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.

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?

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.

Is Venezuela the Final Nail?

By Dee Smith

The Trump Administration’s action in seizing Venezuela’s president — accomplished through an apparently movie-perfect special forces/combined military action — may be the final nail in the coffin of the Liberal International Order (LIO), also called the “rules-based” international order. It is in addition a textbook example of why it is necessary to look beyond the obvious to understand what is going on in almost any situation.

The LIO was partly a product of the desire of Western leaders, after World War II, to create a system of international governance through multi-lateral institutions (like the United Nations) to manage conflict in order to avoid a repeat of war on such a devastating scale, particularly in the emerging age of nuclear weapons. It was at the same time an effort to grow and maintain the economic and military primacy of the United States and of the West in general.

The LIO largely accomplished these goals for 50-odd years, but the system has been teetering for a quarter of a century. A series of events, including the U.S. invasions of Afghanistan and Iraq, and the Russian invasions of Georgia and Ukraine, eroded its reality and credibility. The first two were conducted with some semblance of international cooperation (a “coalition of the willing”). Russia’s actions, and now the American defenestration of the Chavista regime — not to mention various parties’ recent actions in the Middle East and South Asia — have revealed the LIO as no longer fit for purpose. When no one even tries to look as if they are playing by the rules, it is over. Such a structure is unlikely to be revived any time soon in any recognizable form.

Realpolitik, spheres of influence, balance of power, and other elements of the 19th century geopolitical environment have returned with a vengeance. The open lack of interest many governments display toward the multi-lateral institutions and international law — or their purely self-serving invocation of them — complements the normalization of rising elements such as nationalism, isolationism, non-alignment, and identity-based politics. These occur within as well as among nations.

This, of course, means a much more conflictual world. Decisions that were always based on emotional (particularly fear-driven) factors and desires are now being pursued without even the window-dressing of spreading democracy or any other political philosophy. They are now overtly based on self-interest. They always were, to be honest, but the desire to be seen to be playing by the rules of the LIO provided some amelioration of naked self-serving actions.

Consider the difference between the recent U.S. actions in Venezuela and the seizing of Manuel Noriega, the president of Panama, 36 years ago. The latter was cloaked in the democratizing language of liberal interventionism. No such justification is given for last week’s action. It is presented as simply in the national interest of the U.S. This is a harbinger of how power will be projected and justified in the foreseeable future.

We are increasingly becoming an overt “might makes right” world. That is a reality in which mid-sized nations are more fearful of what the largest nations may do to them, but also in which mid-sized nations feel they have more cover in pursuing their designs on smaller bordering nations.

Things are almost never what they seem. There is still some desire for “cover”, but it is primarily for domestic consumption, as with the drug trafficking charges against Maduro. Conventional wisdom (it is notable that “conventional” wisdom can be almost instant!) now says — buttressed by the statements of President Trump — that the Venezuelan operation was really all about oil. But was it? Given the nature of Venezuelan oil (tar sands, at least onshore), and the penetration of the Venezuelan state by China and Russia, it is arguably much more about China. It reflects the desire of the US to weaken China’s presence so close to America, a presence that would make operations in the Caribbean very difficult for the US in the case of a kinetic war with China.

The implications of this return to an older mode of international dealing, and what that means, should not be underestimated. It is well past dawn in the emergence of a much more conflictual day.

We have seen this movie, and we know how it goes. We don’t know how it ends, but it is very hard to find scenarios that end well in a world bristling with nuclear and more recent weaponry (drones, autonomous killer robots, loitering munitions, lasers and other directed-energy weapons, hypersonic directed missiles, cyber conflict, etc.). It is not your grandfather’s warfare.

The dream of the LIO was in part a result of the horror of nuclear weapons. After the fall of the Soviet Union, I heard an old Soviet general comment that his was the last generation of military and political leaders who had actually walked the field of a nuclear explosion. He believed that, as long as his generation was in charge on all sides, the chances of nuclear exchange were very small . . . but that when they were gone, it would become much more likely. Sadly, we are there.

It can be very hard and troubling to attempt to be truly, analytically objective. It means accepting many things you don’t want to believe or don’t want to admit. There are many who cannot accept that the “one brief shining moment” of the LIO is over. But the Zeitgeist has changed, and the 20th century rules are worn beyond repair. The leaders and nations pursuing more aggressive policies are a reflection of that change. And that change is a reflection of loss of faith in the unfulfilled promises of the old order.

Oh, Brave New World.

Changing Patterns of Foreign Direct Investment

The McKinsey Global Institute has published a report on patterns of foreign direct investment (FDI), specifically greenfield (new project) investment. It is both a thorough and  a methodologically innovative report. Interestingly, the report rather buries its headlines. This might well be because the MGI, like McKinsey itself, to the limited degree that it has a political perspective, is for efficient global markets based on mainstream economics, and therefore “for” globalization. It is not the McKinsey Institute for Successful Economic Nationalism. Given that this is an era dominated by economic nationalism, the MGI’s commitment to political neutrality probably makes it hard to rank its findings by significance.

For example, is it good news or bad news to show that announced greenfield FDI flows into China have decreased by 70 percent since 2022, in the teeth of Chinese policy? Is that finding more, or less, important than the related finding that Chinese outward FDI investment is dominated by what MGI calls “future-shaping industries,” which mainly means AI data centers? Similarly for the US, the report finds that announced inward greenfield FDI has soared but it is mainly in semiconductor manufacturing and, again, AI data centers. The report also notes the huge role of Gulf Cooperation Council countries such as the UAE and delicately acknowledges that much depends on “the ultimate form of trade deals between the United States and its partners.” It would take a brave investor to decide with confidence what that form would be or indeed whether those deals will ever have an “ultimate form.”

Another possible headline might have been built around the finding that FDI announcements in advanced economies other than the US have been anemic since 2024, with data centers barely picking up the slack from drop-offs in energy and advanced manufacturing.

Yet another headline is in the finding that announced greenfield FDI investments in 2025 (to May) “in each of the emerging Asia, Latin America, MENA, and sub-Saharan Africa regions are at 20-year lows….FDI investments across these regions have fallen by 50 percent from their levels during the 2022-24 period, on an annualized basis.” So while total global FDI has grown, it has gone down in all the poorer parts of the global market, as well as barely straggling along in most advanced economies.

This could be seen as a victory of sorts for the US and the Trump administration, if victory is measured by the signing (not execution) of deals in AI data centers and semiconductor manufacture. However, the Trump administration gained power with promises to bring back traditional manufacturing, and the MGI report finds investment in that sector plummeting nearly everywhere in the world, including the United States.

There are several other possible headlines that could be gathered from the MGI report, which amounts to a map of the intentions or hopes of mega-scale capital. (The corporate drivers in the report are dominantly major multinationals signing megadeals — yet another headline.) In a crowded field, SIG’s own choice would perhaps be that investments in low-emissions technology, which doubled from the 2015-2019 period to 2022-2024, have fallen by 70 percent in 2025 for low-emissions hydrogen and offshore wind. Other energy forms have remained about the same or, as for conventional fossil fuels, gone down. Geothermal and nuclear announcements have more than doubled but from such a relatively low base that “they hardly dent the aggregate energy FDI numbers.”    

What this suggests is that even the biggest investment decisions made by the largest corporations having (as with energy companies) the longest and deepest experience of greenfield FDI are being decisively shaped by political developments, above all in the US and China but also in the Gulf. If the political winds of January-May 2025 were to change, as they almost certainly will, then further massive shifts in FDI flows will also occur.

So both investment capacity and policy influence, when it comes to global greenfield FDI flows, are being concentrated and profoundly politicized. That clearly does not mean that they are becoming more predictable, only that there are fewer decision-makers. In the global struggle for political-economic power, this could mean that victory will go to the major power that is most stable and predictable, which is presumably China. The high degree to which Chinese multinationals, as the MGI found, are engaging in greenfield investment outside China — as well as, of course, outside the US, where they are not currently welcome — also suggests as much.

