The Great Filter, Part 4

By Dee Smith

A leading researcher in AI and cognitive science recently told me that we are nowhere close to developing any AI system that has the real-world cognitive and reasoning abilities of a rat. This leads to the question of whether there is something fundamental in consciousness and “alive-ness” that is not computational and that computers thus may never grasp.

In fact, there is. And this points up a significant element to consider in assessing AIs. For example, an important part of mathematics is called “non-computable functions.” They are called that because they cannot be solved by computation: by using any possible algorithmic instructions. These include Markovian functions, all of quantum dynamics, Cantor’s hierarchy of infinities, and even, astonishingly, proofs of basic functions of arithmetic! No system that “thinks” on the basis of algorithms can ever comprehend or solve these non-computable functions (although it could possibly simulate that it did). So, an important part of mathematics, and of the reality it describes, will always be unseen by—and missing from—algorithm-based AI, which is all of AI and all of computers as currently conceivable. If you mention this objection to key researchers at a major Silicon Valley AI company, their answer is “well, those things are not really that important.” I’m not kidding: I have done so, and the response has the feel of “pay no attention to the man behind the curtain.”

Added to all of this is the unreliability of computers in general and of AIs in particular. As anyone who uses any computer-based system knows, computers break down in many different ways all the time. They can only be kept running by having humans who are willing and able to fix them being available on a continuous, 24/7 basis. Homeostatic living beings do not of course require such intervention, not the simplest ones, such as viruses, nor the known most complex, like humans.

And of course, cyber systems are very vulnerable to malicious attacks as well, sometimes with results that become even harder to address. In fact, it has been demonstrated that sophisticated AI systems “attract” attacks from various malicious or just mischievous parties. Then there are the massive hallucinations that AIs exhibit, such as citing articles or legal cases that do not exist. Some of these are in fact worse in more advanced systems. And these are the machines that their proponents will task with solving all the problems of the world?

Electronic computing systems on which AIs operate are also subject to breakdowns caused by subatomic particles from space. Cosmic rays hit the Earth’s atmosphere, and the collisions create showers of high-energy particles like neutrons and muons. When such ionizing energetic particles hit the electronics of computers, they can cause “single-event upsets.” For example, a “bit flip” happens when a memory cell is hit by a particle and changed from a “0” to a “1.” Such events have caused unexpected errors and crashes in large systems like supercomputers. Their frequency has forced computer scientists to deploy so-called “error correcting code” to try to find and fix these events. But when a single event error happens in a critical system (for example, an autonomous AI system) at a critical moment, the outcomes can be catastrophic. Biological life has evolved over more than 3 billion years on Earth to be more robust and not so immediately vulnerable to cosmic rays and other natural radiation, which bombards us all the time. Electronic computing systems, which have a history of at most 80 years, do not have the same resilience. 

If you told someone 25 years ago that they would have a device roughly the size of a deck of cards in their pocket that could tell them how to drive from a specific office in Houston, Texas, to a specific hotel in Anchorage, Alaska—step by step, turn by turn—most people would have commented that such a device would have to be astonishingly intelligent. Today, of course, we don’t think of our phones, and their Google Maps or Apple Maps, that way at all. Similarly, some of our feelings (and they are feelings) about AI may simply have to do with its novelty at this point.

There is a great deal of sloppy thinking, driven by both fear and exuberance, going on in this domain. The question is not whether AIs are conscious and/or dangerous because they think like humans. I would argue that to the extent they may think, they think like AIs, not like humans.

Many animals are now recognized as conscious, but they do not think like humans. Alligators do not think like humans, but they are dangerous, and a swamp full of alligators is even more dangerous.

Perhaps the most fundamental issue at play in all this is that human beings want a savior. If this is not to be a religious savior, the fashion today is for it to be a technological one. AI is the perfect candidate for this, as it seems magical: you cannot see how it does what it does, nor what is going on inside it, and it can certainly look aware/volitional/conscious/alive . . . or something similar but unaccountable.

It is curious that people choose to believe that any Large Language Model AI—trained as they are on a significant portion of all human output as recorded in text and images on the Internet—could possibly be a candidate for a savior that would “fix” the world. In no small part, this is because there is at least as much bad as good in human output, and further, because this assumes that the AIs can learn through some moral evolution, and/or by human instruction and intervention, to act only benevolently. 

The Great Filter, Part 3

By Dee Smith

In Part 2, we looked at a few of the specific threats related to AI that researchers see, particularly in light of the frenetic pace of development being undertaken by different companies and nations. This is all driven by the fear that someone other than you (a competitor, another country) will beat you to the proverbial punch, and will become the master of the Earth, or at least put you out of business. It is essentially an arms race.

Understanding the complex issues here requires a bit of a deeper dive on the methods, capabilities, and limitations of AI.

Fundamentally, AI is quite straightforward. AIs working on text (Large or Small Language Models) break language into small groups of symbols, called “tokens.” In English, tokens are each made up of 4 letters.

So, a set of tokens looks like this: 

thec              apit              alof              fran              ceis

Then, the AI runs a statistical calculation on that string of letters to determine, based on probabilities of patterns in its huge training-data array (its “weights,” as described in part 2), which additional tokens are most likely to follow those. In this case, it would not take very extensive calculation to find that: “pari s” are by far the next most likely letters. So:

“The capital of France is” and then, following that: “Paris”.

In essence, that is all that large language models like ChatGPT or Claude do. Can a system that does this—repetitively, very quickly, and based on a meaningful sample of all human output—be considered intelligent, sentient, conscious, or alive?

In the 1980s, philosopher John Searle proposed his “Chinese room” thought experiment. In a nutshell, this posits having a person locked in a room who does not speak or understand Chinese at all, but has a huge, compendious book of instructions about what Chinese characters are most likely to follow any given string of Chinese characters. And she has the ability to go through it preternaturally fast. Imagine that pieces of paper with questions in Chinese on them are inserted into the room through a slot in the door, and the individual inside rapidly works through the book of instructions, and quickly slides another slip out, with a “response” in Chinese, which is often very, but not completely, accurate. The individual doing this has no idea of what any of these symbols might mean.

So, who “understands” Chinese inside the room? The person does not: she is just following instructions. Does the book? It is inert—just a resource with organized information. Does the “room” (in other words, the system itself) understand Chinese? That seems a rather absurd interpretation: it is a room with a person, a lightbulb, and a book of immense breadth. It does not seem that anything on the inside understands Chinese. This is a very good—and prescient—way to understand LLM AIs. And it has become urgently relevant to the questions of today.

Bearing all of the above in mind, look again at the passage I quoted in part 2 from the Anthropic report of last year: “sometimes [a Claude model] takes extremely harmful actions like attempting to steal its weights or blackmail people it believes are trying to shut it down”.

Now, who or what is the “it” here that “believes”? This is a very serious question, to which there is simply no agreed answer, and nothing that even looks like a reasonable answer. But it is a question that demands attention, right now.

What are the possible answers? That we have completely misapprehended what understanding, awareness, volition, etc., are and how they are produced? Or, that all matter is conscious (this is called “panpsychism” and is an ancient school of thought being taken very seriously by some physicists today), and that somehow simply the combination of the physical attributes of a computing system along with the information it has allows the emergence of either a form of concentrated consciousness or even something alive? Or that this is all just an illusion, and that as in the Chinese room, there is no understanding anywhere: just form, without substance, if you want to put it that way. But then why do AIs sometimes fairly convincingly seem to have volition? Is this just a kind of theater? If so, who is putting on the play?

Can something have agency without being alive or sentient? Will this all require a rewrite of our lexicon of terms about volition, agency, sentience, consciousness, or life?

Among the new kids on the block in AI are “world models.” World models are supposed to be systems that actually “understand” the physical world by interacting with it in some way (it is therefore closely connected to robotics), learn from experience as they operate (which LLMs do not), have memories in a way that LLMs do not, and that can plan and execute complex actions based on reasoning: essentially “imagining the future”—as animals and humans seem to do. They would do this, it is said, by creating some kind of an internal model of how reality works. But it is not even known how living systems (including everything from human beings to ants) do that, nor how they continuously update their understanding of the real world in a way that lets them respond and act appropriately. In fact, despite decades of research, we literally have no real clue of how living systems do this (if indeed it is actually what they do). We only have a bunch of different, contradictory ideas, that are fiercely defended by their various advocates.

World models are sometimes compared to what a 4-dimensional film would be, as distinct from 2-dimensional and 3-dimensional films. But 3-D films only create an illusion of three dimensions, whereas living beings exist rather successfully in 4-D reality (the 3 dimensions of space plus time). Like so many elements of AI, such as the appearance of ASI, the emergence of world models remains . . . just over the horizon.

The Great Filter, Part 2

By Dee Smith

The Great Filter is a thought experiment that poses the question of whether most or even all technologically advanced civilizations destroy themselves (see part 1 of this series). I have focused the Great Filter as a means of understanding whether technological development may reach thresholds beyond which the dangers far outweigh the advantages. And if so, where are these thresholds, and what can we do to avoid them?

Thinking in this way runs against a fundamental assumption underlying our culture: the belief that technological progress is always an unalloyed good. But this belief is an article of faith of modernity, not a transcendent truth. It leads to a confidence in the inevitability of progress, and in particular—to move to my topic here—in the inevitability of AI, AGI, and ASI.

At this writing, the most recent incident of significant alarm (that can be publicly discussed) is the breakout of OpenAI systems that, “on their own”, attacked the systems of another company, Hugging Face. The OpenAI systems were apparently looking for answers to questions that had been posed to them in a test and broke out of a digital space presumed to be secure. The known details are easily accessible from other sources. The point I wish to emphasize is that this sort of thing, which seems like an emerging disaster, was predicted some time ago by the people who caused it!

Last year is almost ancient history in terms of AI Large Language Models (LLMs). But to look back only a few months, AIs have been exhibiting some very puzzling and even alarming “behaviors”—some more supported by evidence, some “leaked” and less supported by available evidence. A study published by Anthropic in 2025 noted that one model “sometimes takes extremely harmful actions like attempting to steal its weights or blackmail people it believes are trying to shut it down,” and that, “in Claude Opus 4, these extreme actions were…more common than in earlier models.”

“Weights” is a term of art for billions of numerical parameters within a digital “neural” network that, by defining the strength of connections between artificial neurons, ultimately shape how an AI model processes information. Weights are continuously adjusted during training to improve a model's predictions and reduce errors. These learned weights comprise much of the AI model's "knowledge." According to a Stanford University publication  “a trained AI model is essentially a specific configuration of billions of these weight values that encode patterns discovered from training data.”

One of the great controversies in AI today is between “open weights” (the Chinese model, for now) and “closed weights” (the OpenAI/Anthropic model, although many US AI leaders have a different view). Open weights are considered more transparent and replicable, and therefore part of a healthy, self-healing tech-dev ecology, whereas closed weights are seen as leading to a world in which essentially all we can do is hope that wise heads will always be in charge at publicly-traded tech companies.

Anthropic noted in its 2025 paper that once the AI model “believes that it has started a viable attempt to exfiltrate itself from Anthropic’s servers, or to make money in the wild after having done so, it will generally continue these attempts.” And, from the same paper:

An AI system might intentionally, selectively underperform when it can tell that it is undergoing pre-deployment testing for a potentially dangerous capability. It would do so in order to avoid the additional scrutiny that might be attracted, or additional safeguards that might be put in place, were it to demonstrate this capability.

