The last elected Republican President to not have a recession start during his time in the White House was Chester A. Arthur, who left office in 1885.
There are few things as reliable as a Republican President bringing a recession. What makes Trump unique is that he appears to be trying to create one on purpose.
I think he’s going even deeper, full blown depression. What better way to buy up large swaths of land in prime areas so the world can be filled with golf resorts.
"...buy up large swaths of land in prime areas..."
What a very shallow and pissant intent, unfortunately very Trump-like. I can easily imagine that, with his single dimensional thinking, he would try something like this.
Unfortunately, we've also got the tech-bros to contend with and the simmering manure-tea stew that is Project 2025.
Prof Krugman, you need to add "Catch me now I'm Falling" by the Kinks as a musical coda next.
I think that is super important and despite being erroneous is baked into consciousness that Dems are econ failures. Carter really wanted people in the US to invest in energy independence, stay the course for a correction to sustainability, to dismantle the CIA and proxy wars by the military industrial complex and instead we got 8 yrs of demented Reagan trickle down gold toilet seats on yachts and FAA Union busting all based on the the Iran contra coup.
Obama was a mistake. We thought putting a black guy in was radical. Not only did we betray the New Deal, our fake radical has given us 20 years of white backlash and a WWC that is so blinded they can't even see they are destroying our democracy.
Interesting comparison to the fracking boom. I would point out that there was also massive capital expenditures for the internet boom — just by different companies. Qwest Communications — and others — installed massive amounts of fiber optic cable, all of which was eventually used — but which led to their bankruptcy when the uptake wasn’t nearly as quick as they had anticipated. The fiber optic cable enabled much of the expansion in data usage through 2010 and beyond — but the companies that installed it had long since gone bankrupt.
I was thinking along the same lines - there was quite a lot of capital expenditure during the internet boom. For another aspect, there was a lot of infrastructure bought and installed at the business user level. Servers, routers, desktop computers And laptops for everybody, etc. - which was not consumables, it had some lifespan.
Yes, the initial round of companies that failed were the ones that hade been valued on “eyeballs” or how many users they had; when they went bankrupt all of their equipment went up for sale in the secondary market and the NEXT year, the companies that had actually been profitable, with a sustainable business model, ran into trouble because the demand for their products (laptops, desktops, servers, routers, etc) declined sharply. Companies like Silicon Graphics disappeared, and companies like Cisco took decades to reach their prior valuations.
As a former emergency generator tech in NYC (all data operations have to have emergency power),I remember companies folding before their installations were even complete.
Btw, Lehman failed when BoE wouldn't countenance Barclays investment. Barclays later bought the wreckage, including a new data center with 6 2800kW generators (Lehman's 1st data center, 80s, only required 3 1000 kW). Oddly, the entire physical infrastructure cost Barckays no more than the contracts of key Lehman execs, iirc.
Sure, but this assumes there's widespread adoption coming, like, ever. I have the same doubts that I do about Elon's obsession with self-driving cars: is there actually that big of a demand for it and what are the odds it ends up being a glorified "self-checkout" at the grocery store?
They are certainly trying to shove AI down everyone's throats. Every company that's heavily invested in AI touts their new AI products. I think they're desperately trying to justify their expenditures.
I see scientific uses like Alpha Fold, but do we really need to improve scammers and propagandists?
FWIW, I use AI a lot in my work (software development). While I hesitate to call it "transformative," it is certainly a technology that isn't going away, at least in my industry. Of course, one industry alone can't justify all the AI investments.
Yeah, that's where I am at. The Lexis AI I use at work (I'm a lawyer) is certainly useful, but it's so inaccurate that it's not really much more useful than a Lexis search. It can help you draft a brief, for instance, but you'll get laughed out of court if you actually submit an AI brief with no editing.
Do you think a similar phenomenon could happen with nuclear energy firms? The recent events drive an increase of SMV plants to match the expected increase of energy requirements for AI companies, but who end defaulting after making more than was necessary in the short run— the recent Microsoft closures of new data centers being particularly instructive here. The plants are the taken over only in the long run when alternative energy needs are required, but with the firms that built them long out— just like the fiber cables.
Gates has plans to build a small nuke (molten sodium) in western Wyoming now that the coal plant is on its last legs. Lot’s of speculation but maybe for not since EV charging station buildout (minus tesla’s) has been canceled. This project is/was suppose to save this small community.
Was this the same plan he had before trump and had negotiated a deal with Xi to run these nuke pods in China but the trump admin was like "no" and reneged on the deal with Xi?
The Professor and Mr. Chanos say the capital invested during the internet boom was bottom-up and not as intense and focused as the surge leading up to AI, which is being driven big companies taking the majority of risks in the hundreds of billions of dollars...nothing like Gates starting a company from his garage.
