2025-11-08 09:52:30
Hi, everyone! I’m overdue for a roundup post.
First, I have a lot of podcasts for you! Here’s me arguing with the noted right-wing Frenchman Pascal-Emmanuel Gobry about high-skilled immigration:
And here’s Razib Khan interviewing me about Japanese politics:
Here’s an interview I did with the Media Summit podcast, about various media-related topics:
And here is an episode of Econ 102, discussing the future of American manufacturing.
OK, I know that was a lot. So without further ado, let’s move on to this week’s list of interesting things!
In the 2000s and 2010s, America generally saw slow growth, low levels of business investment, and low business dynamism. We also saw increasing levels of corporate concentration, at least at the national level. A bunch of economists put two and two together, and hypothesized that growing monopoly power was choking off the economy. This wasn’t actually the impetus behind Lina Khan and the “neo-Brandeisian” antitrust movement, but it was probably the reason why very few economists stood up and criticized Khan’s policies.
In the last few years, however, a new wave of research has been coming out, suggesting that the market power picture is a lot more complicated than it once seemed. For example, Albrecht and Decker (2025) found that at the industry level, there was no correlation at all between price markups (an indicator of monopoly power) and business dynamism. In fact, industries where companies mark up their prices more tended to have slightly more new businesses enter the industry. This suggests that the story a lot of people were telling in the 2010s — that big powerful companies were blocking startups from taking off — wasn’t true.
Another interesting paper is Creanza (2025), which studies what happened when a whole bunch of American companies merged around the turn of the 20th century. This wave of mergers helped spur popular concerns about monopoly power. But Creanza finds that it also led to greater innovation at the corporate level. Basically, big industrial companies tended to have big industrial research labs that made a lot of discoveries:
This paper studies the Great Merger Wave (GMW) of 1895–1904—the largest consolidation event in U.S. history—to identify how Big Business affected American innovation. Between 1880 and 1940, the U.S. experienced a golden age of breakthrough discoveries in chemistry, electronics, and telecommunications that established its technological leadership….I show that consolidation substantially increased innovation…The establishment of corporate R&D laboratories served as a key mechanism driving these gains…[L]ab-owning firms enjoyed a productivity premium…Overall, the GMW increased breakthroughs by 13% between 1905 and 1940, with the largest gains in science-based fields (30% increase).
This is not a new idea. A lot of economists, including John Kenneth Galbraith, Joseph Schumpeter, and William Baumol have theorized that an upside of market power is that big profitable companies are able to afford big expensive labs, and that as long as there’s some competition, the whole economy can benefit from the resulting innovation. Bell Labs (pictured at the top of this post) is certainly the most famous example of a big, powerful company that plowed money back into useful research. In fact, two of this year’s Econ Nobel winners, Philippe Aghion and Peter Howitt, won the prize for a theory saying that oligopoly enhances innovation. So it’s interesting to see Creanza find some historical data in support of this classic theory.
In fact, we can see this effect happening in AI today. Three big companies with a lot of market power — Google, Meta, and Microsoft — have been instrumental in driving the AI boom. In fact, many of the fundamental advances that power modern AI were made in Google’s labs. But those three companies have also benefitted from strong network effects that give them extraordinary market power and high profits — Google in search ads, Meta in social networks, and Microsoft in PC operating systems. All three companies have been targeted and even villainized by Lina Khan’s new antitrust movement. But perhaps without their market power, we wouldn’t have the AI boom that’s now the main thing sustaining our economy.
The antitrust push of the last decade may have missed some very big and important parts of the story.
In recent decades, there has been a big shift from active to passive investing. Why spend all that time and effort picking stocks, when you can just buy an index fund or an ETF and automatically do as well as the market average — without spending any effort or paying any fees?
This logic is incredibly powerful, and it’s why passive investing has inexorably taken over from active investing:
But what if everyone in the market starts doing this? If there are no stock-pickers — only people who click a button that says “buy ETF” — who will do the research required to figure out if each stock is actually worth buying? And if everyone is buying or selling the same stocks at the same time, isn’t that somehow dangerous? What about corporate governance? If a few asset managers like Vanguard and Blackrock own all the companies, doesn’t that reduce competition? Etc. etc.
Those are long-standing concerns about passive management, and they get debated back and forth. But now we have a new potential drawback to worry about: underinvestment. Kontz and Hanson (2025) reason that when stocks become more correlated, they become riskier — the classic concept of “beta”. Riskier stocks are cheaper, because risk is bad. When stocks are cheaper, it’s harder for companies to sell their stock to finance business expansion. So Kontz and Hanson argue that because passive investing increases correlations, it suppresses real investment, because it makes it harder for companies to sell their stock.
That’s a plausible story, but I think it’s questionable how important it is for the overall economy. Passive investing really took off around 1995. But corporations’ cost of borrowing actually fell from 1995 through 2021:
That’s probably mostly due to things like interest rate cuts and new institutional money entering the market. But it suggests that even if passive investing is making it harder for companies to sell their stock, it’s not the big driving factor in America’s real investment drought.
Still, something to keep in mind.
A lot of people expected Donald Trump to offer to sell Nvidia’s Blackwell chips to China as a concession in the recent China-U.S. trade talks. Nvidia’s CEO, Jensen Huang, had certainly been pressing hard for such a move, which would make his company a lot of money. But in the end, Trump held firm and refused to sell China the chips:
Greenlighting the export of Nvidia’s Blackwell chips would be a seismic policy shift potentially giving China, the U.S.’s biggest geopolitical competitor, a technological accelerant. Huang—who speaks to Trump often—has lobbied relentlessly to maintain access to the Chinese market.
As they prepared to meet Xi, top officials including Secretary of State Marco Rubio told Trump the sales would threaten national security, saying they would boost China’s AI data-center capabilities and backfire on the U.S., the officials said…
Faced with nearly unified opposition from his top advisers, Trump decided not to discuss the advanced Nvidia chips during his Oct. 30 meeting with Xi…Trump’s ultimate decision marked a victory for Rubio and other Trump advisers over Huang, leader of the world’s most valuable public company.
Was this a good outcome? The typical argument against export controls is that they spur China to create its own domestic chip supply chain, and reduce their reliance on America. Basically, the idea is that if we don’t do export controls, our companies can make money selling chips and chipmaking equipment to the Chinese, while at the same time keeping China dependent on our products. But if we stop selling chips and equipment to China, the argument goes, they’ll unleash their mighty innovation machine and learn how to make everything themselves, thus removing any leverage we might have had over them.
This was never a very compelling argument. If you want to keep China hooked on American products for strategic reasons, it’s probably a bad idea to scream “HEY CHINA, WE’RE SELLING YOU CHIPS AND EQUIPMENT SO YOU’LL STAY HOOKED ON OUR PRODUCTS, FOR STRATEGIC REASONS!!”. China’s leaders, being smarter than, say, a gerbil, will refuse to take this bait, and will work hard on developing their own indigenous chip supply chain anyway. Which is exactly what they’ve been doing for over a decade now.
It therefore seems fairly obvious that selling China chips and equipment will simply speed them along in their quest not only to become independent in semiconductors, but to dominate the global market for semiconductors. They will simply reverse-engineer both chips and equipment, while also using the equipment we sell them to make a bunch of chips.
This fairly obvious realization was exactly why we implemented export controls in the first place. And there continues to be evidence that those export controls are working as designed — not destroying China’s chip industry, but slowing it down substantially. For example, China is having trouble replicating ASML’s chipmaking equipment, as Brandon Weichert reports:
Apparently ASML DUV machines that China has to make their chips recently broke down. They called the Dutch company for help repairing it. ASML sent some techs. They discovered that the Chinese broke the machine when they disassembled it and tried to put it back together…The reason Chinese techs disassembled their older ASML DUV machine is because they are desperately trying to evade the US sanctions imposed upon them for the newest ASML-type machines. By disassembling their older one & trying to reassemble it, Chinese techs learn…They are trying to reverse-engineer what they have as a means of figuring out how to indigenously build their own, more advanced versions, to end-run the US sanctioned machines. But they can’t figure it out, apparently.