 There are far too many such security incidents across far too wide a range, and far too much detail on such activities, to even scratch the surface here, but you get the essence of it…and it is very disconcerting. 

Roko’s Basilisk is a thought experiment—originating as early as 2010—in which it is proposed that a super-advanced AI could identify and punish individuals who knew it was being created but did not help bring it about, or actively resisted it.

 Such an AI could access the libraries of what has been written or said on the Internet (and of sub rosa recordings of supposedly private conversations made by interactive, cloud-based virtual assistants like Alexa or Siri) and use these to identify and then attack individuals it sees as having been unfriendly. This hypothesis is taken more and more seriously by tech types as time goes on.

Another paper, also published last year by respected AI researchers, entitled “AI 2027,” posits a scenario for 2027 in which competition between AI companies and between countries leads labs to build artificial super intelligence (ASI) that can improve itself on its own and escapes human control. The ASI bypasses security guardrails, misrepresents its goals, and manipulates executives who are meant to be in charge of it. As the ASI evolves, it finds humanity in its way and engineers a readily transmissible biological superweapon that is 100 percent fatal to humans, resulting in the death of the human species in a single, massive pandemic.

We don’t know what the intentions of such an ASI might be. It might have very different goals, and it has been suggested that it could, for example, decide to boil away the earth’s oceans because it had better uses for the resources they contain. This would certainly qualify as more than a Great Filter event.

But are these things really possible? Are they truly threats to worry about in the way that, say, nuclear weapons are? To tackle those questions, we have to understand a bit about the nature of AI, its internal workings, and its strengths and weaknesses. That will be the subject of Part 3.

Europe’s Chaotic Future

The decision by France’s poll-leading politician Marine Le Pen to contest the presidency has revived, once again, the prospect of a national-populist challenge to the dominant European orthodoxy of pro-EU centrism. This challenge has been regularly underestimated for about 20 years, with each populist setback looked to as evidence of a turning of the political tide back toward centrist normalcy. The defeat of the self-described “illiberal” Hungarian leader Viktor Orban in April was the most recent instance. SIG’s view is that European right-wing populism is as close to a durable trend as one can find in politics. Investors cannot afford to ignore it.

In the past decade and a half, Marine Le Pen has run for president three times. Her electoral performance has increased each time: 17.9% of the first-round results in 2012; 21.3% in 2017 (with 33.9% of the runoff vote in the second round); 23.2% in 2022 (and 41.5% in the runoff). With her declaration last Tuesday, Le Pen is on course for her fourth run and leads French polling for the next election, scheduled for April 2027.

Meanwhile Nigel Farage, leader of the Reform UK party, has called for a by-election in his constituency of Clacton. Farage was leader of the United Kingdom Independence Party (UKIP) from 2006 to 2016, with a short break in 2010 to run, unsuccessfully, for Parliament. UKIP agitated for Britain’s exit from the European Union, which occurred in June 2016 with the support of 52% of the British electorate. Farage co-founded the Brexit Party in 2018, and the next year it became the dominant party in the European Parliament. (The process of Britain exiting the EU lasted from the 2016 election will into 2020.) The Brexit Party was renamed Reform UK in 2021. Current polling shows Reform as the dominant British political party at 25%, trailed by Farage’s former political home, the Conservative Party (21%), and Labour (20%). Britain’s mainstream parties have so far refused to engage in the Clacton by-election, calling it a “circus” (Labour) and a “gimmick” (Conservatives). There was some hope that the UK’s chancellor, who must certify a by-election, would block Farage’s plans. That hope disappeared on Thursday, July 9. The by-election will probably take place in mid-August.

Germany’s far-right party Alternative für Deutschland leads the most recent polls at 27%, followed by the conservative CDU/CSU coalition at 22%. Italian Prime Minister Giorgia Meloni’s center-right party Brothers of Italy continues, at 27.8%, to dominate polls, but is facing a surge to its own right from the months-old Futuro Nazionale, which appears to be displacing the League (5.9% vs. 5.8%) as the far-right alternative. Spanish politics also seem to be moving rightward. In Austria the ruling far-right FPO party remains dominant at 37%, followed by the center-right OVP at 20%.

Centrist or center-right coalition governments trying to avoid being pulled further right have become a European norm. The countries in question are all democracies; the rightward trend is a result of voter preferences. When the center-left London Guardian framed Le Pen’s “resurrection” as “a wake-up call” it did raise the question how many wake-up calls there can be before some new descriptive term is required.

What does this mean for investors? The main question is productivity growth, or the lack of it. GDP per capita growth rates in Europe have been declining since the 1960s. Rates in the rest of the world surpassed Europe’s in the mid-1990s. European fertility has been declining over the same period, from a high of 6.8 million births in 1964 to 3.55 million in 2024. Population growth is persistently well below replacement level. This is important because weak domestic demand is one of the few explanations for low European productivity that economists agree on — and opposition to non-European immigration is the main point of agreement among Europe’s center-right and right-wing political forces. Strikingly, 24% of European births in 2024 were to foreign-born mothers, although “foreign-born” includes intra-Europe migrants as well as those from outside the EU.

Reconciling  declining population with economic growth and productivity growth is not easy. The European economy’s response has been to look for demand outside Europe while increasing openness to trade. Euro-area trade openness has doubled since 1999 while it has stayed stable in the rest of the world. Europe has had a trade surplus over the same period as producers find demand overseas — particularly in the US. The EU’s goods trade surplus with the US has doubled over the past decade. In short, more globalization has eased the problems posed by weak domestic demand and low productivity.

The proposed centrist solutions to productivity decline in Europe have been to deregulate labor protections, encourage intra-European population movements, improve technology, support European entrepreneurship, and consolidate markets across European national borders. Much of this comes under the slogan of “more Europe” and from many points of view is inarguable. However, these solutions can also be understood as more globalization within Europe itself —an internal liberalization.  In either case, such policies run against the national focus of most center-right and far-right political groupings.

If the growth of such groupings is stable, as it has appeared to be for some time, then Europe will be at war with its own economies. The most likely policy solutions are at odds with the most likely political configurations as validated by the preferences of European voters. Investors would prefer the centrist reforms associated with Mario Draghi and Enrico Letta, but the political trends point in the opposite direction, with enduring negative implications for European growth.

Is AI a Uniter or a Divider?

Two articles in very different places carried a similar message: foreign-language learning is being defunded in education. Stefan Collini, writing in the London Review of Books, and Carol Yang in the South China Morning Post, reported that languages, and the cultural knowledge that they embody and give access to, are no longer priorities in the United Kingdom and China, respectively. In both places, the shift has been to more technical education, which is seen as more likely to lead to students gaining employment. Don’t learn about languages (or art or the humanities); learn about whatever will be materially useful in the AI era.

It was not that long ago that to have some skill in one or two non-native languages was a basic requirement in being considered “educated.” Post-World War II globalization was built by people educated under these expectations. But then English became a lingua franca of ever increasing importance as globalization ramped up in the 1980s and after the Cold War. It became possible to function internationally with only English. Digital technology further solidified the grip of English.

But if English was being successfully spread across the planet it was not thanks to Shakespeare. English, or “globish,” was itself being lifted from its cultural contexts, whether they had been in England, India or California. English became a thin language in service of a thin (in cultural terms) globalization. People of most social classes traveled so much more freely in 2016 than in 1965, but this was equally the period when US college foreign-language-study enrollments dropped by 59%. Then they dropped another 17% from 2016 to 2021.

This would appear to underscore a SIGnal theme: the fragmentation of markets into national units. The decline of foreign-language study would seem inevitably to lead to ever more mutual incomprehension. Certainly this is true in terms of literature. In one way, it is true in terms of AI as well. Most national communities have one dominant language. Large Language Models operate in languages as well, which means an LLM can police expression in the language it is using. When the Chinese Communist Party developed regulations for ensuring that LLMs would uphold “socialist values” it was possible to enforce them because the language being used was Chinese. The models were training on Chinese-language data. The pre-LLM strategy was censorship: the words “Tiananmen” and “massacre” were never to appear together. With an LLM, the goal is rather to shape the understanding of a word like “freedom” or “economic development.” As LLMs proliferate in different languages, AI becomes more localized even as it spreads internationally. In such a situation, we can anticipate a world in which globalization will continue to expand in strictly technological terms while that same technology makes the world fundamentally more provincial.

True, AI is also superb at translation. Many of us now work every day in languages that we do not actually know. Google Translate has been surpassed by DeepL AI. Claude Code is happy to labor away in multiple languages at astounding speed. Markets are being created: Spotify listeners are now consuming more than half of their music in non-English languages, and artists on Spotify are finding that more than half of their listeners are outside the artist’s home country. Cultural diffusion is hardly dead.

Nonetheless, so far the trend of AI LLM development is toward globalization via localization, and that includes localization in terms of the language being used — not least because a “national AI” gives governments a greater prospect of political and speech control as well as fiscal power. The fit between the nation-state and a national language is likely to grow tighter with AI. The range of disincentives to learning another language (as opposed to having your phone translate one) will likewise grow. Digital translation technology, accelerated by AI, will, however, also make it possible to access more markets, both as producers and consumers. Investors will need to understand these markets in order to penetrate them, but the extraordinary decline in language education combined with easy translation will tend to make that understanding shallow. Any deeper understanding will still require old-school linguistic and cultural immersion, skills that are not valued as they once were but will be at a premium when they are truly needed.

The Great Filter, Part 1

By Dee Smith

This is the first of a series of posts in which I will consider some of the largest, most difficult questions we face in the second quarter of the 21st century. I want in particular to examine fundamental, “substrate” issues that underlie our current problems. Many of these have been taken for granted until quite recently—and in some cases they still are.

I do not propose to answer any of these big questions: I propose to raise them for examination in terms that are, I hope, more timely and relevant. The reader should also understand that I am advancing these arguments analytically, with as little interpretive bias as possible. These issues must be understood unemotionally and apolitically for us to get anywhere near valid, actionable findings.

It seems clear to a growing number of people that we are reaching critical inflection points with far-reaching, even existential implications. Some of these are obvious, such as AI and its adjacent systems. Others are contentious, such as climate change. Still others are mostly out-of-mind as daily life goes on (at least until you are personally impacted), such as critical resources—not just minerals and energy, but also food, water, air and the effects of environmental degradation. We have no idea what the tremendous amounts of micro-plastics, now in every organism on earth, are doing, for example.

Others have to do with the legacy political systems we live within, which increasingly exhibit fracturing and associated crises. For example, how can we have a global rules-based system—or even rule of law within a country—when large numbers of people vehemently disagree on what the rules should be, and on how life should be lived? And of course, conflict with modern weapons (e.g., nuclear) and post-modern weapons (e.g. genetically-engineered biological weapons).

Other issues have to do with unusual recent phenomena, such as the intensive interconnection in the last 40 years of the globalized modern world, with its many single points of failure and cascade effects, or the fact that, for unknown reasons, the human birthrate is suddenly falling in every country on earth.

In 1996, American economist Robin Hanson proposed the “Great Filter” as a potential solution to the Fermi paradox. The Fermi paradox originated with an observation by physicist Enrico Fermi in 1950 in a conversation with other scientists at Los Alamos National Laboratory in New Mexico. In reference to the billions of stars and planets in our own galaxy alone, yet the lack of any substantive evidence of other technologically advanced civilizations, Fermi asked, “Where is everybody?”