As a computer scientist I have always thought the AI boom is mostly a scam. If you talked to most people they probably think the Large Language Models which have gotten so much attention in the tech media are actually sentient (e.g. they have achieved general artificial intelligence). Nothing could be further from the truth. I see LLMs as really complicated probabilistic search engines which consume a huge amount of computing resources for their training and deployment. So far they have failed to meet the hype. Given the huge amount of investment being thrown at this technology, it is unclear whether the payoff will be worth the cost or even if there is a payoff.
As a behavioral neuroscientist I fully agree, LLMs are not even AI, let alone AGI, and it is infuriating that people have been duped by the tech bros who definitely know better, or should. The credulous news media have utterly failed to bring any skepticism to the completely unsubstantiated claims that AGI is just around the corner. There are plenty of experts out there who know that LLMs are not AI but they never quote or apparently even talk to them. They continue to call wrong answers "hallucinations" as if these programs have some sort of brain. The general public seems to believe that we are on the verge of SkyNet when what we really have is more like Teddy Ruxpin on ketamine.
I spent 20 years in data analytics and the issue no one ever solved was “dirty data”. All data sets have it and it makes doing data analysis difficult when you know that some of your data has errors. With AI, there is a huge dependency on feeding the system high quality data. But who decides what is high quality. If the system is fed bogus research that Ivermectin wards off COVID, the AI will think that is a valid solution.
If people who don’t know what they are talking about feed the system bad data, it will make bad decisions. In other words, there is real potential that some AI systems could just become a MAGA voter that can do faster math calculations.
Thanks George. I spent 48 years in IT and have seen fads come and go. The probabalistic neural networks underlying the LLM tech is interesting and useful in some circumstances. But these systems are very expensive to train and run and the results are meiocre at best.
"Yesterday I noted that there is a seeming disconnect between, on one side, the economic news (somewhat worrying) and the political news (terrifying) and, on the other, the stock market, which seems untroubled by all of it."
There is a disconnect only if one buys the notion that in the society we've been living in, the order is truly what it has always been described as. What do I mean? Well, take Joe Biden, for example. Every speech he's given during his one term, he's always reiterated that we are the greatest democracy on the planet. I don't doubt he wanted to believe that. At the same time, anyone who was an adult in 2008 saw what started happening right before our eyes.
My own experience starting a career told me otherwise, first, working for a short time at a defense contractor, moving on to the World Bank, then working in a congressional office and ending at a Treasury-affiliated government agency. I learned a lot from what I saw and it formed some of my views to this day.
There is no disconnect, IF you look beyond the surface. The economic news are only worrying for the average Joe or Sally. Yesterday brought us news of the bankruptcy of Joann Fabrics (19,000 jobs going away) and the paring down of about 1500 jobs at Starbucks. But that was only yesterday and not the only news of layoffs at large corporations over the past weeks. For the robber barons, the news are just fine.
The political news, again, for Joe and Sally, if they're even aware of what is truly going on, are absolutely terrifying but only IF they still buy the notion that the only form of government worth having is a democratic one and not one where everyone submits to some authoritarian oligarch. There are too many of those. The remainder of the population has been fragmented, between those who pay attention, those who are swayed by deceitful news sources, and those who are completely detached and otherwise occupied (non-voters, for example).
The other terrifying aspect of the news is the sheer volume of it, day in, day out. If one reads Oliver Darcy, former media critic at CNN, one is terrified by the machinations going on behind the scenes at the networks and newspapers.
On the politician side of the terrifying political news, the game was up when the election results were announced and the vast majority of Republicans who were either reelected or newly elected were in Trump and Musk's pocket. There are some who are now waffling on Musk out of self-preservation after a weekend in their home districts full of meetings with very unhappy constituents. Today, the day that Speaker Johnson is going to try to bring that crazy budget to a vote, will be crucial in discerning how much control Musk and Trump really have over the lower House. Many are balking, if you read yesterday's news.
Still on the politician side, but on the side of those who are helpless, the worry is even bigger. What are democrats doing a month and a half in? See:
The stock market? Well... Whose benefit is the stock market for? Not Joe and Sally, though they may own some stock. Those who are active in the market are as fine in a de-facto oligarchy as they were during the dawn that preceded Musk-Trump. One really big cluestick is the cavalcade of barons of industry and oligarchs who made the pilgrimage to Mar-A-Lardo in December. Again, for Bill Gates who isn't even an active CEO anymore and supposedly engaged in philanthropic activity to go there should have been worrisome to all and he wasn't the only one in that category of not active but making the pilgrimage nonetheless.
