Every Major System Is Breaking at the Same Time — A Tech Insider Balaji Maps What Comes Next

America doesn't exist. There's blue America and red America and tech America and all these different subtribes within it. The word American is like the word Korean. Yo, you're saying something here.

Digital AI disrupts Democrat jobs and physical AI disrupts Republican jobs. Democrats destroyed democracy in California. And the reason is California is a one party state. The MAGA understanding of the world is that the world is exploiting Americans. A few hundred bucks going to people in Maui, for example, when their houses burn down, but billions going to Ukraine. Walk me through how America breaks apart if this continues. I have obviously been all over your X feed paying attention to everything that you've been talking about and I think you are uniquely qualified to address uh what's going on right now. AI is taking a crazy amount of jobs. The entire world order is changing in violent fashion and what I want to know is what is causing all of the disruption and how are the smartest people in the world responding to it.

AI is highly productivity increasing and with that productivity increase you can do one of two things. You can a cut cost, slim down, flatten the hierarchy and so on and so forth, right? By essentially um AIing your operation or B you can keep your operation the same size and then increase what it does, right? So you can get basically more. So it's like a productivity bump where you can do more with less or you can do more with more. Uh let me give some specifics, right? So if you just take a look at the link that I just shared with you, right? One way I think about it is, you know, Ray Kurzweil's thing of the singularity is here.

Yep. Right? So what if you had the plural version? The singularities are here, right? Meaning there's actually many curves that are going voof like this, you know, up and up and to the right or down and to the right very fast, right? And let me show you some of them. Okay, so this is like the solar singularity, which is showing that in Africa, solar power is just absolutely mooning.

It's wild. For anybody not looking at their phone right now, these are straight lines up. Yes. And this is kind of like when smartphones just started working. When smartphones started working, they just went like, you know, the when the economics work, it gets taken to its logical conclusion and just suddenly they started getting snapped up in Africa. They solar panels have gotten so robust, so cheap. They're resistant to like rocks hitting them and so on. You know, the glass doesn't shatter. They can just work anywhere. You know, I'm a big nuclear guy. I love nuclear, but it's really nuclear and solar, not ore. And the reason is solar is just so easy to set up relative to nuclear. You can just roll it off the truck or whatever. Set it up. You know, it's much, much easier permit-wise, everything-wise. It takes up way more horizontal space. It's not as scalable. It doesn't provide like, you know, reliable power in the same way. The batteries are improving that. Anyway, point is though, solar is real. It's no longer like uh it can work in Africa without subsidies. Okay. So, that's the solar singularity. Okay. Here's another one. The internet dating singularity. You see this one?

Yep. Right. Essentially, all previous modes of how humans meet have been replaced, right? By just the internet in like 10, 20 years, right? Okay. Then here is the gold singularity. Just this I'm sure you've talked about this on your show, right? Just gold going voof like this since you know the 2024 election, right? Basically more than doubling.

Um, here is the robot singularity. Not quite like as up and to the right as that, but it's pretty up and still right.

It's impressive. That's right. Um, this is like the tariff singularity, so to speak, right? Just what I'm talking about are these radical changes like this, like this, you know, right?

And um, then this is like the agent. Now, this one, by the way, is there's a very, very interesting comment. You you've seen this one which is like the time for tasks an agent can do, probably, right?

It basically says, "Oh, agents are getting more and more capable. They can do more and longer what a human can do and so and so forth." After I posted this, somebody actually in a useful way on X gave me feedback and there's a whole post that I'm going to put up which says this is actually a flawed uh chart that basically um these this is not actually uh it's not actually a good measure of how long those things can take, right? It's not a true benchmark. Um, and it's uh it's something where it's like what a human can do, this thing can do in some amount of time, 50% accuracy rate and so on and so forth. But it's it's a they think they argue it's a very tortured benchmark. So I'll give that citation afterward. So this one big train, big grain of salt and it may actually write a post detailing that critique and giving it more distribution. Nevertheless, a lot of people think this is happening, right? And I think it's happening to some extent, maybe not quite as much as this. Why is it happening to some extent? Well, clearly you and I have used Claude co-work. Clearly, it can do more tasks for longer than it could in 2022.

Yeah. I always ag the the on the ground reality of using AI is startling.

Yes, that's right. It's so so the there's an argument of this graph. There's a counter-argument that that uh critiques the numbers in this graph and the benchmarks. There's a counter-counter argument which is it definitely has been increasing, right? So how much is TVD? So let's at least say there's something there. Fine. Then this is not quite uh this is kind of what you were talking about, not quite a singularity but certainly a downward slump right over here, right? And you can see something like this for religiosity is also, you know, collapsed, right?

Um, this is a big one, which is the gender divergence in many countries, ideology gap between like, you know, uh women and men.

Crazy.

Yes.

And this is something where in many ways the parties are basically women versus men is left versus right.

Are you do you see like, okay, this is a lot. We're going to start losing people just because it's so many so many.

Um, is there one driving mechanism that's creating all of this?

Yes. I think the internet is upstream above everything and why I think the so the reason I gave all those graphs is to show that it's not like many people just focus on one disruption. But in physics, for example, you have to have a force diagram. For example, if you throw a ball, like uh or let's say there's a rocket, right? Gravity is acting downward on it, but the rocket engine is acting upward on it. And you have to take the balance of this upward force and this downward force and then you get the trajectory of the thing. And if the rocket engine is changing, it's you know, ve like the the if the force that it is applying is itself changing, you have to calculate all this stuff out, right? So it's not simply enough to look at one force in isolation. You have to look at what's called the force diagram. Okay? So what I do is I enumerate as many of these things as I can on individuals, on businesses, on on countries, on sectors. And I try to say where is like the net state of this gonna be. Okay.

So, um, let me give the upstream and then let me give you explain what you mean by the net state of it.

Sure. Sure. Sure. So let me give a concrete example. Let's say, let's take uh AI. Okay. So AI is something that actually goes after um what kinds of jobs does it disrupt? Basically, digital AI disrupts Democrat jobs and physical AI disrupts Republican jobs.

That is such an interesting way to look at it. Yeah, I get it.

Okay. So, so digital AI goes after uh journalists, doctors, lawyers, uh bureaucrats, artists, right? Everybody who is like, you know, a uh a university educated creative, how Democrats like to think of themselves, right? It disrupts media. It disrupts Hollywood, right? Okay. And conversely, um, physical AI disrupts uh, manufacturing and disrupts the military. Everything Republicans pride themselves on, right? What is physical AI? Physical AI is robots, right? Digital AI is agents to first order. Okay? And um, so with physical AI, that's Chinese robots. Digital AI is internet agents. Okay? And so when you when you see that this is causing this disruption on Democrats and Republicans, on blue Americans and red Americans, they're both going to counterattack it. Democrats more aggressively because the physical AI hasn't I mean, it's partially hit the Republicans, but it's not really all the way there yet, right? They perceive it through the mechanism of China.

You think they will fight as hard when it hits them as hard or is there a difference in uh strength of reaction based on party?

For now, there's a difference in strength of reaction based on party because it is a total L for Democrats and it's only it's a partial W for Republicans because it's certainly hurting Democrats more than it's hurting Republicans right now. So, blue states are going to be more aggressively anti-AI than red states. For example, New York is passing laws that like restrict the use of AI. Uh like you have to consult with a lawyer or something like that before using AI for legal docs or it's not privileged. There's various rulings like this that are sort of legal guild type rulings, you know, right? And um there'll probably be workarounds for that like, you know, an inexpensive lawyer for whatever five bucks an hour. Now it's under now you're they're your lawyer and it's under privilege and then you can use privileged AI. There'll be various workarounds I think you'll see for that. Nevertheless, blue states are very much anti-AI. It disrupts their sense of self, right? Like what they take pride in. You know, basically roughly speaking, Democrats will be and are as mad about the disruption of the internet as Republicans are mad about the disruption of China.

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Now, is this a um uniquely American thing or the correlates in other western countries hold true?

It's particularly true for America. Um, it's to a lesser extent true because the thing is a lot of other western countries were disrupted by America already.

And so this is like the disruption of the disruptor. And um, so they're like two cycles behind in a sense, right? Uh, which means some of them could leapfrog. But I I think many in Western Europe are just kind of going to have a bad century.

Okay, aggressive. I like it. Yeah. Yeah. The reason, well, just very, very briefly on that, is I think many countries, not all, but many countries had a terrible 20th century. They were under communism, they're under socialism, you know, that's Eastern Europe, Russia, um, India, China, Southeast Asia with Vietnam and so on, Vietnam War, right? All these all these places that had a terrible 20th century, u actually including big chunks of Latin America, which were, you know, places like El Salvador and so on that had drugs, inflation, crime, right? They developed civilizational antibodies to communism, socialism, uh, inflation, drugs, right? And thus arose, for example, uh, you know, the basically capitalist regimes in um, or regimes, governments, what have you, in Eastern Europe, in India, right? That reversed decades of decline. And uh, similarly, you know, Bukele or Malley or now Hernando de Soto in Latin America, that's three um, you know, three is a trend, right? Three basically capitalist uh leaders who are against what, you know, basically tore down Latin America last century, right? For the most part. So, but on the other side of things, you had Western Europe and the US and Canada that have been so prosperous for so long that they ended up thinking prosperity was their birthright and essentially degenerated. Right.

I I agree so aggressively I'm getting a cramp.