The Nine Lives of Economic Nationalism – Part Four of Four

Earlier posts in this series considered the multi-century trajectory of economic nationalism in reaction to empire, the resurgence of import substitution and major-power resource competitions, and the ways in which major-power economic nationalisms have made non-market-based economic development policies more popular than they have been in decades, almost regardless of levels of industrial development or economic size.

This final post considers some likely near futures of economic nationalism and economic sovereignty, with particular attention to AI.

First, the United States. The US was born in a determination to end external imperial dictation of economic policy and has, for the most part, guarded a relative autonomy from other economies ever since. The unification and then expansion of the 13 colonies across the continent integrated conquered territories into a “domestic” economy in a way that had few comparators elsewhere in the world. The resulting extent of US natural resources, from fresh water to arable land to natural gas, also proved to be unique. The US was peculiarly well suited to economic sovereignty, and with large-scale immigration it was able to grow on domestic demand better than anywhere else. Exports therefore accounted for a relatively smaller share of GDP than was the case in other industrial countries.

The constraining factor in the US case was not a lack of petroleum or fresh water or food but labor productivity. This was addressed through numerous means, from transport infrastructure to compulsory public education to industrialized agriculture. It helped that the US economy, unlike other industrialized economies, benefitted from both world wars. Productivity entered a crisis in the 1970s. It was eased, in a way, by the Internet and industrial globalization: your wage might be stagnant but it bought much more. But that improvement depended on production outside the US under working conditions that would be rejected in the US itself.

The extraordinary US investment in artificial intelligence comes from this.  AI holds out the promise of increasing productivity. But will it be global productivity or national productivity? Differently put, will the gains be captured by transnational capital and consumers or by tax-paying domestic markets and citizens? Will it be international or nationalist? Low unemployment, very slow job creation and high government and corporate debt all suggest that, absent an AI productivity miracle, the US will head into recession. That might well make the American people more nationalistic and insistent on economic sovereignty, but economic nationalism will not be able to solve their problems.

Chinese economic nationalism faces other constraints. A shrinking workforce and resistance to immigration mean productivity gains will have to come from labor-saving technology and investment in the non-Chinese global workforce. The first would be economically nationalistic. The second would be more like what US companies did in the 1980s and 1990s, and it could hollow out the Chinese jobs market as it once did the American. This would fuel the popular appeal of economic nationalism but, again, economic nationalism is not likely to be able to solve China’s labor productivity problems. An AI productivity miracle would help China as it would help the US. But it would be a miracle.

AI looks different outside the US and China. Those two countries thoroughly dominate the AI space. In AI terms, most other countries are takers, not makers. Africa’s population, a bit larger than China’s, captures 2.5% of the global AI market and is expected to attract 0.3% of global AI investment. The European Union attracts 7%. Britain, Canada, Israel and India also have significant investment, with Britain’s spend twice that of Canada’s. Nonetheless, the US and China attract 80%, with four fifths of it in the US. If an AI productivity miracle occurs in the existing economic-nationalist environment, it is difficult in political terms to imagine the benefits being rapidly diffused across the globe, since the goal of the investment is roughly the opposite.

AI aside, the resurgence of discredited 1960s-era development economics, from “national champions” and import substitution to infant-industry protection and tariffs, is becoming widespread. These policies were celebrated by the Left half a century ago as a way to withstand US corporate domination. Today their appeal is close to universal. They are even seen in the US as ways to ensure the US domination that they were once meant to block.

The essential point seems to be sovereignty. It is a phenomenon rich in paradox. The US-led Internet boom made possible a globalization that dramatically increased the wealth of once-poor countries, above all China but also India and others. These states could then afford to oppose what had just made them wealthy and to revive policies that had not helped them at all the first time around. China, India and other once-colonized nations wrap this in a rhetoric of anti-imperialism while hurrying to lock up poor-world resources before their once-imperial competitors do.

This is the central reason why China’s alternative global-governance schemes will go only so far: they are motivated by economic nationalism. Yet the same is true of US, Indian and European efforts, although European economic nationalism plays out on two levels at once, the national and the supranational. The major EU reform initiatives of 2024 were all premised on consolidating nation-based sectors into a super-nation capable of competing with the US and China.

For investors, at the national (or for the EU, supra-national) level, the play is in policy arbitrage, which is also political arbitrage. At the global level, as between major economic-nationalist actors like China, the US, India and the European Union, it makes sense to hedge with presences in at least two, navigating the relationship in each market among affirmative industrial and financial policy, protection, and market-based competitiveness. (A simpler way to do this, of course, is to invest in multinationals and funds with the proven capacity to do this kind of multi-market navigation themselves.) Beyond that, in countries like Nigeria and Ethiopia, which aim at economic sovereignty but lack much of what is necessary to achieve it, there are opportunities in the state-favored sectors themselves, the import and domestic sectors that provide the necessary inputs (such as electricity and raw materials), and the export sectors that ultimately make imports possible.

Little of this was featured in business school and Adam Smith would be appalled, but for the time being economic nationalism is the way of the world. 

The New AI Action Plan

The Trump administration’s AI action plan got a surprisingly warm welcome this week from US tech-industry and foreign-policy experts. The plan was unusual for this administration, and for the Republican Party, in that it advocates complex government-led initiatives, requiring considerable government funds, to advance political goals in a sector that is overwhelmingly made up of private companies. This is Trumpian industrial policy, and on paper at least it is even more interventionist than Biden-era industrial policies aimed at the tech sector. With its invocation of “renaissance” it is also more optimistic about technological innovation than any administration since Bill Clinton’s: “An industrial revolution, an information revolution, and a renaissance—all at once. This is the potential that AI presents.” In announcing the plan Trump also called AI “pure genius.” SIG’s view is that the AI action plan is both inspiring and well done but that implementing it will be extremely challenging.

Some of the challenges are obvious. The Trump administration has been cutting government bureaucracies, including in tech, yet this plan has numerous policy prescriptions that require government bureaucrats to implement them. The initiatives also require funding, which it is up to Congress to give. While there is general bipartisan support for AI investment, primarily as part of the strategic confrontation with China, the new AI action plan revived the White House’s effort to prevent states from legislating on AI. A similar provision in President Trump’s signature tax bill was defeated in Congress by a crushing majority. The AI action plan’s tactic is to say the federal government will withhold funds from any state that regulates AI in a way that would be “burdensome” or “unduly restrictive to innovation” — as judged by the White House on the advice of federal officials. Congress members represent state and local constituencies, not a national one. That is where their power comes from. Many of their constituents have very grave concerns about AI and expect their representatives to do something about it. When the AI section of the tax bill was rejected by Congress, Republicans, who have been much more for states’ rights (for example on abortion) than Democrats, were overwhelmingly against the president’s proposal.  In several senses, then, the AI action plan is primed for conflict with Congress.

The action plan is also primed for conflict with allies. The AI “dominance” foreshadowed by Vice President Vance in his speech earlier this year in Paris is transformed in the action plan to advocating export of the full American-made “AI stack” to allied countries. An American hardware-and-software suite, deliberately cleansed of any technology produced by “adversary countries” (China), would then become the infrastructure for whatever applications companies in other countries might be able to build. In other words, AI infrastructure would resemble the Internet of 2003: an American platform that others could participate in subject to US rules and US intelligence surveillance, and at a tremendous competitive disadvantage to US companies. This is exactly what other countries want to avoid, especially European countries who are still at the core of the US’s alliance structure. Just as the Trump administration wants US AI to be US-made and reflect US values, Europe wants its own AI sector to do the same — just as China insists on its AI companies reflecting “socialist values.” The action plan rightly stresses that for US AI to have maximum strategic benefits it must be on open rather than closed models and build on alliances rather than going alone. But in a geopolitical environment where allies are considering a tech-driven Buy European Act — and in which US tech giants are setting up “sovereign data clouds” just to keep European customers happy — it is hard to see how exporting the US AI stack in toto (once such a stack exists) will be welcomed abroad. China’s more subtle, and affordable, approach seems more likely to succeed.

