Weekend reading links

1. The solutions proposed by Andy Haldane to address housing supply in the UK is universally valid.

Public land developed for public purpose but privately operated; co-financing by municipal bonds and private capital; a bespoke planning regime; and a transformative method of new construction — these are the base elements needed to ease the constraints suffocating the UK’s housing market and to tackle the housing crisis in every postcode.

2. Talk about a company mobilising debt for others to buy its products, and look no further than Nvidia.

The world’s largest financial groups are working with Nvidia to assemble a funding package of more than $500bn for AI infrastructure development, in one of Wall Street’s most ambitious lending efforts to date. A consortium of groups including Apollo Global, Blackstone, BlackRock, Brookfield Asset Management, Goldman Sachs and KKR is entering a partnership with Nvidia to invest in the AI build-out... Nvidia said on Monday afternoon that it has signed memorandums of understanding with the six Wall Street firms to “mobilise over $500bn of third-party capital for the build-out of AI infrastructure over time”. Under the deal, which is still subject to final agreement, the firms will create dedicated pools of capital to finance Nvidia’s AI ambitions “at attractive rates for Nvidia customers”... Morgan Stanley projects so-called hyperscalers will spend $3.5tn between 2026 and 2028.

3. India manufacturing output trends.

But services exports have doubled in less than four years.

4. Israel's scorched earth policy in South Lebanon.

Weeks into the latest conflict, defence minister Israel Katz invoked a different approach, one used with devastating consequences after Hamas’s October 7 2023 attack: the “Rafah and Beit Hanoun model”, a reference to Israel’s wholesale levelling of cities in Gaza. “All homes in Lebanese villages near the border will be destroyed,” Katz said. By July, Katz claimed his threat had been carried out. “Twenty-four Lebanese villages, hundreds of years old, we destroyed all the buildings,” he said, boasting that up to 20,000 homes had been demolished. “Not house by house, but entire villages.”...

Israeli evacuation orders forcibly displaced some 1.2mn people in the war’s first 10 days, the vast majority from Hizbollah-dominated southern Lebanon, as Israeli forces advanced. Fighting raged for weeks, but most of the destruction documented by the FT and Lighthouse came after an initial Israel-Lebanon ceasefire on April 17. While the truce did not hold and some clashes have continued even past the latest ceasefire in June, Israeli forces — who had already established control over many emptied villages — continued to lay waste to the south through air strikes, controlled detonations, bulldozers and the use of white phosphorus. Israel’s occupation is now deeply entrenched, the area under its control demarcated by what it calls “the yellow line”. The zone covers about 6 per cent of Lebanese territory and stretches roughly 10km inland from the two countries’ informal border...

Israel has also done extensive damage to historic monuments and Unesco-listed sites, including 16th-century mosques, 19th-century libraries, religious shrines, ancient Roman ruins and Crusader castles. “It is an attempt to make the areas unrecognisable . . . to sever people’s connection to their land and their history,” said Joanne Farchakh Bajjaly of Biladi, an organisation dedicated to preserving Lebanon’s cultural heritage. “How can they rebuild their communities if everything is gone?”... Lebanon’s environment ministry and rights groups have documented Israel’s widespread use of white phosphorus — an incendiary chemical that triggers fires and can leave contamination in soil and water — in both populated and agricultural areas. Israel says it uses white phosphorus lawfully to clear brush and create smokescreens, but use over populated areas can violate international law.

5. Janan Ganesh is on to something.

If a politician could decouple socialism from the set of cultural ideas known as “woke”, he or she would be difficult to stop... The one place that might have produced a culturally conservative or at least culturally neutral socialism is continental Europe, but even the French left has absorbed American woke jargon, perhaps recognising in it the authorial stamp of Michel Foucault. And so capitalism glides on, never quite facing what would be its sternest political test. The question is why the left allows it to happen... Woke has been such a godsend for capitalism — making its enemies look ridiculous — that it can seem almost engineered for that purpose.

6. Purchase commitments of the hyperscalers jumped from a trillion dollars to 1.5 trillion from Q1 to Q2 of 2026. These are debt in another form. 

7. Guy Chazan describes elite capture of the political system in the US.

In America’s Gilded Age, millionaire robber barons operated from the shadows, bribing pliant lawmakers to do their bidding. Under President Donald Trump, billionaires have gone one better. Some are in his cabinet... No longer content to lobby from afar, ultra-rich tycoons — especially from Silicon Valley — have infiltrated the capital’s ecosystem, taking on advisory roles in government, cultivating ties on Capitol Hill and weighing in on the most important issues of the day, from AI to industrial policy. They attend glitzy dinners, donate millions to White House fundraising projects and are photographed with Trump promising eye-popping investments in the US. Many have enjoyed regulatory relief, policies that benefit their businesses and, in some cases, lucrative government contracts worth billions of dollars. But unlike the robber barons of the past, who were often charitably minded and gave generously to public institutions, the tech billionaires of the present show a “complete indifference” to any kind of “social contract” and any need to “compensate people for the disruption they have brought into their lives”, says Quinn Slobodian, a historian of capitalism at Boston University...

If there was a trigger for the growing influence of the ultra-rich in America’s political system, it was the Supreme Court’s 2010 Citizens United ruling, which held that independent political spending on elections by business was protected by the First Amendment. The judgment opened the floodgates to big money in politics. America’s rich had spent $31mn in the 2010 elections, according to liberal advocacy group Americans for Tax Fairness (ATF). In the 2024 election cycle, the 100 largest billionaire donor families gave $2.6bn. A huge proportion of that came from just a handful of individuals. Three billionaires — Elon Musk, Miriam Adelson and Timothy Mellon — accounted for more than a third of the roughly $1.5bn spent to elect Trump.

8. C Thi Nguyen has a brilliant essay on the value of doing something for its own sake or as labour of love (play, as he describes it), and doing something as part of a requirement (work, as he describes it). He channels Aristotle (through Bernard Suits' The Grasshopper) to describe it as the core of a meaningful life. 

For Suits, play is not just a side dish for the main meal of work. Play is at the core of a meaningful life. Underneath the hood, Suits’ argument is Aristotle to its bones. For Aristotle, a good life — a truly meaningful life — lay not in the creation or accumulation of stuff or the achievement of outcomes, but in the process of doing itself, in the rich exercise of our full human capacities. Suits found the deepest illumination of Aristotle’s point in the simplest human activity: playing games. Suits provides, and defends, his definition. To play a game, he says, is to voluntarily take on unnecessary obstacles to make possible the struggle to overcome them. To play a game, therefore, is to be inefficient on purpose. When you run a marathon, you are trying to get to a particular spot in space, but you avoid the most efficient ways to get there. You do not take a subway or a taxi or a bicycle. You force yourself to run, and you try to run as quickly as possible. Which means, for Suits, that the struggle must be an essential part of the true value. What you care about can’t just be the bare outcome by itself. You can’t just care about being at that spot in space. Otherwise you’d just take the most efficient path. But if you took the subway then it doesn’t count — not for the game of marathon-running, anyway...

