On the death of American capitalism, and the welfare casino state wearing its corpse.
America is not a capitalist economy. It is an enormous welfare state funded by federal debt. Unlike the European version our welfare doesn’t just go to the bottom quintile, it goes to the corporate sector as well. The entire healthcare, defense, and education sectors are parasitic entities feeding off the Treasury and the American taxpayer. SpaceX, Tesla, Palantir, Intel, all built off government contracts and subsidies. Now OpenAI and Anthropic want to get in on the protection racket as well.
Bank bailouts and quantitative easing in 2008 and 2020, the Fed propping up asset prices with no regard towards inflation. How much of our GDP is real growth and how much is just printed money? Amazon can import infinity H1Bs but you can’t buy a Chinese EV. Capitalism means competition, but our capitalists’ motto is “Competition is for losers.” America is not a capitalist economy.
What separates us from the utterly failed European states is that for all its faults, the American economy rewards its winners like no other country on earth. Like a casino, you play for the chance at the big jackpot. And someone always hits eventually. Someone invents the personal computer, the internet, the large language model. Each jackpot fuels the world economy for a decade and inspires the next generation of dreamers.
So we sacrifice our labor to the beast. The best among us search for alpha. Found companies, build new technology, grow the pie. The rest of us scramble for levered beta. Grind the 996 to accumulate assets, real estate, index funds. We tolerate inflation because at least the asset prices inflate more. Because at the end of the day it is a ponzi, we are borrowing debt from the future to fund innovation today. Hoping that we will grow our way out of the hole. We are addicted to growth, to inflation, to numbers going up. What would America’s withdrawal symptoms look like, if we were cut off from the fountain of cheap imported labor and artificially suppressed interest rates? Seems like nobody has the balls to find out.
But with every bank bailout, Trump family insider trade, Minnesota daycare fraud scheme, people lose faith in the system. People walk away from the casino, drop out into the welfare class. As the working class that fuels the machine shrinks, corporate business models shift from innovation and growth to rent seeking and extractions. Boeing goes from the pride of America’s aerospace republic to a share buyback machine whose planes crash a lot. Facebook goes from connecting people via technology to farming them for engagement data. The middle class gets devoured from both sides. As the dream of asset ownership starts to slip away, the addictive high of inflation fades and horrifying reality sets in. People lose faith in the future, stop having babies. The labor ponzi starts to collapse.
The national debt, our world reserve currency status, the Social Security situation, the long end of the bond curve. This dynamic is reflected fractally across all aspects of the national economy. At all levels America is operating as an exit scam.
It’s easy to say: if only the government weren’t corrupt, if they were more hands off, we could have a true free market. But it’s impossible. The welfare incentive problem is an inherent failure of democracy. People will always vote in their own best interests. In a republic like ours, the politicians will always be bought off. That’s the nature of the beast. The purpose of a thing is what it does.
There is no political solution. The democracy experiment has broken down in the internet age. Governance by the people, the system of checks and balances, has utterly failed. The toxic information environment has overwhelmed the voting populace and rendered them unable to distinguish reality from fiction. In this vulnerable cognitive state they are easy prey for predatory ideologies and special interest groups who manipulate the lost sheep into advancing obfuscated agendas. The national budget will not be balanced by democratic means.
China doesn’t have any of these problems with welfare fraud, or corporate kickbacks, or consumer inflation. China is also an authoritarian corpo-state whose existence is only made possible by internet age surveillance technology, and so its failure modes are corporate rather than democratic in nature. I find it fascinating that for a period of time, the Western liberal consensus was that the internet would empower Chinese citizens to rise up against the tyrannical CCP, Arab spring style. Turns out that thesis was almost perfectly wrong… To be explored in a future essay: Capitalism with Chinese Characteristics.