oftwominds-Charles Hugh Smith

I'll Turn Bullish When This Happens

2026-04-12T15:04:00.000-07:00

I will enthusiastically join the Bulls when we replace a guaranteed-to-bankrupt-us Sickcare system and we rebalance the extreme asymmetries of Capital and Labor.

Being permanently bullish is profitable because "markets go up." This is more than enough reason to be permanently bullish, of course, but being persnickety, I prefer there actually being some economic basis for being bullish other than memes (markets go up, the Fed has our back, AI, super-abundance is all around us, etc.).

Some things I consider super-bullish are impossible. Two come to mind:

1. We collectively conclude Waste isn't "Growth" and start rewarding durability and repairability rather than planned obsolescence and the Everything is Disposable Landfill Economy.

2. Creating more "money" out of thin air isn't actually a "solution" to every problem.

But since these two delusions are the foundation of the status quo economy / financial realm, replacing the Waste is Growth landfill Economy and we print our way to prosperity with a non-delusional alternative isn't going to happen.

So let's turn to what's a longshot but maybe, just maybe, possible if a revolution of clear-eyed sanity sweeps the land and rationality replaces fantasy... OK, these are impossible, too.

1. Sickcare is replaced by a sustainable, affordable system of healthcare that rewards health rather than profiting from illness, disease, needless procedures, outright fraud, legalized fraud, denials of claims, paper-shuffling, etc. As I've noted for two decades, "healthcare" will bankrupt the nation all by itself.

Bankruptcy U.S.A.: Medicare, Greed and Collapse (July 5, 2006)

A Partial Answer to National Health Care (November 11, 2006)

Sickcare Will Bankrupt the Nation--And Soon (March 21, 2011)

There are solutions, but they're "impossible" because they would take away the bottomless federal feeding trough.

The "Impossible" Healthcare Solution: Go Back to Cash (July 29, 2009)

While we as a nation can sleepwalk into Sickcare-induced bankruptcy, private enterprises cannot go quietly off the fiscal cliff without some attempt at self-preservation. Looking at $30,000 a year in healthcare insurance costs for family coverage of every full-time employee--costs that just keeping soaring higher--employers are quite rationally salivating at the prospect of slashing headcount with AI agents, gig workers with zero benefits / health coverage using AI agents, low-cost offshore workers using AI agents, etc.

The entire Sickcare system has to be tossed in the dustbin of history so we can start over from scratch. "Reforms" are just cover stories for adding more cash to the federal feeding trough for those managing the "reforms" through the auction of political favors of Congress.

Fee for service worked when it was the customer paying and employers paid insurance policies for low-cost hospital care at local community-owned hospitals, but that model was junked as absurdly unprofitable and replaced by Corporate America's federally funded profit-harvester which chews through everything to maximize profits by any means available.

Why Healthcare Is in a Death Spiral: Follow the Money (December 1, 2025)

It's not that complicated, folks: either replace the current "healthcare" system or bankrupt the nation--and all the employers who don't replace employees with no-healthcare-insurance AI agents. It really boils down to a simple choice: is "healthcare" just another profit-maximizing "opportunity" that's maximized by buying political influence, corrupting "scientific research" and creating cartels so there is no competition left, or should healthcare be about fostering a healthy way of living at the lowest possible expense via common-sense incentives for healthcare institutions, caregivers, employers, patients and our economy and culture to do whatever can be done at low cost to foster health by avoiding preventable / lifestyle illnesses and diseases, starting by recognizing the adverse health consequences of designed-to-be-addictive ultra-processed foods, social media, AI and smartphones?

A modest profit and higher compensation to reward improved productivity / results are common-sense incentives. But what we have today is a system that incentivizes maximizing profits by any means available, regardless of consequences. That is not a healthy incentive system, that is pathological psychosis masquerading as a healthy incentive system. If we can no longer tell the difference between the two, we're doomed to reap the consequences.

Or shall we be "bullish" on the profitability of Sickcare because the federal feeding trough is unlimited? That seems to be the consensus choice at the moment. That this is delusional is not a problem, because we print our way to prosperity. Uh, yeah, sure. And if that should fail--perish the thought--we can always borrow trillions of quatloos from the Central Bank of Mars.

The second more-or-less impossible change that would make me bullish is rebalancing the extreme asymmetry of Capital and Labor that favors Capital over Labor. Capital is taxed at low rates, labor is taxed at high rates--and that's just the start of the asymmetries favoring Capital over Labor.

AI is shorthand for Capital. So invest capital in AI, get rid of costly (taxpaying) employees, profits soar and the asymmetrical inequalities of wealth and power will skyrocket to new extremes.

Never mind robots aren't consumers; because we print our way to prosperity, we'll just print up a couple trillion dollars every few months to fund Universal Basic Income (UBI), so the millions of laid-off workers can stare at screens all day or write bad poetry and still buy, buy, buy to their heart's content, generating Corporate profits that only go up, and a stock market that only goes up.

Welcome to FantasyLand!

I will enthusiastically join the Bulls when we replace a guaranteed-to-bankrupt-us Sickcare system and we rebalance the extreme asymmetries of Capital and Labor. If we have no incentive to do so because markets go up and we print our way to prosperity, then we're inviting a reversal to extremes at the other end of the spectrum, where markets stop going up, Capital changes places with Labor and printing delivers ruin rather than prosperity.

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Welcome to the Theater of the Absurd

2026-04-10T10:22:00.000-07:00
The real world no longer matters, what matters is the performance on stage. Welcome to the Theater of the Absurd.

In the present era, all the world is a stage and everything is a performance on that stage: welcome to the Theater of the Absurd, a Hollywood set fabricated of cardboard and plaster made to look like gold leaf and marble columns, where the contraptions and ropes that do the magic are hidden behind purple velvet drapery.

Every detail has been designed to create the illusion of permanence and power to rivet our attention and distract us from noticing that behind this faux fabrication, the world is on fire.

Since the entire point of the theatrics is to cloak the decay of the status quo from serving shared interests to a craven scramble of self-enrichment, no expense is spared in the theatrics, for as the gulf between the reality of who's getting richer and who's losing ground and what the performers claim--this is the best of all possible worlds because of technology and Progress--widens, it becomes necessary to pour more resources into the performances, lest the losers catch on that the performance is the con that keeps the self-serving status quo from being revealed as an extractive, exploitive arrangement favoring the few.

As the audience is no longer entranced by mere performance, the theatrics must be ramped up to absurd heights. Leaders shout continually through the megaphone of social media, every pronouncement is exaggerated to self-parody, jokers prance around as Wall Street jugglers perform tricks, and faux trials run continuously in the background, exiling star performers as part of the enthralling theatrics.

The audience soon habituates to the exaggerations, and so the absurdity is notched higher. Every outrage is played out on stage, and soon the audience is no longer outraged by anything, for every aspect of the performance is now accepted as "normal." In this jaded state, the audience becomes restive and starts booing the performers.

The Theater of the Absurd resorts to throwing money into the audience, creating frenzies as all those losing ground stampede to collect the coins as their last best change of getting rich enough to avoid the fires burning behind the stage.

While the money is being thrown into the increasingly agitated mob, audience members are invited onto the stage to perform their own theatrics. This taste of fame is electrifying, and soon the stage is a seething mass of onlookers seeking their moment in the spotlight, leaders claiming divine inspiration, and a crush of jugglers, clowns, and jokers pressing forward and being pushed off stage in the melee.

Since the performance is now the key to the survival of the status quo arrangement, nobody's paying attention to the fires burning behind the stage set. The real world no longer matters, what matters is the performance on stage. Welcome to the Theater of the Absurd, where the performance is more real than the world burning behind the flimsy simulations and facsimiles of permanence and power.

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Automating Our Dependence Will Cripple Us

2026-04-09T09:10:00.000-07:00
The rush to monetize automation / AI is self-liquidating.

Dependence is easy but crippling. When we're children or advanced in age, we're dependent on adults for our care. This is the normal flow of human life. But when we're dependent as adults, it cripples us, for it removes the pressure to acquire problem-solving skills that strengthen our facility with both processes and results.

In my post on The Inevitability of the AI Depression, I noted the distinction between process-based work and results-based work, as standardized processes are easily automated, while generating results that can be tested / verified is much more difficult, as a standardized process might not suffice.

Problem-solving demands integrating both process and results, as being able to repeat the desired results requires assembling a process which is organized enough to generate the desired results but flexible enough to deal with novel problems.

