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Wednesday, September 16, 2026

The global crisis of falling student learning outcomes

The results of the latest round of the three-year OECD PISA school learning outcomes survey of 15-year-olds in 38 OECD countries and 53 other places provide firm evidence that what people have been suspecting is true — technology, turbocharged by AI, may be detracting from learning. 

It finds scores declining worldwide, with fifteen-year-olds in high-income countries falling roughly 1.5 years behind their 2015 counterparts in literacy, knowledge, and reasoning skills. The declines are pronounced in literacy and numeracy

The East Asian countries remain at the top of the charts in all three subjects, as they have been since the beginning. Performance has declined across the board since 2015, with Turkey being an exception. 

The Economist writes

The latest scores on PISA tests of reading, maths and science, released on September 8th, are the worstsince the tests, administered by the OECD, began in 2000… In 35 rich countries that take part in the tests, a typical 15-year-old now reads no better than a 14-year-old did a decade ago… PISA scores began drifting downwards around 2012. The evidence is growing that tablets, mobile phones and other such screens are distracting youngsters from their studies and diverting them from hobbies, like reading books, that instil the ability to focus… And precisely because AI will increase the temptation for people to outsource difficult cognitive tasks, schools have an extra duty to help pupils exercise their brains and acquire the hard habits of thinking. Failure to furnish them with the basic building blocks of a well-developed mind, such as literacy and numeracy, is inexcusable.

The report points to a decline in key skills like drafting or critically evaluating texts at the expense of skim reading and limited understanding. 

The connection between passive technology consumption and lower scores was “compelling”, even though the study did not provide direct evidence of cause and effect, said Andreas Schleicher, director for education and skills at the OECD… Reliance on AI, the survey found, tended to produce worse scores in science for both pupils and education systems, with 37 per cent of students prioritising “common sense” over scientific reasoning… That will serve them ill in the AI age, when “reflection and complexity” will be all the more important… With those skills “declining rapidly”, young people now “read faster” than in 2018, but “less accurately”, he explained… Schleicher linked the decline in the latest scores to the dominance of distracting short-form videos on platforms such as Instagram and TikTok, as the report suggested that “digital distraction” is harming education across the world.

Andreas Schleicher, OECD’s long-standing Director of Education, points to possible explanations.

Reading, the gateway to all learning, has declined sharply. Between 2018 and 2025 performance fell in three-quarters of the countries. Across the OECD, it was down by 25 points—more than a year of learning. Much of this decline happened between 2022 and 2025. The biggest surprise is who fell furthest behind. It was not the most disadvantaged students, but those from wealthy families, which points to a much broader challenge than inequality alone…

Most troubling is the deterioration of the very skills that matter most in the AI age: evaluating information, making connections across multiple sources and thinking critically about what we read. Since 2018, the number of instances in which students rush through texts and give quick but incorrect answers has almost doubled… We cannot say for sure, but falling levels of reading for enjoyment and the shift towards digital reading—skimming social-media feeds and rapidly processing information—may be reducing the ability of students to engage with complex texts and data… when personal devices are used for leisure during school, student performance falls sharply. This raises questions about whether devices such as smartphones, designed to maximise a user’s attention, are compatible with sustained academic attention.

… students who use chatbots for tasks such as summarising texts tend to get lower scores than those who don’t, and are more likely to report lower levels of intrinsic motivation for learning… we do not get fit by watching sports, but by doing sports. In the same way, learning is always about cognitive struggle. Rather than make things easier, we need rigorous, focused and coherent learning environments that make students stronger. In PISA, both individuals and countries perform better when students believe that success is about hard work rather than talent, and when they see failure as an opportunity for growth.

Schleischer also points to an increase in the number of test-takers classed as “hasty readers” who blast briskly through the literacy assessment while getting many of the answers wrong.

The report found that those who used AI “almost every day” (and thereby effectively off-loading cognitive tasks to AI) were much less able to summarise or draft texts than those who “almost never” used it. 

Conversely, students who used AI daily “to help me learn”, rather than replace thinking, do better than those who use it less frequently.

Schleicher makes important suggestions about better use of AI.

High-performing systems such as China, Estonia, South Korea and Singapore are leading that shift, deploying ai not to give students ready-made answers, but to help them think about the right questions, reason analytically and learn more effectively. Few countries would allow millions of children to receive a new vaccine without first demanding rigorous clinical trials. Yet in education we introduce new technologies into millions of classrooms with remarkably little evidence about their impact, turning students into unwitting crash dummies for tools we do not yet fully understand… Where smartphones and ai are part of the learning environment, their use must be intentional, not incidental. Schools need clear frameworks defining when, where and how ai should be used. For younger learners, it should not be treated like an oracle. That means strong filters. No emotional manipulation. No pretending to be a friend, a confidant or, worse, a replacement for social interaction.