Yes. So now here's the good news. The good news is I do think that um unfortunately America is over, but the internet is just beginning.

Okay, bold statement. So before we just blow past that.

Yeah.

Give me let me go back to the previous.

Yeah.

Do you need to touch on that first because I want to understand the mechanism because I have a hypothesis about that.

Okay.

For me, this is this is a debt question and and any answer that does not include debt in terms of America's ALS, I would be uh very aggressive in my rebuttal. I'll say that.

Totally, totally agree with you. It but it is like a force diagram where there's multiple forces acting at the same time. Right. So um.

Do you think debt is bigger or internet?

Debt is the inflationary force.

And China and the internet are the deflationary forces.

Deflationary from a crisis-led position because deflation from innovation is wonderful. Deflation from crisis, bad.

Uh, deflation from innovation. So basically the existing system, the US and Western European system is essentially at the end of the line where you have um decades of Keynesianism. Keynesianism and.

Can on what you mean by that?

Sure. Yes. Keynesianism is like communism but for wimps.

Okay. Communism goes like when the communists want to take 10%. Is that good? Right. That's fantastic.

Okay, so let me explain what I mean by that. Soviet communism, uh, when Lenin wanted to go and steal all the property, he actually, you know, Lenin's hanging order, for example, like kill the Kulaks and so on. They basically had lists of all the farms and so on in in the country, and they would send guys with guns to kick in the door. They'd rape the wife, they'd kill the father, they'd take the son to a gulag. Brutal, brutal. This is what collectivization meant, right, for the people, right? It meant the party would basically steal all this property. And a farm, by the way, is like a factory in the sense of, you know, how do you actually grow the the beets or the radishes? It's like a whole process of how you aerate them and irrigate them. And if you all all that knowledge went away when you killed the farmer or or stole the farm, which is why all these famines resulted. It's like a machine that you don't know how to operate. Anyway, point is, in order to do that, they had to actually go physically house to house and shoot people and take their stuff. Okay? To steal 10% of the property, they actually had to have physically guys with guns. American Keynesianism has innovated on that. Why? Because they don't have to. When when the Fed wants to steal 10% of of all property, right? They just hit a button and they inflate the money supply and nobody feels it. In fact, some people even think that they've gotten richer because their asset prices have gone up.

Right?

Because their house price or or their, you know, S&P or whatever has gone up in nominal terms. But it's like, uh, you know, let's say there were 10 units of stock and you had one and you had 10%. Okay? Now, another, uh, 90 units are issued and you get one, right? So you went up nominally from one unit of stock to two units of stock, but you went down percentage-wise from one out of 10 to two out of 100. Right? So, so your nominal went up from 1 to two, but your percentage went down from 10% to 2%.

That's exactly what's happening with inflation. People can understand it when it's dilution on a cap table, right?

Um, the average person doesn't even know what a cap table is.

Fine. Okay, you're right. But.

You know what I mean. So, so the thing is it's just abstract enough that when for example when people are at Chipotle, okay, I don't know if you've seen this phenomenon of people videotaping the guy at Chipotle because they're not giving them enough guacamole.

I have not.

Okay. Well, the the common man just sees all of these corporations trying to nickel and dime them and give them less guacamole for the same amount of money, uh, hitting them with shrinkflation in terms of packaging. The quality of food is going down. The quality of service is going down. They're seeing all that and they're thinking these corporations are getting greedier.

What they're not seeing is that both the individual and the company, which is of course also run by individuals, have both been robbed by the Fed.

Yeah.

So they're both having to do more with less. And so every economic relationship, the Fed has stolen 10% from the economy with that print and it's left everybody else to fight over the scraps. And it does it again. And then it shrinks the amount of wealth, but it does so invisibly because it's stealing it for itself. That's why I say Keynesianism is communism, but for wimps, because like in evolution, you know, camouflage evolves all the time, right? Like, you know, a a mosquito anesthetizes before drinking the blood, right? Versus a saber-tooth tiger that you can see coming, you know? Or um, you have what what do people in the military wear? They wear camouflage, right? What's a stealth bomber? It's that's camouflage. Um, it's both engineered and evolved in nature. Like a snake has camouflage, right? So Keynesianism is communism that's evolved even more camouflage. Communism already had camouflage because it portrayed itself as sharing and caring, but it was actually, you know, stealing and whatnot. Keynesianism.

Go ahead.

No, I was just agreeing.

Right. So Keynesianism is even more abstract where it surrounds itself with all kinds of nonsense mathematical symbols. By the way, the Soviets did that as well. They had all these schools of Marxist economics and, you know, there was some real math that came out of it, but for the most part, their premises were wrong. So their conclusions were wrong. Okay. And Keynesianism, the fundamental premise of Keynesianism is wrong, which says that and it gets inflation deflation point. Basically, Keynesianism says rapid inflation is bad, but deflation is also bad. Why? It would cause hoarding. Okay. So therefore, a gradual amount of inflation, what they call the New Zealand 2% target every year, is is good, right? Because that in allows the money supply to inflate to accommodate for growth and so on and so forth. And what they mean by hoarding, by the way, is if your unit of account, let's say, let's say your dollar became more and more valuable every year. Okay? Eventually, it would get to the point that to buy a house, you would have to, it'd be one whole dollar. Okay? And you'd have to, you wouldn't be able to break it up into pieces. So it would be 1 cent per house. Okay? And then they'd say, "Oh, that cent is too valuable. Therefore, you know, we need to actually devalue it. So now it's liquid enough that you can trade." Right? This may have been an argument in the past, but it's not actually an argument in the present because in the digital era, you can just add a decimal place, right? So you can get around liquidity traps. So, so this is the whole argument for why they inflate or whatever by simply adding a decimal place in the digital realm. So, anyway, that's a whole separate point. Coming back, the premise of Keynesianism is that lots of inflation is bad, but deflation is also bad. And deflation, by the way, for the average person, they under normal circumstances, they would think of deflation as good. Why? Things get cheaper every year because of technological improvements. Like, you know, for example, there's a new process, the Haber process, it makes like ammonia, you know, cheaper to produce, right? That should bring down your costs. That's a great example of technological innovation reducing costs, right? Um, all the stuff that we have on the internet is reducing costs in the digital realm. It's so much cheaper to search for flights, you don't have to go to a travel agent, to look up medical advice or something like that with an AI agent. All those things are deflationary. The um, the alternative to Keynesianism is essentially the idea of technological hyperl that actually we should accelerate that actually everything should get cheaper every year. Houses should get cheaper, everything should get cheaper. And the Keynesian would say, "No, no, no, that if everything gets cheaper every year, this is other reason they say not to do it. They say everyone would hoard their money. They wouldn't if if it if something got cheaper next year, why would you buy it ever? You just wait for it to get cheaper. You would hoard your money. There would be no economic activity." That's their theory. But there's a counterargument to that as well, which is Moore's Law in practice. Computers actually have gotten cheaper. Like, you know that a Mac, for example, is going to be better in a year or two years, you know, whether it's literally transistor density doubling every 18 months, that's the technical definition. Moore's Law, you know, broadly, computers get better pretty quickly. Nevertheless, people buy computers really, really, really, I mean, they spend a lot of money on computers. They're not waiting. Partially because that deflation itself creates economic opportunities. So the value of waiting for that productivity instrument versus getting it today and then building on it is is, you know, there's a time value. Anyway, people buy things when they want them. So it is what it is. But what we were trying to address is you were saying that you have a deflationary effect from China and the internet, and I'm trying to figure out if you're saying that's a good thing or a bad thing.

It is a good thing. Thank God it exists.

Well, help us understand because from an American context, China uh eating our lunch does not feel like a good thing. China taking jobs does not feel like a good thing. Like I I think most people here are pretty keenly aware that we're now in a cold war with China.

Let me take it out of the American perspective for a second to make it a little less emotional. Okay, for the average Russian in the '80s, their quality of life dropped dramatically when communism ended. And their main geopolitical rival were were the Americans. And they lost territory. They lost life expectancy. They had drug overdoses. They had mafias running their things. All kinds of bad things happened to them after the end of communism. Still, in the medium to long run, few Russians would want to go back to communism.

Like it was like net even if they didn't like they still don't like the Americans. They're still in fact fighting the Americans, right? Nevertheless, it was good that there was an alternative to communism, right? That is a complex thing that doesn't just it's not a Hollywood thing of good versus bad, right? It was short-term bad in many ways. It was arguably long-term good in some ways. Though, of course, it's not a Hollywood ending because obviously like the Russians, while they may be capitalist in some way, they're also mad about losing their empire. You know, they have very conflicted, everybody has a very conflicted relationship to the whole Soviet Union because Russians were big and strong then. They had bases in Vietnam and Angola. they they were big and strong around the world and didn't they help beat the Nazis, right? And then conversely, uh, all the people in like Eastern Europe would say, "Well, yeah, but you the Russians occupied us and they forced Russian on us and you know, and communism was imposed on blah, blah, blah." Everybody has like all kinds of recriminations when an empire breaks down. So in the same way, Keynesianism is bad for Americans, just like communism is bad for Russians. And a lot of people in cryptocurrency understand that. They understand that it's unhealthy and they also understand that they need to kick the habit at some point. And in fact, they are being forced to kick the habit because in the absence of a counterforce to Keynesianism, what happens is they don't just take 10% of the wealth, they take 30% and 80% and then 99% because they can print infinitely, right? That's what.