Trump and Musk rolled into DC in January after having consolidated power completely before they took office. Everyone they needed had submitted to them.
We need to look at our situation from the standpoint of how oligarchies are structured. The old order is dead. We need to face that. Emmanuel Macron, yesterday, showed us each time he either corrected Trump or pretended to humor him. I clipped all those moments in my daily news post for people to view, clip after clip... It was quite something, especially if taken when grouped together.
Prepare for the great collapse. Musk and agency heads are at odds. Trump has no plans just bullying. Macron stood up to him, we are disconnecting from the world. Does anyone think that is a good thing?
You assume a US citizen with U$D will just easily be able to transfer that money there for Euros and be automatically granted residency. Why would France want another free health care recipient and accompanying U$Ds?
As a semi-related side note to Paul's analogy, it takes a Yooooge amount of water to frack an oil well.
There is no "typical" well, thus the gallons of water/well ranges from 1,500,000 in the Bakken to 15,800,000 in the Horn River Shale in BC, CA. Most fracking water now comes from surface sources that, increasingly, are augmented by deep groundwater as drought impacts much of our nation, particularly the big fracking states. Big Oil is relying on more and deeper wells to access ancient aquifer water to force decreasing amounts of oil out of each fracked o/g well.
While the total amount of water used for fracking is relatively small compared to that used by, say, notoriously inefficient Big Ag, (BTW, much of Big Ag's agua is used to grow corn/beans to produce low-quality ethanol to burn in our 4wd, urban SUV/Pickup Fuelhogs), we still commit an estimated 125,000,000,000 gallons of our decreasing water supplies to frack wells for fossil fuels that we burn and then dump the resultant GHGs into the atmosphere of Our Only Home. Globally, we created a record amount of GHGs in 2024 (Yay, us?) - but that's a different topic.
Estimates vary widely, but, roughly, we commit enough water to supply 5,000,000 US homes/yr to frack wells for more oil/gas to burn - and further damage our environment. And, you might ask, what happens to the water that was used for fracking? Well, dang, turns out that those billions of gallons of fracking water are toxic. Disposing of that toxic water is a another Yooooge problem that results from our Fossil Fuel Addiction. Much info online about that disposal prob.
The apparent market calm (before the storm) sounds like a toned down version of "irrational exuberance".
The increase in inflation expectations is no surprise. Sticky prices plus inflationary policies are a volatile combination. Interesting that all the layoffs - both public and private - don't appear to have influenced this - yet.
I am not particularly knowledgeable about economics, but I do have pretty long experience in boom and bust cycles in support for research in machine intelligence (a more inclusive term historically than AI). And that experience, which has its correlate in the commercial world, tells me that we should expect that technological successes will lead to unreasonable expectations, and that those expectations will not be realized and the wave of support will subside. Along the way, we will also be surprised by some applications working better than we expected (such as the large language models that have taken so many by surprise starting a few years ago). But overall many will think the technology can do much more than it really can.
Also, because of the huge costs involved in training (and drawing inferences from) the huge models, there will be major efforts to find cheaper/smaller ways to get similar results, which will limit the expansion of hardware requirements.
omg, these musical codas are making me feel old! i remember sitting in the theater watching this very young David Byrne give it all - can't believe that was more than 40 years ago!
I started law school in 1981, and still remember seeing a meme in 2021 that said, "Friends don't tell friends that 1984 was 40 years ago." When I saw the meme, my reaction was, "WTF, that can't be right!" (Sadly, it was, which meant that my "study group" and I went to our 40th reunion last year.)
Freud coined the word “compartmentalization” to describe how many deal with cognitive dissonance. Sounds like the players Chanos describes and when you overlay “gaslighting” ie emotional fracking, looks like 2025. voila as they say.
We set ourselves up for this, though. As a society we have determined that any activity that generates financial gain is inherently good. The markets are not in denial, they are taking full advantage of the chaotic situation. Eventually they will take their profits to Aruba and leave the rest of us to enjoy the smoking ruin our economy will become. And Republicans will find a way to blame it on Democrats
This is what Mark Andreesen more or less stated in his poorly written manifesto. The billionaire class thinks growth at any cost is good. And, as I often like to point out, while Andreesen is a billionaire, he is not very smart.
The nub with the fracking companies is that they funded with high yield fixed rate debt to prevent equity dilution. This meant that they couldn’t leave the oil in the ground when the prices tanked. When the price drops the more they pumped the less profitable they became. New financings came with restrictions that allowed a moratorium on production based on market conditions. This is why the “drill baby drill” crowd needs to be circumspect.
An additional challenge came from oil rich countries that had lower production costs where they could just turn on the spigot and flood the market with excess oil.
