2026-06-06 16:10:50
As regular readers of this blog know, I’m pretty ambivalent about trade barriers as an economic policy. On one hand I think targeted tariffs and other trade barriers can be used to protect strategic industries from surges in underpriced import competition, especially by geopolitical rivals. On the other hand, broad tariffs like the ones Trump has used are generally bad — they hurt domestic manufacturing by making intermediate goods more expensive, they limit scale for domestic companies, etc.
And yet I do think that Europe should erect much higher trade barriers — both tariffs and non-tariff barriers — against Chinese high-tech manufactured export goods. The basic reason is that it’s important to protect Europe’s nascent modern defense industry. But I also think that blocking Chinese exports might nudge China to change its economic model to one that benefits regular Chinese people more.
In other words, China-Europe trade has some unusual characteristics right now that make trade barriers a much smarter idea than usual.
First, let’s talk about what’s going on with the Chinese economy. For the past few years, China’s government has unleashed an unprecedented torrent of subsidies for high-tech manufacturing industries. This — along with structural factors about how the Chinese economy works — has resulted in China making big global market share gains in industries like autos, pharmaceuticals, and shipbuilding. No one knows just how much of China’s market share gains are a result of government support, but as Paul Hannon reports, the OECD estimates that it’s more than half:
Government subsidies have driven most of the increase in the global market share of Chinese businesses over the past two decades as they have received three to eight times more support than their competitors, the Organisation for Economic Cooperation and Development said Monday…The analysis is based on the OECD’s Manufacturing Groups and Industrial Corporations database, which includes subsidy estimates and financial information for 525 of the world’s largest manufacturing groups spread across 15 key industrial sectors…[T]he OECD database tracks the amounts that firms are actually given…
“Industrial firms based in China receive more subsidies than their competitors based everywhere else,” the OECD said…For Chinese businesses, however, the share of [market share] gains explained by subsidies was…60%.
The Rhodium Group has a deeper dive into China’s new industrial policy. Essentially, instead of selecting a few industries to specialize in, China’s leaders just want the country to dominate everything — not just manufacturing, but services as well:
China’s industrial strategy…is becoming more systemic and pervasive, extending across all layers of production, from upstream inputs and industrial equipment to downstream applications, services, and frontier technologies…China’s next-generation industrial policy represents a shift from targeted sectoral intervention to what can be described as an “industrial policy of everything.”…While [Made in China 2025] focused on a defined set of strategic emerging industries, current policy frameworks extend across mature sectors, foundational supply chain nodes, and frontier technologies alike…
Even in mature industries facing overcapacity and severe price pressures, Beijing is providing continued support and pushing firms to upgrade production technologies to gain market share and lower production costs, rather than cutting capacity…Services, relatively neglected in earlier rounds of industrial policy, are getting more attention[.]
Basically, China does not want1 to exist in a trading system, where goods are traded for other goods. China wants to make all the goods, and have other countries pay for those goods with debt.
There are two basic reasons China is doing this. The first is pure mercantilism; China is trying to export its way out of the economic slump created by its housing bust. The second, as the Rhodium Group report explains, is power. If China controls key segments of other countries’ supply chains, it can use the threat of export controls to bring those countries to heel.
What should other countries do about this? The U.S. has chosen to respond with tariffs. These are of limited effectiveness, but they do appear to be doing something; even when you take into account the intermediate goods that China exports to America via third countries like Vietnam and Mexico, China’s share of America’s imports has fallen slightly from 2021 (or from 2017):
There are almost certainly much more effective tools that the U.S. could use to accelerate the decoupling of the two economies and reduce dependence on China…but since when has U.S. policy been driven by a desire for effectiveness?
The question is now what Europe and other developed countries — who have marginally more rational decision-making processes — are going to do about China’s attempt to dominate all tradable industries. One proposal — which Germany seems to be following so far — is to do nothing, and to simply let China make all the physical objects in the world, while focusing on services instead. This is essentially the proposal of Tej Parikh, who writes that China “has a comparative advantage in industrial policy itself”, and that trying to compete with China in any manufacturing industry is therefore doomed to fail.
This annoys me, because it represents a deep misunderstanding of the entire concept of comparative advantage! The theory of comparative advantage is about traded goods; it’s about which traded goods can be produced relatively more cheaply by which countries. If I’m better at making TVs than cars, and you’re better at making cars than TVs, then I’ll make TVs and you’ll make cars and then we’ll trade. That’s how comparative advantage works. This is why you cannot have a “comparative advantage in industrial policy”. Industrial policy is a production input, not a traded good. No one buys and sells industrial policy!
“OK, Noah,” you’re about to say. “Stop being a pedant. You know what he means. He means China is better at making anything and everything, because they use industrial policy for everything.”
Yes, I know that’s what he means. And yes, this reflects a deep misunderstanding of the concept of comparative advantage.2 Even if one country is better at making everything, it doesn’t have a comparative advantage in everything. That’s impossible. Every country has a comparative advantage at something!
That’s why in the theory of comparative advantage, trade is balanced. In the real world, China’s massive trade surplus means that trade is not balanced; much of the time, China isn’t trading goods for other goods, it’s trading goods for IOUs. That kind of unbalanced trade is something that just doesn’t happen in the theory of comparative advantage.
OK, so that was a bit of a rant. The real point here is that Parikh’s preferred solution — that every country except China should focus on innovation, and leave the making of everything to the Chinese — is simply ridiculous. First of all, it doesn’t deal at all with the issue of supply chain vulnerabilities. Second of all, China has an industrial policy for innovation, too — in fact, it’s China’s most important industrial policy. The idea of “We’ll do the innovation while China makes everything” sounds straight out of 2002 — and it was obviously wrong even back then.
The cold, hard fact is that Europe needs to do something, or risk losing its sovereignty to foreign conquerors. China — the very country that Europe’s free-traders are now suggesting should supply every single manufactured good — is waging a proxy war against Europe even as we speak. China trains Russian soldiers, provides Russia with battlefield intelligence in its war against Ukraine, helps out Russian defense manufacturers, and even does some defense manufacturing for Russia — in addition to buying Russian oil and keeping the Russian economy afloat.
And this is all while Russia is actively threatening to invade the EU. If Russia eventually does invade, Europe will need to make large amounts of drones to resist the invasion. All militaries that are not centered around large masses of drones are now obsolete — when NATO conducts war games against drone-equipped Ukrainian units, the Ukrainians easily triumph.
But both Europe and Ukraine cannot currently make drones from scratch without relying on Chinese industry. Many of the components and materials that go into making a drone are controlled by China — things like radio modules, lithium-ion batteries, electric motors, navigation cameras, and even carbon frames. Europe cannot currently make these — or can’t make many of them, at least.
If Russia were to invade Europe, China could simply decide not to sell Europe the components it needs to make drones. Why wouldn’t it? China has already proven itself perfectly willing to use export controls on rare earths and other upstream technologies to throttle other countries’ defense industries. And a Europe cowed and dominated by China’s most important ally would probably be more useful to Xi Jinping than a free and independent Europe that steers its own destiny.
If Russia invaded Europe and China simultaneously halted the export of drone components, Europe would be a lost cause. Unless Europe could assemble upstream industries for drone components from scratch before Russia’s drone-equipped armies marched across the Baltics and into Poland, the war would quickly be lost for lack of weapons.
Whether they realize it yet or not, Europe’s dependence on China for the manufacture of many key defense inputs puts it at China’s mercy. This is a downside to free trade that the folks who advocate a European retreat from manufacturing simply fail to engage with or acknowledge. It provides a strong rationale for putting up trade barriers against the import of certain intermediate goods — something that harms economic efficiency, but is necessary for defense.
When invading armies are burning your country to the ground, you should worry less about deadweight loss than about being dead.
But those who wring their hands about the economic losses should take heart. Blocking the import of Chinese goods might harm economic efficiency, but it could have some positive knock-on effects in terms of political economy.
For all China’s high-tech wizardry, its big industrial policy push doesn’t seem to be doing much to help the actual people of China.
The real estate industry, which previously created plenty of labor demand and broad-based wealth for regular Chinese people, is still in the dumps and may even be getting worse. The continued property bust is weighing on aggregate demand — Fixed-asset investment is shrinking, while retail sales have flatlined.