So I'm going to I'm going to give you that the internet is like that. The internet's a big win for that and for no other reason than we can have cryptographic currency that acts as a lifeboat. Hard money. I can exit out of the Keynesian madness. I'm not tracking on China. China is also printing their own money. Uh maybe one day they'll back it with gold. But I'm what I'm I get from a they make cheap widgets. Yay. But they also cratered the jobs. So from a US perspective, that argument feels a little bit muddy. So I'll pull out of that unless you think there's really a way to land that plane. Otherwise, we're going to end up debating that endlessly.

I I want to land the plane. I want to land the plane. And so the thing is.

It is hard to have binocular vision because like if one is on let's say center right in in in America, you're basically going to see China as bad because it is bad for the center right American on balance. And if you're center left or left, you're going to see the internet as bad because it is bad for Democrats on balance from a jobs and stature standpoint and so on. Right? However, um I would say that uh when just to address two quick points and let's come back up the stack. When China prints money, it is also doing an asset seizure, right? Because just like Keynesianism, the difference is they don't have a global reserve currency. So they're it's basically just like a tax on their own people. Number one. So that's a big difference. They're not exporting it to others. And number two is with that tax, they've actually allocated it intelligently because they have better central planners than America does. Why do they have better central planners? It's because uh at every level, like the way the Communist Party works is um you run a thousand-person town and then you can run a 10,000-person city, small city, then 100,000-person and so on and so on. It's like a it's like a giant corporation where you get promotions based on both patronage and your numbers. And essentially the deal that Deng Xiaoping made after taking over China and making it capitalist in 1978 is that the the guy who ran a million-person city could take 10% off the top and become a billionaire if he increased the productivity of that city by 10 billion. So it's as if they had an informal equity stake via corruption.

Right now.

That's so wild.

It's wild. Right? And there's a book called How China Works on this. Now, the thing is like corruption is bad. What you prefer is the Singapore style where public officials are just incorruptible and they're paid well and and so on and so forth because they're managing these giant budgets. So, you get highly competent people running them, right? However, while corruption is bad, communism is more corrupt and worse. So moving towards that corrupt kind of intermediate state meant that these guys who were running these cities had some incentive, a significant incentive, to allow for economic growth within their cities. And all these Chinese cities competed with each other. And as a consequence, that's why China rose. There's more I can say about it, but basically um the uh the point being that when China prints money, they actually use the tax. A it's mainly a domestic tax. B they use it more intelligently because they have better central planners. Why do they have better central planners? Because they're actually naturally selected for kind of an entrepreneurial type within China, in part, a quantitative type, which they're not in America because they can get a cut of it in China, which they can't really in America, as I'll get to. And then finally um they get another benefit from it, which is the one that people talk about, which is from the perspective of exports, their uh currency being low in value means that their exports are cheaper abroad. So essentially they get multiple benefits out of it if they can allocate the money correctly. The problem is for America is that the global reserve currency is the greatest business model of all time. So the difference with the American Keynesianism is uh that when a dollar is printed, it's dollar inflation is global taxation. So it is not being imposed on 300 million Americans. It's being imposed on the billions of dollar holders worldwide who hold dollars directly or indirectly. For example, they hold uh stocks which can only be bought in dollars or they have Delaware companies or something like that, right? Basically, they're part of the US financial legal system directly or indirectly, right? I mean, to to give you some sense, even in the 2010s, Alibaba, China's most valuable company, went public on the NY.

Right. That was how ridiculously dominant the US financial legal system was. Okay? So dollar inflation is global taxation. Actually, it inverts the traditional MAGA understanding or the MAGA understanding of the world. The MAGA understanding of the world is that the world is exploiting Americans. And there's some truth to this where like you have a few hundred bucks going to people in Maui, for example, when their house is burned down, but billions going to Ukraine. And the MAGA person does see that and there is truth to that. They're saying, "We are citizens of America and we're getting no money, but these foreign wars are getting money. What's going on?" And so and so forth. That's true. What they're not seeing, however, is the more subtle and invisible thing, which is the global taxation where billions of people are being taxed by dollar inflation. And uh Americans, as as a set, are benefiting from that, even if the red American gets it last. Why did it say Americans as a set? When the money is printed, blues got it first because blue banks would get it first. That's the so-called uh that's another key part of it, which is the um the Cantillon effect, right? You take these simple principles and you combine them and you get a fairly complicated dynamic, right? The Cantillon effect says basically whoever's closer to the money printer gets it first.

Okay? So, for example, visualize them rolling off a bunch of new hundreds. They don't actually do it like that. They hit a button digitally, but if they roll off a bunch of new hundreds, a bunch of new counterfeit $100 bills, the first guys who get those hundreds, like the banks, can use them to buy assets and so on. And then eventually eventually it filters down so that some cashier in Kansas gets that counterfeited new $100 bill, but its purchasing power has crashed by the time it gets to them.

Yep.

Okay. So the red American is correct in a sense. They feel that something bad is happening to them and their intuition is correct, but the mechanism is important. It's not that the person in Thailand or Uruguay is oppressing the red American. They're also getting taxed by the dollar empire.

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The dollar empire, just um to get back to the initial question, which is what what is it about this moment that's causing all of this change?

Ah, yes. Right.

So, it feels to me like what you're saying is we are in uh late-stage empire. Keynesian economics has run its course. We are in a post-World War II era where there's been stability for so long that people begin to think this is a birthright. And you layer on top of that the internet changing the world, globalizing things more, and you get this convergence of factors where uh you have entitled people who are expecting a whole bunch of stuff for free. They're getting that stuff for free by printing, not recognizing that that printing is generating massive amounts of debt, which is generating massive amounts of inflation. Uh, and you have a rising China, which is completely disrupting the world order in terms of you've got a rising superpower now to challenge the declining superpower. And so, you put all that together, it's just inevitably going to be this moment of tremendous change. And now on top of that, let's layer on what is the most transformational technology certainly since the internet. I would say it's going to be even more transformational than that. But regardless, you've got this one-two punch of internet, followed by internet, chased by multiple economic crises brought to you by debt and money printing, followed by the next radical transformation technologically when we haven't even finished dealing with the internet.

Yep.

That's right. Here's my story. In 1991, right at the end of the Cold War, okay, the US was the hyperpower, the most dominant power ever in history. And Democrats and Republicans were dominant, and the internet was tiny, and China, China was tiny. Okay.

Basically commerce on the internet, there's something called the NSF Acceptable Use Policy. It was only actually legalized in 1991, and China was only 10 years into going capitalist. Okay.

By 2010, this is the first really important graph. Do you see this graph? You see it says newspaper advertising revenue adjusted for inflation.

Yep.

So, let's call the newspapers a proxy for Democrats, okay? Because they're 90% Democrats or what have you in terms of journalists, right? Their peak was 2000, right? People I think in retrospect will say peak America was 2000, 2001, right before 9/11. Okay? So their peak was here and then they kind of flatten and then crash after the financial crisis. And look at how Google's revenue and Facebook's revenue, the green chart, just gosh like this.

Yeah. For anybody not looking at their phone, is basically a straight line up again.

Yes, that's right. So Google and Facebook start going vertical in the late 2000s, early 2010s. Okay. And that's because the financial crisis in 2008 caused a shock which forced people to do more with less. And they forced them to look at what could do that and say the one big part was looking at digital deflation, which was the internet. Okay. And ads are one piece. Classifieds are another. There's many other pieces of this. This is just one very quantitative chart that shows the scale of the disruption to a very important Democrat stronghold. Okay. Then in 2010, the same thing was happening to the Republicans because the same financial stress after the financial crisis pushed people to do more with less and they looked overseas to China. And that was the moment at which Chinese manufacturing flipped Republican manufacturing.

Okay. So right at the same time the internet was disrupting Democrats, China disrupting Republicans in manufacturing. Okay. So this meant that the literally the pie was shrinking for both Democrats and Republicans. So how did they react? With Democrats, they reacted by attacking their two competing factions, which were Republicans and the internet. So, first they attacked Republicans. And this is a chart, New York Times word usage frequency 1970 to 2018. It's small over here. You can Google that and put that on screen. But it basically shows like toxic masculinity, white privilege, all those things went vertical in the year 2013. Not before, not after. I mean, they went after, but the thing is they went totally vertical then because the New York Times made an editorial decision post-2013 to basically go woke. Why? That boosted traffic. Why did they need traffic? Because the internet disrupted them. And uh this was also an ideological weapon against the Republicans. So they used wokeness against Republicans to argue we're morally good, you're evil and racist, therefore we should tax you and give it to our clients. Okay? So wokeness was the Democrat weapon against Republicans. And then the tech lash was the Democrat weapon against the internets. As you me during this time in the 2010s, all kinds of tech guys were canceled for all kinds of things from the GitHub CEO, obviously Uber, Travis Kalanick was a very prominent example of this, but tech guys large and small were forced to hire DI Democrats at their companies. They were essentially basically surveilled on the internet. Like you you like one thing, you hit like on one button and Democrats would try to basically destroy you, take your company and so on and so forth because they were in wartime mode. You know, you've heard this really fast. I want to abstract this out to a principle. This is really interesting biology. So you're saying all right, we have conditions where things are declining. Uh, you've got as as a proxy, you've got newspaper publication going down, but it's forced by the fact that we're having this economic crisis, but it's facilitated in a way by the internet. So the internet makes things cheaper that otherwise may have just gone away or whatever. Uh, and so you're getting this cross-effect where both the Democrats and Republicans are they realize their pie is shrinking for different reasons, but their pie is shrinking, and they begin fighting. So I'm the outsider here looking at this sudden moment of rapid disruption and change. I'm trying to find what the mechanism is. I come sort of squarely to debt, which is responsible for um, the economic crisis. But what you're really driving home, which is very interesting, is that there's an internet thing that you have to take into consideration, going to your force graph. There's an internet thing that's happening that I'm not giving enough credit to. And then there's that knock-on sort of populist battle that's happening with the Democrats and Republicans that begins to play out uh, very aggressively within the US. But the US being the world's dominant superpower, the world's leading economy, that begins to have ripple effects out to the rest of the world.