To understand games, distinguish between two things: the goal of a game and your purpose for playing it. The goal is what you pursue inside the game; the purpose is why you played it... For some people, the goal and purpose are one. They want to win, period. Call those people achievement players. The Olympic runner wants to win the marathon by running it — but they do truly care about winning it. But for other people, goal and purpose come apart. We try to win because we are interested in the struggle, and it is the struggle itself that we truly care about. Call us striving players. It’s all right if we try and we lose, if the attempt was beautiful. In ordinary, practical life, we take the means for the sake of the ends. In striving play, we take the ends for the sake of the means. What is the point of life? Is it to make stuff? Or is it to take difficult actions, think rich thoughts, weigh subtle decisions? Is it having a pile of stuff — or does the stuff just support our quest for interesting action?... Suits argues... that play itself is the point, and that we work in order to survive so that we might play...

Rephrase Suits’ definition this way: play is wasting resources for fun. But also: the whole point is that, deep down, it’s not a waste. A truly wasted life would be one spent working hard, stockpiling goods like the ant and never using them to support joyous play. And to truly waste humanity would be to push people so hard to work productively, to make more stuff, to the point where nobody had time to play. Let me try my own fusion of these two definitions. “Work” isn’t distinguished from “play” by difficulty, suffering or practicality. You can make pottery, knit scarves or grow a garden as play. The true difference between work and play is the reason you have, and the control you have, over what it is you’re doing and why. Here’s my suggestion: to “work” is to perform activities to create outcomes that are set by something external. When you work, you are making what the world tells you to make. Maybe you’re gathering food, because biology tells you you have to eat. Maybe you’re earning money, because the world says you need money to buy food and shelter and medicine. Maybe you’re making products, because the world wants something specific from you — planks of wood, a ride to the airport. But “play” is different. You still have goals and struggles, but your goals are up to you.

9. Two important graphics on the Chinese economy. One, the great job squeeze resulting in the rise of the gig economy, whose workforce has increased by 10 million in just two years.

Second, the persistence of negative household sentiment for the fifth successive year.

10. Andrew Puzder, the US ambassador to the EU, draws attention to the substantive equivalence between US tariffs (50% tariffs on primary steel) and the EU's CBAM on their respective steel and aluminium imports. 

Protesting against US national security measures while erecting protectionist barriers reveals a striking double standard... The US approach is direct and transparent. Primary steel faces a 50 per cent tariff (with some rates recently increased), and aluminium a comparable duty. To stop circumvention through finished goods, the tariffs extend to derivatives... CBAM differs in form but not in substance. Importers of iron, steel, aluminium and related products must report embedded emissions and relinquish a corresponding number of CBAM certificates priced at the EU’s carbon price — currently around €80 per tonne of CO₂... At root, both policies are adjustments to protect domestic producers from unfair competition, whether from lax environmental rules or subsidised excess capacity. US Section 232 tariffs address foreign overcapacity that threatens to hollow out its metals sector; CBAM is designed to combat carbon leakage, when production shifts to jurisdictions with less stringent climate standards... In both cases, the measures raise the cost of imports to safeguard local production. The parallels are unmistakable. A shipment of steel-containing machinery faces extra US duties based on metal content. In the EU, the same goods face fees based on production emissions under CBAM. One is framed as security policy; the other as climate policy. Both increase the price of targeted imports relative to domestic options.

11. The US equity market today in perspective. 

The challenge facing liberals in the US

Donald Trump’s upending of long-held conventional wisdom in the polity and economy has shed light on the faultlines and failings of the US politics and society. 

It has dramatically exposed the limitations of the supposed bulwarks of institutional checks and balances in the US government. Apart from this, the Republican Party is captured, the Democratic Party is in shambles, corporate America has fallen in line without any murmur, and public intellectuals in the prestigious and normally vocal academic institutions and think tanks in the US have gone eerily quiet. In fact, when the history of Trump 2.0 is written, it’s most likely that the leaders and scholars of the hallowed Universities will be apportioned as much blame as the Supreme Court for their roles in compromising and allowing the government near-unimpeded pursuit of its goals. Even the civil society seems to be missing in action. 

This accommodation should not have come as a surprise. There’s a strong case that American liberalism was standing on weakening foundations. As an illustration, for a country with a per capita income of $85,000, America suffers from embarassingly high levels of deprivation and poverty, and struggles with the poorest human resource development outcomes among advanced countries. The extent of elite capture of rule-making processes and institutions is perhaps the greatest in the US democratic system. The opinion makers and experts among the liberals who have played important roles in fashioning the economic consensus over the last three decades and have facilitated these outcomes are as much to blame as the policies that have generated them. 

I have blogged on several occasions, highlighting how the public intellectuals in the US have let down liberal democracy and have largely become co-opted by Big Tech and Wall Street. Given that the intellectual establishments in the US (academia and think tanks) are dominated by liberals, it’s surprising that they have allowed the trends of widening inequality, business concentration, and the general political capture by Big Tech, Big Pharma, Wall Street, and other corporate interests to go largely unchecked. 

There are some possible explanations for the lack of even a fight on the face of the ongoing assault on liberal ideas. One argument is that of a society that has not faced any serious existential adversities for long and has been dulled off its collective will and resolve to push back. Since the War, the society has settled into a comfortable equilibrium where all the fundamental requirements of liberal democracy and capitalism - rule of law, free speech, free markets, restraints on untrammelled power, recourse to redressal of grievances, etc., - have come to be taken for granted. Generations have been brought up without having to even think about them, much less fight for them.

On the economy, the great recession in the aftermath of the global financial crisis turned a new page in monetary policy adventurism with a radical expansion of the tools that central banks and governments were willing to use to stabilise the economy. Zero interest rates, quantitative easing, purchases of Treasuries and even corporate bonds, forward guidance, and so on entered the lexicon of central banking. This allowed central banks to keep rates, pump liquidity, and backstop asset prices, thereby propping up both the financial markets and the real economy. Market expectations have been shaped by a giant central bank put, one arising from a belief that if things get out of hand, the central bank will step in as a buyer or lender of last resort. Just like American citizens, its markets too have come to overlook uncertainties and take for granted economic stability. 

Another plausible explanation for the Trumpian backlash could be that, over time, liberalism gravitated to extreme fringes on a variety of issues. On important issues like the traditional family and social values, race relations, immigration, LGBTQ, etc., the liberal positions came to be hijacked by those at the extremes. It’s one thing to accept people’s privately held views that deviate from social norms, but an altogether different matter to decry the social norms and elevate those deviant views as the new norm. The latter is a big social and political shift, and can happen only when the majority or a significantly large representative proportion of the population is willing to embrace it. In its absence, and especially if they are being sought to be imposed by a small progressive vanguard, there will be strong and often violent resistance. Noah Smith has a good blog post here describing how the liberals have lost the plot.

Yet another explanation may be the increasing ideological alienation of Democrats (and liberal parties elsewhere) from their left-of-centre views, given the general shift towards the centre in the post-communist era. I blogged earlier about this here.