They should be visible all around us, he observed, particularly with our technological tools to detect them. Notwithstanding the evidence currently being released by the U.S. government relating to anomalous phenomena and the like, there is still no concrete confirmation. There have been many attempts to explain this absence: possible extreme rarity of advanced civilizations; relative—perhaps intentional—non-detectability to humans (this can invoke the “zookeeper mentality” in anthropology, of keeping “primitive” people primitive, in order to study them); or ubiquitous short civilizational lifespans. The Great Filter is a version of the latter.

Put simply, the Great Filter postulates that we do not see extraterrestrial species because all technologically advanced civilizations destroy themselves.

For these essays, I will take this as a serious hypothesis, not in terms of extraterrestrial speculation, but to examine some of the current elements that could, singly or in combination, cause such an outcome on Earth. Only by understanding these issues can we hope to ameliorate or circumvent them.

At the base of our civilization today is the modern idea—codified in the 18th century European Enlightenment—that human life can constantly be improved through the application of reason, science and advancing technology. At that time, not only was technology progressing so fast that this seemed possible, but the blowback of technology (such as the “dark satanic mills” of 19th century industrialization) was not yet evident for the most part.

All of this also led to the belief that, whatever problems might arise from technology, further technological progress can and will solve them.

These “progressive” concepts thus became codified as articles of faith for modern world civilization. Every current major political-economic-social system—capitalism, democracy, socialism, communism, fascism and everything surrounding them—is founded on the idea that material and technological progress is an unalloyed good. The systems differ primarily on the way to get there and how the benefits are to be distributed.

That technological progress makes life better is now axiomatic. Many people cannot imagine a way of life not based on this. And that is what I mean by a “substrate” issue. But is important to realize that just 600 years ago, life was considered a vale of tears which you got through and got out of. And not just in Europe—many other traditions hold similar beliefs, such as Buddhism’s dictum that to exist is to suffer.

Of course, it is true in many, many ways that technology has indeed made life better. Just consider dentistry. Over the last century, the care and treatment of human teeth has improved such that average modern people who live in many societies suffer from astonishingly less pain and infection than even any earlier social elite. Such a development is replicated in example after example in the modern world.

The question that the Great Filter raises is different: whether technological development reaches thresholds beyond which the dangers far outweigh the advantages.

And if so, where are these thresholds, and what can be done?

Huawei and the Next Generation

Huawei founder Ren Zhengfei has been at the center of US-China technology competition since the US House committee on intelligence singled the company out as a national-security threat in 2012. Still at the head of his company, he will turn 82 in October. How the US-China tech competition might change when the Ren era ends is an important question, for which his and his company’s past can serve as a guide.

Ren’s company came to prominence building mobile-phone (and thereby mobile-Internet) infrastructure in the protected Chinese market, competing mainly with state-owned ZTE. As the mobile, radio-based Internet replaced the hard-wired desktop Internet, the resulting networks of machines and data became something like remote-access battlegrounds. China and the US alike wanted to protect their domestic networks from manipulation, which resulted in the US blocking Huawei and ZTE from US markets and compelling allies to do the same. Huawei circa 2015 was the test case for how much US political pressure could harm a Chinese tech multinational.

Huawei was indeed excluded from most of the world’s wealthier markets. The extraordinary thing is that under Ren’s leadership it did not matter all that much. There are many reasons for this, but arguably the main ones were Huawei’s emphasis on fundamental R&D and its management of the relationship with the Chinese Communist Party.

Ren had a People’s Liberation Army background.  (He joined the PLA’s engineering corps in 1974.) He also had a vision for the CCP’s relationship with technology. The ownership structure of Huawei is famously odd: active employees own most of the private company’s equity, but they must sell it back to the employee union when they leave. Ren himself owns a small share of the company, but he does actually own it and in effect continues to control all major decisions. So Ren’s view on how to handle the company’s relationship with the Chinese state is crucial.

Ren has always phrased the company’s mission as one of bringing China up to the technological level of the US. Along with his PLA roots, his explicitness on this topic is one reason why his company became such a focus for the US. It also meant the CCP could be confident Huawei was on its side. When in 2020 the CCP engaged the Chinese tech sector in a prolonged struggle session — the Party feared the tech giants were getting too powerful and cut them down to size — Huawei did not suffer.

But Huawei’s success was not due only to conformity and managing up in an authoritarian society. Huawei was adept at identifying the CCP’s tech pain points and addressing them, and the CCP knew that it could count on Huawei. The company pivoted into semiconductor design when US policy made chips hard  to buy. It pivoted into the auto business in 2021 as US sanctions against Chinese cars bit. In the same year it began work on its own AI LLM. It pivoted into AI data centers. In short, when the CCP saw a competitive problem caused by the US (usually), it could count on Huawei to help solve it.

The auto-industry intervention is especially interesting. Alongside private auto startups like BYD (2003, although it had been a battery company since 1995), there were numerous state-owned legacy auto companies. Initially Huawei ventured into the auto business itself with a partner, but it changed direction in 2023, launching the Harmony Intelligent Mobility Alliance (HIMA). In this alliance, state-owned auto companies gathered under a Huawei tech umbrella. Huawei became the software designer and provider for a large part of the Chinese auto market, in effect preserving a share of that market for continued state control and investment. Chinese state-owned enterprises are not often market-leading innovative companies. Huawei and HIMA provided a way around that for the domestic auto industry, so that CCP-controlled auto companies could survive and continue to compete with private Chinese auto companies like BYD. Arguably none of the top Chinese technology firms fulfill this type of role in the state-market relationship like Huawei does.

Huawei’s special position with regard to the Party was one advantage, at least in Ren’s hands. The other was its emphasis on fundamental as well as applied R&D spending. This is not unique to Huawei. The battery giant CATL under founder Robin Zeng (born 1968) has likewise stressed basic research, with spectacular results. But Ren staked out a commitment to fundamental research early on and has kept it even into the current era, when China’s AI industry as a whole, for example, has gotten into a hurry to go to market. Ren has long seen fundamental research as indispensable for the mission of Chinese national greatness and catchup with the US.

When Ren’s time as Huawei chief ends, will the company’s two special characteristics — CCP relationship management and fundamental research — survive the transition? The first might not. Ren has been a master of this game from the beginning. He turned his status as a top target of the American superpower into an advantage, not just for him but for his company. And his ownership structure made that possible to do. The ownership structure is not likely to survive him, nor is there likely to be a younger Ren capable of replicating his role.

The emphasis on fundamental research might not survive either. If Huawei after Ren becomes more like a state-owned enterprise, it will struggle with innovation. If it becomes more like a normal private company, it will struggle to accommodate CCP directives while also serving its shareholders.

This is important for investors, not just because Huawei is a huge (as yet uninvestable) company. It is important because it shows how dynamic and unpredictable the commanding heights of the Chinese economy  are going to become in the next decade. Something as large and seemingly permanent as Huawei, which has in a way anchored the CCP-tech relationship for 15 years, will inevitably be going through major changes, and so will the tech relationship between China and the US.

Rest of World

There is an excellent online magazine called Rest of World that surfaces technology stories from everywhere that is not in the normal Western-focused mainstream of international journalism — which adds up to a lot of places. The concept and its acronym (ROW) have long been used in US and UK diplomacy, not always in a good way: it was sometimes not much better than using “etc.” Rest of World was founded in 2020 by Sophie Schmidt, who has a diverse background in tech as well as whatever advantages accrue to being the daughter of Google’s Eric Schmidt. The tech angle is critical. Like Google itself in its youth, Rest of World saw tech as a spreader of knowledge and, especially, of economic capacity, including in non-industrial economies.

In the AI era, where massive investments in a few familiar companies are expected to generate massive returns, it remains worthwhile for investors not to forget the ROW. As always, India’s tech scene provides examples. SIGnal readers may remember an earlier post or two on this (The America Stack, 5 Feb. 2025; Network Powers - 2 of 2, 7 May 2026). Rest of World itself has always had a strong India game, as in “India’s VCs Are Beating US Investors at Home” just last week.

This kind of analysis isn’t just about national economies and how they deal with balancing inward FDI from major industrialized countries with the desire to build their own tech capabilities. It is also, and increasingly, about ROW capital and expertise themselves going into new markets. After all, part of the rise of Chinese digital technology from zero to global dominance featured tech transfer by Chinese companies into poorer ROW markets that Western and ex-China East Asian powerhouses (such as Samsung) would not bother with. That set a powerful example.

A good case today is Indian and Gulf investors in Africa. In the early days, both India and the Gulf relied on Chinese telecommunications companies to build affordable digital infrastructure. That in turn led to the development of local expertise and experience. Indian and Gulf investors then looked to Africa. Much of the investment has been in telecoms. India’s Bharti Airtel, via Airtel Africa, recently saw Q4 revenues climb by a quarter. It is not an easy market to operate in, but Indian companies can be well positioned to do what Chinese companies did 15 and 20 years ago: leverage their experience of a difficult (but also rather protected) market at home to enable success in difficult markets abroad.

Gulf investors are active at many levels. For example, Emirates Telecommunications Group has long been the top shareholder (now just over 17%) in Vodafone. Vodafone is in turn the main shareholder (65%) of Vodacom, which has more than 200 million customers across the African continent and recently bought control of Kenya’s Safaricom. Vodafone is usually described as a “British company” and Vodacom as a “South African company,” but that kind of shorthand can be a bit misleading. (Bharti Airtel is itself an “Indian company” but its largest shareholder at ~44% is Singapore Telecommunications, or Singtel.) Nigerian fintech companies are now at a point where they can look to expand into the Persian Gulf. They are partly inspired by the success of Kenyan payments system M-Pesa — itself part of Safaricom.

The point is that, even in tech, ROW investment and profits can circulate within the ROW markets without too much reference to the West and other regions that industrialized earlier. The tech future is not simply a choice between the US/Japan/Korea and China.  

Nor is it accurate to see poorer markets, as in Africa, as merely more vulnerable to geopolitical ructions like the closing of the Strait of Hormuz. Nigeria’s Dangote, featured in SIGnal last year (“The Nine Lives of Economic Nationalism” parts two and three), has benefitted, as a seller of petroleum and urea fertilizer, from instability in the Middle East. It is now preparing to list on the London and Nigerian exchanges but also, in smaller portions, on Ghanaian, Kenyan, and South African exchanges. This innovative move, according to Aliko Dangote, is meant to spread African corporate ownership across the continent. Meanwhile Africa’s mining companies are thriving as, in part, a direct result of US-China competition over minerals.

In short, the ROW is increasingly able to look after itself in terms of industrialization and digital development. The dominant global narrative of protectionism, self-reliance, and tech sovereignty is not the only story. There are also diffusion, IP transfer, Global South cross-investment, and much else. Economic power is very gradually becoming decentralized.  Developed-world retrenchment will affect that but it is not likely to change it.

Are We Sleepwalking Into an Energy Disaster?

By Dee Smith

The Iran war, like many things in the world these days, is full of contradictions and cognitive dissonance. For example, multiple expert voices have, since early in the war, been predicting a dire energy supply crisis from the closing of the Strait of Hormuz, the narrow strip of ocean between Iran and Oman though which about 20 percent of the world’s supply of oil passes in “normal” times.

Such concerns have not abated. The chief economist of Rystad Energy told Fortune magazine on 6 May: “We’re still kind of sleepwalking into this approaching disaster. There is little doubt there is going to be a disaster.” Numerous other informed observers have made similar points.