This is the shadowy realm of experiential knowledge, the intuitive tacit knowledge that can only be gained by experience. We can attempt to distill this knowledge down to rules of thumb, i.e. heuristics, but when we turn these heuristics into algorithms, we're converting right-hemisphere integrative thinking into formal rational processes--left-hemisphere thinking. This conversion loses the essential nature of tacit / intuitive problem-solving.

When the State or parents protect adults from the pressure of problem-solve and the consequences of failure, this protection has a price: the adult has no opportunity or pressure to develop the self-confidence that can only be gained by enduring--and learning from--failure, and the uneven, no-guarantees process of experimentation and effort of problem-solving.

The adult learns not how to be independent; they learn to fail so demonstrably that they will be rescued once again.

Failure is stressful--in today's terminology, traumatic. But failure is the source of pressure to problem-solve. If some entity solves all our problems, in effect automating processes so we don't have to learn them and delivering results that we didn't have to figure out how to generate, then we learn nothing that contributes to our experiential knowledge, self-reliance or self-confidence.

Having processes and results automated cripples us: we know virtually nothing because we were never forced by problems / failure to develop the self-discipline, ruggedness, self-awareness and hard thinking demanded to endure failure and keep trying new approaches until we solve the problem at hand.

The harder the problem, the harder the process of solving it, the more we struggle and endure, the more we learn. Failure, doubt, anxiety and suffering are the crucible in which we gain experiential problem-solving skills which bolster our self-confidence and generate skills that can be applied to future problems.

The key to problem-solving is not just learning from the experience of failure, but the experience of joy from finding a solution and the rarely described joys of developing flexible skills and processes--the key word here being flexible.

This brings us to the automation of processes and results via artificial intelligence (AI). The basic idea here is we no longer have to learn the tediously acquired deep-knowledge of how things work, as AI does all this for us.

And we no longer have to learn to triage tasks--eliminate make-work / BS work / low-productivity processes, we simply assign our AI agents to perform all that low-value work and pat ourselves on the back for "optimizing workflows."

As for getting results, we simply prompt AI agents to generate the desired output. And since we don't actually know how to generate these results ourselves, we have to trust that the AI agent is 1) telling the truth, which is itself a problem we cannot solve, and 2) that the result isn't a hallucination or falsity generated by the homogenization of the AI's knowledge base and programming.

There is no pressure now to tediously acquire deep knowledge such as learning a foreign language or learning how to play a musical instrument proficiently, as AI translates everything and can compose music (and everything else) via prompts. There's no longer any need to learn how to write well, as AI does this for us.

All these automated processes and results are homogenized, as AI eliminates the rough edges of variability as reducing the probabilities of a result that passes the tests of accuracy.

This is why studies have found that human users of AI have homogenized thought processes even after they stop using AI.

What's lost in automating processes and results is far more profound than the mainstream can grasp. We lose the ability to think deeply, and this cripples our capacity to develop real problem-solving skills. And since it removes the pressure of having to learn difficult skills and the pressures generated by failure, we no longer have any incentive / selective pressure to learn experiential, tacit knowledge.

Writing isn't just stringing together words in a format that passes auto-correct spelling and grammar rules. Writing is the process of deep thinking.

Learning a foreign language isn't just something that facilitates being a tourist. It's a process of learning new ways of contextualizing and organizing the world, and this too is a process of deep thinking.

Here is an example of what I'm describing. This is Fragment 54 from the ancient Greek philosopher Heraclitus. Notice the range of translations into English.

"Latent structure is master of obvious structure." (quoted by Philip K. Dick)

"The unseen design of things is more harmonious than the seen." Guy Davenport

"The hidden attunement is better than the obvious one." Charles H. Kahn

"Harmony which does not appear clearly is superior to that which is clear and apparent."

"Apparent, hidden. more powerful, more desirable."

"Hidden structure is more powerful than visible structure."

I do not know the Greek language but I studied a text that placed the original Greek side-by-side with the English translation and exegesis, so I could discern the sources of the many translations.

I've found the same is true of the many translations of the Tao Te Ching. I do not know Chinese, but I am familiar with the construction and ambiguities of key ideograms. I've read many translations but prefer that of my professor, Chang Chung-yuan: Tao: A New Way of Thinking.

Here is an excerpt from Chapter 41:
Understand Tao as if you did not understand it.
Enter into Tao as if you were leaving it.

I've formally studied French and Japanese, and am not fluent in either, but I learned enough to grasp how social structures are reflected in the language itself.

None of this is visible in an AI translation. It's too easy and so we become dependent not just for the translation but in the loss of the ability to understand more than the superficial conversion.

In music, composing is now easy: just prompt AI. But in becoming dependent on AI we can never experience the frustrations of trying different chord progressions and working out a new melody, or experience the physical sonic joy of strumming the "magic E chord" (7th fret on the guitar).

I spent hours working out a double-lead for guitar that lasts all of nine seconds on the recording. The process was painstaking but fun, in the way that only painstaking experimentation can be fun. You learn by stretching yourself, not by repeating what you already know or having AI do it for you.

I only have my own life experiences as examples, and so these may not be great examples but they're all I can vouch for because I lived them.

Just the other day I was working on an old structure constructed of steel pipes. One of the joints was rusted and needed to be strengthened. The conventional approach would be to replace the whole thing, at significant expense, or replace (at great expense of labor) the rusting lengths and connectors. Neither was worth the time or money in this situation, so I rummaged through the workshop and found a steel plate that's used to cover copper piping running inside stud walls so drywall nails or screws don't puncture the water lines.

I bent the plate into a curve using a few tricks and drilled holes through the steel pipe and connected the plate with through-bolts left over from another project. Is it a thing of beauty? Not by a long shot. Does it do the job at zero cost and a few minutes of my time? Absolutely. Did it solve the problem with minimal investment? Yes.

The problem wasn't a deficiency of beauty. The problem was strengthening a weak connection and time pressure (daylight ending). Quick-and-dirty was the optimal solution.

I doubt a robot could have replaced my processes. They're too extemporaneous, too contingent, too unpredictable (using what's laying around, etc.) and require multiple tactile skills of applying just the right amount of force, but not too much. They're based on 53 years of experience with tools, metal, connectors, and the physical knowingness that can only be gained from long, wide-ranging experience. Everyone with similar experience knows what I mean.

Growing food isn't easy. We look at mechanized equipment guided by AI and we think it's easy, but it is intrinsically difficult due to Nature's variability. Learning how to grow food takes a high tolerance for failure and experimentation, careful observation and the discipline to record what was tried and how it fared. I use six kinds of fertilizer, in various combinations depending on the tree / plant. Others have developed their own mixes and stratagems depending on their terroir and experiences.

Once again, there is no algorithmic shortcut. The only process that yields problem-solving on the fly is experiential.

People occasionally suggest I "monetize" our produce, selling it at a farmer's market, etc. This misses the point via a fatally flawed reduction of everything to money. The point is self-reliance, the acquisition of priceless skills and experience, and the sharing of our produce with others to strengthen a social network. Selling our produce would be a catastrophic waste of a precious resource. Not everything of value can be priced in money.

When we were building our house in our 20s, with no loan and minimal savings / income, we moved into the shell with Visqueen (sheet plastic) over the window openings as soon as we had a working tub and toilet. A two-burner camp stove was the kitchen. We did the dishes in the tub. Under pressure, you improvise. It wasn't that hard; we were sheltered from the weather and had everything we needed.

Many people misunderstand athletics. They think it's about talent or winning. It's actually about training, not to hit some metric (weight lifted, miles run, etc.) but integrated physicality: agility, strength, speed, endurance and the capacity to endure while avoiding needless injury brought on by prideful excess.

Despite a complete lack of talent, I played team basketball for five years and one season of football. I learned about training, self-discipline, unit cohesion and much more. Training is tedious and maintaining agility, strength, speed, endurance and the capacity to endure is demanding. But once again, there is no substitute for experience.

(If you want a metric, choose one that reflects overall health: the triglycerides-HDL cholesterol ratio: triglycerides divided by HDL. Under 2 is good; even lower is better. Mine is 74/61 probably because I work stupidly hard physically instead of buying a robot.)

When everything is given to you or done for you, you learn nothing, have nothing to be proud of and no experience of the joys of hardship met and sacrifices made that paid off. And if they didn't pay off, you learned something valuable that could be usefully applied later.

What looks easy when watching a cooking video is tricky in real life. Consider a basic skill like making a roux--cooking flour in butter. It's easy to undercook it or burn it. You really only learn by making both mistakes.

So buy food out and learn nothing or learn to cook the hard way, which is the only way.

This is the fatal consequence of becoming dependent on automation / AI to "optimize everything." We're actually optimizing failure.