Centre-left political parties like the Democrats in the US under Bill Clinton, the Labour Party in the UK under Blair, and the Socialist Party in France under Emmanuel Macron (he split the traditional left and right parties and created a new Renaissance Party of the centre) have sought to widen their electoral base by moving to the centre. From being a counter-point to their economically rightwing (capital-favouring) opponents (Republicans in the US, Conservatives in the UK, and The Republicans in France), these centrist parties sought to embrace the market while also retaining their core working class (labour) bases. From hindsight, this move to the centre appears to have been a fatal mistake. In the delicate reconciliation of the interests of labour and capital, the latter has become dominant. The leadership and the intellectual core of these parties have become captives to the interests of the capital. In the process, the new centrist avatars have alienated their core support base in the labour. The labour base has drifted to the populist camps.

The value of centrism as a mobilising ideology is questionable. Centre has its relevance only with respect to some reference points (the right or the left, liberal or conservative). In itself, moderation cannot be an ideology. On the contrary, it can become a cloak for opportunism and hypocrisy. Further, when faced with the power of capital, a strong ideological base may be essential for political mobilisation. Most worryingly, centrists groups often end up being captured or at least perceived as being captive of the opposite ideological group. As I blogged here, this is a greater risk to the liberals, whose courting of capital can end up with capture by the capitalists (and therefore alienation of its core working-class base). The Democratic Party in the US may be the best exhibit in this regard.

In this backdrop, I point to three articles that highlight some of these challenges. 

The first article goes to the heart of an important theme of the Trump populism - the demonisation of DEI initiatives and the stigmatisation of liberalism. In this context, Eugenia Cheng, a mathematician, makes a very bold and compelling case for DEI initiatives.

A metric is a way of measuring the distance between two points but not necessarily physical distance; it could be how much time it takes with traffic as a factor or how much energy will be expended, depending on whether you’re going uphill or downhill. A distance cannot be measured on the basis of the position of a single point. It requires the effort of measuring the distance between two points. This may sound redundant, but it’s an important clarification: Metrics can be measured only by taking into account the starting point and ending point, as well as relevant features of the journey — the whole story.

When we evaluate people, we could do the same. Instead of just looking at what they have achieved, we could also look at where they started and be clearer about how we are measuring the metaphorical distance they have come and whether we are taking into account the support they had or the obstructions they faced.

If we are selecting sprinters for a track team, we might look at their best times for the 100-meter dash. But if someone had, for some reason, only ever run races uphill or against the wind, it would make sense to take that into account and not compare that runner’s times to others’ directly. We would be treating those people differently but only because their paths were different; really we’d be evaluating their paths fairly relative to their contexts. 

Other forms of achievement are not as straightforward to measure, but the idea is analogous. If someone achieved a certain SAT score after months of tutoring and someone else earned the same score having never seen an SAT before, it would be reasonable to be more impressed with the latter result and think that the second test taker has more potential. We should think of D.E.I. efforts as the best versions of this and aim to design systems that can measure the fuller picture of someone’s professional journey, not just the current result… It shouldn’t be called sexist to help people overcome sexism, and it shouldn’t be called racist to help people overcome racism, but if we give this help too crudely, then we leave ourselves open to these criticisms. Math teaches us that D.E.I. initiatives should be about carefully defining the metrics we use to measure how far people have come and thus how far they have the potential to go. They should be about uncovering when some people are constantly running uphill or against the wind, which can inform us how to give everyone an equal tailwind and an equal opportunity to succeed.

On DEI, by taking it to absurd extremes, the liberals have allowed even the idea of diversity to become contentious. Cheng attempts to retrieve some of the lost ground by trying to anchor the debate in terms of measuring merit and achievement more accurately. 

Cheng’s op-ed is also a testament to the abdication by the liberal intelligentsia, those opinion makers occupying important positions of influence and authority, like in the reputed universities and think tanks. When faced with the assault from the right, the ideological and institutional defenders of liberalism appear to have gone missing. 

In the second article, Ruchir Sharma calls for caution in cutting interest rates given the prevailing conditions.

Financial conditions are very loose. The economy is still resilient. The basic Fed lending rate is not restrictive. Signs of job market weakness are minor compared with the evidence that inflation has become entrenched. And cutting rates with AI mania gripping US markets risks driving them to greater heights… Capital pouring into the US stock market has driven valuations close to historic highs. Venture capital is pouring into profitless tech firms. Credit growth is surging, particularly in private markets. Junk firms can borrow at rates only marginally higher than solid ones or even the government; the premium they pay over Treasuries is as low as at any point in the last half century… 

Trump aides want to stimulate an economy that doesn’t need help. Despite the tariff shock, GDP is on track to expand by more than 2 per cent this quarter. Regardless, juicing up growth is not the central bank’s job. Its mandate is to control inflation while maximising employment. And standard guidelines on how to achieve this, such as the Taylor rule, show that the Fed’s basic lending rate is not currently restrictive…the unemployment rate is still just 4.3 per cent, close to historic lows. Meanwhile, consumer price inflation has exceeded the Fed’s 2 per cent target for five years running and is expected to remain stuck at an elevated pace for the foreseeable future. It’s also a mistake to ignore prices for stocks, homes and other financial assets… 

By easing every time the markets falter — including as recently as last August — the Fed has been fuelling asset price inflation and wealth inequality. Now, it seems poised to go further, easing in a boom. Tech investment is following the path of past bubbles: at nearly 6 per cent of GDP, it roughly matches investment in tech at the 2000 peak as well as investment in real estate at its 2007 peak, and greatly exceeds investment in oil at the 2013 commodity boom peak. Speculators focusing on the least profitable and most expensive stocks are amped up on AI too. Their share of US trading is now approaching the dotcom era high. The “asymmetry” of Fed policy — always rescue but never restrain the markets — is tilting further towards promoting bubbles… What’s needed is a return to symmetry, including periods of restraint.

In this context, I’m reminded of the metaphor of forest fires and avalanches. It’s a well-known principle that allowing small fires and small avalanches is critical for avoiding big fires and avalanches. Small fires prevent the accumulation of large detritus that can lead to big fires. Small avalanches prevent the accumulation of large fault lines in snow mountains that contribute to large avalanches. 

The central bank's interventions are effectively preventing the kinds of smaller recessions that are required to weed out zombie companies and recalibrate expectations among investors about risks and uncertainties. It’s triggering moral hazard by making a generation of investors and market participants less vigilant about risks. 

A current example of how the dominance of Wall Street interests in financial market policy-making comes in the way of throwing sand on the wheels of financial engineering is the ongoing rise of private credit. With private equity having peaked and interest rates being high, private credit has become an attractive alternative to finance emerging areas like data centres. But it’s rapidly becoming clear that private credit is now spawning excesses, and given the increasing levels of exposure of public pension, insurance and endowment funds to private capital, could be a source for the next financial crisis. 

Finally, Edward Luce makes an important point that the Democratic Party should discover its agenda not by reacting to Trump but by imagining that Trump did not exist. It should emerge from a genuine introspection about where it has alienated its traditional support base of blue-collar workers, blacks, and Hispanics (who have increasingly gravitated to the Trump camp). He writes,

The practical difficulty is that the party is shaped by elite professions, particularly law, government, media and academia. Such types often have a hard time concealing their distaste for those who voted for Trump… They are the party of corporate America. No party in history could ever boast of so many expert fundraisers and humane philanthropists… If Trump did not exist, would Democrats want to reform the US administrative state? They should want to reinvent it but are now its militant defenders… If Trump is attacking something, it must be defended to the hilt.