Am I mapping the mechanism here?

That's right. And let me give a little bit more and let me go and add to your points. Okay, so let me show a little and then add to the debt. Okay, so this is the Democrat side. Basically their pie is shrinking. So they retaliated against their bordering factions. Wokeness versus Republicans and tech lash versus the internet. Okay. Republicans meanwhile, they had been disrupted by Chinese manufacturing. So uh, so their pie is shrinking. So that's why because, you know, people talked about how all these Rust Belt guys had lost their jobs and Trump started saying he was the one who said China. Remember in 2015?

Oh, yes.

Right. So China had not yet disrupted the Democrats, so they didn't care about it. The internet was not yet on Republican radars. They didn't care about it. So in the mid-2010s, if you look at their rhetoric, Republicans cared about China because it had been taking their jobs and Democrats cared about the internet because they'd been taking their jobs. Okay? So Trump was a reaction of Republicans uh versus Democrats. And, you know, the people call the right reactionary because it goes second. So wokeness really booted up in 2013 and Trump booted up also as a reaction in by 2015. Right. Okay. So then um Republicans also elected Trump to do what? The trade war versus China. Okay. So this was a four-faction battle where Democrats tried wokeness versus Republicans and the tech lash versus the internet. Republicans tried Trump versus Democrats and the trade war versus China. Except they lost. Basically, essentially here's the Magnificent 7, for example. There's a bunch of graphs I can show you. See how this just rips up into the right and the remaining 493 stocks are flat.

Yep.

So, Democrats lost to the internet. Basically, they lost control over uh, you know, media. They lost control over money and they lost control over speech. Democrats lost control over media to AI because Hollywood is being disrupted now. Like clearly that where that's going to end up is Hollywood loses control.

They've lost control over money because they lost uh control with crypto. And they lost control over speech because social media got uncensored, right? So, and and this was a huge battle. 2024 can be conceptualized as the Democrats going all out against, among other things, their tech disruptors because they tried to regulate AI with the Biden bills to stop AI. They tried to stop crypto with an all-out attack by Gary Gensler against crypto. and they tried to control speech with all the censorship and saying it's disinformation and whatnot, and they lost a massive pitch battle, but they lost. Okay. Now, in 2025, I would argue basically the Republicans have also unfortunately lost to China. I'm more sympathetic to the Republicans in some ways on this, but the the Chinese basically won in my view the trade war, the proxy war, and the Cold War. Why? They have the world's largest navy. they have this gigantic manufacturing buildout. Um, the uh, the US national security strategy basically says that they're withdrawing from East Asia and that's a 2025 strategy. It says it in a way of a fighting retreat where it says, oh, Japan needs to take on more security responsibilities and so on. But fundamentally, it's very different from the JFK, bear any burden, pay any price to feed communism. And so the the net of it is basically that um Republicans have been disrupted manufacturing, military by China. Democrats have lost on the internet and we're in kind of the the mop-up phase right now where, for example, the the last ditch efforts by Republicans to tariff China at best will protect the home American market. But if you look abroad, you're seeing BYD outcompeting even Tesla in neutral markets like Hungary or Uruguay or something like that, right? Even our best guy, Elon, can't beat the Chinese in neutral markets where they're America can't impose tariffs. Conversely, what Republic what Democrats are doing is they're trying to have their unions block the use of AI at the Atlantic and the New York Times. It's right. So they're they're trying to wall themselves off within those domains that they still have formal power over to stop that disruption from hitting them rather than leaning into it, you know, and and disrupting themselves. Right? So now the debt, how does that's the background force here. But but this factional thing, by the way, there's there's one more edit that I can add to that, which is the internet is splitting apart into tech America and the global internet. And I think unfortunately tech America is cruising for a bruising. Let's tech America like Silicon Valley. Basically, the big vulnerability I think one way of thinking about the last few years. So I talked about the disruption outside from the internet in China, right? Let's let's say the internet is now there's a global internet because there's like Portuguese tech entrepreneurs and Singapore VCs and so on and so forth, right? There's Chinese open source models and there's cryptocurrency, which is global, and all this kind of stuff is global, right? I can show a graph which shows that um there's now 420 cities that have unicorns. Only one of those is Silicon. Have you seen that one?

I have. Yeah.

Okay, fine. So, you can put that one on screen, right? So, 420 cities with unicorns, which means you don't have to be in Silicon Valley to build a unicorn. Okay. So, that means Silicon Valley is less essential. Okay. And Silicon Valley is actually under attack now. That's why basically, you know, the entire concept of disrupting all these blue jobs while being in the bluest city in the bluest state in the union, right? Being publicly a billionaire in San Francisco, having your face everywhere and talking about how they're taking all the Democrat jobs while in a a city and a state that's ruled by Democrats is the most strategically insane kind of thing. And

As a consequence, I think, uh, like the wealth tax against the tech billionaires in California, the 5% wealth tax forced Zuck out, Larry Page out, uh, Sergey Brin out.

Um, do you think California has a rude awakening coming where they've just hollowed out like a trillion dollars of their tax base, or are they doing it to be punitive and believe that they can make up the shortfall through federal funds? Like, I'm not sure what their logic is.

Ah, there's a meta logic to the metaorganism. So, metaorganism, another important concept I have. Um, it's certainly not original to me, but, you know, an ant colony, any individual ant doesn't necessarily know what it's doing, but the colony has an intelligence. Doesn't mean it's super intelligent, it just means there's an emergent intelligence where you can talk about the colony's interests, even if any individual ant is only kind of responding to local incentives, right? Similarly, a flock of seagulls or a school of fish, right? There are metaorganisms. Even in a sense, you as a human being, you have a collection of cells, and your epithelial cells don't necessarily know what's going on, but they obey your orders in a sense, right?

If we model Democrats, California Democrats as a metaorganism, Republicans as a metaorganism, right? There's a bunch of individual sensors, and they're not super intelligent, but this way you can say, "Dem blue wants this, Red wants this," okay? Like, at an abstracted level over millions of people, California Democrats, basically the wealth tax is for them a win-win. Why? They either deport or rob their main competitors for political power within California, who are the tech guys.

That's [ __ ] dark, right? This is the same as the communists, right? The communists, like they would take control of Cuba, and all the capitalists, they either rob them or they'd force them out at gunpoint, be exiles in Miami. And there's a meta rationality to this, which is the kind of person who's a communist or a California Democrat is somebody who's not good at winning in the market. They're not good with numbers. They're not good with building businesses. What they are good at is coalitional politics. They actually have a real, for lack of a better term, talent for that, right? So, from somebody who has that talent and they can't build a business, they can't build wealth or what have you, what they can do is they can focus 100% of their energy on controlling the law and the state. And the tech guy can't do that. And so they go upstream and they basically win the high ground and they drive out their enemies or rob them. Okay?

And every techillionaire who leaves California basically cements Democrat political power because, at a deep sense, and this is a really important, another important concept. Democrats destroyed democracy in California. And the reason is, California is a one-party state. Let me show you this. Okay. Do you see that?

Yep.

Yeah. Democrats destroyed democracy.

That's wild.

Okay. California is a one-party state where elections are held, but the party always wins.

That is crazy. For anybody not looking at this, it shows that every year from 2011 to, well, I guess technically that's what we see. It's '92 to 2024 governor, state.

Go ahead.

So it's, let's say 2011 to 2025, it's just pure Democrats. And the new gerrymandering bill is going to mean permanent Democrat rule forever.

Jesus.

Okay. Schwarzenegger was like the last Republican or so.

What year was he?

Oh, so he ended in 2011.

Yeah. Yeah. Okay. That's right. That's right.

So he was the last one. So 2010 was the last time that we had.

Wow.

That's right. And so then going a little further, basically it was right around then that California started topping out. And basically, one-party democracy is why you can have graphs like this. Do you see this graph which shows the Department of Homelessness budget?

Jesus.

Yeah.

So this is a thing. Like, lots of people who are like, "Oh, you need to stay and fight, we need to fix California and so on." The thing they don't understand is that for Democrats, the state is their startup. The per like, so here's a specific example. The purpose of the San Francisco government for Democrats is to award hundreds of millions, in this case, more than a billion dollars per year to quote, "homeless NGOs" that hand out the syringes and set up the safe injection sites, so to speak, to get people addicted to drugs, to increase the homeless population, and thereby increase the justification for their existence. Whether they conceptualize it that way or not, they'll say they mean to do good, but they really mean to do well for themselves because what they're optimizing is the NGO budget. This is a really important mechanism. And I, I don't want to lose people from a political angle. So, taking that out to the mechanism that recurs in the human mind is, every human, every organism, when we get together, is going to try to grow. And when humans get together to build something, whether it is a local government, whether it's a company, they are going to, they have an incentive structure both inside their own mind and just at the ground level of getting resources to survive, to make it bigger, to grow, to acquire more resources. And so if your homelessness project requires homeless people, then the thing that you have to acquire more of in order to grow is homeless people. That is really fascinating. It goes to show at an incentive level how high risk this kind of thing is.