Meanwhile, China’s Huawei, which has reportedly suffered from low yields on its 7nm chips due to U.S. export controls, is now downplaying the importance of making 7nm chips at all. Everyone made a big deal about it back when Huawei’s supplier SMIC managed to make a 7nm chip at all, and the pro-China crowd boasted that export controls were ineffectual, but SMIC’s progress appears to have stalled:
Despite concerted efforts by China to bolster domestic semiconductor production in defiance of US trade policy, new evidence uncovered by Canadian research outlet TechInsights suggests SMIC, the Middle Kingdom’s top chip manufacturer, remains generations behind the rest of the world…TechInsights confirmed that the Kirin X90…in Huawei’s Matebook Fold was fabbed on SMIC’s now two-year-old 7nm N+2 process. The findings debunk rumors the SoC would be fabbed on a homegrown 5nm process node…SMIC has been rumored to have developed an even more sophisticated 5nm process node also using DUV technology. However, as TechInsights points out, chips based on the tech remain elusive.
Meanwhile, China’s technologists themselves seem pretty upset about the export controls, and admit that they’re holding back the country’s AI industry. Here are a couple of quotes:
Here’s a more detailed story about Tencent’s struggle to make cutting-edge AI models under export controls.
So anyway, export controls are definitely holding back not just China’s chipmaking industry, but its AI industry as well. Those industries won’t be destroyed, but they’ll probably keep lagging behind the U.S., especially if the chip controls are tightened. And as long as those industries lag, China may be a little bit more reluctant to start a major war.
If I were in charge, I would keep the export controls in place, and tighten them up as much as possible.
Tourists are becoming a problem for Japan. Tourism keeps rising and rising, pouring revenue into the country but also putting a huge strain on the urban infrastructure of Kyoto and Tokyo (the most popular destinations). The roads and trains simply can’t handle that many people. Meanwhile, many tourists from the U.S. and other Western countries are badly behaved, straining Japanese society. Overcrowding contributes to that problem, by making tourists too numerous to police.
And yet forcibly cutting down on tourism would deprive Japan’s long-stagnant economy of needed revenue (and foreign exchange earnings). Plenty of neglected cities, like Nagoya, actually want more tourists. The Japanese government has tried various measures to nudge foreign travelers away from Kyoto and Tokyo and toward those neglected areas. The effectiveness of those measures, however, has been very patchy.
But Kyoto recently enacted a policy that promises to counter overtourism in a particularly elegant and efficient way:
Desperate to thin out tourist crowds here, the city government will slap visitors with an accommodation tax of up to 10,000 yen ($68.3) per person per night, starting March 1…Officials explained that the 10,000-yen levy will apply to hotel stays costing 100,000 yen or more per night…After the revision, the city’s lodging tax revenue is projected to roughly double, from approximately 5.91 billion yen this fiscal year to 12.6 billion yen next fiscal year.
This is a Pigouvian tax! The city’s congestion problem is an externality. And when you have an externality, you want to tax it. Hotel fees can be set to balance the city’s desire for tax revenue with its desire to reduce overtourism.
Several modifications to this policy immediately suggest themselves. First, Japanese people travel from city to city for business, and the government probably doesn’t want to tax this. So the full hotel fee should apply only to reservations made from foreign bank accounts.
Second, it’s pretty easy to stay in Osaka and commute to Kyoto, so hotel fees should be coordinated regionally.
Region-specific hotel fees accomplish multiple objectives:
They reduce overtourism.
They raise tax revenue for city governments.
They redirect tourists toward cities without fees, which need the tourism revenue more.
It solves three problems at once, with very little downside.
Earnings gaps between Black and White Americans have begun to narrow. But a new paper by Ru, Kaushal, and Muchomba claims that essentially all of this improvement has been due to highly selective immigration:
Our results show remarkable earnings parity between 2nd-generation Black immigrants and non-Hispanic Whites, with Black women leading the progress. The gap is falling for 1st-generation Blacks but remains stubbornly high for native Blacks. Underlying the extraordinary performance of 2nd-generation Blacks is their exceptionally high and escalating educational attainment.
Here’s a chart showing 1st-generation Black immigrants, 2nd-generation kids of Black immigrants, White Americans, and Black Americans with no recent immigrant ancestry:
As you can see from that chart, Black immigrants earn about as much as native-born Black Americans. But 2nd-generation Black Americans earn about as much as White Americans.
There are several important implications of this finding.
First, selective immigration is very important. The kids of Black immigrants to America move up in the world because they’re highly educated. Selecting for immigrants that value education is therefore a way of reducing racial gaps in America — in addition, of course, to the substantial contributions they make to America’s economy.
Second, fears of segmented assimilation — the idea that the kids and grandkids of Black immigrants will end up with economic trajectories similar to those of native-born Black Americans — seem overblown.
Third, America is a land of opportunity for Black immigrants, but not nearly as much so for Black people whose families have been here a long time. This means that the “ADOS” concept — meaning Black Americans whose ancestors were slaves — is probably a useful one. It defines the group of people who most need help from the government. For example, affirmative action programs targeted at Black people in general are likely to award college spots to the kids of elite African immigrants. Instead, in the interest of maximum efficiency and fairness, they should probably be targeted at ADOS specifically.
2025-11-07 09:30:24
One thing I notice when I talk to young people these days is that they don’t use social media very much — or at least, not the kind that we Millennials used a lot in the 2010s. Zoomers don’t want to connect on Twitter, or Facebook, or even Instagram. Instead, they just use phone numbers, like we did in the 2000s.1 When they have discussions online, it’s usually in DM groups, or Discord channels, or subreddits. But mostly, when they use the internet, they’re just watching TikTok or other short-form video content.
These trends are very real. For example, here’s an excerpt from a recent article in Chief/Marketer about how online conversation is fragmenting:
According to a new report from PartnerCentric, which surveyed nearly 1,000 Americans of all ages in May 2025, 41% of Americans—and 48% of Gen Z—are actively planning to spend less time on social networks in 2025…16% of Americans quit at least one social media platform so far in 2025; among Gen Z, that number ticks up to 18%.
“Gen Z is essentially voting with their thumbs—nearly half are dialing back on social platforms and [35% are] layering on screen-time blockers,” says Stephanie Harris, CEO and founder of PartnerCentric.
Facebook and Twitter/X are no longer where young people go to find out what’s happening in the world:
I wrote about the trend away from “town square” social media and toward small-group discussion three years ago, in a post called “The internet wants to be fragmented”:
Since I wrote that post, two big trends — the rise of generative AI and the spread of TikTok-like short-form video content to every online platform — have only intensified the exodus from traditional social media. Derek Thompson and James O’Sullivan have both written excellent long-form articles about how algorithmic content is turning social media into a more passive medium, more akin to TV than to the Facebook and Twitter that we remember from the 2010s.
A lot of people wring their hands and lament these shifts, but I’m overjoyed. I’ve always believed that humanity isn’t meant to be thrown all together in one or two big rooms; we evolved to thrive in small groups and self-selected communities. I blame “town square” social media for at least part of America’s political chaos, and for at least part of the increasing unhappiness among young people. The early internet of moderated, fragmented forums and person-to-person communication seems like it was obviously superior to the rancor of the 2010s. So I think it’s good we’re moving back to something more like the internet we enjoyed in the 2000s.
AI content and short-form video will ultimately help accelerate this healthy trend, I believe. Passive TikTok-watching may rot our brains a bit, but so did Saturday morning cartoons in the 1980s, and we 80s kids turned out fine.2 “Push media” — TV then, TikTok now — lets us consume in private. And paradoxically, despite the centralized nature of algorithms and TV production companies, I think private consumption helps us become more distinct individuals — it frees us from the constant censorious criticisms of strangers that we encounter every moment that we spend in a “town square”.
So I’m optimistic that technology is helping to solve a problem that technology created — that mass social media was merely a passing phase, an experiment that we tried and rejected. Anyway, here’s my post from 2022 about internet fragmentation, which I think still resonates in the age of AI and TikTok.
Five years ago I was sitting around drinking a beer with my college buddy Dayv. I was scrolling through Twitter and watching people get mad at Donald Trump’s latest outrage, and I said “You know…fifteen years ago, the internet was an escape from the real world. Now the real world is an escape from the internet.” “Tweet that!”, Dayv said, so I did. That banal observation became my most popular tweet of all time, and the quote has now been posted ad infinitum on content mills all over the web.
