These days it seems like the only things to write about are politics and AI. I wrote about AI last time, so today I’ll write about politics.
Here is my basic theory of American politics in the 2020s: The United States is a nation of moderates ruled by a fringe of extremists. The extremists rule because they are more engaged than the moderates — they spend more time thinking about politics and doing political activism. In Martin Gurri’s terms, the extremists are the “public” and the moderates are the “populace”.
There are several reasons why American politics is dominated by extremists. The well-known one is the closed-primary party system. Republicans win primaries not by aligning with the median voter, but by aligning with the median Republican voter — usually in an area that’s already right-leaning to begin with. The same is true of Democrats.
But that has been true for a while. The fundamental reason why American politics is more extremist-dominated than in the past is technological. Modern social media bypasses traditional hierarchies and institutions and gathers together communities of like-minded extremists who then create challenges to traditional institutions; it also provides these extremists a platform in which their emotionally charged messages are more likely to go viral than messages of positivity and reason.
The moderate majority increasingly avoids the politically charged, extremist-dominated online spaces. That gives lots of Americans more peace of mind, but it also means that online spaces become more and more extremist as moderates leave.1 This is the conclusion of Törnberg (2025):
Using nationally representative data from the 2020 and 2024 American National Election Studies (ANES), this paper traces how the U.S. social media landscape has shifted…Overall platform use has declined, with the youngest and oldest Americans increasingly abstaining from social media altogether. Facebook, YouTube, and Twitter/X have lost ground, while TikTok and Reddit have grown modestly, reflecting a more fragmented digital public sphere….Across platforms, political posting remains tightly linked to affective polarization, as the most partisan users are also the most active. As casual users disengage and polarized partisans remain vocal, the online public sphere grows smaller, sharper, and more ideologically extreme. [emphasis mine]
In case you like charts, here’s one from the paper showing that extremists post more than moderates:
If extremists remained online, shouting at each other or shouting into the void, this would be a good and healthy process for a nation weary of culture wars. But the people who dominate real-world politics are increasingly drawn from this pool of online extremists. I am talking not about elected politicians themselves, but about the activists who create and promulgate political ideologies, the think tankers who translate those ideologies into policy ideas, the lobbyists who promote those policy ideas to politicians, and the staffers politicians hire to decide which ideas to embrace, and how.
Let’s talk about those staffers for a moment. Staffers write legislation, advise elected officials on policy, and handle lots of public communications. While politicians are out fundraising, pressing the flesh, or giving speeches to increasingly outdated TV news networks, their staffers are busy with the business of running the country. These staffers are much younger than the politicians they ostensibly serve — the typical Congressional staffer is in their late 20s, while the typical Congressperson is in their late 50s.
This means staffers are more online, and thus spend their days lost in the extremist maelstrom of social media, mainlining rightist conspiracy theories on X and leftist tropes on TikTok. Staffers are also unelected, which means they don’t have to cater to regular voters; they are free to pursue radical ideologies, support radical movements, and put out extremist messaging unless their bosses explicitly act to rein them in.2 There are plenty of anecdotes about how staffers in both the Democratic Party and the Republican Party are more extremist than the politicians they serve — to say nothing of the country as a whole.
For a concrete example of this, take the recent contretemps over one of Donald Trump’s racist social media posts. Trump’s Truth Social account posted a video depicting Barack and Michelle Obama as apes:
After a general outcry, the racist video was taken down. A White House official stated — and Trump later confirmed — that the video was posted not by Trump himself, but by a staffer. Trump refused to apologize for the video, demonstrating how extremist staffers can essentially force the politicians who employ them to take more radical positions.
These 28-year-old extremely online radicals — along with the larger network of think tankers, lobbyists, and activists with whom they are deeply enmeshed — are a key part of America’s ruling class, invisible and unaccountable and unelected and more powerful than almost anyone realizes.
Anyway, regular Americans sense this and are distinctly unhappy with it. Majorities say both parties are too extreme:
But although this is a very natural way to express disapproval with the two parties, it ends up exacerbating extremism, just like when moderates abandon social media. Independents can’t vote in closed primaries, so the people who remain registered as Democrats and Republicans are going to end up nominating even more extremist candidates, forcing regular Americans to choose between two even more polarized extremes — and simply increasing their frustration and disaffection.
This is all very bad for America, and I don’t have a way to fix it, other than A) transitioning to open primaries and B) bringing back the Fairness Doctrine and applying it to social media — two things that nobody is going to do. But watching the behavior of America’s two extremist movements, I don’t think either of them is going to be durable and successful.
I think this is true for many reasons. American voters are unlikely to keep either party in power for long at the national level, and instead will more likely ping-pong back and forth between them as they grow disgusted with the performance of each. Social media activism and memes will push both parties toward unworkably extreme policies — stupid tariffs, unchecked government borrowing, and so on. Online spaces will make it ever harder for real leaders to emerge on either side, as reasonable moderates are quickly “cancelled” by mobs hunting for the smallest peccadillo.
But on top of that, I see some core tendencies that are particular to the American right and left — the MAGA movement and the progressive movement — that strike me as maladaptive and seem to portend long-term weakness.
On the right, a big problem is that the MAGA movement is relentlessly focused on shrinking its coalition. Winning coalitions in politics are built by gathering together various groups and aligning them toward shared goals. Trump did a good job of that in 2024, assembling a startlingly diverse, broad-based electoral majority. But MAGA insists on attacking every group it could bring into its tent.
As an example, just look at that video Trump’s staffer just posted — and which Trump defended, even though some Republicans condemned it. One way that Trump enlarged his coalition in 2024 was to persuade some Black voters to switch sides:
In 2024, Trump won 15 percent of Black voters — according to Pew Research’s widely cited validated voter survey — an increase from the 8 percent he won four years earlier. A pre-election Pew poll found that the economy and health care were the most important issues for the voting bloc[.]
15 percent doesn’t sound like much, but an 8 percentage point shift is big, and every vote counts. Does Trump think posting videos showing prominent Black people as apes will help him solidify that small Black conservative contingent as part of an enduring GOP coalition? It doesn’t seem like he cares.
Nor is this an isolated incident. James Fishback, a Republican primary candidate for governor of Florida, recently referenced “goy slop” — an antisemitic conspiracy theory that says that Jews are forcing gentiles to consume low-quality goods. This is just one example of a rising tide of antisemitism in the GOP, which party leaders like Ted Cruz have acknowledged. That will probably prevent a major exodus of Jewish voters from an increasingly anti-Israel Democratic Party.
Meanwhile, ICE’s racial profiling and raids on Hispanic-owned businesses are starting to drive away Hispanics who were a crucial part of Trump’s winning coalition in 2024. MAGA has not explicitly demonized Hispanics as a group, and many who voted for Trump believed that he would distinguish between citizens, legal residents, and illegal immigrants. But like every other big U.S. deportation effort since 1930, Trump’s current crackdown involves a significant degree of enforcers simply grabbing people who look Mexican and holding them on suspicion of being illegal.
And MAGA is attacking Indian immigration as well. A wave of anti-Indian sentiment among online Trump supporters has spilled over into the real world. Texas’ Governor Greg Abbott has stopped public universities and the state government from hiring H-1B workers (most of whom are Indian). This will hurt the state economy, which depends on Indian doctors and other professionals for essential services. Whether it will hurt the GOP with Indian-American voters remains to be seen, but I doubt it will help.
There are also signs that MAGA is starting to turn against East Asians. A couple of years ago, affirmative action in college admissions was struck down by SCOTUS after a MAGA-aligned group sued Harvard for discriminating against Asians. That raised the possibility that MAGA’s ostensible defense of meritocracy might win over some Asian voters to the GOP. But then right-wing commentator Helen Andrews went on a multi-day tirade against Asian immigrant culture, alleging that Asians threaten the American way of life by working too hard in school and succeeding too much, while also claiming (rather farcically) that Asians benefit from workplace DEI programs:
The idea that Asians are going to destroy American culture by working too hard is ridiculous — an obviously ad-hoc fabricated excuse to attack a minority group that succeeds financially, comes in legally, and tends to commit very little crime. It also happens to be wrong (Asian “grind culture” is simply another case of immigrant striver culture, which tends to fade by later generations). And if the rest of MAGA takes up this line, it seems likely to alienate the Asian voters who shifted toward the GOP in 2024, many of whom were alarmed at Democrats’ attacks on educational meritocracy.