Exactly. And so the Republican version of this is like the military-industrial complex.

Yeah. Well said. Well said.

Okay. So that is the piece of it for which, you know, the state is their startup. And so in both cases, it's smaller than the other piece, but it's still a trillion dollars or what have you, right? And so when you, when you see this, you realize, okay, those people for whom the state is their startup, like it is their full-time job to gain power so they can gain the money, like basically their NGO budget or their military-industrial complex budget, to a lesser extent, but certainly, let's say the NGO budget, the grant or something like that. They are, somebody had a, there's a good phrase on X on this, their net long taxation, taxation on balance is good for them because they might lose $10,000 a year or whatever as for their bureaucrat salary, but they gain $20 billion a year to be able to throw around and allocate because there's more that is being controlled by the central government, right? So, and when you actually tote up how many people are downstream of the state in one way or another, you have like 40 million people on SNAP, you have all the academic grants, you have all the NGOs, you have all the bureaucrat positions. It's much larger than the federal government per se. It's all the flows of money that go out to things that are directly or indirectly government, state, local, federal funded. Okay? Because of that, anybody for whom the state is their startup, you're not going to beat them, or rather, it's a miracle if you ever do beat them because it's their full-time job and it's like your part-time job. So, the California tech guys cannot win against the people who the state is their startup.

Right now, in response to, by the way, California Democrats creating a one-party state in California, Republicans are trying to do the same thing in Florida and Texas. And of course, China's also a one-party state. So democracy is ending within states. The gerrymandering and so on is also meaning that there's there's response gerrymandering in Republican states as well. Right? Virginia's gerrymandering for Democrats. California's gerrymandering for Democrats. Florida and Texas are trying to do this for Republicans, right? So essentially, you get an equilibrium where you have all of these one-party states where elections are held, but the party always wins. And so that means democracy is actually going to be between states rather than within them.

You have to vote with your feet. You have to move between states. That's the only practical choice you have. Right?

So the internet becomes the guardian of true democracy because people vote with their feet, with their wallet, and their ballot. That's actually how you have a choice of the government under which you live. Okay? It's a more expensive vote, in a sense, but we can reduce the barrier to exit. We can reduce the cost of migration and so on with the internet. Okay? It's coming back up. Once we understand these dynamics, the issue is that all of the debt is causing because the thing is, Democrats were actually much more reasonable in the '90s and the 2000s, and so were Republicans, because they weren't under the same financial stress.

Mhm.

Their pie has shrunk. Like, people feel that, right? The pie has shrunk. They have to work harder for less. The dollars declined in value because, basically, you know, it's hard to go up from where America was in the '90s. It's the most dominant empire of all time. Many people thought that America would then be able to essentially run both Russia and China. And in fact, in the '90s, Yeltsin and so on, like Americans could do business, and you know, Russia was actually part of the so-called G8 up until the 2000s, right? And then they got kicked out. So, but Russia was a place where Americans could do business, and certainly many in China sent their children to American schools, and Americans could do business there as well. So, there's an expectation in the '90s and the 2000s that, you know, it was the end of history. I know Fukuyama had a more sophisticated thesis than that, but that's part of his thesis, right? That basically, you know, liberal democracy, capitalism had become dominant. So, there's an expectation that you could graduate from college and, while it wasn't articulated as such at a metaorganism level, you could administer a province like Siberia or Shanghai, just like you could South Dakota. Right? Essentially, the American Empire would run the world, and you'd have expansion territories to go into.

The fact that that didn't happen, and the fact that Putin and Xi, and others rose, and so those territories got closed off to Americans abroad, and that the internet arose domestically and started, you know, disrupting opportunities at home, meant that the Democrats, Republicans are getting squeezed from both sides. That's like another, to be clear, this is complimentary to the whole debt thing, but it's just another way of thinking about what the last 20, 30 years were. And so the, what happens is, you know, in 2008, China and the internet weren't ready to take over. They were still into it, but the financial stress, and that's why people fled into the dollar at that time. You know, you've heard the term, the cleanest dirty shirt.

Yep.

Right? Like, for all the faults of the US at that time, it was still, where else you going to go, right? So people flooded into the dollar. And with that financial crisis, basically, they're able to print and kind of keep the system going because who is ready to take it over? One way of thinking about it is, when a human dies, they can die without an heir, but when a system dies, it has to have an obvious heir, otherwise it can't die because it'll just continue in a zombie state. And so the last 18 years have kind of been zombie America. Like that graph that shows the Magnificent 7 versus S&P 493, you know, you know how General Motors got a bailout in 2008, right? And the banks got a bailout, right? Those are companies that like should have died, and they basically are essentially, though it's not called this, they were nationalized at that time because the government bought stakes in them, right? In fact, the government nationalized much of American property because all of the, and this is going to be an argument that you're probably going to see in the next, whatever number of years, the government owns your house. Why? Because the Fed bought mortgage-backed securities. Therefore, like, you should be grateful to them and so on and so forth. Okay? So much of the economy was de facto nationalized at that time with the purchase of mortgage-backed securities, the bailouts of the banks, the bailout of General Motors, the American Investment Recovery Act, and so on and so forth. All this was using that money-printing power to basically tax the whole world to bail out America. And that's why Britain, for example, their growth just stopped in 2008. And if you've seen that graph that shows like Britain's GDP growth, it just like stopped then.

Because they're, remember the Cantillon effect, the Brits are further from the money printer than Americans are. And so the only two districts that did well in America after the financial crisis were basically the broad DC area, which got a lot of the bailout money, and the banks and so on, and Silicon Valley, which could do a lot with the little, like just a guy on a laptop. One tiny rivulet of all the printed money made its way down into, because interest rates have gone all the way down, people for any return, they have to take high risk. They take much higher risk than they needed to do during the post-war era, right? And so they started to finally invest in risky things again, like they did in the 1800s. And a tiny, tiny sliver, like a few billion dollars out of a few trillion, made its way to Silicon Valley tech startups, and it funded Zuck and Elon and so on and so forth. And that's another big piece of this. The internet was ready for that at that time. So a relatively small amount of capital in miracle grow, this system started getting stood up. And the same thing was happening abroad in China, where they were also willing to do more with less, right? They're willing to. Have you ever seen a Chinese factory online and stuff?

Yes. Not in person.

Okay. So, like they have dormitories there, right? They sleep at the factory. They basically will, you know, they'll go back for like Chinese New Year, you know, there's this big migration. They go and see their kids, wife, whatever, once a year, and they come back and they grind in the factory, right? And because it was such a huge improvement over the rice paddy of communism, like they were just happy to have four meals and a cot. That this was amazing for them. It was a huge level up over the poverty they had.

Anybody that remembered Mao would have been ecstatic.

Yes, that's right. So for them, this was a huge level up. They were happy to have it relative to what they had, right? So they weren't feeling oppressed or whatever, right? I'm not saying you, I'm not totally romanticizing it or anything like that, but basically something that would have been considered a huge level down from work conditions for many Americans was a huge level up for many Chinese.

Right.

So they were also the equivalent of the guy on a laptop, you know, who didn't need much in the way of resources, turning doing a lot with a little. They were willing to do a lot with little in China and places like that. Okay. So, those two deflationary forces basically are kind of what, you know, there's a graph that shows what increase in price and what decrease in price. Have you seen that one?

Uh, over what time period?

Like the last few decades.

Let me see if I can find it.

No, I've not looked at anything specific there. But it's an interesting point that you're making that we have these two parallel things, China and Silicon Valley, both being able to thrive in this otherwise depressed state. And so they end up sort of overshooting the mark and both of them coming up together. That's really interesting. Now, I take a slightly different lens on why China did as well as it did, but some of the things you're putting on the table are, I think, incredibly interesting and round out my more like going into the WTO, um, outsourcing jobs to those guys, just full stop, sending over Apple, and sending over our best VC people to teach them manufacturing, to teach them how the VC model worked, all of that. Um, you know, but this is a really interesting element of the puzzle that I had not thought about before.

Yeah. And by the way, the thing is, I would agree with everything. You know, it is, it's one of these things where China's complicated. I mean, just like America's complicated, where a lot of the negative stuff and the positive stuff is true. Like, did they copy all types of stuff? Yes. Did they violate all kinds of IP? Absolutely. Do they have elections in the sense Americans had them? No. Do they like, do they have surveillance? Absolutely. All this stuff is true, right? Um, but they also execute. It's this weird thing where, do they have, for example, low-quality plastic stuff? And, you know, absolutely true on their hand. Are your phones, the pieces of them made in China? They are, right?