Why did such a bland observation resonate with so many people? It’s easy to see why the internet now feels like a place we need to flee from. The smartphone physically attached the internet to our persons; now we take the internet wherever we go, and its little colored icons are always beckoning, telling us to abandon whoever we’re talking to or whatever we’re working on and check the latest posts. But what’s harder to remember is why the internet used to be an escape from the real world.
When I first got access to the internet as a kid, the very first thing I did was to find people who liked the same things I liked — science fiction novels and TV shows, Dungeons and Dragons, and so on. In the early days, that was what you did when you got online — you found your people, whether on Usenet or IRC or Web forums or MUSHes and MUDs. Real life was where you had to interact with a bunch of people who rubbed you the wrong way — the coworker who didn’t like your politics, the parents who nagged you to get a real job, the popular kids with their fancy cars. The internet was where you could just go be a dork with other dorks, whether you were an anime fan or a libertarian gun nut or a lonely Christian 40-something or a gay kid who was still in the closet. Community was the escape hatch.
Then in the 2010s, the internet changed. It wasn’t just the smartphone, though that did enable it. What changed is that internet interaction increasingly started to revolve around a small number of extremely centralized social media platforms: Facebook, Twitter, and later Instagram.
From a business perspective, this centralization was a natural extension of the early internet — people were getting more connected, so just connect them even more. Why have everyone make their own websites when everyone’s homepage could just be their Facebook page? Why try to track people down in IRC chat rooms when you could just talk to anyone directly on Twitter? Putting everyone in the world in touch through a single network is what we did with the phone system, and everyone knows that the value of a network scales as the square of the number of users. So centralizing the whole world’s social interaction on two or three platforms would print loads of money while also making for a happier, more connected world.
It certainly did the former. Facebook became an all-conquering corporate behemoth, and Twitter managed to stay profitable and secure from competition in spite of being notoriously poorly managed. But almost immediately after the great centralization of the 2010s, I started noticing that something was wrong with the internet I had come to know and love.
It started with the Facebook feed. On the old internet, you could show a different side of yourself in every forum or chat room; but on your Facebook feed, you had to be the same person to everyone you knew. When social unrest broke out in the mid-2010s this got even worse — you had to watch your liberal friends and your conservative friends go at it in the comments of your posts, or theirs. Friendships and even family bonds were destroyed in those comments.
At first Twitter seemed less bad than the Facebook feed, since you didn’t have to reveal your real identity if you didn’t want to. But Twitter was far more extreme in the way it threw everyone in the whole world together. Your family and friends might fight on Facebook, but at least you didn’t have to get deluged with angry comments from random anonymous Nazis or communists or weirdos mad about video game journalism.
The early 2010s on Twitter were defined by fights over toxicity and harassment versus early-internet ideals of free speech. But after 2016 those fights no longer mattered, because everyone on the platform simply adopted the same patterns of toxicity and harassment that the extremist trolls had pioneered. By 2019 you could get mobbed by angry librarians, or Saturday Night Live fans, or history professors. The only defense against an angry mob was to get your own angry mob. Twitter felt like a prison, and in prison you need a gang to survive.
Why did this happen to the centralized internet when it hadn’t happened to the decentralized internet of previous decades? In fact, there were always Nazis around, and communists, and all the other toxic trolls and crazies. But they were only ever an annoyance, because if a community didn’t like those people, the moderators would just ban them. Even normal people got banned from forums where their personalities didn’t fit; even I got banned once or twice. It happened. You moved on and you found someone else to talk to.
Community moderation works. This was the overwhelming lesson of the early internet. It works because it mirrors the social interaction of real life, where social groups exclude people who don’t fit in. And it works because it distributes the task of policing the internet to a vast number of volunteers, who provide the free labor of keeping forums fun, because to them maintaining a community is a labor of love. And it works because if you don’t like the forum you’re in — if the mods are being too harsh, or if they’re being too lenient and the community has been taken over by trolls — you just walk away and find another forum. In the words of the great Albert O. Hirschman, you always have the option to use “exit”.
From Twitter, however, there seemed to be no exit. Where would you go? If you were a journalist, Twitter was the source for all the most up-to-the-minute news. If you were a regular person who disagreed with journalists and wanted to yell directly in their faces, Twitter was the only place you could do that. If you wanted to mix it up in the neverending scrum of political and cultural affairs, Twitter was where you could get the largest audience for that, and feel like you had the largest impact. It was easy to clone Twitter — right-wingers tried several times, with Gab, Parler, and Truth Social — but it felt like the network effect of the original just couldn’t be overcome. So you went back day after day, to endure the toxicity of the dunk-mobs and throw yourself once more into the fight.
And the people who ran Twitter on the corporate side had no intention of changing this at all. They may have talked a good game about “free speech” — everyone does — but what they really wanted was to keep making money. They tinkered at the edges of the platform, but never touched their killer feature, the quote-tweet, which Twitter’s head of product called “the dunk mechanism.” Because dunks were the business model — if you don’t believe me, you can check out the many research papers showing that toxicity and outrage drive Twitter engagement.
The company’s hapless, incompetent management couldn’t figure out any better model, so they clung doggedly to what they had. They steadfastly resisted anything that would smack of community moderation — dropping blocked users’ comments from thread view, allowing users to remove replies from their threads, etc.
Caught between the easy profitability of network effects and growing anger over toxicity, the big social media platforms turned to centralized moderation. Unsurprisingly, this didn’t work. Not only was it an impossible task for the moderators themselves, but it meant that the management of the company was basically required to take an editorial slant. That effectively wrecked the image of the social media companies. And because Twitter’s editorial slant leaned slightly left-of-center, this made conservatives especially mad. Facebook, realizing the impossibility of the task, finally just decided to move its feed away from news entirely; Twitter, of course, couldn’t do this.
As this situation persisted, I began to notice a trend. People were taking their discussions about news, politics, and public affairs off of Twitter and into much smaller forums — first to Twitter DM groups, then to WhatsApp, Signal, and Discord. They still maintained their Twitter accounts and said a few things in public, but their honest opinions more and more were said in the privacy of a trusted group of friends and ideologically aligned acquaintances (and the occasional economics blogger who comes off as ideologically tolerant enough to be admitted to both right-wing and left-wing groups). Slowly, people seemed to be rediscovering the truth that the old internet had taught us — that discussions work better when you can pick and choose who you’re talking to.
Then Elon Musk came along.
Musk is a meteor crashing into the ossified dinosaur-world of Twitter, wreaking havoc on its community and its norms (if not yet its basic functionality). Nowadays if you go on Twitter, you’ll find it absolutely absorbed by Musk’s latest move — today, it’s arbitrarily banning journalists who criticized him, yesterday it was banning an account that tracked his private jet. Tomorrow it will be something else.
It remains to be seen whether Musk’s right-leaning centralized moderation will be enough to cause an exodus of the generally left-leaning journalists who give Twitter its reputation as the mainstream media’s “assignment desk”, or cause advertisers to abandon the platform, or result in a more general move to alternative sites. If core users in general do decide to leave, expect the platform to decline pretty abruptly.
But what’s interesting is that even the people who do expect this sort of exodus don’t seem to believe that there will be another single, unified platform that just replaces Twitter. The look and functionality of the original is simple to replicate, but no one seems to think that everyone will just move to New Twitter; everyone seems to expect that if and when Twitter does decline, the future is fragmented.
Because maybe, just maybe, we’ve learned our lesson. Maybe we’ve realized that the internet simply works better as a fragmented thing.
Centralized social media, as Jack Dorsey wrote, was a grand experiment in collective global human consciousness. It was a modern-day Tower of Babel, the Human Instrumentality project from Neon Genesis Evangelion. Yes it was a way to make some people rich, but it was also an experiment in uniting the human race. Perhaps if we could all just get in one room and talk to each other, if we could just get rid of our echo chambers and our filter bubbles, we would eventually reach agreement, and the old world of war and hate and misunderstanding would melt into memory.
That experiment failed. Humanity does not want to be a global hive mind. We are not rational Bayesian updaters who will eventually reach agreement; when we receive the same information, it tends to polarize us rather than unite us. Getting screamed at and insulted by people who disagree with you doesn’t take you out of your filter bubble — it makes you retreat back inside your bubble and reject the ideas of whoever is screaming at you. No one ever changed their mind from being dunked on; instead they all just doubled down and dunked harder. The hatred and toxicity of Twitter at times felt like the dying screams of human individuality, being crushed to death by the hive mind’s constant demands for us to agree with more people than we ever evolved to agree with.
