Month: January 2025
Democracy, Capitalism and Monarchy (Yarvin)
The Yarvin interview in the NYTimes magazine illustrates the change in vibes, but frankly, I was bored. It’s amusing when Yarvin tweaks liberals by pointing out that FDR was an authoritarian, but Liberal Fascism did it better.
More generally, much of Yarvin’s thinking is superficial. He thinks, for example, that capitalism works because firms are monarchies.
Yes. I think that having an effective government and an efficient government is better for people’s lives. When I ask people to answer that question, I ask them to look around the room and point out everything in the room that was made by a monarchy, because these things that we call companies are actually little monarchies. You’re looking around, and you see, for example, a laptop, and that laptop was made by Apple, which is a monarchy.
There are many errors here. First, Apple is one firm among countless others most of which do not produce hugely successful products. The big question is not how Apple produces but how Apple is produced. Firms operate as planned entities but they are embedded in and constrained by a broader sea of market competition. It’s the competitive environment that drives innovation, efficiency, and consumer satisfaction.
Second, Mises was closer to the truth when he wrote in Planned Chaos that it’s the consumers not the producers who are monarchs:
In the market economy the consumers are supreme. Their buying and their abstention from buying ultimately determine what the entrepreneurs produce and in what quantity and quality. It determines directly the prices of consumer goods and indirectly the prices of all producer goods, viz., labor and material factors of production. It determines the emergence of profits and losses and the formation of the rate of interest. It determines every individual’s income…The market adjusts the efforts of all those engaged in supplying the needs of the consumers to the wishes of those for whom they produce, the consumers. It subjects production to consumption.
Capitalist firms are disciplined by the necessity of persuading consumers to purchase their products and by competition. Successful firms must continuously meet our desires and needs to survive. When Apple fails to do so, it will face the same fate as countless firms before it—obsolescence and failure.
Markets do hold lessons about governance, but Yarvin draws the wrong conclusions. Democracy, not monarchy, is the political system most analogous to capitalism. As Mises observed, “The market is a democracy in which every penny gives a right to vote.” The analogy works both ways: voting in a democracy mirrors spending in a market. Both systems empower individuals—consumers or voters—to shape outcomes, whether by determining market success or selecting leaders.
Democracy and capitalism are both examples of open-access orders, systems characterized by dispersed power, low barriers to entry, and transparent, universally applicable rules. Such features foster adaptability, accountability, and broad participation—qualities essential to both economic and political success.
The West does face a modest “crisis” of democracy, but the root of this crisis lies in expecting democracy to do too much. We have collectivized decisions which are best left in the hands of individuals and markets but democracy is not a good way of making collective decisions.
Democracy is best understood as a constraint on government power, akin to a Bill of Rights, federalism, and the separation of powers. Democracy’s virtue is in providing a mechanism to remove bad rulers without resorting to bloodshed and its primary value lies in preventing catastrophic outcomes like mass famines and democide—a significant and undeniable merit. Autocracies and monarchies perform much less well on the big issues and, contrary to what many people think, autocracies do not grow faster, win more wars, or perform better on any meaningful comparison that has been investigated.
It is also essential to recognize that “democracy” encompasses a wide range of structures—parliamentary, presidential, constitutional, and more—and there is plenty of room for improved choice within the broader category. We can improve our democracy.
The real lesson from markets is not to create monarchs but to design systems that create choice and competition and allow citizens to remove leaders when they fail.
Hat tip for discussion: Connor.
The 1920s immigration restrictions
The 1920s immigration restrictions in the US did not affect manufacturing wages.
The US immigration restrictions of the 1920s lowered the occupational standings of whites and incumbent immigrants.
US counties with more immigrants excluded by the quotas of the 1920s saw increased in-migration.
During the Great Black Migration of the US, black southerners moved to northern counties, filling roles left by excluded immigrants.
During the Great Black Migration, blacks who migrated to counties with more excluded immigrants experienced greater economic gains.
That is from a new piece by Bin Xie in the Journal of Comparative Economics. Via the excellent Kevin Lewis.
The Stargate Project
The Stargate Project is a new company which intends to invest $500 billion over the next four years building new AI infrastructure for OpenAI in the United States. We will begin deploying $100 billion immediately. This infrastructure will secure American leadership in AI, create hundreds of thousands of American jobs, and generate massive economic benefit for the entire world. This project will not only support the re-industrialization of the United States but also provide a strategic capability to protect the national security of America and its allies.
The initial equity funders in Stargate are SoftBank, OpenAI, Oracle, and MGX. SoftBank and OpenAI are the lead partners for Stargate, with SoftBank having financial responsibility and OpenAI having operational responsibility. Masayoshi Son will be the chairman.
