I. Introduction

The triumphalism around Mark Carney’s WEF speech — and the so-called death of the liberal order — is odd.

Carney’s main points were that we’re in an era of global rupture, so there’s no value in harkening back to the past, and that the liberal rules-based order was just a facade to cover the realpolitik that allowed strong nations to act freely in their own interests.

Many people, including those on the left (distinct from liberals), are feeling vindicated because they’ve been talking about the global order being hypocritical for decades. Too many reactions have been “see, we were right” or “the liberal order didn’t die today, it died with Gaza in 2023” — as if shame was a strategy.

In the past, I’ve written extensively about the hypocrisy of liberal discourse and the breakdown of the global system. But this reduction of the liberal order to only, or even primarily, a facade is problematic. If we take it seriously, we must wrestle with two pretty damning options: one, that we were so entranced that the cries of the oppressed couldn’t break the illusion, which doesn’t lend a lot of credibility to our cognitive and empathetic abilities; two, that we knew it was a mere magic trick but didn’t do anything about it.

So which is it?

And now that we have the approval of our overlords that this was indeed just a show that we all sat and watched, something in the real world is supposed to be different? Do we have permission now to do something about oppression and violence?

Surely people’s alarm bells should be ringing here. It’s naive to pretend that suddenly we’ve been welcomed into the room where it happens and that this is not simply the next act of the show. Somehow, the past was an illusion/facade, and the present is not. You have people quoting Gramsci at WEF — come on!

To treat the liberal order as a facade, and to pretend that with a mere snap of the fingers it’s now behind us, is not just irrational and reductive; it subverts longstanding traditions of resistance by playing into the hands of Power and Capital.

In this piece, I discuss what the liberal order actually is, the continuing problems with how we offer dissent, and what the next act could look like. I get right into it but if you want to read more about the theoretical framework and social context, I have some notes about them at the end.

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II. First tragedy, then farce.

, whose Substack on this got republished in Zeteo wrote:

It sounds like people think this speech is some acceptance of defeat and takes responsibility for decades of hypocrisy.

All because of Greenland, a few hand-wavy tariffs, and the discomfort of some leaders not following diplomatic norms?

And what are the two competing systems? There’s the liberal order, which apparently was a farce and not a real thing, and what else?

There’s a surprising lack of skepticism in all this commentary. Everyone should instead be asking why is a longstanding member of the liberal establishment, like the Wall St people mentioned above, finally willing to see the bad stuff? And why now!?

Why… now…

Material reality vs a facade

You might notice that most people don’t define what this rule-based order was or when it started. They will vaguely refer to a time when there were certain norms about what could and could not be done in geopolitics.

, a popular commentator on the left with whom I agree on many topics, but not this, wrote:

“For a period, liberal ideology was so dominant, and so widely accepted, that the rules of that system carried some legitimacy. They provided a common frame of reference for what counted as acceptable behaviour. Invading a country to spread democracy? That’s acceptable. Invading a country to access its resources? Not acceptable.”

For me, this definition doesn’t really hold up. Invasions, genocides, assassinations, regime changes, resource extraction, labor exploitation, etc., all continued with this period, but just because it was shrouded in certain language (democracy) vs other language (oil), we are supposed to believe it meant something.

A definition should be able to discretely identify what something is not. But when people talk about the liberal order in a way that makes it seem like a semantic and conceptual, rather than material, abstraction, that doesn’t hold. The world had all the same issues of power and exploitation before the liberal order came into existence. Grand notions of civility, purpose, cultural superiority, self-defense, etc., existed even then. Colonialism, for example, had a whole logic of rationalization and moral aggrandizement around it. There’s no question that the British Empire had an explicit civilizing mission that was global in both aspiration and reach. So then how does the liberal order as a conceptual model help? How is it something categorically different?

Carney said that they knew that this whole thing was a facade and that we need to stop upholding it. Grace said the same thing in her piece.

A facade implies that this ideology was merely veiling how things really worked. But who did not know that things worked this way? Again, were the multiple acts of violence, oppression, and exploitation, starting right after WWII, all the way up to Gaza today, not evidence enough?

This definition of the liberal order is wrong. And that matters, a lot.

There was no facade. There is nothing left to unveil. This is not an issue of information or of people needing to have their eyes open. Carney and others, liberals and leftists alike, argue that this was just a magic trick — a belief system — that is suddenly undone. Poof, and just like that, it’s gone.

We must stand against this reductionism.

Yes, the liberal order is falling apart, but is still very much alive. Rather than a facade, this system operates as a complex, tangible, and powerful web of agents, structures, and resources that cause violence and oppression.

It is a material system, not a semantic sleight of hand. It has a particular form and logic of how capital, labor, and trade operate. There is a global political economy around it.

That’s a key distinction: veil vs cause — facade vs scaffolding.

The system has worked not because of ephemeral stuff like belief, but because people around the world have vested interests. This isn’t just about “the West”; it’s about the global elite class and the professional-managerial class that serves them.

If knowledge of horrors were sufficient to drive change, it would’ve happened decades ago. Instead, as long as the spigots kept pumping out profits, no one, regardless of religion, ethnicity, or geography, batted an eye.

Class interests reign supreme.

Round and round we go

So when some leftists say that what broke the system was Gaza in 2023, they’re wrong. Where’s the evidence? What benefit did Gaza get if the system oppressing it broke? Then they’ll say that “Western hypocrisy” — curiously leaving out the hypocrisy of those much closer to Gaza — is now forever exposed. Okay, but did the deaths of 5 million people through invasions in the early 2000s not expose that? Where’s the evidence that there’s something fundamentally different about this time?

This is also why the commentary around Carney’s speech and WEF in general that criticizes the exclusion of Gaza and Venezuela from the narrative is so banal. Surely it’s our fault for continuing to have expectations from this class — there’s really no point in acting surprised and calling them out, as if shame, like belief, has any tangible impact.

We really, really need to stop this trope of calling out the selective humanity of others. It’s tiresome, hypocritical, and not very graceful. I remember writing about the reaction to the Paris attacks 10+ years ago and how, all of a sudden, the Muslim world became obsessed with criticizing Europeans for caring about Paris but not about recent bombings in Beirut, while not speaking about it themselves up to that point. Our history is peppered by such moments.

If the global system was so painful and deceitful, why did we participate in it so fervently? Why did we, to this day, in an age of genocide, never criticize our own leaders and communities who actively enable and profit from this system? Did no one think the global system was hypocritical when Kushner, Clinton, and others spoke in Doha just this past year!?

Even God doesn’t help those who don’t help themselves.

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Setting the stage for the next act

If I have successfully convinced you to be skeptical of narratives around the global order breakdown that are increasingly going mainstream, then the next question must be why are the elite doing this and why now.

In short, the material dynamics that underpinned the system have been cracking for a while. The socioeconomic and ecological contradictions of modern-day capitalism were inevitably going to lead to the system collapsing under it’s own weight. Therefore, as this plumbing frays, the spigots that pumped out profits for the elite are getting leaky.

At the same time, social discontent and violence is reaching escape velocity levels. The pitchforks are a systemic risk. Some in the establishment, like Carney and other Wall St types, can think two steps ahead and see what’s coming.

Therefore, this whole narrative that has been picking up steam over the past 1-2 years is an attempt to front-run the dam breaking, pretend that “the elite” is some other third party not affiliated with these people, and lay the foundation for things getting worse.

By doing this, they can absolve themselves of responsibility for the present and still be viable options to lead the reactionary phase. As I’ve written before, this is no upheaval of the system. Instead, this is an intra-elite struggle shrouded in revolutionary zeal.

“Instead, I think the current version of the right wing is the final stage of neoliberalism. We haven’t yet fully turned the corner from the system that has been in place over the past 50 years.” — newsletter #16

Sadly, the timing has nothing to do with resistance efforts — Gaza or otherwise. This is not happening because these people finally got a chance to go through the anti-colonial and anti-capitalist literature, or because they suddenly developed a conscience. Instead, this is just opportunism, self-preservation, and tactfulness to realize the Overton window is wide open.

This means that leftist triumphalism is unfounded. Despite best intentions and valiant struggles, it is not resistance efforts that brought us to this moment. Some might say it doesn’t matter as long as we’ve gotten to this point of mass recognition about the system. I think that is a mistake. The path is critical in shaping the essence of the destination.

It’s alive!

If you’re with me thus far, then you must also believe that the power structures that underpinned the past 50 years are still very much intact. They are, of course, evolving to deal with the changing dynamics, but they’re still there. And so Carney’s speech, and this whole narrative in general, must be seen as the next phase of those structures, not as evidence of their downfall.

That’s what neoliberalism has always done so well. It absorbs, adapts, and reterritorializes narratives and structures of resistance. Power structures, especially in the complex, post-modern world of today, are not static, ossified entities that can simply be broken. They are a dynamic, almost conscious, super-organism that recreates itself in new ways when under attack. Any celebration of resistance or progress that does not center this reality is premature and reactionary.

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III. What’s next

Another problem with the term “facade” is what it implies about the future. It makes it seem like we’re moving from illusion to reality, where the latter is some Hobbesian state-of-nature — the “law of the jungle”, as Grace Blakeley titled her piece.

Realpolitik.

This is not just inaccurate, but increasingly worryingly. It enables a form of raw power exhibition and domination without challenge, taking away even the aspirational platform on which any semblance of a cooperative, moral global system would be built.

Sadly, many leftists have adopted this unabashed realism as an ideological and analytical framework. Only has thus far provided a defense of “collective virtue” — that doesn’t mean returning to the liberal order, but also not giving up on the intellectual project of a better world.

It is reductive to force our understanding of the world to fit into false binaries of liberal collectivism and anarchy. Reality is much more complex, much more contextual, and our social essence as humans depends on having an imagination that goes beyond the trivialities of brute force as a primary civilizational principle.

And to connect it to my earlier point, falling into this mode of thinking, first pushed by right-wingers, is just an ideological cover for all sorts of ghastly exhibitions of power. It’s yet another use.

Historically, the world has always operated through a complicated interplay of norms, trade-based relationships, and the idiosyncrasies of political leaders. That didn’t change in the last 50 years, and that’s not going to change in the next 50.

Therefore, what is a better framework for the future is to realize that these factors I mentioned above are evolving. All drivers we’ve talked about in this newsletter for 3 years — rematerialization, social discontent, energy decline, etc. — are unequivocally changing the structure of our civilization. Our job is to recognize and chart those material realities, and then develop a new form of internationalist vision that has collective emancipation at its core.

Therefore, I actually think we will see a form of universalism that is more decentralized but with a continuing high-degree of interdependency across nations. European and Canadian willingness to accept Chinese technology is one example of that. As Tooze recently said:

“…the DNA of Chinese industrialism in its modern form has a very, very large component of Europe in it, in the same way as Chinese tech has a huge component of the United States in it. And they don’t, they don’t have any problem with this. They totally own this. They, they, they embrace it. They, they are deeply respectful.”