However, there may be more factors at work in the declines than just AI or Covid 19 legacy. Given that the declines precede both, one argument blames the proliferation of smartphone use, with its endless content causing distraction and reducing mental bandwidth. There is a large body of well-established research on this. Jonathan Haidt has documented the problems of the anxious generation

Another more structural explanation could be the changes in pedagogical aspects over the last couple of decades. In many countries, the disciplined processes of delivering content, rigorous assessments, standardised tests, and strict school governance have been relaxed in favour of less stressful and more joyful learning environments, lower-stakes testing, less insistence on attendance, and others like no-detention policies. Progressive ideologies have been a driving force behind many of these shifts. 

Finland, once the top-performing poster child for school learning outcomes and a must-visit pilgrimage location for education policymakers, is an instructive example. Its top position in PISA for long was thought to be underpinned by its relaxed testing, limited testing, and play-based learning. But it has suffered among the steepest declines and has now fallen to the middle-rung. 

John Burn-Murdoch points to possible reasons.

During the 2000s education officials flocked to Finland — the top performer in Pisa scores of the day — to learn from what it was getting right. They saw a system that prized flexibility and autonomy for pupils and a curriculum prizing “transferable skills” like critical thinking while placing less emphasis on core subjects and standardised testing or performance rankings. Glowing reports were written, and the Finnish model spread. There was one problem: even as these visits were taking place, Finnish scores were in a sustained slide. Today, its results are little better than the average country, and many argue its exceptional performance — which peaked around 2000 — owed more to the conventional comprehensive approach it had used in previous decades.

Finland’s experience mirrors those in other countries with similar shifts to less rigorous teaching methods, like Sweden in the 1990s and Scotland’s Curriculum for Excellence of 2010.

Progressives too easily dismiss the value of traditional teaching, but facts are the building blocks of critical thinking and tackling repeated algebraic problems, for instance, hones abstract reasoning.

These declines sit alongside the impressive performance of the UK, which held on to traditional methods and even improved on them. 

Recent results in the UK support this theory. Scotland, Wales and Northern Ireland went down similar routes to Finland during the 2010s, shifting away from established curricula and towards more broadly defined learning outcomes, scrapping school league tables and some standardised tests. By contrast, England doubled down on the established curriculum with strict guidance on the content schools must cover in core subjects, alongside the use of league tables with performance measures that made the rankings harder to game. Fifteen years on, England’s results have held up, propelling it into the top ten internationally, while in Scotland, Wales and Northern Ireland they have plummeted… Schoolchildren in England report the same levels of happiness or pressure as those in Scotland and Wales, and no difference in mental health. 

This is a good description of what the UK did right starting about 15 years back.

The nation made its curriculums more fact-filled (some prefer to say “knowledge-rich”) at a time when policymakers elsewhere had been waxing lyrical about instilling vague soft skills. It made exams more rigorous, deprioritised coursework (on which it is easy to cheat) and toughened inspections. Politicians also sought to steer schools away from newfangled styles of instruction that are fashionable but untested, and back towards methods that are more dyed-in-the-wool… Twenty years ago children in Scotland outperformed their peers south of the border. Now they tend to do worse—even though school spending per pupil is much higher. Scotland’s critics blame a modish curriculum, as well as a lax approach to discipline.

Echoing this, The Economist article calls for a return to the boring basics of schooling that were shed as abstract ideas of social justice and concerns about mental health took hold. 

Places that have avoided declines deserve more attention. Britain is one. In 2009 its pupils scraped into the world’s top 30 in maths and reading. Now they sit in the top ten. Some of this stems from a return in England, under a previous Conservative government, to old-fashioned things such as rigorous exams, tough inspections and fact-filled curriculums.

Burn-Murdoch points to another example of a similar approach, from the poorer southern states like Mississippi in the US, which have overtaken their wealthy counterparts like California. 

Improvements have been especially pronounced among the lowest-scoring children. There, as in the UK, the most common explanations are Mississippi’s adoption of evidence-based classroom methods including teaching phonics at an early age, and its emphasis on accountability, from school rankings to requiring that children be capable readers before they progress.

Burn-Murdoch’s summary of the confluence of factors is apt.

In many countries, the past decade has seen a dangerous combination of weakening standards and reduced rigour in education. This has happened just as the rise of digital distractions and shortcuts has made these skills especially important for young people to develop the knowledge and abilities they will need in an uncertain future.

