Proven businesses can always borrow at fairly low rates. When capital gets really cheap it starts to incentivize greater amounts of risk taking because investors actually want risk.
If you are starting a dry cleaning business, you have a cost of the equipment, rent and other well known factors. Starting a tech company in a new and unproven area has different expenses and a different risk/reward profile.
Malinvestment can come in a lot of flavors. Cheap capital will result in too many dry cleaners and also too many startups that probably shouldn't have gotten funding.
The downside comes in various forms. 1) existing dry cleaning businesses are less profitable because of increased competition, and 2) startups hire scarce engineers and drive up wages, which drive up costs for everyone.
Cheap capital is justified bc the goal is growth, but it is a blunt instrument that creates hot spots and neglected areas simultaneously. Compare the approach used in the US with the approach taken by China. Chinese firms face significantly more competition than firms in the capitalist US, but overall China's policies are crafted with a more deliberate eye toward their distributional consequences and notions of the greater good are much more subject to sharp critique and pressure across social and industrial strata.
What we are seeing in the US is that policymakers have come to believe that the growth-focused approach is an escape hatch that can be used to reduce the effects of other bad decisions, but at some point the size of the inflated economy gets big enough that it takes on a political life of its own -- post-911 defense contractors have dramatically more lobbying and policy-influencing power than they had prior. Today, systemically risky financial industry participants have significantly more political clout than they had before the 2008 correction.
In other words, the fabric of (political) reality shifts and it becomes hard to identify what normal would look like or feel like. In my view, AI adds fuel to the existing fire -- it rapidly shifts demand away from software engineers and onto strategists -- give the team a strategy and now with AI the team will have it done in a few weeks. If not, a competitor will do it without poaching anyone from your team.
And market forces include both creative and destructive forces. Firm failure is a feature, not a bug.
Cheap venture capital is uniquely driven by the interest rate more than any other factor. Low interest rates drive money away from safer vehicles towards more risky vehicles because they still offer a return. This is good far people starting companies, but in the long run the decision makers on those investments almost always turn out to have mis-priced the risk factor and end up with negative returns.
This then causes the market to dry up again and if the interest rate hasn't dropped even further then a lot of companies that need follow up investment will now get killed off. It's a very Darwinian landscape that results from this and I've been wondering for years if there isn't a better way to do this.
Excellent points. You've perfectly described the brutal, interest-rate-driven VC cycle -- capital floods in, risk gets mispriced, and the market eventually corrects with Darwinian force. That's the "blunt instrument" in action.
Meanwhile in China, the approach is fundamentally different. Capital isn't just cheap; it's strategically directed by the state with goals beyond financial return. The aim is "new quality productive forces" -- slow-burn, systemic growth that reinforces social stability and industrial upgrade, not a boom-bust race for unicorns.
The current AI boom is our real-time experiment to see if this is the "better way." The U.S. model, as you note, is driven by massive private investment (over $109B in 2024) and is prone to hype cycles. China's model is state-planned, focusing on the "AI Plus" integration of technology across its industrial base, despite investing less ($9.3B) and facing constraints like advanced semiconductor access.
We're watching two competing logics: one seeking market-defining breakthroughs through volatile, capital-intensive competition, and another pursuing broad-based, stability-oriented technological integration. The results of this test will show which system better transforms capital into lasting, system-wide advantage.
Another factor is that dictatorships don't suffer from the push-pull effect of election cycles, especially magnified in a two party state. Such polarization wastes a lot of energy and thus is an impediment to progress. But of course there is that small price to pay.
For the sake of friendly discussion (I realize this is tangential), my (unusual) take on China is:
Authoritarianism doesn't emerge for its own sake—it emerges when a population is politically engaged enough to threaten state control. China has a long history of mass mobilization and popular unrest: peasant rebellions, labor strikes, and yes, the events of 1989. This creates pressure for centralized authority. The United States, by contrast, has an unusually passive citizenry—low voter turnout, widespread political disengagement, and a culture that channels grievances into consumption rather than collective action. American "freedom" has been cheap to maintain because it's rarely exercised.
But when Americans do resist, what happens?
Consider Alex Pretti and Tank Man. Tank Man stood before a column of tanks and was not fired upon in that iconic moment. Alex Pretti stood with a phone, intervened nonviolently to protect a woman who had been shoved to the ground, and was shot ten times by federal agents while surrounded and pinned. One government showed restraint in its most infamous moment of confrontation; the other did not.
But the deeper contrast is in the aftermath. The Chinese government never claimed Tank Man attacked the tanks. The US administration, by contrast, immediately constructed an elaborate counter-narrative—claiming Pretti "attacked" officers and committed "domestic terrorism"—directly contradicted by multiple verified videos showing him holding a phone with his hand raised. The ugliness isn't just in the violence; it's in the brazen dishonesty that follows.