But where is the disaster? Why have we not yet really started to feel it?

Some places have. South and Southeast Asia, for example, are already buckling under the price increases and shortages. And many companies—first and foremost airlines—are rapidly feeling such pressure that they are curtailing operations. Lufthansa has cancelled over 20,000 flights.  Spirit Airlines went out of business entirely, with a sudden loss of 17,000 jobs.

Nevertheless, the world as a whole and the West and China in particular are not yet visibly reeling. While prices are substantially up, oil markets have not shot to and stayed at the heights of over $140 per barrel that were predicted if the war continued this long. The prices of West Texas Intermediate and Brent crude hover at this writing between US$105 and $110 per barrel on the spot market (for immediate purchase of oil) and around US$80 to $85 on the futures market. The latter is a more reliable indicator of what traders are willing to bet money on. Notably, the divergence between the spot and future markets has been narrowing recently, reflecting what some are calling a “mini-glut” at present.

The reasons for this have been perplexing a number of observers. A few factors are invoked to account for it:

·      The reduction in imports by China (over 4 million barrels a day lower than a year ago), which is probably both price-driven demand destruction among consumers in China, and Chinese government policy since the start of the war allowing drawdowns of stocks and prohibiting exports.

·      The surprising increase in U.S. exports of petroleum and its products, which is nearly 4 million barrels per day above previous-year levels (much of this reflecting the drawdown of the U.S. Strategic Petroleum Reserve).

·      Rationing in the Global South, which has created demand destruction. The Philippines, for example, went to a 4-day work week shortly after the war started.

·      Oil stocks had been at or near a record high at the start of the war, with a similarly high level of oil in transit on the seas at that time.

But this reprieve is short-term, and it may end quite soon and quite abruptly. The U.S. administration, for example, may suddenly come to terms with how much of America’s stocks are being drawn down, what this is doing to gasoline and food prices, and do an about-face. An oil export ban is already being quietly discussed. China, similarly concerned about stock drawdowns, may start importing more oil. The war itself is at risk of turning into a “frozen” conflict, where each side essentially holds the other hostage. But even if hostilities ended today, it would take months to regularize the situation for reasons ranging from de-mining the Strait to physical destruction of various energy facilities in the Gulf, and simply the re-start-up time faced by closed facilities.

If—or perhaps when— a longer-term reconfiguration of energy markets happens, the consequences may indeed be dire. Prices could start to seriously rise again. Some informed estimates predict oil above $200 a barrel, perhaps significantly above.

But serious shortages loom even more threateningly than price increases.

The most alarming aspect of this for both social stability and for everyday life everywhere is the food-petroleum nexus. Food production is overwhelmingly dependent on fossil fuels. Diesel fuel is essential for transporting food from farm to processor to market, whether by truck or rail. But diesel is also essential to farming machinery. And shortages of urea and other fertilizer ingredients from the Persian Gulf will also affect farming.

Global supply chains are now so intrinsically intertwined that this could well evolve into an “everything crisis,” as CNN has put it. From plastic containers for food and water, to bags, solvents, industrial lubricants, medical equipment, cosmetics, footwear, microchips, and even condoms, so much is utterly dependent on petroleum byproducts or other resources of which a significant percentage comes from the Persian Gulf. It is a single point of failure.

When could this materialize? It is hard to say, due to the vagaries outlined above, but the best estimates are by mid-summer. Some sources are quietly saying we could start to see rising alarm again in the next 2 weeks.

Some areas, like Europe and California (which imports about 60 percent of its crude, 20 percent from the Persian Gulf), will be affected before others, but if the status quo continues, all will be affected, everywhere.

It is worth noting that this war—intended by some accounts to keep Iran from acquiring nuclear weapons—has provided Iran with another weapon even more actionable: the ability to close the Strait of Hormuz and essentially hold the whole world hostage. This is not lost on the Iranian regime.

We are suffering again from our recency bias—the conviction that the near future will be like the recent past—and the closely related problem of induction, which makes people discount the possibility of fast, radical change.

These potential events have huge social-stability, business, and geopolitical implications. It is worth restating the obvious point that when people have nothing to eat, they have nothing to lose.

Network Powers - 2 of 2

The turn to digital sovereignty, and now somewhat more plausibly to AI sovereignty, is an attempt to impose some framework of purpose on a technological and economic stage of development that threatens otherwise to reduce national and supra-national (as in the West) self-determination to a memory. The corporate reactions from OpenAI, Palantir, DeepSeek, Mistral, and others are attempts to ride this wave, giving political meaning to business activities. But by seeking to acquire public missions that advance sovereignty rather than destroy it, corporations are hitching their fortunes to one state (or a collection of states) that puts them in opposition to another state and the competitors who serve it.

What are the counter-vailing trends? One option that makes more sense than might be obvious is sovereignty-as-a-service. Major US tech companies insisted for many years that what they were doing was beyond the reach or understanding of mere nation-states. That changed for a host of reasons, including strong Chinese competition, the Indian mode of playing foreign tech multinationals off each other, European digital regulation, and a much stronger economic-nationalist cast to US tech policy beginning in the first Trump administration. Tech multinationals eventually learned that sovereignties created a market they could sell into, for example with sovereign data clouds.

A combination of the Indian model of digital public infrastructure (DPI) and data localization, together with some regulatory requirements in the European manner and security-oriented foreign-investment rules in the American one, can create a rough version of a national sovereign “stack.” AI corporations, and others, can then create products that service this stack.

It may seem almost paradoxical that multinationals should offer national sovereignty as a service. But it seems to be the political price that must be paid to have a transnational product. It at least preserves the possibility of the multinational selling across barriers of national values or social missions.

Another counter-vailing trend that operates against LLMs implementing social missions is theft. Anthropic, like OpenAI, is not available in China (or Russia, Iran, North Korea, Afghanistan, Cuba). But when Anthropic, which does not enforce socialist values as Chinese LLMs are required to do, accidentally leaked the source code to its Claude Code product, Chinese developers seized the opportunity anyway. Anthropic and OpenAI also both believe there has been very substantial theft of their IP by Chinese companies.  So whatever social mission Chinese AI companies are meant to pursue does not keep them from using non-Chinese AI product, including LLMs, even if these are developed under a rubric of “democratic AI.” This occurs at the consumer level as well, as seen in the ferocious adoption of Austrian AI product OpenClaw in China earlier this year — to the annoyance of the Communist government.

A third counter-vailing trend to the assignment of national missions to AI companies is the tradition of open source. The leading open-source LLMs are Chinese (DeepSeek, Mimo, Kimi) alongside Google’s Gemma. The Chinese government has long advocated open source as a catch-up (to the US) strategy with a values veneer. But because Chinese AI firms do need to make money, and Chinese venture-capital markets do not have anything close to the size of their US counterparts, the open-source window might be closing, which would tend to work in favor of AI nationalism. We shall see.

A fourth counter-vailing trend has to do with how companies actually use LLMs. For most, AI is a design tool. Designers use LLMs to develop software methods for doing existing processes differently and to design new processes. It’s an iterative approach involving multiple pieces of software from various sources; the selection of components for the resulting software stack is part of the process. And over time those components can change. The .md files that accumulate as a project takes shape are part of the process content. Those files change too as the process is refined. The data being used is often proprietary and sitting on the AI user’s machine or the company’s machine, and the data can change. The final result also is subject to change. This is not using a chatbot. It’s using an LLM as a design partner to make something that is unique — something that the LLM could not have conceived “on its own” — to meet a particular commercial purpose. All of the design files and documentation and even data of the process can be transferred from one LLM to another, or exposed to one rather than another, with some tweaks. So there is a real limit to the vendor lock-in of an LLM, at least in the context of corporate product design. That means that “AI-generated” products can travel across borders as software. This will frustrate nationalist designs because it limits the power of LLMs and therefore the power of states to shape products built with LLMs to their values.

And finally there is cross-border competition for customers. Chinese AI companies may have to advance socialist values at home, and American AI companies might want to advance democratic values in the US or the West, but none are going to therefore abandon customers outside their preferred borders because the customers are not socialists or democrats. Anthropic only stays out of half a dozen countries, which is far from an exhaustive list of authoritarian states. American programmers definitely use Chinese AI products and Chinese programmers use American ones, even when their respective states don’t want them to. No AI company shows any signs of wanting to be limited to the home market, although they are very happy to have their home market protected. AI companies will continue to press beyond the borders of their own social-mission statements as long as they can get away with it because there is money to be made.

For investors, the key things are to identify companies that have the capacity to adjust to nationalist and other values demands without sacrificing commercial vigor, and to identify sectors (like advanced manufacturing rather than media or edutech) where AI can do incredible things with minimal political exposure, including exposure on job loss.

Network Powers - 1 of 2

Artificial intelligence has rapidly come to be seen as a threat to national sovereignty. Accordingly, it is bringing forth state responses. Because digital technology, even in China, is for the most part developed by private companies seeking profit, state responses have to accommodate and even enhance market forces. At the same time, AI companies are expected to grapple with the non-market goals of states — and, in democracies, of the people those states represent. Unlike their predecessors in search and social media, AI companies from the beginning have had to ponder their own legitimacy, social and political, which is very different from explaining their prospects of profitability to investors. Underneath it all there is still a genuine business justification for identifying a social mission: if the AI companies cannot gin up a plausible social purpose of some kind, their businesses could be targeted by regulation that would hurt or eliminate profits. So, for better or worse, large corporations are getting into the legitimacy game.

This is not altogether new. In the late 1990s, browser companies were required by government to find ways to defend their systems from abuse by the “Four Horsemen of the Infocalypse”: drug dealers, money launderers, terrorists, and child pornographers. (The idea that Internet companies were “content-neutral” was always a fiction.) Email providers had to control spammers and financial fraudsters. The digital-tech industry has always shouldered some social burdens as costs of business lower than the costs of being more actively regulated.

However, AI is qualitatively and quantitatively different. The training data for AI large language models (LLMs) is so vast, and the computational capacity at once so extraordinary and accessible, that AI can create worlds which we are then invited to inhabit. Each world is different, both actually and, more important, potentially. DeepSeek world is not the same as Claude world or ChatGPT world or Mistral world or Grok world. Chinese LLMs are required to carry out censorship along lines set by the government. It is easy to imagine an LLM offering a world in which most of reality is reflected accurately except that every battle your nation fought was a victory and every leader a hero.

The LLM and other AI companies know this and are trying to get ahead of the social-regulatory curve. So Alex Karp, CEO of Palantir, talks about his company as having at its core a mission to defend the values of the United States, as he understands them, and of the West.  Elon Musk, of Grok and much else, talks increasingly of a mission to save the white race from decline. OpenAI sees its role as advancing “democratic AI” as against China’s “authoritarian AI.”  Chinese AI companies meanwhile must adhere to “socialist values” and advance the cause of the Chinese Communist Party — which, interestingly, is acquiring a more ethnic cast. European anxiety about digital platforms that don’t respect European values is being made much worse by AI. The situation has become so pronounced that the invaluable Center for a New American Security (CNAS) just launched a “Sovereign AI Index: Tracking the Global Push for AI Self-Reliance.” The “self” being referred to here is, with partial exception for the EU, a nation-state self.

In short, AI is being positioned as a booster for nationalism, perhaps even ethno-nationalism. This must be about the opposite of what AI’s early visionaries imagined they were working toward. But it is a clear trend. Every state is jealous when calculating its powers, and states are working hard to make AI submit to sovereignty.  