Arm, Microsoft, NVIDIA, Oracle, and OpenAI are the key initial technology partners. The buildout is currently underway, starting in Texas, and we are evaluating potential sites across the country for more campuses as we finalize definitive agreements.
As part of Stargate, Oracle, NVIDIA, and OpenAI will closely collaborate to build and operate this computing system. This builds on a deep collaboration between OpenAI and NVIDIA going back to 2016 and a newer partnership between OpenAI and Oracle.
This also builds on the existing OpenAI partnership with Microsoft. OpenAI will continue to increase its consumption of Azure as OpenAI continues its work with Microsoft with this additional compute to train leading models and deliver great products and services.
All of us look forward to continuing to build and develop AI—and in particular AGI—for the benefit of all of humanity. We believe that this new step is critical on the path, and will enable creative people to figure out how to use AI to elevate humanity.
Here is the full OpenAI tweet, at the very least these are interesting times to be alive. Here are some comments from Jeff Stein.
Lower Artificial Intelligence Literacy Predicts Greater AI Receptivity
As artificial intelligence (AI) transforms society, understanding factors that influence AI receptivity is increasingly important. The current research investigates which types of consumers have greater AI receptivity. Contrary to expectations revealed in four surveys, cross country data and six additional studies find that people with lower AI literacy are typically more receptive to AI. This lower literacy-greater receptivity link is not explained by differences in perceptions of AI’s capability, ethicality, or feared impact on humanity. Instead, this link occurs because people with lower AI literacy are more likely to perceive AI as magical and experience feelings of awe in the face of AI’s execution of tasks that seem to require uniquely human attributes. In line with this theorizing, the lower literacy-higher receptivity link is mediated by perceptions of AI as magical and is moderated among tasks not assumed to require distinctly human attributes. These findings suggest that companies may benefit from shifting their marketing efforts and product development towards consumers with lower AI literacy. Additionally, efforts to demystify AI may inadvertently reduce its appeal, indicating that maintaining an aura of magic around AI could be beneficial for adoption.
That is from a new paper by Tully, Longoni, and Appel, via the magical Kevin Lewis.
Tuesday assorted links
1. Trump repeals the Biden Executive Order on AI.
2. Artificial Intelligence Asset Pricing Models.
3. No concrete news on tariffs is good news.
4. Less post-training on DeepSeek? And other claims about DeepSeek. And yet further claims — ask o1 pro to explain it to you!
5. Are there national security risks to a Tysons casino? If so, what does this say about our other systems?
7. Yes, there is such a thing as a double-landlocked country. Uzbekistan and Lichtenstein.
Keep an Eye on Crypto Regulation
Crypto regulation is likely to change very rapidly. I expect that SAB 121 will be overturned, perhaps even today. Overturning SAB 121 wouldn’t even be controversial because, as I wrote earlier, Democrats and Republicans in the House and Senate both voted to overturn SAB 121 which was saved only by Biden’s veto.
Essentially, SAB 121 made it prohibitive for banks to offer custody services for crypto because that service would then impact all kinds of risk and asset regulations on the bank. Aside from singling out crypto, the SEC is not a regulator of banks so this seemed like a regulatory overreach.
I also hope that the tax rules on staking are simplified. Staking rewards paid in tokens should not be taxed until sold. Just as apples aren’t taxed when they grow on the tree but only when sold.
There are also a number of interesting cases working the way through the courts. Lewellen v. Garland seeks to clarify that crypto projects that don’t custody funds are not money transmitters (they can’t be since they never control funds and have no way of knowing the customer information that money transmitters must provide to the government). The case is particularly interesting to me because Lewellen, the plaintiff, is suing to set up a crypto based assurance contract based, in part, on my work (see also here with Cason and Zubrickas):
Pharos fills an important gap in the existing cryptocurrency financial system. Lewellen has seen that there are “public goods” that many people would be happy to contribute to financially, but only if supporters can be assured that the full amount to fund the public good will be raised. In other words, they will contribute if they can be assured that the public good will be deployed. Partial fundraising for these projects would not be acceptable. Examples include building infrastructure such as a bridge or hospital, building a war monument, funding an event like a festival or conference, funding a medical trial or scientific study, filing an advocacy lawsuit, or funding a movie production or other cultural good. Nobody wants to pay for these endeavours without knowing that others will pay enough to complete the project.