Let’s not fall for this crass realism and barbaric state-of-nature type logic. It’s dopamine-inducing, lower-order levels of thinking — a relic of the very system we’re trying to get rid of and mind-numbing, sterilizing nonsense that it fed us.

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IV. Conclusion

To put it simply, these developments are an exhibition of my thesis from early pieces that we are seeing an intra-elite struggle within the broader context of trying to protect the status quo by redefining it. This is an attempt by the ruling elite to resolve the dialectic contradiction between the liberal order (thesis) and the unavoidable social discontent (antithesis) by shaping a new variety of neoliberalism (synthesis) that protects their interests.

This recognition is critical. The future is a multitude of potentialities, all of which come out of the present-day contradictions. Therefore, simply cause we may find ourselves standing on the precipice with other groups does not mean we stand together.

Our role is to critique, negate, and subvert this process unfolding in front of us — to be the antithesis to this emerging synthesis.

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Appendix

Theoretical framework

To do that, let’s set the appropriate theoretical context. What do we know about the world?

Well, we know that power structures (people, institutions, ideologies) don’t just wither away or concede dominance; they have to be wrestled with and often end, to the extent that they do end, violently and unassuredly.

We also know that the neoliberal system (which people call the rule-based order) has always been remarkably effective at facing, sterilizing, and then absorbing dissent. Hence the Che Guevara t-shirt reference. A copious amount of literature and knowledge has been produced over decades that intricately described, analyzed, and offered resistance against all sorts of economic, political, and military violence. The post-ideological society that was created, coupled with deep economic insecurity, ensured that those critiques never really grew real fangs.

Most importantly, we, and here I look at leftists (not liberals), also know that history moves forward through the dialectic process (which I wrote about in newsletter #15). History is just not a series of cascading events; instead, we are in a constant struggle between evolving theses and their antitheses in order to take seemingly simple events and unearth complex truths within them. In simpler terms, rather than trusting a narrative, we must critique it and achieve a richer, more robust outcome through this process of negation.

Social context

This speech must be understood within the broader trend of a growing recognition at the elite level that something is seriously wrong. For example, over the course of 2025, Wall Street discovered poverty and inequality. Mike Green wrote a viral Substack that the real minimum income for a family of four to be comfortable in the US is $140,000, well above the ~$35,000 poverty line. There’s also been incessant discussions about the K-shaped economy and how the non-elite being left behind is a huge problem that needs immediate addressing.

You also have Ray Dalio and Fourth Turning fans who’ve been calling for a system collapse, especially of the fiat monetary system, fuelled by debt and other things.

More than anything, just listen to the weekly roundup episode at the Forward Guidance podcast. You can see the emergence of the “social contract” / “global system” breaking narrative from quarters you wouldn’t really expect.

Lastly, the horseshoe theory is becoming rapidly popular, where people see the extreme ends of the right and left wings being much closer together than it may intuitively seem.

As I wrote earlier:

“If you closed your eyes and listened to Tucker Carlson talk on his new show or heard JD Vance talk on the Joe Rogan podcast, you could easily assume that a Marxist revolutionary is talking. They railed against the system, the liberal elite, and the rampant inequality that existed. They paid heed to people’s experiences. They validated the vibes.”

So Carney’s speech comes on the back of this growing wave of elites recognizing that the material issues in today’s world — poverty, inequality, violence, etc. — have fuelled social discontent to a level that cannot be contained through liberal narratives and institutions.

So why is this not a good thing? If more people, especially those with power and resources, want to do something about all these issues, shouldn’t we jump in?

No, we have to be very careful about understanding how and why this social context is being constructed. Taking these messages at face value is a ludicrous proposition when, on the other hand, we want to believe that the system, run by the same people all these decades, didn’t work.

One of my personal reflections of 2025 is to become better at putting my money where my mouth is. And I mean that literally.

Despite writing multiple pieces on deglobalization, resource weaponization, raw material and energy demand (esp FFs), and supply issues, I’ve remained woefully underinvested in Gold, Silver, Copper, Platinum, etc. – where commodity prices are up 2x, 3x, 1.6x, and 2x since Jan 2024, respectively.

Btw, counter to popular opinion, Gold has been a better long-term investment than US equities for most of the past 30 years (left chart), while also becoming a good medium-term investment recently (right chart).

This piece is an attempt to articulate my overarching theses into clear investment theses.

My general investment approach is the following: passive investing into index funds will be insufficient for wealth creation for a variety of reasons, which I will cover in the next piece. Some of those include a higher rate for inflation, which dampens real returns, market concentration into mag7 tech stocks, hyper-financialization, and the continued rise in speculative retail trading (I’ve had multiple Uber drivers trade while driving), and the breakdown of the global US$ system that favored US assets.

This isn’t a bearish outlook.

Instead, to no one’s surprise if you’ve read my earlier pieces, I think the real economy — referring to physical stuff like commodities, energy, industrial output — is set to outperform the broader market, which has been dominated by tech over the past 15 years.

Jeff Currie calls this “The New Joule Order”. Many others have been talking about the commodity supercycle for multiple years (this old Zoltan Pozsar piece is interesting too). At this point, it’s not a novel concept, but one of the things I am learning now is just how much inertia there is in changing legacy, institutional behavior, especially towards something like investing.

There are 6 overarching drivers of my worldview:

1. Energy security + electrification

2. Resource weaponization + geopolitics + national security

3. Reindustrialization + onshoring + supply chain resilience

4. Rampant fiscal spending + running the economy hot globally

5. Next-gen tech (AI, robotics, etc.)

6. Declining ore/reservoir quality + high capex requirements for supply expansion

Some people might think these trends have already gone mainstream, given the price increases I mentioned above, but we’re talking about a multi-decade regime shift. The charts below illustrate just how much room there is to cover — potentially.

Metals & mining ETF vs SPY

Copper vs Gold

Emerging markets vs US stocks

Investor positioning data shows the same. People are not invested to benefit of these themes yet. In the many conversations I’ve had with people from different parts of the world over the past few months, none mentioned commodities or cyclicals as part of their portfolio. Everyone is either looking to get into the AI trade or waiting for the bubble to burst.

Lastly, this isn’t financial advice, especially because expressing investment ideas is the best way to jinx them 🚨. The point of this piece is just to present ideas to diversify your portfolio. This is also a US midterm election year within a broader historical transition period: volatility wrapped in volatility. Do with that what you will. Most successful investors only have a 50-60% win rate.

Without further ado, here are the 5 investment themes.

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1. Metals

While Gold and Silver will continue to be essential investments, the main story here is now Copper.

There’s no doubt that there is going to be a ginormous shortage of copper. The persistent global AI boom, reshoring manufacturing, defense spending, and securing supply chains all require a massive expansion of electrification, which is heavily dependent on copper. Also, the recent price increase in Silver, if sustained, would also encourage substitution towards copper.

Here’s what the White House had to say about copper in July 2025 (emphasis added by me):

On top of all this, my perspective is that the global robotics industry is underappreciated right now, which will be a major additional source of demand.

In terms of availability, a new report estimates a 25% gap between demand and supply by 2040 due to a 50% rise from current consumption levels and ongoing issues with enhancing supply (e.g., ore quality, capex requirements, resource concentration in a few countries, etc.) – this accounts for improvements in recycling capabilities. Many reports over the past few years have validated this dynamic.

Source: Financial Times

Why is this a good investment thesis now?

From the market’s perspective, such opportunities get priced in years in advance – no one is going to wait for the 2030s. From an industry perspective, the race to secure copper supply is already on, exemplified by the trade war between the US & China.

From a technical perspective, Copper also looks set to follow Gold and Silver. Price has been consolidating for 5 years above the moving averages and is now breaking out, similar to how Gold behaved the past 2 years.

⚠️ On the flip side, the big risk is that everyone is starting to talk about Copper. And everyone can’t be right. So expect volatility as this secular bull market plays out.

The next individual base metal that could have sufficient upside, and one that hasn’t attracted mainstream attention yet, is Nickel. The bullish case isn’t clear-cut here because, unlike Copper, Silver, etc., Nickel is an oversupplied market with Indonesia (60% of global supply) continuing to ramp output while China (~60% of global demand) is becoming substantially better at recycling while also moving away from high-Nickel EV batteries towards Lithium Iron Phosphate (LFP) batteries.

However, this narrative presents an interesting, albeit early, opportunity. The three main bullish drivers that should be watched out for are:

• China’s influence: Like with almost every other base and critical metal, China dominates the industry, including Chinese companies in Indonesia. With that leverage, and the recent stockpiling of high-quality Nickel, geopolitical tensions being played out in the Nickel market cannot be ignored.

• Surging demand: Despite the increasing switch to LFP batteries, Nickel is still critical for long-range batteries and batteries produced outside China. Also, it is replacing Cobalt within Lithium-ion batteries, given the major supply issues for Cobalt (cost, human rights, etc.)

• Supply shocks: Indonesia could reduce its supply to boost prices, while tariffs and supply chain breakdowns in a market with limited suppliers and refiners present opportunities for price volatility, especially when the narrative is so skewed towards a supply glut.

In technical terms, Nickel miners are breaking out of a 2-year price consolidation and are well above the weekly moving averages.

Lithium is another one that looks interesting, but I won’t get into it here.

More broadly, these theses apply to base, industrial, and rare earth metals in general.

This industry has gone through a decade of market consolidation, with weaker miners being forced out due to stagnant prices and considerable M&A activity, all of which has forced operational streamlining, lower costs, and stronger balance sheets. There is also a reluctance to invest in capex – this is one of the lessons companies have learnt after the commodity bull market in the 2000s, meaning supply will be harder to expand. Even if they did, mining takes time, the refining and supply chain infrastructure takes time, and ore quality is decreasing.

However, that is a multi-year thesis, so the short/medium term risks that come with a commoditized, demand-supply driven, speculation-prone market should not be ignored.

In technical terms, price is breaking out of a multi-year consolidation (within a multi-decade consolidation), so the risk-reward potential is clear.

ETFs:

• Broad: XME, DBB, REMX

• Copper: CPER, COPX

• Nickel: NIKL

• Lithium: LIT

Note: Metals are my highest conviction theme, so I will go through the remaining themes more concisely to avoid this becoming a long piece.

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2. Energy

Global oil prices went from negative in early 2020 (Covid) to a cycle top of $100+ in early 2022 (Russia-Ukraine). Since then, energy resources have been probably the most important topic globally, impacting geopolitics, domestic politics, capital flows, etc.

The thesis here is quite simple: energy has always run the world, but with the rise in inflation 3-4 years ago, the resurgence of national security issues, the trends discussed above about electrification, AI data centers, and manufacturing, etc., it’s an all-hands-on-deck situation.