But human individuality would not die. Instead it is centralized social media that is dying. Social media network effects are strong, but not infinitely strong. A recent survey found that only a third of U.S. teens use Facebook at all, down from over 70% just half a decade ago. And even before Musk’s takeover, the fraction of teens on Twitter had declined from 33% to 23%.
In place of centralized social media we see a few things rising. First, there’s TikTok and YouTube; although these do have some comment features, overall they’re far more similar to television, radio, and traditional one-way push media, with content driven by algorithms instead of user sharing. Second, Snapchat and Instagram, which are geared much more toward personal interactions and less toward public discussions. And though they weren’t included in the survey, my general sense from both anecdotes and overall usage trends is that chat apps — WhatsApp, Signal, Discord, etc. — are becoming more popular.
What these rising apps and platforms all share is fragmentation. Whether it’s intentional self-sorting into like-minded or community-moderated groups, or the natural fragmentation that comes from a bunch of different people watching their own algorithmically curated video feeds, these apps all have a way of separating people based on who they want to talk to and what they want to be exposed to.
This is how we restore the old internet — not in its original form, but in its glorious, fragmented essence. People call Twitter an indispensable public space because it’s the “town square”, but in the real world there isn’t just one town square, because there isn’t just one town. There are many. And the internet works when you can exit — when you can move to a different town if you don’t like the mayor or the local culture. This doesn’t mean we need a world where nobody talks to anyone we disagree with — instead of thick walls, we need semipermeable membranes. And a fragmented internet, where people can try out multiple spaces and move from forum to forum, is perfect for providing those membranes. Disagreement in society is necessary for progress, but it’s most constructive when it’s mediated by bonds of trust and affinity and semi-privacy. Our boundaries will always rub up against each other, but we need some boundaries.
Perhaps someday the human race will be ready to become one collective consciousness. But the experiment of the 2010s shows that this day is not today. Let the internet once more be an escape — a place where you can find your people and be happy. Let us learn to speak a thousand different languages once again. Let the Tower of Babel fall.
This includes chat apps like WhatsApp and Signal that are linked to phone numbers.
…Right??
2025-11-04 20:23:10
I’m traveling to Ireland today for the Kilkenomics festival. This is a very strange but very fun festival in a picturesque little town called Kilkenny, in which Irish comedians and international economists and econ writers go on stage together. The econ people talk seriously about econ, and the comedians crack jokes. It’s a lot of fun, and it’s basically the kind of thing that only Irish people could think up. When I went two years ago, I wrote a fun post about how Ireland got rich:
Other than its startling economic success, another interesting thing about Ireland is the emotions it inspires in Americans. Even though most Americans don’t have an actual ancestral connection to the Emerald Isle, we all grow up steeped in stories about Irish immigration in the 1800s. So lots of Americans, consciously, think of Ireland as “the old country”, and have an almost inexplicable emotional connection to it. Bill Clinton famously claimed to be part Irish, despite no record of any familial connection; I feel it too, despite the fact that my ancestors are all from East Europe.1
Anyway, this strange emotional connection reminds me a little bit of weeb culture, which is a bit of an obsession of mine. So when the pseudonymous blogger Cartoons Hate Her offered to write me a guest post about how she’s a “weeb for Ireland”, I thought this would be a perfect time to publish it.
Perhaps you’ve heard of a “weeb” or weeaboo, basically a Japanophile (usually a white person)2 who has an outsized interest in Japanese culture. Weebs have been documented as existing as far back as the 1800s:
Modern-day weebs are typically white men obsessed with anime and other components of Japanese pop culture. Weebs have been stereotyped as neckbeardy, creepy, and cringey, but there may be benevolent weebs who truly just love Japanese pop culture.
Noah Smith, himself a big fan of anime and Japan, wrote a great article about weebs and provided a nuanced portrayal of the weeb mindset, arguing that most of them are simply cultural enthusiasts with no creepy motivations, and that the “anime pfp” Nazis you’ve probably seen on Twitter aren’t emblematic of your average weebs. #NotAllWeebs.
But anyway, I came to the devastating conclusion that I am a weeb. Not about Japan, but about Ireland and Irish culture. My obsession has gone back at least thirty years. And like a weeb, I’m confident that no matter how obsessed I am with Ireland, I’m getting the obsession all wrong and don’t really know what I’m talking about.
I don’t even know where my Ireland obsession began, but it was far enough back into my childhood that I don’t really remember. A while ago I wrote about my obsession with Victorian orphans and associated literature when I was in elementary school. I’m guessing that I discovered a vague sense of “Irish culture” around that time.
On the bright side, my need to be obsessed with a culture that wasn’t my own was better channeled into Ireland than whatever I was doing in 1996:
Anyway, a big part of my Ireland obsession awakened with the concept of Irish dancing. My school was heavily Jewish and Italian, but we did have a few Irish-American kids, and many of them got to leave class early for Irish dancing lessons, where they’d curl their hair into flawless copper ringlets and wear regal green velvet dresses and grown-up makeup. I was jealous of them, but even more jealous when one of them brought in a VHS tape of the iconic Riverdance Irish dancing program. Something about the music and dancing just hooked me. I had a similar reaction when I watched the Irish dancing scenes in Titanic when Rose slums it in steerage (Why does it never feel that way when I fly economy on Delta?)
I asked my parents to enroll me in Irish dancing classes. They laughed and refused because we weren’t Irish and I was a terrible dancer who couldn’t even be bothered to figure out the Macarena for our school spring concert. So I would practice my own version of “Irish dancing” in my room. One St. Patrick’s Day, my family attended some kind of cultural festival in our hometown where, much to my seething envy, a bunch of kids got to perform Irish dancing. I bided my time until my big moment: later that year, when I attended a Santa Meet and Greet at the mall, I took it upon myself to use “meeting Santa onstage” as an excuse to begin an impromptu Irish dancing performance to the unnervingly off-beat, “Simply Having a Wonderful Christmastime” playing on the speakers.
I can only remember this moment as I saw it from the eyes of an eight-year-old: I had absolutely killed it.
I could have sworn I heard a parent ask if I was professional and if I was hired to perform. Like, I know for a fact that I looked like an idiot and there’s no chance anyone believed I was a hired dancer, especially given that I was wearing a pink GAP puffer coat with a groovy smiley face flower on it, and not an Irish dancing costume, but I genuinely remember someone saying this. Maybe they wanted to help me maintain my delusion. Maybe they just couldn’t think of any other reason why a child would start performing bad Irish dancing at the mall. But I swore they said it.
The obsession continued. I begged my parents to let me dye my hair ginger red (they also said no to this one.) Sometimes, when our backyard looked especially green and misty, I would pretend I was “in Ireland.” I eagerly looked forward to St. Patrick’s Day every year and ignored the naysayers who insisted it was a corny American thing. When I was twelve, I developed a crush on one of the geekiest boys in our class just because his last name was Gallagher. We never dated, but I dated other Irish boys. It’s not that I only dated Irish guys or even that they were my main type, just that being visibly Irish probably helped them level up by 2 points on the 1-10 scale. This phenomenon possibly explains why Sabrina Carpenter dated Barry Keoghan. On the bright side, my husband should feel very good about himself that I consider him a solid 10 without any Irish heritage, although he could pass in a Collin Ferrell way.
Speaking of heritage: unlike your typical white weeb, I am at least part Irish, but not Irish enough to justify my weebishness. I’m half Ashkenazi Jewish (to all of you on right-wing antisemite Twitter, congratulations on your keen “noticing,” and I haven’t even posted nose). My other half is loosely “WASP” but it’s more of a collection of random Northwestern European ethnicities—English, Scottish, French, German, Swedish, and, well, Irish.
I actually didn’t know I was Irish until adulthood, when my mom began exploring her ancestry on Ancestry.com and later 23 and Me. For many years in my teens, I wanted to be Irish, but didn’t think I was. Can you imagine how I felt when I discovered that I was actually part Irish after all this, with an entire lineage of family members with the last name Kennedy? It must have been like Rachel Dolezal discovering she’s actually 1/16th Nigerian. Suddenly, my excitement about St. Patrick’s Day felt slightly less embarrassing because at least I could claim some Irish heritage to back up my shamrock-induced soyface.