To address this dilemma, Pharos would deploy the concept of “assurance contracts.” An assurance contract is a system in which contributors commit money that is released to the planned recipient only if the fundraising goal is met by a certain date. Otherwise the money is returned to the would-be contributors. By promising a refund if the required amount is not raised, assurance contracts encourage more public goods to be funded through voluntary contributions. See Tabarrok, The Private Provision of Public Goods via Dominant Assurance Contracts, 96 Pub. Choice 345, 345-48 (1998).
What should AI policy learn from DeepSeek?
That is a Bloomberg column of mine from about two weeks ago. I thought it would make more sense to people if I did not blog it right away. Here is one bit:
Now the world knows that a very high-quality AI system can be trained for a relatively small sum of money. That could bring comparable AI systems into realistic purview for nations such as Russia, Iran, Pakistan and others. It is possible to imagine a foreign billionaire initiating a similar program, although personnel would be a constraint. Whatever the dangers of the Chinese system and its potential uses, DeepSeek-inspired offshoots in other nations could be more worrying yet.
Finding cheaper ways to build AI systems was almost certainly going to happen anyway. But consider the tradeoff here: US policy succeeded in hampering China’s ability to deploy high-quality chips in AI systems, with the accompanying national-security benefits, but it also accelerated the development of effective AI systems that do not rely on the highest-quality chips.
It remains to be seen whether that tradeoff will prove to be a favorable one. Not just in the narrow sense — although there are many questions about DeepSeek’s motives, pricing strategy, plans for the future and its relation to the Chinese government that remain unanswered or unanswerable. The tradeoff is uncertain in a larger sense, too.
To paraphrase the Austrian economist Ludwig Mises: Government interventions have important unintended secondary consequences. To see if a policy will work, it is necessary to consider not only its immediate impact but also its second- and third-order effects.
Travis Fisher on electricity privatization (from my email)
I’m a long-time reader and first-time emailer. I just read your blog post from earlier this month about privatizing public services like water and electric utilities.
My colleague Glen Lyons and I are developing a way to introduce more competition into the electricity sector, which some believe to be hopelessly uncompetitive. The idea is to allow new, large electricity customers to form new electricity networks. The change to state statute would officially introduce contestability into many markets, and we think actual rival networks would be built to satisfy new load. They would probably have to be large, electrically, meaning they would likely need to serve multiple large customers (today you can go off-grid, but only to supply yourself).
We aren’t necessarily trying to revolutionize the existing grid or change the way a typical residential customer receives electric service, although there may be beneficial spillover effects for all customers. And the idea is not brand new (I find myself agreeing with many of Wayne Crews’ views from the late 1990s), but the concept’s technological feasibility is at an all-time high, and the flood of new demand from data centers and new manufacturers is creating the right political environment to enact new policies.
Here is my description of the policy: https://www.cato.org/blog/what-would-consumer-regulated-electricity-look
Plus an interview we did recently: https://secondpower.substack.com/p/wacc
Here is the Cato bio of Travis Fisher.
The case for democracy (from the comments)
Monday assorted links
1. Is Vietnam following some aspects of Milei?
2. Piketty and Sandel on what went wrong for the Left (NYT).
3. The wisdom of Ross Douthat: “A key paragraph in an @arisroussinos piece on Keir Starmer’s fading worldview, with applications to Canada among other nations; the attempted de-nationalization of 2nd-tier powers by their own elites actually leaves them more in thrall to the US imperium.”
4. Statue of Peru’s Spanish conqueror Pizarro restored to central Lima amid controversy.
6. Ghost towns of Greenland (FT). A good piece, several points of interest in there.
DeepThink from DeepSeek
DeepSeek-R1 is here. Try it — it is amazing, free and open source. Go to the main site and press “DeepThink” for superior performance. Marginal cost remains difficult to measure, but almost certainly far cheaper than the main models. A big day, most of all for Africa. Some commentary. Here is the research paper. Here is a Reddit thread. One version you can run on a Mac. Hat tip for Nathan on some of the links.
Atlas Shrugged as Novel
The conversation between Henry Oliver and Hollis Robbins about Atlas Shrugged as a novel is excellent. I enjoyed especially the discussion of some of the minor characters and the meaning of their story arcs.
Hollis: There are some really wonderful minor characters. One of them is Cherryl Taggart, this shop girl that evil Jim Taggart meets one night in a rainstorm, and she’s like, “Oh, you’re so awesome,” and they get married. It’s like he’s got all this praise for marrying the shop girl. It’s a funny Eliza Doolittle situation because she is brought into this very wealthy society, which we have been told and we have been shown is corrupt, is evil, everybody’s lying all the time, it’s pretentious, Dagny hates it.
