Growing Gains

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Abundance should be America’s national security policy

This week, Josh Wolfe hosted chair Mike Gallagher, ranking member Raja Krishnamoorthi and members of the Select Committee on the Chinese Communist Party of the U.S. House at the Council on Foreign Relations to discuss the intricacies of how Wall Street can support America’s security goals while continuing to be an open and free marketplace for global growth. This conversation was a follow-up to Josh’s testimony in July, which we covered in “Securities” back in “Never Again.” As Liz Hoffman wrote in Semafor:

Josh Wolfe of Lux Capital, a venture firm that invests in defense technology and scientific endeavors, organized closed-door sessions meant to help lawmakers and financiers understand each other’s interests “without being knee jerk or reflexive,” he told Semafor.

Few attendees supported a complete decoupling from China, said Wolfe, who cautioned against economic jingoism. “Using a hammer or a bludgeon would be a terrible idea,” he said.

The panel is collecting ideas for an end-of-year report that members hope will include bipartisan recommendations for curtailing the flow of U.S. money into China.

The closed-room discussion was much more detailed on logistics around U.S.-China trade than you traditionally see in public hearings. For instance, how should asset allocators wean off of geopolitically risky investments in China without triggering a fire sale that might ultimately benefit, say, Saudi Arabia, which appears ready to buy any Chinese assets at a market discount? How should the U.S. government balance “Buy America” provisions in areas like solar when China has a near-monopoly on the entire market (a topic our former summer associate Ken Bui discussed in “Powering Power”).

We’ll come back to solar panels in a second, but Monday’s discussion was heightened by the news that Huawei has breached America’s semiconductor limits with the launch of its Mate 60 Pro smartphone. President Joe Biden and his administration implemented export controls last year to prevent China’s access to 14nm node chips or below, even though China’s top chip fab SMIC had already previously shown that it could produce at that node. Surprising analysts, Huawei’s Mate 60 Pro is powered by a SMIC chip at 7nm — two nodes better than 14nm and well ahead of what the U.S. export controls should have allowed China to manufacture.

Huawei’s chip is still two generations behind this week’s new iPhone 15 Pro lineup, which is powered by Apple’s 3nm A17 Pro manufactured by TSMC. Nonetheless, Huawei’s sudden technological lurch forward has led to much hand-wringing in Washington about what to do next, with SemiAnalysis’s Dylan Patel bluntly arguing that “US Sanctions Have Failed.”

This is the dichotomy between U.S. and Chinese approaches to economic dominance. For China, the goal is abundance and cutthroat price reduction, wiping out other competitors. Take the solar industry again. Through comprehensive industrial policy and extreme focus on scale, China owns nearly 100% of multiple photovoltaic industry segments. For China, abundance has become dominance, to the point that both America and Europe fight back with anti-dumping provisions designed to raise the cost of imports in order to help their domestic industries survive. For instance, just this week on Wednesday, Europe announced an anti-dumping investigation of Chinese EVs.

Compare that to America’s approach to chips, which is built on artificial scarcity. Our goal isn’t to abundantly produce chips so competitively that no Chinese manufacturer could hope to enter the market (even with lavish state subsidies). Instead, America attempts to prevent access to leading-edge chips through export controls that give ourselves a government-granted monopoly above the fray of market competition. Unfortunately, as soon as a Chinese company produces these chips for themselves, America is immediately pushed out of the marketplace. Abundance trumps scarcity when it comes to economic competition, and yet, we exclusively focus on the latter rather than the former.

It almost makes you want to jump off a bridge, and that’s my segue to a parallel point that made the rounds in tech circles this week, starting I believe with this tweeted chart by @nearcyan:

A chart comparing the costs between the Golden Gate Bridge and recently-installed suicide nets.
A chart comparing the costs between the Golden Gate Bridge and recently-installed suicide nets.

Now, the big caveat is that the Golden Gate Bridge was built at the height of the Great Depression, when both material and labor costs were at unique historical lows. The other caveat (I think under-appreciated) is that designing suicide nets that effectively save lives, fit the aesthetics of America’s iconic bridge, and don’t degrade in the rusting weather of the Bay Area is a challenging problem.

Even so, this tweet went viral and its message resonates because it shows just how damaging America’s scarcity economy is, not just in semiconductors or technology more broadly, but across our daily lives as well. America has a housing shortage that has swelled to millions of missing units, which isn’t surprising given that the cost of building a single family home has grown to an average of $392,241 according to a 2022 survey conducted by the National Association of Home Builders. That’s up from $296,792 in 2019 and $184,125 back in 2011. Some economists have estimated that the damage to U.S. GDP from high housing costs can be counted in the trillions.

Then you head over to China, where abundance itself is causing economic heartburn. A massive housing glut has led to the proliferation of ghost cities, with some estimates placing the figure of empty homes at 65 million. This financial and property bubble is teetering on the brink of collapse, with dozens of property developers (most recently Country Garden) approaching defaults or bankruptcies.

We’d all prefer a Goldilocks economy balanced between excess and non-existence, but I have to say, if forced to choose between the two extremes, I would vote for abundance every time. America’s population is projected to surpass 400 million in 2058 according to the Census Bureau, which means roughly 70 million new Americans need to find spaces to live and places to work in the next three decades. That’s roughly the scale of nine brand-new New York Cities or two-and-a-third Texas(es). Couple that population growth with the need for increased resilience from climate disruption, and it’s obvious that America has a massive scarcity problem that will only intensify going forward.

Silicon Valley, under the meme-able rubric of “e/acc” or “effective accelerationism,” has centered on artificial intelligence to be the savior of America’s (and humanity’s) progress to abundance. It’s implied that large language models (LLMs) and perhaps a relatively deformed artificial general intelligence could coordinate and accelerate productivity, offering bounty in barren times.

