Daily Balajisms – Great Inflation

America is the new Argentina

We got the Great Financial Crisis in 2008, and today we might be in a Great Inflation period, says Balaji Srinivasan. It’s like the Wile E. Coyote metaphor of a global empire still running, but losing the firm ground.

And the sustained high inflation, that we are experiencing in the post-Covid stimulus world, might return after a dip, following the camel back pattern. At least this is what are people like Peter St Onge predicting.   

Many things are seemingly breaking at once, while the system is running on autopilot. Like the US banking system or the Treasury markets, after the Fed increased rates dramatically since late 2022. There seems to be a real estate crash in blue cities, and student debt, auto loan and credit card crises.  

We are in the “looting the treasury” stage of the US empire in decline, says Balaji. America is copying China, without admitting it. And it does it in a haphazard way with half-measures that just makes people angry.

Today, Democrats are for online censorship, and Republicans are for industrial policy. No party wants to cut federal spending, while the cost of borrowing is skyrocketing. And since 2022, the there is less trust in the dollar, after it was weaponized in the wake of the Russian aggression against Ukraine.

America’s future will resemble Argentina, rather than Japan, thinks Balaji and Luke Gromen. Japan is an export powerhouse, but the US runs twin deficits. Argentina under Peron went from one of the richest countries to an economic basket case over decades. Argentina didn’t try just leftist socialism of letting the inflation gallop, they did also the right-wing “Argentina First” industrial policy.

Hard power is about building stuff, not breaking stuff, thinks Balaji. The late-stage empire like USSR in the 1980s was able to do propaganda and drop leaflets and weapons to war zones, but it lost the ability to build. They tried to copy capitalism, with Glasnost and Perestroika, but both were half-measures and people wanted the real Western blue jeans and rock’n’roll – the real freedom of speech and prosperity.

History is running in reverse, says Balaji. Today the US is the empire in decline that is losing its industrial capacity to China and even the soft power capacity to Chinese TikTok. The US Navy now acknowledges that China can produce 200x more ships than the US. Even Russia, for all its corruption, can produce artillery 10x cheaper than the US.

India as a democracy can put a probe on the dark side of moon for $75m and an SF bus lane cost $300m. India has built its new parliament building for $150m. The US in the WWII was a democracy and it could produce a B-52 bomber every 63 minutes.

Balaji has a concept of a digital Pearl Harbor – a massive cyber-attack where “the cloud bursts and it is raining DMs” that are indexed and searchable – a kind of event where the societal trust is severely damaged. Balaji also makes a more general case for pseudonymous economy - that governments shouldn’t collect data they can’t protect, because they get constantly hacked – hence privacy over KYC.

But during Xi’s visit to San Francisco, we have seen a curious meme of young and old people posting on TikTok about how they read Osama Bin Laden’s Letter to America and I had this thought that this might be an emergent coincidence of people trying to hack attention by posting outrageous stuff online – but I also had this eerie feeling that this might be what a digital Pearl Harbor actually looks like – Americans praising Osama on a Chinese TikTok while the Chinese president is visiting.

After the Great Stagnation since 1968, where the hippie anti-nuclear sentiments captured regulators and got us off track in terms of technological progress for decades, we might get the Great Inflation now.

Because the West in general, and the US in particular, cannot build in the physical world anymore, and is losing its hard power. It had what Balaji calls a digital hard power – the ability to sanction and deplatform. But the new Chinese-Russian partnership severely limited its effect.  The West also almost run out of ammunition to give to Ukraine, a year and half after the Ukraine war.

Strangely the West is losing its soft power even to Chinese TikTok, while India has banned the app. Not just to X/Twitter after Elon Musk’s take over. Inflation is very problematic, because it unites the pleb voters, as it affects everyone, especially poor people and minorities.

And if the US doesn’t have enough hard power and soft power and the industrial censorship regime is weakened, people will freely discuss rising prices and the old establishment will lose the narrative war on inflation.  

The US could turn around if it is willing to embrace the tech tribe as a smart power, what some VCs call American dynamism. Elon Musk’s SpaceX can ship 8x more payload to orbit than China. The tech tribe is globally competitive, but Blue America isn’t.  

But it is more likely that the Great Inflation will continue and we will experience what I call post-American dynamism - or what Balaji calls Internet plus India as the new torch bearers of the free world.