Weekend reading links

1. The rise of zero-sum politics in the West.

In the US, UK, France and Germany zero-sum beliefs on the left (eg people only get rich by making others poor) and the right (eg immigrants succeed at the expense of the native-born) are related expressions of the same underlying worldview. Namely that there is only so much to go around and we must therefore use restrictions, exactions and preferential treatment to redress the balance between winners and losers.

2. Primer on how the Labour Codes will contribute to the formalisation of the economy. 

3. Tim Wu contrasts America's all-in bet on proprietary AI-led innovation with China's diversified bet on renewables and green technologies coupled with applications of AI through open-source models. The article has this graphic which shows how Chinese exports to developing countries has taken off exponentially.

Last year, 70 per cent of the world’s EVs were manufactured in China. China also accounts for roughly 80-85 per cent of global solar photovoltaic manufacturing, and more than 75 per cent of all global battery production.

4. Data centre construction in the US is now on par with office construction!

And this on their power demand.

Across America, data centres represent a combined capacity of about 51GW. Running at their maximum, this equates to 5 per cent of the country’s peak demand. By 2028, an estimated 44GW of additional capacity will be required by new data centres, according to S&P Global Energy. Given constraints to grid infrastructure, power capacity coming online in the next three years will only be able to provide about 25GW for these data centres. That leaves a gap of 19GW — just over 40 per cent of the power needed... After more than two decades of flat or anaemic growth, US power demand is now surging. Electricity usage is projected to rise by an average of 5.7 per cent a year to 2030, based on forecasts from utility companies... more than half of the expected increase stems from the rapid build-out of AI data centres, according to consultancy Grid Strategies.

And the constraints to power capacity expansion.

Boosting the US power grid is an enormous and time-consuming task due to a complex web of regulatory, financial and supply chain challenges. Interconnection queues — backlogs of projects waiting to plug into the network — have become a major chokepoint, slowing the rollout of new power capacity and leaving data centres facing lengthy delays... The average time from filing an interconnection request to achieving commercial operation now exceeds eight years, according to energy think-tank RMI... On average, federal permitting for a new US transmission line takes about four years, according to the Department of Energy. State processes add further delays to grid build-out. Last year, almost 900 miles of new high-voltage transmission lines were completed, according to lobby group Americans for a Clean Energy Grid. This is the most since 2020, but still far short of the 5,000 miles a year the group estimates is needed to support grid reliability and growth.

5. Like in China, India's solar manufacturing capacity is entering a glut and is also due for consolidation. 

Edinburgh-based energy consultant Wood Mackenzie estimates the country’s solar module manufacturing capacity will exceed 125GW by 2025, which is more than three times its domestic demand of around 40GW. Nomura projects capacity additions of 100-110GW in the next three years, further raising the risk of oversupply and painful consolidation.

This is an interesting comparison with China, pointing to future pain.

In China, half of the six major solar IPOs of the past two decades now trade below their issue price. In the US, SunPower has filed for bankruptcy. Even today, China’s JA Solar, with nearly 85GW each of ingot-wafer and cell capacity, is valued on par with India’s Waaree Energies, which has only a fraction of that scale... Some distress from oversupply is already visible in the supply chain. While the large, cash-rich players, including Adani, Waaree and Premier Energies, are tightening their hold on the sector by backward-integrating their supply chain and protecting their future margins, the smaller players are struggling to keep their plants running.

Worsening matters further is the lack of demand for solar power among discoms. 

India’s solar energy capacity currently totals 130GW, according to the ministry of new and renewable energy... As of September, around 44GW of tendered clean energy capacity, out of 93GW since fiscal year 2024 (FY24), remains without buyers... The ministry said in early November that it may look to cancel these projects on a case-by-case basis. One of the primary reasons for unsigned agreements is that state utilities expect solar prices to fall further. 

This capacity explosion has been facilitated by industrial policy.

In 2022, India imposed 40% tariffs on solar modules and 25% tariffs on solar cells to discourage imports from China. Last year, the country dictated that Indian solar power producers must purchase from an approved list of domestic solar-module makers—there are 93 companies in the approved list so far. Similar rules for solar cells will come into effect next year. Further restrictions on imports of ingots and wafers that are building blocks of modules and cells are expected in the coming years.

But industrial policy does not appear to be able to bridge competitiveness. 

Under new domestic content requirements, an entirely ‘Made in India’ module would cost more than double Chinese-manufactured modules, making it uncompetitive without substantial government policy support.

While India's solar manufacturing capacity is now largely at the level of modules, the government is pushing hard to integrate backwards into cells, ingots, wafers, and polycrystalline. But that's challenging. 

Owing to the complexities involved, the cell is the most capex-intensive segment. According to Nomura, capital expenditure per GW of cells can total ₹6,500 crore versus ₹2,000 crore for modules. Ingots and wafers need up to ₹4,500 to build 1GW capacity. As the supply glut in modules deepens, large integrated players such as Reliance Industries, Adani Enterprises, Waaree, Premier and Tata Power, which are investing across the value chain, are better positioned to survive... All large and listed players have announced plans to backward integrate, expecting that impending import restrictions further down the value chain will keep profits coming. According to Nomura, 70-80GW of cell capacity additions will come online over the next three years. It is 18.5GW right now.

Solar energy has the lowest tariff rate.

6. As developed countries grapple with high and rising debt burdens, some pointers.

While the ratio of debt to GDP in the world’s biggest economy shrank from 106 per cent in 1946 to 21.6 per cent in 1990-91, it has since lurched back up to almost 100 per cent thanks to, among other things, the financial crisis and Covid-19... The postwar experience of the UK provides a case study of how these factors interact. The country’s debt-to-GDP ratio went from more than 250 per cent in 1946 to just 42 per cent three decades later. In a seminal piece of research, Barry Eichengreen and Rui Esteves show that for most of the 1946 to 1955 debt consolidation episode, the UK ran consistent, large primary budget surpluses despite the Labour government’s huge expansion of the welfare state. Yet the largest contribution to debt reduction came from inflation, which was responsible for more than 80 per cent of the debt consolidation over the period. That said, from 1955, fiscal discipline and economic growth did most of the work — surprisingly given Britain’s record at the time for economic incompetence — because the contribution of consumer price inflation, which peaked at 24 per cent in 1975, was neutralised by rocketing interest rates.

7. K-shaped income gain + K-shaped wealth gain = K-shaped economy. Rana Faroohar writes about the K-shaped economy in the US.  

