2026-05-13 17:40:06
Donald Trump is headed to China with a whole bunch of top U.S. CEOs in tow to talk about trade. There is probably a post to be written here about how Trump is creating a new kind of “America, Inc.” centered around his own person, using a combination of tariffs, export controls, federal government equity stakes, and personal bullying. But this is not that post. Instead, this is a post about decoupling. Trump was elected in 2016, and again in 2024, on promises to reduce American economic dependence on China. How well has he succeeded?
First, some background. In the mid-2010s, when Trump came to power, the U.S. and China had a pretty well-understood economic relationship. America did R&D and designed products, then shipped the designs to China where they were manufactured — often using components from Japan/Korea/Taiwan, but sometimes using Chinese components. China would then ship the products back to America, where they were marketed and sold and serviced by the American companies.
Both countries chafed at this arrangement. Americans complained that the relocation of labor-intensive assembly to China put American factory workers out of a job (which was true) and worried that outsourcing assembly would eventually lead to the outsourcing of more valuable activities (which was probably true), while Chinese leaders were annoyed at being stuck in the low-value-added middle of the production chain. So both countries implemented policies to break up this arrangement and create a new trading system.
China used industrial policy to onshore high-value component manufacturing and create its own “national champion” brands, while U.S. Presidents Trump and Biden strove to reduce U.S. trade dependence on China.1 I wrote about this breakup in 2022:
Everyone agrees that China has succeeded in its half of the decoupling — far more Chinese-made goods are now made with Chinese components. The country has climbed up the value chain, and developed top brands like BYD, Huawei, Xiaomi, DJI, CATL, and so on.
Whether the U.S. has succeeded in reducing its dependence on Chinese manufacturing, however, has been a subject of hot debate. On one hand, the percentage of America’s imports that it gets from China has plummeted:
That’s from a WSJ story in February of this year, entitled “The American and Chinese Economies Are Hurtling Toward a Messy Divorce”. A few more details:
Some businesses have moved production from China to the U.S. to avoid tariffs, but the flow is still modest. Mexico and Southeast Asian nations are more common destinations for manufacturers leaving China…About 9% of Ohio manufacturers in a recent survey said they had reshored some production to the U.S. in 2025, up from 4% in 2021. About 60% of the reshoring in 2025 relocated from China[.]
It’s clear that tariffs have had an effect on the shifting of U.S. imports away from China. Even Trump’s far weaker tariffs in his first term showed results — America started buying tariffed goods from countries other than China, even as it kept buying non-tariffed goods from China:
Despite all the hullabaloo of “Liberation Day”, Trump’s tariffs on China — which built on previous tariffs on China by the Biden and first Trump administrations — dwarfed his tariffs on friendly countries:
Where have the imports shifted to? Mostly to other Asian countries, and to Mexico:
Which kind of products is America no longer importing from China? Trump’s first-term tariffs mostly hit low-value products like furniture, shoes, and clothing (where China’s share was slowly declining anyway as its labor costs rose). But more recent tariffs have hit China’s sales of electronics — PCs, phones, etc. Two years ago, most of America’s PCs were made in China; now, most of them are made in Vietnam.
It’s not just trade, either; on the investment side, too, decoupling has been very apparent. There were a whole bunch of stories in 2025 about U.S. businesses wanting to relocate their production out of China. These anecdotes represented a trend that was highly visible in the data — the collapse of foreign direct investment into the Chinese economy:
Much of this investment was shifting to Southeast Asia, though in advanced manufacturing it shifted to Europe.
Why has investment shifted? Tariffs are one reason. Traditionally, a lot of what the U.S. imported from China was made by American companies — for example, Apple manufacturing iPhones in Shenzhen and shipping them back to the U.S. Tariffs make this a more expensive thing to do, so they provide an incentive for American companies — and any multinational companies that sell stuff to the U.S. — to stop investing in Chinese factories.
A second reason is what I call the “China Cycle”. Multinationals have learned the painful lesson that when they put their factories in China, their technology will be appropriated by Chinese indigenous companies — often with the help of the Chinese government — and then later used to outcompete them in global markets. Again and again, companies fell for the lure of the huge Chinese domestic market, only to lose their technological crown jewels to fierce Chinese competitors who rarely played fair. This has naturally chilled the desire to invest in China.
A third reason, of course, was the threat of war. As China grew more bellicose over Taiwan and the South China Sea, multinationals began to realize that having their factories in China, where they would be either blockaded or expropriated in the event of a conflict, posed a big risk.
So it’s possible to tell a pretty coherent story here. U.S. companies had plenty of reasons to move out of China, but tariffs gave them a big extra push. And with the exodus of those companies, China’s exports to America plunged.
But in fact, there are lots of people who don’t believe the decoupling is real. One group — call it the “macro camp” — has argued that because U.S. trade deficits and Chinese trade surpluses are still about the same size (or larger), there must be some sort of hidden conduit by which Chinese products are still reaching American shores, possibly by a circuitous route.
The macro camp included some strange ideological bedfellows — people like Brad Setser and Robin Brooks who were frustrated with tariffs’ inability to curb global imbalances and wanted to see sterner protectionist measures taken, and free-traders like The Economist and the Peterson Institute who seemed to think that if Trump & co. can be convinced that tariffs are futile, the free-trade consensus will reappear. I had some ferocious battles2 with some of these folks back in 2023:
My key argument was that you can’t just look at macro imbalances — China’s trade surplus with the whole world, and America’s trade deficit with the whole world — and conclude that Chinese goods must be making their way into America. It just doesn’t follow. China could be finding alternative markets for its exports, while America found alternative sources for its imports, and these could roughly be the same countries. The macro imbalances would persist, but China and America would have decoupled.
That said, it’s also possible that the macro camp was right — China might be finding some way to get around tariffs. And sure, multinational companies are divesting from China, but that doesn’t mean China’s exports to America have to fall; China’s indigenous companies, like BYD and Huawei, are perfectly capable of selling their own products to America.
So before we conclude that decoupling is definitely real, we need to actually check the data in greater detail.
How might Chinese goods be sneaking into America? Decoupling skeptics often posited transshipment — basically, the idea that Chinese companies responded to tariffs by slapping a “Made in Vietnam” label on their products and sending them through Vietnamese ports on their way to American shores. But while a little of this probably did happen, Gerard DiPippo estimates that transshipment is minor — at most 18% of China’s lost exports to America, and probably a lot less.
He got this estimate by looking at specific products — examining what China stopped selling to the U.S., and what it started selling to Vietnam, in the wake of tariffs. If products are being transshipped through Vietnam, the two numbers should line up. But they usually don’t — the things China has started selling to Vietnam since Trump’s tariffs went into effect are, by and large, not the same products Vietnam has been selling more of to America. Transshipment can’t be the big story here.
A more convincing argument is mismeasurement. There is a gap between how much the U.S. says it imports from China, and how much China says it exports to the U.S. As of 2024, the latter had fallen by much less than the former:
The biggest reason for this was probably the “de minimis” exemption, which let China ship small packages to America without paying tariffs. Chinese manufacturers took advantage of this rule by breaking down their shipments into a bunch of small packages:
But Trump closed the de minimis loophole by executive order in the summer of 2025. So that loophole can’t explain the continued collapse in China’s exports to the U.S. over the last year.
There is one far more believable way that Chinese-made products might still be flooding into America: intermediate goods. Just as a “Made in China” iPhone was mostly made out of Japanese and Korean and Taiwanese parts back in 2011, a “Made in Vietnam” iPhone today will contain a lot of Chinese parts. Since complicated components represent a lot more of the actual value of an electronics product than the actual final assembly, this means that it’s still mostly China selling stuff to America. Hsu, Peng, and Wu estimated in 2024 that this effect was substantial:
Utilizing transaction-level customs import-export data, we develop a novel measure to assess firm-product-level indirect dependence of U.S. importers on China via their suppliers in Vietnam and Mexico. Our findings indicate a substantial increase in indirect dependence on China post-Trade War…suggesting that despite efforts to reduce dependence on China, U.S. supply chains remain indirectly dependent on China via third-party nations.
Annoyingly, however, this data is only through 2022. In fact, we also have another data source on indirect trade — the OECD’s value-added trade numbers. But that’s also released very slowly; the most recent data set also only goes through 2022.