This continued into my thirties. I recently binge watched Say Nothing and listened to the associated audiobook. I am obsessed with House of Guinness. If it’s Irish, I’ll watch it. There was a month where I listened to two songs by the Cranberries on a loop basically all day. Whenever we pass by an Irish pub I tell my husband we have to go there “at some point” despite barely drinking alcohol. When it was time to name our daughter, I had a bunch of names picked out: Nora, Bridget, Fiona, and I even flirted with Siobhan for a while, my excuse being that I “liked Succession.” I have since channeled all of those names into Sims characters and I can’t deny creating ten-generation Sims legacies of Irish people. I love chunky cable knit fisherman sweaters, although I prefer cotton over the traditional wool. I have a favorite Spotify playlist called “Celtic folk music,” and I play it nearly every day when I’m making breakfast. Sometimes, when I wear a particularly woodsy-looking midi dress with a pair of lace-up boots I take a walk with my baby while listening to “Rocky Road to Dublin” on my AirPods. My husband, despite initially finding this obsession a bit weird, has come around to it, often playing “Galway Girl” by Ed Sheeran whenever I walk into the room.
I completely understand that this is not “really” Irish culture. I understand that I don’t really get it. I know that if I actually showed all of this to an Irish person, they’d probably laugh at me, or maybe even be offended (can you culturally appropriate the Irish if you’re part of a slightly less white subgroup? More at 11.) This is why I’m so embarrassed. Not embarrassed enough not to write a whole article about it, but still a little bit embarrassed. I feel like those people who say they love Chinese food because they love their local Chinese restaurant in their suburb of Cleveland and exclusively order wonton soup. I don’t need anyone to remind me that I’ve gotten the Irish all wrong. I know I have. But I want to enjoy my version of Irish culture—not sell it to others, profit off it, or claim it as my own—no matter how silly it is.
My warmth toward my imagined concept of Irish culture has extended to things that aren’t actually Irish, but feel Irish-coded. Ireland, at least in my demented mind, has come to represent a particular vibe: cozy, friendly, warm, moody, misty, mysterious…I can’t fully explain it, but it just makes sense in my head. It’s like those people who see the number 4 and immediately know it’s orange.
Much to my surprise, despite looking zero percent Irish, and marrying a man who looks zero percent Irish, my second child came out looking like she belongs on a billboard below big green letters that say “Travel to Dublin.” My mom recently went to Ireland on a trip, and knowing how I feel, brought me back a tiny green wool cable knit cape for her.
At this point you may be wondering if I’ve ever been to Ireland. The answer is no. I may still go one day, but I have concerns that it might ruin the whole thing for me. I’m painfully aware that my idea of “Irish culture,” is similar to a weeb’s idea of “Japanese culture” in that it’s mostly based on movies and music. I know a little bit about Irish history, and I’ve read and watched content on The Troubles, but I don’t know enough to be confident in my overall understanding of Ireland or Irish culture. If I went to Ireland for real, I imagine there would be a rude awakening, plus a lot of irritated Irish people who found me unfathomably annoying. In an effort to save the good people of Ireland from any further plight and injustice, I will be suspending any visits to Ireland until further notice.
In fact, an Asian American friend of mine even confessed that she feels it too!
Note: I disagree with CHH here. Weebs are actually disproportionately Black or Asian in America! See my original post on this.
2025-11-03 18:59:44
My father’s father was a bombardier in Europe in World War 2. Around Christmas in 2002, I asked him to tell me everything he remembered about the war. I had always had great reverence for my grandparents’ generation, and growing up I pestered them for as many of their stories as they could tell me. But the war, and especially combat itself, had been the one thing I avoided asking about directly; instead, it simply loomed silently in the background, defining and giving meaning to everything.
But my other grandfather, who had been an infantryman in the Pacific, had died a few years prior, and had taken most of his dark secrets with him to the grave — why he couldn’t see certain objects without throwing up, or the nature of the secret wound that had earned him his “extra” purple heart. I told my remaining grandfather I didn’t want to let his own stories perish completely. So he sat down with me in his living room and told me every story he could remember. We talked all night and into the morning.
The picture I got of the war from those stories was far from the glossy cartoon version of World War 2 that we learn from popular culture. It was full of foolish mistakes and gross incompetence, casual brutality, petty vice. Most of all what I realized was how confused everyone was. The one line my grandfather repeated, over and over, was “For all we knew, we were going to die the next day!” When we hear the story of World War 2 now, we know how everything turned out — what the ultimate conclusion was, what the important battles were, and so on. We’ve had time to turn it into a coherent narrative. But at the time, the people fighting that tremendous conflict had very little idea what was actually going on, or how it would all turn out.
By convention, we call my grandparents’ generation the Greatest Generation, and though it’s a bit cheesy, it was precisely that utter confusion that made them deserve the moniker. In 1932, there had never been an economic downturn like the Great Depression1; nobody knew whether capitalism was permanently collapsing, but they kept on going to work every day. In 1942 nobody knew whether the Nazi and Japanese empires would conquer Eurasia, enslave its people, and use its vast resources to cow the United States into submission — but they didn’t flinch from the task of beating those enemies back.
With smug hindsight, we now know that capitalism is largely self-correcting, and that the Allies could easily outproduce the Axis. Imagine getting up every day to fight, or work in a factory, not knowing any of that, and yet knowing that as long as it took, and as hard as it got, you would keep fighting. There was a saying in the early days of the war: “Golden Gate in ‘48, bread line in ‘49.” That’s how long Americans expected the war to last, and what they expected the cost to be.
That generation left us an inheritance so priceless that we will never really appreciate its value. For decades, our world was free of great-power conflict, and that long period of relative stability brought unprecedented economic growth. The war brought the end of the age of European empires, self-determination for Asia and Africa, and the long fall of global inequality and extreme poverty. It brought us the United Nations and the Universal Declaration of Human Rights. It brought us an age of wonders — the computer revolution, the atomic age and the space age, modern health care, the age of Big Science.
Like my grandparents’ lives, World War 2 silently loomed in the background of the entire American Century. Talking all night with my grandfather, what I came to understand was that he and his generation — their pain, their sacrifice, their confusion, and their stubborn perseverance — were still watching over us, still protecting us and guiding us. Our happy, carefree modern lives — the paid vacation, the startup exits, the casual sex, the dance music festivals, the stock market, the psychedelic drugs, all of it — was an inheritance they fought to bequeath to us.
And now they are gone. The Greatest Generation has largely passed, and at the same time, we are discovering that some of those precious inheritances have been spent down. The moral anchor of the victory over the Axis has been largely lost. The Arsenal of Democracy, which endured throughout the Cold War, has been strangled by institutional sclerosis and ceded to China.
We’ve lived all our lives in the Great World 2 Afterparty, and now that party is over.
General George Patton’s nickname was “Old Blood and Guts”. He was no stranger to violence. And yet when he walked into the Nazi death camp at Ohrdruf, Patton reportedly vomited in horror, describing the camp as “one of the most appalling I have ever seen.” Eisenhower agreed, writing:
The other day I visited a German internment camp. I never dreamed that such cruelty, bestiality, and savagery could really exist in this world! It was horrible.
When he liberated Buchenwald later, Patton forced over a thousand local German civilians to come look at the sight, to behold and reckon with the evil they had supported.
Eisenhower famously ordered U.S. troops to tour Ohrdruf, saying “We are told that the American soldier does not know what he is fighting for; now, at least, he will know what he is fighting against.” He understood that those atrocities would serve as a moral anchor that would give meaning to Americans’ struggle. And so it did; when they went home, Americans remembered what they had seen.
That moral anchor long outlasted the fighting. The whole modern notion of human rights, enshrined in the UN Charter and various international declarations, was in large part a reaction to the horrors perpetrated by the Axis. This necessarily involved some degree of whitewashing of the Allies’ own war crimes.2 But the moral tally is unambiguous. The kind of systematic mass slaughter perpetrated by the Nazis and the Japanese Army was something unseen since the days of premodern conquerors like Tamerlane or Genghis Khan.