As Luce writes, the Democratic Party is not alone in this struggle to reinvent. The Labour Party in the UK and the Social Democratic parties in continental Europe are sailing on the same boat. 

The challenge before the liberals is to tailor a coherent agenda that addresses the concerns of the vast majority of the population, who feel socially, economically, and politically marginalised and alienated, and mobilise a sufficiently broad and credible coalition. This would require making hard choices. For example, it might in turn require marginalising the currently vocal defenders of liberalism (or the woke vanguard). It’ll also require breaking free from the incestuous elite stranglehold on liberal thought leadership. Unfortunately, there’s little on the horizon that points to a possible regeneration. 

China and the US today are upending the grand narratives on the economy and polity

China and the US are now egregious exemplars that contradict the conventional wisdom on economic growth and liberal democracy. 

The orthodoxy on economic growth is that, in addition to capital (physical, financial, and human), countries should have an appropriate and predictable regulatory and facilitating environment to unleash private enterprise. The orthodoxy on liberal democracy is that strong institutions, by promoting the fairness and predictability of the rule of law, will act as checks against the unpredictability of rule by laws enacted by autocratic rulers. 

China, specifically under Xi Jinping, and the US, under Donald Trump 2.0, have comprehensively shattered these comforting orthodoxies that have come to underpin conventional wisdom and shape narratives on the polity and the economy. 

China is a standout paradox in how capitalism and the private sector have flourished over the last three decades, with little of the institutional requirements that orthodox theories mandate as essential to economic growth. Despite its communist political system, the private sector dominates the country’s economy.

The private sector contributes over half of tax revenues, more than 60 per cent of GDP, over 70 per cent of innovations, 80 per cent of urban jobs, and 90 per cent of registered companies.

This has been despite an environment and bureaucratic system that would have been considered outright hostile to private enterprise in any other country. 

Chinese entrepreneurs have always faced cycles of risk and reward, but now a single regulatory investigation, a shift in local political winds, or a liquidity squeeze can turn a challenging quarter into an existential threat… the lived reality for many entrepreneurs is one of precarious privilege. They may command wealth and influence now, but their long-term position is far from secure. The life cycle of a Chinese private firm is notoriously short, less than four years for SMEs, compared with eight in the US and more than twelve in Japan. And when a business fails, there is often no institutionalised way to shield the founder from total financial and reputational ruin… Laws on paper go only so far; in China, the political motives that guide bureaucrats ultimately decide enforcement. 

It’s striking that this advice is being given to a country that has experienced three decades of spectacular economic growth, driven by the private sector, to emerge as the factory of the world and its second-largest economy 

Entrepreneurs need tangible, enforceable protections: fair access to credit; and legal frameworks that allow businesses to fail without destroying their founders’ lives… it is about ensuring that risk-takers can survive to try again… The legal framework required is clear: establish a national personal bankruptcy regime that allows honest but insolvent business owners to discharge debts while retaining essential assets, enabling them to restart their careers; limit personal guarantees for corporate loans, particularly for SMEs, to prevent the automatic conflation of business and personal liability. Beijing must ensure transparent, predictable regulation, so enforcement actions are guided by clear rules rather than shifting political imperatives. It should strengthen due process protections for those under investigation, avoiding prolonged uncertainty that can be as damaging as a formal penalty… If those with influence and resources cannot secure a fair hearing, due process, or a dignified way to start again, what chance does the average citizen have?

Arguably, China’s most consequential (strategically important for other countries) economic achievements have all happened in the last decade, when Xi Jinping has pursued a brand of centralised capitalism punctuated with multiple rounds of unpredictable crackdowns. Its dominance in clean technologies, batteries, electric vehicles, and critical minerals, among others, has emerged over the last decade.  

Yuen Yuen Ang’s works, which I have blogged about on several occasions, highlight in detail how successive Chinese governments have discarded orthodoxy and pursued practical and heterodox strategies to drive the country’s economic growth.

In the field of politics, the second administration of Donald Trump has spectacularly demolished all theories about the supposed bulwarks offered by institutional checks and balances. Janan Ganesh brilliantly captures the moment and underlines the importance of politics and winning elections as the only true check,

Consider Congress. It is the least trusted institution in America. Its Republican members are so deep in Trump’s pocket that most voted not to ratify Joe Biden’s election win in 2020. At a rate his predecessors never did, Trump invokes emergency measures, without much resistance from the legislature. Or take the judiciary. Trump has appointed a third of the Supreme Court, which has gone on to construe his powers and privileges generously. As for the federal executive itself, Trump gets to appoint 4,000 or so people to it, not just the cabinet and their immediate deputies. You will notice that little or none of the above is illegal. Before he violates a single rule, Trump can bend the state to his whim. What does that say about the state?

…. Institutions outside government have proven no harder for him to master. Business has been an alternative locus of power in the past, especially in America, where individuals can amass such large fortunes as to be able to look the president in the eye. Now, though, billionaires genuflect before Trump to secure favours or avoid punishments in a patronage economy, as do law firms. (“Big Law continues to bend the knee to President Trump,” boasted the White House spokeswoman in April. Imagine saying that deliberately, as opposed to being caught by a stray mic.) That leaves the media. Well, we try. But this isn’t Walter Cronkite’s era. So much news is now consumed via social media platforms whose owners were seated in front of cabinet nominees at Trump’s inauguration…

It is an old liberal instinct to take things outside of politics: for example, to establish as incontestable “rights” that should be argued for in the democratic realm. Another version of this mental crutch is the hope that “institutions”, within and without the state, will counteract a rogue leader. It is a reasonable hope. The founding scripture of the republic sets out exactly that system. But the evidence of the past eight months, during which Trump has imposed himself on civilian and not just official life, isn’t encouraging. Institutions are made up of human beings, not magic dust, and the president can appoint them or indirectly grind them down with pressure. 

See also this. It’s said that the true mark of institutional strength is when it’s tested. It’s now amply clear that none of the American institutions has been able to resist the devastating intent of Trump 2.0. 

After the definitive ideological takeover of the Supreme Court in his first term, Donald Trump has now set his sights on the US Federal Reserve Board. 

Trump’s imprint is already present at the Fed. Two of its seven board members, Christopher Waller and Michelle Bowman, were selected by him during his first term in office. This month, Adriana Kugler, who was tapped to be governor by former president Joe Biden, announced she was stepping down before the end of her term next year, prompting Trump to pick Stephen Miran, one of his closest economic advisers, to succeed her. If Trump succeeds in ousting Cook, whose term runs to 2038, it would give his nominees control of the seven-member board of governors. Moreover, the presidents of the 12 regional Feds, all of whom serve five-year terms, will need to be renewed at the end of February 2026. The decision to renew their terms lies with the Fed’s board.

The rate-setting FOMC consists of the seven-member Board of Governors of the Federal Reserve, the president of the Federal Reserve Bank of New York, and four of the remaining eleven Reserve Bank presidents who serve on a one-year rotating basis. While the heads of the regional Feds are selected locally, they must be approved every five years by the Board of Governors. 