Looking at that data is still interesting, though. In fact, before the pandemic, America’s share of imports from China was falling on a value-added basis. The pandemic bumped it back up, but then it started to fall again in 2022:
The pandemic throws a wrench into the trend, making it hard to see if there’s been a recent drop that mirrors the recent drop in gross import flows. It’ll take some time to get that data. But in the meantime, it looks like Trump’s first-term tariffs really did reduce America’s import dependence on China a bit — and that decoupling might have resumed in 2022.3
Intermediate goods trade changes the basic story about decoupling. Tariffs and other factors broke the old arrangement between the U.S. and China, where American companies outsourced production to China and sold the products back to American customers. That old world is gone. In its place is a new relationship, in which Chinese companies sell parts and components to assemblers in other countries, who then sell the goods to America.
This is not a trivial change. On one hand, it shows how Chinese companies have moved up the value chain, becoming direct competitors to multinationals. On the other hand, final assembly of goods isn’t trivial or meaningless. It’s the least profitable part of the value chain, but it’s still important — after all, China industrialized in the 1990s and 2000s while doing mostly that sort of work.
So the fact that American tariffs are causing that assembly work to move out of China is significant. It doesn’t remove U.S. dependence on Chinese manufacturing, but it reduces it. China itself started out doing assembly but later moved into component manufacturing; there are some signs Vietnam may be starting to do the same. And if Vietnam can do it, so can India, Mexico, Indonesia, and so on. China doesn’t have some magic secret sauce that makes it the only country that can make physical objects; other countries can learn, just like China did.
A non-Chinese supply chain won’t be built quickly or easily, and it hasn’t been happening as fast as the headline numbers suggest. But we’ve made a promising start, and the tariffs on China were part of that. A lot of Trump’s protectionist policy has been haphazard, misdirected, stupid, and downright corrupt, but this one — which was continued by Biden and the Democrats — was actually starting to yield some results. It would be a shame if Trump throws that all away on this trip in exchange for the promise of a few soybean purchases or whatever.
The U.S. also started using export controls to limit China’s development in key strategic industries like semiconductors, and China eventually followed suit with its own export controls on rare earths.
OK, fine. I wrote some blog posts criticizing them, which they pretty much completely ignored. But in my mind, the battles were ferocious indeed.
One additional note of caution here: Even when the components are also made in Vietnam or Mexico, they may be made by Chinese-owned factories, meaning that some portion of what America pays to its Vietnamese and Mexican suppliers flows through to Chinese shareholders. Those profit flows won’t show up in any trade numbers at all.
2026-05-11 16:36:24
“And the only way to fight the bastards off in the end is through intelligence.” — Enoch Root
“In human life it's also true/ The strong will try to conquer you/ And that is what you must expect/ Unless you use your intellect” — Merlin
Five years ago, I wrote a post about the wave of authoritarianism sweeping the world:
That unhappy trend has continued. Freedom House’s 2026 report is subtitled “The Growing Shadow of Autocracy”, and finds that freedom continues to decline across the globe:
V-DEM’s 2026 report, subtitled “Unraveling the Democratic Era?”, delivers the same message:
Both organizations note the rapid deterioration in freedom under Donald Trump’s second administration, including attacks on free and fair elections, persecution of critics in the press, and the rise of a violent and unaccountable security state. In the 20th century, the U.S. was the Arsenal of Democracy — as the world’s most powerful country, and one of its most free, it often used its industrial might to support liberal democracy around the world. In the 21st century, America is increasingly incapable and unwilling to play this role.
Instead, the industrial powerhouse of this century is China. In addition to its own rapidly growing military power and technological supremacy, it supports various autocratic satellite powers to keep potential rivals off-balance — Russia, Iran, North Korea, and so on. This geopolitical grouping has been given various names — I called it the “New Axis”, and others have called it things like the “Axis of Autocracy”. But Trump has shown that Cold War 2 will not be a clean contest of liberal democracy versus totalitarianism; instead, it’ll be a hodgepodge of amoral competing power blocs, more reminiscent of the time before World War 1.
Liberal democracy hasn’t been defeated, but it’s definitely the underdog again. The hope that regular folks would rise up and overthrow the one-party states, petty tyrants, and populist strongmen is fading; the Hong Kong protests of 2019, the Belarus protests of 2020, and various waves of Iran protests all failed to make headway against autocratic regimes, while America’s protests in 2020 did little to halt the country’s slide into strongman rule.
That’s all very sad and disturbing. But we’re starting to see another trend quietly emerge — tyrants are losing wars.
The first example of this was the Syrian Civil War. After brutally crushing various rebel factions for over a decade with the help of Russia, Iran, and Hezbollah, the Assad regime suddenly collapsed in late 2024. Despite a lot of hand-wringing over whether Syria’s HTS militants would bring jihadist rule to Syria, the country’s new leaders seem reasonable, pragmatic, and a lot more tolerant than any of the alternatives.
The second example was the collapse of Iran’s shadow empire of proxies in the Middle East. In addition to Assad, they lost Hezbollah, whose catastrophic defeat by Israel in 2024 belied its fearsome reputation, and mostly lost Hamas. The Israelis are not exactly liberal democrats at this point, but they’re certainly less illiberal than Iran and its proxies.
But the most important loss for the Axis of Autocracy, or whatever you want to call it, is shaping up in Ukraine. It’s still early days, but there are clear signs that the tide has turned against Russia. Ukraine’s drone industry has really hit its stride, producing several million drones a year and innovating all kinds of new and deadly weapons.
This has enabled the Ukrainians to fight a successful defensive war while taking fewer and fewer casualties. Some sources estimate that Ukraine is now killing 5 Russians for every Ukrainian lost. Even if that’s an overestimate, the ratio certainly seems to have tilted significantly in Ukraine’s favor. The Russians are taking horrendous losses — over 30,000 each month in recent months, probably more than the Russians can currently recruit. Russia’s total estimated losses in the war were over 350,000 killed and 1.4 million at the end of last year; by now the numbers are significantly higher.
Russia’s territorial gains, meanwhile, have slowed or even reversed, despite all the bodies Putin is throwing into the meat grinder. Here’s The Economist:
Not only has Russia’s expected spring offensive been a flop, but in April Russian forces suffered a net loss of territory for the first time since August 2024…By our calculations…Russia has lost control of 113 square kilometres over the past 30 days.
Meanwhile, Ukraine’s long-range drones are inflicting more and more pain on Russia. Ukraine is destroying Russian oil infrastructure and closing Moscow’s airports. Russia’s air defenses can’t even protect the capital; Putin was so afraid of Ukrainian drones that he had to scale down his recent annual “Victory Day” parade, removing military vehicles from the procession, appearing only briefly in public, and asking Donald Trump to persuade the Ukrainians to declare a temporary ceasefire to allow the parade to happen:
Ukraine’s long-range drones are so powerful that they could soon even be able to cut off Crimea from Russian resupply.
None of this means that Russia or its military is about to collapse. But even if Putin declares a full mobilization and throws millions more Russians into the Ukrainian drones, it’s not clear what that’ll win him except further depopulation of his country. This is probably why Putin has recently declared that the war is “coming to an end”:
Russian President Vladimir Putin said on Saturday that he thought the Ukraine war was coming to an end…"I think that the matter is coming to an end," Putin told reporters of the Russia-Ukraine war, Europe's deadliest conflict since World War Two. He also said he would be willing to negotiate new security arrangements for Europe, and that his preferred negotiating partner would be Germany's former Chancellor Gerhard Schroeder.
This is still wildly over-optimistic on Putin’s part — he seems to think he can just end the war on favorable terms any time he wants, choose Russian patsies as negotiating partners, and dictate the future of European security. Most of that is highly unlikely to happen; barring an unforeseen Ukrainian collapse, the Ukrainians will simply keep hammering away at Russia’s troops and infrastructure with their drones. But Putin’s sudden willingness to talk is very significant — it means he knows he’s starting to lose the war, and wants to beat some kind of face-saving retreat.
Ukraine is the clearest and most important example of how 21st century autocrats, having triumphed in the streets and on social media, are losing on the actual battlefield. Trump’s losing war in Iran is part of the trend too — although the Trump regime isn’t technically part of the Chinese-led Axis, he’s definitely cut from the same cloth as the other populist, illiberal strongmen who have proliferated around the globe in recent decades.