All this is critically relevant for developing countries like India. There is a widely held perception that Edtech tools, now supercharged by AI, can be transformative in overcoming large antecedent foundational literacy and numeracy deficiencies. On one side, this is reflected in the proliferation of Edtech platforms that are sold commercially and their extensive use in coaching for competitive entrance examinations. On the other hand, there is the increased use of digital equipment and Edtech solutions in public schools, including in primary schools. 

While there is at least some semblance of market testing (though its value may itself be questionable) in the case of the former, it is the latter that is vulnerable to the problems that the PISA scores highlight. 

The New Education Policy (NEP) 2020's technology chapter advocates using technology to improve education quality, expand access, and offer personalised learning experiences, and introducing AI and coding from Class 6 onwards. However, it does not say anything about AI-governance frameworks — clear rules on when/how AI is used, the role of teachers in mediating the use of Edtech, no emotional-companion framing for children, and no evidence generation beforewide deployment. They say nothing about generative-AI use inside classrooms, screen-time limits, or the phone-ban-style rules that are now becoming the norm across the West. This is a big gap that must be filled at the soonest. 

On the pedagogy, India dallied with the failing model before reverting to the boring conventional approach. First, the Right to Education Act had the controversial no-detention policy, which soon became politically appealing. Then the New Education Policy advocated several features of the progressive approach - competency-based assessment, reduced rote learning, “joyful” and flexible learning, holistic progress cards. 

Fortunately, the operationalisation of the Foundational Literacy and Numeracy (FLN) program, NIPUN Bharat, has been more conventional in hard, timeline-based targeting of every child attaining foundational literacy and numeracy by the end of Grade 3. The decision in December 2024 to roll back the no-detention policy for Classes 5 and 8 is another step in the right direction. Interestingly, the ASER 2024 recorded the first broad-based improvement in rural reading and math in two decades, most likely an outcome of the FLN focus rather than any technology push.

Finally, the success of countries like the UK and the US states like Mississipi highlight the importance of doing the basics right. Mississippi and other southern states focused on reading, curriculum coverage, standardised tests, holding back children scoring in the lowest level at the end of third grade, remedial instruction, teacher and administrator trainings, and parental engagement. The UK did “rigorous exams, tough inspections and fact-filled curriculums”. 

Interestingly, in all the several articles I have come across about these successes, I have struggled to find any mention of Edtech as a contributor. This tallies with Lant Pritchett’s four part smell test on the relevance of development interventions, and his argument that “none of the high performing educational systems in the world achieved their baseline greatness or resolved their learning crises through Edtech”. Instead, they focused exceptionally well on ensuring every child learns to read and do basic math early, aligning curriculum with actual student learning levels rather than overambitious and elitist standards, and supporting teacher capability, motivation, and practical accountability. 

India’s focus on FLN is an important first step. But it must be implemented with rigour and quality, and sustained. This must be complemented with teacher capability development, building school management and leadership capabilities, and parental and school accountability. These are boring and hard stuff, where quality is of essence, and also demands long-drawn and persistent struggle.

As I have blogged here and here, Edtech, while useful to some limited extent, may actually be becoming a big distraction. It may be distracting both the policymakers from making the correct choices and implementers from putting in the hard yards on persistent engagement on the basics. It may also be distracting teachers from focusing on their core work. 

I will argue that if school systems in India put in even a fraction of the efforts and resources it is putting into Edtech on improving teacher capabilities and school leadership through training and coaching, the results could have been transformational. We need a single-minded focus on these, including the adoption of innovative approaches, if we are to achieve significant improvements in learning outcomes.

A detailed and practical agenda for school education reform is laid out here

Monday, September 14, 2026

Capital wars to follow trade wars?

Are we entering an era where the competition for cross-border capital flows is no longer determined by market dynamics, but by the imperatives and whims of governments? More specifically, are we looking at capital wars? What does this mean for countries like India? 

I blogged here last week arguing that financial repression and inflation will be a feature of advanced economies, especially the US, in the years ahead as they grapple with the massive stock of public debt. I also blogged here arguing that capital flows could be the next target for economic nationalism as countries compete to boost domestic investment and also keep rates low. Finally, I had written about the possibility of such a capital-flows squeeze while evaluating the early months of the Trump Presidency. 

Consider the situation. On the one hand, countries are competing with each other to attract investments (domestic and foreign) in industry and services and mobilise capital for investing in infrastructure. This becomes even more important when faced with weakening economic growth. On the other hand, they must expand the pool of capital available to keep a lid on interest rates. The massive debt pile and the pressure on bond yields make this exigent. 

This can have only one outcome — a tussle to retain capital at home and also compete aggressively for foreign capital. Monetary policy must invariably become subordinated to this objective. Capital wars are only a step away. 