The fatal consequences are scale-invariant. New research suggests the vast, immensely successful Khmer civilization in southeast Asia succumbed not just to environmental changes (drought) but to the decay / loss of the social / institutional know-how needed to maintain the complex system of waterways and irrigation that enabled food production at scale.

No human remains were found in the abandoned cities. There were no mass die-offs; the residents just left. Since they retained the basic skills needed to make a living off the land, life went on.

As our horrendously complex systems become dependent on automation / AI, without being aware of it we're generating dependencies that carry grave risks: once the number of humans who truly understand how to build systems from scratch or reconfigure them on the fly dwindle, when novel conditions cause the automated systems to fail, recovery will be out of reach.

Right now, this sounds farfetched because there are still enough people around who have deep experiential knowledge and tacit problem-solving skills. But since these skills cannot truly be taught, they must be learned the hard way, by tedious experience of failure and experimentation, then once those people retire, the entire civilization is vulnerable to cascading failure.

This is why I say that the rush to monetize automation / AI is self-liquidating: in optimizing both low-value workflows and essential systems, we're becoming fatally dependent on systems we no longer have the experience to fix on our own.

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Our Post-Truth, Post-Trust World

2026-04-07T20:45:00.000-07:00
A system that comes to depend on synthetic signaling for its "information" is doomed to Model Collapse, as its signaling has completely detached from the real world.

That we inhabit a post-truth world seems to accepted wisdom. But that's only half of it. We also live in a post-trust world. In a post-truth world, everything is shaped by the implicit goals of the entity claiming to state the "truth," as the entire point of claiming to state the "truth" is to persuade the target populace to agree to something favorable to the issuer of the claimed "truth."

In other words, the "truth" as something that has no intentional spin of self-interest no longer exists. What is passed off as "truth" is spin intended / designed to serve the interests of those doing the spinning.

This is the definition of propaganda and marketing, which are pure expressions of self-interest, and they've been around since the dawn of civilization, as persuading others to do what serves your private interests is much lower cost / more profitable than having to modify their behaviors with force.

The first step in the con of propaganda and marketing is to win the trust of the mark. This is a fascinating process, as some people are willing believers and others are skeptical, and so the trust campaign must speak to both the skeptics and those primed to embrace the message for reasons that have less to do with the entity issuing the message and more to do with their internal beliefs.

The trick with skeptics is to present persuasive evidence--the "facts." These can be first-person accounts, scientific studies, or something presented as self-evident. The con artist presents the facts as if they are objective and the mark is invited to "decide for yourself:" the con artist claims he has no intent to persuade.

This is humorously illustrated in Melville's classic novel The Confidence-Man.

The rise of the collection of data and the scientific method introduced the idea of "objective truth" that was based on facts collected from observations that were repeatable by anyone able to isolate the same variables. In other words, these truths could be verified by anyone using the same tools to collect data that isolated the same variables, so it wasn't a private truth, it was a public truth everyone had to accept as fact.

The power of "objective fact" was too good to pass up, and so manipulating the metrics of data collection and analysis became the new territory of developing trust and establishing "truth" to serve private interests. Sample sizes were kept small, subjects were selected for their likelihood of yielding the desired data, and analytic tools weeded out outliers that undermined or contradicted the pre-selected "results."

As McLuhan observed, The medium is both the message and the massage, and so the synthetic media that broadcast the human voice and visual images captured our attention and imagination in ways the written word could not. Now we have AI, which mimics human speech so engagingly that we attribute it with human characteristics: intelligence, emotions, empathy, etc.

With social media and smartphones, these media/ AI technologies have scalable visibility and virulence: they are ubiquitous (everywhere) and extremely contagious / virulent, spreading quickly through vast populations.

Few would claim to trust the "truthiness" of social media content or its sources, but that no longer matters. what matters is the signal embedded in the content that triggers a dopamine cascade in the "consumer" of content--what Big Tech calls engagement and others call addiction.

Signals are symbolic short-cuts that bypass rational filters by firing dopamine receptors. This makes them ideal on two counts: they don't require the lengthy processes required to nurture trust or establish the "truth," processes which require some connection between the real world and the claim being made.

Signals are small in size and easy to replicate, in effect cognitive/emotional viruses that bypass our cognitive/emotional immune system of skeptical wariness of anything that smacks of self-interest, i.e sure things, guarantees of immense gains and grandiose claims.

Signals bypass the process of connecting a claim to the real world. This is their unmatched power. In the ancient world, pageantry and public displays acted as signals of power, status and victory. The power and status were symbolically on display, as only those with wealth and power could afford such performances.

The importance of these symbolic displays reinforcing the legitimacy and power of elites should not be underestimated. This is why Leonardo Da Vinci was hired to design and engineer lavish parades of movement and color, extravaganzas designed to impress and entrance onlookers.

Such symbolic signaling was enormously costly, and so they reflected real wealth and power, for only those possessing those resources could manage such expense.

Now digital synthetic signaling is virtually free. When Leonardo's pageantry came to life, it was unmistakably authentic, for it demanded real world resources and labor. Digital synthetic signals require nothing but visibility and virulence--no connections to the real world are required.

So AI's mastery of natural language signals intelligence, money signals wealth, technology signals Progress, a diploma signals "hire me, I'm a valuable worker," and so on. Signaling replaces persuasion that is still connected to the real world with dopamine cascades.

Synthetic signaling is inherently self-referential: it's "trustworthy" and "plausible" because we've already seen it elsewhere, and ubiquity is itself a signal of plausibility and trustworthiness, because could so many others be completely wrong?

"Breaking news" must be real, right? Words, images, speech are all easily turned into symbolic signals that carry implicit claims of retaining some connection to the real world when in fact there is none.

Signaling is easily gamed, falsified, curated, edited, cosmetically enhanced and generated by automation, while the real world it supposedly symbolizes / reflects is not so pliable. The Late Western Roman Empire can be viewed as a system that retained sufficient resources to stage signals of continuity and power that had lost all connections to the real world beyond Imperial enclaves.

But this expenditure of scarce resources on signaling is self-liquidating: the costs of issuing symbolic representations of power consumes the resources needed to sustain the system's core structures, which then collapse even as the signals continue engaging us.

In summary: the post-truth / post-trust world is self-liquidating, as its synthetic claims of connection to the real world are fake, and the hollowness of its self-referential nature and its rampant overuse exhausts the dopamine cascades' effectiveness. Drained of authentic cognition and emotion by the ceaseless onslaught of synthetic digital signaling, our engagement withers. We lose interest, become detached, unresponsive, or hyper-aggressive, in either case stripped of the capacity for independent thought or action, just like the mice trapped in Mouse Utopia.

A system that comes to depend on synthetic signaling for its "information" is doomed to Model Collapse, as its signaling has completely detached from the real world.

New Podcast: Self-Liquidating Systems, Parallel Worlds, and AI Doesn't Live In A Moral Universe (Leafbox)
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Oil, Inflation and Recession

2026-04-06T11:29:00.000-07:00
It's not the price of oil per se that triggers recession, it's the underlying vulnerabilities that have been cloaked with happy story narratives to keep the game going.

Recessions don't require a spike in the price of oil/gasoline, but spikes in energy prices trigger recessions. This makes sense, as hydrocarbons are the foundation of every industry, from the so-called "green" industries to all the high-tech industries (SpaceX, AI data centers etc.) to transport, plastics and everything else.

Recessions have other causes, of course: the business cycle of over-indebtedness and speculative excesses leading to defaults and the contraction of credit and spending, the collapse of speculative asset bubbles, the inflationary spiral of overborrowing to fund "guns and butter," and disruptive events such as plagues and wars.

Inflation reduces discretionary income as a larger share of earnings must be devoted to essentials. In a consumer economy, this reduction of discretionary income leads to households borrowing more to fill the widening gap between what they reckon is their rightful lifestyle and the purchasing power of their earnings.

This increase in debt leads to a higher percentage of net earnings being devoted to interest and principal, further reducing discretionary income. The eventual retrenchment--reducing debt by reducing spending and default--leads to a contraction in consumption, i.e. recession.

Recessions occur when a happy story about the economy that doesn't reflect reality encounters reality. Before recessions, the happy story is always the same: corporate profits are solid and rising, consumer spending is rock-solid, employment is strong, unemployment is low, the household balance sheet is healthy, technology is increasing productivity, and so on.

According to the happy story, a recession is impossible, so borrow and buy, buy, buy--stocks, houses, experiences, cruises, buy it all because the good times are permanent.

The vulnerabilities generated by over-reliance on borrowing to fund spending and the corrosive effects of inflation are buried beneath statistical trickery: add all the wealthy households to the mix and then take the average, and voila: look how rich the average household is. All is well, borrow and buy to your heart's content. Mix in hedonic adjustments and pixie-dust and voila, 8% inflation is magically reduced to 2.5%.