What’s going on? Why are tyrants suddenly getting their butts kicked? I see several reasons.
First, the defender usually has the advantage. The strategic advantages are well-known. Almost by definition, the attacker’s forces are far from home and have to be resupplied, which incurs cost and risk. Conquering and subduing a whole country is also just an inherently more complex and difficult task than halting an invading army’s advance.
But I’m talking about something deeper — the moral advantage that you get from defending your homes and families against an invader.
Ukraine never threatened Russia at all. The whole Russian cause in this war is based on the notion that Ukraine’s potential accession to NATO and the EU was threatening Russia’s “sphere of influence.” But the idea of “spheres of influence”, while sometimes a good factual description of how powerful countries operate, is not a good moral principle. The idea that countries deserve “spheres of influence” is just the claim that powerful countries ought to dominate their weaker neighbors. In other words, it’s just imperialism.
Morality doesn’t field divisions, of course…or does it? Putin can pay desperately poor people to fight in his wars, or empty his prisons of criminals, or buy mercenaries, but can he persuade regular middle-class Russians in Moscow and St. Petersburg to die for the glory of the New Russian Empire? Not really, no — which is why as soon as casualties get too high to replace without general mobilization, he starts to think about ending the war.
Ukraine, meanwhile, was defending itself against conquest — a conquest that would have stripped away its national identity, brutalized its population, and kept it in poverty. That threat provided a powerful motivation for regular Ukrainians to sign up and risk their lives on the battlefield. Ukraine became a nation in arms, while Russia was still trying to fight a “special military operation”, because Ukraine had a compelling cause and Russia had an unconvincing one.
This lesson is useful in explaining why Trump’s war on Iran has failed. When Iran was the attacker — trying to control the Middle East through a network of armed proxies — its aggression provoked a backlash from people in Syria, Lebanon, Israel, and elsewhere who didn’t want to be ruled by foreign powers. But when Trump attacked Iran without direct provocation, Iran’s cause suddenly shifted to the defense, and its fortunes improved.
The people of Iran have no love for their regime — it recently mowed down tens of thousands of protesters in the streets, and the country’s economy is in a state of protracted collapse. But even so, they refused to rise against their rulers when Trump’s bombs started falling. Meanwhile, most Americans disapprove of the Iran war, and have no desire to endure the economic hardship of high gas prices just to topple someone else’s dictator.
This provides us with an important lesson. Reality is not Star Wars — dividing warring sides into “good guys and bad guys” is never really accurate. But “invaders vs. defenders” is a lot less ambiguous. If America ditches Trumpism and goes back to the principle of upholding territorial integrity, we’ll see our military fortunes improve, because we’ll associate ourselves with causes that people want to fight for.
The second reason tyrants are losing wars is because democracies tend to cooperate more than strongman regimes. The liberal democratic ideal is of a peaceful, positive-sum world, where people are free to get rich and express themselves. But for dictators like Putin and Xi, or populist strongmen like Trump, the goal is to dominate everyone else — including the other autocrats.
This was vividly illustrated in World War 2. Hitler started off the war by making a pact with Stalin to divide up Poland. But he ended up betraying his erstwhile ally, because he couldn’t suffer the idea of another dictator more powerful than himself. The Nazis cooperated only very loosely with Imperial Japan, if at all, and probably would have fought them in the end had the USSR fallen. Meanwhile, Roosevelt and Churchill were highly pragmatic and would cooperate with any power they thought would help stabilize the world — even the USSR.
It’s not a universal principle that democracies cooperate more than autocracies — in fact, democracies are often reluctant to come to each other’s aid directly in wartime. But personalist systems — the type that Trump, Putin, and increasingly Xi all favor — are less likely to cooperate than other types of regimes. Someone has always got to be the Big Man.
So although Trump may be drawn to the ideologies and the absolute power of Xi and Putin, and though he might entertain the notion of carving up the world with them, his ego will get in the way. So you see Trump currying favor with Putin, but then taking out Russia’s ally in Venezuela and seizing Russian oil tankers. And you see him going to war against a Chinese proxy and Russian ally in the Middle East.
Meanwhile, Ukraine has survived thanks to staunch support from European countries, who recognize that if Ukraine falls, they’re next on the menu for the empire next door. But while Russia has gotten some help from its ostensible Chinese ally, China has been extremely circumspect with this aid — not providing direct military assistance, gouging Russia to the bone on oil purchases, and halting cooperation as soon as U.S. sanctions loom.
Under Trump, the U.S. has put itself in a very perilous position by throwing its alliances overboard and going it alone. The U.S. alone has little chance to achieve the scale of production needed to match China. And when Trump alienated his European allies by throwing up huge ridiculous tariffs and threatening to conquer Greenland, he lost any chance for assistance with the Strait of Hormuz.
Meanwhile, there are signs that defenders — even some autocratic ones — are starting to band together against big empires. Ukraine is selling anti-drone technology to the Gulf states, and informal quiet connections are growing between Ukraine and Taiwan. An unofficial global anti-imperialist alliance would not be a bad thing.
The third reason tyrants are losing wars is that the civilizations they’re attacking are usually technologically superior. Hezbollah lost to Israel when Israel blew up their pagers and killed their leaders with pinpoint decapitation strikes. Russia is starting to lose to Ukraine because the Ukrainians are more inventive — with their world-beating drone industry, they’ve created an entirely new form of warfare just to defeat the Russians. Russia tries hard to keep up, but so far it hasn’t succeeded.
Much has been made, especially in rightist circles, of Russia’s supposed warrior culture. Their ads emphasize macho masculinity and show soldiers working out in the gym:
Ludicrously, the Trump administration has tried to copy the Russian example instead of the Ukrainian one. Hegseth constantly emphasizes warrior ethos and masculine toughness:
But big muscles don’t do much against exploding drones, nor do they help plan the complicated logistics that modern militaries depend on, nor do they produce innovative new technologies. Hegseth may be able to do a bunch of pushups, but the whole country is now recognizing that he’s dangerously incompetent.
Now, it’s not universally true that autocratic countries value innovation and technology less than democratic ones. China is arguably now the world’s leading technological nation — or at least on par with the U.S. In a war over Taiwan, China’s advanced drone and electronics capabilities would be a powerful asset.
But the autocratic regimes that have been the aggressors in the 21st century tend to value a warrior ethos, or religious fervor, over innovation and cleverness. In Neal Stephenson’s terminology, they worship Ares instead of Athena.
I hope people don’t interpret this post as a claim that liberal democracies are inherently stronger than autocracies. Trump is a fool, but the New Axis might yet rally, backed by the awesome technological and industrial might of China. Or even if autocracies continue to fail in their foreign military adventures, the natural disruptiveness of social media might simply bring down every liberal democracy from within, leaving the world to be fought over by incompetent tyrants.
But if current events have convinced you that tyranny is on the march and freedom is forever in retreat, you should probably look at the actual battlefield, and feel a little encouraged. If the wave of illiberalism that began in the mid-2000s is going to break and roll back, battlefield losses will probably have a lot to do with it — just as they did in previous eras.
2026-05-09 17:58:53
A few days ago I wrote a post about why Democrats can’t build a welfare state by taxing only billionaires:
I wrote:
Once upon a time, class politics pitted the middle class and poor against the upper classes; now, American politics may reflect a status conflict between millionaires and billionaires. If Democrats have become the party of the millionaires-against-billionaires, that would explain why their tax policies are focused on soaking the ultra-rich while easing the burden of the merely-rich.
As if to emphasize this point, just a couple of days later, Alexandria Ocasio-Cortez declared that “There’s a certain level of wealth that’s unearned…You can’t earn a billion dollars.”
This immediately raises the question: What amount of wealth does AOC think you can “earn”? A hundred million dollars? Ten million? Presumably there’s some number of millions that she thinks can be earned. That definitely fits the “party of millionaires-against-billionaires” framing from my post.
But the more important question is: Is AOC right? Can a billion dollars be “earned”?
It depends on what “earned” means, of course. To most people, the word probably means something very vague — basically, “I think you deserve this amount of money.” You can come up with more specific definitions if you want. For example, if you’re a socialist, you might define only labor income as “earned” and capital income as “unearned”. If you’re a free-marketer, you might define “earned” income as your marginal product — i.e., the amount by which society would be poorer if you had never been born. And so on.