The most serious challenge to the administration’s AI action plan is the challenge that faces any government regulation of digital technology: the systems are run by private companies according to market logic, more or less. Silicon Valley’s reaction to the AI action plan has been very positive. It is, after all, a strikingly pro-business and pro-technology plan. The plan’s urging of more government and private spending on the electric grid and data centers will certainly boost industry.

But what if capacity is overbuilt, or the wrong kind? Energy expenditures for AI so far have been fantastically high. If AI is to succeed it will need more energy and more data centers. Nonetheless, AI companies also want to reduce costs, which is why a great deal of investment is going into finding less energy-intensive ways to get AI results. (Data-center companies are also striving to find ways to lower their energy requirements.) The government could end up financing with taxpayer money an infrastructure that won’t be what is needed in five or ten years. Investors should be cautious of extrapolating investment opportunities from the areas that the AI action bill is targeting. The obstacles to the plan are many, and the record of government-led innovation policies is decidedly mixed.

Déjà vu All Over Again

By Dee Smith

With his entry into the Israel-Iran war, Donald Trump seems to have gone over to neoconservatism, even invoking the goal of regime change, an old neocon favorite. It remains to be seen at this writing what will happen to the cease-fire he has imposed, but the interesting thing from a policy standpoint is how much this is both in accordance with — and violates — legacy patterns of US foreign policy.

Many Iranians outside Iran are pleased at Trump’s decision, even as they are desperately concerned about their families who remain there. Anne Applebaum cites an article from an anonymous Iranian source published last weekend in Persuasion:

knowing that the men who’ve held us hostage for forty-six years, who’ve ransacked our country, raped and killed our daughters and executed our men for asking for their basic human rights, are finally getting what they deserve—that brings me peace.

That view of the recent American action comes very close a classic element of the liberal international order in its later form: the “Responsibility to Protect” or R2P. Under this doctrine, the international community has a responsibility to intervene inside states that do not protect their populations from atrocities such as war crimes or genocide.

All of this is to say — with apologies to Mark Twain — that reports of the death of neoconservatism and of the liberal international order have been greatly exaggerated. They are gone, but also not gone. They are there, but so radically mutating they are no longer themselves.

That is characteristic of our entire world today. We are living in a time in which ideologies are both more important than ever, and the varieties of thinking and expressing ideologies are more confused and at odds with one another than ever, and in which many people are not sure whether they actually believe what they claim to believe … or want to believe.

This multi-directional confusion is characteristic of most elements of global society and culture: Multiple ideas, trends, and styles from the past are reinvoked and mixed together, often haphazardly. This extends to culture, both popular and “elevated.” It has been said that there is no direction in fashion today: you can wear whatever you want. This is also true in the visual arts. And “serious” or classical music currently includes almost any style—you can compose like Bach, Schumann, Ravel, Prokofiev, Stockhausen, or Glass and be taken seriously, and you can even mix those up in the same piece and get away with it. Beyond that, the lines dividing classical and popular music are dissolving. And popular music has 1001 idioms, genres, and styles, not to mention the almost uncountable “mash-ups.” Really, anything goes.

That is also true in philosophy and even in science, as new and resuscitated interpretations of new and old discoveries create visions and theories that are directly at odds with one another — in areas ranging from particle physics to vaccination science to the study of the nature of consciousness (which is of vital interest to AI) — all claiming to be supported by evidence and each taken seriously by knowledgeable people. It is certainly true in politics, ethics, behavior, and mores. There is simply no overall direction, and certainly no center. That is always true to a degree, but it is much, much more pronounced now.

It is all of a piece only by virtue of being, as Elvis Presley said, “all shook up.”

Some see this as a form of decadence. But it also represents a flailing about to try to find something that works … anything … in the radically divergent situations we face. We seem only to know how to look inside the old boxes we have, and they no longer contain anything fit for purpose. We are all, fearfully, practicing the politics of nostalgia. But the past does not work today, our current systems and ideas do not work, and we don’t see where a future lies that might work. We find ourselves at sea with no life-raft we can grab onto.

Sometimes this is called a “horizon problem” — meaning that the solution is over a horizon beyond which we cannot see from our present vantage point. During the energy crisis of 1979, President Jimmy Carter exaggerated when said we were in a civilizational crisis of confidence. That is no exaggeration today.

In Hemingway’s novel The Sun Also Rises, Mike Campbell answers the question of how he went bankrupt: “Two ways: Gradually, then suddenly.” This is how major change often happens. We would be wise to recall how quickly the Soviet Union fell in December 1991. It had seemed robust, threatening, and indeed almost impervious less than 5 years earlier, and looked reasonably secure even a few months before. But the decay had in fact been eating away at the system for decades.

The old Chinese curse, now repeated with tiresome regularity because it is so apropos to our day, says “may you live in interesting times.” We are indeed there.

Where will our situation lead? And how do we navigate it? These are among the most urgent questions for all of us today, and they extend across all the domains of life. If you have little idea where the future is heading, and you can’t rely on the elements you could in the past, then how do you prepare for it? How, for example, do you ensure the well-being of your family? How does an investor manage, let along hedge, a portfolio in circumstances like this? Aside from intensive vigilance, the ability and willingness to move quickly, and hope, it is very hard to answer these questions.

Writing in another tumultuous time at the end of the 17th century, the English poet John Dryden closed his Secular Masque with:

All, all of a piece throughout;

Thy chase had a beast in view;

Thy wars brought nothing about;

Thy lovers were all untrue.

'Tis well an old age is out,

And time to begin a new.

AI is Just a Tool

By Dee Smith

There are many problems with AI, some of which I will explore in future posts. But the most basic problem is that, as we have all experienced, computers break.

For computers to continue to run requires multiple people who are capable of fixing them, available all the time.

Remembering this, is it a good idea to give more aspects of our lives over to “intelligent” systems so undependable? The things we rely on to obtain the food we eat, the water we drink, and to make, manage, and spend our money? The systems we use to conduct business, to take care of our health, our critical infrastructure, and our national security?

We already do, of course, but the teams are in place to fix them when they malfunction.

The unreliability of computers is not a passing problem. Computer systems, considered as a whole, are scarcely more reliable now than they were 30 years ago. Hardware is somewhat more reliable, but software is increasingly complex, increasingly unpredictable (complex systems are inherently more unpredictable), and increasingly unreliable.

Relying on AI systems makes us vulnerable in several critical ways. First is their exposure to attack. To cite just one example: discovery of undetected flaws leading to “zero-day exploits” — criminal or terrorist attacks exploiting those flaws.

Second are the continuing “hallucinations” AI experiences, where it gives entirely wrong, and sometimes nonsensical, information, often for reasons computer scientists do not understand. What if it does this while managing an element of critical infrastructure and the problem is “inside” the system, where it cannot easily be detected or fixed?

Third, all computer systems are subject to severe malfunctions due to rare, but potentially catastrophic, single-event upsets (SEUs) or single-event errors (SEEs) caused by cosmic rays bombarding the earth.

Fourth is AI’s requirement for a vast and ever-increasing level of electrical power for operation.

The reason computer systems are so ubiquitous is, of course, money. This works in two ways: the money being made and the money being saved by replacing human laborers. From a social standpoint, the latter may well be a pyrrhic victory: displacing millions of people from their jobs creates a huge social cost, in real money.

Are computer systems, in general, more efficient than humans? There is no evidence that they are. Computers are able to crunch numbers within mathematical operations much faster than humans — although that is discounting the enormous calculational power of the brain of a human, let alone the brain of a bird or even an ant, doing everyday things. There is no real understanding of how these biological intelligent systems work. Computer systems seem more efficient only because of the extremely limited scope within which they are operating.

Consider two alternatives, at opposite ends of the spectrum. One is that computer systems, as they become more and more complex, also become more and more fragile. When a system related to food production, or finance, or national security breaks catastrophically somewhere, the failure cascades through the system.

What if systems could be made substantially more reliable? Perhaps some unforeseen breakthrough will dramatically improve their dependability. Then suppose, as some people insist (incorrectly to my thinking), that AI can and will progress to Artificial General Intelligence (AGI). Imagine that this results in a superhuman intelligence. It could be one that emerges at a critical-mass-type point, almost in an instant (this is called the “singularity” by AGI aficionados). Were this to happen, we have no way of knowing whether such an entity would be benign, neutral, or malicious to humans.