The suspension of disbelief / confidence is the magic of the happy story narrative. As long as people are complacent and confident, they act on the belief that their income and wealth will continue rising, enabling more borrowing and spending.

That this is not necessarily in their best interests in the long term is what must be hidden, lest they curtail borrowing and spending because the whole point of the economy is to maximize profits and this is only possible if people who don't earn enough money to spend freely borrow to spend freely.

This is where the other magic in the happy story becomes essential: the wealth effect generated by credit-asset bubbles. If people see their house and stock portfolios rising in value, they feel wealthier and are more confident in borrowing and spending because they have this wealth piling up in the background.

It's like a savings account that increases without the sacrifice of deferring consumption: in credit-asset bubbles, we get to have our cake and eat it, too.

The problem that must be hidden by the happy story is that excessive debt and speculation are self-liquidating: the machinery that makes them work self-destructs by its very nature. Debt accrues interest which reduces discretionary income which sets up contraction of credit and consumption, and all credit-asset bubbles pop, regardless of the intensity of the propaganda / happy story that this isn't a bubble, it's "capitalism" or "technology" or "animal spirits."

It's not a specific price point or metric that causes recession: it's the decay of confidence and discretionary income that leads to recession. Confidence is fragile by its very nature. We've been selected to be wary of surplus suddenly becoming scarcity, and rising prices of energy cascading through the entire economy activates a reappraisal of our complacent confidence.

Every business is hammered by rising costs for literally everything they buy to operate, and since the discretionary income of the bottom 80% is already under pressure, they can't raise prices much without losing sales.

Households feel the pinch of rising utilities and fuel immediately, and for both enterprises and households, confidence in the future is at risk of eroding like a sand castle in a rising tide.

Here is a chart of the average price of gasoline in the US from 1976 to February 2026. I've added the recent spike to the current average price of $4.11 / gallon. Interestingly, this is pretty close to the inflation-adjusted price of gasoline in the 1973-74 Gas Crisis, and the nominal price in July 2008. Adjusted for inflation, $4.11 in July 2008 is $6.11 in today's dollars.

The point I want to make here is that there is no price trigger for recession, as it depends on the underlying fragilities and vulnerabilities of the economy. Put another way, it depends on the width of the gap between the happy story narrative intended to keep confidence and complacency high and the realities of higher costs and rising debt service reducing discretionary income.

Credit-asset bubbles pop for many reasons, but what we experience is a collapse of confidence that the bubble will continue inflating, making us richer every day, in every way. The core fragility of today's economy is the expansion of consumption now depends on the spending of the top 10%, who just so happen to own the lion's share of income-producing assets such as real estate, stocks, corporate bonds and enterprises.

Once the Everything Bubble pops, the confidence of the top earners and spenders will collapse, leading to a decline in their borrowing and spending.

Oil doesn't need to hit $147/barrel and gasoline doesn't need to reach $6/gallon to trigger a recession. (Gasoline is over $6/gallon in California and over $5/gallon in states with high fuel taxes.) There is no specific price-point, any more than there is some specific metric that enables us to predict an avalanche. It all depends on the underlying vulnerabilities and excesses of the economy at that moment in time.

When he's confident, Wile can walk on air. It's when he suddenly discerns reality that his confidence vanishes. Recessions always catch conventional economists by surprise because the collapse of confidence triggers a sudden rise in unemployment and defaults and a sharp decline of credit and spending.

It's not the price of oil per se that causes a recession, it's the underlying vulnerabilities that have been cloaked with happy story narratives to keep the game going.

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The Inevitability of the AI Depression

2026-04-03T12:20:00.000-07:00
The collision of hype and euphoric hallucinations with the real world will manifest across the entire socio-economic-political-legal spectrum.

The conventional narrative views AI dominance as inevitable. What's actually inevitable is the AI Depression, the economic fallout of unrealistic but oh-so-profitable hype, malinvestment, unprecedented legal liabilities and the second-order effects of AI replacing workers while generating dysfunction in core systems.

Correspondent SValleyBoy responded to my post The AI Depression, (3/24/26) with these comments:

"Totally agree. I am not a luddite by any stretch of the imagination AND indeed have built two companies that have 2-3X the productivity of VLSI designers AND biology experts.

Most productivity TOOLS over the last 30 years have put humans in the driver seat and allowed them to create more 'stuff' faster. SW (software) to automate the design of chips allowed designers to focus on architectural and coding design rather than manually connecting lego blocks and having to change it manually every time a process change happened. They could therefore design more chips.

Railroads took workers/humans to other geographies where they could produce more things thus enabling the economy to grow. Electricity did the same, it allowed humans to work easier irrespective of the Sun being up and do more motors to help humans do things faster, same with communication devices. TV/Media arguably spawned an entertainment industry which went hand in hand with workers who were engaged in the transportation industry, making-buying cars. Railroads/Cars displaced horses/local ships.

AI-ML (machine learning)is very different because it can/will dis/replace the bottom 10-25% of knowledge focused service workers. i.e., phone support across industries. 24 million workers in the US in these industries. if you displace 1 in 4 that is 6*10**6 * 50*10**3 = 300 * 10**9 = $300 Billion of earned income gone.

AI-ML in terms of coding will enable older programmers to easily create simpler code which earlier would have been coded by newer, fresh grads without sucking the time of the experienced programmers who were working on more senior projects. It is not really getting to help the creation of more products because if Humans are the consumers of products there is some rate at which they can adopt newer products. Shorter product lives also means that there is less you can charge and less profit to make and fewer people to buy/spend.

Money going to corporations means it is now funneled to shareholders so in effect the money in circulation will drop and thats not good for the economy. More money to shareholders means less money in circulation and more misallocation of investments, more chasing of the same investment because the wealth owning class have very similar backgrounds and very tight networks.

Do a little bit more of this across other industries and you are really putting $1 Trillion in earned income that is circulating at speed out of the picture, no bueno. If you reduce the velocity of money you will reduce the economy as a multiple of the income that you are subsuming. All in all, this is not sustainable and definitely not one in which private corporations can own the AI-ML utilities that can/should be used by everyone.

These utilities should be thought of as Libraries which held the knowledge of the world and were accessible by everyone, not just people who could afford books. Imagine the world if there were no libraries and only people with money could afford to gain knowledge."

Thank you, SValleyBoy, for the insightful overview. The key takeaways here in my view are:

1. There are limits on what functions can be wholly replaced by AI.

2. SValleyBoy raises the key question few ask: should these utilities be viewed not merely as private property, i.e. shares of stocks of a tiny handful of private corporations, or should they be available to all as a library of knowledge like public libraries of books, music and video recordings?

3. The channeling of earned income from the workforce to the investor class will simply accelerate the trend of the past 50 years of income being diverted from the workforce (labor) to the investor class (capital), which is highly asymmetric in distribution, as the top 0.1% own the lion's share of this wealth and the rest is distributed in descending quantities to the top 10%.

Here we see the percentage of the economy going to labor is in a long-term slide--a slide that AI will accelerate as it replaces the lower tranche of cognitive labor employees.

Here is the distribution of net personal wealth: the top 1%'s share has skyrocketed, the top 10% (dominated by the top 0.1% and the top 1%) has gained ground while the bottom 90% has lost ground.

Here's a chart of financial assets held by the top 1% (up 42%), the next 9% (90% to 99%, down 3%) and the bottom 50% (down 28%)

Beneath the self-serving hype, the limits and perverse consequences of AI are being elucidated in studies. Consider the implications of this selection of recent papers:

Agents of Chaos
Focusing on failures emerging from the integration of language models with autonomy, tool use, and multi-party communication, we document eleven representative case studies. Observed behaviors include unauthorized compliance with non-owners, disclosure of sensitive information, execution of destructive system-level actions, denial-of-service conditions, uncontrolled resource consumption, identity spoofing vulnerabilities, cross-agent propagation of unsafe practices, and partial system takeover. In several cases, agents reported task completion while the underlying system state contradicted those reports. We also report on some of the failed attempts. Our findings establish the existence of security-, privacy-, and governance-relevant vulnerabilities in realistic deployment settings. These behaviors raise unresolved questions regarding accountability, delegated authority, and responsibility for downstream harms, and warrant urgent attention from legal scholars, policymakers, and researchers across disciplines.