Cherryl Taggart is brought into this. In the beginning, she hates Dagny because she’s told by everybody, “Hate Dagny, she’s horrible.” Then she comes to her own mini understanding of the corruption that we understand because Dagny’s shown it in the novel, has shown it to us this entire time. She comes to it and she’s like, “Oh my God,” and she goes to Dagny. Dagny’s so wonderful to her like, “Yes. You had to come to this on your own, I wasn’t going to tell you, but you were 100% right.” That’s the end of her.
Henry: Right. When she meets Taggart, there’s this really interesting speech she has where she says, “I want to make something of myself and get somewhere.” He’s like, “What? What do you want to do?” Red flag. “What? Where?” She says, “I don’t know, but people do things in this world. I’ve seen pictures of New York,” and she’s pointing at like the skyscrapers, right? Whatever. “I know that someone’s built that. They didn’t sit around and whine, but like the kitchen was filthy and the roof was leaking.” She gets very emotional at this point. She says to him, “We were stinking poor and we didn’t give a damn. I’ve dragged myself here, and I’m going to do something.”
Her story is very sad because she then gets mired in the corruption of Taggart’s. He’s basically bit lazy and a bit of a thief, and he will throw anyone under the bus for his own self-advancement. He is revealed to be a really sinister guy. I was absolutely hissing about him most of the time. Then, let’s just do the plot spoiler and say what happens to Cherryl, right? Because it’s important. When she has this realization and Taggart turns on her and reveals himself as this snake, and he’s like, “Well, what did you expect, you idiot? This is the way the world is.”
Hollis: Oh, it’s a horrible fight. It’s the worst fight.
Henry: Right? This is where the melodrama is so good. She goes running out into the streets, and it’s the night and there are shadows. She’s in the alleyway. Rand, I don’t have the page marked, but it’s like a noir film. She’s so good at that atmosphere. Then it gets a little bit gothic as well. She’s running through the street, and she’s like, “I’ve got to go somewhere, anywhere. I’ll work. I’ll pick up trash. I’ll work in a shop. I’ll do anything. I’ve just got to get out of this.”
Hollis: Go work at the Panda Express.
Henry: Yes. She’s like, “I’ve got to get out of this system,” because she’s realized how morally corrupting it is. By this time, this is very late. Society is in a– it’s like Great Depression style economic collapse by this point. There really isn’t a lot that she could do. She literally runs into a social worker and the social– Rand makes this leering dramatic moment where the social worker reaches out to grab her and Cherryl thinks, “Oh, my God, I’m going to be taken prisoner in. I’m going back into the system,” so she jumps off the bridge.
This was the moment when I was like, I’ve had this lurking feeling about how Russian this novel is. At this point, I was like, “That could be a short story by Gogol,” right? The way she set that up. That is very often the trap that a Gogol character or maybe a Dostoevsky character finds themselves in, right? That you suddenly see that the world is against you. Maybe you’re crazy and paranoid. Maybe you’re not. Depends which story we’re reading. You run around trying to get out and you realize, “Oh, my God, I’m more trapped than I thought. Actually, maybe there is no way out.” Cherryl does not get a lot of pages. She is, as you say, quite a minor character, but she illustrates the whole story so, so well, so dramatically.
Hollis: Oh, wow.
Henry: When it happens, you just, “Oh, Cherryl, oh, my goodness.”
Hollis: Thank you for reading that. Yes, you could tell from the very beginning that the seeds of what could have been a really good person were there. Thank you for reading that.
Henry: When she died, I went back and I was like, “Oh, my God, I knew it.”
Hollis: How can you say Rand is a bad writer, right? That is careful, careful plotting, because she’s just a shop girl in the rain. You’ve got this, the gun on the wall in that act. You know she’s going to end up being good. Is she going to be rewarded for it? Let me just say, as an aside, I know we don’t have time to talk about it here. My field, as I said, is 19th century African American novels, primarily now.
This, usually, a woman, enslaved woman, the character who’s like, “I can’t deal with this,” and jumps off a bridge and drowns herself is a fairly common and character. That is the only thing to do. One also sees Rand heroes. Stowe’s Dred, for example, is very much, “I would rather live in the woods with a knife and then, be on the plantation and be a slave.” When you think about, even the sort of into the 20th century, the Malcolm X figure, that, “I’m going to throw out all of this and be on my own,” is very Randian, which I will also say very Byronic, too, Rand didn’t invent this figure, but she put it front and center in these novels, and so when you think about how Atlas Shrugged could be brought into a curriculum in a network of other novels, how many of we’ve discussed so far, she’s there, she’s influenced by and continues to influence.