Adolf Hitler, in particular, was the all-time champion of genocide — the Holocaust is only the best-publicized part of his rampage, with Jews being perhaps only a quarter of his victims. And had they not been defeated by the Allies, the Axis would have just kept on killing and killing — Hitler’s explicit plan was to murder over 60 million more Slavs in order to make room for German expansion, and it’s unlikely he would have stopped with the Slavs.
2025-11-01 09:32:15
I used to talk a lot about developing countries — how the successful ones accelerated their growth, and what lessons the others could learn from those successes. Here’s a whole series I wrote about the more promising development stories:
And when I was at Bloomberg, I wrote a lot about the prospects for African industrialization (which has been disappointing in the years since), and about the need for humanitarian aid to help some of the very worst-off countries.
These days, I’ve been writing a lot less about developing countries, for several reasons. First of all, developed countries aren’t doing so well themselves these days — most have slow growth, stagnating or shrinking populations, and internal political turmoil. Second, with the rise of economic nationalism, there is much less appetite among rich countries for altruistic crusades to help the developing world. China did have a big idea — the Belt and Road program — but it didn’t help very much, and created a lot of problems, meaning China will also probably retreat from development promotion. Meanwhile, protectionism in the U.S., China, and elsewhere will make it harder for developing countries to pursue traditional export-led growth.
But the window when developed countries (including China) can afford to treat poor countries like an afterthought is rapidly drawing to a close. The reason is simple demographics. The whole developed world is about to start shrinking. If not for immigration, it already would be:
Meanwhile, the world’s poorest countries are going to experience strong population growth through the end of this century:
The result of this disparity is visible in the chart at the top of this post. By 2100, six out of the fifteen most populous countries in the world — and three of the top five — will be places that as of 2025 have under $7,000 in per capita GDP (PPP). The biggest ones will be Pakistan, Nigeria, and the Democratic Republic of the Congo, with Ethiopia and Tanzania not far behind. Altogether, over 2 billion people — a fifth or more of humanity’s peak population — is projected to live in those five countries.
And that percentage will only grow after that, at least unless some sort of radical unexpected change happens to demographic patterns. Fertility is falling everywhere, but in the Big 5 poor countries, it’s not falling much faster than in the world as a whole:
Why are these countries’ fertility rates falling so slowly? Because they’re poor. The idea that some countries are culturally resistant to the fertility transition is falling out of favor, as African nations and predominantly Muslim nations show the same pattern of fertility decline as everywhere else (or faster). But the Big 5 are unusually poor, and poor countries tend to have much higher fertility:
Of course we can expect to see the fertility transition accelerate as these countries cross the $7,000 threshold; as you can see on the chart, very few countries maintain high fertility past that level. But while Pakistan might manage that soon, the others probably won’t. Nigeria’s GDP per capita has actually gone down in recent years, Tanzania and Ethiopia are still decades away at current rates of growth, and the DRC is still seemingly inextricably mired in extreme poverty:
To see just how weak of a performance this is, consider the fact that Pakistan — arguably the country that’s in the best shape of the Big 5 — has fallen relentlessly behind India in economic terms:
What happens to big countries is incredibly important; in recent decades, it’s India and China that have made the big strides against global poverty. These supergiant countries used to be desperately poor, but they got their act together and produced decades of solid growth — and as India and China went, so went the whole planet:
But as you can see on that chart, there’s a composition effect at work here — as big countries get rich, their fertility goes down, and their percentage of the human race falls as well. The countries with rapidly growing populations are those that failed to provide for their people. Now that Africa comprises a majority of the world’s extremely poor population, the drop in extreme poverty has stalled, and may soon start to rise again.
This tradeoff between income and fertility is a problem that the whole human race is going to have to solve, and soon, if it wants to have a prosperous long-term future. But in the meantime, poverty is still worse than aging, and the billions of people in the Big 5 poor countries deserve to have decent living standards.
And it’s not like rich countries can sit back and just ignore the suffering in poor countries, either. Emigration pressure usually peaks around $8,000 to $12,000 in per capita GDP1, meaning that rich countries in Europe, the Anglosphere, and Asia are likely to see giant waves of Pakistani, Nigerian, Congolese, Ethiopian, and Tanzanian migrants clamoring to get in. The current anti-immigration backlash gives us an unpleasant hint of what might happen as a result. Also, the shrinking of rich-country markets (due to shrinking populations) will hurt Western corporations, unless it can be matched by economic growth in developing countries.
So the world has a stake in helping the Big 5 poor countries grow. They’re highly unlikely to be the next China or India, but getting them to middle income level is probably doable.
But how? The most important thing rich countries — including China — can do is to fully open their markets to these countries’ products. The economic literature is pretty conclusive that this raises economic growth in poor countries, at least somewhat. There are many instances in which rich countries have actually done this, and there are a lot of ways we can evaluate the results of those experiments. For example, Romalis (2007) found that when America reduced its tariffs under the Most Favored Nation program, poor countries sold more products to the U.S. and grew faster as a result:
This paper examined whether improved access to developed countries’ markets raises developing country growth. The paper concludes that it does. Decreased developed country trade barriers increase developing world trade. This induced trade expansion causes an acceleration in the growth rate of developing countries. Developing countries that expanded their trade the most in response to improved access to developed country markets saw their growth rates increase relative to other developing countries…This suggests that developing country growth rates will accelerate if the developed world lowers its remaining trade barriers.
Frazer and Van Biesebroeck (2007) found that the African Growth and Opportunity Act, which opened American markets to some African products, raised African exports:
[W]e find that AGOA has a large and robust impact on apparel imports into the U.S., as well as on the agricultural and manufactured products covered by AGOA. These import responses grew over time and were the largest in product categories where the tariffs removed were large. AGOA did not result in a decrease in exports to Europe in these product categories, suggesting that the U.S.-AGOA imports were not merely diverted from elsewhere.
Opening rich-country markets to textile exports also helped get Bangladesh’s garment manufacturing sector off the ground, which has enabled that country to climb out of absolute poverty.
Importantly, though, these positive effects happen even when poor countries don’t see a manufacturing boom at all. Kassa and Coulibaly (2019) found that AGOA usually didn’t stimulate manufacturing in the long term, and usually just allowed African countries to sell more commodities to the U.S. But this ended up having a positive effect on growth in those countries anyway.
Right now, American policy is going in exactly the wrong direction. AGOA was allowed to expire this year, which will definitely hurt poor countries in Africa — including four of the Big 5. Meanwhile, Donald Trump is slapping tariffs on Africa, and has threatened tariffs on Pakistan as well. This might satisfy MAGA machismo in the short term, but in the long term it’s going to lead to a lot more African migrants trying to get into the U.S. — not exactly the kind of outcome Trump would probably like. Meanwhile, opening American markets to Pakistani goods might prompt that country’s government to try to emulate its South Asian neighbors, building industries like garments, textiles, and so on, and investing more of its GDP for the future.
So opening American markets to products from the Big 5 is a win for everyone involved.
Another pretty obvious idea is foreign aid. There’s a huge debate on whether aid actually raises growth — whether it actually “teaches a man to fish”, as the saying goes. The best literature review here that I know of is Dreher, Lang, and Reinsberg (2024). They find that aid does increase growth a bit, especially in very poor countries (like the Big 5). But the bigger effect is on poverty, which aid seems to reduce by a decently significant amount. That decrease in poverty comes with big improvements in health and welfare — things that tend to drive fertility down faster. That can reduce overpopulation in resource-dependent poor countries like the DRC, which means more natural resource rents to go around.
MAGA types might balk, however, at Dreher et al.’s finding that aid increases emigration pressure. When you give poor people money, or simply relieve their economic stress, one of the things they use that money for is to move out of their country to somewhere with better opportunities — like Europe or the U.S. MAGA is fundamentally an anti-immigration movement, so it might be a bridge too far to ask American conservatives to support aid, despite the long-term effect on population reduction. China, however, might still be persuaded to dish out more aid, especially given the geopolitical benefits it might reap from doing so.
One policy that’s probably not a good idea is to give money to the governments of the Big 5. Back in 2021, I wrote about how Pakistan has basically learned how to get repeated giveaways from the IMF (and now China), in the form of “loans” that get predictably and repeatedly “forgiven”:
This infinite lifeline of free money acts a bit like oil does for a petrostate, allowing Pakistan to exist at a subsistence level without investing its savings or building up its industry much. While India and Bangladesh invest to grow their economies for the future, Pakistan fritters its money away on hanging on to an impoverished status quo:
Therefore, aid to the Big 5 should go directly to the people of those countries — to building schools and hospitals, training teachers and doctors, and even just giving poor people cash. The governments of these dysfunctional giant nations should not be given sources of free cash.