AI, Human Cognition and Knowledge Collapse (economics.mit.edu)

Social media is harming adolescents at a scale large enough to cause changes at the population level

Sycophantic AI decreases prosocial intentions and promotes dependence

Who's in charge? Disempowerment patterns in real-world LLM usage

Marriage over, 100,000 down the drain: the AI users whose lives were wrecked by delusion

Artificial Intelligence, Real Misallocation

A deepfake can ruin you before breakfast: Digital forensics pioneer Hany Farid explains what it will take to rebuild trust in the deepfake era.

ARC-AGI-3: A New Challenge for Frontier Agentic Intelligence (via Tom D.)
Like its predecessors ARC-AGI-1 and 2, ARC-AGI-3 focuses entirely on evaluating fluid adaptive efficiency on novel tasks, while avoiding language and external knowledge. Our testing shows humans can solve 100% of the environments, in contrast to frontier AI systems which, as of March 2026, score below 1%.

To summarize: No AGI (Artificial General Intelligence) for you, Big Tech.

The collision of hype and euphoric hallucinations with the real world will manifest across the entire socio-economic-political-legal spectrum. All new technologies go through this cycle of extremes of hype, greed and claims of inevitability substituting for financial realities leading to a crash of extreme overvaluations.

What's different this time is our economy is larded with cognitive-labor busy-work that isn't actually productive, and this is the tranche of workers that AI can replace because this work can largely be automated as it's process-based rather than results-based. That's a critical distinction that's lost in all the hype.

What we get when we add these up--the limits of AI, extremes of hype and malinvestment, a bubble of overvaluation that bursts, extremely asymmetric distributions of wealth and income and the replacement of workers who cannot be redeployed in a shrinking economy--is a Depression, not a recession.

As I've repeatedly noted here, when tools become commoditized, their profitability vanishes, and if there's one thing that's inevitable about AI, it's the commodification of every AI utility. AI will not be profitable, it will be just another expense, one with legal liabilities that have yet to be defined.

And if we ask AI to resolve this for us, we run into the intrinsic limits of all AI models:

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Disney World's New Theme Park: The White House and Congress

2026-04-01T11:39:00.000-07:00
A "Pirates of the Caribbean" themed experience is planned, where the taxpayers are repeatedly robbed by a motley crew of miscreants.

In a blockbuster deal, an obscure federal agency has granted Disney the rights to develop the White House and Congress as a new FantasyLand Theme Park. "In an effort to reduce the federal deficit, we've created a new federal income stream by granting Disney the rights to monetize the daily activities of The White House and Congress as a unique theme park."

A spokesperson for the deal explained, "Since much of this activity is already theater, it's a very easy transition." What's new is the theme park will offer public access and participation in activities that were previously conducted behind closed doors.

The plan calls for a variety of interactive experiences visitors can choose, much like rides in Disney World. Initial plans include:

1. A warehouse filled with $1 trillion in fake cash so visitors can revel in just how much money the federal government spends annually on interest on its debt, and an even larger warehouse containing $1.8 trillion in fake cash--the sum the federal government borrows every year to fill the slop-troughs of special interests conducting business under the cover of "healthcare, education, defense/war" and keeping the stock market propped up.

"We'll have briefcases with $1 million in cash so people can feel how heavy it is," the spokesperson enthused, "and a stack of $1 billion in cash--one thousandth of $1 trillion."

2. Join congressional and White House staffers as they crank out social media posts and tweets that create the illusion that elected and appointed officials are serving the public interest. According to the press release, "Visitors will get to experience the melding of info-tainment, entertainment, virtue-signaling and fantasy in real time" as staffers cloak the actual self-dealing and auctioning of influence with narrative control.

3. The parallel universe of political theatrics and circus acts will be staged to be interactive, so visitors can be filmed as they pontificate, self-righteously virtue-signal and blatantly misrepresent reality. "The concept here is to include circus acts and song-and-dance routines in with the political circus."

4. Visitors will participate in the "sausage-making" of lobbyists writing congressional bills and regulations to serve the interests of their corporate clients while elected officials pocket the proceeds of political contributions and insider deals.

Visitors will get to apply these same tools of influence to their own finances, for example, crafting language that gives a tax break to "occupants of 123 Broad St" and adding regulations that limits competition to their own business.

5. A Pirates of the Caribbean themed experience is planned, where the taxpayers are repeatedly robbed by a motley crew of miscreants representing Big Tech, Big Sickcare, Big Defense, Higher Education, Big Processed Food, etc., philanthro-capitalist foundations and NGOs, and assorted public officials masquerading as "the law."

"What's absolutely unique about this new theme park concept is the artificial realm will be more authentic and honest than Washington's phony show of serving the public while enriching themselves and their cronies," the spokesperson said, shortly before they were hurried off stage.

This is an April Fools post.

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The "Good News" Is Always the Same: the Stock Market Is Up--Until It Isn't

2026-03-30T12:30:00.000-07:00
Cloaking a fake "market" with artifice to maintain its asymmetrical distribution of wealth and income also cloaks its detachment from the real world.

I often refer to the dynamics of self-correction and self-liquidation. Systems that use feedback to rebalance extremes are self-correcting: rather than accelerate as they approach a cliff, they slow down and reorganize to avoid runaway self-reinforcing feedback (i.e. positive feedback), a.k.a. run to failure.

Some things are self-liquidating by design. A mortgage, for example, is intended to be self-liquidating: the monthly payments reduce and eventually extinguish the debt.

Other systems become self-liquidating when artifice becomes the "solution" for those seeking to lock the system down to maintain their share of the spoils. This is the inevitable consequence when a culture veers into the black-hole spiral of moral decay, where integrity is dissolved by maximizing self-interest by any means available.

Responding to real-world feedback threatens to reduce insiders' share of the spoils, and to make sure this doesn't happen, insiders steer the system away from the real world, creating an artificial, synthetic representation of the system that relies not on real-world feedback but on signals and symbolism that can be engineered to serve the interests of those holding the levers of power and influence.

To those benefiting from a system, corrective feedback is anathema because it reduces their share of the spoils. The "solution" is various forms of artifice that maintain the illusion that the system is stable and responsive to the interests of all, when in fact it's been locked in a configuration that benefits the few at the expense of the many.

Self-serving artifice comes in many forms: the gaming of statistics to put lipstick on the real-world pig, the TACO Trade--announce some fabrication as a pending agreement with magical powers, virtue-signaling legislation that changes nothing in how the spoils are being distributed, grandiose claims of technological innovations--innovations that just happen to be owned by a handful of corporations--that will benefit everyone, and so on.

This substitution of artifice for authenticity relies heavily on signals and symbolism. Rather than attempt to manipulate all the complexities of the real-world economy, the stock market is now the signal for the entire economy: if stocks are going up, the economy is good.

This elevation of the stock market as the one true indicator rests on an entire universe of symbolic meanings and mythologies. The stock market is the invisible hand, the magic mechanism of price discovery, the engine of growth that rewards innovation and ingenuity while enriching us all with fabulous new technologies, the perpetual-motion device that makes America the greatest generator of prosperity in history, and so on.

Like all good cons, there is some truth buried beneath the hype. An unmanipulated market does indeed have the potential to reward innovation and ingenuity and generate widespread prosperity.

But the whole point of these mythologies is to cloak a manipulated market in the finery of an authentic market. This bewitchment is akin to the Emperor's New Clothes: a fabrication, a tale, that takes on a life of its own as a mass delusion.

Cloaking a fake "market" with artifice to maintain its asymmetrical distribution of wealth and income also cloaks its detachment from the real world. This is how systems veer into Model Collapse and self-liquidation: the artificial representations, the reliance on easily faked signals and euphoria-inducing mythologies collapse once they collide with reality.

Which brings us to the present, where the stock market has become the economy, the driver of wealth and prosperity as the top 10% who own the majority of stocks can spend freely enough to employ the bottom 90% and pay the taxes needed to fund an out-of-control state sector that lavishes subsidies on every class to stave off a reckoning.

Here is reality: all credit-asset bubbles are inherently unstable and so they pop. While the timing isn't predictable, the collapse of what is intrinsically self-liquidating is entirely predictable.

Here is the Emperor's New Clothing version of mass delusion: the Everything Bubble is permanent and will never pop, and if it does, some agency with god-like powers will rush to the rescue.

But self-liquidating systems are not permanent. Their internal dynamics guarantee the end-game is extinguishment. Here is a projection of the Everything Bubble based on bubble symmetry and scale invariance: what goes up will come down on a similar trajectory.

That the Emperor is buck-naked should not surprise us, but awakening from mass delusion is by its very nature a stunning surprise.

These dynamics are drawn from my Revolution Trilogy.

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Is a "Democracy" That's For Sale Still a Democracy? No, It's an Oligarchy

2026-03-27T12:21:00.000-07:00
To claim that jostling for the biggest share of federal power and largesse--in a word, greed--magically serves the common good is a convenient cover for an oligarchy masquerading as a "democracy."