Fossil fuels aren’t going anywhere – they’re simply too embedded in our modern way of life and political economy. The IEA expects demand to grow at 1.4% annually till 2050, largely driven by petrochemicals and jet fuel. Read my primer on oil to better understand how the oil market works.

Recent US administrations have done a good job of using state capacity to ensure that oil prices remain stable, which is largely why inflation has come back down, despite tariffs and other issues. However, breakeven prices for the US shale industry are rising – and shale is what has positioned the US as an energy secure and the largest oil producer in the world.

The real driver of this thesis is that the oil sector is grossly undervalued, with investors largely short. Mainstream narratives are focused on an oil glut, especially now with what happened in Venezuela and the large but economically unviable reserves there. That’s what creates an asymmetric, although hard to time, opportunity here.

[Btw, don’t trust the talk about Venezuela's oil reserves — sourness of the oil, the amount of investment needed to expand production, etc., are huge limiting factors]

You can see that in the price chart, where the sector has been consolidating for 4 years while the rest of the market has gone higher. There’s a lot of pent-up energy to fuel this trade once it gets going – but it could take a while.

Next up is Uranium. Nuclear is an incredible resource for a reliable, clean, and ultimately cheap electricity system, especially given the electrification surge. Given that, it’s not surprising that Uranium was added to the critical minerals list by the US govt in 2025, which means the government is going to get behind securing supply chains and building out this sector. Demand will roughly double by 2040 while supply will inch higher; it’s really hard to expand and expensive Uranium mining.

Do we get a Strategic Uranium Reserve, similar to the Strategic Petroleum Reserve? It’s possible.

This is also another area where China is quite far ahead, with countries like the US desperate to try to catch up, so expect significant government investment and protective measures.

The price chart confirms the opportunity. After a decade of low prices, we saw a 4x jump to touch the all-time high price, followed by a 2-year consolidation (look up cup-and-handle patterns; you can also see this in the Gold chart). The miners, however, are still digesting the new market dynamics and aren’t even close to their 2011 highs.

The last one here is solar. It gets a lot of hate from the anti-renewable crowd, but there’s no doubt about how critical it is as a resource – it’s super cheap, quick to install, modular, and decentralized. Solar + batteries is a combination that is hard to beat, especially given issues with grid interconnectivity and the speed at which power needs are growing.

Also, it seems counterintuitive, but when President Trump was in power last time, solar did pretty well at the end, especially when energy security started becoming important. So, given the all-hands-on-deck approach towards energy, the probability of lower interest rates (solar is highly sensitive to rates), and sentiment being neutral, seems like a decent opportunity.

In terms of price (looking at the Solar ETF), it’s just creeping above the moving averages and trying to overcome a historically critical level. It may chop around, especially as the market figures out the interest rate path with the new Fed chair and midterms, but the upside reward here presents a great opportunity.

As a bonus, I think coal also looks good here.

ETFs:

• Oil: XLE & OIH

• Nuclear: U.UN & URNM

• Solar: TAN

• Coal: COAL (Coal)

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3. ex-US markets

One of the features of the post-GFC 2008 era was that US equity markets sucked up global capital and outperformed the rest of the world. For many reasons, with US industrial policy being the main one, the forces that led to this outperformance are shifting. 2025 was the first year in a while where emerging markets outperformed the US, and I expect that trend to continue, given that it’s still the early innings of the shifting global trade and macroeconomic regime.

The countries I am looking at are:

• Brazil: There are 3 simple tailwinds. Firstly, it’s a major commodity exporter, so all the raw material dynamics talked about above apply here. Secondly, it has a huge domestic market, which facilitates economic resilience and innovation (e.g., e-commerce & fintech are rapidly growing sectors). Thirdly, Latin America is seeing a pro-business shift that is attracting global capital — think US geopolitics in the Western Hemisphere, the importance of this region for supply chains, etc. While I politically disagree with the developments, the tailwind is there. For Brazil specifically, stocks did really well even when Lula was in charge in the 2000s, so the odds of success seem quite favorable.

• China: It doesn’t even need to be said that China is by far the most advanced country in the world. Its stock market, however, had gone sideways for over a decade due to razor-thin margins, capital flowing into R&D rather than buybacks, and low consumer spending. Now, with the Chinese government slowly moving towards boosting consumer spending through large fiscal stimulus, and more China hawks realizing that true decoupling with China isn’t really possible, this market presents an interesting opportunity.

• India: This one is mostly based on vibes. 2025 wasn’t a great year for India – it’s fallen way behind in the race to be a globally competitive superpower, the AI trade sucked capital and attention away from the SaaS offshoring that India was absorbing, and geopolitically, the fanfare has quieted down. The fundamentals haven’t changed much though. As an emerging market, it’s still a major player, so I expect it to be a destination as capital seeks return globally.

In terms of the charts, Brazil is coming out of a decade-long consolidation and has considerable room to even reach its all-time high price.

China is still within its 20-year sideways price action, but for the first time, the moving averages are now trending upwards.

India is consolidating after an impressive move in 2023-24.

ETFs:

• Brazil: EWZ

• China: FXI, KWEB

• India: INDA

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4. AI becomes real

Isn’t the AI trade a bubble!? Meh. There are many fundamental reasons why this AI cycle is substantially different from the dotcom bubble (but potentially similar to the railroad, electricity, and shipping container trends – more on this in the future). So while valuations are rich and the hype is non-stop, I think moving from the foundational picks and shovels (semiconductors, memory, etc.) to AI applications is more likely than a dramatic crash.

The two main applications I am looking at are robotics and agentic AI.

Robotics: Watching XPENG’s CEO cut through the skin of its robot to dispel rumors that there was a human inside was a surreal moment. For a non-technical person trying to keep up with AI, that’s the moment when it felt that something truly revolutionary was potentially around the corner. While there have always been lofty figures floating around about how opportunity lies with robotics, it doesn’t seem like the market realizes that this could be closer than we think, especially in countries like China. The tide is slowly turning, though, so this could be a great opportunity to get in relatively early.

Agentic AI: My thesis is simply that companies will start to integrate AI into corporate workflows, which will dramatically lower costs and reduce timelines. When the market questions how companies will generate returns to justify the exorbitant capex spend, this will be a good answer. It might not be as glitzy as a new consumer offering that drives revenue, but lower opex and margin maintenance would be just as important. I bet that the earnings of SaaS companies, at least those that can implement AI effectively, will start to reflect this in 2026.

This theme is honestly hard to implement through ETFs, given the breadth of the topic and wide disparity across companies, so I won’t do technical analysis.

ETFs:

• Robotics: BOTZ

• SaaS (proxy for agentic AI): IGV

5. Healthcare

There were multiple sectors I was looking at for the fifth theme — including industrials, consumer discretionary, and agriculture, all of which people should consider if they’re interested — but ultimately settled on healthcare because it seems the most uncorrelated to the other four themes.

Think about this for a second: if you exclude healthcare, job creation in the US would’ve been negative in 2025!

That’s how important yet underappreciated the sector is.

The tailwinds here are clear:

• Boomers are entering old age, which is when healthcare expenditure typically rises. It also doesn’t hurt that boomers are a relatively rich generation, so they’ve got a lot of money to spend.

• AI is enabling breakthroughs, filling in resource gaps, and reducing costs for drug development, caregiving services, etc.

• The US is realizing that China poses a serious threat to its dominance in biotech and drug development.

• Lower interest rates will help as many companies in the space are smaller and rely on funding for many years before they have a commercially viable product.

• The current administration has a bias towards health innovation, longevity, cutting regulations, etc.

Not to say that there aren’t major risks, most notably the fact that there’s growing social pressure related to healthcare costs, so government action to limit prices and other pro-people regulations would hurt certain companies in this space.

Overall though, the tailwinds seem to outweigh the risks, and given that this sector is trailing the broader market in terms of performance, it’s likely a good time to be an investor.

You can see in the charts that the broader healthcare market has been consolidating for 5 years and looks close to breaking out, while the biotech sector (high-beta, more volatile) broke out of a 4-year price consolidation (maybe even a 10-year consolidation if you’re not too picky).

ETFs:

• Healthcare: XLV

• Biotech: XBI

• Industrials: XLI, XLB

• Ag: MOO

Conclusion

Rematerialization, reindustrialization, deglobalization, and decarbonization — they’re all centered around commodities, both raw materials and energy resources, and global decentralization.

As I’ve argued before, this is a paradigmatic shift from the software / services-heavy world we’ve become reliant on, where the atoms and watts that run our civilization were largely ignored. But as always, they’re back. Physics underpins our sociopolitical reality.

Let me leave you with 2 thoughts:

1. Regime change is messy; take profits: We’ve lived in a world where US equities, and more specifically US tech stocks, were dominant. It became an easy investment. Right now, we’re just seeing the early signs of that rotation towards commodities and emerging markets, so expect this to be a grind, with lots of pullbacks, slow periods of consolidation, and face-ripping moves. You can’t time it; you just have to have a clear thesis and stay the course till proven otherwise (this is why I didn’t invest in Silver cause I always felt I had missed the move). In volatile times like now, crazy headlines dominate the airwaves, and everyone’s got their finger on the buy/sell button, especially algos. Tune out the noise, take profits along the way, and keep learning.

2. Fade the extremes, eventually: The majority is always wrong. I’ve said that about politics and other topics, but it applies almost mechanically in financial markets. When sentiment gets euphoric, when everyone seems to be on the same bandwagon, it’s time to take a step back.

   On a longer timeframe, I don’t think we’re there yet, even with the incredible moves in Gold and Silver. Nor do I think the AI trade is done because everyone is looking for the bubble to burst.

   Just think about it, how many people do you know who are putting part of their portfolio in commodities? How many 401ks give that option? How many pension funds are doing that? How many people think geology and mining are cool topics?

   However, there will be interim, short-term moments of euphoria that will inevitably arise. People will talk about how they found the next big metal miner and doubled their money in a week. Expect sharp bearish moves to wipe out speculators and reset sentiment.

   “When I see a bubble forming, I rush in to buy, adding fuel to the fire.”

   — George Soros

   

The sample portfolio I want to track for this year:

1. COPX (12.5%)

2. URA (12.5%)

3. EWZ (10%)

4. DBB (10%)

5. XLE (10%)

6. BOTZ (10%)

7. XLV (10%)

8. REMX (5%)

9. NIKL (5%)

10. FXI (5%)

11. INDA (5%)

12. TAN (5%)

Let’s see if we can beat the market!

Resources

Revenge of the Old Economy & How to Invest in the Commodity Supercycle | Jeff Currie

Commodities & Cyclicals Are 2026’s Mega-Cap Tech

This is not a piece I was expecting to write simply because there’s been too much hype around Zohran Mamdani to make any meaningful commentary, but the Trump-Mamdani meeting, and particularly the social media reaction to it, has presented a compelling opportunity to weigh in.