But isn't there an effective monopoly consolidation here in the US among producers and price fixing non-compete with OPEC? Read something last yr re this mvmt around pricing/competition. Idk how the financing part fits in with this
I was referring to the first two crashes that I was aware of when I was in commercial banking and corporate finance.
After the crash of 2020, I do recall that there was talk among Trump, OPEC, the Russians and the frackers to limit production to keep the prices high. Hence, the runup in prices under Biden.
So, I think that there was some sort of collusion.
That we even have to clarify for each other which of several crashes in <20 yrs is what's wrong with this picture. incompetent asshats and unbridled privatization, tax cuts and profiteering. I'm not even a masters level and could see both the first and second coming, the whole feigning surprise by gvmt leadership in 2009 was infuriating.
Excellent and convincing connection to fracking. Pull back by Mr. Softie first warning sign. Thanks Paul for your ongoing efforts to infuse sanity into the public discourse in the US
No, inapplicable and misleading. Fracking is an extractive activity. And all such activities peter out. Oil fields deplete, gold mines become uneconomical, whaling destroyed itself, etc. But car manufacturing only got bigger with time, and no reversion to the mean.
The older ones are. The new ones are packed with computer chips. When my wife bought a new car last year, we were told that it would cost $2,000 to repair/replace the computer if it started giving trouble.
(sigh), the comparison was not AI as a commodity to oil...the comparison was on expected return. In fracking's case people expected too high a return and there was too much money chasing too small a profit. That is how Mr. Chaos expects AI to play out.
In a sense AI is extractive, being dependent on all the (digital) knowledge that exists. As I see it, there just isn't a lot of new knowledge being found.
There are scientific studies where the huge computing power really does make a difference. Large data sets allow patterns to be seen.
I think the problem is AI is being sold as the be all end all for everyone instead of the scientific institutions that it will really benefit.
I don't want AI to set up a vacation for me or plan my wedding or decide where I should go to dinner tonight. I don't want it to write my stories for me or draw pictures for me.
I would like it to do the dishes and sweep the floor.
AI is comparable to fracking or streaming services in that capital assets (chips, wells, proprietary content) depreciate fast - faster than the 20%pa used for accounting purposes, meaning that the reported profits may be completely overstated to non existent.
Industrial robots used in auto manufacturing have an annual depreciation of around 15-20%, fracking wells loose about 40-60% output in one year, AI chips depreciate due to the sheer scale of technological progress (50% pa?)
Jim Chanos' perspective is very illuminating, thanks for introducing us to him. The fracking bubble does fit better in many ways.
Also, wanted to share 2 quick thoughts:
1) You, Jim Chanos and someone like Mark Cuban really ought to do a joint podcast to talk about the state of the economy and markets. The 3 of you would be interesting to listen to. Not a regularly scheduled thing, just something to do whenever the 3 of you could triangulate it.
2) Some weekend I hope you can share with us about how Isaac Asimov's "Foundation" novels influenced your career choices. Sci-fi and economics may seem like unlikely companions, unless you've read Asimov. 😁
I am under the impression that considerable buying / selling in the market is algorithm or AI driven. If so, is the logic backing these based on history and thus not sufficiently recognizing the potential consequences of the current political climate? Might that keep the market optimistic and blind to mounting risk?
10 out of the last 10 recessions started under Republican Presidents. Just saying.
The last elected Republican President to not have a recession start during his time in the White House was Chester A. Arthur, who left office in 1885.
There are few things as reliable as a Republican President bringing a recession. What makes Trump unique is that he appears to be trying to create one on purpose.
I think he’s going even deeper, full blown depression. What better way to buy up large swaths of land in prime areas so the world can be filled with golf resorts.
"...buy up large swaths of land in prime areas..."
What a very shallow and pissant intent, unfortunately very Trump-like. I can easily imagine that, with his single dimensional thinking, he would try something like this.
Unfortunately, we've also got the tech-bros to contend with and the simmering manure-tea stew that is Project 2025.
Prof Krugman, you need to add "Catch me now I'm Falling" by the Kinks as a musical coda next.
Will voters ever get the hint?
No, because voters are still convinced Jimmy Carter started a recession.
I think that is super important and despite being erroneous is baked into consciousness that Dems are econ failures. Carter really wanted people in the US to invest in energy independence, stay the course for a correction to sustainability, to dismantle the CIA and proxy wars by the military industrial complex and instead we got 8 yrs of demented Reagan trickle down gold toilet seats on yachts and FAA Union busting all based on the the Iran contra coup.
Not the ones who haven't already. There's a bit of buyer's remorse on the part of some who voted for Trump, but most are still true believers
Sadly, I believe you're right.
No.
Next question?