Is a "democracy" that's for sale still a democracy, or is it something else? The question arises from the nature of our political system, whatever you wish to call it: it is an auction for political favors / influence in which the highest bidder wins--as in any auction.

"The will of the people" is a useful artifice. Those who collect the largest war chests of cash win elections because they buy visibility via marketing and adverts--just like selling detergent or "the latest innovation."

The belief at the bottom of this debased version of "democracy" is that everyone scrambling to maximize their own interests in a free-for-all of advocacy magically generates policies that serve the common good. In other words, if everyone jostling for power gets their slice of federal largesse, then that is identical to serving the common good.

But this is false: a state that is nothing more than a highest-bidder-wins distributor of subsidies and favors cannot possibly serve the common good, as the common good is not just the sum total of private interests. President Jimmy Carter described this succinctly: "The national interest is not always the sum of our single or special interests. We must not forget that the common good is our common interest and our individual responsibility."

We have become accustomed to thinking of "democracy" as nothing more than self-interested hogs jostling at the feeding trough of federal favors and largesse. In an oligarchy masquerading as a "democracy," this distribution reflects 1) the need to avoid inequalities extreme enough to trigger revolt and 2) the need to cloak the fact that the vast majority of political influence is "owned" (bought and paid for) by the top 0.1%.

So the bottom 40% get their share of subsidies, the middle class gets its share of subsidies, the top 10% get their share of subsidies and then the top 0.1% retain the real power and wealth to serve their own interests.

In a functional democracy--as opposed to a hogs-at-the-trough auction of favors--the social order is an interconnected ecosystem of: 1) the social contract, 2) civic virtue, 3) shared purpose, 4) shared sacrifice, 5) moral legitimacy, 6) social trust, 7) membership, and 8) social cohesion, the glue that binds society in times of hardship or crisis. Absent social cohesion, society disintegrates.

The social contract is the set of implicit expectations and obligations people consider their birthright. Civic virtues are the set of standards that serve both private interests and the common good: agency, accountability, integrity, transparency, civic duty, honor, and simplicity, which includes being disciplined, generous, forthright and frugal.

Shared purpose includes national purpose. Pursuing shared purpose demands sacrifice and the sublimation of private gain.

Shared sacrifice is the distribution of necessary sacrifices across the entire spectrum of the social order, from the highest to the humblest. To contribute is to be valued, and this is the core of social cohesion.

Moral legitimacy is akin to what the Chinese call the Mandate of Heaven: Heaven and Earth are bound in a moral universe, and when society's leaders forfeit civic virtues in favor of debauchery and private gain, moral legitimacy dissolves and the Mandate of Heaven is lost.

Social Trust is the sum of individuals' trust in institutions and fellow citizens to follow the social norms. When institutions fail to serve the populace by becoming sandboxes of privilege and self-service, social trust erodes.

Membership is the genetically coded glue of social cohesion. When our contribution is valued, we're valued, and contributing to shared interests qualifies us for membership. Having our membership revoked--being shunned or cast out--is a painful punishment.

Social cohesion is the sum of all these binding forces, the sense that contributing and belonging are worth the effort and sacrifice. If the lower classes are being sacrificed to maximize the private gains of the upper class, social cohesion is lost.

The debauched, debased system we inhabit is no longer able to serve common interests or the common good. It is a dysfunctional simulation of a true democracy which must directly serve common interests by sublimating private gain to the common good.

To claim that jostling for the biggest share of federal power and largesse--in a word, greed--magically serves the common good is a convenient cover for an oligarchy masquerading as a "democracy" because the peasants get to vote on which branch of the self-serving elites had the most effective ad campaign this time around.

This artifice eventually wears thin because the glorification of self-interest erodes social cohesion and moral legitimacy. The awakening from our greed-induced trance will be, well, as interesting as it is inevitable.

This essay was drawn from my book Investing In Revolution.

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The Illusion of the Shortcut (Self-Employment Series)

2026-03-25T10:21:05.363-07:00
Skills that require time--working with people, building trust, forming relationships, navigating attraction and rejection--do not respond to shortcuts.

This is a guest essay by longtime correspondent 0bserver, part of our Self-Employment Series.

Moral drift has economic consequences.

Shortcuts promise speed. They offer a way around delay, repetition, and uncertainty. They suggest that progress can be compressed, that leverage can substitute for time, and that outcomes can be separated from the slow accumulation of effort.

Shortcuts become attractive when continuity stops paying. When work no longer feels reliably connected to advancement, patience begins to look like stagnation rather than discipline. In that environment, waiting feels risky, and movement of any kind begins to feel preferable to standing still.

The shortcut does not present itself as irresponsibility. It presents itself as efficiency. It offers the appearance of agency where agency feels constrained.

That is why it attracts otherwise rational people.

Production and speculation operate on different logics. Production requires time. It depends on repetition, skill, and contact with reality. Progress is slow and often uneven. Returns compound quietly, and failure teaches specific lessons. The relationship between effort and outcome is imperfect, but it exists.

Speculation severs that relationship.

Speculation replaces skill with exposure and patience with timing. Outcomes depend less on what someone builds and more on when they enter or exit. Success feels sudden. Failure feels arbitrary. The connection between cause and effect becomes difficult to trace.

This is not a moral distinction. It is a structural one.

Production builds position.

Speculation chases movement.

Gambling platforms and crypto markets spread not because people suddenly become reckless, but because conditions change.

When wages stagnate, costs rise, and ownership feels distant, slow paths stop feeling viable. When stability requires endurance but offers little visible progress, volatility begins to look like opportunity rather than risk.

In that context, speculation feels rational.

The logic is simple: if the expected outcome of patience feels indistinguishable from falling behind, risk begins to feel justified.

The shortcut does not emerge from excess. It emerges from constraint.

Shortcuts flourish when people sense that the underlying game is no longer fair.

Rules change midstream. Advantages concentrate upstream. Access matters more than effort. Capital compounds faster than labor. Those closest to information and liquidity operate on a different plane than those trading time for wages.

In that environment, playing by the rules feels less like discipline and more like submission. The shortcut appears not as recklessness, but as adaptation.

Many participants are not trying to cheat the system. They are responding to conditions that make patience feel indistinguishable from falling behind. When effort no longer appears to compound and stability feels increasingly out of reach, exposure begins to look like the only remaining form of agency.

When the game feels rigged, refusing to play feels naive. Trying to jump the board feels pragmatic.

Even in a rigged game, shortcuts do not restore agency.

They offer the illusion of control while deepening dependence on systems designed to extract. The odds favor platforms, intermediaries, and insiders. Wins are amplified. Losses are normalized. Participation itself becomes the product.

That shift has been accelerated by the design of modern trading platforms. Applications that once required specialized access now exist on a phone, presented with the same frictionless interface as social media or online shopping. Real-time price movements, instant execution, and gamified feedback loops turn speculation into a continuous activity rather than a deliberate decision. The barrier to entry disappears, but so does the sense that risk should require preparation, restraint, or distance.

For many, participation feels like the only available way to stay in motion.

The internet reinforces the belief that development itself can be skipped. Information is immediate, markets are accessible, and stories of sudden success circulate constantly. A small number of people do achieve large financial gains through leverage or timing. But gains in money do not substitute for development in other domains of life.

Skills that require time--working with people, building trust, forming relationships, navigating attraction and rejection--do not respond to shortcuts. When those forms of development are missing, sudden financial wins rarely provide the stability people imagined they would.

Most forms of real work require obedience to the field itself. The patterns are repetitive and often uneventful. Because this feels ordinary, people search for ways to make the moment matter. Attaching money to the outcome can create the feeling of victory, even when nothing durable has been built.

The emotional structure of speculation is uneven. Wins feel exciting but brief, while losses linger and accumulate. Over time the balance shifts. The quiet satisfaction that comes from long obedience to a field of work runs deeper than the temporary rush of a winning bet.

One of the quiet costs of shortcuts is the collapse of time. Long horizons require continuity. They assume tomorrow is connected to today, and that effort carries forward. Shortcuts compress that horizon until only the next move matters.

When time collapses, so does meaning. Craft becomes irrelevant. Reputation loses value. Continuity feels optional. Life becomes a sequence of bets rather than a direction.

This is not a failure of character. It is the predictable outcome of systems that reward speed while punishing patience.

Shortcuts do not solve stagnation. They adapt to it. But adaptation is not the same as stability. Stability requires accepting constraint, rebuilding continuity, and choosing forms of work where effort still attaches to reality, even if the returns arrive late.

That choice does not fix the game.