Unless you’ve been offline the past week, you’ve probably witnessed the myriad of takes about the bromance that was on display at the White House: confusion, surprise, compliments about 4D chess from Trump and/or Mamdani (depending on your, accusations of selling out, etc.

How can a democratic socialist / socialist / communist (depending on what version of Mamdani you’re referring to) have Trump gushing? Why is Mamdani offering a conciliatory tone to someone who served as the primary antagonist for his campaign (not to mention the F-word)?

It’s helpful to understand what type of politician Mamdani is to answer these questions.

In short, Mamdani is a shrewd operator with excellent oratory skills, a clear vision of what he wants, and a willingness to do whatever it takes. This also means that he’s a performer, eager and capable of playing the a broad variety of crowds by giving them what they want to hear. Without this critical element, there was no way he breaking into mainstream politics, but that is also why the cult of personality built around him, with a lot of hope riding on it, is a dangerous thing.

The second important element is his politics. He’s been described as a communist (back when he was dropping Marx quotes), as a socialist, and most recently as a self-labelled democratic socialist — which, for those not well-versed in these labels, is basically an old-school, European-styled liberal.

The third thing, which is my biggest compliment to him, is that as a long-standing Arsenal fan, he knows what it’s like to grind it out and be in the trenches. Few experiences in life can build more character than that!

My own assessment is that while the narrative around him, both as a compliment and critique, has been that he’s a revolutionary-esque figure seeking to undo the status quo, Mamdani is a reformist, not too disimilar to Bernie, AOC, and even Obama (back when that was the snakeoil he was selling).

He’s not here to undo the system, he’s here to change it just enough that it’s gross excesses and exploitative tendencies stop being so monstrously obviously. He’s here to keep the pitchforks at bay.

Within the reformist caricature, however, he espouses Abundance era energy — in that he brings something new and grounded in recent discourse.

To some, this refomer vs revolutionary claim will seem like intellectual obfuscation or a semantic distinction, but the difference between the two matters given the political context and what’s at stake.

In fact, I’d argue that in many ways he’s most similar to the most popular reformer of our generation: Trump.

[Important note: this piece is going to compare the political carcicatures of Mamdani and Trump, which is a combination of their respective political contexts and strategies, not to draw any false equivalence between the two in terms of character, integrity, personal beliefs, etc.]

Similar to Keynes a century ago, these two are essentially members of the elite (Trump more industrial elite while Mamdani is the intellectual elite) who recognize that the system that has given people like them “the good life” is under threat from the growing polarization and discontent. They want to reform the system’s excesses, primarily through deploying state power to plug holes before the ship sinks. They don’t realize that today’s crises aren’t a failure of the system; they’re a necessary feature.

In leftist, dialectic terms, history moves forward when the breakdown of the status quo gives rise to it’s antithesis, which ultimately results in the synthesis (new dawn). Mamdani is not the antithesis to neoliberalism; he’s the potentially last wave of politicians trying to stop the initial breakdown (more on this at the end).

As individuals, their pragmatism and self-confidence disarms people, they are excellent at reading the vibes and are willing to cut through liberal BS to do what it takes. Both campaigned on affordability as the core message and weaved that into an impeccable performance tailored for their respective bases: Trump overplayed the social conservatism; Mamdani leaned heavily into the Muslim-brown-immigrant angle. They made lofty promises and campaigned in a way that riled up revolutionary zeal, but will likely settle for working within the confines and using the tools of the status quo.

This is a simplification in the interest of brevity since Trump as a person belongs to the neoliberal ruling elite, but his political persona is that of an outsider. For a more detailed argument, see #16.

To be clear, this isn’t necessarily a critique of them. Both deserve kudos for doing what needed to be done to cut through the barriers of entry into mainstream politics.

But that also means that as a society, we should be do better at being able to separate the performance from the policy. If we keep falling for the same theatrics, it’s not the politicians at fault. Instead, continously being enchanted by performativity and spectacles, especially those that rely so brazenly on identity politics and vibes, is our collective ideological failure.

The struggle lies ahead.

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What comes next

In the current moment, these two personalities have become the paragons of US politics. It is hard to imagine anyone being able to win elections, not just in the US but globally (think Modi), without the playbook of affordability, outsider-grassroots vibes, a focus on localism, and providing a political platform for the masses to channel their growing anger and discontent.

The cost of living crisis / affordability / abundance has been a hot discussion point for the past 2-3 years now so of course every new candidate will try to make it their platform. Even Wall Street has discovered that poverty & inequality exist! (here’s a piece by taking Twitter by storm — more on this soon.)

How that will manifest though — in terms of undoing elite power structures and control over material resources — will be the defining struggle.

In terms of how US politics unfolds, here’s what to look out for.

For Trump, there are 2 questions:

• Main Street over Wall Street?

  • To do this, he needs to find a way to tolerate significant pain from the stock market and the downstream effects on the economy.

• Cut Israel off or not?

  • The growing anti-Israel sentiment, Trump’s pragmatic nationalism, and his personal ego offer the best chance of a major geopolitical shift — one that I think will be a strategic win for him at home as well.

For Mamdani, it’s not so much questions as risks.

Thus far, he’s been a politically shrewd operator and picked the popular stance for the right moment. But how far will he go in picking pragmatism over ideology?

His decision to keep NYPD Commissioner Tisch in office has already drawn criticism from people within his own camp. His transition roster in a motley crew of people including activists, organizers, lobbyists, private developers, bankers, etc. He’s also increasingly aligned himself with the Democratic Party establishment, even endorising the Zionist Hakeem Jeffris over New York City Council member Chi Ossé.

This is not to say that Mamdani is a sellout (he’s no Obama as yet) but he’s put himself and the people’s movement that brought him to office in a tough spot. If he can’t deliver on even some parts of his agenda, if he becomes yet another member of the political establishment (like AOC), and if he goes soft on Palestine, it will breed further discontent and disenfranchisement.

Some might say his recent moves have been tactical, that this is the only way to get stuff done and beyond past ivory tower politics. While I am sympathetic to that argument, it’s important to remember he’s not the first politician to try this. The status quo has enjoyed incredible dominance for so long because it adapts to absorb such threats.

Once you’re in the system, you’re subsumed and sterilized. No individual is going to undo that. No individual is going to reform the Democratic Party (cc: the squad). Mamdani’s dhoom machale vibes make many of us feel warm and fuzzy — and there’s value in that — but let’s not conflate that with material reality.

My expectation is that both Trump and Mamdani will fail to deliver simply because of the structural dynamics at play. Reformists are historically the transition between an established status quo and the more volatile, extreme (I don’t mean that pejoratively) revolution. It’s largely impossible to play by the system’s rules, operate within its confines, and use its tools to transform it.

Therefore, when the hopes riding on both of them begin to dwindle and anger intensifies, that’s when the space for more ideologically-driven, no-nonsense movements emerge. I stand by my take from last year that simply given the decimation of socialist/communist movements over the past few decades while the conservative reactionaries have been allowed to get organized, the latter is more likely to succeed first.

As for Mamdani, the only thing to remember is that a politics of everything is a politics of nothing.

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Beyond the political spectrum

I want to take this opportunity to write a little about the right vs left framing that plagues social discourse and why it is both ineffective and illogical.

The core problem is the prevalence of the political spectrum as a framework. Complex political dynamics have consistently been dumbed down to fit this notion that there’s a line that runs from “right-wing” to “left-wing”, with centrists in the middle. There really is no such thing. This isn’t a pedantic point; it’s simply an attempt to annihilate a framework that causes more confusion than offering any insight.

Liberals and leftists are two totally distinct groups that get clubbed under “the left”. Similarly, the MAGA right and conservatives are thrown under “the right”. I could go on. The point is that when you put Trump on one end of the spectrum and Mamdani on the other, obviously the meeting becomes confusing.

This has been happening for a while. I’ve talked a lot about how, over the past few years, Tucker Carlson, JD Vance, and others have sounded more Marxist than any liberal or democratic socialist out there. Commentators have attempted to explain this using the “horseshoe theory”, which is that the linear spectrum actually bends such that the two extreme ends land close together. Radicals on both sides are willing to unravel the system, which makes them unlikely but cooperative bedfellows.

I don’t buy that. It’s a bad way to massage the political spectrum framework to fit reality.

Let me give a quick recap of my previous arguments as context:

The (neo)liberal elite have been in power for the last few decades. In the US context, leaders across the two parties are part of this group — in fact, they have similar donors, similar vested interests, and hang out together once they’ve retired from performing at the political theatre.

Under this regime, inequality, polarization, well-being crises, and so on have surged. The K-shaped economy that everyone seems to be talking about suddenly has been true for decades.

Over the past decade, the cracks have become increasingly hard to conceal. Once a certain threshold of despair and discontent is crossed, tactics of identity politics and flooding society with dopamine-inducing slop stop becoming sufficient. While heterodox thinkers and politicians have been beating the warning drums throughout this whole period, Trump 1.0 was the first major candidate to blow through this facade and ride the wave to center stage.

Biden tried to follow the same playbook by focusing on industrial policy and throwing everything he could to address concerns around jobs and inflation for the masses. This is why he adopted such a broad array of potentially contradictory positions, including unleashing fossil fuel production, supporting clean energy, reshoring manufacturing, amping up hawkishness against China, supporting a genocide in Gaza, trying to protect social rights domestically, etc. Ultimately, the conventional Democrat thinking caught up with the admin, though, and they reverted to more conventional politics by cutting social safety nets and centering identity/rights-based platitudes.

Trump 2.0 is following the same playbook. Whether you agree with the policies or not, the intent is the same: use multiple arrows in the quiver, all based on state power, to address growing discontent and the material needs of people.

Therefore, rather than a crude left-right framing, it is more effective to think first in terms of cocentric circles, where the ruling elite — across the conventional political aisle — are in the middle, followed by the early reactionaries / reformers who are in effect a buffer between the pitchforks and the center circle, followed by increasing degrees of extreme alternatives (the pitchforks).

And within each layer you have a divergence in political ideologies across multiple dimensions, ranging from role of the state, private property and resource ownership, individual vs communal rights, religion, etc.

I’ll end here and pick this up in a future piece. Thank you for your attention to this matter!

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I. Introduction

One of my main reflections from my first year as a father was just how differently I felt, beyond the overwhelming emotions and lifestyle changes. Even labeling it as a renewed outlook on life felt insufficient, both because of the type and intensity of the difference. While articulating that journey warrants its own piece, I became interested in being able to tangibly explain the underpinning and possibility of such an experience. This piece is the latter, meant to explore the science behind fatherhood — the dad brain — and make a case for adding this layer to our collective decision-making around newborn care.

The common perception around parenting is that “motherhood is a biological necessity, but fatherhood is a social invention” (quote attributed to anthropologist Margaret Mead).