Consider income growth, which was higher for low-income households right before and during the pandemic — in large part because of support from the Biden administration — but has diverged since. Wage growth for low-income workers is now lower than for middle- and high-income workers. This is partly explained by the artificial intelligence boom that is showing up in higher unemployment figures for young college graduates as more entry-level white-collar work is done by technology. Asset growth is K-shaped too, with higher-income households seeing lots of paper wealth from stocks at still near-record highs and rising home prices. According to investment group Apollo, the cash flow received in fixed income, including private credit, is nearing levels not seen in decades. That wealth effect has propelled the existing K-shaped trend in consumer spending. The percentage of overall spending done by the top 10 per cent of the socio-economic spectrum has risen from 36 per cent to nearly half since 1989, according to Moody’s analytics.

8. Daron Acemoglu points to the breakdown of the liberal democratic politics.

Liberal democracy was made by its pledges. It plunged into crisis because of their undoing. A lot of this volte-face was about the eclipse of the industrial compact and the rise of a post-industrial society, dominated by digital technologies and the college-educated professionals that these empowered. Digital technologies severed the link between economic growth and shared prosperity. With the widespread automation enabled by digital tools, companies could expand without hiring more employees and paying workers more, and the skill bias of these technologies gave a boost to the earnings of highly educated and managerial workers. The result was a staggering increase in inequality in the US, with the inflation-adjusted wages of low-education men falling most years between 1980 and 2014 — even as the aggregate economy and the urban, globalised professionals were flourishing.

That the computer age was leaving behind the working class, which used to typically support left-leaning parties, was unnoticed by the college-educated, who were becoming politically and socially ascendant in the environment digital technologies created. That they had started living separately, socialising separately, marrying separately, and holding very different views from the less educated undergirded this omission. There was also a major sin of commission on the part of left liberals. As they abandoned classic working-class or social democratic issues, they started focusing on cultural politics — in part because cultural divides had become more pronounced and in some ways more intractable in an age defined by shifting mores, globalisation and increasing immigration flows from countries with dissimilar traditions.

But the cultural divide that emerged between different education groups and ideologies did not have a simple solution. Even as norms were changing on important issues such as gay marriage, new rifts were opening related to the assimilation of new immigrants, transgender rights and cosmopolitan versus local priorities. The college-educated, fatefully, turned to social engineering efforts, trying to accelerate cultural change — in universities, schools, the entertainment industry and even workplaces. These efforts, though often well meaning, were nonetheless perceived by many working-class communities as the imposition of the priorities of college-educated values on the rest of society. The scene was set for a crisis of liberalism and of liberal democracy.

9. Importance of Samarium, a rare earth mineral, and how the US gave up its leadership.

Most rare-earth magnets are made of neodymium, which is used in everyday applications such as cellphones, auto parts and electronics. But the defense industry requires samarium-cobalt magnets, which can withstand extreme heat... Unless new sources of samarium or a substitute material can be found, American manufacturers won’t be able to build fighter jets or precision-guided missiles. They may be forced to sacrifice precision if they can’t get the right magnets... 

Although samarium-cobalt magnets were invented in an Air Force research lab in Ohio in the 1960s, the industry moved to China in the 1980s, partly because of rich rare-earth deposits there. Today, China mines, processes, sells and consumes such large volumes of rare-earth metals that it can drop the price below the cost of production when foreign competitors come online. American and European companies have struggled to stay afloat. Many either declared bankruptcy or opened factories in China.

And the difficulty of reshoring, even with good policy intent, without a crisis hitting.

In recent years, American policymakers have tried to build a domestic supply. The National Defense Authorization Act of 2023 and 2024 gradually tightened restrictions on the use of rare-earth metals from China in weapons systems, and stipulated that all such materials must be China-free by Jan. 1, 2027. But such mandates have been inconsistently enforced, partly because alternatives are not available. In 2023 and 2024, when magnets were supposed to be made of metal that was created outside China, Lockheed Martin notified the Pentagon that its F-35 Joint Strike Fighter had Chinese-made magnets. The military paused production of the jet for months but eventually issued a waiver allowing the parts.

10. The Bank of Japan raises its benchmark interest rates to a 30 year high.

Alongside, yields on 10 year government bonds have touched 2% for the first time since 1999. 

11. Assessment of the Insolvency and Bankruptcy Code implementation.

The data from the Insolvency and Bankruptcy Board of India (IBBI) shows that by September, 8,659 corporate insolvency resolution processes (CIRPs) had been admitted. Of those 1,898 cases were ongoing. More tellingly, about 1,300 CIRPs that resulted in resolution plans took an average of 603 days, while 2,896 cases that ended in liquidation took 518 days, far exceeding the statutory outer limit of 330 days prescribed under the IBC... Despite procedural delays, the IBC has had a meaningful impact on India’s banking system and credit culture. Resolved cases have delivered 32.44 per cent recovery of admitted claims, translating into more than 170 per cent of liquidation value, and have helped rescue about 1,300 firms. Equally important, the threat of losing control has altered borrower behaviour, improving repayment discipline and encouraging early settlement.

12. US corporate profits are at all time highs.

13. America's K-shaped economy.

14. Financial engineering is never far away in boom times. FT reports how Big Tech firms are shifting debts assumed to finance AI spending out of their balance sheets through project financed SPVs. 

Financial institutions including Pimco, BlackRock, Apollo, Blue Owl Capital and US banks such as JPMorgan have supplied at least $120bn in debt and equity for these tech groups’ computing infrastructure, according to a Financial Times analysis. That money is channelled through special purpose holding companies known as SPVs. The rush of financings, which do not show up on the tech companies’ balance sheets, may be obscuring the risks that these groups are running — and who will be on the hook if AI demand disappoints... 

Tapping private capital funding through off-balance sheet structures protects companies’ credit ratings and flatters their financial metrics. Meta in October completed the largest private credit data centre deal, a $30bn agreement for its proposed Hyperion facility in Louisiana that created an SPV called Beignet Investor with New York financing firm Blue Owl Capital. The SPV raised $30bn, including about $27bn of loans from Pimco, BlackRock, Apollo and others, as well as $3bn in equity from Blue Owl. The deal meant Meta could in effect borrow $30bn without any of the debt appearing on its balance sheet. This made it easier to raise a further $30bn in the corporate bond market a few weeks later.

15. Demystifying Adam Smith's invisible hand

The popular understanding of the “invisible hand” is even further off the mark. Smith borrows the phrase from Macbeth, who talks about a “bloody and invisible hand” shortly before murdering Banquo. In all his works, the economist mentions the phrase just three times, in three different contexts—and never in reference to the price mechanism... In fact, he often favoured the visible hand of government. He urged the state to provide education. He favoured legal caps on interest rates. Today, almost all free-market economists despise America’s Jones Act, which requires that shipping between American ports be conducted on vessels that are built, owned and largely crewed domestically. Smith, by contrast, favoured the Navigation Acts, a similar British law. 