But I’m not sure how useful that sort of exercise is. The socialist idea that capital income is unearned is just a moral judgement, so it leads to endless emotional debates over whether taking risk, making capital more available, etc. are things people ought to get paid for. The free-market concept is more interesting, because it’s objective, but it’s pretty unknowable — unless you’re in the movie It’s a Wonderful Life, you can’t really run the natural experiment of removing someone from the timeline.1 On top of that, most people simply won’t accept such simple, restrictive definitions of “earned” and “unearned”. So these arguments just never resolve.
But when AOC says “unearned”, she seems to mean something else:
You can’t earn a billion dollars. You just can’t earn that. You can get market power. You can break rules. You can do all sorts of things. You can abuse labor laws. You can pay people less than what they’re worth. But you can’t earn that, right?
AOC seems to mean that in order for someone to get a billion dollars, they have to do something that society ought to forbid. In other words, billionaires can’t get their wealth just by being lucky; they have to get it by being bad.
The obvious rebuttal here is to invoke Taylor Swift. The singer’s net worth is estimated at $2 billion. She got those billions from her share of ticket sales, merchandising, and music sales; unlike many artists, Swift owns her entire music catalog.
Formally, AOC is right in this case — Swift did become a billionaire with market power. Intellectual property — the ability to own your own music catalog and charge people to download your songs — is a form of government-granted monopoly. But would AOC really claim that every writer, every photographer, every artist isn’t earning their income? I doubt it. Meanwhile, Swift didn’t obviously break any rules, abuse labor laws, pay anyone less than they’re worth, etc.
But OK, Taylor Swift is the exception here. Most billionaires are more traditional types of businesspeople, who don’t obviously have celebrity superstar appeal or sell their personal artistic output. How should we think about the typical billionaire? Is AOC right that they only amass vast fortunes by either breaking the law and/or hurting the economy?
If so, it means that the vast majority of the U.S. economy — along with both the wealth and the jobs that economy has generated for the middle class — is built on illegality and unfairness. That’s a breathtaking indictment of the entire capitalist system, and it goes way too far. We do need to think about how much to tax the super-rich, but that discussion should absolutely not start from the assumption that all great fortunes were ill-gotten.
2026-05-08 14:22:14
I sat down today to write a post about how Barack Obama was a good President, and then I remembered that I already wrote it, back in 2022:
What’s funny is that back in 2022, I was aiming my defense of Obama at progressive critics, but today I was going to write in response to his conservative critics. And yet the post I was planning to write today is very similar to the one I wrote before.
The commentariat has a very interesting relationship with the 44th President. Obama is still incredibly popular — far more popular than Trump, Biden, Bush, or Clinton:
And yet among hyper-engaged politics enthusiasts, almost everyone bashes Obama. Progressives bash him for not being the left-wing hero of their dreams, moderate liberals bash him for not being successful enough at building the foundations for enduring Democratic electoral success, and conservatives basically view him as Satan.
The latter group of critics is by far the most rabid and irrational. The political right seems to have made up a fantasy Obama out of whole cloth to blame for everything that has gone wrong in America since 2008. Obama’s administration was probably the most scrupulously clean in American history — the exact opposite of Trump’s — and yet you see right-wing people claim to this day that Obama ran America like a Chicago political machine:
When Obama criticizes wokeness, as he frequently does, you see conservatives say wild things like this:
This is nonsense. Obama has never given a speech about “whiteness” that I’m able to find. In 2019 he was criticizing cancel culture, in 2020 he was bashing “defund the police”, and in 2021 he was back to criticizing wokeness.
In fact, Matt Yglesias wrote a very good thread about how Obama was a moderate:
And yet the ultra-woke leftist Fantasy Obama lives on in the right-wing imagination.
It was seeing these nonsense criticisms that made me want to write a pro-Obama post.
It’s always good to remind people of the facts. But ultimately the rebuttal to the right-wing anti-Obama revisionism should be the same as the rebuttal to the left-wing version: Obama was a good President who did lots of good policies. That’s why the bulk of the American populace remembers Obama fondly. And that’s why commentators of all stripes should discard their fashionable anti-Obama hipsterism and acknowledge the strengths — and the actual weaknesses — of our country’s last truly popular leader.
So anyway, here’s that post from 2022.
Among conservatives, it’s an article of faith that Barack Obama was a terrible President. But who cares — of course they’re going to say that. What’s more interesting is many progressives — not just leftists, but also mainstream liberals — also regard Obama’s presidency as a failure.
To me, this is a case study in how expectations get over-inflated. In 2008, when I was a grad student attending Obama rallies, the atmosphere was electric. Stadiums were packed. Everyone had a T-shirt and a sign. In the lines outside, everyone was talking about how Obama Was Going To Change Everything.
I was pretty enthusiastic about Obama — I had the T-shirt and the sign too — but I remember thinking at the time that a lot of these people were bound to be disappointed. The fact that Obama was the first explicitly progressive President since at least Carter (and really since LBJ) didn’t mean that our economy was going to be transformed. And the fact that Obama was Black didn’t mean that racism was over in America. But I indulged the effusiveness, because I thought hope was always a good thing to have.
Now I’m wondering whether the inflated expectations of 2008 helped contribute to an overly pessimistic appraisal of Obama’s legacy more than a decade later. No, our economy was not fundamentally transformed, nor racial equality achieved. But as President, Obama really did produce an unusual string of accomplishments. He may not have justified the “hope”, but he really did bring some “change”.
Obama was dealt a very difficult hand coming into the presidency, for two reasons. First, we were in the middle of a financial crisis, and heading into the start of the biggest economic downturn since the Great Depression. Secondly, we were in the era of the unrestrained filibuster, which makes legislation much harder to pass than in FDR’s day even with a congressional majority.
But nevertheless, Obama came into office determined to do his best FDR impression. To be fair, George W. Bush and the Fed had already cooperated to halt the financial crisis with a series of bank bailouts and emergency lending programs. But Bush had been hesitant to go for big fiscal stimulus. Obama was not. As a percentage of GDP, the fiscal stimulus plan he passed through a reluctant Congress in 2009 was bigger than anything other rich countries were doling out:
Compared to the entire New Deal, the spending was not as large. But in terms of how much money it borrowed, Obama’s stimulus went beyond the New Deal:
How effective was this spending? Economic estimates of the effect of fiscal programs are always hard to gauge, since they depend on assumptions. But most researchers who looked into the matter concluded that the American Recovery and Reinvestment Act saved millions of jobs, with the infrastructure construction and green investment portions of the bill being particularly effective.
It’s certainly undeniable that the Great Recession ended up being much less painful than the Great Depression, despite being precipitated by financial shocks of approximately equal severity. Unemployment reached 25% in 1933, while unemployment and underemployment combined hit only 17% in 2009-10. And it took us only 6 or 7 years to recover from the drop in per capita GDP inflicted by the 2008 crash, while it took 11 years to recover from the Great Depression.
Of course, a lot of the credit also goes to the Federal Reserve here. But Obama’s bold fiscal action was part of the reason we got a lost half-decade instead of a lost decade. By 2014, the engine of American growth was humming again — and unlike in previous expansions, this time more of the fruits of that growth were going to the people at the bottom of the income distribution.
The ARRA also left behind positive long-term economic legacies that outlasted its recession-fighting effects. The spending fixed a lot of our creaking infrastructure. And its support for the solar and wind industries helped make those technologies cheaper, pushing them down the learning curve and paving the way for the cheap green energy revolution of the 2020s.
There have been three big criticisms of Obama’s recession recovery efforts. First, people allege that the stimulus was too small. Second, many complain that Obama failed to help homeowners enough, allowing massive middle-class wealth destruction. And some believe that Obama wasn’t tough enough on the culprits of the 2008 financial crisis, letting too many bank execs and managers stay in their jobs even after their institutions were bailed out.
I generally agree with these criticisms. Obama could have done better (at least, with a willing Congress). But the same is true of LBJ, FDR, or any successful progressive President in our history. The fact is, Obama’s stimulus had a big positive effect, it was significantly bigger than equivalent efforts in Europe, and it was bigger than anything George W. Bush or John McCain or Hillary Clinton would have done.