Despite the increasing conversation around more equal parenting and contributing to (invisible) domestic labor, the critical component missing is the recognition that fathers also go through a substantial neuroendocrine transformation in the postpartum phase, pushing fatherhood from a learnt and logical act to an instinctive and reflexive one.

Fatherhood has an underlying biological reality that gets suppressed by the confines that social norms and the political economy place on parental roles. It also debunks the myth, often used by men to justify subpar contributions towards parenting, that men are simply not capable of doing more — weaponized incompetence — and that fathers have no major, non-logistical role in early childhood.

Instead, fathers have a biological pathway to add multiple arrows to their quiver — even beyond the progressive expectations of today — in order to be self-sufficient parents that don’t rely on translation of their child via the mother. This isn’t to draw parallels with motherhood, of course; rather, it is about developing a distinct, additive, and well-rounded parental capability.

Fathers may undergo a profound neuroendocrine transformation that results in the rewiring of their brains and new hormonal patterns. This lead to changes in how they think, feel, socially engage, parent, and perceive the world. This has profound impacts on the child’s development (better care = better development) and inter-parent dynamics (more sharing of the emotional and care-giving burden)

Potentially is a key word here because unlike with mothers, where pregnancy, birth, and post-birth care biologically drive the neuroendocrine transformation, fathers have to take active steps to prime themselves for this to occur. Therefore, it is not a given, and just like with any other process, exists across a spectrum of intensity.

The golden window for this priming is the first weeks before post-birth. Hormonal changes that enable this transformation are at their peak at that time, so diving into activities that fathers want to convert into habits kicks off a virtuous cycle of reinforcement.

Learning to function on less sleep, to read the baby’s cues and respond with optimal emotional regulation, to develop tolerance for (long bouts of) crying, to handle all caregiving tasks independently, and to tune your instincts to the child — these foundations are forged in the trenches of early parenthood; the sleepless nights, the mistakes, the flashes of frustration, the unrequited and deeply intentional affection, and the flickers of joy are all critical. The suffering is the rite of passage.

The baby is also vulnerable and looking for connection so every moment, to the extent possible, counts.

Let’s now expand on the various roles point. 4 roles can be classified as newborn/toddler “parenting”:

• Provider: Ensures that material needs are met, typically through income-generation.

• Playmate: Engages in fun activities, typically for time-bound periods (till the good mood lasts).

• Caregiver: Performs actions to support the baby’s needs and wants (e.g., feeding, changing, developmental activities)

• Emotional regulator: Serves as an emotional anchor and source of comfort during times of distress (baby distress, which is basically random moments throughout the day)

I’d argue that this list is ordered by complexity, and hence difficulty, of the task. The purpose of the neuroendocrine transformation is to biologically prepare the father for the tougher roles — i.e., caregiver and emotional regulator.

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II. Neuroplasticity

“Neuroplasticity refers to the reorganization of the brain (physiological and anatomic changes) as a result of our interactions with the environment, allowing for the adaptation to new circumstances and demands” — Demarin et al., 2014

Before getting into the dad brain, it is useful to introduce the concept of neuroplasticity.

Learning is the process by which our brain develops networks of neurons connected through synapses. When we engage in a new activity, the corresponding neural pathways strengthen through repetition and focused attention.

Although 80% of our brain develops in the first 3 years of our life, there is an ongoing process of branching and pruning in our neural circuitry. This means that our brains are constantly learning new (branching) and cutting unused, or no longer required, things (pruning).

Neuroplasticity is the brain’s ability to rewire itself. It reaches its highest levels during three key stages of life: early childhood (ages 0–3), puberty, and new parenthood — rare windows when we are especially primed for growth.

This rewiring is dependent on external stimuli and repeated patterns rather than pre-determined processes, which is why the concept of priming, particularly for fathers, since no biological process related to birth exists, becomes essential.

It also means that these changes are, or can be, permanent. The brain literally looks different as a result of this transformation.

This realization is powerful because until recently, I hadn’t understood how biologically pivotal parenthood is. Whether men embrace it or not, their bodies are evolutionary designed for this moment to be a profound force for change — and it’s up to us to honor it.

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III. Unlocking fatherhood

“Despite not experiencing in-person the hormonal changes of pregnancy, research has shown that fathers engage similar neural circuitry when processing infant-related stimuli compared to mothers” — Swain et al., 2007

We can understand this transformation by looking at the endocrine and neurological changes separately, and then how they form a reflexive loop.

Endocrine changes

• Oxytocin (increase): Often dubbed the “cuddle hormone” or “love hormone,” oxytocin rises in new fathers during interactions with their baby. Both moms and dads experience oxytocin boosts after birth, though the triggers may differ. This makes fathers more nurturing and open to warm, care-giving behaviors like holding, caressing, skin-to-skin contact, etc. Higher oxytocin essentially rewards a dad for spending time with his baby, reinforcing his desire to engage.

• Prolactin (increase): While this is known as the milk-producing hormone in nursing mothers, it’s also found to increase in fathers. Dads with more prolactin have shown stronger positive responses to infant cries, meaning this hormone might prime them to be extra sympathetic rather than annoyed when the baby wails in the middle of the night. Interestingly, experienced fathers have an even bigger prolactin spike when they hear their baby cry or hold their infant, compared to first-time dads, which suggests that as you learn how to care for your baby, your body “ramps up” its nurturing hormones to meet the demand.

• Cortisol (increase): Cortisol, the stress hormone, isn’t all bad – it also helps with alertness. In both moms and dads, cortisol levels peak around the time of birth. New fathers often have higher baseline cortisol and a bigger cortisol release when holding their newborn. Rather than indicating harmful stress, this elevated cortisol may function like nature’s coffee: keeping the father vigilant and focused on the baby. Research shows higher cortisol in fathers is linked with greater paternal responsiveness – it might boost that urgent “I need to check on the baby” feeling when you hear a little cough or cry. Essentially, a moderate cortisol surge helps new fathers rise to the occasion and stay attentive during those challenging early weeks (even on little sleep).

• Estrogen (yes, men have it too – and it rises): Believe it or not, new dads also see a bump in estrogen levels. Men produce a small amount of the estrogen hormone, and during early fatherhood it increases (likely through conversion of hormones or contact with pheromones from mom and baby). This rise in what’s typically thought of as a “female” hormone might further sensitize a man’s brain to baby cues. Estrogen in dads is believed to up-regulate certain receptors in the brain, essentially making neural circuits more responsive to infant needs.

• Vasopressin (increase): Vasopressin is a hormone linked to territoriality and bonding. While its role in human fathers is still being studied, animal research is intriguing: in monogamous rodents like prairie voles, vasopressin can trigger paternal behaviors even in males that never had offspring. Human dads show more vasopressin activity when engaging in stimulating play with their kids, suggesting it may encourage protective, devoted parenting. Think of vasopressin as contributing to that fierce sense of “I will take care of and defend this little one” that many fathers feel. It likely works alongside testosterone (lowering it) to shift a man’s priorities from competing with other adults to safeguarding his family.

• Testosterone (decrease): It’s almost funny to talk about testosterone decrease as a positive given the new cultural obsession with testosterone boosting therapies. But yes, testosterone does fall as part of this transformation, enabling fathers to turn up the empathy dial and turn down the hyper-competitive, aggressive dial. There is also a strong impact at the micro, momentary level as well. When it’s 3am and the baby won’t stop crying, lower testosterone is important to limit the possibility of a potentially harmful outburst driven by frustration and tiredness. Also, it’s not men with lower testosterone level prior to fatherhood that go down this path; in fact, higher testosterone levels have been found in men who go on to become better partners and fathers, with the sharp drop coming post-fatherhood.

Neurological changes

The hormonal changes trigger and enable behaviors that, when done repeatedly, create neutral networks that change the brain structure of fathers. MRI studies of first-time dads have revealed distinct changes in brain structure and activity after the baby arrives. Some brain regions actually shrink a bit, while others grow or light up more readily — this is part of the pruning and expanding process which is heightened in phases of neuroplasticity. These shifts may sound odd, but they reflect the brain’s way of streamlining and strengthening the skills needed to be a good parent.

• Prefrontal Cortex (decrease): The prefrontal cortex (PFC), right behind your forehead, handles logic, planning, and self-control. Interestingly, studies have found that certain portions of the PFC become a bit smaller in volume in new fathers. In particular, areas like the orbitofrontal cortex (involved in decision-making and evaluating rewards) showed small reductions in gray matter after men had their first child. This pruning might indicate that dads start relying less on purely analytical, cost-benefit thinking when responding to their baby and rely more on cognitive empathy — again, critical when you’re frustrated and tired. Other parts of the PFC ramp up in fathers: researchers saw growth in lateral prefrontal areas important for motivation and goal-directed behavior. The net effect is a father who’s less bogged down by plans and more inclined to just do what needs to be done for his baby, with a kind of focused efficiency.

• Amygdala (increase): Deep in the brain, the amygdala is an almond-shaped region crucial for processing emotions and detecting important signals (like a baby’s cry). For new dads, the amygdala becomes more active and even grows in volume. This is a sign that the father’s “alert system” is on high — he becomes extra vigilant to his infant’s needs. A heightened amygdala response makes dad more sensitive to baby’s distress sounds and facial expressions, triggering an almost reflexive urge to help.

• Hypothalamus (increase): The hypothalamus is a small but powerful brain region that controls hunger, sleep cycles, and crucially, hormone release (it’s the mastermind directing oxytocin, cortisol, etc.). MRI research shows the hypothalamus actually enlarges in volume in first-time fathers. It also becomes more responsive to infant cues. Essentially, fatherhood puts the hypothalamus on high alert, ready to signal the body to release parenting hormones at the right moments. This change dovetails with the hormonal shifts discussed earlier – a primed hypothalamus will, for example, spur more oxytocin release when dad holds his baby, strengthening bonding. It might also trigger that surge of adrenaline or alertness when the baby cries (helping dad wake up and attend to a 2 AM feeding). By beefing up the hypothalamus, the brain is hard-wiring the motivational drive to care for the child.

• Reward Circuit (striatum and dopamine pathways): Too many times parenting is framed as rewarding for the mother but not the father; however, nature ingeniously makes it rewarding for fathers as well. In new fathers, parts of the brain’s reward system — including the striatum, which is rich in dopamine — show increases in gray matter. In simple terms, this means that interacting with your baby becomes especially satisfying to the brain. When you see your newborn smile or hear them coo, the reward circuit fires off feel-good signals. By enlarging or strengthening these reward regions, the “dad brain” ensures that you enjoy bonding with your baby and are motivated to keep doing it. You might find that rocking your baby or making silly faces to get a giggle gives you a genuine rush of joy — that’s your enhanced reward system at work, making you an affectionate, engaged father.