But it preserves something people eventually realize they needed more than the rush of a win.

Movement is not the same as progress.

This is a guest essay by longtime correspondent 0bserver.

My book Investing In Revolution is available at a 10% discount ($18 for the paperback, $24 for the hardcover and $8.95 for the ebook edition). Introduction (free)

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The AI Depression

2026-03-24T10:55:00.000-07:00
Either way AI goes--replacing human labor or failing to meet today's lofty expectations--the result is the same: an economic Depression.

Either way AI goes--replacing human labor en masse, or failing to meet today's lofty expectations--the result is the same: an economic Depression with no way out.

In effect, AI is self-liquidating: if it follows the projections of its most ardent promoters and replaces most human workers, it collapses the economy and society, and if it underperforms, it's an enormous waste of capital and resources that sinks the economy into Depression.

Let's break down each pathway to Depression.

To its promoters, AI is unstoppable and will generate super-abundance in whatever it creates for near-zero cost, and this abundance will effortlessly be shared with everyone because AI is super-productive.

Here is an example of this projection:

The Displacement of Cognitive Labor and What Comes After.

Ai agents will replace cognitive (i.e. creative / white-collar) labor, and AI-powered robots will replace manual labor, freeing humanity to find meaning not in work but other activities that replace work as the source of meaning.

What's striking about this projection is it doesn't mention the physical-world constraints of Growth At Any Cost / Waste Is Growth such as energy, fresh water, fertile soil, etc. We are left presuming AI will magically eliminate all such material constraints by means unknown but guaranteed to manifest because AI can solve anything--we're constantly assured it's already a super-intelligence.

This is the magical thinking at the heart of The Mythology of Progress: that all new technology is always positive, and every physical limit can be overcome by innovation / ingenuity, the only impediment to super-abundance is the naysayers.

The essay also doesn't present a plausible source of the trillions of dollars needed to fund Universal Basic Income (UBI) for everyone who no longer earns a living from work.

The common assumption here is that AI's productivity will automatically be profitable: since AI can grow all the food, it will be cheap. But if there is insufficient water and the soil has been depleted, AI will grow no more food than humans because the constraints are physical, not cognitive.

As for profitability, consider this comprehensive overview of the rapid advances in robotics / AI in China:

Inside China's robotics revolution: How close are we to the sci-fi vision of autonomous humanoid robots? I visited 11 companies in five Chinese cities to find out.

"As government subsidies flood the robotics sector, Chen and his peers are bracing for the usual pattern: price wars and cost cutting maneuvers that leave companies barely able to turn a profit."

In other words, as private capital and state funding pour money, resources and talent into the hot new sector, profitability vanishes: there's an oversupply of everything and a customer base that's too narrow to generate demand enormous enough to absorb all the products at prices that generate profits.

The idea that AI will generate trillions in "free wealth" that can then be distributed to the hundreds of millions of displaced workers in sufficient sums to enable a vast free-spending consumer class is not just unrealistic--it's a pipe dream.

Put another way: if displaced workers are getting barebones Universal Basic Income or equivalent--subsidized energy and food, etc.--then the number of people who will be able to buy a robot-assembled new vehicle or a household robot-servant will be far too limited to support a scale of production that offers economies of scale.

This is the Henry Ford insight: if workers (or displaced workers) have minimal incomes, they can't afford the products capitalism is producing.

Karl Marx viewed these dynamics--declining profits as capital expands and seeks a return while immiserating the workforce to reduce costs, reducing demand for expanding production--as self-liquidating: capitalism's core gearing collapses capitalist economies. It is ironic that Marx's description may finally reach fruition in the end-game of AI.

Another element that the AI promoters never dare mention is much of the "cognitive work" AI will do is what David Graeber memorably called BS Work--tasks without any real productive value, busy-work demanded by unproductive, complex organizations that reached this level of dysfunction as their initial modest cost structure transmogrified into bloated, extractive fiefdoms (higher education, healthcare, defense, etc.) whose share of the economy has soared as administrative costs (i.e. BS Work) generate make-work.

Consider this chart of healthcare employment (via J.F. MD). As Healthcare's share of the economy has soared from 5% to nearly 20%, the quantity of BS Work (administrative tasks) and the workforce to perform this work have also soared. (The chart of professors and university administrators is a close match for this: flatlined number of professors, monumental increases in administrative staff.)

Now the proponents of AI are salivating at the prospect of charging the same absurdly high fees while eliminating all those high-cost human physicians and technicians.

What about the immense bloat of administration? Of course AI will replace all those workers, too, and once again, the goal here isn't to reduce fees by 80% by replacing the current bloated, profiteering, complex system with a system that doesn't generate administrative BS Work; the goal is to eliminate 80% of the labor costs but keep charging the same high fees to boost the profits of the owners of the Healthcare industry, which I call Sickcare because it profits from illness and monopoly, not from health.

This is why AI is self-liquidating: the goal isn't to replace the dysfunctional, extractive monopoly-cartel structure of the economy: the goal is to maintain this structure as-is and increase its profitability by eliminating costly human labor.

The owners of AI tools are planning to reap billions in profit by selling their tools to corporations and governments intent on keeping the status quo asymmetries not just intact, but more profitable.

AI is the contrivance that the most grotesquely self-serving parts of our system are attracted to, as they want the immense profits to be reaped by reducing the bothersome expense of human workers.

There's another fundamental problem with the AI will deliver super-abundance to us all fantasy.

Despite enormous investment of capital and ingenuity, energy and materials that were once cheap (as measured by EROEI--energy return on energy invested) have become more expensive (as measured by EROEI) as the cheap-to-extract deposits have been depleted.

The Fracking Miracle is exhibit #1: even industry insiders are admitting that the limits of physics, chemistry and cost are weighing on fracking output. Like Nature, ingenuity and technology also have limits.

If engineering and materials had no limits, airliners would be flying 1,000 kilometers on a liter of fuel. The reality is advances are incremental and returns diminish.

Also unmentioned by the enthusiasts is the fact that AI itself has costs that can't fall to near-zero. So the idea that AI will magically generate near-zero cost goodies for everyone is fundamentally disconnected from reality.'

Boosting a thousand--oh, heck, make it a hundred thousand--data centers into orbit is inherently costly, even with reusable rockets.

As noted previously, an oversupply of robots and AI means profitability is near-zero, so where is the financial justification for the thousand orbiting data centers, or their replacements?

The last Great Myth of Progress that is dismissed with a wave of the "ingenuity" hand is the belief--or if you prefer, faith--that every technological revolution inevitably generates more and better jobs, as this is The Nature of Technological Revolutions.

This belief rests on recency bias: due to humanity's rapid exploitation of hydrocarbons and easy-to-extract minerals, human labor was replaced by energy slaves. The discovery of ever more deposits of hydrocarbons and minerals created a belief that resources are essentially limitless, if we just dig / drill deeper, build floating platforms at sea, etc. That all these "solutions" carry enormous costs is not mentioned, as "money" is abundant because we can create as much as we need.

It is not a Law of Nature that technology automatically creates more and better jobs. As agricultural labor was replaced by machines, the workforce was repurposed to operate machines in factories running on cheap hydrocarbons, and as more sophisticated machinery replaced human labor on assembly lines, the administrative, marketing, service, etc. industries trained workers to toil in cubicles--cognitive labor.

There is no industry that needs humans on the same scale as those being replaced by AI. "High touch" labor--waiters, caregivers, violin instructors--will all be replaced by robots / AI, too.

An elite may have the wealth to hire a human as a status signifier, but since the majority will be scraping by on UBI, the wealth needed to hire humans will be limited to an elite--an Tech-Financier oligarchy or nobility.

This pathway to Depression can be summarized as: AI is the last great hope of a system that's in the process of self-liquidating due to its disconnect from the reality that the physical and financial worlds have inherent limits that preclude infinite growth of consumption of material goods paid for with "money" borrowed into existence.

If AI fails to "save the system" by replacing workers and generating the vast wealth needed to support all the displaced workers, the system fails faster than it otherwise would have due to the staggering sum of capital and resources squandered on the chimerical AI Will Not Just Save Us, It Will Make Us All Rich techno-fantasy.

This alternative pathway to Depression is that AI underperforms due to intrinsic limits of its models. I mentioned six such factors in Why AI Malware (and Harmful Second Order Effects) Are Out of Control.