But Obama didn’t stop with recession-fighting; like FDR before him, he resolved to use a moment of crisis to make long-term progressive transformations to the way the U.S. economy worked. And one of the biggest problems with our economy was our health care system, which by 2009 was clearly failing us.
Obamacare was meant to be a compromise between national health insurance and the quasi-privatized patchwork mess of America’s existing system. It took its inspiration loosely from the so-called Bismarck Model of health care, where health care is universal but can be provided through either public or private insurers, and more directly from Mitt Romney’s health insurance reform when he was governor of Massachusetts. The main goal of Obamacare was to reduce the number of Americans without health insurance, and it succeeded in this goal:
The reform was not incredibly popular when it was first enacted, but gained popularity in the years after it went into effect:
Now, Obamacare is not a smashing success. It largely failed to restrain the upward trajectory of health care costs; in my opinion, high costs are our system’s biggest problem because they make it politically and economically difficult to increase spending or broaden coverage. A public option, which was dropped from the bill, would have given the government expanded leverage to negotiate down our anomalously high prices. And the Obamacare system did leave 10-11% of Americans uninsured.
But Obamacare is still a landmark achievement. It’s the most significant and sweeping health care reform since Medicaid in 1965. And with the complete failure of Bernie Sanders’ push for nationalized health care, Obamacare is also the most significant and sweeping health care reform we’re likely to see in the current political era.
And despite claims that Obama preemptively compromised away his leverage in a doomed effort at bipartisanship, Obamacare’s passage was a very close-run thing; the recent failure of the Build Back Better bill, and its replacement with the more targeted Inflation Reduction Act, should demonstrate that the ideological diversity in the Democratic party makes truly bold progressive legislation very difficult. FDR’s experience with the cancellation of his “Third New Deal” programs by Southern Democrats is another parallel here.
One of these was the Dodd-Frank financial regulation bill. After the crisis of 2008 it was clear that finance needed to be reined in once again. Dodd-Frank, enacted in 2010, was a sweeping bill that transformed financial regulation in the United States. It created new government agencies — the Financial Stability and Oversight Council, the Orderly Liquidity Authority, the Office of Financial Research, and the Consumer Financial Protection Bureau. It endowed the Fed and the FDIC with new regulatory powers. And it created the Volcker Rule, which bans many kinds of proprietary trading by systemically important banks.
All of these measures were aimed at curbing the excesses of the pre-2008 financial system, and making sure that a similar crisis doesn’t happen again. Normally, it’s hard to evaluate the success of such restrictions, because crises that don’t happen are the proverbial “dog that didn’t bark” — if you wash your hands every day and don’t get sick, should you keep washing your hands, or stop? Etc. etc. The financial sector definitely seems to have calmed down and become less excessive since 2008, but this could also be due to the chastening effects of the crisis itself.
But in the case of Dodd-Frank, we can say a little bit more, because only a decade after the act’s passage we got the Covid shock. Yes, emergency lending programs kept the economy afloat, but there was no giant wave of defaults on bank loans even after the emergency programs ended. There was no overhang of toxic assets on bank balance sheets, whose uncertain value kept banks from lending and kept counterparties from knowing whether banks were solvent.
Meanwhile, banks are lending and business is booming. There was great fear that Dodd-Frank would lead to a decline in business formation, which had already been anemic for years. But new business formation started actually trending up after Dodd-Frank came into effect. And it spiked in the pandemic and has remained high since then:
Meanwhile, mortgage lending is robust and there has been another homeownership boom, but this time to borrowers with better credit than in the 2000s.
So the banking sector seems to be more robust, and it seems to be doing its job. I’d call that a win for Dodd-Frank and for Obama — and one that very few people talk about these days. Just like in the Depression, reining in an out-of-control finance sector seems to have had long-lasting salutary effects.
No President can do very much without the cooperation of Congress. FDR was stymied by a conservative Congress in the late 1930s, while Reagan was frustrated by Congressional Democrats. In 2010 the Tea Party Congress roared into power and made further big legislation impossible during Obama’s final 6 years in power. Obama was forced to fall back on executive-branch regulatory authority to make further policy changes, and this is simply much less powerful than Congressional legislation (as it should be).
But even so, Obama managed to get some important things done. There is a piece of un-passed legislation called the DREAM Act, that would shield from deportation anyone who was brought to America illegally as a child. This is an extremely popular idea, but nativists consistently manage to block the legislation in Congress. So in 2012, Obama used his regulatory authority to create the Deferred Action for Childhood Arrivals (DACA) program, basically refusing to deport anyone who would be protected by the DREAM Act if it passed. This protected hundreds of thousands of people from undeserved deportation.
In his second term, Obama also implemented the Clean Power Plan, which used regulatory authority to order states to reduce carbon emissions by whatever means they chose. The plan was canceled by Trump after just a couple of years, so it didn’t have a chance to make a big short-term impact on carbon emissions. But it probably did spur states to start taking a harder look at solar and wind power, which had come down in price enormously in the years before the plan was released. And it seems plausible that that nudge helped accelerate us toward the renewable transition that is now gathering force.
DACA and the Clean Power Plan were modest but real (and in my opinion, positive) achievements.
On domestic policy, the combination of the ARRA, Obamacare, and Dodd-Frank represent greater policy accomplishments — and more progressive accomplishments — than any Democratic President since LBJ. They were done in 2 years, which is a lot faster than LBJ or FDR accomplished their reforms. And they were accomplished in the face of a difficult institutional environment, where the unrestrained filibuster makes it nearly impossible to pass truly bold legislation with a simple majority.
Overall, Obama effectively addressed the severe domestic policy challenges he inherited from the previous administration. He restrained the financial sector and cleaned up the damage it had done to the economy, restoring us to robust growth. And at the same time, he managed to make long-term headway on the hard problem of healthcare, while also using regulatory authority to effect minor progress on immigration and climate change.
I call that a major success on domestic policy. People who think Obama’s domestic record represents a failure are simply experiencing the letdown from their own impossibly high expectations.
On foreign policy, however, Obama’s record is more mixed. On the War on Terror, Obama was mostly successful — he killed bin Laden, extricated the U.S. from the pointless peacekeeping operation in Iraq, and drew down most of our presence in Afghanistan. He handled the emergence of ISIS effectively as well, leading to its relatively swift defeat. As a result, the War on Terror was effectively concluded, though of course terrorism as a military tactic will remain and Islamic fundamentalist regimes like the Taliban will not entirely vanish from the Earth.
On the Arab Spring and the wars that followed, Obama’s record is more mixed, but I’m not convinced there’s much more he could have done. U.S. appetite for further military adventures in the Middle East was nil. Obama gets criticized fairly equally for failing to intervene more in Syria and for intervening too much in Libya. So I don’t agree that this represents a dramatic failure for Obama, even though it was hardly a success either.
But it turns out that both the War on Terror and the Arab Spring were largely distractions from the true looming foreign policy threat — the reemergence of great-power conflict. Obama’s weak response to Russia’s seizure of Ukrainian territory ultimately ended up encouraging Putin’s further adventurism and leading to the current catastrophic war. In Asia, Obama refused to acknowledge the importance of Xi Jinping’s accession to power and the country’s concomitant aggressive, nationalistic turn. He remained overly enamored with the failed Clintonian idea that engagement would make China more progressive, and his “pivot to Asia” was too little, too late. Obama might possibly have used the exigency of the Great Recession to revive U.S. industrial policy and start competing effectively with China in high-tech manufacturing, but — apart from a few minor, halting efforts — he didn’t even really try.
He was so occupied with fighting the problems of the present that he wasn’t able to concentrate on the problems of the future. And so now we find ourselves racing to catch up.
But as I see it, the verdict on Obama on domestic policy has to be that he made great headway on the problems he inherited from Bush — a devastated financial sector, a collapsing economy, a large number of uninsured people, and a still-scary Islamist threat. He was a crisis President, and he beat back the crisis. The bitterness and regret that many progressives now feel toward his administration is a function of their own inflated expectations going in.
2026-05-06 14:08:15
The above image is from a recent tweet by University of Pennsylvania economist Jesús Fernández-Villaverde (henceforth referred to as “JFV”), in which he criticizes the field of development economics for ignoring the big questions. He writes:
A fundamental lesson from my posts these last two weeks on modernization, industrial policy, and development is that development economics should be about understanding why South Korea got rich but Bolivia did not.
