Comment by jacquesm
9 days ago
Cheap venture capital is uniquely driven by the interest rate more than any other factor. Low interest rates drive money away from safer vehicles towards more risky vehicles because they still offer a return. This is good far people starting companies, but in the long run the decision makers on those investments almost always turn out to have mis-priced the risk factor and end up with negative returns.
This then causes the market to dry up again and if the interest rate hasn't dropped even further then a lot of companies that need follow up investment will now get killed off. It's a very Darwinian landscape that results from this and I've been wondering for years if there isn't a better way to do this.
Excellent points. You've perfectly described the brutal, interest-rate-driven VC cycle -- capital floods in, risk gets mispriced, and the market eventually corrects with Darwinian force. That's the "blunt instrument" in action.
Meanwhile in China, the approach is fundamentally different. Capital isn't just cheap; it's strategically directed by the state with goals beyond financial return. The aim is "new quality productive forces" -- slow-burn, systemic growth that reinforces social stability and industrial upgrade, not a boom-bust race for unicorns.
The current AI boom is our real-time experiment to see if this is the "better way." The U.S. model, as you note, is driven by massive private investment (over $109B in 2024) and is prone to hype cycles. China's model is state-planned, focusing on the "AI Plus" integration of technology across its industrial base, despite investing less ($9.3B) and facing constraints like advanced semiconductor access.
We're watching two competing logics: one seeking market-defining breakthroughs through volatile, capital-intensive competition, and another pursuing broad-based, stability-oriented technological integration. The results of this test will show which system better transforms capital into lasting, system-wide advantage.
Another factor is that dictatorships don't suffer from the push-pull effect of election cycles, especially magnified in a two party state. Such polarization wastes a lot of energy and thus is an impediment to progress. But of course there is that small price to pay.
For the sake of friendly discussion (I realize this is tangential), my (unusual) take on China is:
Authoritarianism doesn't emerge for its own sake—it emerges when a population is politically engaged enough to threaten state control. China has a long history of mass mobilization and popular unrest: peasant rebellions, labor strikes, and yes, the events of 1989. This creates pressure for centralized authority. The United States, by contrast, has an unusually passive citizenry—low voter turnout, widespread political disengagement, and a culture that channels grievances into consumption rather than collective action. American "freedom" has been cheap to maintain because it's rarely exercised.
But when Americans do resist, what happens?
Consider Alex Pretti and Tank Man. Tank Man stood before a column of tanks and was not fired upon in that iconic moment. Alex Pretti stood with a phone, intervened nonviolently to protect a woman who had been shoved to the ground, and was shot ten times by federal agents while surrounded and pinned. One government showed restraint in its most infamous moment of confrontation; the other did not.
But the deeper contrast is in the aftermath. The Chinese government never claimed Tank Man attacked the tanks. The US administration, by contrast, immediately constructed an elaborate counter-narrative—claiming Pretti "attacked" officers and committed "domestic terrorism"—directly contradicted by multiple verified videos showing him holding a phone with his hand raised. The ugliness isn't just in the violence; it's in the brazen dishonesty that follows.
And this is not an isolated data point. Consider the broader picture: the US incarcerates more people per capita than any nation on Earth—2.3 million people, disproportionately poor and non-white, warehoused in a system that functions as social control while calling itself justice. Tiananmen was a visible atrocity. American incarceration is a slow, normalized one. Compare the casualties of a single crackdown to the bodies ground through American courts and prisons year after year, and ask which system has produced more human suffering.
Then add the architecture being built around it: the constitutional dead zone within 100 miles of any border, where Fourth Amendment protections evaporate. Masked federal agents operating in cities whose elected officials cannot stop them. Surveillance contracts expanding the state's reach into private life. A president willing to undermine the Federal Reserve for short-term political gain.
Meanwhile, China maintains tighter monetary policy, invests heavily in infrastructure and foundational technology, and takes a longer view of economic development. One can criticize its system on many grounds—but the American narrative of authoritarian dysfunction versus democratic flourishing looks increasingly like projection.