This raises the possibility of a complete capture of the Federal Reserve system, something that cannot be discounted given the political determination displayed so far. It also raises the possibility that we have now passed the peak of central independence ideology. 

In the realm of the economy, institutional safeguards, especially the informal ones from the corporate world and the markets in general, were supposed to be invincible bulwarks. But all of them have fallen aside, even as ideals of competition, macroeconomic stability and predictability, and free-market principles have been ground down. The most surprising have been the markets, both bond and equity markets, which appear to be betting that Trump will only take it that far and pull back just in time. Even as new redlines are being crossed, it appears increasingly likely that they may be excessively optimistic in miscalculating the motivations and the moods behind these actions. 

As I blogged here, the trade landscape of the world economy has been redrawn, mostly irreversibly, in just over six months. Alan Beattie writes about the unpredictability of Trump’s actions concerning the economy. 

It’s now commonplace to say Trump’s shakedowns of trading partners and corporations for tax revenue (even entirely leaving aside the issue of his personal wealth) resemble a mafia boss or a crony-capitalist dictator in a developing country. It’s actually worse than that. Good mafia bosses and efficient autocrats may be extractive, but they are predictable. Trump’s raids on companies and governments on behalf of the US Treasury are capricious — consider his reported demand that Switzerland buy off the US tariffs with investments and his sudden 15 per cent levy on the chip companies Nvidia and AMD’s semiconductor sales to China. They create uncertainty that weakens the entire basis of business and trade.

And even the trade deals are filled with unpredictability. 

The benefits that Trump offered in his tariff deals often fail to materialise or are disputed as soon as the deal is signed. The UK, one of the first countries to pay the US the equivalent of protection money in its agreement in May, is still waiting for some of the benefits in the form of zero tariffs for a portion of its steel exports. The Japan agreement in July headed straight into a fog of uncertainty over disputed provisions on investment and on import taxes. The EU kept complaining it didn’t know what Trump wanted — it’s a category error to assume he ever has coherent demands. 

One of the earliest attempts to analyse southern Italy’s mafia, by the sociologist Diego Gambetta, posited that organised crime fulfils a function in a society marked by profound distrust. Paying protection money provides security of contract and the settling of disputes in an otherwise chaotic business environment. But the mafia has to be competent and reliable. Dealing with Trump often means not just an offer you can’t refuse but an offer you can’t rely on — sometimes an offer you can’t understand. If the EU’s tariffs were protection money on behalf of Ukraine, Trump glaringly failed to deliver the quid pro quo. Perhaps he simply inferred from the concession that the EU was a weakling to be trampled underfoot.

So much so that The Times has described the US President as the “newest activist investor”

President Trump has inserted the government into U.S. companies in extraordinary ways, including taking a stake in U.S. Steel and pushing for a cut of Nvidia’s and Advanced Micro Devices’ revenue from China. Last month, the Pentagon said it was taking a 15 percent stake in MP Materials, a large American miner of rare earths. And on Friday, Intel agreed to allow the U.S. government to take a 10 per cent stake in its business, worth $8.9 billion. These developments could herald a shift from America’s vaunted free-market system to one that resembles, at least in some corners, a form of state-managed capitalism more frequently seen in Europe and, to a different degree, China and Russia, say lawyers, bankers and academics steeped in the history of hostile takeovers and international business.

When an ultra-powerful President becomes the “activist investor”, the whole economy becomes available for deal-making in the manner he deems useful or appropriate. 

In the US context, to the collapses of institutional checks and balances within the government, and that of the market restraints, one must add the breakdown of ideological bulwarks. It was thought that no matter what, the Republican and Democratic parties would always remain beholden to certain ideological strands. But the assault has demolished even this faith. In the context of the decision of the US government to take a stake in Intel, an FT article writes,

Trump has taken on that dealmaking role for himself, adopting a transactional approach to the presidency that has upended the US government’s treatment of private enterprise and shattered the Republican party’s free-market philosophy. On Friday, the president announced his latest deal: the US government would take a 10 per cent stake in struggling chipmaker Intel, using previously agreed federal grants to fund an $8.9bn equity investment. The move cuts directly across Republican orthodoxy, which touts the benefits of free-market capitalism and broadly objects to state interventions into corporate America.

The article describes these actions as part of the shift towards a form of “state-run capitalism”. In the circumstances, it may not be incorrect to argue that in the battle for global supremacy between the US and China, the Chinese model of capitalism with Chinese characteristics (essentially state-directed capitalism) appears to be winning, at least for now. 

And we are not even talking about how a new normal may have come to be established in political rent-seeking. David Kirkpatrick of The New Yorker has investigated and found that the Trump family may have benefited by $3.4 billion from the Presidency to date. 

For me, the examples of China and the US are good reminders about the tenuous foundations on which orthodox theories stand. It should serve as a powerful reminder about the limits to the great faith that we place in experts and expertise. Far from being expertise-driven, critical decisions on areas like liberalisation, outsourcing and off-shoring, immigration, technology adoption, etc., are prudent judgments that are essentially political choices. Technical expert advice is only one among the inputs that go into informing those political choices. 

For more on this, I blogged here on the problems with the argument on technical expertise and central banking and its independence. I also blogged here, here, here, and here, questioning the wisdom of blind or excessive faith in expertise and experts.

Amidst all these critiques and lamentations about the breakdown of orthodoxy, we should not become blind to several desirable trends. As I have blogged on several occasions (here, here, and here), capitalism, trade liberalisation, globalisation, outsourcing, immigration, woke liberalism, etc., all clearly went to excessive extremes. Now, a much-needed recalibration is happening with vengeance. And some parts of the Trumpian makeover of the US economy and polity are being met with approbation from even traditional critics and opponents. 

Mark Cuban, the billionaire investor and a supporter of Kamala Harris in the 2024 presidential race, said Trump’s decision to push Nvidia and AMD to pay a portion of their China-related revenues to the state was a good redistributive move that should have been supported by Democrats. “This is a ‘billionaire’s tax’ structured as a royalty or sales tax on semiconductors from the most valuable company in the world, sold to China,” Cuban said on X. “Will this make up for the explosion of the deficits we face? Not as it stands now. Not close. But give him credit for knowing how those CEOs approach problems and opportunities, and using his leverage to generate tax revenues,” Cuban added. “POTUS is more progressive when it comes to taxation than anyone in the progressive wing of the Dems has ever been.”… 

Bernie Sanders, the leftwing US senator, lauded Trump’s Intel deal, which mirrored a proposal he had made himself for the government to receive equity in return for subsidies granted under the 2022 Chips Act. “I am glad the Trump administration is in agreement with the amendment I offered three years ago,” said Sanders in a statement. “If microchip companies make a profit from the generous grants they receive from the federal government, the taxpayers of America have a right to a reasonable return on that investment.”

Two areas of particular interest are how Trump moves on Big Pharma and Big Tech. He has already committed to lowering US drug prices by up to 80%. In late July, he wrote to the 17 largest pharmaceutical companies, demanding binding commitments from them to lower drug prices by September 29. 