Yeah. Tim Cook talked about that. He said, "Listen, I don't know who keeps saying that you go to China for low-quality manufacturing. He's like, 'These are the like highest, most high-tech engineers that you're going to find anywhere.'" Now, the part he left out is that he's one of the people that taught them how to do it, but nonetheless, uh, they really have accomplished something extraordinary. They are a very complex picture. Um, give us the punchline of what we're looking at here, and then I want to ask you about what you think the US's strategy is. Like, I get you are like, "Look, America has already died. I don't even know what we're talking about here." But America is trying to outperform China, at least in our own hemisphere. We're at war right now with Iran. So I'm very curious, once you show us this, what you think of, um, what should do next? Yes. Okay. Or what what we are doing. Is it working, or should we be doing something different?

Okay. So, so let me first show this graph, then let's talk about that. Okay. So, first, this graph shows inflation and deflation. And the crucial thing is it's a vector, not a scalar. That is to say, you have to, it's not just like one number that you quote for inflation. You're like, "Up 40% in college tuition," but you're down like more than 100% on televisions, right? And basically, if you look at this, everything that China and/or the internet touch has come radically down in cost. Televisions, personal computers, phones, toys, cell phones, clothing, all the stuff is either made in China or on the internet or both, right? This is really, really insightful and something that is falling through the cracks in the public narrative about what's going on. It's very damning, I would say, to see the things that China has touched have gone down, and then all the bureaucratic nightmares that we've created on our side are driving costs up.

That's why.

Exactly. That's right. So the things that are going up are all the things the American state is touching, which are.

Man.

Education, healthcare, right? Like, you know, everything that is regulated by the US government is going up in cost because, in many ways, Keynesianism again is communism for whims. So the point is, and to understand at a system level, there are always short-term costs of disruption. If you were to, what did it look like to disrupt education? Well, all kinds of universities and schools go out of work, teachers go out of work, and so on and so forth. But you have hyper-inflated cost of education. So the system will fight that because there's millions, there's teachers' unions, there, you know, universities are very powerful political actors. Right? Similarly, like real estate. Trump has actually said he doesn't want real estate prices to go down.

Yeah.

Xi in China.

Go ahead.

I just said don't get me started, that one's a wind-up for me.

Right. So, so that's why literally Fed policy for the last few, for for a long period of time has been to prop up housing prices. And in fact, if you've seen the so-called Case-Shiller index, right, like, uh, it is actually beyond where the housing price bubble was, right?

Yeah. This is going to make me mad. I can already tell.

Yeah. So, um, so look at this, this bad boy. Here we are. This was the, the so-called mortgage bubble, and here's the crash.

Jesus.

And look at how much we've mooned since then.

[ __ ] hell.

That is crazy.

So, so we're due for something that's much, much, much bigger than 2008.

And, unfortunately, right? And the thing about this, just to, just to show this, is it's an unusual article that is actually very explicit about how, like, the connection between the money printing and this. So, how did this happen? Well, um, this article from NPR, of all places, in in 2010, back when they printed some true things, haha. Okay. How to spend $1.25 trillion. So, these two people are at the Fed, and how do they spend $1.25 trillion? So, they basically, so look at this. Ready? They just hit a button. They told us they were 61 short. They bought $1,249,999,999,939 dollars worth of mortgage-backed bonds. The Fed was able to spend so much money so quickly because it has a unique power. It can create money out of thin air whenever it decides to do so. So the mortgage team would decide to buy a bond, they push a button in the computer, and voila, money is created.

Wow. They actually get rid of all of the obfuscation, all of the stuff about.

Go ahead.

No, it's just right there. It's just right there. Okay. So, it has the unique power, can create. So, this is as Milton Friedman said, uh, inflation is taxation without legislation. Now, by the way, $1.25 trillion, just to put that in context. Like, I mean, you're an entrepreneur, right? You, you, you sold the, like the, was it the protein or health bars?

Yep.

Right. Quest. Okay. Yeah.

Quest bars, which is great. Now, a trillion dollars. Imagine selling a thousand dollars worth of Quest bars to everybody in China. That's what a trillion, a thousand times a billion is a trillion, right? And obviously, that's, that's a trillion in revenue. That's not a trillion in profit. Like, what are your actual margins on those Quest bars? I don't know. Like, whatever, whatever percent it is. Okay. So, so, so this was a trillion in profit and instantly, with no, by by hitting a button, right?

So, the time expenditure, right? The labor expenditure, the profitability, and the invisibility of it, right? Nobody even understands that this is happening.

That's the problem. Even people hearing this right now, I know some percentage of them do not understand that that is the worst thing in the world. That that is taking money. It's taking purchasing power, but you might as well think of it as taking money from you. It's absolutely insane. All right, Balaji, you just put a really important piece on the table that I'd never considered. It's very powerful. Look at China through a totally new lens. Certainly, the housing market is terrifying. Um, now walk me through. So, the US, from where I'm sitting, I can paint you a picture of the moves that Trump is making have everything to do with China, very little to do with Venezuela, very little to do with Iran. Um, and it is an American empire in decline that realizes that it has to establish itself as the dominant power basically anywhere that it can. I think it's given up. You already touched on this. I think it's given up on Southeast Asia. It's just like, that's going to be China's neighborhood, but we're going to lock down South America. We're going to lock down North America. And because I, he's running, as far as I'm concerned, a do-or-die strategy with the economy where he's going to spend and inflate the currency like crazy, devalue the dollar, do the whole shebang, and his only chance out from under that is to grow. And so when he looks at the Middle East, which has aggregated just an unbelievable amount of capital, he went early on in his second term, he got $2 trillion roughly in deals. But he knows that that's contingent on a stable Middle East where the Strait of Hormuz isn't being choked out by the Iranians, where the Gulf States that he's getting these contributions from, they don't have to hold that money back to repair a desalinization plant or to deal with other oil infrastructure that Iran has bombed into oblivion. So when I look at the move that he makes, I'm like, "Oh, this is him trying to make sure that he doesn't go to jail," effectively, because I think if he gets impeached at the mid, or if he loses his midterms, he will get impeached. Once he's out of office, they will hound him until he is in prison. Um, so I think for him, this is existential. And I think he understands, okay, I've got that wind in my back, and then I also have to deal with the fact that we've got to quarantine China somehow. And so by making their unsanctionable oil impossible for them to grab, eh, it may only be 20% of their oil, but it's better than nothing. And so you put all that together, and that to me explains the behavior that I see on behalf of America right now. Do you see something different, or does that map for you?

Um, I understand where that's coming from, but I would say I do see a fair amount different, and here's why. First is, I think the word "American" is like the word "Korean." And when you say Korean, I think one has to distinguish immediately. Is it North Korean or South Korean?

Yo, you're saying something here, Balaji. All right, say more. I know where this argument goes, but let's hear it.

Yeah. So, the thing is that when one says American, unfortunately, like, you know, when you and I grew up, you know, when we were kids, you'd say, you know, "I pledge allegiance to the United States of America, and to the Republic for which it stands, one Republic, indivisible, with liberty and justice for all," right? And the unfortunate thing is, and I can show chart after chart on this, but it is actually so polarized that like, like America doesn't exist. There's blue America and red America, and tech America, and all these different subtribes within it, right? Just to show you some graphs on this, right? Um, I'll show you three. Okay. So, uh, there is this graph which shows, uh, Congress polarizing before Trump even arose. Okay, this is like, you know, 2015. Okay. So I'm not sure if you can see that, but each, do you see 1965 and 1995 how it like comes apart like this?

Yep. Very clear.

What you're seeing here, each node is a congressman. Blue is Democrat, red is Republican. And in the 1960s and 1950s, an edge between them means they voted the same way on the same bill. Yes or no together. Okay. After 1991, without the Soviet Union as a common enemy to keep the US together, the only people Democrats and Republicans had to fight was each other. And so they politically polarized. Okay.

This is crazy to see it like this.

Yes. So it's quantitative, right? And and this is something which has gone on for 70 years. It's not like a short-term thing. And, uh, and then what happened was, uh, this actually extended from Congress to the population by that. So that last graph was 20, up to 20, uh, uh, that was up to 2011. It was calculated in 2015. This is a totally different graphic that shows the same concept, but it's on Twitter, and you can see blue nodes and red nodes. This is 2017, right as Trump was elected. And blues just don't friend reds and vice versa. They don't even follow the same kinds of groups.

Wow. That is crazy.

Okay. So this is 2017, and you can see the mitosis happening. By 2025, the digital secession was already here, where blues are on BlueSky, and they're on Threads, and they're on, you know, TikTok, right? And reds are on X, and they're on Truth Social and Gab and whatever, right? And so the, you know, Americans like BlueSky and Truth Social, they're both speaking English, but their entire worldview and premises are completely different. As different, I would argue, as like North Korea and South Korea, you know, or becoming as different. The digital split has already happened where Democrats and Republicans, they don't talk to each other. They don't marry each other, by the way. So, like, that's another thing. Democrats, um, essentially only 4% of Democrats marry Republicans.

Wow.

Okay. So, this one.

Yeah. So, here's this graphic. Ready? Um, so what that means is, if you see this, marriages between Democrats and Republicans are rare. Between Democrat. This study shows 4%.

Okay.

That means ideology becomes biology in one generation. Like, it's like an ethnic split. Right. That's at a minimum, Protestant, Catholic, Sunni, Shiite is Democrat, Republican.

That's a crazy statement, Balaji. Those groups kill each other historically.

