote a hopeful post about how AI might de-radicalize our politics:
The basic idea was twofold:
AI can inject lots of information into debates in real time, in order to bring them back to reality and correct misinformation.
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.
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.
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.
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:
How much demand shifted away from manufactured goods
How much final goods production shifted from domestic production toward imports
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
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:
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.
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.)
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:
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.
Basically, we want fewer bicycles, and more vertical short-form videos of bears riding bicycles.
2026-06-29 17:16:02
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:
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.