In fact, it may already have been triggered. Donald Trump has announced his intent to wage war against the bond markets, and his Treasury Secretary, Scott Bessent, has threatened traders betting against the yen, saying memorably, “I’m the house now”! These are clear clarion calls, and the pressure on the dollar and the US Treasury bonds can only rise in the years ahead. 

While Trump 2.0 may have expedited these measures, there cannot be any doubt that these pressures were building up for a long time and have now come to a head. To this extent, the policy choices on financial repression are inevitable and will continue with any administration in Washington, albeit in subtler ways. 

And this capital-focused nationalism is not unique to the US. Even sober countries like Japan, Canada, and the UK have called on domestic investors to keep capital at home. 

Further, as Benn Steil has pointed out, another reason for the rising pressure on US bond yields is the changes in the profile of its holders. Whereas in 2007, 76% of the US Treasury Bonds were held by price-insensitive investors like central banks, today they hold just 43%, with the remaining being held by price-sensitive private investors like households and investment funds who demand greater returns as debt grows and inflation erodes purchasing power. The share of the latter will only grow over time, and the pressure will increase if Kevin Warsh goes ahead with his intention to further pare down the Fed’s securities holdings. 

Martin Sandbu points to a very good analyst note by David Skilling of the Landfall Strategy Group on how the capital wars are likely to play out. He says that US fiscal challenges make financial repression and fiscal dominance increasingly likely, and the situation is complicated by the softening foreign purchases of US Treasuries and rise of US bond yields. He describes this as a regime shift in the international financial system.

There will be a US preference for imposing financing costs on foreign investors…Aggressive, transactional ‘America First’ measures to coerce foreign capital to finance US government borrowing are increasingly likely, an international form of financial repression… The US has required investment commitments as part of tariff negotiations with several countries. As US financing pressures grow, expect more coercive, scaled-up measures to be deployed, explicitly linking purchases of long-dated US Treasuries to US security guarantees, access to US tech, swap lines, and so on.

These US measures will cause tension with countries in Asia, Europe, and the Gulf that are implementing policy measures to deploy more domestic capital at home. Capital wars are the consequence, as increased US demand for capital intersects with a constrained supply. Coerced foreign investment is the likely near-term direction of US policy travel. 

He points to three illustrative scenarios that highlight the uncertainty on the effectiveness of these measures.

Consider three illustrative scenarios: A ‘US-led tribute system’ scenario in which the US creates a financial/security/technology bloc, securing significant inflows into long-dated Treasuries that reduce yields materially. A ‘ruptured alliances’ scenario in which US partners resist US coercion and actively diversify, including reduced purchases of Treasuries. In ‘global fragmentation’, other countries (e.g. BRICS+) also reduce US exposure, causing higher yields and a weaker USD.

The graphic below is instructive insofar as, even as foreign Treasury purchases have declined sharply, US equities and corporate bonds have remained very attractive and have been sucking in foreign capital. 

Further, as the US debt surges, investors are revising the unambiguous safe haven status of US Treasuries. This is reflected in the rising term premiums, the extra return demanded to hold long-term bonds instead of rolling over short-term bills. 

So what does all this mean for India?

It goes without saying that all this poses formidable challenges to the Reserve Bank of India (RBI) and policymakers in India. India, being a capital-deficit country reliant on foreign capital to meet its capital needs for both investment and to achieve balance of payments, is especially vulnerable. 

For one, the competition for capital means that there is likely to be a smaller pool of FDI available. This would be as much true of mature direct investments as of venture capital flows. In the case of the former, the wave of reindustrialisation and reshoring will be the imperative, and in the case of the latter, strategic considerations in a geopolitically hostile world will assume significance. 

Second, foreign portfolio investments (FPI) are likely to become more fickle than earlier, with the added threats of recurrent ad hoc measures to restrain capital at home. The ambush sales of European bonds engineered by the US Treasury to mobilise resources (without selling US Treasuries) to prop up the yen are only a teaser. While Indian markets are already gradually integrating with the global financial markets and are vulnerable to sudden stops and capital flights, what makes the future different and more challenging is that now these episodes can be triggered by conscious policy choices of decision-makers in places like Washington. 

Third, the result of any reductions in FDI and FPI will invariably be felt in the domestic bond markets in terms of rising cost of capital. As Skilling writes and the graphic on the rising term premium above shows, the reduced foreign demand for US Treasuries will put upward pressure on US yields and increase the global risk premium. The higher risk-adjusted returns on long-term US debt mean that investors will demand a higher return for investing in India and elsewhere. This will have a cascading spillover pressure on India’s domestic cost of capital and interest rates. 