Smith acknowledged the benefits of markets, but also their costs. Consider his famous pin factory. The division of labour within it allowed workers to produce thousands more pins than if they were working alone. Countries that perfected the art of dividing labour, Smith argued, would grow rich. Yet he also worried that a life spent on a few simple operations would make a labourer “as stupid and ignorant as it is possible for a human...to become”. Did Smith think the costs outweighed the benefits? It is hard to be sure.

16. VC failure rates

Sequoia’s best-ever US fund had half its investments fail.

17. Cross-border payments company Aspora is disrupting US-India remittance transfers. 

Fintechs Wise and Remitly do that by partnering with a local bank, with which they park funds worth two to three days of remittance volume as a lien. This fund lies as a security, untouched. Now, when a person in the US sends money to somebody in India, the fintech pings its Indian banking partner, which uses its own funds to make a local transfer to the recipient’s account. This reduces the speed of transfer from days to minutes. The fintech then reimburses the banking partner for all the transfers via a bulk cross-border transfer.

... 30–40% of the $135 billion remittances to India are locked in as liens to banks. Aspora does about $300 million worth of remittances a month. So, to maintain two days’ worth of remittance volumes with its local banking partners, like Yes Bank, the startup needs to park away at least $20 million of capital... In 2024, Aspora chose to route nearly a third of its cross-border remittances through stablecoins. These digital currencies operate with little legal oversight and take away the need to have so much capital as a lien... In using stablecoins, all that a fintech like Aspora had to do was partner with a cryptoexchange in the originating and receiving countries. And in the process, it can simply swap the US dollar for a stablecoin like Tether. That gets swapped out for the rupee by another exchange in India. This swapping involves a fee of 20 basis points in all, said the crypto-exchange executive, as the exchanges also take care of compliance, conversion, and the payout. That’s much less than maintaining liquidity, which can add up to 1% of the total cost...

When a fintech uses stablecoins to process remittances, the recipients are in a fix. For one, Indians have to pay a 1% tax on the money they receive. Two, the instruction that comes along with the remittance would only show that the money came from an exchange, not the sender... In fact, in some cases, when users sent money to their own accounts in India, local banks, unable to see the sender, saw it as suspicious activity and blocked their accounts.

The big risk Aspora faces is regulatory. Though not banned in India, RBI does not recognise Stablecoins or cryptocurrencies generally. Only about 1% of the $135 bn annual remittances use Stablecoins for now. 

The article also has an interesting graphic about the changes in sources of remittances into India. Declining share of Gulf remittances (except Qatar) and increasing shares from the US, UK, Australia, and Singapore. 

 18. For all talk of China's AI surge, it has few listed companies in the sector.

And the US and Europe dominate the higher end of the supply-chain. 

19. The world economy's China problem in one graphic.

20. Huawei triples local sourcing ratio in smartphones from 19% in 2020 to 57% in 2024!

Huawei increased the proportion of Chinese-made components in the Mate 70 Pro to 57%. The estimated total component cost of the Pura 80 Pro is $380, with the Chinese-made component ratio steady at 57%... For the Pura 80 Pro's system-on-a-chip, which integrates multiple semiconductors, the company used the Kirin 9020 chipset designed by subsidiary HiSilicon... For DRAM, which handles short-term memory, Huawei switched from imported products to those made by ChangXin Memory Technologies. For long-term NAND flash memory, it switched to products made by Yangtze Memory Technologies. Huawei switched to products from BOE Technology Group for the organic light-emitting diode display, which is estimated to cost over $64 per unit.

21. China is not leaving even caviar!

But in recent years Chinese companies have also entered the sphere with state support, led by Kaluga Queen, a farm on Lake Qingdao. And they have dived in with such stunning efficiency and focus — echoing what has happened with, say, solar panels — that Kaluga is now the biggest caviar producer in the world. Indeed, China accounts for between half and two-thirds of global production... And Chinese officials now want their entrepreneurs to expand into other gourmet foods like smoked salmon, Wagyu beef and truffles. That is creating waves: at a recent meeting of the North Atlantic Seafood Forum, a Nordic luminary flourished a 7kg Chinese-farmed salmon on stage — and declared it to be tasty, and cheap because of Beijing’s subsidies. Meanwhile, the Japanese government has restricted exports of Wagyu genetics to China to protect its beef farmers, and some Italian and French caviar houses are complaining about the pricing threat from Chinese rivals. American caviar makers are reportedly lobbying the White House for protection, too.

22. Finally, in celebration of racial integration, the Springbok rugby team.

The one thing that unites South Africans of all colours is the Springboks rugby team... South African rugby has been so “transformed” — a word the African National Congress uses to mean overcoming the grim legacy of apartheid — that affirmative action is no longer necessary. A squad, picked purely on merit, is automatically multiracial. The Springboks’ most celebrated players include Siya Kolisi, the inspirational captain, who is Black and from an impoverished township in the Eastern Cape. Sacha Feinberg-Mngomezulu, the brilliant fly-half, has a Zulu mother and a father of Jewish heritage. The 50-plus member squad named this year by Johan “Rassie” Erasmus, the Afrikaner head coach who has led the team to successive World Cup victories, contains players from South Africa’s Black, white and so-called Coloured communities. The Springboks are a case study of what successful Black empowerment looks like. Where once players were selected from among 4.5mn white people, today they are drawn from the entirety of South Africa’s 65mn population.

The challenge facing liberals in the US

Donald Trump’s upending of long-held conventional wisdom in the polity and economy has shed light on the faultlines and failings of the US politics and society. 

It has dramatically exposed the limitations of the supposed bulwarks of institutional checks and balances in the US government. Apart from this, the Republican Party is captured, the Democratic Party is in shambles, corporate America has fallen in line without any murmur, and public intellectuals in the prestigious and normally vocal academic institutions and think tanks in the US have gone eerily quiet. In fact, when the history of Trump 2.0 is written, it’s most likely that the leaders and scholars of the hallowed Universities will be apportioned as much blame as the Supreme Court for their roles in compromising and allowing the government near-unimpeded pursuit of its goals. Even the civil society seems to be missing in action. 

This accommodation should not have come as a surprise. There’s a strong case that American liberalism was standing on weakening foundations. As an illustration, for a country with a per capita income of $85,000, America suffers from embarassingly high levels of deprivation and poverty, and struggles with the poorest human resource development outcomes among advanced countries. The extent of elite capture of rule-making processes and institutions is perhaps the greatest in the US democratic system. The opinion makers and experts among the liberals who have played important roles in fashioning the economic consensus over the last three decades and have facilitated these outcomes are as much to blame as the policies that have generated them. 

I have blogged on several occasions, highlighting how the public intellectuals in the US have let down liberal democracy and have largely become co-opted by Big Tech and Wall Street. Given that the intellectual establishments in the US (academia and think tanks) are dominated by liberals, it’s surprising that they have allowed the trends of widening inequality, business concentration, and the general political capture by Big Tech, Big Pharma, Wall Street, and other corporate interests to go largely unchecked. 