Unfortunately, yes. And that's what's like, basically, for example, this Minnesota confrontation that happened earlier this year was these two clouds getting printed out in the physical world. Why were the Democrats running around looking for ICE? Because the blue metaorganism wanted to fight the red metaorganism in physical space finally. And it's not like Democrats are actually against the concept of strong borders and mass deportation. Why? They wanted to deport ICE, ICE out, right? They wanted Republicans out of Democrat territory. Okay? And so, for example, there's this concept that, um, has been going viral on Democrat channels. It's called soft secession. And basically, it's taking all the rep, this is, it's time for Americans to start talking about soft secession. Blue states are finally learning what red states have known all along. You don't need federal permission to govern. So, invoking all the 10th Amendment rhetoric, you know, wargaming scenarios where federal agents show up, continue to transgress further and further past what is legal, right? And so essentially, Democrat governors are filing lawsuits and and so on to basically three sources between Democrat AGs, say the same phrase keeps coming up that nobody wants to say it publicly: soft secession. Okay. So.

What, what exactly would soft secession be?

For example, Newsom has said he does not want to enforce tariffs on China at California ports.

Whoa. Okay. So, because.

That is a, if you think about what that means, that is a way for him to have like a left populist thing versus Trump, right? And, um, he can reduce costs in theory in China, in California, by taking Chinese goods. And actually, um, so this is the thing that I don't think people fully get is, you're going to see, you're actually already seeing, um, Democrats lining up with China more, right? Uh, for example, just to be very concrete about this, cuz I'm not saying this as, oh, it's for example, in 2023, okay, Newsom actually made a trip to China, and he's actually the only Democrat who actually was able to sit on stage with Xi. And there's this long set of articles and so on where what Newsom said is he wanted to, he said, quote, "willing to be China's long-term stable and strong partner," right? "Welcome more Newsoms to come." Okay, this is a non-isolated article. It's like, you know, "Welcome Newsoms to come. Newsom willing to push California to be China's long-term stable strong partner, strengthened relationship. California government says China's success to benefit the world," right? And the thing is that even in 2023, there's a 20-point gap between Democrats and Republicans on China, where Democrats want to cooperate more with China than Republicans do. Is roughly like Republicans more sympathetic to Russia, Democrats more sympathetic to China, roughly. Okay. And so as a consequence, um, you know, you're going to see, uh, I thought it was going to happen with Newsom first, but it actually happened with Carney in Canada first.

The Western left has lost DC, so turns to Xi.

Yeah.

And so the immersion effect, remember I talked about the force diagram, right? Democrats are driving the tech guys out of California, out of Seattle, and they're going to bring in Chinese money. In one thing that I've always been, um, I've always struggled with with your philosophy is the geography doesn't matter part of it. Now, seeing some of the things you're doing with the network state, I think maybe either I misunderstood your philosophy or you've come to my side, which is that the physicality of it really does matter. Walk me through how America breaks apart if this continues.

Yes. So the thing about network state and so on is it's cloud first, land last, but not land never.

Got it. So say you start with an online community, and then you crowdfund territory because, of course, we're physical beings.

Yeah.

But the land is just a parameter. That is to say, you know, if you, if you hold an impact theory conference, does it matter that much which city it's in? No. The community matters first.

Cloud first, land last, but not land never. So first they see you online, they click the thing, then they come to the physical location, but that's secondary, and the community is primary.

Okay, understood. Now give me.

Now how does that America?

Yeah.

Okay, so my view is, uh, Mark Carney's speech earlier this year was the most important speech since, uh, Trump came down the escalator in 2015.

Damn.

And the reason is that Trump basically said that the West is losing to China, and Mark Carney basically said, whether you agree or not, the West has lost to China. So Trump was basically, we, you know, we need to push back. Like he, he was kind of like a turnaround CEO. There's, there's a term used in the first term which was, uh, the Flight 93 administration, or the Flight, the Flight 93 election. Do you remember that?

I remember Flight 93. I don't remember this statement about the administration.

The, the argument for Trump in the first, uh, the first term was, there's an argu, basically an article in Claremont which was called the Flight 93 election, and basically said, conservatives would always say the country's going to hell in a handbasket, but if you actually see what's happening, it really is. We need to hit the emergency button, and Trump is that emergency button. Now, many didn't agree with this at that time, and they felt that Trump was a radical move that wasn't necessary, but the condition of the US has worsened since that point, and some will argue whether it's due to it or whatever, not. I mean, there's truth to all of it. Okay. Point being, this in many ways is the sequel to that. This is a Flight 93 administration. They've rushed the cockpit, but is a plane still going to crash? Unfortunately, I think it, it is. I think it's like, it's not something where not everything can be saved. Like it's something where, um, like Rome did fall, unfortunately, right? Like the British Empire, the sun did set on the British Empire. There's certain things where the late-breaking turnaround kind of thing just doesn't work, and it hits the ground. Okay. So, what do I think happens? I, I think what's already happening. Carney's Canada is like a land bridge where, if you visualize it, there's Washington and Oregon and California, the Great Lakes states, and New York and the New England states, and basically all the blue states border Canada. And what, you know, Trump said is that, you know, he doesn't want Canada to become a drop-off point for Chinese goods, but that's exactly what Carney is doing because he basically said that he's going to take away tariffs on Chinese EVs. But more than that, he also said, and this was missed, that, um, he's going to essentially allow, uh, the, the supply chain. Okay. What does that mean? It means that he's, he's talked about, we're going to add all kinds of electricity to Canada. Can Canada has too many regulations or whatever to do that historically, but China can do it. So, the Chinese are going to build the Canadian electrical grid.

Wow.

Also, he is, if you notice, Carney is suddenly much more confident when he's talking about Greenland and things like that. He said, if, you know, there's an actual military action in Greenland, and we can't tell if Trump is kidding around or what have you, or he's serious about it, sometimes hard to tell, but Canada and NATO treat it really seriously, or they're scared of it. Fine. And and also Trump said he's going to invade Canada. That actually, I don't know if you saw the graph on that, basically the Conservatives in Canada were ahead. Yeah, this is [ __ ] stupid.

This was stupid, right?

So, Coner and Canada were way ahead, and then Trump said he's going to invade Canada, and the problem is he had already lost the liberal Canadians and the liberal, you know, Americans, but then he lost the Conservative Canadians as well. And Carney just suddenly won. Okay.

Yeah.

So, the thing is, the speculation because Carney hasn't said this publicly. Why is he suddenly so confident? He said, if there's any invasion of Greenland, then, you know, Landa will resist that because he'll have Chinese drones. It's wild, man. That is wild.

And so the, and you know, like you can see Democrat influencers like Hassan, he's talking about China maxing on his Twitter, you know, right? So there's a sense like Scott Alexander.

Yeah.

Right. So now the thing about this is Scott Alexander has this good concept of in-group, out-group, far-group, where basically it's like it's another way of saying your enemy's enemy is your friend. Your enemy's enemy is your friend. So Democrats think their primary enemy is the Republicans, and the Republicans' enemy is China. And remember, the Democrats are like an information kind of thing, right? And the Republicans are like a physical manufacturing thing. So the Democrats are getting like a new husband who's Xi instead of DC, that'll provide all the physical stuff, the manufacturing and so on, the Democrats are less good at. Meanwhile, Democrats are.

How would they actually break apart? Like, if right now, if California tried to secede while Trump was in office, military incursion guaranteed. So.

Well, just take, take a look at what's happening with ICE, right? Like, basically, is that it's like a half-military incursion, but is it working? Not really, right? Kind of. It's, it's not like the thing is, it's all like a slapfest, right? It's not.

This is a hard thing.

This is all early days. I want you to imagine that, let's say that these states do start breaking away. Much like the UK learned the hard way, when you're not a part of Europe, things don't get easier, they get harder.

And.

Very good point. Yes. So, so actually, there's a great book called Disunion. Okay. It's actually about the American Civil War, and the title of it is very good, and even just, you can read like the first few chapters, and it, it just made something clear that you sort of read in a dusty way in the history books, but I didn't fully viscerally understand it till I read this book. And you know how people, the, the modern American interpretation of the Civil War is it was about slavery, and, you know, the South wanted to have the slaves, and that was absolutely an important component of it, but you'll often hear people also say something like, "Lincoln wanted to preserve the Union," right? You've heard that. That feels very abstract, right? What was the concrete thing? The concrete thing was many Americans had come from Europe, and they'd seen all the wars in Europe. And the wars in Europe arose from the fact that Europe wasn't united. And because it wasn't united, you had all these guys fighting amongst each other. And so disunion was considered to be this crazy thing the southerners were trying that would lead to a fragmented bunch of states in North America that would fight each other, tax each other. They would lose economies of scale, fight each other, tariff each other. Basically, they wanted the economy of scale and the peace that came with the union. Like, for them, the union meant peace. It meant prosperity. It meant unity. It meant a large free trade zone. It meant the opposite of all the chaos and fighting that they had in Europe.

So in other words, in the same way, you know, like a lot of tech guys today think of decentralization in almost a quasi-religious way, like it is good to decentralize because it means freedom and personal sovereignty and so on and so forth. Right? At the time, these guys thought of centralization as good in a quasi-religious way because it meant order and stability and scale and strength, as opposed to the anarchy of Europe. Because there's centralization and decentralization cycles in history. Like once you're totally centralized, you want freedom. And once you're totally decentralized, you're like, "Oh, this is anarchy. I want order." That's, you know, the Chinese have a saying which is like, "The empire long united must divide. Long divided must unite," because they've been through many of these cycles in their history. Right.

Sure.