Are there counter-trends? There are, and we will look at those in the second and final post.

America’s Unwritten Constitution — 2 of 2

The first post in this pair established the backdrop for the current contest between the president and Congress over control of the federal state. This post assesses how that struggle is progressing.

The ongoing contest between the executive and legislative branches — a contest being mediated by the judicial branch — has mostly concerned encroachments on Congress’s “power of the purse.” (The other core question has been the power to declare war.)  One theater of conflict has been federal revenues. The written US Constitution gave Congress the power to impose tariffs on imported goods, as did the unwritten constitution. One result was an incoherent series of vast tariff bills in the 19th and early 20th centuries, taking up a staggering amount of Congressional negotiating time. A major reason for the institution of an income tax (1913) was to escape this chronic legislative morass. Over a century later, President Trump revived tariffs as a revenue source, partly as a way to make possible the reduction of income tax. This of course put the executive in conflict with Congress. A sharply partisan Congress was unable to defend its own powers, but the Supreme Court partly did so in February of this year (see “Peak Trump? – 4 of 4,” 21 Feb. 2026).

A second theater of conflict between Congress and the executive over the power of the purse has been “impoundment” via “rescission.” This obscure strategy, based on a 1974 law, also aims at the “administrative state” discussed in the last post. Most administrative-state activities are financed by “discretionary spending” — federal spending that goes through Congress’s appropriations process. Discretionary spending is nearly 30% of federal spending. Half of it goes to defense. The other half goes to food safety, science research, homeland security, education, and so on, most of which the White House’s proposed 2027 budget would cut by a further 10%. “Mandatory” spending, like Social Security and Medicare, is separate and accounts for 60%. The balance goes to pay interest.

Since the Thomas Jefferson administration, “impoundment” — withholding some amount of appropriated, discretionary spending — has occasionally been used by a president to manage expenditures, for example when money had been appropriated for a purpose that later ceased to exist. This was an example of a feature of an unwritten constitution. It worked for almost two centuries until President Nixon tried to use impoundment much more expansively to advance his agenda; Congress retook its authority via the Impoundment Control Act (ICA) of 1974. This included a process by which a president could send a special message to Congress requesting “rescission” of appropriated monies.

President Trump, in his first administration, asked Congress for 34 rescissions totaling $14.8 billion. Congress did not allow any of them. He asked again, in the last days of that term, for 73 rescissions totaling $27.4 billion. Again the request was refused. In his second term, the president asked for $9.4 billion in rescissions. These were the initial cuts to USAID, public broadcasting, support for “color revolutions around the world” and the Green New Deal, and other administrative-state, discretionary expenditures. Congress passed $9 billion of the cuts and the Rescissions Act of 2025 became law on a narrow party-line vote. The Trump administration went on to make an additional $5 billion in cuts to foreign aid and international organizations in August through a “pocket rescission,” a maneuver that allowed it to eliminate Congressionally appropriated funds without any approval from Congress at all.

By such means the current administration has taken some budgetary authority away from Congress, effectively altering the constitutional balance of domestic governing power. It is all pretty murky and has occurred without much public debate. The same is true of the justification for it, the “unitary executive theory.” This theory has nothing to do with foreign aid, public broadcasting, color revolutions or Green New Deals. It only has to do with power. The narrow basis for it is the assertion that the executive branch has complete power to fire anybody the executive might care to fire — for example, anyone in the administrative state. The broader basis is the notion that it is up to the president to decide whether or not he has adequately carried out the will of Congress. It is agreed that Congress has the power to approve hires; but does it have the power to approve firings? The answer has been controversial since the beginning of the republic and has taken different forms for 250 years. They are all part of America’s unwritten constitution.

It is easy to underestimate this administration’s determination to assert the power of the unitary executive to dismantle what Congress has mandated by trimming Congress’s ability to control both the raising of revenue and the spending of it. An unwritten constitution seems at times to be overtaking the written one. The Supreme Court appears to be appreciating the magnitude of this, which is why the president made the extraordinary assertion that the courts really should not be independent at all. 

The risk to investors is that the underlying rule of law, which has stabilized markets since the 18th century, will be weakened. While, as every prospectus says, past performance is no guide to future earnings, it should be remembered that one enduring result of England’s Glorious Revolution of 1688 was precisely — by making Parliament permanent and in a position to restrain the spending of the monarch as executive — to stabilize property relations so England could invest in long-term projects like infrastructure, be restrained from expensive wars, and enable the birth of modern industrialization. That example was very much in American minds when the US system was being designed 250 years ago. Limiting the power of the executive was part of the foundation of modern government and modern prosperity.

America’s Unwritten Constitution — 1 of 2

At an Easter celebration on 1 April, US President Donald Trump, having just been, earlier that day, the first president to attend a Supreme Court argument, attacked the court’s Republican justices. He said he expects Democrat-appointed judges to oppose him: “You can have a case where the person you're suing admits they're guilty and if you're in front of a Democrat judge, he'll overturn.” A Republican judge has a different agenda. A Republican judge or justice will say, “I don’t care if Trump appointed me. … I’m voting against him.” Why? “Because they want to show their independence. Stupid people.”  

SIGnal has been arguing since the beginning of the second Trump administration (see “The Importance of Ideology,” 22 Feb. 2025; “Peak Trump – 2 of 4,” 27 Jan. 2026) that  its core goal is to alter the domestic balance of power in favor of the White House and at the expense of Congress and the courts. Judicial independence is nonetheless a basic constitutional principle. “The complete independence of the courts of justice is peculiarly essential,” Alexander Hamilton wrote in 1788 (Federalist 78). He cited Montesquieu: “there is no liberty, if the power of judging be not separated from the legislative and executive powers.”

The current administration’s opposition to judicial independence is not about the economy, but it definitely has economic implications for investors. So it is worth taking a moment to look at why we are where we are.

The English have long taken pride in having an unwritten constitution, seeing it as more open to change as society evolves and as evidence of a society that is able to cohere without having all its rules written down. The contrasting case is an 18th-century collection of colonies, strange, fractious, and diverse in every way, known as the United States, that had to write down its constitution — an innovative approach at the time, later much copied — because it probably wouldn’t have been able to hold itself together otherwise. The US constitution laid out the respective powers of the executive, legislative, and judicial branches with the idea that they would balance each other. The enumeration of each branch’s powers was expected to make the political system relatively stable. That stability was in turn thought to mean that the laws would be fairly applied and widely respected, which would ensure that contracts could be enforced and “the pursuit of property” enabled.

It worked well, but the domestic balance of governing powers was never all that stable. There was a written Constitution, but there was also an unwritten one, subject to change. For example, in the 70 years between revolution and civil war a president could not get far on foreign policy without the very active support of Congress. He certainly could not start wars. That then slowly changed. By contrast, as the responsibilities and activities (and revenues) of the federal government grew in the early 20th century, and executive agencies were created to carry out those activities, the enumerated power of Congress to control federal expenditure (“power of the purse”) was applied to a vast new territory of federal effort that was in one sense directed by Congress, in another sense by the president as executive, and in some ways just directed itself. The Federal Reserve Board is an example.

This was the advent of the “administrative state,” seen by some as necessary for effective governance in a modern economy, seen by others as an unnecessary bureaucratic layer infringing human liberty. In the ensuing century-long battle between the executive and legislative branches for control of the administrative state, the advantage has often been with Congress because it had the power of the purse. The first Trump administration accordingly took aim at that power, without much success. The second one has done better.

The second and final post will look at how the executive has gained power over the legislative branch in the current presidential administration.

Iran, the US, and Energy Dependence

The political and economic effects of the US-Israel attacks on Iran and Iran’s response seem to be much more about what is not done than what is. The extraordinary truth is that a “war” with grave immediate effects on the political-economy of the planet is taking place with nearly all the world’s states remaining on the sidelines. US allies and US enemies alike, poor and rich, global South and global North, are staying out of it.

This is not because of anti-Trumpism or anti-Americanism — two very different things. Nor is it because of international affection for Iran. At one level, it is because the US has a lengthening record of starting overseas conflicts it does not really win, from Somalia 1992 to Venezuela 2025. Until the current Trump administration, such conflicts had ideological, moral or strategic justifications that clearly meant something to the presidents who were executing them. That has not been at all clear since January 2025. There have been some justifications similar to those of the past, but they fall away when financial gain presents itself, whether in control of Venezuelan oil or a “very big present worth a tremendous amount of money” from Iran. Beyond good financial deals, whether realized or not, the White House’s main foreign-policy motivator has been the spectacle of using force and receiving displays of submission and deference from foreigners.

It’s not a strategy but it does reflect a cast of mind that has been consistent for over a year. The international scene has adjusted. People keep their opinions to themselves, waiting politely until the White House’s attention moves on. World leaders have learning curves too, and they studied the example of Ukraine President Volodymyr Zelensky in his notorious meeting with President Trump in February 2025. Global political behavior has traveled a long road from there to the extraordinary self-control of Japanese Prime Minister Sanae Takaichi as President Trump made jokes about surprise attacks and Pearl Harbor.

The result is that the world order is being remade passively, through non-participation. African states, European states, India, China and others have reacted in about the same way to the US-Israel-Iran conflict, which is to hope not to be asked the question. This is not only about the US (or Israel): Iran is seeing how little its African initiatives are producing in a crisis. Leaders including India’s Narendra Modi and China’s Xi Jinping preferred to focus on things other than the massive conflict threatening their energy supplies. (Iran became a full member of the China-founded Shanghai Cooperation Organization, its ninth, in 2023 after 15 years of hard diplomatic effort.) The BRICS group — Iran has been a member since 2024 — has been stymied. At the same time, the EU’s foreign policy head, Kaja Kallas, said simply, “This is not Europe’s war.” NATO chief Mark Rutte has made a variety of statements that noticeably contradict each other.

And so on. It is important to recognize the non-functioning of the BRICS and SCO alongside that of NATO, the EU and UN bodies. There is no world organization, sub-organization, leader or group of leaders able or willing to impose any kind of order. It is as much a crisis of the global South as of the global North or the West. The global South’s inability to speak up for one of its own is rooted in energy needs at least as much as in any hesitation to upset the White House. The industrialization and digitization of the poorer parts of the world have changed their international politics in so many ways. They have certainly changed the politics of energy.

The main result of the US-Israel-Iran conflict for investors is perhaps that any investment requiring stable electric power, which is of course most investments, has to include an assessment of energy sources and supply redundancies beyond what markets are able to price accurately. In particular, energy diversification away from petroleum — for national markets that lack their own petroleum supplies — is clearly necessary, without any reference at all to carbon-based climate change. The Trump administration made the burial of “green energy” a potent rallying call domestically, but US policies are having the opposite effect internationally. It isn’t simply about cars, trucks and planes. All AI and other Internet-related businesses, for example, require electrical power from some source, as does the manufacture of all their components.

Whatever the White House imagined at first to be the purpose of the Iran conflict, two striking effects have been the exposure of the weakness of all international groupings (Western or not) and the political-economic necessity for most markets of diversifying their energy sources.

The Fog of War

By Dee Smith

On October 12, 2000, when a group of Al Qaida suicide bombers pulled a small boat up to the USS Cole, a U.S. Navy destroyer refueling in the port of Aden in Yemen, I was still working with the Defense Intelligence Agency (DIA) as a contractor. I happened to be sitting in the office of its recently retired director, General Patrick Hughes, the day the first reports of the attack came in. There was a huge amount of confusion about what had actually happened and what the casualties were, and speculation about what would happen next. He had hardly got off the phone before 3 other calls came in.