Obama was a mistake. We thought putting a black guy in was radical. Not only did we betray the New Deal, our fake radical has given us 20 years of white backlash and a WWC that is so blinded they can't even see they are destroying our democracy.
Interesting comparison to the fracking boom. I would point out that there was also massive capital expenditures for the internet boom — just by different companies. Qwest Communications — and others — installed massive amounts of fiber optic cable, all of which was eventually used — but which led to their bankruptcy when the uptake wasn’t nearly as quick as they had anticipated. The fiber optic cable enabled much of the expansion in data usage through 2010 and beyond — but the companies that installed it had long since gone bankrupt.
I was thinking along the same lines - there was quite a lot of capital expenditure during the internet boom. For another aspect, there was a lot of infrastructure bought and installed at the business user level. Servers, routers, desktop computers And laptops for everybody, etc. - which was not consumables, it had some lifespan.
Yes, the initial round of companies that failed were the ones that hade been valued on “eyeballs” or how many users they had; when they went bankrupt all of their equipment went up for sale in the secondary market and the NEXT year, the companies that had actually been profitable, with a sustainable business model, ran into trouble because the demand for their products (laptops, desktops, servers, routers, etc) declined sharply. Companies like Silicon Graphics disappeared, and companies like Cisco took decades to reach their prior valuations.
As a former emergency generator tech in NYC (all data operations have to have emergency power),I remember companies folding before their installations were even complete.
Btw, Lehman failed when BoE wouldn't countenance Barclays investment. Barclays later bought the wreckage, including a new data center with 6 2800kW generators (Lehman's 1st data center, 80s, only required 3 1000 kW). Oddly, the entire physical infrastructure cost Barckays no more than the contracts of key Lehman execs, iirc.
Sure, but this assumes there's widespread adoption coming, like, ever. I have the same doubts that I do about Elon's obsession with self-driving cars: is there actually that big of a demand for it and what are the odds it ends up being a glorified "self-checkout" at the grocery store?
They are certainly trying to shove AI down everyone's throats. Every company that's heavily invested in AI touts their new AI products. I think they're desperately trying to justify their expenditures.
I see scientific uses like Alpha Fold, but do we really need to improve scammers and propagandists?
FWIW, I use AI a lot in my work (software development). While I hesitate to call it "transformative," it is certainly a technology that isn't going away, at least in my industry. Of course, one industry alone can't justify all the AI investments.
Yeah, that's where I am at. The Lexis AI I use at work (I'm a lawyer) is certainly useful, but it's so inaccurate that it's not really much more useful than a Lexis search. It can help you draft a brief, for instance, but you'll get laughed out of court if you actually submit an AI brief with no editing.
Do you think a similar phenomenon could happen with nuclear energy firms? The recent events drive an increase of SMV plants to match the expected increase of energy requirements for AI companies, but who end defaulting after making more than was necessary in the short run— the recent Microsoft closures of new data centers being particularly instructive here. The plants are the taken over only in the long run when alternative energy needs are required, but with the firms that built them long out— just like the fiber cables.
Gates has plans to build a small nuke (molten sodium) in western Wyoming now that the coal plant is on its last legs. Lot’s of speculation but maybe for not since EV charging station buildout (minus tesla’s) has been canceled. This project is/was suppose to save this small community.
Was this the same plan he had before trump and had negotiated a deal with Xi to run these nuke pods in China but the trump admin was like "no" and reneged on the deal with Xi?
Molten sodium. Dehydrated catastrophe. Just add water.
The Professor and Mr. Chanos say the capital invested during the internet boom was bottom-up and not as intense and focused as the surge leading up to AI, which is being driven big companies taking the majority of risks in the hundreds of billions of dollars...nothing like Gates starting a company from his garage.
As a computer scientist I have always thought the AI boom is mostly a scam. If you talked to most people they probably think the Large Language Models which have gotten so much attention in the tech media are actually sentient (e.g. they have achieved general artificial intelligence). Nothing could be further from the truth. I see LLMs as really complicated probabilistic search engines which consume a huge amount of computing resources for their training and deployment. So far they have failed to meet the hype. Given the huge amount of investment being thrown at this technology, it is unclear whether the payoff will be worth the cost or even if there is a payoff.
As a behavioral neuroscientist I fully agree, LLMs are not even AI, let alone AGI, and it is infuriating that people have been duped by the tech bros who definitely know better, or should. The credulous news media have utterly failed to bring any skepticism to the completely unsubstantiated claims that AGI is just around the corner. There are plenty of experts out there who know that LLMs are not AI but they never quote or apparently even talk to them. They continue to call wrong answers "hallucinations" as if these programs have some sort of brain. The general public seems to believe that we are on the verge of SkyNet when what we really have is more like Teddy Ruxpin on ketamine.