“Industrial policy for everything” was supposed to fill the hole left by real estate, but it isn’t doing a very good job of it. Because the rise in Chinese manufacturing output is being done mostly for export, regular Chinese people aren’t able to share in the bounty the policies are creating. For example, Chinese motor vehicle consumption is below where it was a decade ago, despite surging exports:
In fact, this shift dates back to the pandemic. Matt C. Klein has a good series of charts on China’s anemic consumption. Here’s an example:
This is often framed as China helping producers at the expense of consumers. But often it’s not even that. China’s industrial subsidies pay a bunch of different companies to produce the same goods, competing their profits to zero even as they also undercut the overseas competition. A prime example of this is the solar industry:
China’s solar exports have enjoyed a surge since the bombing [of Iran] began. But that will be small cheer to its companies…Domestic demand for their products is falling for the first time in decades because the country’s power grids—far and away the biggest market for solar panels—have become overloaded with the things. Solar-panel supply, meanwhile, is overabundant because of years of splashy investment in factories…Most companies have been running at a loss since 2024 because of brutal price wars; bankruptcies are mounting.
But it’s not just undifferentiated commodity products like solar that are suffering this fate; China’s vaunted auto industry, which came out of nowhere to leapfrog all other countries with its mastery of EVs, is locked in an endless brutal price war:
China’s efforts to cool its automotive price war are faltering as BYD Co. and rivals expand discounts to avoid ceding ground in the world’s largest car market…The average price reduction for BYD cars accelerated to 10% in March…Discounts by competitors…also edged higher…Regulators’ missives aimed at halting deflationary momentum have fallen on deaf ears so far, and industry observers say it won’t stop the discounting trend anytime soon.
China’s industrial policy is accomplishing its central goal of national greatness. China’s technology level is advancing, its companies are winning global market share, and it’s gaining control over key strategic technological choke points. But China’s workers, its savers, its investors, and even its entrepreneurs are on a treadmill, unable to enjoy the fruits of their country’s industrial dominance.
European trade barriers could potentially nudge China out of this toxic political economy. If Xi Jinping & co. see that they can’t forcibly deindustrialize the West by subsidizing infinite exports, their cost-benefit calculations may shift. Providing growing living standards for Chinese people might once again become the central goal of policy, as it was during the time of Deng Xiaoping, Jiang Zemin, and Hu Jintao.
So Europe should push back against the Chinese import flood, not just for their own security, but also for the sake of regular Chinese people. Fortunately, there are indications that European leaders have had enough of Xi’s little game, and are preparing to take real action. Hopefully this newfound resolve doesn’t get lost in the maze of European bureaucracy and inertia like so many other worthwhile initiatives.
This is a colloquial expression. Countries don’t want things; I’m taking about what the Chinese government, or at least Xi Jinping, wants for China.
Parikh is confusing comparative advantage with something called “competitive advantage”. In the theory of comparative advantage, competitive advantage — who makes which good more cheaply in the absolute sense — doesn’t end up mattering for the patterns of international trade. That’s why the theory is so brilliantly counterintuitive.
2026-06-04 13:52:29
For many years, I was a big proponent of the idea that increased market power was harming the U.S. economy in various ways. In the 2010s, in the economics world, circumstantial evidence began piling up that implicated increased industrial concentration as the culprit in a variety of recent negative trends. Here’s what I wrote in 2017, after reading a bunch of that evidence:
[B]asically I see the case of the Market Power Story - or any big economic story like this - as detective work. We’re collecting circumstantial evidence, and while no piece of evidence is a smoking gun, each adds to the overall picture. IF the economy were being throttled by increased market power, we’d expect to see:
1. Increased market concentration (Check! See Autor et al.)
2. Increased markups (Check! See De Loecker and Eeckhout)
3. Increased profits (Check! See Barkai)
4. Decreased investment (Check! See Gutierrez and Philippon)
5. Decreased wages in concentrated markets (Check! See Azar et al.)
6. Increased prices following mergers (Maybe! See Blonigen and Pierce)
7. Weakened antitrust enforcement (Check! See Kwoka)
8. Decreased output (Maybe not? See Ganapati)
So, as I see it, the evidence is piling up from a number of sides here.
Some of this is micro evidence, demonstrating some of the pieces of the causal chain that some economists think leads from lax antitrust to bad economic outcomes. The Azar et al. (2017) paper shows that labor market concentration hurts wages. The Blonigen and Pierce (2016) paper shows that mergers raise prices.
The rest is macro evidence and macro theory. Economists see some trend in the economy — a lower labor share of national income, or decreased business investment, or fewer new companies being formed — and they think about whether something like monopoly power could explain those trends.
Just because a single story can explain the trends, of course, doesn’t mean it does. Ultimately you need a whole lot of micro evidence — not just a few papers — to prove each link in the chain of causality from weak antitrust enforcement to higher prices, lower output, lower wages, and so on. But in this case, the market power explanation was very tantalizing, because it had the power to explain so many of 21st century America’s dysfunctions at the same time.
This is why at Bloomberg, I wrote consistently in support of the idea that market power was making the American economy both less efficient and more unequal, and that stronger antitrust enforcement was a good solution to try. (However, I did note that antitrust wasn’t guaranteed to be a remedy, and that Big Tech companies were a bad target for antitrust enforcement.)
When Biden was elected, I was optimistic. His appointment of people like Lina Khan showed that antitrust was finally being taken seriously in Democratic Party circles. Finally, it seemed, the growing clamor of economists was going to result in some real efforts at reform:
In that post, I revisited some of the important recent papers about market power, and I also noted that prominent economists were increasingly putting their reputations on the line by writing popular books advancing the thesis that market power was hurting our economy:
[Economists] have also raised the alarm about corporate power in other forums — Thomas Philippon’s book The Great Reversal: How America Gave Up on Free Markets, John Kwoka’s book Mergers, Merger Control, and Remedies and his 2017 report on mergers, and various speeches sounding the alarm at Federal Reserve conferences. (Update: I was remiss in not mentioning Jason Furman’s briefs on market power when he was chair of the Council of Economic Advisers under Obama! They were very influential. I also neglected the interesting and often-overlooked role of sports economists, who have been complaining about market power for quite a while!)
I concluded that the Biden administration’s shift toward antitrust was a healthy example of ideas making their way from academic economics to the halls of power:
Economists have been suspicious of excess profits ever since Adam Smith complained about “the bad effects of high profits” and declared that “people of the same trade seldom meet together…but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” The idea that competition should reduce profits to a low level in a well-functioning economy is Econ 101, as is the theory of monopoly. Biden’s tweet about capitalism and competition might sound like bold populist rhetoric, but it also could have come right out of an econ textbook…
What this means is that economists are included in the vanguard of this revolt against American corporate power…Economists make unlikely crusaders, but here they are, taking on the biggest companies in the country.
I wasn’t always happy with the Biden administration’s antitrust actions — the government lost most of its cases against Big Tech, and the vendetta against Meta seemed misplaced. But overall, a lot of action seemed to be happening in the prosaic, boring sectors of the economy where market power has probably been eroding the foundations of capitalism for years. In meat processing (multiple times), in publishing, in insurance brokering, in pharma, in medical care provision, and so on, Biden’s FTC and DOJ notched up real wins — not enough to reverse the U.S. economy’s trend toward greater concentration, but possibly enough to create a “chilling effect” that would restrain the trend toward megacorporations-in-everything.
And yet over the last couple of years, I’ve had increasingly serious doubts about the antimonopoly movement. I’m still concerned about corporate power itself — in fact, in many ways, I’m more concerned than I was a decade ago, because of the advent of AI and the unprecedented corruption of the Trump administration. But I’m increasingly unenthusiastic about the ability of the antimonopoly movement, as it currently exists in the Democratic Party, to make useful headway in curbing or balancing corporate power.
Antimonopoly is simply too important to leave to the antimonopolists.
Speaking about Milton Friedman, Robert Solow once quipped: “Everything reminds Milton of the money supply. Well, everything reminds me of sex, but I keep it out of the paper.” I am starting to feel that way about the antimonopoly folks.