And this is not an isolated data point. Consider the broader picture: the US incarcerates more people per capita than any nation on Earth—2.3 million people, disproportionately poor and non-white, warehoused in a system that functions as social control while calling itself justice. Tiananmen was a visible atrocity. American incarceration is a slow, normalized one. Compare the casualties of a single crackdown to the bodies ground through American courts and prisons year after year, and ask which system has produced more human suffering.
Then add the architecture being built around it: the constitutional dead zone within 100 miles of any border, where Fourth Amendment protections evaporate. Masked federal agents operating in cities whose elected officials cannot stop them. Surveillance contracts expanding the state's reach into private life. A president willing to undermine the Federal Reserve for short-term political gain.
Meanwhile, China maintains tighter monetary policy, invests heavily in infrastructure and foundational technology, and takes a longer view of economic development. One can criticize its system on many grounds—but the American narrative of authoritarian dysfunction versus democratic flourishing looks increasingly like projection.
How many rights can Trump trample in one year? This is a big deal. I realize most of the problems started with the patriot act (most members of congress are culpable for that). We should all have zero tolerance for the erosion of our rights, zero tolerance for fake emergencies!
Just as Youtube finally "cracked down" on piracy after riding it to massive market share, Amazon has done the same with counterfeit goods. Does this business model have a name?
As someone who eats whole fruits and vegetables, some meat and fish, etc. already, I would like to feel more confident in the following:
- there is no way that any of the fish I am eating was from polluted water or contains any harmful chemicals.
- there is no way that any of the meat I am eating was sick, raised in horrible conditions, had cancer, had significant wounds or puss-producing sores, was fed the feces of other animals, was fed chemicals or hormones, etc.
- there is no way that any of the vegetables I am eating were watered with dirty water or fertilized or exposed to pesticides that are not 100% safe.
So rather than free market capitalism where AWS would have actually lowered prices after investing heavily in a new datacenter-focused line of Huawei GPUs, the US government took steps to stop capitalism and competition, gave NVIDIA lots of free money (USA! USA!) and now prices are going up.
Recall pictures of Bezos smiling at various Trump events.
Everything Trump admin has done so far with tech reduces competition and tries to pick winners. This price increase is just the beginning.
it's truly incredible the harm that the psychological need for "strong man" leaders has on the world. What's even more strange, in my opinion, is that the bumbling and incoherent stuff Trump says is actually viewed by anyone as tough or strong. In my view it shows tremendous fear of directness and accountability. To call it womanish would be an insult to women.
Similarly, how does picking on much weaker countries (some of whom are allies) seem tough to anyone? In my view it's ugly and shows weakness rather than strength.
It's the second (so far bc he hasn't ruled out a third) presidential term for a strongly anti-immigrant / anti-immigration president who has a lot of support domestically.
Immigrants are being chased out of the US in record numbers. Many of my friends with brown skin (second generation immigrants) are worried their kids will be harrassed by ICE, etc.
The sad fact is that there are a LOT of Americans who deeply resent when someone from another country comes to the US, works hard, and earns a prosperous and happy life.
The US is now led by an emotional revenge-driven crusade against the American Dream, against capitalism, against the "melting pot" that fuels culture and innovation. It's a weird kind of revenge idiocracy going on right now.
In case it's not obvious, many of us here are deeply ashamed of what is going on and we will make it right eventually. I'm personally looking forward to the lawsuits that end up paying people mistreated by ICE significant sums of money, give them flights back to the US, etc. The US has a labor shortage and a talent shortage right now, we need the best and brightest, the most hard working, etc., not the lazy ones who think they are owed something and believe the orange clown.
Sorry to ruin your mudslinging, but if you read the second sentence of the linked study, you'll see the American voters' choice of president has nothing to do with this:
> Leave rates are lower in the life sciences and higher in AI and quantum science but overall have been stable for decades
Not true. The article asserts that immigration policy is a big driver of "stay rates" for immigrants.
Also, I did not assert that either party is "good" on immigration. The US should relax restrictions and allow many more immigrants to enter/study/work/live.
If we really want growth, fully open borders would double world GDP.
Sorry to ruin your ruining, but if you read past the abstract and look at the data, you'll see it tends to correlate with whether a democrat or republican is in office. Immigration policy is also mentioned in the discussion.
> Given these findings, a corollary question is what attracts foreign graduate students to the US and leads them to stay. Prior research points to immigration policy—a subject of perennial public interest—having a large effect on stay rates
His "arguments" on the All-In podcast are always purely persuasive/emotional and never substantiated by fact or logic. Most of it parrots GOP talking points and in my opinion he's a major threat to Silicon Valley legitimacy as he seeks to co-opt existing meritocratic institutional structures and impose his political cronyism/favoritism on them. Very dangerous stuff.
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