Here are two more of note:

Agents of Chaos
"Focusing on failures emerging from the integration of language models with autonomy, tool use, and multi-party communication, we document eleven representative case studies. Observed behaviors include unauthorized compliance with non-owners, disclosure of sensitive information, execution of destructive system-level actions, denial-of-service conditions, uncontrolled resource consumption, identity spoofing vulnerabilities, cross-agent propagation of unsafe practices, and partial system takeover. In several cases, agents reported task completion while the underlying system state contradicted those reports. We also report on some of the failed attempts. Our findings establish the existence of security-, privacy-, and governance-relevant vulnerabilities in realistic deployment settings. These behaviors raise unresolved questions regarding accountability, delegated authority, and responsibility for downstream harms, and warrant urgent attention from legal scholars, policymakers, and researchers across disciplines."

AI, Human Cognition and Knowledge Collapse.

The idea here--presented by many others in similar forms--is that AI is only useful to those who have the means to put its output in proper context. This requires experiential (i.e. tacit) knowledge and a comprehensive understanding of the field of inquiry.

Those with little experiential knowledge and only a shallow grasp of the field accept AI as "the truth" because AI mimics understanding so fluidly. This fluidity replaces human learning from experience, and the net result is ignorance masquerading as knowledge becomes the norm.

When the system is challenged by novel crises / asymmetries, AI reveals its core flaw--it's untrustworthy--and the system collapses.

I want to stress that the idea here isn't that AI has no utility; the idea here is the utility (i.e. real Progress) comes with built-in limits and downsides (Anti-Progress) that cannot be eradicated with coding tweaks. The evidence is mounting that much of AI is automated Ultra-Processed Cognition that many people feel obligated to enthuse about lest they appear out of step with the In Crowd which harvests status by being an Early Adopter of The Latest Tech Thing.

Hundreds of billions of dollars are being sunk into AI with increasingly short half-lives as everyone races to replace the Latest Iteration. What is glaringly obvious but too disruptive to admit openly is there are few realistic prospects for profitability. Much of the funding comes from what my colleague Tim Morgan (Surplus Energy Economics) calls the 'ads and algorithms' business model--reaping enormous profits from selling marketing and engineering algorithms to be addictive and extractive ("dynamic pricing", etc.).

Marketing and algorithms can only generate massive profits in a free-spending consumer economy that depends on ever-expanding debt-fueled spending and ever-expanding resource extraction: we need more jet fuel to expand leisure travel, and more lithium and other minerals to power electric aircraft, flying cars, etc.

That this free-spending consumer economy is also self-liquidating is taboo: growth at any cost demands debt expands fast enough to fund the Waste Is Growth Landfill Economy, which itself demands ever more resources to be squandered and tossed in the landfill (i.e. "consumed"). Here is "growth" in action:

Here is an artificial mountain of Waste Is Growth consumption:

Abundant credit generates credit-asset bubbles that pop with devastating consequences, and squandering resources on the belief that ingenuity and AI will magically replace easy-to-extract resources with hard-to-get resources at the same cost and rate of expansion leads to higher costs and scarcities that eventually limit the "growth" the system needs to avoid collapse.

Both pathways rest on the quicksand of moral decay: per Adam Smith, capitalism only functions as the idealists believe--allocating capital and resources with unmatched efficiency--if there is a culture and social structure that imposes a moral order on how private gains are amassed.

In the present era of moral collapse, the ideal way to amass private gains is by establishing a monopoly or cartel that fixes prices and buys political protection in a thoroughly corrupted political system: "democracy" as an open auction for political favors.

AI fits seamlessly into this extractive, self-liquidating system: AI will boost profits by replacing costly human labor. The owners of AI and the owners of sectors that buy AI will profit immensely. That's all we need to know about it.

No one claims AI will fix the moral rot that is as self-liquidating as Waste Is Growth consumerism, credit-asset bubbles and AI. AI is just a tool the monopolies and cartels are seeking to control and profit from--in effect, automating moral decay.

If AI fails to be profitable, then the hundreds of billions will wash away as mal-investments that cannot be replaced with new capital. That failure will generate a different flavor of Depression, one accelerated by the self-liquidating collapse of credit-asset bubbles and the Waste Is Growth consumption that depended on those bubbles expanding forever.

AI automates Ultra-Processed Cognition and moral decay. Narrative control--AI is going to make us all rich!--doesn't change the self-liquidating nature of the system and its supposed savior, AI.

My book Investing In Revolution is available at a 10% discount ($18 for the paperback, $24 for the hardcover and $8.95 for the ebook edition). Introduction (free)

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Risk and Privilege

2026-03-23T10:54:08.045-07:00
As systemic risks rise, what matters is the thickness of one's buffers against bad things happening. Those with wealth, power and privilege have sea walls, the rest of us have crumbling sand castles.

Risk and Privilege are intertwined in ways that define our lives and the system we inhabit. Privilege boils down to being buffered from risk, and this is scale-invariant, meaning that it works in the same way from the individual to the nation-state: wealth and power serve to insulate us from risk. Those without wealth and power are fully exposed to risk.

Concrete examples illustrate this dynamic. A rich kid and a poor kid both get busted for possession of Schedule 1 drugs. The rich kid's parents hire a hot-shot attorney who opts for a trial by judge not a jury, as the judge's kids go to the same private school as the attorney's kids and the rich kid.

This defendant shouldn't have his productive life ruined by a youthful indiscretion, blah blah blah. The rich kid gets probation.

The overwhelmed public defender who has maybe ten minutes for the poor kid's case tells the poor kid, you're looking at a maximum of ten years, it's open and shut, what the prosecutor will accept is a plea bargain where you plead guilty to a lesser charge, they get the conviction and you'll be out in a year. The poor kid has no choice and takes the plea bargain. Now he's a felon, on a much different track into adulthood than the rich kid.

Same crime, same process, different outcome.

On the scale of mega-corporations, the same gearing operates. Having a "friendly" senator with seniority privileges who can insert a tax break designed solely to benefit one corporation into must-pass legislation is standard practice for companies that distribute millions of dollars in campaign contributions and lobbying fees. Smaller scale businesses have no equivalent access to government subsidies.

Same business sector, same system, different outcome.

Nation-states that have the privilege of "printing" money that others accept in payment have an unmatched buffer against risk because they can create financial buffers: if a bad thing happens, fresh money either makes it go away or mitigates the fallout.

On the largest scale--the entire socio-political-economic system--the buffers against risk have been transferred from the lower classes to the upper class, corporations and insiders, all of whom hold privileges enforced by the government.

Over the past 50+ years, the buffers against risk that were once part of the social contract for the bottom 90% have been chipped away or withdrawn. Affordable higher education: withdrawn, gone. Pensions above and beyond Social Security: withdrawn except for government employees. Affordable healthcare: withdrawn from all those who don't have a permanent high-level job in Corporate America (janitorial services, etc. are all contracted out to companies with near-zero benefits) or the government.

Now employment comes as a 1099--every worker is "self-employed" in the sense they have no pension or healthcare but they're paid as employees, not as self-employed workers who control what they charge and what work they do.

Many people are like me: we pay more in "self-employment" taxes (the 15.3% Social Security/Medicare tax) than we do in income tax as the burdens of pensions and healthcare have been shifted from employers to workers, either partially or totally.

The wealthy have privileges that are so ingrained we take them for granted. Tax rates for capital gains--the vast majority of which flow to the wealthiest few--are taxed at 20%, while 1099 workers pay 15.3% on every dollar up to $184,500 plus 22% for income over $48,475, a total of 37.3%.

Income from capital flows to those who own capital (stocks, bonds) and those who own and control capital (businesses).

This follows a power-law distribution: the vast majority of the income-producing wealth is held by top 10%, and most of that is held by the top 0.1%.

The point here isn't just the asymmetric distribution--it's the buffers against risk have been dismantled by government policies favoring those with the least exposure to risk. The percentage of the national output / economic activity that is distributed to wage earners has been declining for decades. The money and the privileges it buys have been diverted to benefit capital.

This is what's different now: apologists can claim that "the rich have always collected most of the income and owned most of the wealth," but that's not the point: the point is the buffers against risk have been dismantled as policy decisions that favored the already-wealthy and already-privileged who already had ample buffers against risk.

For the bottom 80%, the lifestyle you ordered is out of stock. For the top 10%, the serial credit-asset bubbles have fattened their wealth and income. Risk for them is now concentrated in The Everything Bubble: should it pop, their buffers will melt like sand castles in a rising tide of risk.

Those in the 81%-89% bracket reckon they're "almost rich" but this is aspirational delusion: the ladder up is missing rungs and the slide down is very slick indeed.

As systemic risks rise, what matters is the thickness of one's buffers against bad things happening. Those with wealth, power and privilege have sea walls, the rest of us have crumbling sand castles. It wasn't always this imbalanced and precarious, and that change will have consequences few anticipate and no one will fully control.

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