Jonathan Chait has a long and very damning article about the antimonopoly movement, focusing on its crusading founder, the former journalist Barry C. Lynn. Until I read Chait’s article, I had never even heard of Lynn; this demonstrates that I’m very much out of the loop when it comes to D.C. policymaking and thought leadership, but it also shows how Lynn has escaped scrutiny compared to more popular figures like Lina Khan, Elizabeth Warren, and Matt Stoller.
In any case, from Chait’s description of Lynn, he is not the type of person whose movement I would want to follow. First of all, he seems monomaniacally obsessed with monopoly power:
“It is vital to understand,” Lynn wrote in his 2020 book, Liberty from All Masters, “that monopoly is not one of many economics problems but rather the political economic problem of our time,” causing “just about every ill in our society today.”
When he says that he holds corporate consolidation responsible for just about every problem, he means it. A list of social ills Lynn has attributed to monopolists includes not just the cost of goods and services but also: “The vast and growing inequality of wealth, political power, and control. The rise of the radical right. The surge in racism and homophobia. The attacks on reproductive choice and marriage. The collapse of our news media.”…
Anti-monopolization, Lynn argues, is “an all-encompassing framework for seeing and shaping power in every corner of our democratic republic.”…Lynn sees American history as a struggle against monopolization…A profound crisis must have profound causes, and Lynn was offering a totalistic account of social decay.
This monomania is obviously just silly. A lot of these links are just incredibly tenuous, requiring heroic leaps of assumptions about society, politics, culture, and economics. If you want to say that corporate concentration is responsible for racism, for example, you have to believe that:
racism has risen recently (highly doubtful)
the rise in racism, if it exists, is caused by economic factors (doubtful)
those economic factors are primarily — not just slightly — due to corporate concentration (highly doubtful)
Even the economics papers that find measurable effects of corporate concentration on low wages, for example, find that the effect differs enormously by geographic location. If monopsony power is responsible for low wages, then minimum wages should increase employment rather than decreasing it; in some areas, this does seem to happen, while in other areas minimum wages decrease employment, consistent with a greater amount of competition in the latter areas.
Furthermore, several credible research teams — Rossi-Hansberg et al. (2021), Rinz (2022), Autor et al. (2023) and others — have found that employer concentration has actually decreased in local markets in recent decades. This means that not just racism, but any social ill that Barry C. Lynn and his followers want to ascribe to labor monopsony, should have decreased over that period.
Another example is inflation. Antimonopoly crusaders like Elizabeth Warren were quick to blame corporate greed for inflation in 2021-22. There was extremely little data to back this up. Here’s what I wrote at the time:
Alvarez et al. (2025) found that markups — i.e., the amount that companies charge for things above and beyond what those things cost to produce — stayed constant during the post-pandemic inflation, meaning that companies weren’t actually able to use the inflation to gouge consumers…Leduc et al. (2024) and Bouras et al. (2023) found the same. And Jose Azar found that industries with higher markups — implying more market power — actually passed on less of their costs to consumers during the post-pandemic inflation…Greedflation, in other words, is not a real thing.
These are just two examples of the shaky chain of reasoning and evidence that backs up expansive claims like Lynn’s. There are many more, if you want to go looking for them. More sober antitrust types absolutely know that monopoly power is not a Grand Theory of Everything Bad in America. From Chait’s article:
Diana Moss of the Progressive Policy Institute [and] a former head of the American Antitrust Institute…told me the neo-Brandeisians’ error is to view antitrust policy “not as law enforcement but as a broad policy tool for fixing a lot of problems—economic, political, and social.” Antitrust enforcement isn’t that powerful, for the simple reason that corporate concentration is not the root cause of every problem.
This is good. But this reasonable, moderate perspective doesn’t seem to be what’s animating the modern antimonopoly movement. Chait details a telling exchange between Ezra Klein and Zephyr Teachout:
Last year, the New York Times columnist Ezra Klein asked Teachout on his podcast if she could think of any issues that cannot be solved by smashing corporate concentration. At first she ventured, “I don’t think that anti-monopoly can solve significant problems of racism in this country,” but quickly retracted even this concession. “Having said that,” she continued, “there’s a reason that Frederick Douglass and [W. E. B.] Du Bois were so concerned about monopoly power.”
Admittedly, these are words, and not actions. Chait may have also cherry-picked them from among antimonopoly movement leaders’ more reasonable statements, in order to make his point.
But when you look at the movement’s actual actions, you can clearly see the obsessive, all-encompassing nature of the belief system. For example, consider the movement’s choice of targets. These include some industries with high profit margins, but also some with very low margins. These include grocery stores, airlines, and health insurers. Grocery stores and health insurers both consistently have much lower profit margins than American corporations in general, often hovering near the zero mark. Airlines are a cyclical industry that sometimes sees some very profitable years, but generally hovers below the average:
The causal chain that runs from weak antitrust to all sorts of social harms necessarily runs through profits. If companies aren’t making profit, they aren’t controlling the market. Yet Elizabeth Warren blamed high food prices on grocery stores’ market power during the post-pandemic inflation, despite the fact that these stores make very little profit, and their margins actually declined as inflation accelerated. You could see that exact same misplaced focus in Lina Khan’s blockage of the Kroger/Albertsons merger.
As for airlines, the Biden administration’s blockage of the Spirit/JetBlue merger resulted in Spirit Airlines simply going out of business entirely. Corporate concentration was achieved after all — but it was achieved with disorder, corporate failure, and 17,000 unemployed workers rather than with an orderly merger that would have preserved some of Spirit’s routes and workers. Not exactly a resounding success for the antimonopoly movement — but that’s what happens when you try to use antitrust tools against companies in low-margin industries.
Then there’s the case of housing. The antimonopoly people have eagerly embraced the idea that corporate landlords buying up rental properties and jacking up the price is a major cause of high rent. Democrats and Republicans have both embraced this piece of “slopulism”, despite the fact that the percent of homes owned by corporate landlords is tiny and there’s some evidence showing that corporate landlords tend to charge lower rents. Supply constraints — failure to build more housing — is actually the reason for high rents, so the antimonopoly movement is distracting us from solving the real problem.
The movement’s obsessive monomania — its conviction that corporate concentration is the root of all of America’s problems — is causing it to pick the wrong targets and hurt workers. That doesn’t mean bigger corporations are better, or that there aren’t industries where we need stronger antitrust. But the antimonopolists’ totalizing obsession causes them to ignore the evidence of where and when their ideas are needed, because they assume that their ideas are always the top priority in every situation and should be applied in a blanket way to any target they choose.
Richard Feynman once said of science that “Of all its many values, the greatest must be the freedom to doubt.” Now you can respond that economics and politics aren’t “science”, but that makes the freedom to doubt even more important; the less conclusively that any one data set can answer your questions, the more important it is to look at a wide variety of data sets and consider a variety of explanations and theories.
From Jonathan Chait’s description of Barry C. Lynn, he doesn’t seem like the kind of guy who’s inclined to look at evidence that goes against his ideas:
[Lynn] believes that “most prices are entirely arbitrary and political in nature.”…More expansively, Lynn believes that “market forces”—which he places in scare quotes—do not exist. His indictment of economics is neither mild nor limited. He has compared the discipline to Lysenkoism, a pseudo-scientific fad under Stalin. “The ‘science’ of economics today … ,” he wrote in his 2011 book, Cornered, “has become a form of madness, a dream of human imagination we mistake for a pattern of the world.”
Lina Khan has also written that “There are no such things as market ‘forces’.” Statements like this certainly don’t do much to refute Chait’s allegation that the antimonopoly belief system “is more like a religion than an economic theory”.
First of all, as an aside, we should consider what it would mean for market forces not to exist and prices to be determined by politics. It would mean that grocery stores carefully calculate exactly how much they can charge for a cucumber or a package of napkins without Senators giving them an angry call or the working class rioting, or something like that. That’s kind of preposterous. It would also mean that small businesses would charge lower prices, because they’re less politically powerful than big businesses. But in fact, it’s big businesses that charge lower prices for the same goods. So the “prices are determined by politics” idea is just abjectly ridiculous, except maybe in a few special cases or where explicit regulation is involved.
But more to the point: Market forces obviously do exist. When you include sales taxes on price tags — reminding people that prices are higher than they had thought — they buy less, proving that demand curves exist and slope downward. When there is bad weather at sea, the price of fish goes up. When you charge electricity customers more, they use less electricity.