Fourth, all this will not make RBI’s monetary policy any easier. It will now have one more constraint to deal with, thereby eroding its policy autonomy. The US domestic policy actions, which are already having significant spillovers globally, will now have an even greater impact. Even strong domestic economic fundamentals cannot insulate India from the contagion of sudden stops and capital flight in response to US actions. RBI may have to keep defensive measures during these episodes. 

Fifth, capital flows are certain to become another instrument of economic diplomacy, one where India has fewer levers. The US is likely to use this extensively, even weaponise it. At the least, there will be episodes of high activity, to the detriment of capital-deficit countries like India. Imagine a trade negotiation or a bilateral geopolitical support that is tied to India buying and holding a defined amount of US Treasuries. Holding US Treasury Bonds will now compete with purchases of Boeing aeroplanes and defence equipment as forms of diplomatic coercion, direct or subtle. The Mar-a-Lago Accord proposal, mooted by Stephen Miran and Robert Lighthizer to swap foreign holdings of US Treasuries for some form of perpetual bonds, must be seen as a precursor. 

In a world where foreign capital becomes constrained, boosting domestic savings will become a matter of highest priority. This must be tied to the deepening and broadening of India’s financial markets. In this context, the resilience of the Indian stock markets in the face of a massive exodus of FPIs in the last three years, due to the robust inflows from the sharply increased pool of domestic investors, is a case in point. This will raise the bargaining power of domestic capital. Policy actions on both areas will be important. 

On a positive note, the capital wars also provide India an opportunity to become an attractive alternative investment destination for the foreign capital that seeks to avoid the US for strategic reasons. This attractiveness will rise and make India stand out provided it gets its act in order and is able to sustain high growth rates. India could emerge among the few large, relatively fast-growing economies with deepening domestic capital markets.

India must also strive to move gradually from being a country that needs foreign savings to one that generates enough productivity and external earnings to finance an increasing share of its own investment. This means shifting from the cheap labour focus to one which aims at boosting capital productivity by delivering more of the same with less capital. This must be supplemented with significant expansion of exports. 

In other words, capital wars increase the premium on countries that can mobilise domestic savings, attract the right foreign capital, and deploy both at high productivity. India’s focus should be to convert its enormous household savings pool into productive domestic capital formation while simultaneously building an economy capable of generating more external savings through exports. 

Saturday, September 12, 2026

Weekend reading links

1. A bond market story of the last two weeks has been the rise of the 10-year Japanese government bond yield above 3% for the first time since September 1996, following a weakening yen and an unprecedented bilateral market intervention with the US Treasury to shore up the currency.

The market expects a rate hike by BoJ from its current 1% to prop up the yen and also quell rising inflation. However, this would clash with the commitments of Prime Minister Sanae Takaichi for fiscal spending to boost the economy. 

The pressure on yen and rising bond yields are also a matter of concern for the US, since it could trigger repatriation of the massive Japanese investments in dollar assets, including the holding of US Treasury bonds.

Japan is the top foreign holder of US government debt, with more than $1tn, much of it held by financial institutions... market concern that Japan’s enormous pension funds and life insurers, nursing tens of billions in paper losses on their bond holdings, could shift their investment strategies as yields at home become more attractive... Citi’s Takashima said life insurers had been waiting for yields on 20-year JGBs to hit 2.5 to 3 per cent but were still not buying at scale as they feared that prices could drop further.

2. This is an excellent article on baby diaper manufacturing in India. The two costliest items are not manufactured in India and are imported.

Further, there's an inverted tax structure.
At the 56th GST Council meeting on 3 September 2025, diapers were moved from 12% to 5%, effective 22 September 2025... But SAP sits under HSN 3906, taxed at 18%... Output at 5%, inputs at 12% to 18%... input tax credit piles up faster than it can ever be set off against output tax. The credit is not lost. It is refundable under Section 54(3), and from 1 October 2025 the government began granting 90% of such refunds provisionally. But refundable is not the same as available.

Diapers are covered under PLI, and it is ending up supporting contract manufacturers who import SAP. 

Until an Indian chemical major commits to commercial SAP capacity, every rupee of PLI is subsidising the assembly of imported chemistry. We are building the world's fastest converting industry on someone else's molecules.

In this case, the PLI should target the SAP manufacturing in India. Supporting contract manufacturers to make what they are already doing does not require PLI. It underlines the point that PLI needs to focus on domestic value addition and not merely investment and sales. This requires more detail-based policy making. 

3. Tata Capital Healthcare Fund appears to be doing what public innovation funds ought to be doing, de-risking new market segments in healthcare. 