• Insula (and other emotional empathy regions): The insula is a region that helps translate body signals into emotions and empathy (letting you feel others’ pain or discomfort internally). During fatherhood, there is a reduction in grey matter but higher activation in this region, potentially mean that the brain is cutting out noise and honing in on truly relevant emotional signals from the baby. The result might be that dad becomes highly attuned to his infant’s emotional states – you might get a “gut feeling” when something’s off with your child.

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IV. Conclusion

So where does this leave us? This piece is meant to be nothing more than an introduction to, and framework for, how fatherhood entails a significant biological transformation in men. The hormonal and neurological changes described above are not meant to comprehensive; instead, they are indicative of how this isn’t merely a social role that men stumble their through and has deep, ancient roots in their evolution.

It’s also not about mimicking or trying to take over the maternal role, it’s about going deep into the unique relationship that fathers bring — this is also why the positive triggers for fathers are different to those for mothers. The rewiring and fine-tuning of the male brain adds to it’s existing skill set and enhances capabilities, rather than nonsense of becoming weaker (read = softer) and less rational that today’s culture wars will have you believe.

At the same time, capitalism perpetuates a cycle of servitude to employment and reduces satisfaction to corporate success to the extent that people, especially men, choose to — and in many cases are forced to — not immerse themselves into this experience.

Being a nurturing father is hugely beneficial for children (evidence for better cognitive and emotional development), inter-parent relationships (more load sharing & empathy), men themselves (reward activation), and society (more pro-social people with cognitive empathy — something we desperately need today).

These changes are also probabilistic, not deterministic, meaning that the outcome depends significantly on the underlying personality and experiences of each person, as well as (most importantly), the conditions that are created to activate this transformation.

Ultimately, there are a few things I’d want readers to takeaway from this:

• The more time, intention, labor and vulnerability men put into it, the more they get from it.

• The window of maximum flexibility (neuroplasticity) is the weeks and months after birth.

• These changes are probabilistic, not deterministic, meaning that the journey and outcomes looks differently for everyone.

The physical tiredness from sleepless nights, the emotional exhaustion from hyper-fixating on how this little thing is supposed to survive, the mental fatigue from suddenly having to be hyper-aware continuously, as well as all the cuddles, silliness, and flickers of joy are a rite of passage to become instinctively and deeply attuned to your baby’s existence.

I’d even say that it is in these moments that the foundations of a cosmic and telepathic relationship are built.

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Reading list:

• Greer Kirshenbaum, The Nurture Revolution (2023)

• Sarah Blaffer Hrdy, Father Time: A Natural History of Men and Babies (2024)

• The Paternal Transition Entails Neuroanatomic Adaptations that are Associated with the Father’s Brain Response to his Infant Cues

• The biology of dads

• Plasticity of the Paternal Brain: Effects of Fatherhood on Neural Structure and Function

• Neurobiological Correlates of Fatherhood During the Postpartum Period: A Scoping Review

• The Neurophysiology of Fatherhood

Also, I plan on doing shorter, more opinion-oriented pieces every 1-2 weeks just to keep the flow of content going.

Whether you’re a new reader or a subscriber, would appreciate likes, subscriptions, and sharing with your networks (even if not through social media posts!)

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I. Introduction

Imagine a building surrounded by scaffolding. The scaffolding appears intricate and complex, as if critical to the building’s structural integrity. A swarm of people is always on it, buzzing around feverishly to get stuff done. Despite the work, it doesn’t seem to reduce; instead, it grows denser, bombarded with instructions and warning signs.

That’s my analogy for the global system over the past ~50 years — the neoliberal era. The scaffolding is a composite of the norms, regulations, theories, and jargon that liberals have woven together to create the reality we live in today. There are trillions of dollars spent on the political-intellectual complex, including technocrats, politicians, bureaucrats, academics, think tank bros, etc. — just think of how many “democracy” workshops and conferences are conducted annually!

All that is scaffolding.

This was the era of “nothing really happens”, a time of disempowerment, stifled imagination, dwindling hope, and growing discontent.

All of a sudden, however, many are starting to realize that the vibes have shifted, the era has changed. Unexpected things, bold moves, low-probability events, counterintuitive plays — it’s all creating a self-reinforcing cycle. The scaffolding has been corroding this whole time despite the illusion of impermeability. It’s now being pushed and prodded by the tide of global reactionaries that have taken power globally, breaking through the facade.

This is now the era of “you can just do things”. Old models are broken, historical trends are sterile, and everything we take for granted will change.

Assume that conventional mental models and trends — everything from US exceptionalism, liberal values, and contained volatility to pop culture, social norms, passive investing, etc. — are defunct.

The gist is that the global reactionary movement is well underway, as expected. However, people make two mistakes about it: firstly, that this is an anomaly, a break from the trend; secondly, that this is the revolt against the neoliberal system.

Both are incorrect.

This movement, epitomized by the US, is an acceleration of trends, not a change in them.

Who brought the anti-free trade argument to mainstream politics in the US? Bernie Sanders, in 2015.

Who has been peddling doomsday nonsense about the size of the national debt for decades? Both parties — Obama literally made a “we are out of money” speech in 2009, which severely dampened the post-financial crisis recovery.

Who has used state power to enrich themselves through insider trading? Both parties, led by Nancy Pelosi’s stellar investment record.

Who pushed for enhanced fossil fuel development in the US? Both parties, with Biden putting “drill baby drill” front and center of the agenda.

Who sparked the US-China rift and made it a cornerstone of US politics? Jake Sullivan, under Biden.

There are of course big differences, the most notable ones being immigration and foreign interventionism. But for the most part, the amount of shock and awe liberals are putting out there these days is unfounded and hypocritical.

This movement — and it’s adopting the same playbook across Europe and Latin America — is hated by the liberals for the simple fact that it is transferring power from one section of the elite to another. Unlike liberals, these people saw the world as it really is, not as it is concocted through fictitious narratives, and simply adopted leftist critiques — which have been accurate in critical analysis for decades — to tap into the very real anger and despair that exists in the masses.

Therefore, this is not the revolution. The page on neoliberalism has not been turned. Instead, neoliberalism has been co-opted by this other band of elite (the Thiel, Bannon, Vance kind), and the only reason liberals hate them is not because of some moral issues, but because they are unabashed in their state capture and in doing so, take away the scaffolding and expose what has been ongoing for decades.

So buckle up, this is only the final boss of neoliberalism. The rest is yet to come.

Hopefully, for readers of this newsletter, these developments don’t come as a surprise — for new readers, I’d encourage reading at least #1 and #14, where the foundation of this thesis was set

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II. The big picture

The global system is dying. Although we’ve referenced that theme, including using the now overly fetishized Lenin/Gramsci quotes (they’re on LinkedIn!), across multiple pieces, it’s too cliche now. Everyone is on the bandwagon, hitched to at least one of the following popular narratives: fourth turning, woke pendulum, Ray Dalio’s debt crisis, etc.

These mainstream analyses get two things wrong.

Firstly, as I wrote about in the previous piece, historical arcs are complex, rather than just cycles linearly turning (as both the fourth turning and the debt cycle theories suggest). The present moment is a cacophony of echoes emanating from various epochs in the past; to understand it requires being able to both isolate the sounds to see what elements from which moment in the past are being reverberated, as well as to theorize the interplay between them.

Secondly, these events aren’t historically deterministic. It’s not some mechanical force that is pushing the pendulum the other way, so to speak. Instead, the unraveling we are witnessing today is the result of a set of conscious, intentional, and calculated choices that created the system that many of us have benefited from, at the cost of others. Agency is critical to recognize.

This is the reality that liberals still fail to come to terms with. For them, the causal linkage between their dominance over the last few decades and the reactions we are seeing doesn’t exist; Trump, Modi, and others are anomalies to them, aberrations that must be corrected. Some other liberals do see the causal link, but for them, the driver is that the world they created was simply too good. Fukuyama, for example, infamously wrote in The End of History that liberalism would create societies so good that men would revolt simply out of boredom. He repeated this in a blog post last year:

“Certain human beings, in other words, do not want to be last men; they want to struggle to have their dignity recognized, or to have the dignity of other mistreated or marginalized people acknowledged. If they are privileged to be living in an established, wealthy liberal democracy like the United States, they will turn against their own institutions.” – Fukuyama, 2024

It’s mind-boggling, even blood-curdling, to read such stuff, especially in the Information Age. Even just in the Global North, particularly in the global hegemon, inequality is reaching levels last seen in the Gilded Age, a civilizational ecological catastrophe is underway, social ills (homelessness, drug abuse, gun violence, etc.) plagues cities, millions of people globally have been murdered, tortured, and displaced for imperial ambition, and so on. You don’t even have to read the news, you can just stroll through New York, Chicago, San Francisco, etc., let alone forgotten rust belt areas. And let’s not even get into the exploitation and destruction in the Global South.

And still (!!), the liberal elite fail to see why reactionary movements are taking over, and how they, including us – the global, transcontinental elite – as the beneficiaries, are directly responsible.

Zizek tells this joke about a rich man that telling his servant: “Throw out this destitute beggar – I’m so sensitive that I can’t stand seeing people suffer!” — very apt!

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III. Vibes

Moving on from the rant, I am going to go off on a tangent here and talk about the importance of vibes. Yes, just vibes.

If you get rid of any analytical framework and just think back to the last 12 months purely from a vibes perspective, you’re bound to realize that a lot feels different.

Whether it is assassinations (attempts), the sharp anti-immigrant shift, a sharp fall off in climate change hype, conspiracies around vaccines & aliens, Nazi salutes being discussed on mainstream television, celebrities taking the Trump dance viral, Victoria’s Secret bringing back its fashion show, a JLo concert and swimswear fashion show in Saudi, Arsenal reaching the Champions League semi-finals…

Depending on how invested you are in a topic, the importance of these events may vary, but the commonality between them is that they’re all weird and discomforting, to some extent. They just don’t seem typical in the world we’ve come to expect recently. This is not a judgment on their virtue or morality as much as it is a recognition that there’s something unfamiliar about them.

Those nagging, indescribable, and instinctive feelings are vibes.

The word “vibe” is short for vibration—something that resonates and echoes, suffusing a space.

Vibes are a medium for feeling, the kind of abstract understanding that comes before words put a name to experience. — Kyle Chayka

A “vibe” turns out to be something like “local colour,” with a historical dimension. What gives a vibe “authenticity” is its ability to evoke—using a small number of disparate elements—a certain time, place and milieu; a certain nexus of historic, geographic and cultural forces. — Elif Batuman

A vibe is the sympathetic resonance between a multiply-situated (geographically, temporally, politically, epistemically, materially, etc.) subject and their social and material milieu. — Robin James (its her factory newsletter)

I’d argue that vibes aren’t exactly feelings; they’re a nagging undercurrent. They’re like a dull backache that lingers for days and weeks, contributing to a build of frustration without impeding your daily activities. This is very much against the modern notion of rationality, where everything has to be empirical and analytical. But that is precisely the point. The faux notion of rationality that has taken over gives a false sense of control in a world that is unequivocally complex and chaotic.

