With the right priorities, decades of economic progress in years
While the jubilation or sting of this week’s election still lingers for Americans, I am reminded of a quote from one of my favorite essays: “Those who forget history are sometimes condemned to repeat it and sometimes not; and those who remember history will know that it never slows down or stops, it offers no ellipses or time-outs, there is no interregnum between crisis and crisis in which we may calmly reflect and attend conferences before we act again.” Thanks to the ever-greater democratization of media, we can now follow thousands of analyses of what just took place this week. I’m not sure I’m the smarter for any of it.
Those who remember history will also know that it is contingent, that leaders and the people can shift its course minutely or wildly. Contingency demands responsibility, not abdication. Whether Tuesday was a dream or a nightmare, the next four years and the next chapters of America and the world are not yet written — there’s not even a rough draft.
I dare to dream big: what is the most pro-growth economic plan possible for a second Donald Trump administration and a Republican majority in the Senate and likely the House? Let’s identify some current problems and how they might be solved.
First, take the semiconductor industry. Even as the CHIPS Act has underwritten critical new fabs that seem to be performing well (although PR announcements right before the election are suspect), Intel is a giant mess. China is rapidly building up its chip manufacturing capabilities, accelerated by toothless export controls that have triggered Chinese investment into strategic autonomy without preventing the country from accessing critical hardware.
What America has needed all along is a comprehensive industrial strategy that stitches policies together to further a critical national objective. There needs to be a better pipeline of chip talent from K-12 into universities and ultimately graduate schools. That includes rising STEM standards, differentiated scholarship programs, simpler admission pipelines, and better equipment for laboratory experimentation for young scientists and engineers.
Those initiatives need to be coupled with better economic development, labor market reform, improved city planning, expanded corporate tax incentives, updated intellectual property protections, efficient capital markets regulation and more.
Despite the importance of the chips industry, it’s impossible to construct a package of policies together at the federal level. Just with the incomplete list I jotted down, a plan would include the Departments of Commerce, Labor, and Education, the Securities and Exchange Commission, the US Patent and Trademark Office, the Federal Reserve, the National Science Foundation and associated research organizations, the national labs (and probably therefore the Department of Energy), and the list goes on.
Responsibility for a key strategy — build chips in America — is held diffusely by dozens of bureaucracies, none of whom have any incentive to cooperate. It shouldn’t baffle us why we are losing ground then to countries with more organization.
Elon Musk, Trump and Republicans have made government efficiency a hallmark of this year’s political campaign. One form of efficiency is just removal, to use the country’s frustration of the chaos and lethargy of the federal bureaucracy and take an axe to all or most of it. But there is an alternative: streamlining. By conducting a deep and thoughtful redesign of federal agencies, we could align them with critical national objectives that would be far more useful, profitable and beneficial to the future of the United States.
The chips sector receives a ridiculously large proportion of attention around industrial competition, but it’s hardly the only sector that requires addressing. We need streamlined agencies in chemicals and heavy industries, in materials and batteries, in energy production (wind, solar, nuclear), in agronomy and food production, and more. Global competitiveness should be the defining goal for all of these strategic industries, and the full toolset required to improve America’s competitiveness shouldn’t be jointly held by dozens of disconnected agency leads.
Second, take the innovation pipeline. It’s become a commonplace in Silicon Valley to complain about Lina Khan and her ideological imprint on the Federal Trade Commission. She’s against the continued agglomeration of power by monopolists like Amazon and Google, and is actively working to thwart all large tech companies from expanding through M&A. That’s had the downstream effect of slowing startup exits, a crisis that has already wiped out many excellent companies that hit a wall with no way to recover.
She has had no answer to this. At the same time that the Biden administration is concerned about America’s weakening economic position against China, these policies have been a body blow to the single most dynamic sector of the American economy. As our own Josh Wolfe has pointed out in our recent quarterly LP letters, limited partners are pulling back from the venture asset class in response, leaving tiny funds and over-leveraged big funds (“Minnows & Megas”) facing the abyss. How does incentivizing the movement of capital from risky ventures to safer bonds ensure American economic superiority?
Republicans are champing at the bit to release the FTC from Khan’s clutches, which is one reason markets zoomed in the wake of Trump’s victory this week. What’s critical though isn’t just taking a sledgehammer to the agency and its initiatives, but acting with strategic precision to match the FTC’s anti-competition work with national objectives.
Encouraging entrepreneurial creative destruction should be that objective, ensuring that America stays permanently mobilized at the frontiers of science and technology. When big tech companies fund that ferment themselves, the FTC should be hands off. But if our largest tech companies leverage their market power to strangle upstart competition and slow American technological progress, there should be hell to pay. Khan missed that distinction, and Republicans could too if we aren’t clear on our motivation.
Third and finally, let’s turn to housing and infrastructure. It’s a perennial theme here in the Riskgaming newsletter (“The Productivity Precipice”), and for good reason: America has lost the will to build, particularly in cities. There are millions of homes under construction across the Sun Belt where suburbs can continue sprawling deeper into the desert unencumbered by most regulations. We haven’t devised a model for expanding urban growth where infill requires lengthy negotiations, endless zoning board hearings and dozens of construction permits.
Infrastructure more broadly suffers the same problem. Abundance Democrats have turned toward permitting reform, realizing that the sclerotic process of approving new energy projects and grid construction is dramatically slowing the development of nearly all clean energy projects in the United States. For Republicans, environmental protections and the whole bureaucratic complex against growth needs to be annihilated.