“Be careful what you wish for, you might get it!”
I said that to Ezra Klein about the current rightward vibes shift. What are some of the scenarios I had in mind?:
1. If the Republicans regulate social media companies to discriminate less against “the Right,” those regulations may someday be used against them.
2. Personal presidential issuance of crypto assets is not always (ever?) a good thing or lead to the right incentives. In the meantime, it might serve as a daily referendum on how much of a lame duck presidency we are having, a mixed blessing.
3. The conspiracy theorizing promoted by Trump and various minions could someday come back to bite them, or to sink Vance, or…I guess we will see. Don’t think you can keep this genie in the bottle, or use it only for preferred ends.
4. DOGE successes might centralize power in the executive branch in a manner that the Republicans later regret. That centralization can be more easily be used to expand government regulatory power than to contract it.
5. If there is a pandemic under Trump’s term, the cultivated anti-vaccine sentiment could make it much worse.
6. Rhetoric on taxes and central bank independence could (further) raise real interest rates, damaging the economy and also Republican electoral prospects.
7. The dwindling of various “safeguards” on rhetoric, as the Woke are dismantled, could end up harming later Republican or right-leaning targets of harmful rhetoric, including from other right-wingers. Some of you may feel this is absurd, but just wait.
8. I don’t think we really know what it would mean (will mean?) to put feminization seriously in reverse. I would note I see myself as a significant beneficiary of our more feminized society. I am pleased if more women decide to become “trad wives,” but it is not the circle I will hang around in either. This one really needs much further thought from its advocates, it is not enough to be fed up with the recent excesses. A lot of the people who claim to want more “trad wives” actually want more super talented women who can do that and be very successful in a career at the same time. I am all for that, but I also recognize when I am asking for a free lunch of sorts. I am not sure how elastic the supply is there. Nor am I sure how much such a change might boost birth rates — Iran anybody?
9. To the extent Trump succeeds, American politics will become all the more personality-driven. I see that as a mixed blessing, most likely more negative than positive in the longer run.
10. If Trump does something good for a foreign country you like or favor, he may ask for his pound of flesh in return.
Those are only a few options, the list is really pretty long. I am not panicked about the status quo, but I see it as fraught and unstable. And we haven’t even touched upon AGI advances.
More generally, I would stress that even the most optimistic person should not relinquish his or her sense of the tragic. A lot of Democrats were pretty ecstatic when Obama won a second term, but how happy are they now? Is that just them, or could it be you too?
I’ll say it again — be careful what you wish for, you might get it. The celebratory perspective can be important for getting things done, or for maintaining ideological coherence, but accuracy matters too, and the more accurate perspective should take all this into account.
Sunday assorted links
1. “AIs exceed humans on every major creativity test we give them, like the Torrence Test, but it isn’t clear what exactly that means.” And in Turing tests, GPT-4 is judged more human than the humans.
2. Inference Magazine, a new magazine about AI progress.
3. Determinism continues to look more plausible.
4. NYT interviews Curtis Yarvin. Brian Chau has some commentary.
5. Speculative claims about AI and the biosciences.
6. The growing demand for private fire hydrants (WSJ).
7. Henry Oliver and Hollis Robbins podcast on Atlas Shrugged.
8. “But in historical periods of weakened central authority and/or during civil wars, emperors would often launch their own coins.” Partly but not entirely true, o1 pro comments.
Ezra Klein on the vibe shift
In July of 2024, Tyler Cowen, the economist and cultural commentator, wrote a blog post that proved to be among the election’s most prescient. It was titled “The change in vibes — why did they happen?” Cowen’s argument was that mass culture was moving in a Trumpian direction. Among the tributaries flowing into the general shift: the Trumpist right’s deeper embrace of social media, the backlash to the “feminization” of society, exhaustion with the politics of wokeness, an era of negativity that Trump captured but Democrats resisted, a pervasive sense of disorder at the border and abroad and the breakup between Democrats and “Big Tech.”
I was skeptical of Cowen’s post when I first read it, as it described a shift much larger than anything I saw reflected in the polls. I may have been right about the polls. But Cowen was right about the culture.
And the end bit:
Cowen may have correctly called the shift in vibes, but he isn’t particularly comfortable with it. If 2024 was partly a backlash to the Democratic Party and culture of the last four years, what might a backlash to this more culturally confident and overwhelming form of Trumpism look like?
“I’ve taken to insisting to my friends on the right: ‘Be careful what you wish for,’ ” Cowen told me. “You might get it.”
Here is the full NYT column.
That is from Hadur.