The letters asked the groups to apply “most favoured nation” drug pricing to Medicaid, the US health programme for low-income people. They also asked drugmakers to offer new medicines at the same price in the US as in other developed countries, and offer direct-to-consumer drug sales that would “cut out middlemen” such as pharmacy companies.

What will happen on September 29? It also remains to be seen what happens with the ongoing antitrust actions against Big Tech. Contrary to what was widely believed, the Biden-era antitrust actions have continued. Landmark decisions on Google and Meta are expected anytime, which could dramatically revise decades-long paradigms on antitrust and makeover the competition landscape in the digital technology sector. It’ll be interesting to see how far this will be allowed to go once the first verdicts come. For example, will Trump intervene with deals that break up Google and Meta?

Successive democratic administrations compromised on their ideals and allowed these excesses to build up. And it has now taken a right-wing populist backlash to tame and recalibrate these forces. Liberals and progressives should take note. 

Finally, the ongoing trends in China and the US are also a reminder about Marx’s famous quote in The Eighteenth Brumaire of Louis Bonaparte, “Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past”. While both Xi Jinping and Donald Trump are creatures that emerged by harnessing the political forces unleashed by the underlying economic, social, and cultural conditions, their individual personalities and contributions to seize the moment and shape it in their favour should not be overlooked.

Weekend reading links

1. The new Labour government in UK wants to close down the "carried interest tax" loophole that Private Equity firms enjoy - it allows them to pay 28% instead of the regular 45% rate. Patrick Jenkins has a good article that examines the issue and proposes a compromise.

First, they make a principled point — that carried interest is not really income as reformers argue, but a genuine reward for executives, dubbed general partners in the industry, taking investment risk. If GPs invest alongside third-party investors — so-called limited partners (or LPs) — in a deal, any gain (or “carried interest”) they make should be treated as a capital gain because that is what it is. Second, the sector insists that implementing the policy as outlined would drive wealth creators and growth generators — key to Labour’s agenda of economic revival — out of the country... 

There are clear flaws in the industry’s arguments. Tax changes and differentials in this sector have not led to an exodus in the past. In 2017, Italy introduced a new regime, taxing carried interest at 26 per cent, instead of the 43 per cent of higher-rate income tax. Ireland taxes carried interest at barely half the UK rate. So far neither country has made huge inroads in attracting private equity executives... The more substantive point of principle is also moot. In many cases a private equity manager is not actually investing any of their own money, but is being gifted the “right to carry” by their employer, in much the same way as a banker might be gifted shares as part of a bonus (which is liable to income tax). There is no requirement to actually invest your own money in order to benefit from the carried interest tax break...

Reform is clearly needed, but with a spirit of pragmatic compromise. First, Reeves should follow through on her instinct that individuals must actually invest, say at a level equivalent to 1 per cent of the fund, as similar regimes in France and Italy already dictate. This would tighten the alignment between GPs and LPs, which is in everyone’s interest. Second, in order to qualify for carried interest taxation, the investment should genuinely be putting capital at risk. At present, CVC is one of very few firms where executives on a bad deal can actually forfeit money, even if the fund overall succeeds. Third, tax rates should be calibrated smartly. For cases where the threshold for real investment is met, a rate of, say, 33 per cent could be levied; if the threshold is not met, the rate would be 45 per cent. This would still be within the range of competitor jurisdictions, albeit towards the upper end. (France charges up to 34 per cent.)

2. The Skills Ministry appears to have bitten off more than it can chew with its target of having the country's top 500 companies providing internships to 10 million youth over the next five years. 

In the five years from 2019-20 to 2023-24, India added 4.47 million people to the salaried workforce, which stood at a little over 90 million in 2023-24, according to the Centre for Monitoring Indian Economy's consumer pyramids household survey. The salaried class includes managers, supervisors, white-collar professionals, clerks, industrial and non-industrial workers, and support staff. Offering internships to 10 million people in the next five years in India's top 500 companies will mean more than doubling the total employment generated across the salaried class in the past five years, or 11% of all the people employed under this category... According to Mint's study of annual reports of 94 companies on the BSE 100 index, there were 3.83 million employees at BSE 100 firms as of 31 March 2023. The data included both permanent and non-permanent employees, and excluded workers (in some cases, only permanent employees were considered due to unavailability of data)... 

As per the Union budget's announcement on Tuesday, the interns will be paid ₹5,000 per month along with a one-time assistance of ₹6,000. Companies will be expected to bear the training cost and 10% of the internship cost from their corporate social responsibility funds. The emphasis on skilling comes at a time when the Economic Survey for 2023-24 found that about one in two graduates straight out of college is not employable. “Estimates show that about 51.25% of the youth is deemed employable. In other words, about one in two are not yet readily employable, straight out of college," the Economic Survey, unveiled on 22 July, said. "However, it must be noted that the percentage has improved from around 34% to 51.3% in the last decade."

The scheme is part of five DBT schemes aimed at education, skilling and employment with an outlay of Rs 2 trillion over five years, to benefit 41 million youth. 

The difference of this scheme from the apprenticeship promotion efforts should be noted.

An apprenticeship is a structured system of training where individuals, known as apprentices, learn a trade or profession through a combination of on-the-job training and classroom instruction. Apprentices can be both graduates and non-graduates. Students who turn apprentices can also use the stipend to fund their education. The stipends depend on whether the candidate has been picked up under the NAPS (National Apprentice Promotion Scheme) or NATS (National Apprentice Training Scheme) programme. The former is meant for all trades and may take non-graduates, while the latter is largely for engineers and technical apprentices.

3. Nice snapshot of the budget numbers.  

This is the break-up of the capital expenditure proposals

I'm ambiguous on the Rs 1.5 trillion interest-free 50-year loans. State governments which had negligible or no liabilities to the central government over the years have become indebted to the central government through this scheme. It also means that the states are now ever more obliged under Article 293(3) of the constitution of India to the central government. 

And this on the important rural schemes

4. One area where India has trumped China is in its equity markets.

India formed just 6-7% of the MSCI ten years back. It has now risen to near 20%, whereas over the same time China has shrunk from over 40% to around 25%. But Indian stocks are clearly overvalued, trading at 24 times their expected earnings next year against 10 for China. 

5. Daron Acemoglu and James Robinson have an excellent article that articulates the need for the Democratic Party in the US to free itself from its current elite capture. 

When monarchies ruled... they had an elaborate justification for their legitimacy. In early modern England, it was the “divine right of kings.” In China, it was the “mandate of heaven.” It’s not just autocratic regimes that rely on such philosophies. The move toward greater popular participation also required legitimation and a new social contract. In England, that was articulated by philosophers such as John Locke, who provided the foundation of “popular sovereignty.”... That trust is largely lost. Center-left parties, which used to get a significant fraction of their votes from blue-collar workers and citizens without college degrees, now increasingly rely on votes (and money) from college graduates, professionals and managers.