But if such an AGI is trained on the sum total of human knowledge and expression, then that AGI is going to be loaded with all the bad along with the good. Do we really want to live in a world governed by transcendently intelligent and powerful machines trained on the behavior of what are essentially clever, volatile, often enraged chimpanzees? (We share 98.4 percent of our DNA with chimps.) Watching any war movie, or really most any movie, would suggest we might not.

And if the AGI was not trained on human knowledge and culture, what would it be trained on?

Biological systems have had about 4 billion years of evolution on this planet to become reliably dependable in operation. They are generally able, as living systems, to survive constant bombardment by radiation from space, extreme temperatures, rapid changes in climate, changes in atmospheric chemistry — and most important, to survive without someone standing by to repair or reboot them. This is a property known as homeostasis. Life has evolved naturally over an immense period of time through adaptation: trial and error.

One the other hand, our computer systems — based on silicon, not carbon — do have a very fallible creator: us. And they have been around about 70 years, or about two-trillionths as long as biological systems.

The belief in the inevitable ascendence of AGI is an article of faith for many involved in the computer industry and for others outside the industry who uncritically accept this “techno-religious” belief system. In its more virulent forms, it is teleological: a burning faith in an inevitable direction of history, in which AGIs are the successors to humanity. And in which the sacred duty of computer scientists is to bring about the birth of this supremely intelligent “life” form.

If I had told you 30 years ago that you would have in your pocket a self-powered device the size of a pack of cards that could tell you how to drive, turn by turn, from your current address to a building in a city 1000 miles away, you would probably have thought that it must be intelligent to be able to do this.

Do you think of your smart phone that way today? My estimation is that this is how we will think of AI in 30 years: a useful, not entirely dependable tool. Nothing more.

The Rest Is Software

US President Donald Trump’s visit to the Persian Gulf brought the region back into the American camp on artificial intelligence. The White House’s cancellation of the Biden administration’s AI-diffusion regulation was well timed: the message of both the trip and the cancellation was that this administration will not draw distinctions, as its predecessor did, in advancing what Commerce Secretary Howard Lutnick called “Trump’s vision for US AI dominance.” The US is, in a sense, trying to de-regulate AI politically. Washington’s move to block AI regulation by US states is also part of this. In SIG’s view, whether such de-regulation will achieve the goal of AI dominance is a different question.

As with crypto, the current administration’s US’s bias with AI is to let the chips fall where they may, so to speak, while also aggressively using the power of the state — as investor, as enforcer, as customer — to secure American advantages. Trump’s experiences of being deplatformed by Big Tech must have shaped his views: bitterness over the suppression of conservative speech, alongside the supposed promotion of anti-conservative speech, has been a dominant note since his second inauguration. In this scenario, technology and tech innovation were shown not to be autonomous forces, proceeding according to their own logic, perhaps capable of being channeled but not of being controlled. Rather they were the effects of companies run by individuals who could be influenced. That was well within the comfort zone of a lifelong businessman. (See the tariff retaliation against Apple for relocating its China production in India rather than the US.) It is a pro-market perspective in a way, but with the market understood as a place for ruthless competition among a small number of unconstrained players rather than as a mechanism for maximizing the efficient distribution of capital and labor.

Similarly, the role of the state in this perspective is to personify the nation in unconstrained and ruthless competition among states for, in U.S. Commerce Secretary Lutnick’s term, “dominance.” President Trump’s appetite for military confrontation in his first term was low, and that seems to be carrying into his second term. His appetite for economic confrontation was relatively high in term one and has gone to a new level in term two. The tools of the state are the weapons he has for such confrontation. They are directed toward securing dominance. Trump is personifying the powerful idea of economic nationalism.

The difficulty, with regard to “US AI dominance,” is that the AI sector is not like other industrial or commercial sectors. The preferred means for dominating AI has been the control of hardware, as in export controls on leading-edge chips or chip-design lithography equipment. Biden’s AI-diffusion regulations, like his CHIPS Act and much else, were about the geopolitics of hardware distribution. President Trump has opened that floodgate. But once the hardware starts flowing and the data centers are built the rest is software, the diffusion of which is extremely hard to control. Software can be stolen or replicated; more important, it can be developed independently, as DeepSeek has shown. The supply of chips and what is necessary to manufacture them can be choked off, up to a point. The supply of engineers and software-engineering skills really cannot. It will be diffused regardless of what the US or China want.

Among other things, this means US AI dominance depends on the strength and autonomy of US universities, the freedom to innovate in the US tech sector independent of political agendas, the smooth functioning of open global markets, sensible market pricing of resource inputs, the reduction of obstacles to the cross-border movement of labor … all of which run contrary to current US policy.

The Gulf states are investing in US AI infrastructure on the way to building their own systems, which will have the capacity to become independent of US systems (see SIGnal, “The America Stack,” Feb. 5, 2025). The emiratis are not happily volunteering to be hostages to US AI dominance. They are seizing the opportunity to gain access to the best technology that will enable them to maximize their own sovereignty while positioning themselves to be a sort of port for the storage, manipulation, and distribution of data, just as Dubai’s port operates with coffee, tea, and so much else.

The pattern is similar elsewhere, although no one can direct capital with quite the speed, and in quite the volume, that the Gulf states bring to bear. Malaysia hesitated for a moment at new deals for Chinese technology when Washington threatened retaliation against states using Huawei’s latest AI chips, but in the end, the shape of AI is not going to be determined by hardware. The massive computing power required to participate in the search for the grail of Artificial General Intelligence (AGI) is indeed a hardware question, but for sub-AGI artificial intelligence, which might well prove to be most if not all of AI, hardware is only one factor. The rest is software. And US dominance of it is unlikely to be secured using the current means.

The Defense Industry's New Math

Global military spending in 2024 hit a record that will be broken in 2025. Much of the growth comes from the US (which just announced a goal of a $1 trillion defense budget) and its adversaries, but an important part is from US allies that feel they can no longer rely on US security guarantees. For that reason, they seek to build their own defense industrial bases rather than simply buy more American military products. There are opportunities for investors in this global proliferation of military production financed by government budgets, although the peculiarities of military industries make it more important than usual to have the right expertise. Defense-sector exchange-traded funds (ETFs) have, not surprisingly, boomed: the VanEck Defense UCITS Took in $1 billion in March 2025 alone.

In 2024 global military spending hit $2,718 billion, a 9.4% increase over 2023 and the steepest year-on-year rise since the end of the Cold War. The main drivers were the conflicts in Ukraine and Gaza. Israel’s spending increased 65%, to $46.5 billion, which represented 8.78% of GDP, the second highest ratio after Ukraine — which spent nearly 35% of GDP on its military. Russia spent $149 billion, up 28% from 2023 and representing 7.1% of GDP and 19% of total government spending. German spending surged to $88.5 billion, the fourth largest total in the world after the US, China, and Russia, and just ahead of India at $86.1 billion.

All of these numbers are likely to grow in 2025 and into 2026, except perhaps in Ukraine, which might not be able to get above 35% of GDP. But the Ukraine example illustrates a different and more interesting dynamic. According to one report by a former Ukrainian official, Ukraine’s domestic defense sector has grown from $1 billion to $35 billion in just three years. It now produces about a third of Ukraine’s weapons and ammunition, and nearly all of its drones. That is not nearly enough to protect itself against the Russian army, but it is enough to ease some of the country’s dependence on the US

Similarly, Germany in particular, but also France and the European Union, have entered a new era in terms of domestic military production. Germany’s head of state, Friedrich Merz, won a parliamentary vote in March to not apply Germany’s “debt brake” policy to the defense sector. Merz also appealed to the EU to exempt defense production from its own spending rules. (EU member states have their own military budgets but the EU has rules on public debt.) Sixteen of the Union’s 27 members are seeking exemptions from the EU rules so they can increase their defense spending.