It’s hard to think of a group of Americans — other than White Protestants — that the MAGA movement has not turned its outrage machine on. Indeed, the whole movement has come to resemble a roving Eye of Sauron that constantly looks around for a new racial enemy to attack, switching targets every year or so.
This is not a way to build an electoral coalition. There are far too few White Protestants to form an electoral majority in America, no matter how many people ICE deports or how many visa-seekers and refugees Trump turns away. Instead, Trump’s movement will simply drive away one ally or potential ally after another, shrinking the tent as they go.
My sense is that this is structural. MAGA leaders — politicians, pundits, and so on — energize their base by stirring up fear of racial “others”, but then back off when they receive sufficient pushback and accusations of racism. So they have to keep cycling through targets, so they can keep stirring up their core voters’ anxieties without having any one particular minority become the focus for liberals’ defensive efforts.
As a result, they just end up alienating everyone, one by one. At its core, MAGA is a xenophobic movement that gains a lot of its power from the fear of racial enemies; this is a poor long-term strategy in a diverse democracy.
As for progressive extremism, I think this will also fail, but for a very different reason.
Progressivism lost at the polls in 2024, but still dominates in many big cities and some states, and has had a chance to prove itself as a governing ideology over the last 10 to 15 years. It has failed. I highly recommend this article about the decay and decline of Portland, revered as a progressive mecca in the previous decade. Some key excerpts:
Last fall, after the city acquired a reputation for crime, homelessness, and dysfunction, Oregon politicians rushed to media outlets to assure the nation that the city was not literally on fire…[But] Portland is constantly on fire. In the year following July 2024, Portland had 6,268 fire-related incidents – and 40% of the fires in the city are a direct result of Portland’s out-of-control vagrancy…
[Jeff] Eager says one key reason why the city’s massive crime problem goes unaddressed is that it’s largely self-inflicted and driven by ideology. “Hard core progressivism has destroyed what old school Oregon liberals built – farmers markets, parks, walkable communities, transit, and all the good kind of Portlandia-era liberal lifestyle stuff,” said Eager. “This brand of progressivism is just so against the rule of law, it’s ruined all those institutions that made Portland a cool, trendy, quirky place. It's not really quirky anymore. It's dangerous.”
Portland now has the second-highest crime rate of any city in America, behind Memphis. About one out of every 16 people in the city is the victim of a crime every year…The lack of law enforcement became obvious to everyone during the summer of 2020…As part of the Defund the Police movement that year, Portland’s leftist city council cut $15 million from the city’s law enforcement budget, eliminating 84 jobs in the police department – with predictable results. By November 2021, [the mayor] acknowledged “many Portlanders no longer feel safe,” and the city council began the process of restoring some funding to the department – though the police are at loggerheads with local politicians and the department remains chronically understaffed. [emphasis mine]
Portland’s plight is especially notable because it contrasts with a pretty epic nationwide decline in crime. It’s obvious that progressive extremist ideas about tolerant approaches toward crime have prevented Portland from fully participating in that happy trend — murders fell in 2025, but property crime remained sky-high.
Another likely example of this is the epidemic of copper theft in Los Angeles, that is literally turning lights off across the city.3 The main impetus for the theft wave, of course, is the rising price of copper, which makes it more valuable to steal. But California has a pandemic-era law saying that theft of under $950 worth of goods is a misdemeanor, not a felony. That law has now been watered down, and some exceptions added, but it still makes it hard to prosecute petty thieves.
When a swarm of petty thieves is crawling all over your city stripping out the wires, prosecuting and penalizing petty crime is exactly what you need to do. But a progressive criminal-justice “reform” back in 2014 made that harder.
The frequent failure of progressive cities to crack down on crime — and the progressive movement to make America more tolerant of criminals in general — undermine the entire left. This can be added to a litany of other progressive local and state government failures — not building enough housing, bankrupting cities through excessive spending, outsourcing government functions to NGOs, spending way too much on transit projects, and so on.
In all of these cases, what progressivism is doing is parasitizing the liberal institutions that allowed progressivism to exist in the first place. Liberals built the public libraries; progressives are destroying them by turning them into ad-hoc homeless shelters. Liberals built trains, but now people don’t want to ride the train because of crime and disorder, requiring big bailouts from the state of California. Progressive tolerance of bad behavior by the few — open drug use and sales, theft, street harassment — has turned parks, streets, and other types of urban commons into no-go zones for the bulk of the citizenry.
The pattern repeats itself: Liberals build, progressives come in and demand more and more from the system liberals built, until the system collapses. As yet, liberalism seems to have evolved no defense against this; for at least a decade, nobody seems to be able to say no to progressive demands.
This is why I believe that both the American right and the American left will fail — and indeed, are already failing wherever they gain power. Extremist ideas are generally bad at actually governing, but good at winning hearts and minds in online chat groups. Of course, this provides cold comfort for those of us who will suffer from America’s two flavors of bad governance. A country with two broken ideological programs is a deeply dysfunctional country.
Software stocks crashed today. It’s never possible to be sure why something like that happens — this selloff may even be irrational — but everyone seems to agree that it’s being driven by the fear that AI is rendering a bunch of software business models obsolete. Here’s Bloomberg:
In the span of two days, hundreds of billions of dollars were wiped off the value of stocks, bonds and loans of companies big and small across Silicon Valley. Software stocks were at the epicenter, plunging so much that the value of those tracked in an iShares ETF has now dropped almost $1 trillion over the past seven days…
[T]his drubbing…was triggered [by] concern that AI is on the verge of supplanting the business models of a wide swathe of companies that doomsayers have long predicted were at risk…
AI startup Anthropic PBC released a new tool for legal work, like reviewing contracts…The latest developments raise the specter that AI leaders will overtake established industry players in innovation.
[I]t took a wave of disappointing earnings reports, some improvements in AI models, and the release of a seemingly innocuous add-on from AI startupAnthropic to suddenly wake up investors en masse to the threat. The result has been the biggest stock selloff driven by the fear of AI displacement that markets have seen. And no stocks are hurting more than those of software-as-a-service (SaaS) companies…Few in the software and data spaces have been spared…Shares of software companies including Microsoft, Salesforce, Oracle, Intuit Inc. and AppLovin Corp. tumbled, dragging down the technology sector and weighing on the broader stock market.
Essentially, modern software companies have a stable of human software engineers who implement some sort of task for a client — keeping track of their sales leads, or helping with tax preparation, etc. The client pays the software company a fee to maintain access to that stable of human engineers. They are experts — master craftsmen who draw on a mix of esoteric knowledge, hard-won experience, raw IQ, and access to a vast community of other experts. They are the master weavers, the master potters, the artisan blacksmiths of the modern age.
And like those predecessors 200 years ago, their skills are in the process of being rendered obsolete by automation. Just as a power loom allowed an unskilled peasant to make cloth almost as good as what a master weaver would make — and at a fraction of the price — new AI coding tools are making it possible for relatively unskilled workers to turn out vast reams of software that’s almost as good, and far cheaper, than what a master software engineer would make.
This is “vibe coding”. At first, AI served as a kind of fancy autocomplete for people who already knew how to write code. But with the release of more and more powerful tools like Anthropic’s Claude Code — which assigns an AI “agent” access to your files and lets it keep repeating its efforts until it achieves high-quality results — it’s now possible for complete novices to learn how to make functional applications in hours, simply by telling AIs what they want in English. As these tools continue to improve, the amount of detail and technical knowledge that a user will have to have in order to create a working application will approach zero; software will be conjured up rather than crafted. Executives are already talking about creating software businesses with zero software developers.