There are some possible explanations for the lack of even a fight on the face of the ongoing assault on liberal ideas. One argument is that of a society that has not faced any serious existential adversities for long and has been dulled off its collective will and resolve to push back. Since the War, the society has settled into a comfortable equilibrium where all the fundamental requirements of liberal democracy and capitalism - rule of law, free speech, free markets, restraints on untrammelled power, recourse to redressal of grievances, etc., - have come to be taken for granted. Generations have been brought up without having to even think about them, much less fight for them.

On the economy, the great recession in the aftermath of the global financial crisis turned a new page in monetary policy adventurism with a radical expansion of the tools that central banks and governments were willing to use to stabilise the economy. Zero interest rates, quantitative easing, purchases of Treasuries and even corporate bonds, forward guidance, and so on entered the lexicon of central banking. This allowed central banks to keep rates, pump liquidity, and backstop asset prices, thereby propping up both the financial markets and the real economy. Market expectations have been shaped by a giant central bank put, one arising from a belief that if things get out of hand, the central bank will step in as a buyer or lender of last resort. Just like American citizens, its markets too have come to overlook uncertainties and take for granted economic stability. 

Another plausible explanation for the Trumpian backlash could be that, over time, liberalism gravitated to extreme fringes on a variety of issues. On important issues like the traditional family and social values, race relations, immigration, LGBTQ, etc., the liberal positions came to be hijacked by those at the extremes. It’s one thing to accept people’s privately held views that deviate from social norms, but an altogether different matter to decry the social norms and elevate those deviant views as the new norm. The latter is a big social and political shift, and can happen only when the majority or a significantly large representative proportion of the population is willing to embrace it. In its absence, and especially if they are being sought to be imposed by a small progressive vanguard, there will be strong and often violent resistance. Noah Smith has a good blog post here describing how the liberals have lost the plot.

Yet another explanation may be the increasing ideological alienation of Democrats (and liberal parties elsewhere) from their left-of-centre views, given the general shift towards the centre in the post-communist era. I blogged earlier about this here.

Centre-left political parties like the Democrats in the US under Bill Clinton, the Labour Party in the UK under Blair, and the Socialist Party in France under Emmanuel Macron (he split the traditional left and right parties and created a new Renaissance Party of the centre) have sought to widen their electoral base by moving to the centre. From being a counter-point to their economically rightwing (capital-favouring) opponents (Republicans in the US, Conservatives in the UK, and The Republicans in France), these centrist parties sought to embrace the market while also retaining their core working class (labour) bases. From hindsight, this move to the centre appears to have been a fatal mistake. In the delicate reconciliation of the interests of labour and capital, the latter has become dominant. The leadership and the intellectual core of these parties have become captives to the interests of the capital. In the process, the new centrist avatars have alienated their core support base in the labour. The labour base has drifted to the populist camps.

The value of centrism as a mobilising ideology is questionable. Centre has its relevance only with respect to some reference points (the right or the left, liberal or conservative). In itself, moderation cannot be an ideology. On the contrary, it can become a cloak for opportunism and hypocrisy. Further, when faced with the power of capital, a strong ideological base may be essential for political mobilisation. Most worryingly, centrists groups often end up being captured or at least perceived as being captive of the opposite ideological group. As I blogged here, this is a greater risk to the liberals, whose courting of capital can end up with capture by the capitalists (and therefore alienation of its core working-class base). The Democratic Party in the US may be the best exhibit in this regard.

In this backdrop, I point to three articles that highlight some of these challenges. 

The first article goes to the heart of an important theme of the Trump populism - the demonisation of DEI initiatives and the stigmatisation of liberalism. In this context, Eugenia Cheng, a mathematician, makes a very bold and compelling case for DEI initiatives.

A metric is a way of measuring the distance between two points but not necessarily physical distance; it could be how much time it takes with traffic as a factor or how much energy will be expended, depending on whether you’re going uphill or downhill. A distance cannot be measured on the basis of the position of a single point. It requires the effort of measuring the distance between two points. This may sound redundant, but it’s an important clarification: Metrics can be measured only by taking into account the starting point and ending point, as well as relevant features of the journey — the whole story.

When we evaluate people, we could do the same. Instead of just looking at what they have achieved, we could also look at where they started and be clearer about how we are measuring the metaphorical distance they have come and whether we are taking into account the support they had or the obstructions they faced.

If we are selecting sprinters for a track team, we might look at their best times for the 100-meter dash. But if someone had, for some reason, only ever run races uphill or against the wind, it would make sense to take that into account and not compare that runner’s times to others’ directly. We would be treating those people differently but only because their paths were different; really we’d be evaluating their paths fairly relative to their contexts. 

Other forms of achievement are not as straightforward to measure, but the idea is analogous. If someone achieved a certain SAT score after months of tutoring and someone else earned the same score having never seen an SAT before, it would be reasonable to be more impressed with the latter result and think that the second test taker has more potential. We should think of D.E.I. efforts as the best versions of this and aim to design systems that can measure the fuller picture of someone’s professional journey, not just the current result… It shouldn’t be called sexist to help people overcome sexism, and it shouldn’t be called racist to help people overcome racism, but if we give this help too crudely, then we leave ourselves open to these criticisms. Math teaches us that D.E.I. initiatives should be about carefully defining the metrics we use to measure how far people have come and thus how far they have the potential to go. They should be about uncovering when some people are constantly running uphill or against the wind, which can inform us how to give everyone an equal tailwind and an equal opportunity to succeed.

On DEI, by taking it to absurd extremes, the liberals have allowed even the idea of diversity to become contentious. Cheng attempts to retrieve some of the lost ground by trying to anchor the debate in terms of measuring merit and achievement more accurately. 

Cheng’s op-ed is also a testament to the abdication by the liberal intelligentsia, those opinion makers occupying important positions of influence and authority, like in the reputed universities and think tanks. When faced with the assault from the right, the ideological and institutional defenders of liberalism appear to have gone missing. 

In the second article, Ruchir Sharma calls for caution in cutting interest rates given the prevailing conditions.