I spent 20 years in data analytics and the issue no one ever solved was “dirty data”. All data sets have it and it makes doing data analysis difficult when you know that some of your data has errors. With AI, there is a huge dependency on feeding the system high quality data. But who decides what is high quality. If the system is fed bogus research that Ivermectin wards off COVID, the AI will think that is a valid solution.
If people who don’t know what they are talking about feed the system bad data, it will make bad decisions. In other words, there is real potential that some AI systems could just become a MAGA voter that can do faster math calculations.
As another computer scientist, I agree.
Thanks George. I spent 48 years in IT and have seen fads come and go. The probabalistic neural networks underlying the LLM tech is interesting and useful in some circumstances. But these systems are very expensive to train and run and the results are meiocre at best.
You are only seeing what is at the end of you nose.
AI for intellectual tasks is limited. But AI + robotics promises eventually to replace nearly all human labor
That will lead to an immense revolution in how we live. The sky is not the limit, it's just the starting point.
"Yesterday I noted that there is a seeming disconnect between, on one side, the economic news (somewhat worrying) and the political news (terrifying) and, on the other, the stock market, which seems untroubled by all of it."
There is a disconnect only if one buys the notion that in the society we've been living in, the order is truly what it has always been described as. What do I mean? Well, take Joe Biden, for example. Every speech he's given during his one term, he's always reiterated that we are the greatest democracy on the planet. I don't doubt he wanted to believe that. At the same time, anyone who was an adult in 2008 saw what started happening right before our eyes.
My own experience starting a career told me otherwise, first, working for a short time at a defense contractor, moving on to the World Bank, then working in a congressional office and ending at a Treasury-affiliated government agency. I learned a lot from what I saw and it formed some of my views to this day.
There is no disconnect, IF you look beyond the surface. The economic news are only worrying for the average Joe or Sally. Yesterday brought us news of the bankruptcy of Joann Fabrics (19,000 jobs going away) and the paring down of about 1500 jobs at Starbucks. But that was only yesterday and not the only news of layoffs at large corporations over the past weeks. For the robber barons, the news are just fine.
The political news, again, for Joe and Sally, if they're even aware of what is truly going on, are absolutely terrifying but only IF they still buy the notion that the only form of government worth having is a democratic one and not one where everyone submits to some authoritarian oligarch. There are too many of those. The remainder of the population has been fragmented, between those who pay attention, those who are swayed by deceitful news sources, and those who are completely detached and otherwise occupied (non-voters, for example).
The other terrifying aspect of the news is the sheer volume of it, day in, day out. If one reads Oliver Darcy, former media critic at CNN, one is terrified by the machinations going on behind the scenes at the networks and newspapers.
On the politician side of the terrifying political news, the game was up when the election results were announced and the vast majority of Republicans who were either reelected or newly elected were in Trump and Musk's pocket. There are some who are now waffling on Musk out of self-preservation after a weekend in their home districts full of meetings with very unhappy constituents. Today, the day that Speaker Johnson is going to try to bring that crazy budget to a vote, will be crucial in discerning how much control Musk and Trump really have over the lower House. Many are balking, if you read yesterday's news.
Still on the politician side, but on the side of those who are helpless, the worry is even bigger. What are democrats doing a month and a half in? See:
An email for the circular file?
It did come from feedback at democrats...
https://rimaregasblog42.substack.com/p/an-email-for-the-circular-file
I wrote a part II since writing this comment:
https://rimaregasblog42.substack.com/p/an-email-for-the-circular-file-part
The stock market? Well... Whose benefit is the stock market for? Not Joe and Sally, though they may own some stock. Those who are active in the market are as fine in a de-facto oligarchy as they were during the dawn that preceded Musk-Trump. One really big cluestick is the cavalcade of barons of industry and oligarchs who made the pilgrimage to Mar-A-Lardo in December. Again, for Bill Gates who isn't even an active CEO anymore and supposedly engaged in philanthropic activity to go there should have been worrisome to all and he wasn't the only one in that category of not active but making the pilgrimage nonetheless.
Trump and Musk rolled into DC in January after having consolidated power completely before they took office. Everyone they needed had submitted to them.
We need to look at our situation from the standpoint of how oligarchies are structured. The old order is dead. We need to face that. Emmanuel Macron, yesterday, showed us each time he either corrected Trump or pretended to humor him. I clipped all those moments in my daily news post for people to view, clip after clip... It was quite something, especially if taken when grouped together.
---
My daily news post (yesterday's edition)
Things Musk (and Trump) Did... Day 35 | Blog#42
https://rimaregasblog42.substack.com/p/things-musk-and-trump-did-day-35
There is a lot in there about all kinds of things you won't see in broadcast news.