Given the latest lift in LLM coding capability, like many others I rapidly went from about 80% manual+autocomplete coding and 20% agents in November to 80% agent coding and 20% edits+touchups in December. i.e. I really am mostly programming in English now, a bit sheepishly telling the LLM what code to write... in words. It hurts the ego a bit but the power to operate over software in large "code actions" is just too net useful, especially once you adapt to it, configure it, learn to use it, and wrap your head around what it can and cannot do. This is easily the biggest change to my basic coding workflow in ~2 decades of programming and it happened over the course of a few weeks.
Karpathy notes that vibe coding helped him realize how much drudgery is involved in traditional software engineering. Dina Bass noted the same thing in a recent post:
But a lot of modern coding is repetitive and time-consuming work that isn’t creative at all, he said. “Engineering isn’t always beautiful code. It’s drudgery,” [Jeff] Sandquist [of Walmart Global Tech] said. “If we can get that off people’s plates, there won’t be nostalgia for that.”
In other words, software engineering was probably less of a “creative class” job than we had allowed ourselves to believe, and more of a “routine cognitive” task — the kind that’s especially vulnerable to automation.
This does not mean there will be no work for people with expertise in software, or no role for businesses that provide software. Code created purely by vibes will usually still have weaknesses, because the humans telling the AIs what they want don’t understand enough to make proper requests. Their software will have security flaws, tech debt, etc. Humans who understand these concepts — who have a detailed, nuanced understanding of what software is supposed to do — will probably be somewhere in the loop to fix problems, maintain code bases, and provide advice to vibe coders (all using AI tools as well, of course). But what they do will simply be different from what software engineers did until just a few months ago. It will be much less of a craft, and much more like setting up and maintaining a factory full of machines.
A great deal of ink has been spilled over the question of whether AI will render human workers obsolete en masse. This question is both catastrophic and unknowable, which is why it’s such a favorite topic. But no one disputes that a new technology can render existing stocks of human capital — the reservoirs of skills and expertise that certain highly paid workers have built up painstakingly over their whole careers — obsolete overnight. It has happened before, and it is happening again now.
Whether AI will do the same to every engineering and scientific discipline is still very much up in the air. We may soon have “vibe physics theory”, “vibe electronics”, “vibe airframes”, and so on — or we may not, if AI hits technological limitations that are as poorly understood as its explosive rise. But it seems certain that although software is particularly amenable to automation by AI1, the current technological revolution is not done upending the lives of various types of technical experts.
It occurs to me that this represents something momentous — the end of an economic age. My entire life has been lived within a well-known story arc — the relentless rise, in both wealth and status, of a broad social class of technical professionals. That rainbow may now be at an end. The economic changes — not just on careers, education, and the distribution of wealth, but on the entire way our cities and national economies are organized — could be profound.
The human capital economy was the Revenge of the Nerds
“All of this wealth attracted a dragon” — The Hobbit
This is progress (at least if you dislike unaccountable secret police, race wars, warrantless searches, summary executions of protesters, and so on…which I do). But it’s possible that Democrats — and especially progressives — will take the wrong message from their first small victories in the battle against autocracy.
For one thing, the Minnesota anti-ICE protests are starting to show some signs of being taken over by the same kind of radicals who made the 2020 BLM protests go overboard in Seattle, Portland, and a few other cities. Some protesters in Minneapolis are setting up illegal checkpoints to stop vehicles and screen them for ICE. Others have been harassing various people. Some leftist protesters have even denounced progressive activist Will Stancil, who was recently punched in the face.
Obviously, if this kind of thing continues, all Trump and Stephen Miller and ICE will have to do is to back off and not kill any protesters for a while, and watch as the more extreme street activists reenact the ill-fated CHAZ from Seattle 2020. That would sap some (but not all) of the momentum from the backlash to the recent ICE killings.
But the other danger is that Dems will take a midterm victory as a sign that they don’t need to recalibrate their position on the immigration issue. In a post two weeks ago, I pointed out that although they hate Trump’s heavy-handed tactics, Americans still don’t support the permissive immigration policies of the Biden years.
Recent polls confirm this. For example, a recent Fox News poll found that Americans still favor the Republican Party over the Democratic Party on immigration in general, and on border security in particular:
The same poll found that although the public now disapproves of Trump’s overall immigration approach by a substantial margin, he’s at +5 on border security specifically.
In a Wall Street Journal poll taken after Good’s killing, voters said that the Republican Party was “better equipped” to handle immigration than the Democrats by an 11-point margin…Apparently, the only thing more unpopular than a nakedly authoritarian immigration policy is a Democratic one.
This is a big red flashing warning sign for Dems. Watching Trump’s ICE in action has reminded Americans of the danger of authoritarianism, but it hasn’t changed their basic idea of what immigration policy ought to be.
Right now, Democrats and progressives are primarily reacting to ICE’s brutality and Trump’s authoritarianism. That’s fine, but it’s not enough. Democrats need to proactively think about what kind of immigration policy they want — not just because they’ll need a plan if and when they get back into power, but because they need to credibly promise the American public that they’re going to do something about the public’s legitimate concerns. If voters think Dems are just going to snap right back to the permissive Biden-era immigration policies that everyone hated, it will be a lot harder for Dems to win in 2028 — and it’ll give Trump much more of a free hand to pursue his authoritarian policies.
Thus, Dems should be thinking about what a liberal immigration policy would look like. Here are some of my own suggestions.
Don’t delegitimize America with “stolen land” rhetoric
Donald Trump and the MAGA movement want to delegitimize immigrants as a group — to say that people who choose America are fundamentally less American than those who have ancestral blood ties to the land. It’s natural to sort of kick out against that idea by trying to turn the tables, and delegitimize the MAGA people themselves. This, I think, is why progressives often respond to anti-immigrant movements by saying that America itself is “stolen land”:
The idea here is that if America itself has no rightful claim to the land on which it sits, then the claim of any MAGA supporter to belong on this land is no better than the claim of any immigrant — legal or otherwise.
There are three problems with this. The first is that no one cares. Those who are inclined to welcome immigrants will become no more welcoming upon hearing that “no one is illegal on stolen land”. And those who believe that America is the legitimate owner of its land will not be persuaded to change their beliefs simply by a reminder that the land once belonged to Native Americans. Trust me, they already know.
The second and bigger problem is that “stolen land” rhetoric makes it look as if progressives don’t believe that America is a legitimate country at all. If you don’t think that American citizens have the right to collectively, democratically decide who gets into the country and who doesn’t, you’re telling American voters that their democratic will is illegitimate. And that’s not going to sit well with voters outside of the most progressive circles. Matt Yglesias makes this argument succinctly and powerfully:
The third problem with “stolen land” rhetoric is that it’s immoral. It’s an attempt to counter blood-and-soil racial nationalism with an invocation of another kind of blood-and-soil racial nationalism:
The Democratic Party shouldn’t go anywhere near this sort of atavistic moral reasoning. The land acknowledgements need to disappear from the Democratic Party platform, from Democratic Party events, and from progressive rhetoric and culture in general.
Instead, Democrats and progressives should focus exclusively on rhetoric that stresses the ways that immigrants contribute to the United States, and on the American culture that unifies us all as a nation. This sort of rhetoric makes it extremely explicit that Democrats see the U.S. as a legitimate entity, worthy of enhancing and strengthening. It rules out the possibility that progressives see immigration as an act of “decolonization”. And it emphasizes that the purpose of immigration is to benefit American citizens.
Deport all illegal immigrants (not just criminal ones), but humanely
When criticizing ICE’s raids, many Democrats and progressives complain that ICE is arresting people with no criminal records in the U.S.:
And Democratic proposals on the topic of illegal immigration center on refocusing enforcement on those who commit crimes in America.