Vibes are not drivers but simply a light blips on the radar – for those who know what to look for, they can serve as important signposts.

Take the run-up to the US election as an example. The liberal elite, both politically and technocratically (e.g., leading liberal economists like Larry Summers), spent the year chastizing the masses by labelling their complaints against the economy as a “vibecession”. The macroeconomic data, they argued, was magnificent: decreasing inflation with remarkably low unemployment. Underneath the jargon lay the classic “these working people are irrational, emotionally-driven beings, they just can’t see how great we’ve made life for them”.

But the people and the vibes were, of course, right.

For example, in 2024 the official unemployment rate was ~3.8% (a generational low) but the functional unemployment rate — a measure that takes the “jobless plus those seeking, but unable to find, full-time employment paying above the poverty line” — was at ~25%! That’s one out of every four Americans. Low-paying, part-time jobs in an environment of rising prices hid underneath the standard macroeconomic data (source).

The data above are some of the reasons the liberal elite were wrong. But more importantly, the Trump campaign picked up on the vibes, much like they did in 2016, and crafted the narrative accordingly. If you closed your eyes and listened to Tucker Carlson talk on his new show or heard JD Vance talk on the Joe Rogan podcast, you could easily assume that a Marxist revolutionary is talking. They railed against the system, the liberal elite, and the rampant inequality that existed. They paid heed to people’s experiences. They validated the vibes.

This leaked 2020 email from Peter Thiel tells you a lot.

Side-note: I did a long tweet last year about the increasing frequency of right-wing narratives that mimic left-wing critiques, and why that was the case – worth checking out here.

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IV. Trump 2.0

The most important thing to note is that Trump 2.0 is markedly distinct from Trump 1.0. While the prior version was more about mockery and negating the liberals, the current version is much more active and intentional about shaping the world, not just the US, through a particular ideology.

This chapter can be a whole piece, so to be concise, let’s frame some key questions and try to answer them.

• Is this a sudden and sharp break from prior trends?

  Not really. While liberals try to frame the right-wing movement as a sudden break of the system, the facts simply don’t support that. The Biden admin, much like Trump’s, realized that the global system was breaking, with energy security, containing China, domestic industrial policy, supporting the working class, etc. as key necessities for national security and development. The tones and messaging varied, but the expansion of fossil fuel production, incentives to bring manufacturing back to the US, running high deficits to boost economic activity, walking back from being the global policeman, etc., are all the same.

  The problems are, and have always been, structural. They shape those in power, not vice versa.

  The difference is what I started the piece with: Democrats continued to work within artificial constraints of political and social norms, while Trump is more keen to bulldoze his way to get stuff done. This is evidenced by how both approach industrial policy. Biden threw carrots at the private sector — offering bottomless mimosas, as Tim Sahay put it — to try to convince capital owners to align with the government’s vision. Trump, on the other hand, has used tariffs and other sticks to force an expedited redesign of the political economy. Same intentions, different approaches.

  This is why, with this newsletter, the approach has been to talk about the secular trends around energy and finance that drive the world, rather than focus on politics, because the latter is always a function of the former.

• Is this the reactionary movement to neoliberalism that we talked about?

  This is a tough one. My initial impression was that Trump 2.0 was the part of the four-point thesis where the right-wing reactionary movement pushes out neoliberalism. Instead, I think the current version of the right wing is the final stage of neoliberalism. We haven’t yet fully turned the corner from the system that has been in place over the past 50 years. The main reason for this is that while Trump and others have successfully tapped into the vibes of discontent, they are not keen to deliver on it. Instead, they are successfully manipulating public discourse and anger to do what neoliberals have done for decades: use the state to funnel wealth towards the elite.

  The biggest change is that the faction of elites in power is shifting. In the US, this means moving from the more classical vanguard of traditional finance, Washington intellectuals, and politicians to Silicon Valley tech bros. Everything around DOGE (which is a sham) and cutting agencies is not to get rid of waste, it is merely an indication of how the state will be restrcuctured to serve the new faction of the elite.

  Therefore, rather than the class struggle that would represent a true, even right-wing, reactionary movement, Trump 2.0 is simply an intra-elite struggle.

• What comes next?

  Building off the previous answer, the real danger might still lie ahead. Trump 2.0 has positioned itself as a revolutionary movement, which is why it’s support base is willing to tolerate short-term pain — as with tariffs — as they believe this is part of a larger struggle to reshape the world in their favour.

  In short, this is a movement riding the wave of revolutionary zeal and the momentary unchecked authority that comes with it to create new opportunities of elite (the ones it likes) capture.

  This is the golden era of grift.

  However, if my understanding of this being an intra-elite struggle that is still focusing on funneling wealth to the top is correct, then that invigorated support base is in for inevitable disappointment. The fire of revolutionary zeal eventually becomes uncontrollable.

  It is at that point that I think the real right-wing reactionary movement arises, one that is truly anti-elite, focused on full employment, and willing to go beyond merely hard-handed posturing to do what needs to be done to achieve its ideological vision.

  Therefore, rather than the liberals pulling off some kind of revival to defeat Trump, I think a JD Vance-led movement from within Trump 2.0 will shape the next step. Vance is much more of an ideologue, and with the backing of people like Thiel and Bannon, one can only imagine what that revolutionary movement will look like.

  I’d apply the same framework to other countries as well.

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V. Some suggestions

There are 3 frameworks/heuristics that are useful in cutting through the noise and making sense of the era we are now in.

1. Focus on the left-hand side of the equation

   For intents and purposes, making outright predictions is futile. This was largely true even before, given the complex nature of the world, but with the fast-moving and deep-rooted changes of this era, it becomes even less viable. Instead, the emphasis should be on understanding the fundamentals and tracing out potential paths so that it is easier to recognize, and as early as possible, if reality is shaping out differently. Getting the basics right is simply non-negotiable, especially with unprecedented levels of disinformation about every topic.

   This also includes paying particular attention to the intellectual history of ideas rather than taking them and the experts, from proposing them, at face value. Where does democracy come from? What’s the history of those who champion democracy? Where does mainstream economics come from? Why are some experts labelled as mainstream while others are heterodox?

   Now that it’s clear the global system is breaking down, you’ll become bombarded with all sorts of theories that try to explain it. The only way to separate the wheat from the chaff is through getting sharp on the fundamentals and questioning ideas through first principles.

   [For example, Ray Dalio’s debt cycle theory, which has been popular the past few years, doesn’t pass the sniff test]

   And for more theoretical topics, don’t rely on secondary sources. For the leftist critiques to better understand the system, read Marx, Gramsci (whom I have heavily used in previous pieces), Stuart Hall, Samir Amin, Fanon, etc.

   To better understand the reactionary movement, read Rothbard, Hayek, Mises, and Murray.

2. Class >>> nations

   It is simply not possible to understand the impact of most topics through the lens of nation-states; the only way to at least start the analysis is based on class struggle.

   Take tariffs, for example. Many people say that the US has benefited from trade with China, evidenced by the high GDP and GDP per capita. This is misleading because country-level analyses necessarily aggregate across disparate groups. Instead — and you can read more about this in Trade Wars are Class Wars, which I have referenced in previous pieces — the US elite have benefited from asset price increases and increased financialization, while many in the working class have suffered. Look at the average savings of US families, lifespa,n and health metrics, etc. Any attempt to talk about whether the US has benefited or not will result in people talking past each other because the unit of analysis (the nation-state) is a vague concept that is hard to aggregate across real resources

   You could also take war as an example. The India-Pakistan conflict is often framed as two nations that have a deeply ingrained rivalry. But who suffers and who profits? On both sides, it is the working classes and masses who suffer, either as civilians killed as collateral or as soldiers martyred in battle, while the elite use the tunes of jingoism to secure their control over material resources and political institutions.

   The world simply makes more intuitive sense if you start looking at it through the lens of class struggle and then layer in other factors — I guarantee it.

3. Have a sense of humor

   While the issues at hand are of utmost seriousness, the perhaps unnerving reality is that there’s no way to avoid burnout and crippling despair without being able to engage with people at some level of banter and wit.

   Trump, for example, has always been effective at using humor to both galvanize and comfort his supporters.

   If you look at the personal histories of left-wing revolutionaries like Castro, Che, etc., you will also find people that, despite the intensity of their struggle, found ways to de-escalate high-stress situations and make fun an integral part of resistance.

   This is no way triviliazes the tremendous horrors, particularly with the genocide in Gaza, that we must bear witness to. Instead, it is a way to maintain one’s humanity, forge communal bonds by cutting through the polarizing hysteria that is peddled as analysis, and exhibit a form of love that invigorates and inspires.

   Otherwise, you end up as A.J. Soprano.

Side note: Here are links to recent threads on Pakistan and Muslim societies that could be interesting. For more frequent commentary and hot takes, follow us on X!

Also, output here has been slow (apologies for that) but hope to get pieces out on the following topics before the end of the year:

Understanding the ecological crisis; industrial policy (market vs the state); China; and complex systems.

As always, please like, comment, and share to spread this free content]

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I. Introduction

“There is nothing more crucial, in this respect, than Gramsci's recognition that every crisis is also a moment of reconstruction; that there is no destruction which is not, also, reconstruction; that, historically nothing is dismantled without also attempting to put something new in its place; that every form of power not only excludes but produces something.” — Stuart Hall

In newsletter #14 we presented the 4 part thesis: 1) inequality and other crises ramp up to the point that the pitchforks start coming out; 2) right-wing forces replace the liberal elite and begin to undo whatever progress has been made; 3) the dying system doesn’t go down without a fight and partners with far-right forces; 4) technological breakthroughs like AI present both existential risks and opportunities while accelerating how quickly things unfold.

This has been the underlying premise behind the newsletter and has mostly played out well across multiple topics.

The past month saw strong performances by the Alternative for Germany (AfD) and Le Penn in the EU parliament elections. In the French snap elections however, the leftist parties delivered a crushing blow to the far-right — remember, Italy already has a far-right government and the Netherlands was close to making one after the most recent election as well.

State investment-led platforms that target inequality, shrouded either in far-right rhetoric that villainizes immigrants and promises a return to some pure past or anti-elite sentiments, are the only viable political strategy as liberal centrists lose support from all sides.

Across the pond, the US is already beginning to undo civil liberties such as abortion, offering immunity to presidents from civil and criminal charges, violently crushing non-violent protests, etc.

Major financiers, energy companies, and governments are reneging on their climate commitments, even as heatwaves and extreme events continue to break records. We keep repeating that the climate movement, even with its limited progress and mega-hype, doesn’t see the train that is approaching head-on.

All this to say that clearly, the winds of change are upon us, carrying major, largely unsettling changes even though the mainstream narrative remains aloof to it.