And so on. Market forces are not easy to observe in all cases, and they’re not always the most important determinant of prices. But their existence has been proven so thoroughly, by so much careful empirical observation, that to deny their existence requires a deep level of mysticism and blind faith.
If you’re not the kind of person to believe in empirical economics, then of course you’re not going to care if economists find evidence against your worldview. But once we move out of the realm of willful faith-based belief and into the real world of evidence and observation, we find that the science on monopoly power is far from settled.
First of all, there is the evidence I cited before about decreasing concentration in local labor markets (even as concentration increases nationwide). The monopsony wage penalty might be very high, but it was probably even higher in the past; this leaves room for antitrust action to help workers, but it should make us question whether monopoly power is at the root of slow wage growth.
But more fundamentally, the entire story about creeping market power being responsible for a bunch of different ills in the modern American economy is under serious dispute.
For example, the whole story about monopoly power increasing in recent decades relies on the idea that price markups have increased — if companies can’t charge higher prices relative to their costs, they must not be very powerful. Economists like De Loecker and Eeckhout find that markups have increased a lot, but there are plenty of economists who disagree with that finding! There are tons of measurement issues involved in trying to estimate markups across the whole economy. Some economists claim that essentially the entire increase in markups is due to the finance sector.
There are plenty of other pieces of the monopoly power story that are also disputed. Shapiro and Yurukoglu (2024) summarize a bunch of these. It’s hard to define what each “market” is over time, because the boundaries of the categories are arbitrary, and the nature of products themselves keeps changing. It’s hard to choose the region over which local concentration should be measured (when is one store in the same “market” as another?). Companies’ costs are hard to measure for many reasons — for example, companies sell lots of different things, and researchers don’t necessarily have the data to determine which costs are for which products. Profits are hard to measure because the cost of risk is hard to assess. And so on. In general, choosing a different set of assumptions can get you wildly different results regarding how much monopoly power has actually risen in America.
The point here is not that De Loecker and Eeckhout, or the other economists who concluded in the 2010s that monopoly power is a big deal, were wrong. Maybe they were, maybe they weren’t. Nor should you conclude that economics is just a game of “he said, she said” where everyone contradicts each other and nobody really knows anything. The correct takeaway here is that these questions are very subtle and difficult, and the most careful, serious researchers will take a long time to hash out the correct answer. In the meantime, we must live with uncertainty.
A big problem with the antimonopoly crusaders is that they don’t just refuse to live with uncertainty — they insist that you don’t live with uncertainty either. If you say “Hey dudes, maybe corporate landlords actually lower rents”, they won’t debate the finer points of causal estimation with you — they’ll simply label you as a corporate shill and dismiss you.
It’s this last bit — the anathematization of anyone who disagrees with them — that really warns me away from the antimonopoly movement. Chait describes in his article how anyone who tries to buck the antimonopoly people gets accused of being a paid corporate hack:
“We’ve largely won the intellectual debate,” [Lynn] told me matter-of-factly, allowing that the only remaining liberals who disagree with him are “those who are paid to do so.”…
When Biden considered appointing Susan Davies, a former deputy White House counsel under President Obama, to the Justice Department’s top antitrust post, a slew of articles savaged her as a corporate shill. Her candidacy died. [emphasis mine]
This tactic was clearly on display when the antimonopoly people leapt to savage Ezra Klein and Derek Thompson’s book Abundance. Matt Stoller wrote a post entitled “An Abundance of Sleaze: How a Beltway Brain Trust Sells Oligarchy to Liberals”. Dylan Gyauch-Lewis1 called the Abundance movement “The new centrist push to regain control of the Democratic Party, with corporate money”. Barry C. Lynn said that Abundance wants “to cozy up to good oligarchs, so they can shelter us until the MAGA storm blows over.”
First of all, claiming that anyone who disagrees with your ideas must be on the payroll of nefarious forces is blatant intellectual dishonesty. It also signals how weak your argument is if you have to accuse every critic of being a bad actor.
But beyond that, the antimonopoly crusaders’ reaction to Abundance shows how utterly factionalist they are. They could have simply said “Yes, we want abundance too. Guess how you get abundance? By breaking up monopolies!” Or something like that. They could have easily tried to co-opt the energy behind Abundance and treated Ezra Klein and Derek Thompson as potential allies. Instead, they leapt instantly to the attack with maximum savagery.
This is the behavior of factionalists, for whom ideas and policy are less important than building power for a clique of favored allies and fellow-travelers within the Democratic Party. Klein and Thompson were a threat not because their ideas contradicted those of the antimonopoly clique, but simply because they were not beholden to the patronage or the intellectual legacy of that clique. They were not on the team, so they were the enemy.
In my view, it is very dangerous for any political party to allow itself to be entered and captured by a clique or faction like this. I’ve spent a long time being very favorable to the ideas being put forward by the antimonopoly people, but their behavior with regards to the Abundance liberals — and the shoddy reasoning, baseless accusations, and backroom arm-twisting that they employ in these debates — has given me what the Zoomers call “the ick”.
A problem with economic policy is that it is very vulnerable to intellectual pseudo-cults. Economics research is very hard to understand, isn’t always useful, and rarely offers clear-cut answers. So policymakers and writers seeking certainty and a reason for decisiveness often fall victim to charismatic gangs of intellectuals who claim that economics is solved and that they have it all figured out. On the GOP side, these include the “supply-siders” in the 1980s and the “national conservatives” today. On the Democratic side, it includes the MMT people.
But MMT failed — essentially no one listens to people who say infinite deficits are good. The antimonopoly faction, on the other hand, appears to have succeeded in winning enormous power and prestige within an increasingly epistemically closed progressive movement. Elizabeth Warren was basically a one-woman Organization Department2 for the Biden administration, and is apparently still incredibly influential in terms of furnishing personnel for Democratic hopefuls. Meanwhile, popular Democrats like AOC are going around claiming that “market power” is what produces billionaires, and every major progressive publication now platforms the antimonopoly people’s intellectual output.
Given my writings about the problems of corporate power in the past — and my fear of the overwhelming power that AI companies might achieve — it would be relatively easy for me to join this movement. But I can’t, because monomaniacal obsession, epistemic closure, anti-empiricism, and intense factionalism are the kinds of things I just can’t sign on to.
Corporate power is a real problem in our society. But we need more reasonable programs, and more reasonable people, to fight it effectively. Banning corporate landlords, calling for price controls, attacking the grocery store industry, forcing airlines out of business, and making accusations against anyone who calls for deregulation of housing supply are just signs of an approach that’s going to lead nowhere good.
When I had GPT proofread this post before publication, it flagged the name “Dylan Gyauch-Lewis”, but its only comment was: “This unusual spelling appears to be correct.”
This is quite a compliment!
2026-06-02 17:31:21
So, Anthropic is going to IPO! The company is valued at almost $1 trillion, so this is going to be one of the biggest IPOs in history — the only other competitor being SpaceX, which is also set to go public soon. It’ll be one of the largest wealth creation events in history — the company’s seven founders are each going to be worth almost $20 billion, and regular employees will be worth in the millions to tens of millions. So much for my chances of buying a house in San Francisco!
Whether Anthropic is worth this valuation is not the topic of this post, but I guess it’s interesting to touch on. Anthropic is showing more impressive revenue growth than any company in history, having recently blown past OpenAI to an annualized rate of about $45 billion per year. Worries that the company would be unprofitable have been blown away by this hypergrowth — Anthropic is about to turn its first operating profit.
In fact, I think the price being offered for Anthropic is pretty conservative. A multiple of 20x annualized revenue really isn’t that expensive for a company growing at 130% a quarter. Obviously that’s going to level out at some point soon, but it would take only a little over one more year of that sort of growth for Anthropic to be priced like a value stock. The cautious pricing probably reflects the danger of competition, both from OpenAI and from the cheap Chinese open-source models perpetually nipping at the leaders’ heels.
The reason for Anthropic’s meteoric rise, of course, is the success of coding agents. For years, OpenAI had struggled to find a market for its state-of-the-art chatbots; everyone was wowed by the technology, and everyone used it, but people couldn’t figure out how to get it to produce lots of economic value. Anthropic basically solved that problem by being the first to invent usable coding agents — AIs that write software on their own. Claude Code, Anthropic’s agentic software, gained a huge amount of brand value, even though OpenAI’s Codex product is competitive in terms of quality.