Today's news post
Things Musk (and Trump) Did... Day 36 | Blog#42
Word of the day: Trompe l'oeil
https://rimaregasblog42.substack.com/p/things-musk-and-trump-did-day-35-b04
Rema, Not to find fault with your news gathering, but isn’t this supposed to be about comments on the Krugman posts?
It kinda feels to me like you are posting to gain subs to your stack.
I guess you neither read my comment, the news, nor my name just above your comment?
I guess not 🤷🏿♂️
Prepare for the great collapse. Musk and agency heads are at odds. Trump has no plans just bullying. Macron stood up to him, we are disconnecting from the world. Does anyone think that is a good thing?
Was thinking about moving to France... which is looking better after seeing Macron step up. Bon!
You assume a US citizen with U$D will just easily be able to transfer that money there for Euros and be automatically granted residency. Why would France want another free health care recipient and accompanying U$Ds?
I know people who think it’s a great thing.
As a semi-related side note to Paul's analogy, it takes a Yooooge amount of water to frack an oil well.
There is no "typical" well, thus the gallons of water/well ranges from 1,500,000 in the Bakken to 15,800,000 in the Horn River Shale in BC, CA. Most fracking water now comes from surface sources that, increasingly, are augmented by deep groundwater as drought impacts much of our nation, particularly the big fracking states. Big Oil is relying on more and deeper wells to access ancient aquifer water to force decreasing amounts of oil out of each fracked o/g well.
While the total amount of water used for fracking is relatively small compared to that used by, say, notoriously inefficient Big Ag, (BTW, much of Big Ag's agua is used to grow corn/beans to produce low-quality ethanol to burn in our 4wd, urban SUV/Pickup Fuelhogs), we still commit an estimated 125,000,000,000 gallons of our decreasing water supplies to frack wells for fossil fuels that we burn and then dump the resultant GHGs into the atmosphere of Our Only Home. Globally, we created a record amount of GHGs in 2024 (Yay, us?) - but that's a different topic.
Estimates vary widely, but, roughly, we commit enough water to supply 5,000,000 US homes/yr to frack wells for more oil/gas to burn - and further damage our environment. And, you might ask, what happens to the water that was used for fracking? Well, dang, turns out that those billions of gallons of fracking water are toxic. Disposing of that toxic water is a another Yooooge problem that results from our Fossil Fuel Addiction. Much info online about that disposal prob.
Here's one related article: www.nytimes.com/interactive/2023/09/25/climate/fracking-oil-gas-wells-water.html
The apparent market calm (before the storm) sounds like a toned down version of "irrational exuberance".
The increase in inflation expectations is no surprise. Sticky prices plus inflationary policies are a volatile combination. Interesting that all the layoffs - both public and private - don't appear to have influenced this - yet.
Its only been a few weeks.
My son who fights wildfires and does fuel reduction in the off season has no work. The Federal grant money isn't coming through.
I am not particularly knowledgeable about economics, but I do have pretty long experience in boom and bust cycles in support for research in machine intelligence (a more inclusive term historically than AI). And that experience, which has its correlate in the commercial world, tells me that we should expect that technological successes will lead to unreasonable expectations, and that those expectations will not be realized and the wave of support will subside. Along the way, we will also be surprised by some applications working better than we expected (such as the large language models that have taken so many by surprise starting a few years ago). But overall many will think the technology can do much more than it really can.
Also, because of the huge costs involved in training (and drawing inferences from) the huge models, there will be major efforts to find cheaper/smaller ways to get similar results, which will limit the expansion of hardware requirements.
omg, these musical codas are making me feel old! i remember sitting in the theater watching this very young David Byrne give it all - can't believe that was more than 40 years ago!
I started law school in 1981, and still remember seeing a meme in 2021 that said, "Friends don't tell friends that 1984 was 40 years ago." When I saw the meme, my reaction was, "WTF, that can't be right!" (Sadly, it was, which meant that my "study group" and I went to our 40th reunion last year.)
Freud coined the word “compartmentalization” to describe how many deal with cognitive dissonance. Sounds like the players Chanos describes and when you overlay “gaslighting” ie emotional fracking, looks like 2025. voila as they say.
I think the word you are looking for is denial. Market denial. 🤯
We set ourselves up for this, though. As a society we have determined that any activity that generates financial gain is inherently good. The markets are not in denial, they are taking full advantage of the chaotic situation. Eventually they will take their profits to Aruba and leave the rest of us to enjoy the smoking ruin our economy will become. And Republicans will find a way to blame it on Democrats
This is what Mark Andreesen more or less stated in his poorly written manifesto. The billionaire class thinks growth at any cost is good. And, as I often like to point out, while Andreesen is a billionaire, he is not very smart.