TCHF is not really in the business of spotting the next unicorn and riding it to a listing. It is in the business of manufacturing acquisition targets. It finds a chronic, non-negotiable demand, dialysis, cancer, joint replacement, wraps a proven clinical model in Tata credibility, scales it into Bharat where nobody else will do the asset-heavy work, de-risks the operations, and hands a finished, cash-generating, regulation-cleared asset to a global consolidator or a domestic roll-up desperate to enter that exact niche...

TCHF works because of a stack of things that have nothing to do with money: extreme sector focus, operational depth, brand-as-regulatory-passport, a structure that insulates it from its own parent, and the patience to build assets strategic buyers are forced to buy. Take any one away and the model wobbles... The winners in corporate venture will look... more like TCHF: narrow, patient, operationally heavy, and quietly building things the giants of their industry will one day have to acquire.
Jayant Mundhra's Substack is excellent.

Also on AI, the latest PISA student learning outcomes survey findings show uniform declines in reading and math. 
The new report shows that reading scores across the OECD have fallen by 25 points and maths by 22 points since 2018. “Given that 20 score points is roughly equivalent to a year of learning, this implies that a majority of 15-year-old students across the OECD in 2025, on average, were performing at a level typically expected of 14-year-olds,” according to Pisa. Schleicher linked the decline in the latest scores to the dominance of distracting short-form videos on platforms such as Instagram and TikTok, as the report suggested that “digital distraction” is harming education across the world. “We cannot say for sure, but skimming social media feeds and rapidly processing information may be contributing to worsening ability and motivation to engage with complex texts and data,” the report said.

5. US labour-capital share of output - rising corporate profits amidst falling wage share

Pre-tax earnings hit an annualised $4.8tn in the second quarter, or 18 per cent of national income, according to Bureau of Economic Analysis data, the highest share since the aftermath of the second world war. Employees’ share from wages and benefits fell to 60 per cent, the lowest level since the 1950s... Bumper returns largely benefit richer Americans, who receive much of their income from investments, while middle- and lower-income households rely more heavily on pay cheques. Inflation has also outpaced wage growth, causing real hourly earnings to fall by 0.2 per cent in July versus a year earlier.
6. A global whisky glut, or whisky loch, amidst rising consumption in India.
The amount of whisky maturing in casks has soared from less than 400mn litres a decade ago to around 1.4bn litres this year, or 389mn cases — enough to meet current consumption levels for three years, according to Martin Purvis and Duncan McFadzean’s Commercial Spirits Intelligence newsletter. That has caused many of Scotland’s distilleries to curtail output by more than a third, insiders say... Today’s glut is the result of increasing production during the 2010s, which led to an excess of casks maturing during times of global economic uncertainty.

7. California, the bastion of liberalism, struggles to build. 

A high-speed rail line that voters approved in 2008 but that has yet to lay a track. A large housing project outside Los Angeles and the redevelopment of a Navy yard, both in planning stages for decades. The state has arguably the nation’s worst housing crisis, with rent and home prices that far exceed the national average. The high cost of living, combined with strict environmental and land-use regulations, has led to a steady migration of companies and residents to less expensive states. The main problem, Mr. Metcalf continued, is that California’s overlapping regulatory processes, scattered among state and local agencies, make it nearly impossible to approve — or even outright deny — a project. Even when the governor or state legislators get behind an idea, local governments often have effective veto power. Delay becomes the normal course of nonaction.

8. London's experience in reducing knife crimes.

Knife crime rose dramatically in Britain from 2017, especially among teenagers... Hospitalisations for “assault by sharp object” have fallen by a third in London since their peak. Knife-related homicides have shrunk by a half. Last year teenage homicides in the capital fell to their joint lowest level (similar to 2012) in almost 30 years... As English politicians scrambled for answers during the 2017-19 “epidemic”, Lord Sadiq Khan looked to Scotland. In the previous decade Glasgow, once labelled Europe’s murder capital, had achieved impressive reductions in violent crime. One reason was the roll-out of the Scottish Violence Reduction Unit (VRU), which aims to prevent violent crime by bringing the police, schools, hospitals and sports clubs together to identify at-risk children and direct them away from crime. Between 2008 and 2018 Scotland’s VRUs were credited with bringing about a 38% fall in homicides and a 43% drop in attempted murders and serious assaults—many of them knife-related. 

Lord Khan announced England’s first VRU in London in 2018. Today there are 20 such units across England and Wales, covering areas that account for 80% of all knife crime. A recent Home Office review found that England’s VRUs caused a 12% fall, since 2019, in hospital admissions for violent assault among the under-25s. That is modest compared with Glasgow, but the Home Office looked only at the national average. Violent crime has fallen most in cities like London—dense urban areas where the model is easiest to implement.