And and Europe has as well, but it's like, break up of Rome, rebuilding, break up, unbundling. They call it different names. Okay.

Point being that, uh, disunion was something that the Republicans of the time opposed. I mean, you can argue the parties switch sides, they switch sides multiple times, whatever, but they opposed it. Once you can articulate their case for it, it's like the case against the 10th Amendment. It's a case that you should have a strong union because otherwise, as you point out, like think about Russia, Ukraine. They used to be part of the USSR, and now they're not. And talk about losing an economy of scale. They're like killing each other by the hundreds of thousands, maybe the millions, spending billions and billions of dollars on something which within our lifetimes was a border you could just drive across and nobody would care at all. Right? I mean, like, that was simply not a conflict zone. But by decentralizing, it created one. And actually, you realize this when you realize, think about how many countries have "United" or "Union" in their name. United States of America. It's not a country, but the European Union, the United, the Union of Soviet Socialist Republics, the United Arab Emirates, right? Even, you know, like India, for example, or like Russia is called the Russian Federation today, right? India has a concept of like union territories, which are basically like it's got a federal government. Brazil, all the stars on its flag are like the individual states, right? The United Kingdom. Okay. The reason that people put "United" in the name is that it's so hard to do. That's why they prompt you with, with the United States of America. Why? Like, you know, the people who architected this, like that's why Ben Franklin had "Join or Die." You know, like the people who architected this were really smart, and they understood how artificial it was to maintain a union over huge numbers of squabbling people. By default, you have lots of tribes that fight each other. That's also actually monotheism accomplishes the same thing where it's like one god rather than N gods, right? So monotheism is centralization, polytheism is decentralization. Again, you have an oscillation between these two depending on where you are in history. Okay.

So, so I'm granting everything you're saying, which is that a breakup does cause problems, huge problems, massive problems. It reduces economies of scale. Like, but but we've actually already seen a preview of this. You know, in 2008, like the money printing became a preview for the decade to follow.

Mhm.

Like the $787 billion bailout was this like enormous thing. Um, completely unprecedented, and then it became precedented. One of the things that happened during COVID, hard borders arose between states. Do you remember like Rhode Island and New York, like the COVID cross-border thing? Like even if the virus didn't actually abide by state borders, nevertheless, you saw things that you had never seen before, like people cared about the Rhode Island, you know, border or whatever, right? So like Russia, Ukraine, it was a complete, nobody cared about that border. Suddenly became a real border, right? Another concept was like, you know, California was saying it wasn't going to pay for California legislators who went to red states because they disagreed with the social policies there, right? Okay. Another is obviously the polarization we just talked about. Um, another is, uh, the, um, you have the mass migrations from blue to red states, huge exodus out of California. And that's similar to partition in India, right? Huge migration from Pakistan, uh, you know, if Hindus moved went to India and Muslims went to Pakistan, right? That's similar to the blue and red.

Migrations. Okay, um, and I could, I could continue on this, but one other key point that happened during COVID that people forget are the so-called interstate compacts, which is a tool that exists in the constitution. Basically, state governors didn't want to wait for Trump to act at that time, so they formed like the Western States Compact, the Great Lakes Compact, the New England Compact, and these are basically breakaway things that were unprecedented, but then became precedented. You can go and look at that, the Interstate Compact in 2020.

So a lot of these muscles for like hard state borders, interstate compacts, soft secession by Democrats, um, like, you know, lawsuits against the federal government, left and right have been doing that. And and and at the social level, it's just been escalating, escalating. And I think a big problem with a lot of my American friends when I talk about this, when we talk about, um, you know, like where's it going to go and so on, they have a mental model which says, don't worry, the pendulum will swing back, right? They have a model of homeostasis where it always comes back to like an equilibrium, like this, right?

There's a different model. Have you ever seen the Tacoma Narrows Bridge in Seattle?

>> I grew up in Tacoma. I have been on it many, many, many times.

>> Fine. So Gallop and Gertie, as you're aware, >> it swung from left to right and then harder to the left and harder to the right till the whole thing just collapsed into a million pieces in the ocean.

>> Yep.

>> That, I think, is a better model for what is happening now. Where if you go back and look at the '90s, like, I mean, you and I grew up in the '90s, nobody cared about politics then in America. It was like, that was like being interested in politics then was like, uh, being interested in the bus schedule, you know. All people cared about were music, movies, sports, video games. Like it was just this amazing vacation from history. And you go back and you look and the Democrats and Republicans were on the same page about a lot of things. Republicans were much more moderate. Democrats were much more moderate. Like people go and they will often use those old quotes to say what happened.

>> Yeah.

>> Right. But what happened was the meta-organisms upstream of them were nowhere near as desperate. Blues and reds, the meta-organisms had much more of a food supply. They didn't feel constrained by China and the internet as they did. So because they didn't feel desperate, they could afford to be generous. Democrats didn't feel they had to tax everybody to oblivion. Republicans didn't feel like they had to be, you know, so aggressive abroad. They didn't feel cornered, right? These meta-organisms feel cornered. They feel desperate. They feel they have to strike out.

>> That's a big part of what we're seeing. And, um, and I'm, I'm very sympathetic and I'm empathetic to it, but I also want to be far away from it. So like, you know, in the sense that what, what one thing that's happening now is Blue America, Red America, and Tech America are all taxing each other. So Blue America is doing the wealth tax on Tech America, but it's also doing the China tax on Red America where they're allying with China. This is the Carney thing. Even though Carney is not technically a Democrat, he is aligned with them, right? Like the Western left, let's call it that, right? So the thing that, that tech guys prize the most, which is their, uh, their businesses and their ability to innovate, Democrats are going after that. And the thing that Republicans prize the most, which is their country and their land. Well, the alliance with China, which is burgeoning, they're going to go after that.

Okay. What are Republicans doing to blues and to tech? Well, to tech, they're going after talent. They're stopping tech guys from assembling talent, which is their other lifeblood, right? You can't bring talent from India. You can't bring talent from China anywhere near as easily as you could, right? All these visas are getting cut off. And I understand why, but, but they're doing it. And what are they doing to, to, to Democrats? They're going after the thing that Democrats love the most, which is their global empire. All the, all like USA ID or, uh, you know, the NOS's, the universities, all the diplomatic relationships, the prestige abroad. That was the thing that Democrat diplomats built over generations. Republicans are just gleefully, like the UN, they're cutting the budget. All these things that Democrats care about the most, they're dismantling that, right?

And then finally, what are, um, tech guys doing? Well, with AI, that's a jobs tax on Democrats, right? And then they're also decentralizing overseas and they're opening, you know, offices in other countries because they need the talent there, right? So all three groups, Red America, Blue America, and Tech America are all fighting each other. And I think what happens is Blue America takes like the West Coast states and Canada and the Great Lakes and so on. Red America takes like Latin America, right? Red America pivots to. I do think about what you said earlier, Kelly Malay, uh, Hernando De Soto, like the understanding of American is actually going to change because it'll be like, um, Democrat American and Republican American. And the Republican Americans are going to lean like Beck, Kelly is much closer to DeSantis than Elizabeth Warren, right? So the term American puts Elusborne and DeSantis in the same group and Belli in the out group.

>> Right.

>> Yeah. Interesting.

>> But the actual correct grouping of conservative or libertarian or whatever you want, right? Latin American has the Texas, Miami, Sunbelt-ish kind of region grouping with Belli and Malay and Hernando De Soto, and that feels like the actual ideological grouping, whereas the cold and rainy, you know, Northwest and so on, that goes to the other, the other side, right?

>> All right. Biology. Now that we understand all of that madness, what are the smartest people in the world doing about it?

>> I would say, so I think you can take an eye of the hurricane strategy. And the eye of the hurricane strategy would be go to Texas, go to Florida, right? Um, and, uh, and then you can also go to, you know, like many Americans have ancestry in Europe, like they're Polish American, you can get a Polish passport, right? So you can take an eye of the hurricane strategy or you can get as far away as possible. Liquidate, immigrate, accelerate. And I think actually location is much more important than allocation. I think you want to get to, Dalio also thinks this. I think you want to get to a place where you trust the people around you and there's like a community there. Um, and, and I think that's what you should do.

>> And do you have, you've talked about ascending and descending locations? Do you have like a rough swag of where in the world is on the way up, where in the world is on the way down?

>> I think, um, within the US, I'd say Texas, Miami are on the way up relatively, right? Like you can actually build things there. So that's there. I think El Salvador is really interesting. It's a startup state. Um, I think, you know, Southeast Asia, India are are going up. I think Eastern Europe, obviously it's got the Ukraine war there, but if that dies down, like I think the Baltic states, Poland, Hungary are doing quite well. I would have said Dubai and, uh, you know, the Gulf, but of course this Iran war has blown that up for a while, right? So it's closed off. Um, and so the tricky part is there's no guaranteed safe haven. You know, you have to be like nimble and agile, but I think those are the places that I think one would would think about. Certainly, um, those places that were off the map in the 20th century are getting on the map in the 21st.

Okay, I got to jump. Let's talk more.

>> Thank you so much, man. It was an absolute pleasure. Appreciate it. Take care. All right. Bye-bye.

>> If you like this conversation, check out this episode to learn more.

>> Iranians have said that their goal is to spike the price of oil to $200 a barrel. If Trump were to leave the Middle East, basically the American empire would collapse. It's very risky to use military force to resolve an economic issue. It is.