The current field has largely given up on that question. Sharply identified RCTs on small micro programs are a fine way to publish in the AER and get tenure at a fancy university, but a profession that knows everything about microfinance impact evaluations and almost nothing about industrialization has misallocated its own intellectual capital on a pretty heroic scale.
JFV’s critique of modern development econ isn’t new. Eminent economists have been complaining about randomized controlled trials for years. I wrote about this back in 2020:
In 2019, Lant Pritchett — then at Oxford — made an argument very similar to JFV’s when he criticized that year’s Nobel winners:
People keep saying that the recent Nobelists “studied global poverty.” This is exactly wrong. They made a commitment to [the RCT] method, not a subject, and their commitment to [that] method prevented them from studying global poverty…
[P]overty programs…account for less than 1 percent of total variation in poverty…[C]hanges in [actual] poverty…are overwhelming associated with growth in median income/consumption…[V]ariation in the size and efficacy of poverty programs had little or nothing to do with poverty reduction…So what the Nobelists really did was…using a particular method to study whatever could be studied with that method in poor countries (lots of which were “interventions” by NGOs at very small scale), knowing that this…severely limited their ability to study…global poverty.
In other words, what really beats poverty is economic growth, and you can’t do an RCT to study economic growth. This is basically a slightly broader version of what JFV says. JFV says that industrialization is the key, and industrialization is how almost every rich country got rich.
So basically, the idea here is that if you’re a development economist, and you’re not asking “How can countries industrialize?”, you’re being kind of useless.
The counterargument here — which I made in 2020 and which a number of economists made in response to JFV’s post — is that it’s better to study something knowable than to study something unknowable, even if the knowable things are less important.
For example, there are plenty of doctors working on finding slightly better treatments for acne. If we could solve the mystery of aging, and make it so that humans live healthy lives for 100 years, it would do a LOT more for human quality of life than treating acne would. But solving the mystery of aging is very hard, while finding slightly better acne treatments is very doable. So it doesn’t make a lot of sense to yell at doctors to all stop studying acne and only work on aging.
The field of economics doesn’t lack for big ideas about why countries go from poverty to riches. These include:
Institutions: The idea that property rights, legal frameworks, and other systems of human organization are long-lasting (“sticky”) and are crucial for development
Geography: The idea that countries’ natural endowments — navigable waterways, farmland, proximity to other regions, etc. — determine which place gets rich
Human capital: The idea that skills — reading, math, etc. — and population health determine national income
Industrialism: Various theories about how promotion of manufacturing, export-led growth, the “development state”, industrial policy, and so on are the key to rapid development
Culture: The idea that countries grow because of a culture of progress, innovation, and openness to technology
Coordination failure: The theory that countries naturally grow rich as long as they don’t have any significant roadblocks to growth, so that development happens when you remove all of the roadblocks at once
Flying geese theory: The idea that growth naturally happens in a sequential pattern as some countries luckily get rich first and then invest in poor countries until those countries catch up
Economic liberalism: The notion that all you really need to grow is free markets and openness to trade
State capacity: The theory that strong, efficient states are crucial for growth
National cohesion: The idea that a populace who see themselves as one unified people will support the public goods and other policies necessary for growth
That’s just a small sample of the huge diversity of big ideas out there. Each one of these ideas has received enormous attention and publicity, both inside of the economics profession and in the general public. You can read Why Nations Fail about institutions, Guns, Germs, and Steel about geography, How Asia Works on industrialism, A Culture of Growth on culture, and so on. There are plenty of high-profile academic papers laying out variants of each one of these theories, and plenty more that attempt to find evidence for or against them.
So why do all these theories still exist? And why do all of them still have prominent adherents and advocates, both in the economics profession and out in the world? Is it just because we haven’t allocated top talent to the job of generating and testing these theories? That seems unlikely — Daron Acemoglu worked on institutions, Joel Mokyr worked on culture, Arthur Lewis and Dani Rodrik worked on industrialism, Gary Becker and Robert Lucas both worked on human capital and growth, Paul Krugman worked on economic geography (which uses geography to generate “flying geese” effects), Alberto Alesina worked on national cohesion, Milton Friedman worked on economic liberalism, Chad Jones worked on coordination failures and so on.
Most of those researchers have Nobel prizes, and all of them are very highly respected in the field. Nor are they even close to being the only high-profile, respected economists who have worked on each of those ideas. There are probably a few of the theories — state capacity in particular, but also industrialism — that could use some more attention from top researchers, in part because they cut against the economic liberalism that dominated the culture of academic economics in the late 20th century. But overall, there are very few neglected big ideas on the list.
Perhaps the problem is that we have too few economists working on testing these theories? In general, every empirical economics program needs more than just a few big names — it needs a ton of lower-level researchers hunting down data, constructing good data sets, finding natural experiments, and so on. Each of the ten big ideas I listed above has a very active research program associated with it. Here are a few example papers from the last decade:
Institutions: “Institutions and economic development: new measurements and evidence”, by Acquah et al. (2023)
Geography: “The Global Distribution of Economic Activity: Nature, History, and the Role of Trade”, by Henderson et al. (2017)
Human capital: “Global universal basic skills: Current deficits and implications for world development”, by Gust et al. (2024)
Industrialism: “Manufacturing Revolutions: Industrial Policy and Industrialization in South Korea”, by Lane (2025) (Here are some more fun examples via Oliver Kim, just because I personally like industrialism)
Culture: “Culture, Institutions, and the Wealth of Nations”, by Gorodnichenko and Roland (2017)
Coordination failure: “Big Push in Distorted Economies”, by Buera et al. (2020)
Flying geese: “Have Robots Grounded the Flying Geese? Evidence from Greenfield FDI in Manufacturing”, by Driemeier and Nayyar (2019)
State capacity: “State Capacity and Growth Regimes”, by Imam and Temple (2025)
Economic liberalism: “Does economic globalisation promote economic growth? A meta‐analysis”, by Heimberger (2022)
National cohesion: “National identity, public goods, and modern economic development”, by Skaperdas and Testa (2025)
There are many, many more examples in each of these categories (and for the other theories of development that I didn’t list). Many are by researchers at good schools, publishing in respected journals.
In other words, there is tons of research effort dedicated to generating and testing sweeping theories of economic development. I’m not sure what “field” JFV is referring to when he says “The current field has largely given up” on the question of comparative development. If he means the field of economics as a whole, he’s just obviously, utterly wrong.
If he means the field of development economics specifically, it’s more arguable — a lot of the examples I listed above come from economists who aren’t known specifically as “development” economists, and most of the papers aren’t in development-econ field journals. Perhaps JFV believes that if development economists weren’t so busy doing RCTs, they would be throwing their time, effort, and intellectual heft into the grand quest to determine which big theories of development are right.
Even there, however, he’s on shaky ground. Jessica Leight found in 2022 that only about 19% of development econ papers include RCTs. In 2015, David McKenzie found that for development field journals, the percentage was 13%, though it was 31% for development econ papers published in top 5 journals. These are not insignificant numbers, but they’re not huge either.1 If all of the economists doing RCTs were to switch to doing work on the Big Questions, the increase in effort on those questions would be pretty marginal.
So I’m not sure what JFV is talking about here. He’s an economist I like and respect, but his perception of the state of research on the big questions of development doesn’t seem very accurate.
Which brings us to the question: Why haven’t we been able to tell which of the Big Ideas are right and which are wrong? The obvious answer here is that it’s just very hard to prove or disprove any of these theories.
Why did South Korea grow so much more than Bolivia from the 1960s through the 2010s? The divergence is certainly startling:
But this is an event that only happened once. There were a lot of differences between South Korea and Bolivia during this time, and it’s hard to know which ones were decisive. South Korea was much more highly educated than Bolivia in the 60s, despite its poverty. While Bolivia focused on selling its natural resources for as high a price as possible, South Korea focused on exporting manufactured goods and climbing up the value chain. Korea had a special relationship with the U.S. that provided it with a large, friendly, reliable market for its manufactured products, as well as government procurement contracts, aid, and technological assistance. Korea is ethnically homogeneous and has many centuries of history as a country with its own language; Bolivia is an ethnically diverse post-colonial state. Korea had a strong, professionalized bureaucracy; Bolivia, not so much. Korea has plenty of sea access; Bolivia is landlocked. Korea got to take advantage of Japanese know-how when its companies paid retired Japanese engineers to come teach their own workers; Bolivia had no such advantage. South Korea had to develop in order to ward off the military threat from North Korea; Bolivia had no such pressing imperative.