This was true product-market fit. AI had already proved that it worked in terms of the underlying technology — probably around 2024, when reasoning models cut down on the hallucination problem. Now it had found its killer app — the equivalent of e-commerce and search for the internet, or spreadsheets and word processing for computers. Suddenly, everyone in the world was “tokenmaxxing” — trying to use coding agents as much as humanly possible.1
I first encountered this trend at a dinner event on the economics of AI (I go to a lot of those dinners these days). An entrepreneur at the dinner breathlessly told me and a couple of other attendees that he ordered his employees to “spend their salary in tokens” — that is, to create so much code with Claude Code and Codex that it cost as much as their entire paycheck. I remember asking him: “What are they using all those tokens to create?” I don’t think I got a straight answer; I’m not sure he knew.
He wasn’t alone, though. Plenty of companies encouraged their employees to use AI coding agents as much as possible. Meta even briefly had a leaderboard for who could use the most tokens. One company reportedly spent half a billion dollars on Claude Code — equal to one percent of Claude’s annualized revenue!
Reading these reports, I just kept wondering: What are all these tokens actually producing? Just like with that guy at dinner, there never seemed to be a clear answer. Were Amazon and Meta and other software companies rolling out new features? Not that I’ve seen. A lot more apps are being submitted to the App Store, but I’ve only heard of one good one (Refine.ink). I’m sure there are more out there, but so far it’s nothing like the early days of the smartphone, where I was hearing about cool new apps every couple of weeks.
Maybe it was all on the back end? I’m not a software guy, so I don’t have a proper grasp of how hard it is to make a website like Instagram run, or optimize the cloud servers at AWS. Sites and apps aren’t loading faster or obviously more reliable. Was advertising getting better? Are click-through rates improving? Were companies fixing their long-standing problems, taking care of “tech debt” so they can avoid paying large costs in the future? Maybe!
I kept quiet about these questions, since it’s not really my area of expertise. But I saw a lot of other people — people who know a lot more than I do about software engineering — asking similar things. John Loeber wrote:
The stuff I’m hearing is just insane. People are spending hundreds of thousands of dollars a month on tokens? Guys, what are you shipping?…I am seeing people fully enraptured by illusions of productivity. They have swarms of agents coordinated by Byzantine Octopus harnesses. They’re munging thousands of tokens a second. They’re doing all this stuff, churning unfinished marginalia faster than ever before. Spinning their wheels and shipping absolutely jack shit for their customers…[W]e’re getting a lot of utility from AI for engineering at our company. I think we would really struggle to burn more than $5K per engineer per month.
Uber COO Andrew Macdonald said it wasn’t yet possible to draw a link between raw AI usage and useful products actually being shipped:
“That link is not there yet, right?” [Macdonald] said. “I think maybe implicitly there is more that is getting shipped, but it’s very hard to draw a line between one of those stats and, ‘Okay, now we’re actually producing 25% more useful consumer features.’”...He said that the trade-off costs from AI are harder to justify because he can’t draw a direct link.
Microsoft, meanwhile, began canceling Claude Code licenses. Salesforce started redesigning their employee targets to measure real output instead of AI input. And people who looked into the matter basically confirmed the suspicion that a lot of this AI coding wasn’t going into actual products being shipped:
For companies using advanced AI coding tools, only 18% of spending on tokens is translating into shipped coding products that reach real users, according to EntelligenceAI, a startup that aggregated data on more than 2,000 companies using advanced AI tools for coding.
Jellyfish, a company that tracks AI usage, found rapidly diminishing returns in terms of converting tokens to actual software.
You should absolutely NOT take this to mean that AI is a bubble, or that the tech doesn’t actually work, or that Anthropic’s IPO is overpriced, etc. A lot of this is perfectly normal. When a very capable new general-purpose technology bursts onto the scene — steam power, electricity, computing, the internet, etc. — a ton of people play around with it to see how it works and experiment with how they might be able to use it. That experimentation is healthy, and we shouldn’t expect it to last forever.
It’s also reasonable for companies to push their software engineers to try something radically new. Most professionals who have written code by hand all their lives will naturally be reluctant to switch over to letting a machine take the first crack at it. Rewarding AI usage for its own sake is silly in the long run — it’s just as subject to Goodhart’s Law as anything else, and it predictably resulted in people checking the weather with AI just to hit their targets. But in the short run, it could be good to shove stodgy old engineers out of their comfort zone.
But I also think there are two more interesting things that are potentially going on here:
Companies are finding out, once again, that turning task-level productivity into economic productivity is a lot harder than it looks. This has implications for the big “AI and jobs” debate, upon which the shape of our future society could hinge.
It’s very possible that the software industry as we know it is a mature industry, like steelmaking or internal combustion. If AI creates major improvements in software, it’s possible — even likely — that it’ll be in new types of software industries instead of just “better Facebook and Amazon”.
2026-05-31 16:38:50
I consider myself a pretty good and decent guy, overall. I don’t commit crimes. I’m nice to the people I meet. I help out my friends. I take good care of my pet rabbit, and I donate lots of money to other people who take care of abandoned and sick rabbits. My politics might not always be correct or wise, but I want things like the end of poverty, the end of war, and so on.
And yet just down the highway from me, there are facilities for the mass torture of animals. In the United States, there are 73 million pigs in “concentrated animal feeding operations”, more commonly known as factory farms:
There are many horrors experienced by chickens and other animals on factory farms, but the way pigs are forced to live is probably the worst. For most of their lives, female pigs (sows) are kept in tiny cages — either “gestation crates” when they’re pregnant, or “farrowing crates” when they’re nursing. A sow will spend most of her life in one of these cages.
In a gestation crate or a farrowing crate, sows don’t have enough room to turn around — all they can do is either stand or lie down in a pile of their own feces. Imagine living your entire life in an airline seat, where you couldn’t even get up to go to the bathroom or take your seatbelt off. That’s how these pigs live.
Pigs are social creatures — they exhibit “emotional contagion”, meaning that when one pig is scared or happy, other pigs start to feel the same, and they give comfort and support to other pigs who are in distress. Research suggests that they’re at least as smart as dogs, and probably smarter. But a pig in one of these crates will never get any social interaction in her entire adult life — she can’t even turn around to look at her babies.
This is torture. The pigs who are confined this way bite the bars of their cages, desperate for a freedom that will never come. They have their tails chopped off as babies (generally without anesthetic), so that they can’t chew each other’s tails in anguish. But no relief ever comes — they live out their entire lives and die in these tiny torture-cages.
I have no other word for this except “sin”. This is a sin. If there is a God,1 and if that God is in any way good and moral, then that God is looking down with disgust on the way my society treats pigs. I go about my daily life — hanging out with my friends, petting my rabbit, going out to eat at nice restaurants — never thinking about the horrible suffering that has engulfed the entire lives of those tens of millions of pigs.
And it’s for my own benefit that those animals are being tortured. When I eat delicious guanciale, sumptuous char-siu, or mouthwatering carnitas, I’m eating the flesh of animals who were tortured for their entire lives so that I could devour their faces and shoulders and bellies for a slightly cheaper price.
OK, so why don’t I just stop whining and become a vegetarian (or a vegan, since milk cows and hens are also treated badly)? Honestly, I should, and the fact that I don’t is monstrous in a way. But simply washing my own hands of this crime feels like a pitifully inadequate response. The vegetarian movement has been around in the West for over 150 years, and very little has changed — meat consumption is probably marginally lower than if there were no vegetarians at all, but abusive factory farming practices have only been refined and expanded. Furthermore, vegetarianism, though morally laudable, has an obvious economic limitation — when one person refuses to eat meat, it lowers the price of meat for everyone else, which raises other people’s meat consumption and partially offsets the vegetarian’s action.
On top of the obvious and demonstrated inability of individual action to solve this problem, it’s insufficient even from a moral stance. Suppose that our society farmed human beings for food. Would simply refusing to eat human flesh be enough to absolve me of culpability? I don’t think so. I would still have a responsibility to try to abolish the evil system.