What is driving all this spending is principally the desire to, as Merz puts it, “achieve independence from the USA,” which under President Trump he sees as “largely indifferent to the fate of Europe.” EU Commission President Ursula von der Leyen, herself a former German defense minister, declared, “We are in an era of rearmament,” one that requires Europeans to construct their own defense as part of what France’s President Macron refers to as “strategic autonomy” from the US. The EU hopes that new bloc-wide procurement policies will strengthen European defense production at the cost of American materiel.

There is irony in the fact that European NATO members in recent years have spent more, not less, on weaponry produced in the US: from 52% of spending in 2015-19 to 64% in 2020-24. But that very dependence is why traditional US allies are so focused on independence from the US now that the US has abandoned its traditional approach to alliances. It is not just Europe. South Korea has been trying to replace US purchases with its own production for several years, including so that it might export weapons. Japan also seeks to increase domestic military industries. Israel is striving for self-sufficiency in bomb production. Even Australia has been trying to be more militarily independent, although in practice Australian defense production, current and projected, is commonly done jointly with US defense primes.

The proliferation of defense production in a globalized world can lead to curiosities, such as the battle between a Chinese state-controlled defense company and an Australian to buy a troubled Brazilian manufacturer. That in turn points to both the internationalization of military production and the question of what gets done with the products. US military industries and the US military itself have always advanced together. Foreign military sales were integrated into a much larger public-private strategy that was rooted in political alliances. The point was not to sell to enemies. The proliferation of military-industrial production in the past three years suggests a future in which weapons will be available from many sellers, including NATO members, with little or no reference to US policy guidance.

In short, the desire for autonomy from the US is driving a global surge in weapons production that will in turn lead to weapons proliferation on an unprecedented scale. Unless there is a significant increase in war, there will be an increase in excess production. Excess production will need to be off-loaded somewhere. This is the peculiarity of defense production. If you are not simply stockpiling — which is a dead weight on the economy — then you are proliferating. Weaponry ETFs in this scenario would have to be a short-term play. The longer-term returns will be in companies that aim not just at domestic production but at export.

A View From Europe

By Dee Smith

I recently returned from 6 weeks in Europe — Austria, Italy, Switzerland, and the United Kingdom. My trip coincided with the build-up to President Trump’s tariff announcement on “Liberation Day” and the reactions that followed it. The most interesting element of the trip was the evolution, or devolution, in views of the United States.

At the end of February, the attitude I first encountered was a mix of perplexity about the changes in the US and sadness that they were occurring. Even people who were disposed to dislike the US discovered that they had nonetheless kept within themselves a kind of hope based on belief in America and its distinctive experiment in democracy and freedom. Even with all its flaws the US seemed, so they said, to represent a possibility that humans might be better than we fear we are. One remark I heard summarized the attitude: “It seems that the lights have gone off in the shining city on the hill.” It was a sense of tragedy, almost of grief. Now, some said, they see that the U.S. is “just another country.”

But as the tariffs were imposed, this recessional mood changed. The attitude of heartache began palpably to transform into fear, and into anger. It was not as if the winds of change had not been blowing, and they knew that. There had, for example, been warning signs over the years that the US was pulling back militarily from Europe. And the Europeans were certainly aware of the fractures in US political structures, as in their own.

However, the tariffs were something different. The universality of them, the suddenness, and the way they were applied — with a chart apparently developed with the help of ChatGPT based on an arbitrary calculation — was disorienting, then frightening, and finally angering.

When the White House suddenly, and apparently temporarily, backed away from the tariffs soon after they were announced, it simply added confusion to the fear and anger around the entire issue and in many minds further undermined the stability of the US governance and financial system. “I really don’t know what to think” was a comment I heard more than once, sometimes followed by “but I’m angry.”

Although they may not have known what to think, they did know how they felt. People have cancelled trips to the US and taken other personally expensive measures, so off-putting have they found the developments.

There was still, amid the feelings of loss and anger, the wish that the old US would come back to something like what it was and an ember of hope that it might. But the dominant note was fear, driven by US actions but not only about them. People fear the Ukraine war continuing while they also fear it being settled: they fear Russia’s intentions once it is loosed from the constraints of fighting in Ukraine. They fear war in other hot spots: Iran, Taiwan, the Koreas. They fear the non-sustainability of their economic situation. They fear having to dial back their social support systems to increase their military budgets. They fear they will be outcompeted by other areas of the world. They fear for their supply chains. They fear more and larger waves of immigration from the Middle East and Africa, particularly if war escalates in the Middle East. They fear for the social and political stability of their countries. They fear unfair competition from China, and they fear what kinds of collusion China and Russia may be up to. And, as a constant, chronic theme, many fear the impact of climate change.

Europe is, like the rest of the world, in the midst of extraordinarily large transformations with unknown trajectories. The changes seem to have come on very suddenly, although of course they have not: there have been harbingers for years. The causes of the changes also elude many. That of course is for history to judge, but I did not find a single person who disagreed with the idea that fundamentally, beneath it all, lie broken promises. I have written about this previously, and will not go into any detail here, but people see that, although they played by the rules, the implied promises they believe were made by the political and economic system — that their children’s lives would be better than theirs, for example — have been irreparably broken.

Most surprising to me, I heard more than a few people in Europe, including investors and businesspeople, say quite seriously that they thought we were at the point of a very big change. And a number said the period between the end of the old and the beginning of the (unknown) new will be very tumultuous and dangerous.

Europe was the birthplace of the Enlightenment, and it was on Enlightenment ideas and ideals that not only the American system but also every system in Europe, and now far beyond, were based. Holding that the world is fundamentally comprehensible, the Enlightenment posited that humans make decisions rationally, in their own best interests, and thus that society can be rationally organized in a purposeful and predictable way. Not just democracy and capitalism, but socialism, Marxism, and communism are all based on different views of how to apply European Enlightenment ideas about organizing society rationally, purposefully, and predictably. Unfortunately, this rationalism simply does not seem to be an accurate take: we make our decisions emotionally.

So I found I was asking myself many times on this trip: if this whole superstructure of concepts does not in the end work — if it cannot work because of the nature of the drivers of human behavior — well . . . then what? That is the largely unspoken fear lying underneath all the other fears, perhaps not just in Europe.

Reversion to Mean

By Dee Smith

About a decade ago, we entered into a period of escalating social and political chaos, increasingly “hot” geopolitical conflict, and growing economic crises — a time that seems uncharacteristic given the previous decades. Unfortunately, the current period may represent a return to the norms of human history. The relatively peaceful, prosperous time we lived through may have been the deviation.

While not halcyon days, the 70 years after 1945 were a period in which great-power conflict was avoided, more than a billion people were lifted out of poverty, life expectancy — due to advances in sanitation, medicine, and living conditions — increased significantly, and norms regarding the value of human life changed dramatically. Murder, for example, was very common in most societies 200 years ago as a means of “solving problems.” Today, it is much less so.

The financial stability of recent decades was also new. There were no true global depressions, and highly disruptive events like sovereign defaults by major economies were absent. This was not true in the past.

Simply put, this relative economic stability was purchased by an overwhelming surfeit of debt. Two occasions on which this debt was used stand out: to rescue institutions deemed “too big to fail” in the financial crisis of 2008, and to stabilize world economies during the Covid pandemic. But debt has mounted continuously in most countries. In the US, public (government) debt is over $36 trillion. Private US debt is between $20 trillion and $30 trillion, depending on how it is counted. The extreme efforts to avert financial disasters mean that markets have never been allowed to clear. Like a forest in which fires are suppressed and undergrowth is never cleared by smaller burns, the fire, when it comes, may be cataclysmic.

After many years of increases in democratic governance in the 20th century, the 21st is seeing considerable backsliding. According to Transparency International:

In every region of the world, democracy is under attack by populist leaders and groups that reject pluralism and demand unchecked power to advance the particular interests of their supporters, usually at the expense of minorities and other perceived foes.

The form of democracy endures. In 2024, more people voted in elections than ever before in history. But with the rise of illiberal democracies, many countries are preserving the form but not the substance of democracy as it has been defined over the past 250 years. It is of particular interest that young people in many places are increasingly dissatisfied with democracy.

Why is all this happening? There are many interacting reasons, but I would suggest that four factors should be singled out.