And so on. Depending on which Big Theory you believe, you could attribute Korea’s relative success to any combination of these natural advantages and policy choices. You could also tell a composite story — for example, in my own assessment of Poland’s economic miracle, I attributed the country’s breakout success to a combination of geography (proximity to the EU), institutions (changes made in order to be admitted to the EU), industrialism (promotion of manufactured exports and FDI), and flying geese (investment from Germany). I could have also mentioned high human capital, ethnolinguistic homogeneity, and the military threat from Russia. This makes for a good story — and you can call Poland’s success a “model” and try to emulate as much of it as you can — but it’s not a scientific explanation.
So what if you get a bunch of development success stories like Korea, and a bunch of failures like Bolivia, and you try to systematically figure out the most important factors? This is the idea of a cross-country regression, and it’s a common tool that development economists use, but it’s fraught with issues.
There aren’t that many development success stories, and a lot of them look very different from each other — you can group Korea with Qatar as “rich countries”, but that grouping will obscure more than it reveals. There’s tons of endogeneity present — you might observe that countries with efficient bureaucracies tend to grow faster, but that doesn’t mean the former caused the latter, because both might be caused by differences in the education system. Different time periods might yield different lessons. You might leave out some really important variables entirely. A large country might not be comparable to a small country. And so on.
Basically, lots of development economists run cross-country regressions, and they always lead to vigorous arguments about what the regressions mean and whether the models were appropriate. If you want to read such an argument, a great example is Rodrik (2008), which uses a cross-country regression to claim that countries grow faster when they keep their currencies undervalued. Michael Woodford offers a lengthy commentary in which he raises doubts regarding Rodrik’s statistical choices and the interpretation of his results. You can choose to believe that Rodrik is right — and some people do! — but it requires tons of assumptions.
So what else can you do? Another tool that lots of development economists use is a structural model — basically, a development theory whose parameters you estimate from data. But this approach has even more problems. First of all, structural models are a bit like toothbrushes — everyone has one, but nobody wants to use anyone else’s. There are a vast number of structural models, and none of them ever get rejected because they don’t fit the data — economists just find the parameters that best fit the model and call it a day, without ever questioning whether the model is just wrong. But because there are so many models, they can’t all be right — in fact, only a few of them can. As a result, making a structural model almost never helps tell you what’s really going on in the world — it’s just a way of extrapolating the implications of your assumptions.
Another thing you can do is narrative history — basically, looking at a historical episode of development and recording all the interesting details, so that hopefully someone can figure out which of those details mattered. People responded to JFV’s tweet with a number of examples of this, such as Douglas Irwin’s 2021 paper about the South Korean economic miracle, and Piatkowski and Zhang’s 2022 paper about shock therapy in China. Books like How Asia Works, Asia’s Next Giant, MITI and the Japanese Miracle, and Governing the Market are classic examples of narrative history with regards to various East Asian success stories, and I think they’re all excellent.
This is useful work, and you can make a good argument that development economists should be doing a lot more of this. But on its own, recording the facts isn’t enough to tell you which facts mattered, or which will matter in other countries.
The final thing you can do is to use microeconomic empirical work to assess the effects of policies. A good example of this is Nathan Lane’s 2025 paper on South Korea’s Heavy and Chemical Industry Drive, which looks at how a famous Korean industrial policy affected specific industries. Another example is Barteska et al. (2025), which measures the impact of U.S. defense procurement on specific Korean companies. A third example is Kim and Wang (2025), which studies Taiwanese land reform.
This is very useful work, but it also has some obvious limitations. It only studies policy; it has little to say about the importance of natural advantages like geography or human capital. It’s also hard to translate from a policy’s effect on specific companies or industries to its effect on the economy as a whole.
So while there’s much useful development economics to be done, even the brightest minds in the field are playing with a set of inherently weak tools. History only happens once, so our ability to make a science out of one-time historical events like economic development is very limited.
That’s why I think scoffing at RCTs and urging development economists to tackle the Big Questions more often will have a negligible effect. There’s really not a lot more that can be done, in terms of generating Big Theories of Why Countries Get Rich, or in terms of testing those theories. Unless and until AI gets smart enough to study human society from a bird’s-eye view, I think we should be humble about how much we expect development economists to be able to contribute to developing countries’ growth policies in real time.
Humility, I think, should be the key word here. Development economists can do lots of useful things for policymakers — they can explain various theories, cite a bunch of details about successful countries like Poland and Korea, point out failures, and draw on various suggestive empirical results. But there is no science of development, and it’s not clear there ever will be. So we should be careful that exhortations for development economists to focus on the Big Questions don’t pressure them to pretend that they have the Big Answers.
Rachel Glennerster listed some more relevant numbers in a thread.
2026-05-05 14:06:01
Something big happened in the world of AI the other day: Sam Altman, founder and CEO of OpenAI, and probably the person who’s most commonly regarded as the face of the industry, declared that the purpose of AI is not to take people’s jobs:
And he recently called AI CEOs “tone-deaf” for declaring that AI is going to take people’s jobs:
In fact, this shift represents more evolution than revolution. Years ago, Altman did seem to generally agree with the folk consensus that AI’s purpose is to make most or all humans obsolete; in 2014 he warned that we could be faced with “a new idle class”, and explored the idea of Universal Basic Income as a remedy. In 2021 he wrote that “The price of many kinds of labor…will fall toward zero.”
But in recent years, Altman has consistently stated that although AI will destroy many occupations, it will create new tasks for humans to do. In 2024 he wrote that “I have no fear that we’ll run out of things to do (even if they don’t look like “real jobs” to us today)”, and in 2025 he declared that “We will find new things to do, new ways to be useful to each other, and new ways to compete, but they may not look very much like the jobs of today.” He has reiterated that prediction in interviews.
OpenAI’s mission statement, meanwhile, continues to define the company’s goal as the creation of Artificial General Intelligence (AGI), which it defines as “highly autonomous systems that outperform humans at most economically valuable work”. That “most” does leave some wiggle room. But perhaps more importantly, the company is talking about AGI less and less — its 2026 statement of principles mentions the term only twice, as compared with 12 times in the 2018 version. OpenAI also removed a clause about AGI in its agreement with Microsoft, meaning that the term no longer defines its contractual business obligations.
So although Altman has never been quite as doomer-ish as some of his colleagues when it comes to AI and jobs, you can definitely feel the winds shifting. In fact, there has always been a contingent of tech leaders who have been broadly optimistic about AI and jobs, and who are now speaking up more vociferously. Nvidia’s Jensen Huang has consistently predicted that AI will create more jobs than it destroys, but recently he has harshly criticized AI CEOs who go around saying that their technology is a job-killer:
Venture capital titan Marc Andreessen, meanwhile, has come out swinging against the AI job loss narrative:
Cynical observers will see this all as just a messaging pivot, in response to the AI industry’s deteriorating popularity. Back in March I wrote about how the AI industry’s sales pitch was basically “Our product’s purpose is to put you and your descendants on welfare forever, and it may also wipe out your whole species”:
That was a bad sales pitch, to put it mildly, and it’s not surprising that voters have reacted negatively to this message. Basically every recent poll shows the American public turning very strongly against AI. Here’s a representative example from Pew:
In fact, the anti-AI turn seems especially strong among Independents:
This raises the possibility that AI will become the focus of populist rage, and that politicians from both parties will compete to win swing voters over by promising to take action against the industry.
This may already be happening. Bernie Sanders has moved past traditional progressive concerns about data center water use and copyright infringement, and has instead been warning about catastrophic AI risk:
Meanwhile, Donald Trump is reportedly considering a policy of having the White House vet AI models before they’re released, due to concerns about new models’ cyber capabilities:
President Trump, who promoted a hands-off approach to artificial intelligence and gave Silicon Valley free rein to roll out the technology, is considering the introduction of government oversight over new A.I. models, according to U.S. officials and people briefed on the deliberations…The administration is discussing an executive order to create an A.I. working group that would bring together tech executives and government officials to examine potential oversight procedures…Among the potential plans is a formal government review process for new A.I. models…The discussions signal a stark reversal in the Trump administration’s approach to A.I…[Trump’s] noninterventionist policy began changing last month after the start-up Anthropic announced a new A.I. model called Mythos. Mythos is so powerful at identifying security vulnerabilities in software that it could lead to a cybersecurity “reckoning,” said Anthropic[.] [emphasis mine]
Neither Bernie’s concern nor Trump’s is explicitly about protecting jobs; both are about the risk of misuse. But it’s hard not to see the generally souring mood on AI, especially among Independents, as an invitation to populists like Trump and Bernie to make political hay by reining in the industry.