Yet, the obsession with AI in the physical world reminds me of how WeWork was going to change the nature of office floor plans through AI. Take a Forbes cover profile from 2017:

To make the most of every millimeter, WeWork uses 3-D scanners to measure space and builds virtual-reality models to help design each floor before turning a single screw. Heat-mapping technology tracks traffic and usage to find the right balance of shared space, desks and conference rooms. "Landlords just sell aluminum. We make iPhones," says Dave Fano, the growth officer and resident mad scientist.

Apple sells iPhones made of titanium and aluminum as of this week. WeWork meanwhile is on the verge of bankruptcy. Apple made 225 million iPhones in 2022 and some pocket change of profits, while WeWork is shedding real estate faster than a remote-work tech company.

I’ll stop the potshots, but look: AI is a tool, one that can improve performance or one that can metastasize complexity. Despite decades of computer-aided design, apartment buildings are pretty much laid out how they have always been, complete with rooms, doors, hallways and staircases. I hate to be churlish about our future intelligence overlord’s ability to design a better floor plan, but I am not optimistic after millennia of human ingenuity. The constraints are optimized. The same is arguably true about roads, subways, bridges, waterworks and dozens of other forms of physical infrastructure. In fact, engineers occasionally discover that ancient approaches to public works are ultimately superior to modern methods.

The complex morass is the paperwork (and yes, I’m reflecting last week’s “Inertial Ineptitude”). The years of zoning approvals, architectural reviews, impact statements, and licensing permissions are human forms of entropy not derived from any physical law of thermodynamics. We made our scarcity, and we can unmake it at any time, no artificial general intelligence, computers or hell, even electricity required.

Computers, far from simplifying these tasks, have had the perverse effect of intensifying them. The ability to store large-scale data and process complex models means that processes that required a page or two in the 1950s can now be dozens, hundreds or even thousands of pages long. Bureaucracy expands to our limits. A review of environmental impact statements by the Council on Environmental Quality in 2020 found that the mean document length was 575 pages (the median was 397 pages). More than 2% of reports in the sample were above 2,000 pages.

Maybe all these reports will be generated by AI. Or more likely, these reports will tediously grow in complexity to take advantage of our new technological capabilities with nary a gain to productivity at all.

This is what a scarcity economy looks like in America today. The abundance is in the process: more reports, more pages, more steps, more bureaucrats, more discussion, more inertia. What’s left is less housing, less transit, less jobs, less income, less productivity, less growth and lesser futures. It doesn’t matter the industry; what matters is the focus on abundance and prosperity for all. Resilient and growing wealth in all its forms is the best national security that American money can buy.

“Securities” Podcast: American democracy and the future with Miles Taylor

Blowback by Miles Taylor
Blowback by Miles Taylor

Miles Taylor inked a political earthquake back in September 2018 when he — anonymously — wrote an op-ed in The New York Times titled, “I Am Part of the Resistance Inside the Trump Administration.” It became the subject of a scorching debate between hopeful liberals (plus anti-Trump conservatives) and Trump supporters who had once conspiratorially theorized the existence of a deep state only to witness one write plainly of its existence.

Now, Taylor is part of a vanguard of tech-policy hybrids working to rebuild American democracy for the 21st century, complete with inoculations to the worst effects of social media and our polarized and instant political culture. His new book, “Blowback: A Warning to Save Democracy from the Next Trump” is part memoir, part warning and part guide to solving for the future.

In the podcast, Taylor, Josh Wolfe and I walk through the tribulations of the Trump era, the challenges of connecting the tech industry into Washington these days, and what the pathways forward are for getting America out of its morass.

🔊 Take a listen here

Lux Recommends

  • One of the most under-appreciated stories of 2023 is the looming collapse of homeowners insurance in the United States. As natural disasters continue to pummel all regions of the country, insurers are walking back their coverage to remain solvent, putting homeowners in serious jeopardy. Jacob Bogage covers the latest for The Washington Post in a good overview of the problem.
  • Our scientist-in-residence Sam Arbesman recommends Virginia Hefferman’s historical look at semiconductors in “Microchips Turn Sand Into Mind.” “You can see why Mark Liu, the chairman of the formidable TSMC, considers silicon a gift from God. After oxygen, silicon is the second-most common element on Earth. I’ve come to see it like this: Silicon is to the built world what oxygen is to the humans who built it. It’s the animator.”
  • Lan Jiang points to John Rubino’s summary of connections between whale deaths in the Atlantic Ocean and off-shore wind farms. Misinformation or misunderstanding? And in what direction? It depends which way the wind blows, I suppose.
  • One of the big foreign policy stories this year is France’s ejection from Africa after a series of coups vanquished its most-favored allied leaders, including most recently Niger (where Macron on Friday claimed that the French ambassador was being held hostage). Michael Shurkin declares that “Time’s up for France in Africa,” while Hugh Schofield with the BBC describes the situation in detail in "Macron looks on as France's Africa policy crumbles.”
  • Sam enjoyed Benjamin Breen’s look at large language models and why their hallucinations are going to transform education and the humanities. “What follows are some thoughts about what I believe to be a novel use of LLMs: using them to simulate interactive historical settings as part of a university assignment. The results of these early trials are why I am personally much more excited about generative AI than many of my colleagues — though I also concede that in the short term, cheating will be a major problem.”
  • Finally, David Robson in The Guardian has a great book review of the next-generation science of mental health and depression, profiling Philip Gold’s Breaking Through Depression and Camilla Nord’s The Balanced Brain. Together, they depose the chemical imbalance theory of depression, leading to new insights and new pathways for physician-scientists to solve these gloomy diseases.

That’s it, folks. Have questions, comments, or ideas? This newsletter is sent from my email, so you can just click reply.