First, as I have written before, are the broken promises so many people perceive in their lives. They feel that they played by the rules and were promised that their lives would improve and their children’s lives would be even better than their own. If anyone reading this sincerely believes this now, I would be surprised.

Second, the underlying conviction that economic well-being is the primary motivation of almost everyone and the most reliable source of human happiness — and that humans are rational self-interested agents who pursue and maximize their own well-being. This is the basis of not only capitalism, but also socialism and communism.

But, as it turns out, Marx was wrong in his estimation that economics is the moving force of history. It could rather be said that economic forces are moving history away from economics and toward identity politics. As people move or are moved en masse for jobs and economic production, community structures come apart, engendering an urgent need for identity. That need frequently takes the form of a desire to belong to some group that excludes others (social, religious, political, economic, even place-based).

A third factor is technology, particularly the technology of connectivity, and most particularly, mobile visual connectivity (smart phones, tablets, etc.). Not only do these devices demonstrably increase loneliness and affect cognition, as continues to be shown in studies, they also contribute two additional, crucial elements. The first is transparency. People now are intimately aware of how other people live to an extent that has never occurred previously. Whether such accounts are exaggerated, false, or accurate doesn’t matter much, the effects are often the same: envy, sadness, depression, and anger.

Second, mobile visual connectivity allows people with similar interests and thoughts —  including politically aggressive and polarizing ideas or destructive and self-destructive desires — to find one another, create relationships, share and develop ideas, and then act on them. It is perhaps most important that they are all able to do this from a distance and almost instantly. In the past, it was much more difficult for people whose thoughts were outside the norm to find one another and act in concert.

Fourth, much of the avoidance of major wars during the past 8 decades was due to the so-called Pax Americana, a system imposed on the world by the United States and made possible by American military power. Recently, with changes in military technology and the rise of other powers as near peers in military terms, this superiority begun to erode. Other factors are contributing to the eclipse of the Pax Americana, especially the debt load mentioned above. For the first time, the US last year spent more on government debt service than on its military.

All of these factors augur a more conflictual, impoverished, and insecure world. In other words, reversion to the conditions of most of human history. Perhaps some change or series of changes can avert this fate, and we should hope that they do. But if trends continue on their current path, life may be very different.

Feeling Better and Feeling Worse – Part 6

by Dee Smith

We have quite recently left a period of history that was anomalous in several important ways. To understand what is happening now, it is essential to be aware of this and to understand how it is changing.

For the past 25 years, we have been moving from a period of relative quiescence into a period with very different characteristics. In some ways, this represents a return to unhappy norms of human history. In other ways, it represents a radical departure. But in all ways, it is leading to a very different world: one that is becoming less and less familiar, more and more quickly.

Unfortunately, many of the changes underway have produced or could produce very unpleasant and threatening outcomes. The series has looked at a few of these trends, but many cannot be included for obvious reasons of space. I have given short shrift to genetic engineering and its twin children, bio-error and bio-terror. And to AI, to resource depletion, to population and demographic changes. And to trans-national crime, the rise of authoritarianism and nationalism. And perhaps the most significant omissions: the twin potentially existential threats of climate change and environmental degradation.

Especially when considered in combination, these departures from perceived norms of the last half of the 20th century also represent a major, mass psychological problem. First, we are attuned, by both biological and cultural evolution, to expect that the near future will be like the recent past. Change was very slow through much of human pre-history. This expectation of continuity is now called recency bias and is closely related to the problem of induction in philosophy. Because we expect things essentially to remain the same, we are very alarmed when they change abruptly. But many major changes are often very abrupt. What this means is that we are unprepared to envision and come to terms with, let alone navigate, what is hurtling toward us with accelerating velocity — in fact, what is already happening. Our ability to grasp where change is leading, even change we see widespread evidence of, is woefully inadequate.

Second, the post-WWII period is commonly remembered now as a golden era that has since been lost. We want to think that the past was better and can be regained. The reason this is a mass problem is that in fact, for those of us who lived through it, the postwar period was enormously stressful. The US and the Soviet Union had arsenals trained on each other that could destroy human civilization several times over (and there were several close calls). There was also a stream of smaller conflicts and crises, often proxy wars engaged in by the two superpowers. This was not a short list. Ranging from Somalia to the Congo, from the Balkans to Iran, and from Peru to, of course, Iraq, many also featured repeating cycles of violence and conflict.

When the Cold War finally ended, social expectations were shaped by the  “long decade” between the fall of the Berlin Wall in 1989 and the World Trade Center attacks in 2001, a period during which almost everyone, in the West at least, fooled themselves into believing that we had entered a new, optimistic, and peaceful era — Francis Fukuyama’s “end of history”.  

The post-war half-century was indeed one of positive social and economic change in which millions of lives were improved markedly. People in many (but certainly not all) parts of the world today live with advantages — luxuries, even — unimaginable even to royalty 500 years ago. To give just a few examples: we mostly do not suffer from unremitting pain, as people once did from something as simple as an infected tooth. Many today have clean drinking water most of the time. We have such a high-calorie diet that obesity has become a huge problem, one that — again through more technology — is beginning to be addressed by pharmaceuticals.

The relative political and economic stability of the post-war period enabled these trends to advance dramatically. Eventually, despite all the conflicts and problems, more than a billion people were pulled out of extreme poverty. And the relative social quiescence extended to many aspects of life in general. Murder, for example, was very frequent globally 100 years ago; now it is much less so in most societies.

Strangely, the relative quiescence of this period included the climate as well. Most of the 20th century was fairly stable and predictable from a climate standpoint. This stability, combined with the technologies of the green revolution, allowed modern society to feed many more people that anyone had ever imagined. Although the increased human production of greenhouse gases (GHG) began to escalate in the 19th century, the concentrations were too low to have noticeable climate effects. And even as the levels increased in the 20th century, the parallel escalating injection of aerosol pollutants into the atmosphere from industrial civilization, which reflect sunlight, more or less balanced out the effects of increasing carbon and other GHGs. Global temperatures not only did not rise, in some decades they fell. But that ended around 1980, and a key cause was the global — and successful — effort to dramatically reduce air pollution. There was a kind of Faustian bargain to this: reducing industrial aerosol pollution (which was sickening and killing people) removed the “cap” it had placed on warming from GHGs.

And that is a prime example of unintended consequences, a concept key to understanding what is happening today.

Feeling Better and Feeling Worse, Part 5

by Dee Smith

The severe economic crisis of 2008 led to the crumbling of another pillar of American and Western power. The so-called wizards of Wall Street had not anticipated the crisis and were only able to contain it, partially, with enormous collateral damage and repercussions felt to this day.

Central to the 2008 crisis was the creation of complex new financial products known as derivatives and including collateralized debt obligations (CDOs). These were based on highly sophisticated mathematical models, had astonishing levels of risk, were poorly understood even by those who used them, and were placed in a market characterized by a boom mentality, with hyper-intense competition animated by a fear of missing out (FOMO). CDOs and the like grouped together what had been illiquid assets, particularly US home mortgages, and “derived” (hence the term derivatives) from them liquid—that is, tradable—securities. These were heavily exchanged. The entire edifice collapsed, with dire repercussions reaching from sovereign states to investment banks to individuals.

 At that point, the post-Cold War global Washington Consensus (that economic development and political activity should follow the US model) was mortally wounded. It was seen to be deficient, even deceptive, in its assumptions. And it became clear to Americans themselves that their own faith in the system seemed unwarranted.

Blame has accrued to the investor class of asset owners and asset managers. But is this really a fair assessment? Isn’t almost everyone in effect an asset owner? Doesn’t everyone want more money, all the time? Doesn’t every retiree want more, even when this exceeds what can readily (or even realistically) be produced from returns on the assets underlying their pensions and 401ks? If you are going to blame greed, then blame has to be apportioned very widely. The fund managers have essentially been working for all of us. We are all to blame.