Financial conditions are very loose. The economy is still resilient. The basic Fed lending rate is not restrictive. Signs of job market weakness are minor compared with the evidence that inflation has become entrenched. And cutting rates with AI mania gripping US markets risks driving them to greater heights… Capital pouring into the US stock market has driven valuations close to historic highs. Venture capital is pouring into profitless tech firms. Credit growth is surging, particularly in private markets. Junk firms can borrow at rates only marginally higher than solid ones or even the government; the premium they pay over Treasuries is as low as at any point in the last half century… 

Trump aides want to stimulate an economy that doesn’t need help. Despite the tariff shock, GDP is on track to expand by more than 2 per cent this quarter. Regardless, juicing up growth is not the central bank’s job. Its mandate is to control inflation while maximising employment. And standard guidelines on how to achieve this, such as the Taylor rule, show that the Fed’s basic lending rate is not currently restrictive…the unemployment rate is still just 4.3 per cent, close to historic lows. Meanwhile, consumer price inflation has exceeded the Fed’s 2 per cent target for five years running and is expected to remain stuck at an elevated pace for the foreseeable future. It’s also a mistake to ignore prices for stocks, homes and other financial assets… 

By easing every time the markets falter — including as recently as last August — the Fed has been fuelling asset price inflation and wealth inequality. Now, it seems poised to go further, easing in a boom. Tech investment is following the path of past bubbles: at nearly 6 per cent of GDP, it roughly matches investment in tech at the 2000 peak as well as investment in real estate at its 2007 peak, and greatly exceeds investment in oil at the 2013 commodity boom peak. Speculators focusing on the least profitable and most expensive stocks are amped up on AI too. Their share of US trading is now approaching the dotcom era high. The “asymmetry” of Fed policy — always rescue but never restrain the markets — is tilting further towards promoting bubbles… What’s needed is a return to symmetry, including periods of restraint.

In this context, I’m reminded of the metaphor of forest fires and avalanches. It’s a well-known principle that allowing small fires and small avalanches is critical for avoiding big fires and avalanches. Small fires prevent the accumulation of large detritus that can lead to big fires. Small avalanches prevent the accumulation of large fault lines in snow mountains that contribute to large avalanches. 

The central bank's interventions are effectively preventing the kinds of smaller recessions that are required to weed out zombie companies and recalibrate expectations among investors about risks and uncertainties. It’s triggering moral hazard by making a generation of investors and market participants less vigilant about risks. 

A current example of how the dominance of Wall Street interests in financial market policy-making comes in the way of throwing sand on the wheels of financial engineering is the ongoing rise of private credit. With private equity having peaked and interest rates being high, private credit has become an attractive alternative to finance emerging areas like data centres. But it’s rapidly becoming clear that private credit is now spawning excesses, and given the increasing levels of exposure of public pension, insurance and endowment funds to private capital, could be a source for the next financial crisis. 

Finally, Edward Luce makes an important point that the Democratic Party should discover its agenda not by reacting to Trump but by imagining that Trump did not exist. It should emerge from a genuine introspection about where it has alienated its traditional support base of blue-collar workers, blacks, and Hispanics (who have increasingly gravitated to the Trump camp). He writes,

The practical difficulty is that the party is shaped by elite professions, particularly law, government, media and academia. Such types often have a hard time concealing their distaste for those who voted for Trump… They are the party of corporate America. No party in history could ever boast of so many expert fundraisers and humane philanthropists… If Trump did not exist, would Democrats want to reform the US administrative state? They should want to reinvent it but are now its militant defenders… If Trump is attacking something, it must be defended to the hilt.

As Luce writes, the Democratic Party is not alone in this struggle to reinvent. The Labour Party in the UK and the Social Democratic parties in continental Europe are sailing on the same boat. 

The challenge before the liberals is to tailor a coherent agenda that addresses the concerns of the vast majority of the population, who feel socially, economically, and politically marginalised and alienated, and mobilise a sufficiently broad and credible coalition. This would require making hard choices. For example, it might in turn require marginalising the currently vocal defenders of liberalism (or the woke vanguard). It’ll also require breaking free from the incestuous elite stranglehold on liberal thought leadership. Unfortunately, there’s little on the horizon that points to a possible regeneration. 

Weekend reading links

1. Some facts about how increasing intermittent renewable power is upending the electricity market in India. 

Real time market (RTM) volumes exceeded Day Ahead Market (DAM) volumes for the first time ever in Q1FY26 – a reversal, since DAM volumes have been much higher than RTM volume in the past. In June of Q1FY26, DAM prices fell from record peaks of around ₹6.95/unit in Q2FY24 to below ₹4/unit. Nine of the last 10 months have seen month-on-month declines in DAM prices. In the RTM market, prices dropped to nearly ₹0/unit between 7 am and 1 pm, and spiked to as high as ₹5/unit between 8 pm and midnight. This seems to be the norm during April-October. The diurnal variations are huge. On the same days, RTM units were sold at a few paisa/unit and also at above ₹5/unit... During sunlight hours, there are big surpluses. At night, shortfalls occur as solar no longer contributes and price surges. Peak RTM demand in summer typically occurs between 2000 and 2400 hours (8pm and midnight). Solar is off at that time. On most days in Q1FY26, night-time supply was 10 per cent below demand, with shortfalls reaching 90 per cent sometimes. Conversely, during peak solar hours (0700–1700 or 7 am–5 pm), supply was nearly three times the demand. RE capacity is scaling up at 25-30 Gw per year. There’s a case for a big push on the storage front, to ensure surplus solar units can be used at night.

2. Distribution of teachers between different school management.

3. India's cost advantage in medical procedures is clear.

4. FT long read about how a wave of middle-class Chinese migrants to Tokyo, described as Run-ri, seeking permanent residency in Japan, is slowly transforming the city. 

Chinese buyers propel Tokyo property prices beyond the reach of many Japanese. The government has been pushed to tighten the requirements for the “business manager” visas on which so many Chinese secure their residencies. Some predict a full nationalist backlash, pointing to the klaxons of xenophobia audible in July’s upper-house election campaigns… The number of foreign residents rose by an average of roughly 1,000 per day over the course of 2024, of which about 10 per cent were Chinese. By next year, according to some projections, the total Chinese population of Japan is likely to hit a million… 

There has also been a surge of Chinese enquiries for places in Tokyo’s international schools, to as much as 60 per cent of the total in some cases… the Branz tower, a huge block of high-end flats overlooking Tokyo Bay, of which about 20 per cent are believed to have been sold to people with Chinese names, according to local estate agents. A listing for a three-bedroom flat in a nearby tower displayed in the window of a Chinese-owned estate agent in Roppongi, has an asking price of ¥350mn ($2.4mn). Other newly built developments nearby, including a vast complex built as the athletes’ village for the Tokyo 2020 Olympics, have similar ratios of Chinese buyers…

As the Chinese community in Bunkyo has expanded, the children have begun to group together and do not speak Japanese outside school. Within school, it is already becoming a distraction… The most tangible impact has been on property prices in Tokyo — one issue over which populist Japanese politicians have been able to stoke public anger. The prices of higher-end apartments in the capital, and the land in central wards on which low-rise houses can be built, has risen significantly since 2022.

5. More from the brilliant John Burn-Murdoch, this time on how the progressives may be ceding ground to the conservatives by having less children.