But one thing the world can do for the Big 5 is to try to provide them with military stability. While Pakistan and Tanzania are largely stable (despite Pakistan’s frequent coups), the DRC, Nigeria, and Ethiopia are plagued by near-continuous warfare between fragmented ethnic groups, with the occasional religious movement thrown in. Increasing UN peacekeepers, other international peacekeepers, and diplomatic mediation efforts for those three countries would probably yield big dividends, allowing their fragile governments to focus a little more on economic and social development and a little less on war. Research generally shows that peacekeeping operations reduce conflict in poor countries, though they’re not a panacea.
The harsh reality is that nothing rich countries do is likely to turn countries like the DRC and Nigeria into countries like China and India. But there’s a lot we can do — for very low cost to ourselves — in order to push these countries toward a more livable, sustainable future. And in doing so, we can hopefully avert a world where most people live in a failed state.
At 2025 purchasing power parities. I converted from the numbers in that paper.
2025-10-29 15:00:38
Japanese prime ministers tend to be gray, unimpressive placeholders who don’t last very long in office. But every once in a while, an important leader shows up who gets big things done and stays in office for a while — Koizumi Junichiro in the 2000s and Abe Shinzo in the 2010s were the two most recent examples. It’s not always easy to tell who is going to be one of these when they come into office — Abe himself even had a short, unimpressive first term in the 2000s before he came back in 2012 and changed Japan utterly.
There’s a lot of hope that Takaichi Sanae, who just became prime minister, will be one of the transformative ones. She’s modern Japan’s first female leader, which may have contributed to her very high popularity, especially among young people. She’s also a tough-minded conservative, famous for her hawkish views on defense and on China.1 And in a party known for gray leaders who blend into the background, she stands out as a colorful individual, with her history as a biker and a heavy metal drummer (in fact, she still drums for fun).
Most coverage of Takaichi so far has focused on her personality, on boundary-breaking, or on her relationship with Donald Trump. Indeed, Takaichi seems to have charmed Trump on his first trip there:
President Donald Trump hailed the US’s alliance with Japan, reaffirming ties with a longstanding partner and praising new Prime Minister Sanae Takaichi on her plans to ratchet up defense spending as the pair met in Tokyo.
“I want to just let you know anytime you have any question, any doubt, anything you want, any favors you need, anything I can do to help Japan, we will be there,” Trump said. “We are an ally at the strongest level.”
But while maintaining good relations with the U.S. is certainly a very important task, there are also lots of other economic problems that urgently confront the new Takaichi administration. The country’s living standards are stagnant, having fallen behind those of South Korea some time ago:
And in fact this is doubly important for Japan right now, because it’s being menaced by its much larger neighbor, even as American power in the region slowly fades. Even if Japan continues to rearm to defend itself against a potential Chinese threat, it will need an economy that’s capable of supporting that rearmament.
Fortunately, Japan is in an OK macroeconomic situation right now. Government debt, the country’s thorniest problem, is actually falling as a percent of GDP, thanks in part to higher inflation and in part to rising corporate profits and tax revenues:
The deflation problem that bedeviled Japan for decades has finally been defeated. And at the same time, unemployment in Japan remains very low:
This means that Takaichi and her cabinet don’t need to focus as much energy and attention on macroeconomics, as Abe did. There is no need for further stimulus, monetary or fiscal. Instead, Takaichi is free to concentrate on improving Japan’s underlying economic model, in order to promote productivity and growth.
So here are a few things I think the Takaichi Cabinet should try to tackle while they’re in power.
Japan’s economy actually has fairly robust investment levels as rich countries go. But compared to its East Asian rivals, Japan actually puts far less of its GDP into capital formation:
China is probably overdoing it on the investment, but there’s no reason to think Korea is; again and again, Korean companies like Samsung have managed to outcompete their Japanese rivals by plowing more money into the next generation of factory technologies. When you’re a manufacturing-intensive economy, as Japan still is, you’ve got to keep investment levels high in order to compete.
How does a country increase investment? You can basically try to increase capital demand and capital supply. Capital demand is how much companies want to invest; capital supply is how much banks want to lend.
Japan’s major problem with capital demand is the shrinking population. If the consumer market is going to be smaller every year, that’s a disincentive for companies to invest in the country, because it’ll mean fewer customers in the future. Immigration can only do a little bit to help, in the quantitative sense, so the real thing Japan needs to do in order to increase capital demand is to become a more export-oriented economy. If Japan is a production base from which to produce things that foreigners buy, that’s a reason for companies to invest there.
Compared to other developed medium-sized economies, Japan exports very little, despite a recent surge connected to the weak yen:
Japan’s government needs to build on its recent progress and encourage its companies to export more — not just to a reluctant America, but to Europe, India, Southeast Asia, Latin America, and the Middle East. I’ll write more about Japanese export promotion later, but I’m sure the people at METI and the Ministry of Finance can think of some good ideas here.
As for capital supply, this really just means the financing system. Currently, big Japanese companies tend to sit on huge piles of cash, and use this for their investment needs, so prodding banks to lend more to these companies won’t accomplish much. Instead, banks need to lend more to smaller, growing companies looking to scale up their operations.
Japan’s early-stage startup ecosystem, including venture capital financing, is pretty robust. But the minute a Japanese company gets past the early stage, it finds itself in trouble, because it’s very hard to get the cash to grow from a medium-sized company to a big one. For hardware startups — which are crucial in a manufacturing-intensive economy like Japan’s — this is a “valley of death”.
In order to scale up, hardware companies (and AI companies) need bank loans. Equity financing is just too expensive, and bond markets are fickle; bank loans provide patient long-term financing. The government can also put its thumb on the scale, using “policy banks” like the Development Bank of Japan, the Japan Finance Corporation, the Japan Bank for International Cooperation, and so on.
It’s understandable that Japanese banks have become cautious and conservative after the go-go years of the 1980s ended in a giant crash, and a decade of zombie lending kept weak companies afloat. And letting more zombies fail is certainly important for freeing up financial and human resources for more productive uses. But helping small companies scale up quickly is very different from the bad old practice of allowing weak old companies to stumble onward. If Japan accelerates growth, much of it is going to have to be bank-financed, and that’s going to require banks to have a greater appetite for risk.
The final way to increase investment in Japan is to boost greenfield FDI. This is what my book, Weeb Economy, is about. Japanese people have become used to thinking of “FDI” as “foreigners buying Japanese companies in order to sell into the Japanese market”. This kind of transaction can be useful, but in general is of dubious value, so Japan has long resisted it.
But there’s a second kind of FDI — foreigners building factories, research centers, and offices in Japan in order to use Japan as a production base — that’s unambiguously positive. This is called “greenfield FDI”, because it’s basically like building something new in a green field.
Greenfield FDI is pretty magical. First of all, it increases demand for local workers, raising wages. It often results in more exports (“platform FDI”), because multinational companies tend to do multinational sales. Greenfield investment will also help Japan attract the high-skilled immigrants it has had difficulty attracting, because foreign companies will hire some engineers and managers from overseas to help and teach the locals. And perhaps most importantly, greenfield FDI encourages technology transfer from abroad, rounding out a country’s technological capabilities.
Japan has traditionally had very little greenfield FDI. Its economy caught up back when supply chains were far less globalized, and capital was far less internationally mobile, so it never developed the institutional instincts for luring greenfield investment. But in recent decades, countries like Poland and Malaysia have attained developed-country status almost purely by courting FDI. The contrast here is stark:
I’m not saying Japan should become an FDI-first economy like Poland or Malaysia. Japan already has many strong, good domestic brands. But courting greenfield FDI would result in a “missing piece” being added to the Japanese economy — another source of investment, labor demand, technology, and exports on top of the existing substrate of domestic brands.
Now is the perfect time for Japan to make a big push for more greenfield FDI. Japan’s relatively efficient land use permitting, good infrastructure, and cheap base of semiconductor engineers provide a powerful combination of incentives to invest. The weak yen won’t last forever, but it’s a tailwind right now. Japan’s attractive culture and cities mean that foreigners from all over the world — and especially from Taiwan, South Korea, and the United States — would like to live and work there if good jobs are available for them. And the geopolitical tensions and risks surrounding China mean that lots of companies are looking to diversify their operations out of that country; Japan can provide a natural alternative.