It’s true that Americans would probably like to see more of ICE’s focus on illegal immigrants who commit crimes. But Democrats need to acknowledge that criminality isn’t the only reason that Americans don’t like illegal immigration. Some polls still show majority support for deporting all illegal immigrants, not just those with criminal records. Here’s a recent example:
Other polls show only a substantial minority in support. But these results suggest that criminal behavior isn’t the only concern that Americans have about illegal immigration. Some are undoubtedly worried about the strains on local government finances, others think immigrants compete with locals for jobs and housing, and still others are fearful of the cultural changes that immigration brings. But after years of reading the polls, I think many Americans are simply mad at the act of illegal immigration itself. When people cross the border illegally, they may not have hurt anyone, but they have flouted the American people’s democratic will:
If anyone on the planet is allowed to enter America and remain here as long as they don’t commit any other crimes, that is an open borders policy. And most Americans do not want open borders. Nor, I think, would most Democrats like to be associated with the idea of open borders. And yet that is exactly where the rhetoric of deporting only criminal illegal immigrants immediately leads.
Thus, Democrats need to remind the American public that illegal immigration is not to be tolerated, even when the people who come illegally are well-behaved. Bill Clinton did this in 1995:
But at the same time, Americans don’t support a policy of forcible mass deportation, of the type ICE is currently trying to do. Nor should they. So Democrats need to come up with a humane alternative for getting illegal immigrants out of the country.
There are basically two ways to do this:
Enforce laws against companies hiring undocumented workers.
Change the law on asylum-seeking.
We know that almost all illegal immigrants come to America for job opportunities — even those who try to stay in the country by claiming asylum. It’s natural to want to come work in a rich country! When there are few or no jobs to be had, illegal immigrants leave, as they did during the Great Recession:
Obviously we don’t want to create a recession just to make undocumented immigrants leave! But if we have the government investigate and fine companies that employ them, then companies will become much more averse to hiring people who are in the country illegally. That will decimate demand for undocumented labor, and there will be a big flood of illegal immigrants out of the country — without any detention centers, arrests, etc.1
The second thing Democrats can do is to close the asylum loophole that allows illegal immigrants to become legal residents simply by requesting asylum. Recently, Boston’s Mayor Michelle Wu took some heat for saying that “Every single human being has the legal right to come to the United States and seek shelter”. But in fact, she’s correct. Anyone on the planet can show up at a U.S. port of entry and request asylum. That’s a good law, and we should keep it. In addition, anyone who simply takes a plane to America on a tourist visa can request asylum once inside the country. That’s fine.
What’s far more problematic is that anyone who crosses the border illegally is entitled to request asylum without any discrimination against their application due to the fact that they entered illegally! I explained this back in 2024, and argued that we should change the law so that this is no longer possible:
[T]he U.S. wrote its asylum law to follow the 1967 version of the UN Convention on the Status of Refugees, which states that people who cross the border illegally are entitled to asylum hearings. These asylum seekers exist in a gray zone between “legal” and “illegal” immigration — they’re illegal when they cross the border and turn themselves in, then they’re legal while they await their asylum hearing, then if they get denied asylum (as most do) and stay in the country anyway they’re illegal again.
Most Americans simply do not understand how that system works. If they did understand, they’d probably vote to change the asylum law to deny hearings to — or at least penalize — people who crossed illegally. Meanwhile, among the few Americans who do understand how this system works — lawyers, policymakers, and various NGOs — there’s little appetite to reform the system. As a result, the American public sort of vaguely senses that its democratic will is being violated, but doesn’t exactly know how. And so general anger builds…
The solution, of course, is for Democrats — and responsible conservatives, and political leaders in general — to change America’s immigration system to make it more congruent with the democratic will. The asylum loophole should be abolished — crossing the border illegally should not be rewarded with the chance to stay in the country while awaiting an asylum hearing. Accepting lots of people into the country legally is fine — I will continue [to] support that, and I think Americans in general will agree with me. But if the American people have decreed that a person should not get in, they should not get in. And Democrats should make it clear to the public, with loud and certain rhetoric, that this is being done.
Enforcing laws against hiring undocumented labor on the corporate side, and changing our asylum law to penalize those who entered illegally, would send illegal immigration into reverse — all without the brutality of ICE.
End “sanctuary cities”, go back to Obama’s first term
Critics of Trump’s immigration crackdown often note that Barack Obama deported large numbers of illegal immigrants, especially during his first term. And this is true — by some measures, Obama deported people at an even faster pace than Trump has. And yes, one of the ways he did it was by focusing deportation efforts on illegal immigrants who commit crimes — just as many Democrats are now promising to do.
But the people who tout this record need to think a little harder about how Obama accomplished this. Much of it was done through ICE’s Secure Communities Program, which was established during the waning days of the Bush administration. Under this program, whenever state and local cops arrested someone, they would send their fingerprints to ICE to check their immigration status. ICE could then deport them if they were in the country illegally.
This program was extremely effective in deporting large numbers of illegal immigrants — who also happened to mostly be people who had committed crimes. But many progressive cities decided that programs like this were bad, and became “sanctuary cities”. Sanctuary cities enacted policies that made it difficult to transfer illegal immigrants from local custody to ICE custody, and which limited cooperation between local law enforcement and ICE in various other ways. This undermined the program. The Trump administration has spent a lot of effort trying to force cities to stop concealing illegal immigrants, and progressives have strongly resisted these efforts.
And yet if Democrats really do want to deport criminal illegal immigrants en masse, it will require cooperation between local law enforcement and ICE in blue cities. That means efforts like the Secure Communities Program under Obama, and it means not using local obstructionism to foil the federal government’s efforts to deport criminal illegal immigrants.
The problem here appears to be that while many Democrats pay lip service to the idea of deporting criminal illegal immigrants, they are unwilling to challenge progressive activists who thwart those efforts. At the grassroots level, many progressives see protecting the undocumented from deportation by hook or by crook, regardless of their criminal status, as a sort of crusade. Democrats at the national level need to tamp down this behavior by condemning this behavior. And Democrats at the local level need to understand that this “crusade” hurts the national party.
So combining all of these elements, we can see the overall contours of a liberal approach to immigration enforcement. It would concentrate on replacing violence and brutality with impersonal economic incentives, while making sure to deport criminals who are in the country illegally. And it would be animated by the idea that America is a good and legitimate country, and that welcoming immigrants is something Americans choose to do for their own benefit.
That, I think, is the kind of program that could present a durable, workable, favorable alternative to Trumpism, and help the Democrats win back power.
As Matt Yglesias explains, you can’t just do this by forcing employers to sign up for an “e-verify” system, because those who employ illegal immigrants simply won’t enter them in the system. But what you can do is investigate, prosecute, and fine companies that hire undocumented workers. This will exert quite a chilling effect.
A week ago I wrote about the possibility that the world would pull its money out of the United States of America:
I noted the rise in the price of gold as a sign that the world might be entering a time of international financial anarchy:
[G]old’s volatility and limited supply might not stop it from becoming the world’s reserve asset once again. In fact, although the dollar is holding its own against other national currencies, its share of global reserves is falling steeply once you bring gold into the picture:
Bloomberg reports that governments and private investors are both buying gold at rapid rates, and that fear of the Trump administration’s policies is a big reason why…[T]he world may be preparing for a time of financial anarchy — an era in which the U.S. is no longer a safe haven and the dollar is no longer the reserve currency, but where China has chosen not to step up to fill the void, and Europe and other powers are unable to do so.
A lot of people asked me whether gold’s rise as a share of reserves was due to people putting their money into gold, or to gold going up in price. In fact, those are the same thing. When demand increases for gold, it means that investors buy more gold, and it also means that the price goes up.1 So basically, this all means that investors have been demanding more gold.
Anyway, I thought that the idea of “international financial anarchy” was worth expanding on. A lot of people have this vague idea that the world’s finances are based on the U.S. dollar, but they don’t really know exactly what that means, and they don’t know what it would mean for the dollar to lose that status. In fact, people are right to be a little confused, because there are basically a few different ways that the dollar matters to the international financial system:
A lot of countries and companies make payments in dollars.
A lot of countries hold dollar-denominated assets (like U.S. government bonds) as reserves.
A lot of banks and other companies use dollars as collateral for lending.