That is all the more so in the United States, where the Democratic Party has gradually become associated with the preferences of the well-educated and urban voters. Democratic politicians often shy away from policies such as job guarantee programs, trade protection and stronger unions... Center-left parties need to lead the way in breaking this mold. This must start by the severing ties with tech billionaires, pharmaceutical giants and Wall Street tycoons. It is difficult to believe that a party that gets funding and ideas from the very wealthy will work hard for the well-being of the most disadvantaged. They must promote to leadership people with a background in manual work and from different educational paths. One visible and symbolic way of achieving this is to reserve a fraction of candidacies and leadership positions to individuals without a college degree. Similar strategies have been successfully used by Swedish social democrats and local governments in India... Campaign-finance reform would help, including public money for candidates that refuse support from big donors. There is also a case for introducing proportional representation voting, which can allow new parties to take up the mantle of working-class causes if the two major parties cannot get their act together. 

Note the point about severing ties with elite interests and promotion of people with a background in manual work and from different educational paths. In other words, return to truly representative governments.

6. The findings of a 3 year RCT study on unconditional income transfer among 3000 adults in Texas appears to pour cold water on UBI enthusiasts. 

The trial recruited 3,000 people in Texas and Illinois on the basis that they would be in a study receiving $50 a month or more for three years. Then a third of them were unexpectedly told they would instead receive $1,000 a month with no effect on any of their other income. The results definitively show that receiving more money provides a better life. Spending and saving rises... Time at work went down for both the recipients of the $1,000 and their partners, replaced by more leisure... The big question for the dynamic benefits of a universal income was what people would do with their additional time. Would they invest in their education, upskill, get better jobs or start businesses? The short answer was no. The findings ruled out “even small improvements” in the quality of employment and upskilling. The most that could be said was that the recipients spent some of their extra leisure time thinking about starting a business without actually doing it... Did universal support make recipients healthier than the control group? Again, the answer was no. Surveys and blood tests of recipients and the control group shows no improvement in physical health, and mental health improved only in the first year. There were more visits to medical facilities and more alcohol consumed, although also less problematic drinking.

7. Solar industry globally is facing a massive glut created by China that's driving down prices and destroying domestic solar industries in many countries, including in Europe. 

According to BloombergNEF, panel prices have plunged more than 60 per cent since July 2022. The scale of the damage inflicted has sparked calls for Brussels to protect European companies from what the industry says are state-subsidised Chinese products. Europe’s solar panel manufacturing capacity has collapsed by about half to 3 gigawatts since November as companies have failed, mothballed facilities or shifted production abroad, the European Solar Manufacturing Council estimates. In rough terms, a gigawatt can potentially supply electricity for 1mn homes. The hollowing out comes as the EU is banking on solar power playing a major role in the bloc meeting its target of generating 45 per cent of its energy from renewable sources by 2030.

The Chinese prices are so low that it requires very high tariff to level the playing field, besides constant surveillance to see whether the exports are being routed through third countries.

The Inflation Reduction Act.. has spurred almost $13bn of investment in solar manufacturing, more than six times the amount committed in the five years before the legislation... In May, it removed a tariff exemption for double-sided panels and lifted levies on Chinese imports of solar cells from 25 per cent to 50 per cent. Chinese companies now also face penalties if they are found to have dodged tariffs. US imports of Chinese polysilicon for solar panels had already been hit by a 2021 ban on products made or sourced from China’s Xinjiang because of concerns over the use of forced labour. Nevertheless, America’s solar power companies warn that the steps taken by the Biden administration this year will fail to provide enough protection... Chinese solar companies... dumping cells in south-east Asia, the source of the bulk of US imports. A solar panel manufactured in America using US-made cells costs 18.5 cents a watt, compared with 15.6 cents for a panel sourced in south-east Asia and just over 10 cents for one produced in China, according to estimates from BloombergNEF. 

Weekend reading links

1. Nigeria can lay claim to the dubious honour of being the worst-governed big country in the world and the most consistent global economic under-performer. The FT has a long read.

During the eight years Muhammadu Buhari was in office, Nigeria’s GDP shrank, in per capita terms, as he pursued ineffective economic policies with an interventionist theme. Decades before that, Nigeria fell to the so-called resource curse: though oil contributes a relatively small amount to the country’s GDP, it plays an overweening role in state finances, making up 80 per cent of government revenue.

President Bola Tinbu, who's entering his second year, has pursued a shock therapy policy of austerity, Tinbunomics, which involves cutting subsidies (the fuel subsidy of $10bn in a total budget of $34 bn) and two sharp devaluations. The result has been a tripling of oil prices and inflation climbing to a three-decade high of 34%.

Food prices are rising faster, putting even basic staples like rice, milk and maize beyond the reach of many and sending malnutrition levels soaring. The Food and Agriculture Organization estimates that 26.5mn of Nigeria’s 220mn people are food insecure with at least 9mn children at risk of wasting, a medical condition that stunts development. 

Desperate groups of hungry people have raided warehouses storing food. There have been deadly stampedes for the bags of emergency rations being handed out by some states, largesse that goes by the name of “palliatives”. Nigeria, which for years took pride in being Africa’s biggest economy, has tumbled to fourth place in dollar terms. Without a strong recovery, the IMF predicts it is likely to slip to fifth by the end of 2024, behind South Africa, Egypt, Algeria and Ethiopia — a huge blow to Nigeria’s self-image as “the giant of Africa”.

See also this article on how the IMF austerity policies resulted in riots and protests in Kenya. This is a good long read on Kenya by Ken Opalo.

2. John Burn-Murdoch has a very good insight into populism.

The most successful such parties in Europe — Fidesz in Hungary and the conservative nationalist Law and Justice in Poland — are left-leaning on economics while rightwing on social issues, positioning themselves squarely in the quadrant inhabited by most voters. In France, RN has moved in a similar direction, as has Geert Wilders’ PVV party, which now forms part of the Dutch government. Giorgia Meloni’s ruling Brothers of Italy party (FdI) is no crusader for free markets.

3. Fascinating article about how the high cost of elevators in apartment complexes in the US has become an example of the challenges with the broader construction industry in the country.

The problem with elevators is a microcosm of the challenges of the broader construction industry — from labor to building codes to a sheer lack of political will. These challenges are at the root of a mounting housing crisis that has spread to nearly every part of the country and is damaging our economic productivity and our environment. Elevators in North America have become over-engineered, bespoke, handcrafted and expensive pieces of equipment that are unaffordable in all the places where they are most needed. Special interests here have run wild with an outdated, inefficient, overregulated system. Accessibility rules miss the forest for the trees. Our broken immigration system cannot supply the labor that the construction industry desperately needs. Regulators distrust global best practices and our construction rules are so heavily oriented toward single-family housing that we’ve forgotten the basics of how a city should work. 

Similar themes explain everything from our stalled high-speed rail development to why it’s so hard to find someone to fix a toilet or shower. It’s become hard to shake the feeling that America has simply lost the capacity to build things in the real world, outside of an app... With around one million of them, the United States is tied for total installed devices with Italy and Spain... In Western Europe, small new apartment buildings of just three stories typically include a small elevator (and sometimes buildings of just two stories as well). These types of buildings have almost never had elevators in America, and developers are planning and building new five- and six-story walk-ups in some cities. When a developer in Philadelphia or Denver comes across a piece of land zoned for a few stories, elevator expenses are often one reason they build townhouses rather than condos — fewer in number and with higher price tags. 