In fact, “abolish the evil system” is exactly what voters in California and some other states are trying to do. In 2018, by an almost 2-to-1 margin, California voters enacted a law called Proposition 12 that heavily restricted the sale of meat from pigs, hens, and calves that weren’t raised with a minimum amount of space. Crucially, the partial prohibition extended to meat from animals raised inhumanely in other states. This followed on the heels of a similar law in Massachusetts two years earlier.
Courts have upheld the law, but Republicans in Congress are trying to undo it from the federal level. In 2025 they proposed the Save Our Bacon Act, which would ban states from enacting animal welfare laws like the ones voters approved in California and Massachusetts. The Save Our Bacon Act failed on its own, but this year it got incorporated into the Farm Bill, which has passed the House and is now being considered in the Senate:
Companies and industry groups have also worked with members of Congress for over a decade to introduce federal legislation to nullify laws like those in California and Massachusetts. The latest iteration is called the Save Our Bacon Act, originally proposed last year…This effort, which for years went nowhere as standalone legislation in Congress, now has a decent chance at becoming law as part of the new Farm Bill…
In late April, the House of Representatives passed its version of the Farm Bill, which included the language from the Save Our Bacon Act…It’s “really a Save Our Crate Act,” Brent Hershey, a hog farmer who opposes it, told me. “A vote for the farm bill,” he said, “is a vote to cage an animal that can’t walk or turn around.”
Lewis Bollard has a good post explaining what’s at stake. In fact, the current Farm Bill wouldn’t just reverse the recent anti-crate laws in California and Massachusetts — it would roll back much of the progress that has been made in farm animal welfare over the decade, as well as preventing any future welfare laws along similar lines:
The [Save Our Bacon] Act would stop any state or locality from regulating the sale of meat based on how it’s produced in another state. This would likely invalidate state and local bans on foie gras, crated veal, and more…It would also halt future legislative progress. Congress hasn’t passed a farm animal welfare law in decades. State laws are where reforms actually happen. The SOB Act would gut them by mandating they contain a giant loophole for out-of-state imports.
Why should Congress prevent the voters of California and Massachusetts from taking a stand against the evils of factory farming? First and foremost, it’s a case of a concentrated interest group — the pig farming lobby — making headway against a diffuse interest (voters with a conscience). In fact, if you believe the polls, a majority of the country — even a majority of those who regularly eat pork — would probably support measures like the ones in California and Massachusetts:
Across different incomes, genders, age or race, many regular pork buying Americans (defined as those who purchase pork at least 2-3 times per month) find the use of gestation crates on pregnant pigs (66%) and the practice of [tail] docking on piglets (53%) objectionable. These findings, and other key sentiments, are from a recent survey of over 2,000 US adults conducted by The Harris Poll…According to the survey, gestation crates are seen as unacceptable by two-thirds of Americans (66%), and a strong majority (73%) are more likely to buy pork products from companies committed to ending their use than from one that is not. Tail dockingis also seen as unacceptable by just over half (56%) of Americans, and 62% of Americans think retailers and restaurants have a responsibility to ensure the cutting of piglet tails is not done by their pork producers.
A plurality of Americans want laws against animal cruelty strengthened in general, and in 2022 a poll by Data for Progress found that measures like those of California’s Prop 12 enjoy widespread national support.
There is a financial cost of switching to humane farming methods, but in the grand scheme of things it isn’t that high. After California passed Prop 12, the prices of affected products rose by about 20% relative to products that weren’t covered by the law. 20% is a significant increase; it’s possible that the American public, wearied by several years of inflation, is less inclined to care about pig torture than they were when the polls I cited above were taken.
But it would be a one-time bump in cost, and over the years the price would come back down at least somewhat, as farmers found more efficient ways to farm pigs without torturing them. In addition, California implemented the law in its typical inefficient way, forcing producers of legally compliant pork to jump through massive amounts of regulatory hoops in order to sell their product in the state. Efforts to make it easier to sell humanely produced meat would make it even cheaper to end these terrible practices.
In fact, I suspect that the American public is still in a mood to support animal welfare laws like this. The Save Our Bacon Act failed on its own, and its supporters had to end up sneakily burying it within the much bigger Farm Bill; to me, this suggests that even the SOB Act’s proponents knew how bad it would make them look if people started paying attention.
I also suspect — though I can’t prove — that the proponents of the Save Our Bacon Act care about more than just the support of the farm lobby. I suspect that part of the reason they’re so anxious to preserve abusive farming practices is that doing so affirms their right to abuse animals. The line “The cruelty is the point” probably applies here.
People who feel disempowered tend to take their frustrations out on those with even less power. Conservatives have certainly been feeling disempowered by the progressive drift of elite culture over the past few decades; by rolling back animal rights, perhaps they can demonstrate that at least they still have complete power over the pigs.
This disgusts me. In The Better Angels of Our Nature, Steve Pinker showed how economic development has tended to go hand-in-hand with less tolerance for animal cruelty. By passing a law that expanded the scope for animal cruelty, America would be slipping a little bit back down toward developing-country status. It’s moral degeneration, plain and simple.
I would hope that the advent of AI would give us humans a little bit of self-reflection about how we treat animals. Whether or not you believe that today’s AI represents a true superhuman intelligence, the rapidity with which Claude and GPT have rocketed to their current heights of ability should make even the most hardened skeptics realize that humanity is probably not the eternal pinnacle of power and intelligence in this universe.
And in a universe where humanity is neither the most powerful nor the most intelligent entity, we will desperately need a universal moral code where the strong protect the weak. Vernor Vinge, contemplating the advent of superhuman AI back in 1993, wrote:
[I.J.] Good proposed a “Meta-Golden Rule”, which might be paraphrased as “Treat your inferiors as you would be treated by your superiors.” It’s a wonderful, paradoxical idea (and most of my friends don’t believe it) since the game-theoretic payoff is so hard to articulate. Yet if we were able to follow it, in some sense that might say something about the plausibility of such kindness in this universe.)
The people who wrote the Save Our Bacon Act don’t believe in this Meta-Golden Rule. Instead, they believe that all of the moral value and weight in the Universe lies with them and their friends, and that they should have the right to inflict unimaginable cruelty on any being that doesn’t possess the power to stop them from doing so. I would hope that whatever being ends up judging humanity, be it the God of the Bible or some future superintelligence, doesn’t judge us by our factory farms.
Anyway, if you don’t want your society to torture pigs en masse for a few bucks, call your Senator and tell them not to pass the Farm Bill until the Save Our Bacon Act is stripped out of it.
I actually do believe in God.
2026-05-29 17:42:27
Back when I started blogging in 2011, I saw my main function as technocratic — I would discuss policy ideas with other intellectual econ types, and wise policymakers at the Fed, in Congress, or in the Obama administration might put those ideas into practice. Since 2016, however, technocracy has felt less and less important, and policymaking has felt more ideological. In the second Trump term, concern for costs, benefits, and the public good seems to have entirely gone out the window — policy is now driven either by the whims of an aging egomaniac and his personality cult or the echo chamber of the online right. Tariffs and immigration raids make no sense as economic policy; they are intended as part of a nativist, isolationist ideological project. The Democratic alternative is less bad, but is still increasingly ideological, centered around the idea that corporate profits are inherently bad.
This changes the nature of my job, and in fact makes it much harder. Whereas in the past I could just recommend policies, now I have to make arguments about what kind of country we should want to have in the first place. In order to get anyone to listen to my advice, I have to be a bit less technocratic and a bit more ideological. And I have to do that at a time when the main ideologies being offered to the American public are becoming more extreme.
And yet this is the job now, so I should stop complaining and just do it. Because I do have a pretty clear picture of what kind of country I think America should be. I believe that in the 20th century, under the leadership of Franklin D. Roosevelt, the United States devised the single best governing ideology that any country has ever created: liberal nationalism.
I’ll explain what I think that means, but first I want to take a detour and point out a recent debate between two prominent commentators on the political right. One is the pseudonymous “Roman Helmet Guy”, an anti-immigration right-wing nationalist. The other is Balaji Srinivasan, my college friend, who represents a libertarian perspective and who now lives in Singapore. Balaji tried to keep the debate civil, while Roman Helmet Guy (henceforth “RHG”) was vituperative, vulgar, and accusatory. But both made interesting and important points about identity and national allegiance, and the debate ended up illustrating some points I want to make about liberal nationalism. So let me present an abridged form of the debate.