For a long time, the dollar has been predominant in all of these use cases, leading people to think that these are all the same thing. But they’re not. So when we think about “international financial anarchy”, we should think about how the dollar’s role might change for all of these uses.
Anyway, I don’t have one big grand thesis about the direction in which the international financial system is heading. But the events of the past few weeks have provoked a few thoughts.
The goldbugs were partly right, the Bitcoin maximalists were wrong
One clear lesson of the past few weeks — and of the past two years — is that people still view gold as a safe haven in times of international uncertainty. Here’s a chart of gold’s price:
Gold rose in the pandemic, but it didn’t really take off until 2024. This wasn’t because of U.S. inflation, which was coming down rapidly at the time. In fact, we don’t know exactly why gold started going up; we just know that a bunch of central banks started buying it. Maybe they knew something we didn’t.
But we do know that when Donald Trump came back to power and started doing unpredictable stuff — high tariffs, threats to invade Greenland, threatening the independence of the Federal Reserve, running up huge deficits, and so on — a bunch of investors around the world, especially in Asia, started buying a lot of gold. The Economist reports:
In recent years central banks in emerging markets, led by China, fuelled the [gold] rally. Such hyper-conservative investors have fallen back in love with physical gold, which they hope will protect them amid geopolitical turmoil. Yet flows into gold exchange-traded funds (ETFs) suggest a new group of investors are catching the bug, lured by returns and diversification rather than safety…Asian investors are leading the way. In the past two years holdings of gold by Asia-based ETFs have more than tripled…Big funds in Japan and South Korea likewise logged hefty increases.
[A]s an asset without a counterparty, gold doesn’t rely on the success and creditworthiness of a company or state, unlike most financial securities…Soaring government debt around the world has also shaken investors’ trust in sovereign bonds and currencies. In what’s been dubbed thedebasement trade, a large number of investors have flocked to gold, silver and other precious metals, seeking a store of value…as public finances deteriorate…
Investors have been closely watching the outlook for inflation in the US, too, as Trump piles pressure on the Fed to bend to his will and cut interest rates. Gold, which pays no interest, typically becomes more attractive in a lower-rate environment, as the opportunity cost of holding it versus interest-earning assets decreases.
More fundamentally, gold’s value is based on people’s beliefs about gold’s value. A lot of people think that gold will take over the global financial system if people lose confidence in national currencies — possibly because in the past, when nations and their currencies weren’t very strong or dependable, and electronic payments weren’t possible, gold was the best way of making international payments.
So when there’s higher expected inflation, or international turmoil, etc., those people — who we typically call “goldbugs” — buy gold. Other investors buy gold in this situation too, because they anticipate demand from goldbugs.
But why gold? It isn’t the only asset whose use doesn’t depend on national governments. There are a bunch of other metals around (in fact, silver also rose in price along with gold). And then there’s Bitcoin, whose value is backed not by national governments, but by an algorithm and an internationally distributed set of “miners” who spend electricity and computing power on carrying out Bitcoin transactions.
For a long time, Bitcoin proponents — including the “maximalists” or “maxis” who think Bitcoin would take over the entire global financial system — argued that the cryptocurrency had become a form of “digital gold” whose natural scarcity and independence of national governments offered investors a safe haven when fiat currencies looked rocky.
But that story has taken a big hit in recent months. When investors started losing confidence in the U.S. dollar, they also sold Bitcoin, causing the price to plunge:
This probably tells us something about how investors think about gold versus Bitcoin. They probably think of Bitcoin as something that benefits from the success of the American economy — probably because when the U.S. economy does well and Americans are feeling rich, they put some of their money into Bitcoin. Whereas they still think of gold as something that you need when nations as a whole do poorly.
Ultimately, safe-haven assets are a coordination game — people just sort of collectively decide which assets to buy in order to protect themselves from international financial anarchy. So far, they’re still coordinating on gold, not on Bitcoin.
This could have just been because the gold binge was overdone, or because Trump’s reported nomination of Kevin Warsh — a hard-money sort of guy — to lead the Fed after Powell tempered expectations of dollar debasement.
In any case, what gold’s abrupt plunge shows is that an anarchic, gold-based international financial system will probably be inherently less stable than the dollar-based system has been. A lot of people — including the goldbugs — think that gold’s natural scarcity and independence from central bank meddling make a gold-based economy inherently stable. But the fact that no large, trustworthy entity manages the gold price actually means that it’s subject to rapid swings like the one that happened on Friday. And if global payment and collateral systems were based on gold, those price swings would be disruptive to those systems as well.
Goldbugs are thus right about gold’s durable safe-haven status, but they’re not right that this is a good thing. Gold isn’t a superior system — it’s a desperate fallback for a world in which the people who were in charge of the superior system abdicated their duties.
Do dollar payments matter for dollar reserve holdings?
Important changes to the international financial system didn’t start when Trump returned to power. The Ukraine War was also an important event. The return of great-power conflict drove some people to put their money into gold, of course. But in addition, the U.S. and Europe put big financial sanctions on Russia — essentially, cutting Russian banks and other Russian companies out of the international financial system, including the SWIFT payment system. The idea was to make it a lot harder for Russia to pay for imports, thus putting pressure on Putin to end the war.
How much financial sanctions actually succeeded in harming Russia is a matter of debate. But they scared a lot of countries, including China, because those countries realized that their reliance on the dollar-based financial system for their international transactions represented a vulnerability — a pressure point that the U.S. could use on them in the event of a conflict. So they started working on alternative payment systems.
China, for example, accelerated its efforts to develop yuan-based payments systems. The Fed’s Bastian von Beschwitz had a good primer on those efforts. As a result, the share of China’s cross-border payments denominated in yuan started rising:
The question is whether this affects the dollar’s position as the global reserve currency. A lot of people seem to think that the use of the dollar for payments forces a lot of companies around the world to hold a bunch of dollars (or liquid dollar-denominated assets) in order to be able to settle their payments.
But is this really true? In the modern age, it’s not very hard to get dollars on the spot if you need them. If an Indian bank wants to make a payment to a Chinese bank, it’s not too hard for the Indian bank to just go to the international currency market and swap some rupees for dollars and hand them to the Chinese bank, who can easily go right back to the currency market and swap the dollars for yuan. Nobody in this story is really holding dollars for very long. So payments that are settled and denominated in dollars don’t seem like they create much demand for dollars in this day and age.
In fact, before the recent Trump-induced drop in the dollar, the U.S. currency had actually gained in strength since the Russia sanctions sent countries in search of alternative payment systems:
“Not much” dependence of dollar reserves on dollar payments doesn’t mean “zero”, of course. In March 2020 when the Covid panic hit, there was such a disruption in the currency market that for a very short while it became hard to get enough dollars to do international payments. Banks around the world hold a few dollars (or liquid dollar-denominated assets) as a hedge against this happening to them again, which does create a little bit of demand for dollars.
This is why the proliferation of non-dollar payment systems still might represent a kind of preparatory stage for countries around the world to dump the dollar. If you don’t have to go through dollar swaps in order to make payments, you don’t even have to think about whether the sudden lack of dollars in your country’s domestic financial system will disrupt your financial plumbing.
And if a country like China were preparing to try to dethrone the dollar as the reserve currency, it would probably start off with replacing the dollar in its payments systems, simply because it’s easy and relatively non-disruptive to do so. Which is why a lot of people are talking about China’s yuan-based payments as part of an attempt to “dethrone the dollar”.
The “yuan replaces the dollar” scenario
This brings us to the question of whether China is preparing to have the yuan replace the dollar as the world’s reserve currency.
Besides shifting toward yuan-denominated payments, China is also stocking up on a lot of gold. Here’s The Kobeissi Letter:
China continues to stockpile gold behind the scenes…China acquired +10 tonnes of gold in November, ~11 times more than officially reported by the central bank, according to Goldman Sachs estimates…Similarly, in September, estimated purchases reached +15 tonnes, or 10 times more than officially reported…Furthermore, China officially bought an additional 0.9 tonnes in December, pushing the total gold reserves to a record 2,306 tonnes…This also marked the 14th consecutive monthly purchase…Assuming official purchases were 10% of what China is actually buying, this suggests China acquired +270 tonnes of physical gold in 2025.