Meanwhile, some politicians and industry figures are starting to talk openly about the possibility of nationalizing the big AI labs. Matteo Wong and Lila Shroff report:
Washington is getting antsy about the power imbalance [between AI companies and the government]. Over the past year, multiple senators have proposed legislation that would order federal agencies to explore “potential nationalization” of AI…In recent weeks, Elon Musk, OpenAI’s CEO Sam Altman, and Palantir’s CEO Alex Karp have publicly spoken about the possibility of nationalization…
The government could regulate AI companies like it does utilities…[S]hould AI models displace large swaths of the labor market, such that a handful of companies run most of the economy, “then some kind of nationalization becomes potentially imperative,” Samuel Hammond [of FAI] told us—to distribute wealth and simply ensure the proper functioning of society. Both Anthropic and OpenAI have already suggested possible versions of such redistributive measures…
Perhaps the most likely fate for American AI companies is a future of soft nationalization—a world in which the government doesn’t fully control AI labs and their models, but instead enacts an escalating series of policies and establishe[s] close partnerships with private companies to shape the technology.
Different figures in the industry want quasi-nationalization to different degrees. Jensen Huang, who has fought hard against export controls, is probably more anti-nationalization, as is Marc Andreessen, who makes his living from funding startups (and would thus probably not like to see government ties entrench the market position of incumbent players). But even folks like Altman and Amodei who might be inclined to accept quasi-nationalization would certainly like to negotiate favorable terms for that partnership. To that end, it helps to have the government not view your industry as a dangerous job-killer.
So basically, it makes sense for leading figures in the industry to alter the basic sales pitch and reassure anxious humans that they’ll still have jobs.
In Altman’s case, there also might be some element of competitive positioning here. The loudest voice predicting human obsolescence has certainly been Anthropic founder and CEO Dario Amodei, who has been shouting from the rooftops about a coming job-pocalypse:
To a seasoned observer, Anthropic’s perspective here is pretty clear. They basically think AI progress is inevitable, and that AGI is eventually going to put most human beings on the welfare rolls. Thus, they see themselves as sounding the alarm — warning society to beef up its welfare state and its redistributionary mechanisms before the inevitable coming of job-annihilating AGI.
If you accept that AI progress is as inevitable as the tides, then this is an eminently reasonable position. But most people probably do not accept this. They probably see AI progress as something that we — human society — choose to do or not to do. And so to them, Dario isn’t sounding a warning — he’s making a threat.1 The average person probably hears Dario as saying something along the lines of “Hi, my colleagues and I are working very hard to make sure you are never gainfully employed again.” And that probably makes them feel fairly negatively toward Anthropic.
It’s possible that Altman and OpenAI see an opening here. Anthropic has recently overtaken OpenAI in revenue and market valuation.2 If OpenAI presents themselves to the nation as the guys who are trying to create AI that augments your job, then maybe they can sell themselves as the human-friendly alternative to those scurrilous folks over at Anthropic who just want to replace you. This is one theory I’ve seen thrown around, in any case:
But OK, saying “AI will increase the value of human labor” is one thing; providing a compelling explanation for this assertion is another. The notion that AI is fundamentally a human-remover is deeply ingrained into our national discourse — we’ve heard it so many times that it’s become not just the conventional wisdom, but an article of faith for many. It’ll be an uphill battle for pro-AI voices to dislodge and replace that notion.
So what arguments are they using?
One is the idea of task creation. So far, most technologies throughout history have created new kinds of work for humans to do. Some AI proponents assert that AI will be the same.
A second is the idea of induced demand, either from income effects (AI makes us richer so we buy more stuff) or from complementarities. This often goes by the name of Jevons’ Paradox.
Here’s Aaron Levie, CEO of Box, employing both ideas:
There are far more categories where AI agents making things more efficient will induce demand for that skill than spaces where agents eliminate the work. This is why the AI jobs predictions will not play out as advertised.
AI making it easy to produce more code will mean we start to apply code to far more parts of our businesses. We will build automation and software for things that wouldn’t have made sense before. Marketing automation, client onboarding, modernizing old systems, doing far more research on existing data, and more…Far more software will mean vastly more security risks. This will mean far more people thinking through system security, compliance, and governance…AI will make it so more companies care about this (and maybe can do something about it), causing more security roles…Companies will now be doing 10X more with video and graphics, and will need people to manage that work. More media. We’re going to have a near unlimited set of legal challenges in a world of AI as AI helps write even more bespoke and complicated legal docs. More lawyers.
This is probably correct — at least for now. Technologies have always destroyed some occupations, but they’ve usually created more demand for human labor than they replaced. At least for a while, it seems clear that AI will behave similarly.
But a lot of people have the intuitive sense that this solution works until it doesn’t. If AI becomes better than humans at all tasks, then humans’ only remaining value would come from comparative advantage — and as data centers proliferate and compete with humans for land and food and energy, the economic value of comparative advantage goes down and down.
So the pro-AI people naturally need to give the public some reassurance that even after the coming of AGI, humans will still be valued. The answer that more people are converging on is that humans will still pay for the human touch. Alex Imas has a good post about this:
Imas writes:
If the model is right, the durable jobs of the future won’t be about monitoring AI systems or prompt engineering. Those are transitional roles in the automated sector. The durable jobs will be in the relational sector, where the human element is the product itself.
Some already exist and are growing: nurses, therapists, teachers, boutique fitness instructors, personal chefs, bespoke tailors, craft brewers, live performers, spiritual guides, childcare workers, and many varieties of hospitality and care work. Others are emerging: experience designers, human-AI collaboration artists, provenance certifiers, community curators. Many haven’t been invented yet, just as six out of ten jobs people hold today didn’t exist in 1940.
Ezra Klein recently wrote an article in the New York Times endorsing Imas’ idea.3
So this is shaping up to be the new AI sales pitch. In the short term, AI will give people more work to do, and in the long term we’ll still get paid just to be human to each other. And our real wages will go up and up, because of the abundance AI creates.
From a public relations perspective, this pitch is WORLDS better than the previous one. Shouting about replacing humanity might play well with corporate customers and investors salivating over the dream of eliminating labor costs, but eventually you get the rakes and pitchforks, followed by some form of nationalization. Describing AI as a normal technology — a successor to the steam engine and the automobile and the computer — is much smarter politics.
The question is: Is it just politics and PR? Certainly there are plenty of AI researchers and entrepreneurs who will keep quietly believing that AGI is going to make humans obsolete; they’ve heard (and repeated) this line for too many years to suddenly believe something else overnight.
But as they continue to repeat the line that “AI will augment humans” for the sake of their industry’s public image, I think there’s a chance that they’ll start to believe it — or at least to think about how they might be able to make it true.
Daron Acemoglu has written that society should try to steer AI development toward technologies that complement humans rather than replacing them. I just don’t think that’s feasible — society simply can’t mandate the economic value of a technology before it exists.
But I do think it might be possible for AI researchers to concentrate their efforts on AI applications that give humans superpowers, rather than on trying to copy what humans already do. Once they stop thinking “This technology is a replacement for the human species”, and start thinking “This technology is a tool for humans to use”, the direction of their research programs might subtly evolve in a more labor-augmenting direction.
So yes, I’m happy with the new AI sales pitch, even if some of the people saying it don’t necessarily believe it yet.
Please note that I overused this type of sentence construction long before it became a notorious hallmark of “AI writing”.
Actually, there is some uncertainty about this, given that both of these are hard to compare for closely held companies. But the trend line here is certainly clear. Anthropic is winning.
Personally, I’m a bit skeptical — I’ve already seen people pay Waymo a premium to avoid having to interact with a human Uber driver, and I suspect that future generations who grow up with AI tutors and chatbot companions will have less intrinsic desire for the human touch. I guess we’ll see.