RHG started the debate by accusing Balaji of being ungrateful to America:
Balaji responded by casting doubt on the degree to which an individual’s success is attributable to the country where he succeeded, and by arguing that the global online community embodies America’s founding ideals better than America itself:
The degree to which one's success is attributable to a country's platform is hard to separate out. Obama said to conservatives: "you didn't build that, someone else made that happen." That is certainly one view, that 100% of success was due to the country platform, and zero to the individual…
[E]ven if the US government fails, even if the polarization proves too much, even if the $175T in debt takes down a once-amazing country, the Internet will be there…[I]t reflects the best of American values — free trade, free markets, free speech, free exchange of ideas — and I believe we can rebuild from it, just as Europe rebuilt from Christianity after Rome.
RHG retorted1 that Americans like Balaji ought to be loyal to the people of America, not to its ideals or its institutions:
I am not loyal to a set of values. I am loyal to the American people. You were born here. You were raised here. Educated here, made rich here. You should be loyal to the American people too. The PEOPLE. Not a set of values, not an economic system…
You fled the country and now go on podcasts talking about how tech people can ‘avoid the collapse of America.’ To you, my country and my people are just something for your class to exploit for wealth and then move on. If my people vanished from this earth, your only thought would be “How does this affect my ROI?”…My people gave you everything, yet you have no gratitude. No loyalty.
Balaji pointed out that many of the people who built America were immigrants, and that building America didn’t mean that they betrayed their country of origin. He then argued that in the modern, polarized America, it’s impossible to be loyal to the entire people; you have to choose whether to be loyal only to the red half or the blue half:
[I]f someone tries being loyal to “the American people”, does that mean being loyal to the 75 million Kamala voters, the Blue Americans? Because if you’re loyal to them, you are unfortunately no longer loyal to the Red Americans…Just like there is no Korea, only North Korea and South Korea, there is unfortunately no America any more, only Blue America and Red America.
He also accuses RHG of promoting an unequal, racialized version of national identity, in which Indians and other minorities are required to be subordinate to WASP Americans:
[W]hat test do you propose to determine whether someone is a true American, aside from their current paperwork?…[L]oyalty means symmetry. I am loyal to you if you are loyal to me. But the way you're talking about loyalty translates to servitude. I've been polite, and engaged you in good faith, but we are strangers. Yet you are demanding gratitude and even deference (!) from me, implicitly on racial grounds…
Why would anyone be loyal to a MAGA faction that arbitrarily designates countless millions to be Grade B, C, and D [Americans]? You can't just redefine the social contract overnight…with some tweets, into a…blood-and-soil America that the WASPs themselves shut down...and then get extremely mad when others don't buy into it.
RHG, in his defense, declares that he is loyal to all Americans, regardless of race or politics:
The only thing the American people demanded from you was that you employ the capital that you accumulated in our country to strengthen America and her people. The capital you accumulated under the benevolent protection of millions of American soldiers and policemen who do pick up a gun every day and put their lives on the line to defend our people…
As to which Americans you should have been loyal to: All of them. America is not an ideology. Even the most ideologically deluded idiots are still Americans. And I am happy to embrace all American citizens as my brothers and sisters, regardless of background…The truth that you’ll never understand…is that no nation of Balaji Srinivasans will ever be strong. Because you would all flee the moment things got tough, just as you fled America.
Both of the debaters make important points here. Balaji is, of course, right that it’s perfectly fine to emigrate from your country of birth, especially if that country collapses or becomes ruled by a nightmare regime. Being a refugee is not a form of ingratitude, and it’s silly to hold people to a moral standard in which anyone who moves to a different country is a traitor.
(That said, I think Balaji is being excessively panicky when he paints America as being in a state of civil war. The danger to his person and his fortune from remaining in America would have been minimal. And it’s absurd to assert that you can only be loyal to one half of the American populace or the other; Red Americans and Blue Americans are simply not in a civil war.)
RHG also goes way too far when he dismisses the idea of loyalty to American ideals. A nation’s people are important, yes, but its values and institutions are also important. Should loyalty to the Russian people have made every Soviet citizen loyal to Joseph Stalin? Should loyalty to the German people have made every citizen loyal to Hitler? No, of course not. Countries aren’t just sets of people, they’re also systems for organizing those people — the United States of America was born in 1776, not when Jamestown was founded. It’s perfectly acceptable to love your people but to reject the regime under which they live.
But at the same time, RHG makes some important points of his own. He’s absolutely right that a country in which everyone packed up and moved at the first sign of trouble would be an ineffective country. Social change requires voice, not just exit; making change requires that someone stay and fight the system, and if people keep running away they eventually run out of places to escape to.
Similarly, a country needs to be able to tax its rich people and companies in order to fund public goods (defense, courts, infrastructure, science) and to provide a social safety net. If rich people and capital are perfectly mobile, raising taxes becomes impossible, and countries have to choose between underfunding public services and running exploding deficits. In a very real sense, rich people give back to the people of their nation by staying and paying taxes.
And contra Balaji, rich people do owe a lot to the system that allowed them to get rich. Entrepreneurs immigrate to America for a reason; it would have been very hard for Elon Musk to build PayPal, Tesla, or SpaceX in South Africa. And although America is an especially good place to get rich, any functioning state is better for upward mobility than a state of anarchy. Try seeing how rich you can get in Somalia!
Much of what makes America a good place to get rich is its institutions — good courts and property rights, public safety, government support for research, and so on. But RHG is right that much of it is due to the actions of the American people — the workers who fix the roads that rich people drive on and build the offices they work in, the law-abiding regular people who behave themselves instead of overloading the justice system with crime, the taxpayers who pay for the courts and the roads and the research.
Balaji made his first millions by founding the genomics company Counsyl, which benefitted enormously from taxpayer-funded genomics research. That money came out of the pockets of regular Americans. It was channeled through American institutions, yes, but regular Americans made sacrifices for the science that allowed Balaji to get rich. It’s not possible to put a dollar amount on the debt that Balaji owes to regular Americans, but I do think some expressions of gratitude would be in order, even if delivered from Singapore.
At the same time, this raises some problems for RHG’s flavor of nationalism. Who exactly are the “people” of America that RHG is demanding that Balaji be loyal to? RHG claims that he views all Americans as his “brothers and sisters”, regardless of their politics or their background. But who counts as an American? Is it citizenship alone? Does someone who takes the oath of citizenship immediately become Roman Helmet Guy’s brother or sister? And if so, why is RHG so doggedly opposed to new immigrants, when that just means adding to his family? And if RHG has some other criterion for true American-ness besides citizenship, what is it?
This is the problem at the heart of right-wing nationalism, and there’s just no way to resolve it. If you accept citizenship as the definition of Real American-ness, then you have to admit that immigration creates Real Americans, when immigrants naturalize and/or have kids in the U.S. But if you reject citizenship, you have to rely on some more limiting, restrictive, and ultimately divisive test — race, or number of generations in the country, or whatever.
Every time rightists try to put forward a new concept like “Heritage American”, it falls flat, because the dividing lines are so arbitrary and contested. Do you only include WASPs, and kick out the Catholics? That’s kind of a non-starter, electorally. Do you include Catholics but kick out Jews? Do you bring in Jews but kick out people of Chinese and Indian and Mexican descent? What about Black Americans? Any attempt to designate a core “American people” by ethnicity, religion, or race is a non-starter electorally, so rightists typically either stick to vague hand-waving or spout deeply unpopular views from behind pseudonyms on social media.
Americans, meanwhile, overwhelmingly reject race, religion, and ethnicity as criteria for true American-ness. Most Americans of both parties are civic nationalists, of the type that make Roman Helmet Guy’s blood boil — they believe that the most important things for being a real American are citizenship, belief in the Constitution and the Declaration of Independence, obeying the law, and voting in elections:
Americans themselves have little use for the kind of restrictive nationalism that rightists like Roman Helmet Guy are trying to sell them. (In fact, support for skilled immigration — the type of immigration that brought Balaji’s parents and millions of other Indians to the U.S. — is extremely high among both Republicans and Democrats.)
But this doesn’t mean that Americans would do better with rootless globalism, of the kind Balaji has embraced. The internet has created many “vertical communities” of like-minded people who chat with each other online, but those are no substitute for traditional communities of people who live near each other in physical space. Roads, schools, police, national defense, and plenty of other public goods and services can only be provided at the spatial, local level.