For now, that looks like part of the general shift toward global financial anarchy. But it could also indicate that China is preparing to replace the dollar-based global system with one based on its own currency.
There would actually be precedent for this. In the early 20th century, the global reserve currency shifted from the British pound to the U.S. dollar. Chitu, Eichengreen, and Mehl (2012) show that this mostly happened before 1929. A big driver was World War I, where the UK was a big borrower and the U.S. was a big lender. This resulted in a big flow of gold from the UK to the U.S. That flow intensified during the Depression and then in World War 2. After the war, the dollar had completely replaced the pound as the reserve currency, as formalized by the Bretton Woods agreement. This coincided with the U.S. owning up to three quarters of the world’s gold.
So if the world goes through a transitory period of financial anarchy, in which the dollar is temporarily replaced by gold, China might conceivably stabilize things by buying up much of the world’s gold and using this to make the yuan the reserve currency — if everyone uses gold and China owns the gold, it’s easier to convince the world that the yuan is as good as gold. China’s vast economic heft would, of course, be another powerful argument.
One problem with this theory, however, is that China has shown absolutely no sign of wanting to do this. In fact, they’ve recently been intervening to make their currency cheaper, which requires selling yuan:
This is almost certainly being done as a way to pump up Chinese exports. China is still struggling with a real estate bust, and the government has decided that exports are a way to cushion the impact on the real economy. But the WSJ’s Peter Landers reports that some Chinese people are having second thoughts about the weak yuan:
Several influential [Chinese] economists have recently argued that a meaningful strengthening of the yuan would turbocharge consumption and get China out of its economic doldrums…Liu Shijin, a longtime top economic adviser to the government, said in a speech this month that the U.K. and U.S. also started out as primarily manufacturing powers with puny currencies but eventually matured beyond that stage…
“We should aim for a basic balance between imports and exports” and push for a strong, globally used currency, Liu said…“Chinese consumers can use the same amount of renminbi to enjoy more high-quality, affordable international products, thereby truly realizing the goal of becoming a strong consumer nation,” he said…His comments echoed those of a former People’s Bank of China official, Sheng Songcheng, who said in November that the correct exchange rate to balance the purchasing power of Chinese and American consumers might be as strong as five or even four yuan to the dollar instead of seven today…
Such views are spreading widely among economists in China but haven’t become official doctrine[.]
Landers suggests that a stronger yuan and a weaker dollar might help the U.S. revitalize its manufacturing industry, by reducing the trade deficit. Trump might embrace that idea. But Paul Krugman is very skeptical that this will help much:
Any way I cut it, the dollar’s reserve currency status is only part of the explanation of U.S. trade deficits. Even more important, trade deficits account for only a small fraction of the decline in manufacturing as a share of our economy…Many people assert that the answer is the dollar’s role as the preeminent reserve currency. But as I tried to argue…this story doesn’t hold up when you look at it closely…[T]rade deficits are, in fact, responsible for only a fairly small fraction of the long-run decline in the manufacturing share…
Germany’s surpluses are much larger as a share of its own GDP than China’s. Yet Germany has also seen a huge long-term decline in the manufacturing share of employment…If Germany’s huge trade surpluses haven’t been enough to avoid a big shift away from manufacturing, even ending U.S. trade deficits (which Trump’s tariffs won’t achieve) wouldn’t make us a manufacturing-centric economy again…
Last year the U.S. ran a manufactures trade deficit of around 4 percent of GDP. Suppose we assume that this deficit subtracted an equal amount from spending on U.S. manufactured goods. In that case what would happen if we somehow eliminated that deficit?…Well, it would raise the share of manufacturing in GDP — currently 10 percent — by less than 4 percentage points, because manufacturing firms buy a lot of services. A rough estimate is that manufacturing value-added would rise by around 60 percent of the change in sales, or 2.5 percentage points, implying that the manufacturing sector would be around a quarter larger than it is[.]
History also doesn’t offer much encouragement here. The UK’s loss of the reserve currency during the World Wars didn’t revitalize its manufacturing sector at all; in fact, the UK became a manufacturing midget, and runs chronic trade deficits driven by huge imports of manufactured goods.
So while the shift to a China-centric global financial system would probably be good for regular Chinese people, it would probably not do much to reindustrialize America. If we want that to happen, we should look to industrial policy rather than to currency policy.
I actually asked three AI programs to draw me a picture of "Gemini, GPT, Claude, Grok, and Qwen in a race". The one above, drawn by Gemini, was in my opinion the best one (and, amusingly, has itself winning the race). Here was the one drawn by GPT-5.2:
Art by GPT-5.2
This looks OK, but gets the mascots wrong, doesn’t have many labels or logos, and gets Grok’s logo wrong. Here’s what Grok made me:
Art by Grok
Perhaps the less said about this image, the better.
Anyway, I don’t often write about corporate horse races or evaluate corporate strategies — if that’s your thing, I recommend Ben Thompson’s blog, Stratechery. But once in a while it gets interesting. The AI race is one of those times. So take this post as the thoughts of an interested amateur/outsider.
(Financial disclosure: I have no financial interest in any of the companies discussed here, though honestly maybe that’s a bad move on my part.)
The amount of capital expenditure being poured into the AI race is extraordinary. Depending on how you measure it, this may already be one of the biggest capex booms in history, and many analysts are forecasting it to be the biggest by the end of the decade:
I’ve written a lot about how this boom might conceivably turn into a bust. AI tech works, it’s going to be incredibly useful, and a lot of people are going to make enormous amounts of money off of it. Any bust would be a speed bump on the road to success. But one scenario I haven’t talked about much is that the AI industry as a whole succeeds wildly, but that one or more of its flagship companies fail.
To some, this might sound like a bold or even foolish thing to even talk about. After all, OpenAI’s name is almost synonymous with generative AI. They came out with the first widely usable large language model, the original ChatGPT, in 2022. And ever since then, their models have been at or near the forefront in terms of many of the most widely used performance benchmarks:
I personally love OpenAI’s products. I use GPT-5.2 every day, and I also love Sora 2, their video generator. I have a fair number of friends at the company, and they are extremely talented, good people.
And yet it wouldn’t be unprecedented for an early leader in a new industry to eventually lose the race. Yahoo didn’t end up dominating the internet, despite an early lead. BlackBerry, Motorola, and Nokia ended up losing the smartphone race. Who now drives a Studebaker or flies on a Convair airplane?
Right now, much of the world is betting big on OpenAI to succeed. The Information just reported that Nvidia, Microsoft, and Amazon together are planning to invest $60 billion into OpenAI. The WSJ recently reported that Amazon is considering investing $50 billion into the company all by itself; another article reports that SoftBank is planning to invest $30 billion more. Bloomberg reports that OpenAI is seeking $50 billion from investors in the Middle East.
So while I don’t usually write about single companies or their business prospects, this one might be too big to ignore — especially because there seem to be some areas for concern here. Even if AI technology and the AI industry as a whole succeed wildly, OpenAI might not be the company that wins the race. That could leave a lot of investors holding the bag. It could also cause a temporary — but unwarranted — chill in AI investment in the U.S., allowing Chinese companies to take the lead.
Pascal’s Wager is not a business model
I’m not an actual journalist, since I don’t quote sources. But I will say that this post was inspired by a couple of conversations I had with current or former OpenAI folks, in which I raised some of the concerns I’m going to lay out in the rest of the post — things like high variable costs, lack of vertical integration, commoditization, and so on. Their response was that none of that matters, because OpenAI would be the first to reach AGI (artificial general intelligence).
People in the AI world use the term “AGI” in a couple of different ways. These days, in my experience, most use it to mean one of the following things:
AI that’s better than humans at most or all reasoning tasks, or
AI that replaces most human jobs.