A long decade later, the COVID-19 pandemic resulted in a feeding frenzy of misinformation and disinformation, largely deployed for political preservation. The idea that COVID originated from wild animals rather than from a lab leak is still wielded politically by the Chinese government (while they refuse to release information that could demonstrate it one way or the other). And misinformation came from sources that were supposed to be trustworthy. For example, the World Health Organization said at the beginning of the pandemic that Covid was NOT transmitted through the air (they capitalized “not”), and early efforts focused on sanitizing surfaces when, in fact, the vast majority of transmissions are airborne. It took 2 years and far too many deaths to correct this misinformation.

The central point is that all of this has coalesced into a disdain for expertise: financial, political, medical, scientific, even religious.

People see that, over and over, experts and leaders make pronouncements that soon prove to be inaccurate at best, or outright lies at worst. Increasingly, people deduce from this that they should not trust or believe experts and leaders at all.

The problem is not that science is unsure and proceeds by creating hypotheses and testing them to try to falsify or verify them. That is the only way it could function. Science is by its nature a work in progress. It is the best method we have for producing valid and effective information.

The problem is that leaders and experts make overstated or even false claims to establish and buttress their own authority, and then try to stake a claim to protect their individual and collective territory — while framing alternative ideas as threats. The fundamental issue with the early WHO’s response to COVID was not just that it presented inaccurate information. It was that it did not admit that it really did not know and that the information was tentative. This entire phenomenon of overstated pronouncements is made even worse by experts trying to hide the fact that they have changed their minds when they are forced by events to do so.

Academia these days provides severe examples of all these tendencies. Over the course of working with and leading advisory boards for academic institutions, I have experienced situations where certain things were not permitted to be said or to happen because they were seen to be against the way the wind was blowing at a given place and time. I was actually in one situation where the director of a program was insisting on preventing a qualified speaker from presenting because of that speaker’s background. He finally told me: “Listen, I have children and a family to support, and I cannot put my job at risk even though I agree in principle he should speak.” Could I ask him to endanger his family? Needless to say, that speaker did not deliver his talk. This occurs on both the left and the right, which is why the term “woke” is at best incomplete.

I mention this to adduce a key reason why this kind of situation so often occurs. It is not necessarily personal adherence to an ideology. It is fear of retribution from one’s colleagues and administrative superiors, masquerading as fealty to one set of ideas or another. The noisy minorities expressing grievances to advance their interests (at both ends of the political spectrum) not only yell louder than the silent majority, but they threaten the spirit of free inquiry on which Western academic life has for centuries been based. If it lasts, this is a sea-change.

Feeling Better and Feeling Worse, Part 4

By Dee Smith

Several of the most important “pillars” supporting U.S. influence and power are now in danger of falling apart.

As noted earlier in this series, the U.S. was effectively the guarantor of global stability from the end of World War II until around 2010-2015. And a key reason it could do this was that the U.S. had unquestioned military superiority.

Not long ago, I was speaking to a senior military officer in an important (friendly) developing nation. He recounted how, 15 or 20 years ago, it was widely discussed among his peers in various countries that “you just don’t want to tangle with the U.S.—you will come off on the bad end of it.” This is why the U.S. could essentially send an aircraft carrier off the shore of a country and change its internal situation without firing a single shot.

But the U.S. is losing its military edge, hence more and more countries are less afraid of such a tangle. Why?

One straightforward reason is that the nature of conflict continues to change, as do its tools: drones, anti-drone systems, robots, autonomous weapons, lasers, cheaper missiles, fast missiles like “hypersonics,” and so forth are transforming war at an escalating pace. Generally, these technologies mean it is becoming easier for smaller forces to engage successfully with larger ones. But it is more than that. In the classic logic of an arms race, each new advance in weaponry is met by a countering system, which means the improvement may have limited effect. There is a “flavor of the month” quality to these advances—today’s favorite may not work that well tomorrow.

Even more important are the changes in battlefield dynamics. As Mara Karlin writes in the current issue of Foreign Affairs:

What theorists call “the continuum of conflict” has changed. In an earlier era, one might have seen the terrorism and insurgency of Hamas, Hezbollah, and the Houthis as inhabiting the low end of the spectrum, the armies waging conventional warfare in Ukraine as residing in the middle, and the nuclear threats shaping Russia’s war and China’s growing arsenal as sitting at the high end. Today, however, there is no sense of mutual exclusivity; the continuum has returned but also collapsed. In Ukraine, “robot dogs” patrol the ground and autonomous drones launch missiles from the sky amid trench warfare that looks like World War I—all under the specter of nuclear weapons. In the Middle East, combatants have combined sophisticated air and missile defense systems with individual shooting attacks by armed men riding motorcycles. In the Indo-Pacific, Chinese and Philippine forces face off over a sole dilapidated ship while the skies and seas surrounding Taiwan get squeezed by threatening maneuvers from China’s air force and navy.

There are reasons to believe, as Karlin proposes, that we are entering a new era of comprehensive conflict, for which she invokes the old term “total war.”  She defines this as a situation in which “combatants draw on vast resources, mobilize their societies, prioritize warfare over all other state activities, attack a broad variety of targets, and reshape their economies and those of other countries.”

There are many elements to this evolution, but the return of maritime warfare is notable among them. In the post-9/11 “war on terror” period, most attacks, even by naval ships, were towards targets on the ground. But the naval military environment has quickly reemerged as a key area of conflict: in the Ukraine war, in the Houthi attacks against shipping in the Red Sea, in Chinese squabbles with its neighbors over territorial rights, and so forth. (Inter alia, the Houthi attacks are an excellent example of the rise of effective non-state—although often state-supported—actors in conflicts.)

Put simply, the U.S. has not invested enough in its navy, which by some measures is now smaller than China’s (although not in tonnage), to continue to deter other major powers at sea globally.

The pace of change and the scope of the demands that all this places on the U.S. military continue to escalate. The U.S. is responding to this need with upgrades, more rapid deployment of materiel (including to allies), and new or revived alliances, such as AUKUS and the Quad.

But all of this requires a great deal of money, and the U.S. military remains underfunded. Consider the Arctic, which is warming fast and may be partially ice-free year-round as early as 2030. It has enormous deposits of oil and gas, many already claimed—outside international territorial norms—by Russia. The thawing Arctic is also going to become a major global shipping route, offering enormous savings of time and money over traditional routes between the Pacific and Europe. In other words, the Arctic is already on its way to becoming an area of serious geopolitical conflict.

To address this important region, the U.S. has 5 operational icebreakers, but only 2 are heavy icebreakers (and none are nuclear-powered). Three more are planned.

Russia has 46 icebreakers—5 nuclear-powered—plus 14 on the way, 11 of which are under construction.

The U.S. spent so much treasure on ill-conceived wars in the Middle East that it not only diverted funding from much-needed military improvements and upgrades for many years, but it also provoked a reaction within the country.

As observed earlier, it would be hard to over-emphasize how tired the bulk of the U.S. population is of foreign wars, foreign commitments, foreign entanglements, foreign aid—they don’t believe any of it works to help them. The days of the American electorate accepting that they benefit when the U.S. defends other nations are gone. Instead, many Americans believe it just enriches the ruling elites of such countries, who, they think, play the U.S. like fools. Americans are done paying for this type of foreign policy.

And the question of money leads to consideration of another crumbling pillar of global American (and Western) influence: the post-Cold War primacy of the U.S. financial and governance model.

Feeling Better and Feeling Worse, Part 3

By Dee Smith

After WWII, the US originated and enforced an international order based on rules. It worked in terms of avoiding nuclear war. However, many Americans are ready to ditch it because they do not see that it worked in terms of making their lives better.

They are also ready to unwind globalization.

This is very significant, because the whole world is now linked through globalization, so American unwinding will affect everyone. As globalization is unwound—through rising trade barriers, tariffs, and other protectionist measures—people in more and more countries are likely to turn against it as not being beneficial to them. De-globalization can become a self-reinforcing cycle. Even if globalization merely changes its shape, it will be much altered.

Perhaps even more significant, much of the US population wants the US to quit being “policeman of the world” and guarantor of the security of the international order.

Ten years ago, the admiral of the U.S. Pacific Fleet observed to me that the U.S. military and their families were already exhausted. And what has the succeeding 10 years brought?

