Spend $2 Billion, Make $8 Billion: The New Presidential Math

Our institutions weren't built for this, but we can't afford defeatism

On Monday, I joined Charlie Sykes to (once again) discuss the ongoing economic fallout from the Iran war, the implications of AI, and the political economy of corruption. Also, what it means to be human.

The Iran War, redux

We’re now twenty weeks into a “four-to-six week war,” and the economic costs are far grimmer than most coverage suggests. Markets can clue us into the scale here — every escalation drops American stocks, while de-escalation lifts them. The moves look small, but that’s because much of the chaos has already been priced in. Once you adjust for that, the market’s judgment tells us that this war has erased something north of a trillion dollars in the future profitability of American businesses.

Some thoughts on AI and competition

Next, we discussed the AI price war — Anthropic and OpenAI are burning cash to undercut each other, and Charlie wondered whether it signals a bubble. On this, I was happy to deliver good news: this is glorious. This is exactly how market competition is meant to work. Rival firms are in a race to create better products, and they’re each feeling pressure to offer lower prices and hence a better deal to consumers. When we write in our textbooks about the value of competition, or Adam Smith describes the “invisible hand,” and folks talk glowingly about the value of markets, this is what they’re after: Robust competition delivering better products at lower prices to buyers.

It’s an interesting lesson in business journalism. This is a good news story for everyone except the AI labs who are seeing their margins compressed. (Okay, their margins may be negative right now, but think of this as part of a longer-run competitive strategy and they are still valued as if their strategies will be profitable.) But nothing is ever good news in business journalism, and the interests of you and I — consumers — are barely visible. So this is written up as bad news, and we’re told to fear the world’s largest companies not being as profitable as their shareholders hope. Harumph.

The scenario that should keep you up at night isn’t commoditization, but monopolization.

It’s not just the corruption, it’s the threat to democracy

Finally, we broached the topic of the president’s recent financial disclosures: roughly $2 billion in personal enrichment in year one, dominated by crypto. There are two ways to get rich in this world — you can grow the pie by creating something people value, or find clever ways of transferring other people’s money into your own account. As a property developer, the president was (arguably) on the grow-the-pie side of the ledger. But in his second act as a president-businessman, every one of his major lines of business is about grabbing money from others and stuffing it into his own pockets. His crypto “investments” are perhaps the purest form: his working- and middle-class supporters paid in, the value collapsed, and their losses became his gains. No product, no value added, just a transfer from their pockets to his.

No-one likes corruption, but I think there’s something far bigger at play here. And it’s all about arithmetic. A presidential campaign costs about $2 billion, all-in. If holding the office yields more than $2 billion per year in income, then a full presidential term adds up to $8 billion in profits. For the first time in American history, buying the presidency is inherently profitable.

Our democratic institutions weren’t built for that.

I’m an optimist at heart, so let me remind you: We’ve had a thriving democracies for generations. And we can still have one in the future. But it’ll take work.

On being human (while being an economist)

Oh, and on optimism, and being human… My conversation with Charlie headed in a delightfully unexpected and personal direction. We explored my attempts at learning to sing, playing improv, and Charlie’s turn to poetry. I led with my heart a bit — or at least as much as an economist can do — and shared a bit about my personal journey toward the humanities and trying become more fully human. It’s not the conversation you might expect from an economist and a political commentator, but beneath it all, there’s a beating heart in each of us. (Jump to the 26 minute mark if you’re impatient.)

And if you’re ready to share, I would love to hear about your journey. What’s your creative outlet? What’s your journey to discovering your deeper humanity? What have you learned? What can you share?