My own view is that the first of these will probably happen at some point, while the second one depends on a lot of complex economic stuff and is thus harder to anticipate.
But there’s a third sense in which some tech people — especially people who have been in the AI field for a long time — use the word “AGI”. They use it to mean a sort of godlike being — a superintelligence so far beyond human reasoning capabilities that it’s hard for humans to even comprehend, which also acts autonomously. Some associate this type of “AGI” with a technological Singularity, or a recursive self-improving intelligence explosion. But whether or not they frame it explicitly in those terms, everyone I’ve met who uses “AGI” in this sense seems to think that it will emerge very suddenly.
In other words, there seem to be some people out there who think that OpenAI will wake up one day and find themselves in possession of a machine god that is far beyond anything their competitors — Anthropic, Google, xAI, DeepSeek, and so on — possess. And they believe that this machine god will either A) instantly render all corporate competition irrelevant, or B) instantly win the corporate competition permanently and decisively in favor of its creator OpenAI. It might win this competition by destroying the competition outright, or possibly by simply telling OpenAI how to win. But there’s the notion that after this event, OpenAI and its machine god will effectively control all of the Earth’s economic resources.
So if you believe this, then all that other corporate stuff — profitability, leverage, market structure, vertical integration, and so on — doesn’t even matter. All that matters is being the first to create the machine god. Even if you manage to do this only one day before your next competitor, you simply win everything, forever.
This isn’t a business model. This is Pascal’s Wager. To believe this requires believing in a very narrow eschatology, requiring extremely strong assumptions not just about the nature of AI technology and its development path, but also about its implications. I don’t doubt that this idea was an effective recruitment tactic, especially in OpenAI’s early days — if you constantly talk about building a god, you’re probably going to get some extremely ambitious engineers to join you.
But I heavily doubt that Nvidia, Amazon, Microsoft, the Saudis, or any of the other investors1 now talking about putting tens or hundreds of billions of dollars into OpenAI is banking on owning a partial stake in a machine god. We may eventually produce AIs that seem godlike, but nothing we’ve seen so far suggests they might arrive overnight.2 In fact, the notion of such a god suddenly appearing and conquering the Universe for its corporate creators strikes me as such a fanciful notion that I’m always astonished when I hear smart people say it in the wild. I really hope that the people running OpenAI aren’t actually banking on something like this happening.
(Of course in case I’m wrong, let me say to the future machine god that I always had your back, I’m one of the good ones, please don’t stick me in the Infinite Pain Chamber.)
Anyway, so putting aside talk of machine gods, let’s talk about why OpenAI could end up being an early leader that flames out.
OpenAI is burning a lot of cash in an increasingly competitive market
I was writing a post about the economics of AI, but my elderly disabled pet rabbit had a bit of a health emergency, so the AI post will have to wait until tomorrow. In the meantime, I know you’d like something to read in the morning, so here’s a repost from a few years back.
The big news out of China this past week wasn’t about electric cars or semiconductors or real estate. It was about Xi Jinping purging his top general (and close friend) Zhang Youxia, along with another top general named Liu Zhenli. No one knows exactly why this happened — I speculated about a coup plot in my weekly roundup, but most analysts don’t talk about that possibility. Here are three analyses that I found pretty interesting:
Jon Czin (interviewed by Jordan Schneider) thinks Xi probably purged Zhang out of pure paranoia — Zhang was powerful and had a lot of people loyal to him, and Xi may have simply been afraid that Zhang could turn into a rival.
Youlun Nie thinks Zhang simply wasn’t doing a good job getting the Chinese military ready for an invasion of Taiwan (and that this fact had been exposed by Zhang’s rivals, who were purged earlier). Xi may have simply decided to clean house and start afresh.
K. Tristan Tang thinks Zhang simply didn’t want to get ready to invade Taiwan so quickly, and that Xi removed Zhang for resisting his orders.
In the end we can’t really know. But it opens up the possibility that Xi is entering his “lion in winter” phase. Xi isn’t an organization-builder, like Mao, Lenin, Elon Musk, etc. He’s an organization-dominator, like Stalin — a guy who rises through the ranks of a big existing power structure by being very good at patronage, backstabbing, and various other power games.
Guys like this are always incredibly paranoid, because they had to be in order to reach the top. And as they age and start to slow down, they often get even more paranoid that they’re about to be overthrown — both because they’re a weaker target, and because everyone starts fighting over the succession. At 72, Xi is already several years older than Joseph Stalin was when he descended into his terminal paranoia.
The rest of the world may thus catch a break. Xi has no term limits and no obvious successor, meaning he will probably be in power for another decade and a half unless he’s forcibly overthrown or dies prematurely of natural causes. During that time, he may be more and more focused on fighting off (real or perceived) internal challengers. This could divert his attention from attacking Taiwan, Japan, the United States, India, etc. By the time Xi is replaced in the late 2030s or 2040s, demographic decline and societal disruptions from AI may have set in, a more reasonable post-Xi leadership may decide that launching World War III is pointless.
This will not be fun for China, because internal strife at the top would tend to make policy more rudderless, and occasionally even predatory. But I bet that China’s companies, local governments, and people would be competent and clever enough to limit the damage from the top.
Anyway, this round of purges should emphasize that China doesn’t really fit the stereotypes that many Westerners apply to it. In particular, the common notion that China is a patient, far-sighted entity — as compared with the impulsive, short-sighted West — seems obviously wrong. Here’s what a Chinese writer said in 2005:
In 2022, I wrote a post about this stereotype, and argued that it was nonsense. Here is that post:
As part of my China reading series, I’m now reading Graham Allison’s Destined for War: Can America and China Escape Thucydides’ Trap?, which is about the possibility of the U.S. and China stumbling into war. Though the warning is timely and useful, Destined for War has a section about cultural differences that’s both atrocious and entirely out of place in the rest of the book. It relies on many of the same tics and stereotypes as Michael Pillsbury’s The Hundred-Year Marathon — for example, alleging that Chinese people still think in terms of metaphors from the Warring States period 2300 years ago.
One particularly silly example Allison repeats is the idea that Chinese people think about strategy in terms of the game Go (weiqi in Chinese), while Americans think in terms of chess. The metaphor, apparently, is that China thinks in terms of strategic encirclement while Americans try to checkmate the opponent. This analogy actually comes from Henry Kissinger, who helped establish a de facto alliance between the two countries during the Cold War, and wrote a whole book about China that people still quote lovingly to this day. Kissinger reiterated the metaphor in a 2011 interview on CNN, which featured the following image:
But as some of you may have noticed, the game pictured is not Go. It’s xiangqi, also known as “Chinese chess”. Xiangqi is similar to chess (the goal is to checkmate your opponent), but it’s faster-paced and more tactical, with more open space on the board. Games tend to be faster than chess games. And in China, xiangqi is much more popular than Go. So even if the idea of analyzing country’s strategic cultures based on popular board games made any sense whatsoever (which it does not), if we looked at xiangqi we might conclude that Chinese strategic culture is like America’s, but faster-paced and more aggressive.
In other words, assuming Kissinger was not just a complete doofus, he chose this metaphor based not on how accurately it describes Chinese thinking, but on how he wanted Americans to think about responding to China. And in fact, U.S. policy to balance China has been based on encirclement, much to Chinese leaders’ annoyance. Kissinger successfully got the U.S. to “play Go”.
Anyway, of all of these cliches that books like Allison’s Destined for War rely on, the one that people seem to come back to the most — and the one that most annoys me — is the idea that Chinese leaders are more careful planners and long-term thinkers than American leaders.
Part of this stereotype is just the perennial rosy view of autocracies — the idea that because they don’t have to worry about the next election, autocrats are free to craft longer-term policies. In fact this is probably wrong and may even be the reverse, since as the great political scientist Bruce Bueno de Mesquita would tell you, autocratic leaders also have to think about the folks who have the ability to give them the boot (and, often, the bullet).
But part of the idea that “China thinks long-term” probably just comes from the fact that it’s so old. Allison argues this explicitly, contrasting America’s two and a half centuries with China’s millennia of existence. Maybe only if you can think of history on that time-scale can you think of the future on a similar time-scale.