Recent studies find that the left’s lack of concern over falling birth rates is likely to be pushing societies in a more conservative direction. Extending previous analysis of the interplay between political ideology and family formation, I find that the assumption that birth rates are falling across society in general is not really true. From the US to Europe and beyond, people who identify as conservative are having almost as many children as they were decades ago. The decline is overwhelmingly among those on the progressive left, in effect nudging each successive generation’s politics further to the right than they would otherwise have been. This may ultimately mean more curtailing of individual freedoms, not less. Of course, children do not inherit their parents’ politics wholesale, and each successive generation has historically tended to be more liberal than the last on social issues. But it is well established that children’s values are strongly shaped by those of their parents. A growing left-right birth rate gap will slow that liberalising conveyor belt, and could result in societies and politicians that are less liberal and less concerned with the environment than would otherwise be the case.

6. China dominates EV sales across the developing world, with Vietnam and India being the exceptions. This is data from 2023 and 2024. 

7. The rise and rise of government bond yields.

8. Nvidia's market cap now exceeds FTSE, CAC, and DAX! (HT: Adam Tooze)

9. The importance of Airline loyalty programs in the US.

In a 2023 report, Mr. de Boer and a colleague estimated that Delta’s SkyMiles program was the world’s most valuable loyalty plan, worth about $28 billion. Investors value Delta itself at around $40 billion, based on its stock price. The loyalty program at American is worth about $24 billion, while United’s is worth $22 billion, according to the report. At Southwest Airlines, which started as a low-fare airline but has become one of the country’s biggest carriers, the loyalty program is worth around $9 billion.

The airlines share little publicly about their loyalty programs, but American and Delta each received about $7 billion from frequent-flier programs last year and United about $6 billion, according to an analysis of financial filings by Jay Sorensen, who runs IdeaWorksCompany, a consulting firm that works for airlines and other aviation businesses. Those programs are supported in part by the millions of people who use airline credit cards and then earn airline points for spending. The banks that issue those cards buy those points from the airlines in bulk, typically spending many billions of dollars every year... Banks recoup that money by charging interest and fees to card users and from fees paid by retailers, restaurants and other merchants every time customers pay with credit cards. For the banks, airline cards bring in many customers who fly and spend a lot.

Last year, consumers spent about $186 billion on Delta-branded credit cards, according to an analysis of securities filings of American Express, the airline’s credit card partner. That was about 12 percent of global spending on cards issued by the bank. Delta said in a financial filing that cash sales of loyalty points to American Express were $7.4 billion in 2024, an 8 percent increase from the year before. 

Many travelers love the cards and loyalty programs. By earning status, they can board planes early, enter airport lounges and enjoy other perks. Racking up points for dream vacations or seat upgrades is a powerful motivator, too. Those benefits create what Dwight James, Delta’s senior vice president of loyalty, calls “an emotional bias” toward the airline... Loyalty programs have become so valuable that during the pandemic, American, United and Delta each used their programs as collateral to borrow billions of dollars. The companies were struggling because they had to ground many planes and others flew largely empty.

10. New York City is a big outlier among US cities, thanks to its intra-city mass transit and high FAR.  

11. India's declining foreign capital inflows

These numbers point to large amounts being taken out by foreign investors who invested earlier and have been exiting their positions.  

A lot of FDI that flowed into India from roughly the middle of the last decade, peaking in 2020-21, were in the form of private equity (PE) and venture capital (VC) investments – in diverse sectors, from retail, e-commerce and financial services to green energy, healthcare and real estate. Those who put in this money are now cashing out by selling the shares they had originally bought, either to other firms engaged in the same business or via initial public offerings by the investee companies. Such exits by investors seeking to monetise their profitable “mature positions” were valued at $24 billion in 2022, $29 billion in 2023 and $33 billion in 2024, according to Bain & Company. The American management consulting firm reckons about 59% of PC/VC exits in 2024 to have been through public markets that were, in turn, enabled by the rich stock valuations in India.

12. Labour-intensive exports made up 35% of India's exports to the US in FY25, down from 50% in FY19. However, the share of the US in each of them have risen in the period. 

Textlies and food processing, in particular, are major employers.

And also forms a major share of manufacturing wages.

13. Tej Parikh writes that the US economy is already in recession based on several of NBER's economic indicators. 

While private investment has shrunk, AI investments have propped up net investment. Total private fixed investment rose by about 3 per cent year on year in the second quarter, but it would have fallen by around 1.5 per cent if AI-related components were excluded.

Health care and social assistance jobs made up 86% of the 598,000 jobs created in this Trump term till date.

And household spending has been propped up by the well off households who also have been the beneficiaries of the stock market boom. 

14. China and the US compared economically.

Its economy, while slowing, is still nearly 30 percent larger than America’s when one accounts for purchasing power. China has twice the manufacturing capacity, producing vastly more cars, ships, steel and solar panels than the United States and more than 70 percent of the world’s batteries, electric vehicles and critical minerals. In science and technology, China produces more active patents and top-cited publications than the United States. And militarily, it has the world’s largest naval fleet, a shipbuilding capacity estimated to be more than 230 times as great as America’s and is fast establishing itself as a leader in hypersonic weapons, drones and quantum communications.

The balance changes when compared with allies.

Together with economies such as Europe, Japan, South Korea, Australia, India, Canada, Mexico, Taiwan and others, there is no competition. This coalition would be more than twice China’s G.D.P. when adjusted for purchasing power, more than double its military spending, the top trading partner of most countries in the world, and would represent half of global manufacturing to China’s one-third. It would possess deeper talent pools, create more patents and top-cited research, and wield a degree of market power that could deter Chinese coercion. Allied scale would win the future.

China and the US today are upending the grand narratives on the economy and polity

China and the US are now egregious exemplars that contradict the conventional wisdom on economic growth and liberal democracy. 

The orthodoxy on economic growth is that, in addition to capital (physical, financial, and human), countries should have an appropriate and predictable regulatory and facilitating environment to unleash private enterprise. The orthodoxy on liberal democracy is that strong institutions, by promoting the fairness and predictability of the rule of law, will act as checks against the unpredictability of rule by laws enacted by autocratic rulers. 

China, specifically under Xi Jinping, and the US, under Donald Trump 2.0, have comprehensively shattered these comforting orthodoxies that have come to underpin conventional wisdom and shape narratives on the polity and the economy. 

China is a standout paradox in how capitalism and the private sector have flourished over the last three decades, with little of the institutional requirements that orthodox theories mandate as essential to economic growth. Despite its communist political system, the private sector dominates the country’s economy.

The private sector contributes over half of tax revenues, more than 60 per cent of GDP, over 70 per cent of innovations, 80 per cent of urban jobs, and 90 per cent of registered companies.

This has been despite an environment and bureaucratic system that would have been considered outright hostile to private enterprise in any other country. 