9. The state of gender empowerment.

In India violence against women is so normalised that nearly 40% even of women think a husband is sometimes justified in beating his wife. In Mali the figure is nearly 70%... In South Asia only a third of women are in the labour force; in the Middle East and north Africa, only a fifth are. Since 1990 the share of labour income that accrues to women has risen from 35% to 44% in liberal France; in patriarchal Pakistan, from 1.5% to a still-woeful 9%. Removing the barriers to women working would raise income per person by a fifth in many countries, estimates the World Bank—a bigger economic benefit than avoiding a typical civil war...

Yet even the most sexist laws can be scrapped, as Saudi Arabia has shown. Before a series of reforms that started in 2011, women there were barred from all but a handful of jobs and not even allowed to drive. Now they are free to work, drive and shun the hijab if they choose. The share of women in the labour force has nearly doubled since 2010, from 18% to 34%. That is startling progress for a kingdom many thought hopelessly stuck in the past—even if there is still a long way to go.

See also this

10. Nvidia is the central bank of AI?

Over the past three years it has pledged over $70bn in investment in startups and offered $300bn in financial support to its customers... It has promised around $25bn in future equity investments. It owes around $33bn in debt. Its potential liabilities to customers amount to about $300bn, but only come into play in a downturn and so do not appear on its balance-sheet. These include the $105bn guarantee behind Open­AI’s data centre; as much as $125bn through the Wall Street partnership; and around $67bn in other backstops.

Also this

Nvidia’s financial engineering is partly a response to its biggest customers’ transformation into rivals. “Hyperscalers”, tech giants such as Amazon, Google, Meta and Microsoft, account for roughly half of Nvidia’s revenue. This year they are projected to invest around $800bn, largely on AI infrastructure. But most of them have begun designing their own chips, which puts their future purchases from Nvidia in doubt. For the hyperscalers, these custom chips are much cheaper, costing between a fifth and a third as much as Nvidia’s...
Hyperscalers have investment-grade credit ratings, which keep their borrowing costs low. Upstart neoclouds have similar spending needs, but little revenue. Their loans are naturally much more expensive. Alphabet, Google’s parent company, sold $2.75bn of 50-year bonds in November, at an annual interest rate of 5.7%. The rate at which CoreWeave, the biggest neocloud, borrowed $2.6bn in July was almost double. It is this gap, between hyperscalers’ borrowing costs and everyone else’s, that the bank of Nvidia would like to narrow. One way it does that is by taking equity stakes in startups that will be customers themselves or that will help fuel demand for Nvidia’s chips indirectly. Last year Nvidia made about 90 such investments, nearly twice as many as two years earlier. This year it has already agreed another 60-odd. 

Some of these cheques aim to propagate open-weight AI models, which users can download free of charge and adapt, unlike proprietary offerings from firms like Anthropic, OpenAI and Google, which users tend to access via subscriptions and whose inner workings are hidden. In August Nvidia agreed to pay Poolside, a startup building AI coding models, $6bn to license its software and a further $1bn for a stake. It has also agreed to buy Hugging Face, a platform hosting open-weight models, for $12.9bn. The intention behind such investments is to fuel demand for Nvidia’s chips by creating a proliferation of AI products and companies that are independent of the hyperscalers... In early July it announced a new stratagem in which it promises to top up neoclouds’ income from new data centres to an agreed floor. These undertakings, the exact terms of which vary from deal to deal, often last for six years. Throughout that period, Nvidia promises to pay a set price for “compute”, as the jargon has it. If the neocloud manages to sell the capacity in question at a higher price, Nvidia receives a share of the difference. This safety-net makes neoclouds’ future revenues much more predictable and so lowers the cost of the debt they take on to build new data centres. That, in turn, spurs demand for Nvidia’s processors.

In the graphic below, red are neoclouds, yellow are AI labs, and blue are financial firms. Also, the dashed circles are equity stakes, and the black boxes indicate guarantees and purchase commitments. 

But things may still be under control.
Morgan Stanley, an investment bank, reckons Nvidia’s “all-in” debt will rise from $53bn early next year to $200bn by the beginning of 2029 as guarantees come into effect. But that is offset by a stash of cash and liquid securities currently worth $99bn, and a business that will generate about $200bn in cash this year. Only a cataclysmic downturn that caused all Nvidia’s guarantees to come due and its profits to evaporate almost entirely would imperil the company—as things stand. The picture may change, however, if Nvidia’s commitments keep growing.