Here’s the rub: I want my clean water and I want my abundant housing, too. I want a better environment and yes, I want a better grid and more energy production. What’s frustrating about these debates is that these goals aren’t antitheses of each other, but rather a function of a deeply malfunctioning regulatory system where the costs of slow speed aren’t taken into account. In the court system, “justice delayed is justice denied,” but when it comes to housing, or energy, or roads, or trains, or water systems, “infrastructure delayed is infrastructure denied” is wholly absent from the discussion.
There’s an opportunity here to use the deregulatory fervor that just got voted into office to correct this imbalance. That would mean speeding up anti-growth regulations, requiring that local, state and federal systems must be compatible and conducted in concert to minimize duplicative red tape (looking at you California and CEQA). There should also be stricter auditing of how delays affect the ultimate cost of projects, acknowledging that infinite lawsuits and delays isn’t the way to build a better America going forward.
If there’s a plot underlying these three problems, it’s under-investment. Under-investment in American competitiveness, its entrepreneurial dynamism as well as its infrastructure. That’s driven by high upfront costs, low returns on capital, and a high and variable degree of risk that deters investors. It’s a system that can be strategically transformed, but it requires precise interventions based on careful analysis, not vibes of which agencies to hatchet. My dream is that we get this moment right, and we usher in a generation of prosperity that offers equal opportunity for every American citizen.
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Podcast: The energy economics of our civilization’s digital cathedrals
The sudden widespread usage of advanced artificial intelligence models has massively increased global demand for data centers that can handle inference and training. That’s been a boon for Nvidia’s stock, but it has also added massive new demands to our energy grid. Microsoft recently announced that it intends to re-open the ill-fated Three Mile Island nuclear power plant, while Google has announced investments and partnerships with nuclear startups like Kairos Power.
Yet, much of the obvious analysis of this market is far less obvious than meets the eye, or at least the eyes of Mark Mills. Across decades of studying the energy markets, Mark is currently a distinguished senior fellow at the Texas Public Policy Foundation, the executive director of the National Center for Energy Analytics, and a contributing editor of the Manhattan Institute’s City Journal.
We talk about the contradictions in much of today’s energy analysis, including the misdirection of attention toward AI instead of traditional compute which vastly dwarfs it; the misapplication of economic development incentives by cities and state to data center construction; and the misunderstanding of energy transitions — a mirage according to Mark since we are always seeking to expand all forms of energy to power our civilization.
🔊 Listen to “The energy economics of our civilization’s digital cathedrals”
The Orthogonal Bet: How deep science ventures redefines deep tech innovation
In this episode, Lux scientist-in-residence Sam Arbesman speaks with Dominic Falcao, a founding director of Deep Science Ventures (DSV), which he created in 2016 after leading Imperial College London’s science startup program. Deep Science Ventures takes a principled and problem-based approach to founding new deep tech startups. They have even created a PhD program for scientists specifically geared towards helping them create new companies.
Sam wanted to speak with Dom to discuss the origins of Deep Science Ventures, as well as how to think about scientific and technological progress more broadly, and even how to conceive new research organizations.
🔊 Listen to “How deep science ventures redefines deep tech innovation”
Lux Recommends
- In shameless self-promotion, our recent Riskgaming sessions in New York and Washington DC playing “DeepFaked and DeepSixed: AI Election Security and the Future of Democracy” were chronicled by Belle Lin of The Wall Street Journal in “Election Wargames: Tech and Politics Try Their Hands at Detecting Voting Threats.” “Back in New York, the players were set loose to share information. They milled about, snacking on doughnut holes and excitedly telling one another about clues from their game simulation, including armed civilians in Michigan, deepfakes of religious leaders and impersonations of local news organizations. With some rapid information sharing, a group quickly identified what they believed to be a threat, rushing to the director of the fusion cell to warn of a foreign adversary’s effort to hack election systems and change voter registration rules.”
- It’s a bad week for Germany. Not only did Chancellor Olaf Scholz’s governing coalition collapse presaging new elections and general political chaos, but a new genre of “wither Germany?” seems to have taken hold in the press. The Financial Times had a great summary with “Is Germany’s business model broken?” while Wolfgang Münchau offers the book-length treatment in Kaput. “All three of the country’s major industries are in crisis, and the economy is flatlining. Are politicians finally waking up?”
- Laurence Pevsner highlights a delightful story in Politico on “Why the Next President Should Pay Heed to the Republic of Z.” “Z is a fictional nation the State Department created in the 1970s and still uses in training scenarios for U.S. diplomats learning about consular duty. It is a mash-up of countries such diplomats may encounter, with both serious and cartoonish elements. For one thing, Washington is worried about Z’s trajectory because of the terrorist influence from the neighboring Republic of X. At the same time, Z’s independence day is April 1 and its ‘national shame’ is a raccoon that raids offices.”
- Qin Shi has a great sociological look at internet censorship in China in “The Crimes and Punishments of China's ‘Internet Auditors’.” “Many young people who choose to become auditors struggle to distinguish between ‘right’ and ‘wrong.’ This is because the information they could access online before was always of the politically correct type, [having already undergone a process of censorship]. Chen admits that when he chose to join his current employer as an auditor in early 2020, he had no idea what ‘sensitive information’ was. He had no idea how to ‘scale the wall’ — to circumvent internet controls — and he never knew what even lay beyond the wall.”
- Finally, if human society is too much these days, jump back to a great documentary from National Geographic’s Short Film Showcase in 2018 on A Rare Look at the Secret Life of Orangutans.
That’s it, folks. Have questions, comments, or ideas? This newsletter is sent from my email, so you can just click reply.