Americans see that more than $8 trillion was expended in Middle East wars, and ask: for what? Iraq is a mess, Iran is stronger, Afghanistan is back under Taliban control (the result of a deal negotiated by the Trump I administration and implemented by the Biden administration), Israel and its neighbors are at war, and the Middle East is a seething cauldron.

The failure of 20 years of war—pursued by both U.S. political parties—further eroded trust in U.S. leadership and in the global position of America. Russia put its plan to attack and take Ukraine into effect after it saw the chaotic U.S. withdrawal from Afghanistan (on the heels of not much American reaction against previous Russian action in Georgia and Crimea).

As the U.S. pulls back, players like China and Russia—and smaller “middle” powers like Iran—will take advantage of American absence and become more aggressive. This is the single greatest potential source of immediate and near-term major conflict.

Parties in the U.S. also want to undo being banker to the world: Americans increasingly don’t see why defending the dollar as a global reserve currency is important to their lives.

There is even a detectable desire to back off American global moral leadership —democracy promotion, anti-corruption, keeping various countries “in line” by creating policy conditions that have to be followed if you want U.S. money (which many Americans believe should not be meted out anyway). The U.S. is being out-competed by the Chinese, who provide (lend) money and don’t make autocrats give up coercive techniques or corruption—in fact, they sometimes aid these.

The modern West—the U.S.-centered set of ideas, concepts, rules, and alliances, based conceptually on democracy, free trade, and engendering rising living standards around the world—is at significant risk of being discarded by Americans themselves.

Within, the U.S. is unraveling as a country with a set of shared ideals. Americans are largely tired of being a “beacon” and a refuge. They don’t believe, themselves, that it has worked. They don’t want the openness towards immigration that is expressed by Emma Lazarus’s famous poem on Statue of Liberty:

Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.

The erosion of internal American cohesion and resolve, and loss of self-esteem and self-confidence, together with the palpable fear of the future, has created a backlash against immigration of enormous breadth and power. For a nation built by immigrants, this shift in fundamental American attitudes is striking.

Isolationist sentiment is not just American. Josep Borrell Fontelles, High Representative for Foreign Affairs and Security Policy of the European Union, recently said:

The European Project [the EU] was built against the idea of power. Europeans . . . were fighting against [each] other for centuries. We . . . finally we decided to stop doing it and make peace. And the European project was founded on the idea of peace, exchange, cooperation, interdependency, vanishing borders, sharing the same currency. But today, this situation has become untenable.

Why is this? Because we have realized that economic interdependency in which our project was based is being captured by political and geostrategic rivalries.

We used to believe that trade will be in itself a source of security . . . trading among people will prevent them from making war . . . But then every interdependency became a weapon, and it obliged us to think differently.

Many Europeans want true borders again between their countries. They do not want the Schengen system of open travel and migration within the EU.

What went largely unrealized in setting up aspects of the globalized system was that, once it reaches a certain scale, immigration changes the culture and demographic composition of a nation in a way that no one bargained for or expected. People are not equipped to handle this, particularly given the inequality in outcomes of economic globalization and financialization, and the disorientation and fear from technological development.

But immigration is about to become much more pronounced, as climate change works its inexorable effects in making regions less and less habitable. Today, there are about 120 million forcibly displaced persons worldwide, doubling from around 60 million 10 years ago.

There will be many, many more. Global forced displacement is projected by IEP, an international think-tank, to rise to 1.2 billion in 25 years, as far from now as the year 2000 is in the past. Think of more than the entire population of North America and South America on the move! This is almost incomprehensible in its scope and effects. Combined with rising anti-immigration sentiment worldwide, it brings to mind the ancient paradox of what happens when an irresistible force meets an immovable object.

Feeling Better and Feeling Worse, Part 2

By Dee Smith

If I told you that my analytical take is that the U.S. is poised on a change so profound that it may become almost unrecognizable, you would probably assume I was referring to the incoming second presidency of Donald Trump.

I am not.

The second election of Donald Trump is a manifestation of a much more profound set of changes that the U.S.—and much of the rest of the world—is undergoing.

Let’s back up a bit.

It is worth remembering how the world we have been living in came to be.

After the devastation of World War II—following on the devastation of World War I and the subsequent global depression—the U.S. led an effort over a period of decades to invent a new world order. In some ways it was an illusion, in some ways it was defined ex post facto, and it was certainly self-serving, but it did bring some real change, particularly because the U.S. had the power to create, impose, and defend it.

This international world order was based on the idea that a set of governing rules would be put in place that would not only shape global order but would try to prevent the kind of conflict that had been so catastrophic in the first half of the 20th century.

The U.S. invited, and sometimes compelled, other nations to join, under US leadership. A kind of alternative system was offered by the Soviet Union, but even the USSR ultimately cooperated with the rules-based global order—the “liberal international order” (or LIO) as it came to be called (“liberal” here does not denote the political left).

The U.S. led and supported the creation of multilateral institutions, like the World Bank, and the United Nations and its multitude of sub-divisions (such as the COP meetings on climate). A primary role of these institutions in theory was to prevent conflict by providing a forum to address disputes, under the watchful eyes of the powers that triumphed in World War II—represented by the UN Security Council.

The U.S.—and this is critical—was the guarantor of this global peace and order, as well as the enforcer of the rules (and the rules were largely America’s). It had not only the influence but also the military might to prevail in many situations.

This system was seen by a large consensus of left and right in the U.S. to be profoundly beneficial to the country. The U.S. dollar became the reserve currency of the world, allowing the United States to sell its debt and finance its operations to an almost unlimited extent.

Eventually, the so-called “neo-liberal” economic order, based on the ideas of economists like Milton Friedman, and put in place particularly by Ronald Reagan and Margaret Thatcher, led to lowered trade barriers and massive globalization. Production went to the lowest-cost producers, resulting in cheap flat-screen TVs and the like. As mentioned above, it was obviously a self-serving system, but it did arguably pull a billion people out of extreme poverty (and of course, they could then become consumers of the products of U.S. corporations—although in an increasing number of cases, not products actually made in the U.S.).

That whole vision is now being abandoned by a majority of Americans, across the political spectrum. This was underway before Trump took office the first time (and led to his victory then), it continued during the Biden administration, and would have continued if Harris had won the election in November. Trump will simply accelerate it.

It is being abandoned not least for the straightforward reason that it is seen by a large and increasing number of Americans as not having worked, in the specific sense that it has not made their lives better.

This is particularly true for blue-collar workers, who feel that they have been “left behind” by developments in the modern world (including globalization and technology), and also feel their jobs have been increasingly taken by immigrants.

Last year, a self-produced song entitled “Rich Men North of Richmond” was put out by a singer called Oliver Anthony. It made a huge impact and debuted as No. 1 on the Billboard list—the first time anyone has done so with no prior chart history.  

“Rich Men North of Richmond” (Washington, D.C., is, of course, north of Richmond) is very telling and has serious implications, and is worth listening to for its political and social import.

The song touches on government power, inflation, taxes, low wages, food insecurity, welfare abuse, and child trafficking—as well as the general sense of dismay.

Here’s how the song begins:

I've been sellin' my soul, workin' all day / Overtime hours for bullshit pay / So I can sit out here and waste my life away / Drag back home and drown my troubles away.

And here is how it ends:

Well, God, if you're 5-foot-3 and you're 300 pounds / Taxes ought not to pay for your bags of fudge rounds / Young men are puttin' themselves six feet in the ground / 'Cause all this damn country does is keep on kickin' them down.

Anthony is a young, white male—and his song hits home for many. He was apparently very upset about the song’s invocation during last summer’s Republican National Convention: he means it as a condemnation of both parties, a sort of “pox on all your houses” approach.

The scope of the turn against the incumbent order in the U.S. (and not just in the U.S.) is breathtaking, especially when considered as a whole.

There is a massive reaction in the U.S. against the entire range of LIO ideas described above, which is a non-partisan. Martin Wolf, who writes for the Financial Times, has accurately described it as “an undoing project”. It is essential to understand the details, the causes, and the effects.