See also this

11. Friendships across classes matter for life outcomes. 

Recent research suggests... having pals across class boundaries appears to be one of the strongest predictors of upward mobility for people in low socio-economic groups... What’s more, children who grow up in areas with more cross-class mixing go on to earn more on average, controlling for parents’ income. To isolate the effect of the county itself, the researchers tracked families who moved. Assuming those moves were not related to their children’s future prospects — a reasonable assumption — the analysis found that people who spent a larger portion of their childhood in a better-connected county went on to earn more.
12. The graduate premium is reversing in US and UK.
13. The Indian space ecosystem is a reform success.
India’s space ecosystem has expanded significantly, with more than 450 space industries and over 440 startups now engaged in the sector. Isro is facilitating greater private-sector participation through the government-owned, company-operated (GOCO) model, under which private industry can manufacture, test and supply components and subsystems using its own facilities and infrastructure. Isro has facilitated nearly 440 technology transfers so far, enabling wider adoption of space technologies.

14. The victory of the far-right Alternative for Germany (AfD) in the Saxony-Anhalt province in the east of Germany was expected. Though it has fallen short of a majority by just three seats, an FT editorial calls for allowing it to form the government.

The firewall, a well-intentioned policy of non-cooperation with the far right, which is considered a threat to democracy, has turned into a trap for the mainstream parties, particularly the Christian Democratic Union of Chancellor Friedrich Merz. As support for the CDU shrinks, it is forced to share power invariably with its leftwing opponents in dysfunctional coalitions, whose quarrelling and meagre results drive votes to the AfD, further reducing the scope for compromise between the centrist parties. The firewall has failed to stem the AfD’s advance and is probably furthering it. The alternatives, though, are all bad given the far right’s current strength... 

The least bad outcome there would be for the party to take power with the backing of the Bündnis Sahra Wagenknecht (BSW), a small leftwing nationalist movement that rejects the firewall approach. An AfD regional government would lack the powers to enact some of its more outlandish policies, such as abolishing the right to asylum or renewing energy imports from Russia. To be sure, it could be an extremely uncomfortable time for Germans of immigrant backgrounds and other minorities living in the state. But extra vigilance from the courts and civil society could help to keep a far-right regional government in check. The far right would pose less danger in power regionally than nationally and executive responsibility could deflate its support. In any case, its opponents lack the seats to form an alternative majority. To try to do so would look undemocratic, given AfD’s vote share, and could backfire electorally.

15. Despite all its ubiquity, India's media and entertainment industry is a small revenue earner in proportion to its size.

Last year, IT accounted for 7.3 per cent of India’s GDP, against 0.8 per cent from M&E. The figure is 7 per cent for the US and 4.6 per cent for China... At $32 billion in revenues, the Indian M&E business is abysmally small. It is about a third the size of the Walt Disney Company or roughly equal to that of Tata Consultancy Services. Given the numbers, almost 700 million smartphone users, 650 million television viewers, and 421 million newspaper readers — the size of the firms in any of these segments doesn’t even scale up to Indian standards, let alone global ones... There are only two large media firms with any scale — JioStar and Google India — both at roughly $4 billion in top line. For a country that loves to chat and debate, there is no news brand that has found traction elsewhere. Ninety per cent of all that is watched in theatres, on TV or streaming is Indian stories. Yet there is no global entertainment firm of any heft from India... there is talk about Indian cinema’s soft power globally. But our presence in the global market is a blip compared with, say, Hollywood or Korea. The Indian movie business has been stuck at $1.5-$2 billion in domestic revenues for years. Indian studios simply do not have the money or distribution heft to attempt full-fledged global releases. It is only when the domestic market hits $10 billion or more will you have Indian studios that can have the strength and appetite to go global.

16. This contradicts the oft-repeated claim that a generous social safety net has made Europe a region of shirkers.

17. Huw van Steenis channels Charles Goodhart on the importance of practical wisdom in monetary policy.

Goodhart once put it to me, “every Monetary Policy Committee should have members who have a real-world understanding of the plumbing of financial intermediaries”. In my shorthand: the PhDs need the plumbers.

18. The latest PISA school test scores, where Swedish student scores declined, draws attention to the debate on the country's decision to encourage private schools. Contrary to public perception, Sweden has gone the farthest among continental European countries in privatisation of schools, healthcare, and elderly care, through a series of reforms in the 1990s and 2000s. 

About one in five Swedish children now goes to an independent school... This week’s scores in the international Pisa survey revealed the country’s worst-ever rankings of levels of reading, maths and science of 15-year-olds... The Swedish system is as distinct as it is extreme. Unlike most countries with private schools, Sweden’s system is meant to be egalitarian — so the schools are open to all, through the same free system as state-funded institutions. The private schools receive funding from the state in a voucher system that means they get the same amount of money per pupil as state schools, but can make profits from it if they run things efficiently.

19. Chinese exports have been growing faster than world imports since the turn of this decade. 

20. Finally, an excellent long read on how Javier Milei is taking deregulation to boost Argentina's oil and gas and mining sectors.