Two Americas are on display at the moment – the one that came close to defaulting on its debt because of the rise of right-wing extremism, and the other one that’s having a stockmarket boom because of artificial intelligence.
The other day the market value of AI chip maker Nvidia jumped $US190 billion to nearly $US1 trillion, the largest one-day increase in the value of any company in history.
That happened because the company announced a good profit – but more importantly, founder and CEO Jensen Huang lit a fire under the emerging AI bubble by predicting the world’s companies would “race to apply generative AI into every product, service and business process”.
Meanwhile, in Washington, at the same time that was happening on Wall Street, talks were dragging on between the Biden White House and the House Republicans over raising America’s bizarre debt ceiling.
They finally did a deal over the weekend that extends the ceiling for two years in return for caps on government spending, but it won’t necessarily get through Congress because the Republicans are expected to revolt, at least to some extent.
And in any case, it’s a temporary fix. The deep problems in American politics remain.
The ceiling was introduced in 1917 and has been raised about 90 times, usually without a problem – except recently when there’s a Democrat in the White House and Republicans in control of Congress and in a position to block it. Then it becomes one of many manifestations of America’s messed-up politics.
Each of these events – the AI bubble and the latest debt ceiling crisis – is the culmination of two parallel development streams lasting about 25 years that have come to define 21st-century America.
When then-speaker Newt Gingrich was leading government shutdowns in the mid-1990s by refusing to raise the debt ceiling while impeaching Bill Clinton, Amazon was going public (1997) and Sergey Brin and Larry Page were starting Google (1998).
Big Tech and the Tea Party
The Tea Party, the conservative ginger group that ended up taking over the Republican Party, was having its first meetings as ‘Citizens for a Sound Economy’ when Steve Jobs launched the iPhone in January 2007 and Mark Zuckerberg was starting Facebook. The official launch in 2009 of the Tea Party coincided with Microsoft’s launch of its Azure cloud computing platform, and Nvidia being named Company of the Year by Forbes magazine.
Donald Trump at first praised the Tea Party throughout his 2016 presidential campaign, and then, having won, he ate it.
America’s extreme conservative movement is now called MAGA (Make America Great Again) or Trumpism, take your pick, with Donald Trump firmly in charge.
Between 2009 and 2015, while Trump was muscling in on the Republican Party and preparing to run for president, the US tech index, the Nasdaq, quadrupled.
Between 2016 and early 2020, when he was president, it doubled. And then between March 2020, after the COVID crash, and the end of 2021, it doubled again.
The increase over 13 years, from the end of 2008 to December 2021, as politics in America descended into polarised chaos, was 11-fold, almost entirely because the so-called FAANG stocks – Facebook, Apple, Amazon, Netflix and Google (Nvidia had yet to join them).
Then, last year, the Federal Reserve started lifting interest rates and from January 1 to December 31, the Nasdaq fell 36 per cent. But even though interest rates didn’t stop rising this year, the Nasdaq is now up 25 per cent year to date, because the start of the artificial intelligence bubble has overwhelmed the impact of monetary policy on the stockmarket.
Is there a common thread in these parallel developments – the extreme remake of American conservativism, from Gingrich through the Tea Party and Trumpism/MAGA, and the creation of $US10 trillion of value in a handful of technology companies over the same period, starting with Jeff Bezos selling books online in 1994?
Yes, I think there is. It’s China.
China’s emergence as an industrial and military powerhouse coincides exactly with both.
The decline of US manufacturing
China has been making the iPhones and most of the technology that America has been inventing, and by providing the cheap labour that created Silicon Valley and filled WalMart’s shelves, China hollowed out American manufacturing and created the poverty and resentment that fed the Tea Party and then Trumpism.
And China is showing no signs of slowing down, unlike the creaking, quarrelling, unequal United States.
Although the AI frenzy on Nasdaq makes it seem otherwise, China is actually leading in AI, for an interesting, logical and frightening reason.
Harvard economics professor David Yang recently gave a talk in which he referred to the “outsized success” of China’s AI sector. As evidence, he cited a recent US government ranking of companies producing the most accurate facial recognition technology. The top five were all Chinese companies.
It’s because China is an autocracy, he said: “Autocratic governments would like to be able to predict the whereabouts, thoughts, and behaviours of citizens. And AI is fundamentally a technology for prediction.” There is an alignment of purpose between AI technology and autocratic rulers, he said.
But also, because AI depends on data, and autocratic regimes collect vast troves of it, companies with Chinese government contracts have an advantage.
China is leading in high-speed rail, electric vehicles and renewable energy as well.
In the past 15 years, China, starting from scratch, has built a high-speed rail network almost twice as long as all other high-speed rail networks in the world combined. China has 42,000 kilometres of high-speed railways in operation, which would go three times around Australia, with another 28,000 kilometres planned, another two laps of Australia.
Furthermore, China is now the world’s biggest car exporter, makes more electric vehicles than Germany, the US and Japan combined, dominates the supply of the materials needed for EV batteries, and is installing as much wind and solar energy as America and Europe combined.
What does all this mean?
I don’t know, but I suspect it means that MAGA and Trumpism will be more durable and will last longer than the technology leadership of Silicon Valley, which is already lost.
Political extremism is feeding off America’s decline, which is locked in.
Alan Kohler is founder of Eureka Report and finance presenter on ABC news. He writes twice a week for The New Daily