And in countries where people don’t feel a sense of kinship with their neighbors, public good provision becomes very hard. It’s hard to build a road if you think a lot of the benefit will go toward groups of people you don’t like. It’s harder to get people to allow the construction of new housing in their back yards when they think that people they don’t like will live there. Ethnic bloc politics is poison for democracies. A social safety net is hard to provide if you think the welfare benefits will go to groups of people you distrust or despise. And so on.
Homogeneous countries don’t have to worry as much about this problem, but a diverse country like America needs to work harder to forge people of disparate backgrounds into a single unified whole. Just saying “America has no culture except for multiculturalism” doesn’t cut it, because if Americans have nothing to bind them together in a sense of shared destiny and shared interests, the country will literally fall apart.
In the 20th century, America had an ideology that was committed to forging a single national identity from a dizzying array of backgrounds. That ideology was liberal nationalism, as promoted by the administration of Franklin D. Roosevelt, and by his ideological successors (including Republicans like Dwight Eisenhower).
FDR might seem an unlikely candidate for the paragon of liberal nationalism, given that he tossed around 80,000 Japanese Americans in concentration camps during World War 2 and compromised with segregationists. But those actions have to be viewed in the broader context — in an era in which racism and xenophobia were at their peak in the U.S., and growing all over the world, FDR strove mightily to turn the country in a new, more pluralistic direction.
FDR ended forced assimilation policies for Native Americans, and gave them greater autonomy on tribal lands. He maintained a group of Black advisors, created plenty of programs to help Black people economically, created cultural programs to publicize Black achievement, and preserved the testimonials of former slaves. He created campaigns promoting interfaith understanding and cooperation, helping to reduce America’s traditional anti-Catholic prejudice as well as antisemitism. His Federal Writers Project employed writers to document America’s cultural diversity.
FDR also strongly promoted the notion of America as a nation of immigrants — an idea that still deeply holds sway over the American psyche, despite rightists’ attempts to get rid of it. Here’s a radio program that the Roosevelt Administration created to promote this idea:
And everywhere, the Roosevelt administration pushed back against the sort of restrictive right-wing nationalism that was common in the early 20th century. The Department of War made a film in 1943 (released in 1947) called “Don’t Be a Sucker”, in which it advocated for an ideology of national unity and derided the kind of demagogues who tried to divide the country along ethnic and religious lines:
FDR and the liberal nationalists were not modern multicultural progressives. They strongly believed in national unity. This obviously meant patriotism, respect for American institutions, and a shared sense of national purpose during World War 2, but it also meant a lot more. FDR and the New Dealers — and especially the Office of War Information — advanced the notion that America had a unifying culture, set of democratic ideals, sense of history, and way of life that transcended Americans’ different backgrounds. The history of the New Deal is littered with examples of attempts to forge American-ness into a sort of shared civic religion.
The legacy of this liberal nationalism lives on strongly in the beliefs and values of the American people, as evidenced by the responses to the poll above about American-ness. But the civic religion that sustained American unity through the triumphant 20th century has been abandoned by the political activist classes — the modern left and right. It’s difficult to imagine today’s leftists crowing about the idea that people of various backgrounds are “Americans All”. And it’s nearly impossible to imagine today’s rightists admiring a poster like the one above but with the names Patel, Zhang, Hernandez, and Khan.
The reason American policy is insane right now is because the country is being torn apart. And it’s being torn apart by a political activist class that has abandoned the unifying ideology of 20th century America — the ideology that defeated both fascism and communism, forged a kaleidoscope of ethnicities into a single nation, and sustained U.S. prosperity and economic dominance for 70 years.
Both the rightist and leftist projects in America are doomed to fail. There’s only one ideology that can save this country, and it’s the one that worked for us before. Bring it back.
RHG also, rather ridiculously, accused Balaji of “treason” for badmouthing America from foreign shores. We need more education about what treason means.
2026-05-27 16:32:31
“Reason is, and ought only to be the slave of the passions, and can never pretend to any other office than to serve and obey them.” — David Hume
If you’re of a certain generation,1 you’ve probably seen the movie Office Space. If you haven’t, I strongly recommend it, both because it’s funny as heck, and because it’s a perfect encapsulation of a certain time and place in the world. The movie hearkens back to the big technology companies of the 1990s, when — according to the mythology, at least — nerdy engineers did all the real work while know-nothing middle-management types took all the credit. (You’ll also recognize this as the culture that gave rise to Dilbert.) The iconic character representing the backwardness and inefficiency of the 1990s corporation was Bill Lumbergh, the suspender-clad boss whose main function was to pester engineers to fill out useless paperwork.
A lot of nerdy types watched Office Space and assumed — or at least hoped — that in the end, the smart engineer types would take over corporate America from the plodding Lumberghs. And in fact, something like this happened in the 2010s — as Big Tech eclipsed much of the old economy, engineers became extremely highly paid, and began to fill the ranks of middle and upper management. It was the Revenge of the Nerds, the age of human capital, the triumph of humans who actually knew how to do difficult technical things.
But just as with the highly paid artisans of early 18th century Britain, the scarcity of human capital spurred a wave of automation. This year, AI found its killer app — Claude Code and other agentic coding tools that allow AI to do much (though not all) of the hard mental work that the much-put-upon engineers in Office Space were doing by hand. Although AI has not yet replaced many professions, the rapid progress has lots of people wondering what exactly humans will be useful for in 10 or 20 years. If AI does replace coders and mathematicians, what chance do any of the rest of us have?
Although some people in the AI industry still think that humans will be rendered economically irrelevant, that answer is increasingly unsatisfying. Realizing that a popular backlash against their industry is underway, many AI leaders and AI boosters are actively looking for the answer to the question of “What will humans be useful for?”. So far, the most popular answer, advanced by folks like Alex Imas, is that humans will be useful simply because they’re human:
The idea here is that it will become a sign of prestige and social status — which are always in short supply — to have humans do something for you instead of AI. No matter what else machines can do, they can never replace the knowledge that it’s a real human being making your sandwich.
I kind of have my doubts about this thesis — I’ve seen a lot of people pay extra to have a Waymo drive them instead of an Uber, so they didn’t have to sit with a human driver in the car. But maybe Imas is right; we’ll have to see.
But I have a slightly different answer to the question of “What will humans do?”. I think humans will continue to be required for something beyond simply being their beautiful human selves. I think there will be an increasing demand for human labor in the all-important job of maintaining AI alignment.
“Alignment” can mean many things in the AI community, but one basic definition is “ensuring that AI’s goals are the same as humans’ goals”. This is something that AI labs try to do before releasing their products to the world. But as AI becomes more and more agentic — as we turn over more complex and longer-lasting tasks to intelligent machines — it’s going to be harder and harder to keep them aligned with what humans actually want. And if there’s one thing humans will always have a comparative advantage at, it’s knowing what we want.2
In other words, it’s the lumbering Lumbergh, rather than the technically competent engineers, who I believe represents the ultimate future of human labor. He may seem boring and pointless, but by forcing engineers to file their TPS reports and do other seemingly useless tasks, Lumbergh is — however approximately and inefficiently — keeping the engineers’ goals aligned with those of the company they work for.
In the far future — maybe 10 or 20 years from now — this will mean that humans’ main productive function is to make sure that increasingly autonomous AIs stay on task instead of “reward-hacking”, rewriting their own utility functions, going rogue, or otherwise slacking off. Over the next few years, though, I expect human work to gently shade from technical work into alignment work, as we spend our hours verifying the output that AI delivers us.
Generative AI has dramatically decreased the cost of many kinds of output. With the touch of a button, you can write an essay, turn a data set into an academic paper, write a report for your boss, and so on.
Everyone is doing this, and the result is that our society is currently being overwhelmed by a wave of AI output of questionable quality — in other words, what has come to be known as “slop”.
Slop is rapidly taking over every domain of human output. Over one-third of new websites are now estimated to be AI-generated, and over half of internet traffic is now believed to be AI. AI-generated court filings and news articles are on the rise. Even respected public figures are now posting obviously AI-generated content as their own. AI-generated political influencers are becoming a standard tool for electoral campaigns.