Chinese entrepreneurs have always faced cycles of risk and reward, but now a single regulatory investigation, a shift in local political winds, or a liquidity squeeze can turn a challenging quarter into an existential threat… the lived reality for many entrepreneurs is one of precarious privilege. They may command wealth and influence now, but their long-term position is far from secure. The life cycle of a Chinese private firm is notoriously short, less than four years for SMEs, compared with eight in the US and more than twelve in Japan. And when a business fails, there is often no institutionalised way to shield the founder from total financial and reputational ruin… Laws on paper go only so far; in China, the political motives that guide bureaucrats ultimately decide enforcement. 

It’s striking that this advice is being given to a country that has experienced three decades of spectacular economic growth, driven by the private sector, to emerge as the factory of the world and its second-largest economy 

Entrepreneurs need tangible, enforceable protections: fair access to credit; and legal frameworks that allow businesses to fail without destroying their founders’ lives… it is about ensuring that risk-takers can survive to try again… The legal framework required is clear: establish a national personal bankruptcy regime that allows honest but insolvent business owners to discharge debts while retaining essential assets, enabling them to restart their careers; limit personal guarantees for corporate loans, particularly for SMEs, to prevent the automatic conflation of business and personal liability. Beijing must ensure transparent, predictable regulation, so enforcement actions are guided by clear rules rather than shifting political imperatives. It should strengthen due process protections for those under investigation, avoiding prolonged uncertainty that can be as damaging as a formal penalty… If those with influence and resources cannot secure a fair hearing, due process, or a dignified way to start again, what chance does the average citizen have?

Arguably, China’s most consequential (strategically important for other countries) economic achievements have all happened in the last decade, when Xi Jinping has pursued a brand of centralised capitalism punctuated with multiple rounds of unpredictable crackdowns. Its dominance in clean technologies, batteries, electric vehicles, and critical minerals, among others, has emerged over the last decade.  

Yuen Yuen Ang’s works, which I have blogged about on several occasions, highlight in detail how successive Chinese governments have discarded orthodoxy and pursued practical and heterodox strategies to drive the country’s economic growth.

In the field of politics, the second administration of Donald Trump has spectacularly demolished all theories about the supposed bulwarks offered by institutional checks and balances. Janan Ganesh brilliantly captures the moment and underlines the importance of politics and winning elections as the only true check,

Consider Congress. It is the least trusted institution in America. Its Republican members are so deep in Trump’s pocket that most voted not to ratify Joe Biden’s election win in 2020. At a rate his predecessors never did, Trump invokes emergency measures, without much resistance from the legislature. Or take the judiciary. Trump has appointed a third of the Supreme Court, which has gone on to construe his powers and privileges generously. As for the federal executive itself, Trump gets to appoint 4,000 or so people to it, not just the cabinet and their immediate deputies. You will notice that little or none of the above is illegal. Before he violates a single rule, Trump can bend the state to his whim. What does that say about the state?

…. Institutions outside government have proven no harder for him to master. Business has been an alternative locus of power in the past, especially in America, where individuals can amass such large fortunes as to be able to look the president in the eye. Now, though, billionaires genuflect before Trump to secure favours or avoid punishments in a patronage economy, as do law firms. (“Big Law continues to bend the knee to President Trump,” boasted the White House spokeswoman in April. Imagine saying that deliberately, as opposed to being caught by a stray mic.) That leaves the media. Well, we try. But this isn’t Walter Cronkite’s era. So much news is now consumed via social media platforms whose owners were seated in front of cabinet nominees at Trump’s inauguration…

It is an old liberal instinct to take things outside of politics: for example, to establish as incontestable “rights” that should be argued for in the democratic realm. Another version of this mental crutch is the hope that “institutions”, within and without the state, will counteract a rogue leader. It is a reasonable hope. The founding scripture of the republic sets out exactly that system. But the evidence of the past eight months, during which Trump has imposed himself on civilian and not just official life, isn’t encouraging. Institutions are made up of human beings, not magic dust, and the president can appoint them or indirectly grind them down with pressure. 

See also this. It’s said that the true mark of institutional strength is when it’s tested. It’s now amply clear that none of the American institutions has been able to resist the devastating intent of Trump 2.0. 

After the definitive ideological takeover of the Supreme Court in his first term, Donald Trump has now set his sights on the US Federal Reserve Board. 

Trump’s imprint is already present at the Fed. Two of its seven board members, Christopher Waller and Michelle Bowman, were selected by him during his first term in office. This month, Adriana Kugler, who was tapped to be governor by former president Joe Biden, announced she was stepping down before the end of her term next year, prompting Trump to pick Stephen Miran, one of his closest economic advisers, to succeed her. If Trump succeeds in ousting Cook, whose term runs to 2038, it would give his nominees control of the seven-member board of governors. Moreover, the presidents of the 12 regional Feds, all of whom serve five-year terms, will need to be renewed at the end of February 2026. The decision to renew their terms lies with the Fed’s board.

The rate-setting FOMC consists of the seven-member Board of Governors of the Federal Reserve, the president of the Federal Reserve Bank of New York, and four of the remaining eleven Reserve Bank presidents who serve on a one-year rotating basis. While the heads of the regional Feds are selected locally, they must be approved every five years by the Board of Governors. 

This raises the possibility of a complete capture of the Federal Reserve system, something that cannot be discounted given the political determination displayed so far. It also raises the possibility that we have now passed the peak of central independence ideology. 

In the realm of the economy, institutional safeguards, especially the informal ones from the corporate world and the markets in general, were supposed to be invincible bulwarks. But all of them have fallen aside, even as ideals of competition, macroeconomic stability and predictability, and free-market principles have been ground down. The most surprising have been the markets, both bond and equity markets, which appear to be betting that Trump will only take it that far and pull back just in time. Even as new redlines are being crossed, it appears increasingly likely that they may be excessively optimistic in miscalculating the motivations and the moods behind these actions. 

As I blogged here, the trade landscape of the world economy has been redrawn, mostly irreversibly, in just over six months. Alan Beattie writes about the unpredictability of Trump’s actions concerning the economy. 

It’s now commonplace to say Trump’s shakedowns of trading partners and corporations for tax revenue (even entirely leaving aside the issue of his personal wealth) resemble a mafia boss or a crony-capitalist dictator in a developing country. It’s actually worse than that. Good mafia bosses and efficient autocrats may be extractive, but they are predictable. Trump’s raids on companies and governments on behalf of the US Treasury are capricious — consider his reported demand that Switzerland buy off the US tariffs with investments and his sudden 15 per cent levy on the chip companies Nvidia and AMD’s semiconductor sales to China. They create uncertainty that weakens the entire basis of business and trade.

And even the trade deals are filled with unpredictability. 