Isn't that the same thing as "willful ignorance"?
The nub with the fracking companies is that they funded with high yield fixed rate debt to prevent equity dilution. This meant that they couldn’t leave the oil in the ground when the prices tanked. When the price drops the more they pumped the less profitable they became. New financings came with restrictions that allowed a moratorium on production based on market conditions. This is why the “drill baby drill” crowd needs to be circumspect.
An additional challenge came from oil rich countries that had lower production costs where they could just turn on the spigot and flood the market with excess oil.
Isn't there in fracking less technical flexibility to "crank down" for fear of losing "recoverability"?
Correct, therein lies the problem. It is like they are addicted to frack.
But isn't there an effective monopoly consolidation here in the US among producers and price fixing non-compete with OPEC? Read something last yr re this mvmt around pricing/competition. Idk how the financing part fits in with this
I was referring to the first two crashes that I was aware of when I was in commercial banking and corporate finance.
After the crash of 2020, I do recall that there was talk among Trump, OPEC, the Russians and the frackers to limit production to keep the prices high. Hence, the runup in prices under Biden.
So, I think that there was some sort of collusion.
That we even have to clarify for each other which of several crashes in <20 yrs is what's wrong with this picture. incompetent asshats and unbridled privatization, tax cuts and profiteering. I'm not even a masters level and could see both the first and second coming, the whole feigning surprise by gvmt leadership in 2009 was infuriating.
Excellent and convincing connection to fracking. Pull back by Mr. Softie first warning sign. Thanks Paul for your ongoing efforts to infuse sanity into the public discourse in the US
No, inapplicable and misleading. Fracking is an extractive activity. And all such activities peter out. Oil fields deplete, gold mines become uneconomical, whaling destroyed itself, etc. But car manufacturing only got bigger with time, and no reversion to the mean.
It’s an analogy, and none are perfect, otherwise we wouldn’t need them.
Your car analogy is even more flawed. They are way more durable than AI-enabling computer chips.
The older ones are. The new ones are packed with computer chips. When my wife bought a new car last year, we were told that it would cost $2,000 to repair/replace the computer if it started giving trouble.
That’s true, but it doesn’t change the fact that a car depreciates much more slowly than an AI enabling computer chip.
(sigh), the comparison was not AI as a commodity to oil...the comparison was on expected return. In fracking's case people expected too high a return and there was too much money chasing too small a profit. That is how Mr. Chaos expects AI to play out.
In a sense AI is extractive, being dependent on all the (digital) knowledge that exists. As I see it, there just isn't a lot of new knowledge being found.
There are scientific studies where the huge computing power really does make a difference. Large data sets allow patterns to be seen.
I think the problem is AI is being sold as the be all end all for everyone instead of the scientific institutions that it will really benefit.
I don't want AI to set up a vacation for me or plan my wedding or decide where I should go to dinner tonight. I don't want it to write my stories for me or draw pictures for me.
I would like it to do the dishes and sweep the floor.
Yeah, right. Time for Musk to close the Patent Office.
Oh, wait. Did you see about successfully using CRISPR to remove Downs Syndrome extra chromosomes from stem cells? 25th Century science.
AI is comparable to fracking or streaming services in that capital assets (chips, wells, proprietary content) depreciate fast - faster than the 20%pa used for accounting purposes, meaning that the reported profits may be completely overstated to non existent.
Industrial robots used in auto manufacturing have an annual depreciation of around 15-20%, fracking wells loose about 40-60% output in one year, AI chips depreciate due to the sheer scale of technological progress (50% pa?)
Jim Chanos' perspective is very illuminating, thanks for introducing us to him. The fracking bubble does fit better in many ways.
Also, wanted to share 2 quick thoughts:
1) You, Jim Chanos and someone like Mark Cuban really ought to do a joint podcast to talk about the state of the economy and markets. The 3 of you would be interesting to listen to. Not a regularly scheduled thing, just something to do whenever the 3 of you could triangulate it.
2) Some weekend I hope you can share with us about how Isaac Asimov's "Foundation" novels influenced your career choices. Sci-fi and economics may seem like unlikely companions, unless you've read Asimov. 😁
Thanks!
Paul, SPEAKING OF THE POLITICAL TORPEDOS IN THE WATER; BY THE TIME YOU HEAR THE TORPEDO PROPELLERS IT'S TOO LATE.
I am under the impression that considerable buying / selling in the market is algorithm or AI driven. If so, is the logic backing these based on history and thus not sufficiently recognizing the potential consequences of the current political climate? Might that keep the market optimistic and blind to mounting risk?