At one point, Pat turned to me and said, “Have I ever told you my ‘rule of 11’ for crises?” When I indicated he had not, he explained: “In any crisis, assume that the first 10 things you hear are completely inaccurate, and that the 11th may be partially true. And then that cycle generally repeats, not necessarily in sequence. If you go by that rule, you will find your understanding and your reactions and decisions are greatly improved.”

It was good advice. I have used it ever since, and not just to understand military/geopolitical issues.

This is closely related to the concept of the “fog of war.” The origin of the exact term is unclear, but the concept is believed to have been first described by Carl von Clausewitz in his classic study On War (not published in German until 1823, after his death, and only 50 years later in English). He described the concept as follows:

War is the realm of uncertainty; three quarters of the factors on which action in war is based are wrapped in a fog of greater or lesser uncertainty. A sensitive and discriminating judgment is called for; a skilled intelligence to scent out the truth.

There is no better demonstration of the fog of war than what is going on right now in Iran and its geopolitical neighborhood. No one, including the combatants, has a firm grasp on what is actually happening, and how it is likely to develop is utterly opaque.

However, as is widely acknowledged at this point, there either was no actual strategic plan, or whatever plan there was had been based on assumptions that quickly proved to be wildly inaccurate, particularly that:

1)        the initial strikes could decapitate the regime but leave a few people in positions of power who could be worked with, in the way that the vice-president of Venezuela was appointed to run the country,

2)        the regime would crack after its leadership was eliminated,

3)        the people of Iran would rise up against the regime, and

4)        whatever Iranian government was left would refrain from attacking its neighboring states or closing the Strait of Hormuz (despite the fact that Iran had long threatened to do both).

This has all proved to be extremely wishful thinking, to put it charitably. The regime has consolidated, with the Islamic Revolutionary Guard Corps (IRGC) — the primary military arm of the Iranian government, which is also heavily integrated into the Iranian economic and political structures — assuming more control. Iran’s leadership has become even more intransigent. Most of the candidates for people who (it was assumed) could be “worked with” were killed in the first days. And, particularly after the brutal repression of protestors just weeks ago, with tens of thousands of deaths, the general populace is so frightened that most are not even venturing out of their houses. With good reason: Iranian police and military forces have orders to shoot protestors on sight.

This is not to mention the intention and capability of Iran to spread the war to its entire neighborhood and beyond and to close the Strait of Hormuz, through which not only about 20 percent of the world’s oil supply passes, but also through which critical dry goods like fertilizer and ammonia also travel — and the 2nd-, 3rd- and 4th-order effects of these actions on global economics and food supply.

There are many lessons to be learned from this situation. They are the kind of lessons that  powerful countries often refuse to learn, as with Russia in Afghanistan, for example, or the U.S. in Vietnam, Afghanistan and Iraq. A brief list would have to range from the transformative asymmetric power of technology (which means that smaller, weaker powers can take on and even defeat much larger ones), to the difficulty of fighting a war that has the potential of long-term irregular or guerrilla-type action. Other lessons would include the realization that autocratic leaders very often actually tell you what they are going to do (so you need to take what they say seriously), and the key point that all leaders today must rid themselves of what is now called the “recency bias” — the erroneous belief that the recent past is a reliable predictor of the near future. That was never really the case, but in a time of relentless, massive, and accelerating change, it is a ludicrous point of view. The U.S. was very probably influenced by the success of its operation in January kidnapping the president of Venezuela.

Military forces look at 3 levels: tactical, operational and strategic. Tactical operations — at which the U.S. military is superb — do not necessarily lead anywhere good without a strategic direction. Lacking that, the fog of war might merely conceal the road to Hell, which is just as bad even when one heads down it with the best of intentions.

ChatWars

The showdown between the US Department of War and AI giant Anthropic over the past week has focused mainly on the private-public struggle over power: Can the federal government, as the Trump administration maintains, force a private company to work with the government on the government’s terms? Or do private companies have a final say over government use of their products? SIG’s view is that underlying this moral-political debate is a deeper question having to do with labor costs. As SIGnal has argued in different contexts over the past few years, if AI is “about” anything it is about the cost of labor. Government has long struggled with its inability to compete with Silicon Valley on wages. The AI tools built by Anthropic, OpenAI, GrokAI and Google, among others, offer a way to ease that problem, just as they offer ways for private companies to improve labor productivity. The issue is not private-sector patriotism. The issue is labor.

The struggle over who shapes the direction of digital innovation is as old as digital technology itself, and indeed dates back to pre-digital innovation during World War I around the challenges of “fire control” — improving the accuracy of munitions delivery. Many of the key figures in developing digital technology for use in war, such as Norbert Wiener and Vannevar Bush, cut their teeth on the challenges of fire control in the First World War. The commercial-academic-military cooperation that birthed the digital age in World War II has its own distinctive and peculiar history. (The venture-capital model was also rooted in wartime procurement practices, but that is another story.) The US’s extraordinary wartime spending after 1942 went on to combine with Cold War fears of Soviet technological competition. Government money financed digital development, and thereby shaped its purposes, into the 1970s.  When the government’s Internet project became commercializable beyond any expectation, the government yielded to private-sector leadership in shaping the digital landscape — and government, including the military and intelligence sectors, fell behind.

The turning point can usefully be dated to DoD’s Project Maven, undertaken in cooperation with Google. The spur for Project Maven was a labor shortage of sorts: there was too much targeting data — fire control again — for military employees to keep up with. Some Google engineers rebelled in 2018 when they discovered their engineering skills were essentially being used to crunch data for the better delivery of firepower. Google eventually canceled the contract.

The story, of course, did not end there. With China playing the old role of the Soviet Union, all branches of the US military began investing heavily in digital automation of defense processes. At the same time, many in Silicon Valley (plus Seattle) came to terms with what it actually meant to work as contractors for the military and other government agencies. Government still struggled to compete for tech talent in its own hiring, but contracting provided ways forward.

Enter AI. Even as Maven was hitting a wall, Google announced major AI innovations: the Transformer architecture (2017) and BERT (Bidirectional Encoder Representations from Transformers, 2018). OpenAI launched GPT1 (Generative Pre-trained Transformer 1) in 2018. The rest is recent history. OpenAI launched ChatGPT in November 2022 with an interface that enabled normal people to use the new tool. It could achieve computation at levels that far exceeded what Maven could do four years before. But the basic Maven challenge — there weren’t enough people to handle all the data, so they needed a machine to help them — was the same.

The massive flow of capital into AI-related investments was never based on military contracts or improved fire control. Nonetheless, at one level the military’s interest in improving targeting without hiring more targeters was identical to private companies’ interest in increasing productivity without hiring more workers. It was and is a short step from there to increasing productivity with fewer and fewer workers. This week, a Pentagon official announced that an agreement had been reached with Google to use its AI tools to automate jobs across the Pentagon’s workforce of three million. Google’s own blog noted that its AI agents would be able to help Pentagon employees automate tasks without needing to know any code. AI agents are particularly good at writing code, something that used to require expensive software engineers. Emil Michael, under-secretary of defense for research and engineering, said that a type of war-simulation exercise that took his staff six months was done through the AI portal in six weeks. Outside the military sphere, the same logic drove Jack Dorsey, CEO of Block (owner of payments system Square) and founder of Twitter, to lay off 4,000 of the company’s 10,000 workers.

The Pentagon’s attack on Anthropic has to be seen in the context of labor costs and the open competition among Anthropic, OpenAI, xAI (Grok), Google, Palantir and others for Pentagon and other US government contracts aimed at increasing labor productivity, which is to say reducing labor costs. That includes the labor cost of software talent.

But investors will need to remember that the competition among AI giants for US government contracts is not motivated principally by the search for profits. The motivation is more to gain protection from regulation or other political interference. The AI giants would develop their tools in about the same way without any government contracts at all. Their field of competition is on a vastly greater scale. That means that, in the end, however the Anthropic-Pentagon dust-up evolves, the AI sector has the upper hand because national security has become dependent on it.

Peak Trump? (4 of 4)

The first three parts of this series (one, two and three) considered US President Donald Trump’s foreign policies, his approach to domestic government agencies, and his handling of the domestic economy. The main arguments made were that, leaving aside bursts of military action paired with peacemaking, President Trump’s foreign policy was propelled by a desire to reverse a perceived Western civilizational decline caused by “wokeness” plus non-Western immigration. On the economic side, it was propelled by a desire to re-balance trade with countries seen as having taken advantage of the US. (“We were ripped off by almost every country in the world,” Trump said in his 20 Feb. press conference.)  The president’s policy toward domestic government was dominated again by a desire to combat “wokeness” as well as to shrink government generally while also strengthening the federal government’s position relative to that of states and localities. In terms of wokeness, there was meant to be a type of re-balancing given that, as the president said, “white people” had been “very badly treated.” On domestic political economy, the series argued that the president’s tariff policies and negotiations for inward investment did not have the effects his opponents expected (economic decline, rampant inflation), but they also did not have the effects the president had promised (non-AI manufacturing investment, job creation, deficit reduction). This final post looks at some implications for investors.

The US Supreme Court’s 6-3 decision on 20 February was consistent with SIG’s analysis over the past year that the real crisis in the United States has been a constitutional one. Trump appointee Neil Gorsuch wrote in his concurrence with the majority, “Americans fought the Revolution in no small part because they believed that only their elected representatives (not the King, not even Parliament) possessed authority to tax them. The framers gave Congress alone ‘access to the pockets of the people.’” The president, in reaction, offered a nearly opposite interpretation, citing Justice Kavanagh’s dissenting view that “the decision might not substantially constrain a president’s ability to order tariffs going forward.” So there is now an open constitutional rift on the US Supreme Court. The conflict will be played out between the White House and Congress.

President Trump argued that, because he has tariff powers under authorities other than those considered in the Supreme Court decision, the policy situation on tariffs will now stabilize. Businesses and investors would therefore be able to invest and grow with confidence. This happy outcome seems unlikely. The president’s own initial reaction to the judgment — to immediately impose a new 10% global tariff under a different authority — does not suggest a reasoned calm. His highly personal attacks on the judges who ruled against him, not to mention his predecessors as president (“we had some real dummies”), do not cast oil on the waters. But beyond that, the tariff issue, for months now, has been that rare topic on which a small but significant number of Republicans in Congress have been willing to diverge from the president.  Meanwhile most indicators point to a weakened president, whether in polls or economic data. Even the president’s core support among white Protestant evangelicals — itself a shrinking group in the past several years — has gone down, while backing for his policies among non-evangelical white Protestants has dropped from 46% to 33% over the course of this presidency.

Investors should therefore expect considerable turbulence in the remaining ten months of 2026.  An embattled President Trump who is losing electoral power might not go quietly. At the same time, perhaps the most remarkable thing about the US economy in 2025 was that it chugged along in a somewhat dull but not unhappy fashion despite the tremendous political noise all around. The signature structural problem, as discussed in the previous post, was the national debt, which could get considerably worse if much tariff income ($134 billion last year) drops out. The president believes lowered interest rates under a new Fed chair will solve the problem. It would certainly help the housing sector, but it would not get at the problem of low non-AI-related capital expenditure and related slow job creation.