The benefits that Trump offered in his tariff deals often fail to materialise or are disputed as soon as the deal is signed. The UK, one of the first countries to pay the US the equivalent of protection money in its agreement in May, is still waiting for some of the benefits in the form of zero tariffs for a portion of its steel exports. The Japan agreement in July headed straight into a fog of uncertainty over disputed provisions on investment and on import taxes. The EU kept complaining it didn’t know what Trump wanted — it’s a category error to assume he ever has coherent demands. 

One of the earliest attempts to analyse southern Italy’s mafia, by the sociologist Diego Gambetta, posited that organised crime fulfils a function in a society marked by profound distrust. Paying protection money provides security of contract and the settling of disputes in an otherwise chaotic business environment. But the mafia has to be competent and reliable. Dealing with Trump often means not just an offer you can’t refuse but an offer you can’t rely on — sometimes an offer you can’t understand. If the EU’s tariffs were protection money on behalf of Ukraine, Trump glaringly failed to deliver the quid pro quo. Perhaps he simply inferred from the concession that the EU was a weakling to be trampled underfoot.

So much so that The Times has described the US President as the “newest activist investor”

President Trump has inserted the government into U.S. companies in extraordinary ways, including taking a stake in U.S. Steel and pushing for a cut of Nvidia’s and Advanced Micro Devices’ revenue from China. Last month, the Pentagon said it was taking a 15 percent stake in MP Materials, a large American miner of rare earths. And on Friday, Intel agreed to allow the U.S. government to take a 10 per cent stake in its business, worth $8.9 billion. These developments could herald a shift from America’s vaunted free-market system to one that resembles, at least in some corners, a form of state-managed capitalism more frequently seen in Europe and, to a different degree, China and Russia, say lawyers, bankers and academics steeped in the history of hostile takeovers and international business.

When an ultra-powerful President becomes the “activist investor”, the whole economy becomes available for deal-making in the manner he deems useful or appropriate. 

In the US context, to the collapses of institutional checks and balances within the government, and that of the market restraints, one must add the breakdown of ideological bulwarks. It was thought that no matter what, the Republican and Democratic parties would always remain beholden to certain ideological strands. But the assault has demolished even this faith. In the context of the decision of the US government to take a stake in Intel, an FT article writes,

Trump has taken on that dealmaking role for himself, adopting a transactional approach to the presidency that has upended the US government’s treatment of private enterprise and shattered the Republican party’s free-market philosophy. On Friday, the president announced his latest deal: the US government would take a 10 per cent stake in struggling chipmaker Intel, using previously agreed federal grants to fund an $8.9bn equity investment. The move cuts directly across Republican orthodoxy, which touts the benefits of free-market capitalism and broadly objects to state interventions into corporate America.

The article describes these actions as part of the shift towards a form of “state-run capitalism”. In the circumstances, it may not be incorrect to argue that in the battle for global supremacy between the US and China, the Chinese model of capitalism with Chinese characteristics (essentially state-directed capitalism) appears to be winning, at least for now. 

And we are not even talking about how a new normal may have come to be established in political rent-seeking. David Kirkpatrick of The New Yorker has investigated and found that the Trump family may have benefited by $3.4 billion from the Presidency to date. 

For me, the examples of China and the US are good reminders about the tenuous foundations on which orthodox theories stand. It should serve as a powerful reminder about the limits to the great faith that we place in experts and expertise. Far from being expertise-driven, critical decisions on areas like liberalisation, outsourcing and off-shoring, immigration, technology adoption, etc., are prudent judgments that are essentially political choices. Technical expert advice is only one among the inputs that go into informing those political choices. 

For more on this, I blogged here on the problems with the argument on technical expertise and central banking and its independence. I also blogged here, here, here, and here, questioning the wisdom of blind or excessive faith in expertise and experts.

Amidst all these critiques and lamentations about the breakdown of orthodoxy, we should not become blind to several desirable trends. As I have blogged on several occasions (here, here, and here), capitalism, trade liberalisation, globalisation, outsourcing, immigration, woke liberalism, etc., all clearly went to excessive extremes. Now, a much-needed recalibration is happening with vengeance. And some parts of the Trumpian makeover of the US economy and polity are being met with approbation from even traditional critics and opponents. 

Mark Cuban, the billionaire investor and a supporter of Kamala Harris in the 2024 presidential race, said Trump’s decision to push Nvidia and AMD to pay a portion of their China-related revenues to the state was a good redistributive move that should have been supported by Democrats. “This is a ‘billionaire’s tax’ structured as a royalty or sales tax on semiconductors from the most valuable company in the world, sold to China,” Cuban said on X. “Will this make up for the explosion of the deficits we face? Not as it stands now. Not close. But give him credit for knowing how those CEOs approach problems and opportunities, and using his leverage to generate tax revenues,” Cuban added. “POTUS is more progressive when it comes to taxation than anyone in the progressive wing of the Dems has ever been.”… 

Bernie Sanders, the leftwing US senator, lauded Trump’s Intel deal, which mirrored a proposal he had made himself for the government to receive equity in return for subsidies granted under the 2022 Chips Act. “I am glad the Trump administration is in agreement with the amendment I offered three years ago,” said Sanders in a statement. “If microchip companies make a profit from the generous grants they receive from the federal government, the taxpayers of America have a right to a reasonable return on that investment.”

Two areas of particular interest are how Trump moves on Big Pharma and Big Tech. He has already committed to lowering US drug prices by up to 80%. In late July, he wrote to the 17 largest pharmaceutical companies, demanding binding commitments from them to lower drug prices by September 29. 

The letters asked the groups to apply “most favoured nation” drug pricing to Medicaid, the US health programme for low-income people. They also asked drugmakers to offer new medicines at the same price in the US as in other developed countries, and offer direct-to-consumer drug sales that would “cut out middlemen” such as pharmacy companies.

What will happen on September 29? It also remains to be seen what happens with the ongoing antitrust actions against Big Tech. Contrary to what was widely believed, the Biden-era antitrust actions have continued. Landmark decisions on Google and Meta are expected anytime, which could dramatically revise decades-long paradigms on antitrust and makeover the competition landscape in the digital technology sector. It’ll be interesting to see how far this will be allowed to go once the first verdicts come. For example, will Trump intervene with deals that break up Google and Meta?

Successive democratic administrations compromised on their ideals and allowed these excesses to build up. And it has now taken a right-wing populist backlash to tame and recalibrate these forces. Liberals and progressives should take note. 

Finally, the ongoing trends in China and the US are also a reminder about Marx’s famous quote in The Eighteenth Brumaire of Louis Bonaparte, “Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past”. While both Xi Jinping and Donald Trump are creatures that emerged by harnessing the political forces unleashed by the underlying economic, social, and cultural conditions, their individual personalities and contributions to seize the moment and shape it in their favour should not be overlooked.