Behind the dearth of elevators in the country that birthed the skyscraper are eye-watering costs. A basic four-stop elevator costs about $158,000 in New York City, compared with about $36,000 in Switzerland. A six-stop model will set you back more than three times as much in Pennsylvania as in Belgium. Maintenance, repairs and inspections all cost more in America, too. The first thing to notice about our elevators is that, like many things in America, they are huge. New elevators outside the U.S. are typically sized to accommodate a person in a large wheelchair plus somebody standing behind it. American elevators have ballooned to about twice that size, driven by a drip-drip-drip of regulations, each motivated by a slightly different concern — first accessibility, then accommodation for ambulance stretchers, then even bigger stretchers. The United States and Canada have also marooned themselves on a regulatory island for elevator parts and designs. Much of the rest of the world has settled on following European elevator standards, which have been harmonized and refined over generations... Not only do we have our own elevator code, but individual U.S. jurisdictions modify it further.

4. Another example of market failure, in the US home insurance market.

Higher premiums are being charged in states where regulators apply less scrutiny to requests for rate increases, compared with states where officials question the justifications offered by companies and try to keep rates low, the research shows. The effects of those state-by-state regulatory differences are only now becoming clear. In a separate paper, new data makes it possible for the first time to see what households pay for home insurance by county and ZIP code, across the United States. The average premium jumped 33 percent between 2020 and 2023, far more than the rate of inflation, the data show. But in some places, homeowners are paying more than twice as much for insurance, as a share of home value, than people who live elsewhere and face similar exposure to severe weather. As a result, America’s home insurance market is increasingly distorted, said Ishita Sen, a professor of finance at Harvard Business School who studies why insurance rates diverge from risk. In communities where insurance rates exceed the actual risk, homeownership can be unaffordable. And in places where insurance prices are too low, it encourages people to move into homes in areas likely to be hit by wildfires or other disasters that could deliver financial ruin, Dr. Sen said...

After big losses in those tightly regulated states, such as California, national insurers tend to raise rates in more loosely regulated states. In other words, homeowners in states with weaker rules may be overpaying for insurance, effectively subsidizing homeowners in states with tougher rules, she said. If California makes it especially hard for insurers to increase premiums, Oklahoma makes it much easier... the home insurance market is far less competitive than it might seem. After choosing an insurer, people often stick with that same company, even if their premiums go up, she said. Three insurers — State Farm, Farmers, and Allstate — collectively wrote more than half of all home insurance in Oklahoma last year.

5. Manufacturing for exports has replaced real estate as the primary destination for credit flows in China.

Net new bank loans to industrial borrowers reached $614 billion in the 12 months through March. That was six times the annual lending to those borrowers before the pandemic, as lending to industries has almost exactly replaced the loans that previously went to the real estate sector.

This shift to manufacturing is showing up in the trade surpluses.

China’s already formidable exports surged in June, China’s customs administration reported on Friday. But imports shrank, with Chinese companies and households becoming more cautious about spending money. The result was a record monthly trade surplus of just over $99 billion... China’s trade surplus last month broke a record set in July 2022, when the country’s factories and ports were racing to catch up with global demand after a stringent Covid-19 lockdown in Shanghai had crippled output throughout much of central China... Factories in China already make almost a third of the world’s manufactured goods.

5. Matt Stoller has a profile of JD Vance, the Vice President pick of Donald Trump. Despite this Republican and VC background, Vance comes out as a very interesting politician, a populist who tries to bridge the left-right divide and one whose professions appear to take on the rich power elites. 

This bit of bipartisanship could be regarded as sage advice for any incoming government anywhere in the world.

A lot of what will determine Trump administration and interest policy is who ultimately takes the reins and the senior roles in the Trump administration, because they're going to be the ones who are executing on this stuff… So when I think about how to solve how to put those instincts into policy, a lot of it's going to be getting the right people in some of these roles and making sure we don't get rid of some of the good people from the previous administration who are doing the right thing. So I think that's the question, how do we get proper personnel rights so that we can get policy right the next Trump administration?

6. I can't see many positives in having private equity investing in sectors like school education, neither for PE and not certainly for the schools. 

FT reports that in one of the largest European deals of the year at upto $15 bn, Bain Capital, Permira, and Veritas Capital are competing to buyout a majority stake in the London-based school operator Nord Anglia. The operator is currently owned by Swedish PE group EQT and Canada Pension Plan Investment Board (CPPIB). It has 87 international day and residential schools in 33 countries, including China, India, Middle East, and Americas, and has over 85,000 students up tp the age of 18 and 11,000 teachers and thousands of support staff. It added 10 schools over the last two years, mainly through acquisitions. 

Education has proved a popular sector for investment in the private markets.

A consortium led by the Canadian investment group Brookfield agreed a deal last month to invest in the Dubai-based education company GEMS. Meanwhile, the French investor Wendel earlier this month took a 50 per cent stake in the European primary and secondary school group Globeducate for €625mn, acquiring part of current shareholder Providence Equity Partners’ interest.

7. Nguyen Phu Trong, Vietnam's most powerful leader since Ho Chi Minh and who oversaw the country's emergence as a manufacturing powerhouse, passed away at the age of 80. 

Trong consolidated power into his hands during his tenure and weakened the other parts of Vietnam’s four-pillar leadership system — which includes not only his post as Communist party chief, but also the president, the prime minister and the chair of the National Assembly... As party chief from 2011 and the country’s president between 2018 and 2021, he played a central role in Vietnam’s economic rise. Vietnam has attracted billions of dollars in foreign investment from companies across the world, becoming an important link in the supply chain for companies such as Apple and Samsung. Trong deftly balanced Hanoi’s relationship with the global superpowers, maintaining close ties with the US, China and Russia. He forged ties with Vietnam’s former foe, the US, by upgrading the relationship between the two countries to a “comprehensive strategic partnership” — the highest level of diplomatic ties afforded by Hanoi. He also drew criticism because during his leadership the Vietnamese government tightened control over news media, social media and civil society. In 2021, he was elected party chief for an unprecedented third term after the party decided to exempt him from the two-term rule. His defining policy was an anti-corruption drive called “blazing furnace”, in which thousands of government officials were disciplined and many prosecuted. Two presidents and two deputy prime ministers quit after being accused of violations, triggering political instability that has paralysed government activity and affected economic growth.

8. A sample of big state interventionism likely in the UK under Keir Starmer

Sir Keir Starmer’s government looks set to be the most interventionist since the 1970s. He plans to force through housebuilding, nationalise the railways, create an industrial council and a state-backed energy company, roll back curbs on trade unions and usher in new employment rights. Renters will get more rights and there will be new state agencies — including a football regulator — added to the alphabet soup of acronyms.

9. China housing prices graphic of the day

Three years on from a crackdown on excess leverage in the industry, the official measure of new home prices is falling at its fastest pace in almost a decade while the number of foreclosed houses listed for auction in the first quarter increased 35 per cent from a year ago, according to the China Index Research Institute. Official figures show about 10mn of China’s 300mn migrant workers left the construction industry in 2022 and 2023.