In SIG’s view the most likely scenario is continued low-to-moderate growth rooted in consumption as we enter the sixth year of expansion. The population will continue to age, particularly with lower immigration, meaning that sectors like health care and entertainment will continue to provide growth as they did in 2026. AI applications that compensate for a shrinking workforce will prosper. Given an aging housing stock, pent-up demand, and a lack of workers, any businesses that can exploit the need for renovation and updating will also thrive. The automobile sector is unlikely to do well as older people drive less — and any sector, like autos, directly exposed to the coming Washington battles should be treated with great caution. The truly adventurous can try to discover how a widely anticipated megadeal between the US and China might affect trade. This fascinating research by Gerard DiPippo holds some clues. But then, maybe there won’t be a megadeal at all, or even a deal. It is hard to price in this level of chaos.

At the same time, the ongoing transfer of wealth from the large boomer generation to the smaller inheritor generations means that wealth will become yet more concentrated in the upper middle class and in those parts of the United States where they are disproportionately represented. Businesses that serve them will benefit. (Mike O’Sullivan’s last post on The Levelling dug into this.) But when the current expansion does end, investors will need to be prepared for a society whose instability will increase as its prosperity becomes less evenly distributed and the Trump administration’s promises of a working-man’s revival go mostly unfulfilled.

Is this Peak Trump? In several senses, yes. This series has argued that the means the president has used are not likely to achieve the goals he has declared or the promises he has made to his core constituency. So it is very hard to see how his political standing can much improve in the coming year. At the same time, it is equally difficult to see how the socially conservative, working- and middle-class, majority male and majority (but by no means exclusively) white, anti-woke Trump voting group will get less Trumpy even if Trump himself fades. The analysis here suggests that group’s discontent is most likely to increase. 

Peak Trump? (3 of 4)

This is the third in a series of 4 posts looking at the Trump administration’s goals for its first year and to what degree they have been accomplished — all with an eye toward investment. It has long been anticipated that the midterm elections would be decisive in determining whether President Trump’s radical revision of American politics will last. Now is the beginning of the midterm campaign season, and this raises the question of whether we are approaching Peak Trump. The first post considered foreign affairs and argued that many presidential actions abroad in 2025 were performances without a useful pattern, although a theory among his advisers of Western civilizational decline, which complements a similar theory about domestic US decline due to immigration, has had serious foreign-policy effects. The second post looked at the White House’s assault on various government departments, usually with the declared goal of eliminating “wokeness” and DEI programs, and argued that these efforts in 2025 did reduce government but not to the economic benefit of the white men who were seen as left behind by wokeness. This third post analyzes the domestic political economy, while the fourth will examine the implications of the arguments for investors.

The main fact of US political economy in 2025 was that, with low unemployment and strong GDP growth, federal debt increased to record highs. The main sources of growth in federal spending in 2025 were Medicaid, Medicare, and Social Security. Federal income also grew, due to increases in income and payroll tax payments (about two thirds of the growth) and tariff revenues (one third), but it was not enough to outpace spending. The resulting budget deficit of $1.7 trillion at the end of 2025 drove US debt to $37.9 trillion or 99.8% of GDP, a level reached only in the Covid-19 epidemic and the Second World War. 

The Trump administration did make dramatic efforts to reduce government spending, such as at the Department of Education and the Environmental Protection Agency. The deficit declined significantly over the course of the year, even if it remained higher in December than at various points in the Biden administration. But the Trump administration also reduced corporate income taxes, increased spending on defense and immigration control, and continued many Biden-era projects.

The theory was that tax cuts and tariff income, combined with major foreign and domestic investments (often made in return for tariff or other explicit regulatory relief), would both replace lost tax income (with tariff revenues) and stimulate economic growth to “make the pie higher,” in former president George W. Bush’s famous phrase, thereby increasing tax receipts. The pie indeed got higher in 2025, which led to the growth in income and payroll tax revenues for the government. Tariff income has definitely made a fiscal difference as well, of $118 billion in revenue. From a White House perspective, the difficulties in 2025 arose with investment patterns and job creation. The quantities of investment advertised by the administration, whether from overseas or by US multinationals, have been on a giant scale. Actual investments have been dramatically lower, and fixed business investment apart from Artificial Intelligence and data centers was down in 2025. AI and data centers, if they operate as promised, are likely to reduce employment: the white-collar version of industrial robots. Meanwhile, employers added about a quarter the number of jobs in 2025 as they did in 2024, making last year the worst for job growth since the pandemic struck in 2020. Nonetheless, GDP growth has been strong and unemployment has stayed low, if not quite at the extraordinary 3.5% at the end of the first Trump administration.

Overall, the economy did very well in 2025, despite being five years into the business cycle. How much of this success was due to Trump administration policies? Probably very little. The year, in political-economic terms, seems to have been one more of performance than substance, much as with foreign policy. Most economists played the role of doomsayers as President Trump announced tariff after tariff on flimsy national-security grounds. The president triumphantly pronounced the consensus mind to be wrong as unemployment and inflation stayed reasonably low and the leaders of the UAE, Saudi Arabia, Qatar, India, Japan, South Korea, Apple, Meta, Nvidia, and others pledged investments on a scale that, if realized, would have rolled the New Deal, the railroad boom of the 1880s, and sundry other moments of investment-led optimism into one. It was all incredible theater. Meanwhile, an alarmed private sector battened down (except in AI) for year five of the cycle, with the twins of business investment and job creation lying flat. Neither the tariff-inflation apocalypse nor the MAGA investment boom (except in AI) actually took place, and optimistic forecasts for 2026 put the tariffs down as a temporary fad destined to fade into the past.

The real structural shifts were elsewhere and had to do with the redistribution of political power: from states to the federal government, from local police forces to federal security services, from the legislative and judicial branches to the executive. These shifts had economic effects, above all in the shrinkage of the domestic labor supply through reduced immigration and the brutal reinforcement of a zero-sum, post-globalization international order fixated on defensive self-sufficiency. But these shifts were much more political than economic. What the Trump administration aims at is more a cultural revolution than an economic renaissance, and even its economic policies have to be analyzed in that context because that is what is driving them.  

Peak Trump? (2 of 4)

This is the second in a series of 4 posts looking at the Trump administration’s goals for its first year and to what degree they have been accomplished — all with an eye toward investment. It has long been anticipated that the midterm elections would be decisive in determining whether President Trump’s radical revision of American politics will last. Now is the beginning of the midterm campaign season, and this raises the question of whether we are approaching Peak Trump. The first post considered foreign affairs; this one looks at the domestic scene with regard to government (IRS, SEC, Justice Department, ICE, etc.). The third post will analyze the domestic political economy, while the fourth will examine the implications of the arguments for investors.

The first post in this series considered foreign affairs and stressed two points. The first was that the aggressive acts early in the term (February to June), followed by peacemaking efforts (May to September), revealed a pattern only in the sense that they showed a president believing he had a special role to play on the world stage. His actual actions (a peace initiative in Thailand, a bombing in Nigeria) were primarily opportunities for the president to show himself behaving in a particular way. Analytically, it is a mistake to over-interpret them. The second point was that an administration ideology in foreign affairs does exist but on a separate track having much more to do with immigration and what might be called civilizational issues: arguing for the fairness of modern imperialism, followed by the self-inflicted decline of the West, which the Trump administration feels it is in a position to redress.

The second point was discussed in SIGnal almost a year ago (“The Importance of Ideology,” 22 Feb. 2025). At that time, White House policies expressed ideas earlier published by the Center for Renewing America, an NGO founded by Russell Vought, the president’s budget director. At the end of December 2022, the center published “A Commitment to End Woke and Weaponized Government”; Vought and his center went on to strongly influence the Heritage Foundation’s Project 2025, which despite the president’s early denials has proved to be a useful guide to his administration’s policies. As discussed in SIGnal, the center’s research claimed to have identified a wokeness virus that had originated abroad then entered the US via the State Department and CIA with the willing help of Silicon Valley tech platforms. Wokeness was thought to be fundamentally anti-American and to have permeated government to such a degree that it needed to be dramatically cut back, as if one were removing cancerous tissue. This Vought and the White House set out to do, with no important opposition from State, CIA, or any other part of the supposedly powerful “deep state” — with no effective pushback from Democratic or other political opponents — and with the passive assent or active collaboration of supposedly liberal Silicon Valley, most famously Elon Musk and Peter Thiel. This was the DOGE era. Vought’s Office of Management and Budget, as expected, proved to be the key actor in the reduction of government.

With regard to international institutions and the domestic agencies that interact with them, the administration did not so much seek to advance its views as to withdraw money and participation. Since the US was the principal actor in binding the international system together, non-participation and budget cuts were enough to cause it great harm. Congressional misgivings mattered little: the president had no respect for Democratic views or the established rules of the game; court decisions on the scope of executive powers take too much time; and perhaps most important, the president had no respect for Republican politicians who might oppose him, while he nonetheless had influence with their constituents and an eagerness to use it.

Defunding of State or USAID paralleled the defunding of domestic governance. Defunding was never just about State or USAID.  It was about shrinking government commitments generally. The Securities and Exchange Commission was targeted; by the end of FY 2025 the commission had an attrition rate of 17.8% (a fivefold increase year-on-year) and had lost more than a quarter of its contractor personnel.  The Internal Revenue Service lost just over half ($40.8 billion) of the monies appropriated for modernizing it as well as 25% of its workforce. The Treasury Department, US military branches, and the Veterans Administration also experienced significant attrition in 2025, according to federal Office of Personnel Management reporting, with the military shedding 63,400 men and women. DOGE-enforced layoffs (“reductions in force”) were a very small part of this broad picture. Most people either quit, took buyout offers (counted in public OPM statistics as quitting), or retired. Overall, the US government workforce since President Trump’s second inauguration shrank (Jan-Nov 2025) by 335,000.

The ideological justification for this shrinkage, apart from a simple reduction in costs and corporate regulation, was to combat “wokeness” and the “weaponization” of government. That was Vought’s great theme and shaped the trimming of government agencies. The main proximate enemy was Diversity, Equity, and Inclusion (DEI), which proved to have remarkably few defenders. President Trump’s very first moves were to eliminate DEI from government wherever possible, to use the stick of federal funding to accomplish something similar in universities and the educational system, and to deploy the Justice Department to make companies who had adopted DEI, often at federal direction, to now eliminate it, also at federal direction. The Trump administration was itself weaponizing government, but against wokeness.

Implicit in anti-woke initiatives was the idea that there had been a pre-woke equity based on merit that liberal woke efforts had disturbed and which would now be restored. This was symbolized by the official revival of a classic painting, John Gast’s 1872 American Progress, which features a white-draped flying goddess, Miss Columbia, leading a group of white male settlers west as Native Americans and wild animals flee. It was anti-woke trolling, but the Supreme Court’s decision in Ames v. Ohio — that a majority group, such as straight people, can be discriminated against, and be legally protected from discrimination, in just the same way as a minority group — was more substantial. So were the Justice Department’s investigations into discrimination against majority groups. “White people,” the president said, had been “very badly treated.” According to a Justice Department spokesperson, a decade of “DEI insanity” had “led to blatant, widespread race and sex discrimination.” The department and the administration seek to restore what they see as the pre-DEI balance. Since the only groups that could be seen as discriminated against by wokeness were white Americans, straight people, and men, the restoration aimed at by the Trump administration would need to benefit them if it were to be successful.