In fact, there are encouraging signs here. TSMC, the world’s dominant chip fabrication company, has built fabs in Japan’s Kumamoto Prefecture, and is building more. Samsung is following suit. So Takaichi’s cabinet needs to make a big push to promote Japan as a destination for greenfield FDI, in order to capitalize on this moment.
Japan’s corporate culture is widely recognized as a reason for its slow productivity growth since the 1990s. Traditional Japanese corporations had lifetime employment systems that promoted elderly managers who were unable to keep pace with changes in technology, globalization, and business models, while also keeping technology bottled up within companies and preventing it from circulating. Japanese white-collar management focused on encouraging longer work hours rather than rapid task completion or individual initiative, leading to unproductive time use and keeping women out of management. And domination of corporate boards by managers instead of shareholders weakened the profit motive.
Under Abe and his successors, Japan’s government has worked to transform this system, with much success. Profitability at Japanese companies has improved greatly, leading to increased corporate tax revenue:
Meanwhile, the Japanese labor market is becoming more flexible, thanks to a boom in mid-career hiring:
The share of Japanese companies that either hired or were in the process of hiring midcareer employees from October 2023 through March 2024 was 79.5%, according to a survey conducted by the Recruit Works Institute. This is an increase of nearly 20 percentage points from the same period 10 years ago, when the figure stood at 59.9%, suggesting that midcareer recruitment has become significantly more common over the past decade.
This is partly due to intentional government policy, and partly to a dearth of new graduates.
Meanwhile, more Japanese companies are embracing flextime working arrangements. This will naturally encourage a more results-oriented office culture, since the incentive will be to produce verifiable results instead of simply being seen to put in long hours at a desk.
These changes — along with government policy — are helping to promote more women in management at Japanese companies. Women in management are at a low level in global terms, but the percent has been rising steadily in recent years:
Progress is being made, but there is still much to do. The government needs to continue pushing companies to do more mid-career hiring, to promote more women, and to allow employees to take some of their work home with them.
In addition, the government should push companies to reduce seniority-based promotion. In an aged country like Japan, there is a natural tendency for the ranks of upper management to get clogged with old people, simply because there are more of them — and fewer young people — fighting for promotions. But companies often need young managers and executives in order to capitalize on new technologies, business models, and markets. The government should fight against the tide of aging by encouraging companies to promote more managers and executives based on initiative, performance, and potential, rather than seniority.
Finally, although profitability is important, the government should take care that it doesn’t push Japanese companies into a paralyzing short-termism. The focus should be on multi-year profitability, not on quarterly earnings.
Takaichi is a well-known hawk on defense issues. Her extremely high popularity thus indicates that the Japanese people understand the necessity to rearm in the face of the overwhelming Chinese threat, and are prepared to put aside their long-standing distrust of the military.
Rearming Japan will require big economic shifts. Currently, too much defense production is done by a handful of big companies like Mitsubishi Heavy Industries. This is similar to America, where concentration of defense procurement in the hands of a few “prime” contractors has raised alarms. Lots of people in America have been thinking about how to fix defense procurement, and Japan’s leaders should learn from these ideas.
But rearmament also gives Japan a golden opportunity to boost the country’s R&D capabilities and overall level of technology. Traditionally, the U.S. has done a very large percent of its research spending through the Department of Defense:
Research by Moretti, Steinwender, and Van Reenen (2019) shows that this defense research doesn’t crowd out private-sector research; it actually crowds it in.
[W]e uncover evidence of “crowding in” rather than “crowding out,” as increases in government-funded R&D for an industry or a firm result in significant increases in private sector R&D in that industry or firm. On average, a 10% increase in government-financed R&D generates a 5% to 6% additional increase in privately funded R&D…Finally, we find that increases in private R&D induced by increases in defense R&D result in productivity gains.
Many key inventions and innovations — the internet, GPS, and so on — famously came out of U.S. defense research, giving America a head start on commercializing those technologies. A host of smaller, incremental innovations is less heralded, but also important.
As a small nation that can’t match China’s total productive capacity, Japan will need to rely on cutting-edge technology to maintain an effective deterrent against its much larger neighbor. It will need better drones, better AI, better hypersonic missiles, and so on. Defense research is crucial for all of that. But at the same time, defense research will spill over and boost the civilian economy.
Japan’s industrial electricity prices are lower than Europe’s, but higher than those in most of the world. In particular, they’re higher than South Korea or China:
Japan has very few fossil fuel supplies, and will always be at the whim of a capricious global market when it comes to imports. Imports of LNG, coal, and oil will also always be vulnerable to cutoff by China’s navy in the event of a war. Japan should therefore focus as much as possible on energy sources it can produce at home — solar and nuclear. Currently, Japan doesn’t use much of these, so there’s plenty of room to grow them:
Japan has been slow to restart its nuclear reactors after the Fukushima disaster fourteen years ago. Only around half of the existing 33 reactors have come back online or will soon, thanks to cumbersome approval processes:
Accelerating the restart of all of the reactors should be a priority. Nuclear power can be a sensitive cultural issue in Japan, but the fact that the public hasn’t punished the ruling Liberal Democratic Party for restarting 17 out of 33 reactors suggests that the backlash to Fukushima is fading, and it’s politically safe to restart the rest.
Building solar is hard in Japan because of lack of land — the whole country is about the same size as California, and has more than three times as many people. The government is trying to accelerate solar deployment, including innovative workarounds like panels over agricultural fields and on top of buildings. Those are good efforts, and should continue.
Solar needs batteries in order not to be intermittent. Japan used to be the world leader in lithium-ion battery production, but China has taken over the market. Continuing efforts to free Japan from China’s rare-earth supply chain, as well as industrial policies to promote the use and manufacture of batteries, should be made a priority.
Japan’s software industry is incredibly weak. This forces it to rely on expensive software imports, creating a huge “digital deficit”:
Japan is mired in a digital services trade deficit, with the red ink reaching 3.48 trillion yen ($23.6 billion) in the first half of 2025, reflecting the country’s reliance on overseas tech giants…The digital balance consists of three categories within the services account: telecommunication, computer and information services, like cloud services; specialized and management consulting services, which includes online advertising; and royalties and license fees for content like videos and music streaming…The January-to-June digital deficit…was the second highest on record. It was 2.6 times larger than in 2015.
Japan’s weakness in software is also hurting its manufacturing, as production processes become more digitized and AI promises to revolutionize the factory floor.
Why is Japan so bad at software? The most likely reason is that it simply lacks the one key input into creating good software: trained software engineers. In Japan, software traditionally isn’t a very prestigious career path; smart young people tend to go into hardware engineering, leaving software starved of talent. Various regulations are also problematic, and need to be fixed, but these are probably secondary to the deficiency of raw talent.
Fortunately, thanks to AI, this may be a more surmountable problem. AI boosts the capabilities of weaker software engineers, allowing even mediocre performers to create functional code. This may make the training gap easier to bridge. AI will also help with translation, solving the problem of a lot of foreign code being documented in English. Japanese educational institutions should take the lead in teaching software engineers how to code natively with AI.
But even with AI, Japan is going to have to work to make coding a more prestigious profession. One solution might be to have government ministries hire more people trained in software. Another idea is to leverage the defense buildup, and have the Japanese military establish elite AI and cryptography units. Creating those plum jobs will lure talented Japanese youngsters into studying software in order to get in; the ones who don’t quite make the cut, or who do those jobs and then quit, will fuel the rise of a better software industry.
Anyway, those are the sketches of six basic ideas for the Takaichi cabinet to restore Japan’s economic growth and technological might. These won’t solve all of Japan’s problems — low fertility, trade tensions, and resource shortages will all still be huge issues. But they’re a start.
The role of the military in Japanese society is the country’s most important political cleavage, by far — think of it as all of America’s culture wars rolled into one. This is a legacy of the 1930s, when the military took over Japan’s society, destroyed democracy and pluralism, implemented a nightmarish repressive state, and plunged the country into a foolish war that devastated it. But of course the military is also a pragmatic issue.
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