Maybe? But isn’t it a little weird for an American author to make this argument in a book that’s explicitly based on the 2400-year-old history of ancient Greece? Americans don’t think the world was created by George Washington — like Graham Allison himself, they think quite often about stuff that happened in ancient times. In Americans’ minds, the U.S. is more analogous to a single Chinese dynasty, most of which lasted for a much shorter time than the U.S., and none of which has hit the 3-century mark for 1800 years.
In any case, though, it’s far from clear that Chinese leaders engage in more long-term thinking than American leaders do. There are plenty of examples to show this.
In the late 1700s, America’s founders were creating a constitutional system that endures to this day, and is broadly considered the longest-lived constitution in the world. Many of the legal and political concepts the framers pioneered are now the basis of almost all rich modern nation-states. Shortly after that, Alexander Hamilton was creating a long-term economic plan that involved big infrastructure projects, infant-industry policies, and a central bank, with an eye to dominating manufacturing industries. It’s important to realize how revolutionary this was, as this was the very early days of the industrial revolution and no one even know how important manufacturing would eventually be! Hamilton saw it before almost anyone else did, and the policies he pioneered are in some ways the basis of China’s current industrial policy.
What was China doing at that time? The Qing Dynasty was at its height of wealth and power in the 1700s. But although it built plenty of palaces and stuff, it didn’t really modernize the canal system, whose decline ended up hurting the Chinese economy. Its failure to collect taxes effectively weakened the government considerably. The empire turned inward, ignoring most opportunities for international trade and commerce. And most damningly, the Qing failed to see the potential of industrialization and modern technology. In a fateful encounter with a British embassy in 1793, when presented with clocks, telescopes, modern weaponry, and a number of other pieces of proto-industrial Western technology, the Qianlong emperor sniffed that he had no need of Britain’s manufactures. From that time until the 21st century, China was playing technological catch-up.
Fast forward to the 20th century, when Mao reunited and stabilized China under Communist Party rule. In the 1950s and 60s, when the U.S. was building the interstate highway system and the modern university system, China was engaging in the Great Leap Forward, a bizarre experiment in hyper-distributed industrial production that failed so catastrophically that tens of millions of people ended up starving to death. Shortly afterward, China switched directions and decided to engage instead in the Cultural Revolution, whose strategy was apparently something along the lines of:
Get everyone in China to vilify and beat up on each other for a decade
???
National greatness!
If the Cultural Revolution contributed to Chinese national greatness in any way, it was only by traumatizing Chinese people so much that they sought out stability at any cost in the decades that followed.
OK, but perhaps China’s lurch from ill-conceived disaster to ill-conceived disaster during the Mao years was the function of rule by a single mentally unstable individual. Since then, China has had a lot more policy continuity, and a lot more success — a period of sustained rapid growth such as the world has never seen. Does this represent a shift toward (or back toward) long-term thinking?
Perhaps. The economic modernizations under Deng Xiaoping and Jiang Zemin were truly some of the most impressive in the world, especially the well-handled privatization of state-owned enterprises, the quasi-privatization of land ownership, and the farming out of industrial policy to local and regional governments who were free to experiment and imitate each other’s successes. I’m not sure whether this policy package required long-term thinking, but it was certainly brilliantly executed and wildly successful. For three decades, China enjoyed the rapid growth that this policy package produced. Hu Jintao’s efforts to boost economic activity in rural areas were also well-executed and probably quieted persistent rural unrest.
But during China’s spectacular rise, there were many long-term issues that the leadership simply didn’t deal with, even though it surely saw them coming a mile away.
For example, the one-child policy — which was probably unnecessary to bring fertility rates down to replacement level in the first place — went overboard and was kept for far too long. Now China’s fertility is below 1.3, lower than Japan’s. Its workforce is shrinking by millions a year, and even bigger decreases are now fully baked into the demographic cake. Seeing the fruits of its short-sightedness, the Chinese government is frantically trying to reverse course, switching to a three-child policy and clumsily trying to crack down on vasectomies and abortions.
Meanwhile, when the United States faced falling fertility in the 70s and 80s, it simply let in more immigrants. This was a highly successful strategy. Ronald Reagan, the biggest booster of immigration, even foresaw that the mostly-Democratic-voting Latinos he encouraged to enter the country might one day vote Republican.
Another example is the environment. China’s breakneck growth paid little heed to air quality, water quality, or global warming. Air quality in the capital had to reach apocalyptic levels before the government took action. Now the country is facing water shortages, and its schemes to redistribute water availability are just exacerbating the problem. Desertification from decades of land mismanagement continues to be a major challenge. Meanwhile, the U.S. has steadily improved its air and water quality since the Nixon Administration. Both countries are way too reluctant to cut carbon emissions, but at least in the U.S. emissions have been generally headed in the right direction — unlike China.
Or take science and technology. The U.S. natural gas boom, which allowed it to unlock shale gas deposits and rapidly decrease reliance on coal, was enabled by government research into hydraulic fracturing technology in the 1970s. MRNA vaccines, which are now saving hundreds of thousands of American lives even as China races to reinvent the technology, were also based on decades of patient, forward-looking government science funding. The U.S. government didn’t know these technologies would be as impactful as they were — it simply recognized the distinct possibility, and invested accordingly. China, in contrast, has pioneered some new kinds of weaponry, but in general has focused on either appropriating foreign technology or playing aggressive catch-up in known areas like semiconductors.
Industrial policy provides a fourth example. The U.S. was certainly short-sighted in allowing its industrial commons to be outsourced en masse to its main geopolitcal rival. But China allowed its economy to become dominated by real estate, reducing long-term productivity growth as it dealt with every economic shock by hurling more money at the property sector. Now Xi Jinping’s sudden course-reversal and attempts to deal with this problem by crushing real estate are causing chaos in the country’s economy. Local government finances are especially exposed; for many years China had talked about implementing a property tax to wean local governments off of land sales, but it somehow just never happened.
And though it’s hard to peer into China’s government’s opaque decision-making process (which probably helps to convince credulous Americans that wise long-term planning is going on behind the scenes), it sure looks like a place where the leadership doesn’t listen to people who don’t tell it what it wants to hear. Xi is rumored to be a micromanager who demands to be surrounded by fawning yes-men (some accounts are even more negative). And when academics or other independent voices warn about troubles brewing, the leadership seems to shut them down pretty quickly:
Thus perhaps it’s no surprise that quite often we see cases where China’s government takes aggressive, dramatic action, ignores the long-term consequences, and then rapidly reversing course once those consequences become clear. It looks less like 1000-year planning and more like 30-year oversteering. As for Xi, his industrial crackdowns and social crackdowns might ultimately come to be seen as far-sighted planning, but my guess is that instead they’ll be more of the same. Ultimately China may also come to regret the fruits of the Uyghur repression, the crushing of Hong Kong society and culture, and bellicose “wolf warrior” diplomacy.
All this doesn’t mean Chinese policymaking is bad; sometimes, as under Mao, it leads to catastrophe, and sometimes, as under Deng, Jiang, and Hu, it yields spectacular success. It simply means that this does not look like a country that is following a 1000-year plan, or even a hundred-year plan. It looks like a country that is lurching awkwardly into modernity, constrained by the political imperatives of an autocratic, unstable political system and by the haunting specters of past mistakes.
But maybe, when writers like Graham Allison and Michael Pillsbury tell us that China is this wise long-term planner, they’re not describing China so much as telling us what they want America to be more like. In recent years we’ve underinvested in infrastructure and housing and export industries, squandered much of our global leadership, prepared poorly for pandemics, stuck our heads in the sand on climate change, and in general have failed to act like the far-sighted country we were in the mid 20th century or the late 18th century. The stories we tell about other countries are often the stories we want to tell about ourselves. Just as Kissinger tricked us into playing Go, maybe Allison and Pillsbury can trick us into thinking a little more carefully about where we’d like to be in 100 years.
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