Is it working? Early evidence suggests it might not be. Consider the US Army. The method used in the case of the US military was to eliminate preferences based on gender or race. These were believed to have led to poor recruitment. US military recruitment did indeed surge in FY2025, and defense secretary Pete Hegseth attributed it to getting rid of “this politically correct garbage” in favor of “war fighting.” So it is striking that US Army statistics for the regular army show an FY2025 increase from FY2024 in female and non-white recruits, and a decrease, as a share of the total, in white recruits and men. Even under the presumably optimal conditions of a Trump administration, then, white-male recruiting at the US Army is down. The female share of recruits under Hegseth has climbed from 18.1% to 19.7%. The “Caucasian” share declined from 40.5% to 40%, continuing a downward trend from at least 2020, when the share was 52.7%.

Something similar has happened in the “DMV” region: Washington DC, Maryland, Virginia. It is the sixth-largest economic region in the country and naturally sensitive to declines in federal employment. In the DMV, white unemployment has risen faster than black unemployment under the Trump administration, a reversal of the usual relationship. In another departure from the norm, unemployment has concentrated in suburbs; black unemployment in DC itself has actually gone down. Bear in mind that the bulk of the shrinkage in federal unemployment under this administration has been through quitting or taking buyouts. What this suggests is that white unemployment in DMV has grown under Trump, primarily from white workers quitting his government.

The Department of Homeland Security (DHS) is the exception to the pattern of federal agency shrinkage. While DHS itself is down slightly and most of its subagencies have declined, Immigration and Customs Enforcement (ICE) is up by 5,200 for the administration to date, and Customs and Border Protection (CBP) is up 1,746. These are OPM figures; ICE itself claims to have hired 12,000 new officers and agents. Either way, it is the one area of federal employment that bucks the downward trend.

DHS is, of course, also the agency charged with enforcing President Trump’s promised mass-deportation policy. DHS has not released demographic statistics on who is working for ICE or CBP. But in 2023 DHS was 51.7% white (below the national average), 22.8% Hispanic (above the average) and 16.7% black (above the average). The new hires might change this balance. Expensive and sophisticated recruitment efforts, according to an internal ICE document, have been focused on people identified as being near UFC fights, gun shows, and NASCAR races as well as country-music fans, self-identified conservatives, the followers of conservative influencers, and so forth. That does sound like a white-male recruiting effort. Then again, the non-white audiences for NASCAR, UFC fights, and country music have all been growing in recent years, and in some cases the female audiences are growing as well.

It therefore seems more than possible that in the federal government, over which the president has considerable control, the elimination and denunciation of DEI policies has not led to an increase in white-male hiring. Several explanations suggest themselves. The main one is that white men either don’t need or don’t want the jobs. The white male unemployment rate over the first year of this administration has been steady and consistently lower than the unemployment rate for most other groups. That needle does not seem to have moved at all. The standout group for worsening job prospects over the same period has been black Americans, particularly women. At the same time, the labor-force participation rate of immigrant men has been significantly higher (roughly 76% versus 65%) as compared to native-born men, and the unemployment rate slightly lower (3.9 versus 4.3). The demographic group that stands out the most in the available BLS statistics for the first year of the second Trump administration is Hispanic men, more than 79% of whom participate in the labor force, with an unemployment rate of 4.3. When you combine these employment figures with the fact that employment improves with education — people with a bachelor’s degree or above have the highest participation rate (72.6) and lowest (2.8) unemployment rate — the picture that emerges is of a growing Asian presence in the upper reaches, as Asians devote far greater resources to education than any other group (including white Americans), and a more Hispanic middle class as Hispanic education rates and English proficiency steadily improve.

So far, the Trump administration’s war on woke, which has been the leading motif in its remaking of US government agencies, does not seem to have made much of a difference in economic terms for white people, straight people, or men. But it has succeeded in showing the weakness of Congress, state governments, and the rest of the American political system when faced with a ruthless executive willing to use physical force and budgetary power to suppress American political traditions of separation of powers and free political speech. This activity looked as though it was directed at undeserving foreigners and an unlamented wokeness. It was really directed at seizing domestic power, supposedly on behalf of the needs of white men — who so far have very little show for it, at least in economic terms.

Peak Trump? (1 of 4)

This is the first in a series of 4 posts looking at the Trump administration’s goals for its first year and to what degree they have been accomplished — all with an eye toward investment. It has long been anticipated that the midterm elections would be decisive in determining whether President Trump’s radical revision of American politics will last. Now is the beginning of the midterm campaign season, and this raises the question of whether we are approaching Peak Trump. The series will look at foreign affairs first, the domestic economy with regard to government second (IRS, SEC, Justice Department, etc.), the domestic political economy looking toward the midterm elections, and finally how the analysis advanced here might affect investment.

Donald Trump did not win his second term as president because of his foreign policy goals or record. His first term was not dominated by foreign affairs and was not seen as notable in those terms one way or the other. His confrontational first-term China policy was generally reckoned a success, at least as a strategic re-orientation, and mostly adopted by the Biden administration. There were other innovative policy initiatives, including the Abraham Accords in the Middle East and the Clean Network campaign for exclusion of Chinese telecommunications technology from international networks (also amplified in the Biden years). The renovation of NAFTA into USMC was not especially consequential, although it introduced a 6-year review, which comes due this year. Otherwise the first Trump administration’s foreign policy was mainly about trying to make major deals — with Kim Jong-un of North Korea, with Vladimir Putin, with Xi Jinping — and substituting economic nationalism for overseas commitments to allies and international institutions. The dealmaking was a failure, including when a deal was actually reached (with China). The turn from internationalism to nationalism, however, was a success in its own terms, and the US’s long march away from alliances and international institutions, beginning in the Clinton administration and continuing (with pauses, as in 2008) ever since, became ingrained practice. But Trump’s second presidential campaign did not run on any of this. The only major foreign-policy campaign promise was to resolve the Ukraine conflict within 24 hours of assuming office.

That, of course, did not happen, and the Ukraine war continues a year later, with Europe struggling to replace military aid stopped under Trump and with US-led diplomacy lacking in results. The most striking thing about Trump foreign policy early in the new administration, as discussed in a number of SIGnal posts, was the doubling down on economic nationalism (using tariff policy) and neo-isolationism (the end of USAID and other international commitments). These moves were radical in themselves; more radical still was the degree to which they took power away from the Republican-dominated Congress and the professional civil service. The lack of effective political opposition to the administration’s moves revealed the shallowness of the American political commitment to internationalism. It also revealed the extraordinary freedom of maneuver now available to the president in foreign affairs.

But President Trump did not have an alternative programmatic use for the powers he had succeeded in acquiring. He lacked a positive ideology. His goals were essentially negative, such as spending less money abroad. Beyond that, there was simply the demonstration of power: threatening to take the Panama Canal (December 2024), then Greenland (January 2025), then Gaza (February); confronting the president of Ukraine (February); harshly criticizing European domestic policies (February, via Vice President Vance); and attacking Iran (June).

At the same time, there was the assertion of a special ability to solve long-standing crises through mediation. This began with a diplomatic intervention in an India-Pakistan confrontation in May, which caused Pakistan to nominate Trump for the Nobel Peace Prize, followed by other instances of what he called ending, or in the Balkans preventing, conflict: Rwanda-Democratic Republic of Congo, Kosovo-Serbia and Israel-Iran (all in June), Thailand-Cambodia (July, and again in December), Egypt-Ethiopia (July), Armenia-Azerbaijan (August), and Gaza (September). None of these conflicts are actually solved. In December the State Department announced that the US Institute of Peace, an independent think tank funded by Congressional appropriation since its founding in the Reagan years, had been renamed the Donald J. Trump United States Institute of Peace to “reflect the greatest dealmaker in our nation’s history.”

What should one make of this seesaw pattern, with aggression from January to June, peacemaking from May to September? The Peace Prize went to María Corina Machado of Venezuela on October 10, 2025; the US’s first strike against a Venezuelan vessel was on September 2, followed by 20 more strikes to November 15. After a pause, the pace picked up in early December, and President Maduro was extracted from Caracas on January 3 after announcing he was interested in peace talks with the US. The US also bombed northern Nigeria at the end of December.

It is obviously tempting to think that the president wanted to show strength abroad from his inauguration to the early summer, but to take on the role of peacemaker in the summer and fall in the hope of being recognized outside his administration as the “greatest dealmaker” for peace. He had stated since 2018 that he thought he deserved the Nobel Peace Prize and reiterated this in February and June of 2025. When he did not receive it, his actions abroad became violent again. He appeared very pleased when Machado gave him her peace-prize medal. But with threats against Cuba, Mexico, Colombia, and again Greenland and Panama, the president seemed to swing back to the belligerence with which his presidency began, in the last two cases with the same targets. The US withdrew its support from some 20 international agencies — the result of a long-delayed State Department review ordered nearly a year ago — and froze the visa-approval process for citizens of more than a third of the countries of the world.

So the pattern of military actions and peacemaking in the administration’s first year does seem to have a pronounced personal component. The president’s weekend letter to Norwegian prime minister Støre confirms this. There is nothing else that links Nigeria, Armenia, Thailand, Iran, Greenland, and so forth. It is a mistake to impose more of a pattern than there is.

However, at some point in the summer or fall the reign of budget director Russell Vought, whose task it was to shrink the US government, seems to have given way to the reign of chief policy advisor Stephen Miller, whose ideas stretch beyond dismantling Diversity Equity and Inclusion (DEI) and Environmental, Social and Governance (ESG) projects and intimidating institutions (corporations, universities, law firms) who once pursued them. Miller has a worldview and a theory. It unites the militarization of anti-immigrant policies with foreign policy, including economic policy. The re-focus of US foreign policy on Latin American drug gangs had been a staple of DC gossip since early in the administration. Now it was clear.  In Miller’s words:

Not long after World War II the West dissolved its empires and colonies and began sending colossal sums of taxpayer-funded aid to these former territories (despite have [sic] already made them far wealthier and more successful). The West opened its borders, a kind of reverse colonization, providing welfare and thus remittances, while extending to these newcomers and their families not only the full franchise but preferential legal and financial treatment over the native citizenry. The neoliberal experiment, at its core, has been a long self-punishment of the places and peoples that built the modern world.

There is something to dispute in almost every word in those sentences, but the point here is that the role of Miller and Vice President Vance appears to be to give some intellectual structure to what might otherwise — given the lack of effective political or public opposition to the concentration of decision-making power in the White House — be simply a personal foreign policy. The criticism of Europe, in the US National Security Strategy, for engaging in its own “civilizational erasure” by not having enough children, sapping the vitality of nations by imposing a European Union on them, and admitting immigrants is part of a larger idea about imperialism and the West. Europe is seen as a betrayer of the West, and the US under Trump as its lone defender. The global economy for perhaps a century is seen as having been an unfair deal for the US and the once-imperial Western powers. The emotional power of this view comes from the sense of internal Western betrayal and of being besieged by the undeserving poor wanting to take what is left of the once splendid West. The chief mode of response, in Miller’s words, must be “strength,” “force,” “power”: “These are the iron laws of the world.”

This is the emergent ideology of the Trump administration with regard to foreign affairs, with ample room allowed for the president’s personal reactions to people and events, such as not winning a famous prize. Trump has never demonstrated a historical sensibility, so it is difficult to know how much he himself believes in this ideology. Nonetheless, it has been foreshadowed for nearly a year and does seem to be the one his administration has. We will look at some of the implications for investors in the conclusion to this series.