Liberals continue to act surprised by these developments.

But then again, everything surprises them. Maybe it’s time for them to rethink their approach to the world if they’re going to be wrong so often about so many things, and then force us to listen to their moral pandering.

[Always a good opportunity to plug in some Graeber]

But we digress.

The Stuart Hall quote above exemplifies the dialectic approach of Gramsci, Marx, Hegel, and even older thinkers such as Ibn Khaldun (more on this later). It is only through crisis and chaos that the opportunity for something new and better arises. But to shift the balance from threat to opportunity, we need people to recognize the gravity of the moment and accurately understand the forces at play. In newsletter #12, we took the ideological lens to explain polycrisis (or metacrisis) — in this piece, let’s take a big-picture historical approach.

Many schools of thought today use history to inform their analysis, but they often suffer from either recency bias — where they take too much of the present for granted — or misapply historical analogs.

Is this like the 1970s, with high inflation and energy shocks? Is this like the 1920s, with the rise of fascism and high inequality? Is this like the end of the Roman Empire, with oligarchic control of the state and an exorbitant amount of debt?

As Mark Twain said, “History does not repeat itself, but it does rhyme”. It is perpetually futile to find a historical analogy that can fully encapsulate the complexity of civilization; instead, we must recognize that the present is a polyphony of multiple historical tunes.

What forces from the past are we dealing with today? How quickly does history move? What does this mean for future potentialities?

All these questions are answered across 3 parts:

1. Understanding historical cycles

2. The robustness of progress

3. Explaining current events through this approach (examples used are ecological collapse, Palestine, and Pakistan)

Or you could skip this whole piece and just follow Kamala Harris’ mantra:

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II. Historical rhythms

In newsletter #12 we talked about how every one of us has an ideology, whether we know it or not, because without one it’s not possible to make sense of the world. For those who do not explicitly know what their ideology is, odds are that they follow the liberal ideology (distinct from liberal politics) as that is the dominant one today.

That relates to history such that liberalism forces history into a linear, sequential chain of events. The present becomes an outcome of the most recent prior events. Rather than forces ebbing and flowing (e.g., colonialism), such events get “solved” and become irrelevant. It’s all very nicely delineated and packaged. In fact, if you read Steven Pinker, Francis Fukuyama, Jarrod Diamond, Yuval Hariri, and most other airport intellectuals, they tell the story of human history in this linear fashion — from hunter-gatherers to agriculture to cities to modern civilization. The reality, of course, didn’t play out that way (read Graeber & Wengrow).

Alternatively, Gramsci talks about the importance of analyzing current events by looking at the multiple historical rhythms that converge to create every moment. Rather than history progressing through discrete events, there are waves that reverberate over varying, and some quite long, periods of time. So for example, colonialism didn’t just end in the 20th century through the formation of “independent” nation-states, its effects live on in very real ways and continue to shape the present.

In other words, the present moment is not merely the result of the most recent prior moments, but a combination of forces from across various historical time frames. We think it makes sense to see these forces as cycles of history, each with its own time frame, strength, and features.

“Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past.” — Marx

This makes the argument more intuitive, as there is a sizable group of people who talk about the end of the American empire, for example, simply as the completion of a historical cycle.

But let’s add more nuance and depth to this approach in a way that helps explain where we are today.

We can break these historical forces, or cycles, into 3 broad time frames:

Short-term

~50-year cycles in which the more tactical facets of the global system change. This is the most surface-level form of the global system and hence is the most adept at quickly changing shape in the face of new forms of resistance, technology, etc. It is the mode through which the ideological goals and power relations of the system are represented, but at this time frame the underlying ideology or structure of power themselves don’t meaningfully change.

For example, the US$ system was created ~50 years ago to maintain US global dominance in a world with rising oil-exporting countries, a global bout of economic development (led by South East Asia), etc. Before this, the US was still dominant but the mode was completely different, as the US was a trade surplus country, the US$ was pegged to gold, and the US was still funding the reconstruction of Europe. The creation of the Washington Consensus, the wave of privatization and deregulation, the quashing of unions and labor power, etc. can all be seen as short-term responses to the specific dynamics that have been relevant over the past ~50 years.

Instead, we are seeing the shift to more state power and direct intervention in the economy today, championed by the same institutions that led the deregulation farce.

Medium-term

~100-year cycles in which the foundation of the global system shifts — the ideology meaningfully evolves, while the philosophical, metaphysical ideas remain the same. The first example of this is the American empire, which took over from the British roughly ~100 years ago, and all the corollaries that come with it, such as how nation-state globally organize themselves in and around US security circles, the very shape/structure of these nation-states, etc. (explained more later).

The other example is of easily accessible and cheap availability of commodities (fossil fuels, metals, etc.), without which modern civilization would be impossible. As I wrote about in previous pieces, this cycle is now turning, where worsening ore quality, increased energy expenditure to get one unit of energy back, etc. are all forcing us to transition our civilization away from this material glut.

Long-term

Multi-century cycles where the philosophical and metaphysical roots of civilization get shaped. For example, we live in the post-Enlightenment era today, regardless of where we live, which religious or ethnic group we belong to, and what we believe in. That does not mean that the Enlightenment is a monolithic philosophical system, or that we all agree with it — simply that everything around is shaped by it, even if it is in opposition to it.

Some of these core Enlightenment beliefs are the power of humans over nature, the need for rationality over spirituality, and the importance of the individual over the collective. Like it or not, these ideas run so deep that they literally shape everything around us. Both climate deniers and techno-utopian eco-modernists believe that humans can control nature; both liberal atheists and modern Muslims place the individual, rather than the social, at the center of their worldview; and all of us are united in our insatiable desire to fill the void of meaning in ourselves through conspicuous consumption and dopamine/adrenaline hits.

To be clear, this is not to hate on, or judge, any particular belief or idea. All ideas have their pros and cons. The goal here is simply to articulate the context in which we live.

How these time frames interact

1. As we move from short, to medium, to long-term cycles, the gravity and robustness of the impact exponentially increase. This, almost definition then, also means that the inertia also increases, so the volatility and effort (read: resistance) it takes for a cycle to end exponentially increases.

2. These cycles operate as a complex system with a multitude of interactions shaping any present moment, meaning that it is virtually impossible, almost counterproductive, to use them for predictions. The range of outcomes is infinite because of how various forces could overlap, how small events can change the trajectory of each, and external factors (e.g., nature) might play a role. The point is not to predict the future nor is it to trace a deterministic path through the past; instead, it is merely to understand the network of roots out of which the present has emerged.

3. For the sake of simplicity, this analysis condenses time and space. We assume that there is one, globalized cyclical pattern, and while that may be largely true under a unipolar hegemony, there is always a multiplicity of cycles and civilizations that exist.

   The years mentioned against each cycle are adjusted to the present. Our increased ability to harness resources has led to increased globalization, which makes history go faster. Events reverberate across the globe quicker, a lot more violence can be inflicted in a fraction of the time, and more connection simply more fragility.

III. Where we are today

We are in the early innings of a cataclysmic transition as all three types of cycles are sun-setting while their replacements suffer from birth pangs.

In the short run, the era of neoliberalism is ending. The return of the state through industrial policy, tariffs, and increased global conflict has ended the Washington Consensus tactics of privatization and deregulation. Ideology has come roaring back as people realize that they have been kept under the veil of a post-ideological society, blinded by false promises of liberalism and forced into sterilized forms of resistance where any real criticism was branded as “radical”. The era of low interest rates and low secular inflation, at least in the Global North, is over as forces of secular inflation — demographics, supply chain disruptions, geopolitical risks, ecological destruction, etc. — become entrenched.

In the medium run, the American empire is ending. This isn’t a political statement because what made the US a superpower was its industrial might at a time when the world needed reconstruction after two world wars. Today, the country has crumbling infrastructure, an overly financialized economy, rampant inequality, extreme polarization, increasing sociopolitical violence, dwindling allies abroad, and weaker soft power globally. It takes decades, however, for an empire to arise; and hence, decades for one to end. If forced to make a prediction, I’d wager that a multipolar, regionalized global system follows, not a unipolar one with China.

In the long run, the liberal secular atheist model of the world is gradually facing real competition. Increasingly fewer people believe that humans can definitively conquer nature and bend it to serve our needs. Prioritizing the individual over the collective, trying to solve all human needs, including spiritual and existential ones, through material consumption, and undermining non-Enlightenment traditions are all going out of fashion.

There is no question that these are still dominant ideas underpinning global culture, but they are withering away. The increased turn towards religion and spirituality, even including the exoticized versions of Buddhism, Taoism, yoga, etc., is an example of this change.

Others include more people seeking bucolic, slower lifestyles away from the hustle of urban cities, the recognition that the mental health epidemic cannot be solved through material stuff, and so on. Again, we should be careful not to assign some normative judgment to these trends because all lifestyles come with their pros and cons; their outcome in terms of social good depends on the context in which they are used.

“The world says: "You have needs — satisfy them. You have as much right as the rich and the mighty. Don't hesitate to satisfy your needs; indeed, expand your needs and demand more." This is the worldly doctrine of today. And they believe that this is freedom. The result for the rich is isolation and suicide, for the poor, envy and murder; for while the poor have been handed all these rights, they have not been given the means to enjoy them. Some claim that the world is gradually becoming united, that it will grow into a brotherly community as distances shrink and ideas are transmitted through the air. Alas, you must not believe that men can be united in this way. — Dostoevsky

But perhaps most importantly at this level is something we have talked about endlessly in this newsletter: the past few centuries have been shaped by unprecedented access to cheap and readily available fossil fuels and raw materials. We have constantly moved up the energy quality ladder (with oil at the summit), continuously consumed more and more of each energy resource, and plundered new sources of raw materials. The whole world, and our history, is shaped by this alone.

[More details on this here, here, and here.]

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IV. The polycrisis

Before the case studies, it is worth briefly discussing how and why cycles end. Basically, how does history move forward?

The mainstream (liberal) approach is that bad things happen because people just don’t know any better, so through some education and public pressure, the people in charge have an epiphany that leads to progress. It may sound satirical but this is quite literally how liberals explain the rise of Western civilization: the world was barbaric and then a bunch of philosophers discovered “human rights” so that’s how women got rights, slavery was abolished, and the world was civilized. This is of course mere propaganda — it was then, to serve the slave-owning, imperialist class to which these philosophers belonged, and it is today.

Instead, there is the dialectical approach to history that we mentioned at the start. In this version, history progresses not from epiphany to epiphany, but as a repetitive process of creative destruction (to use a simplification). Every dynamic that arises, every system that takes root, simultaneously creates its antithesis. Therefore, at all times, contradictions are being developed and heightened in all systems. Ultimately, the contradictions become so severe that the system is forced into a solution where some essence from the old is maintained to create a new system.

Simply put, the liberal approach believes that bad things happen because something exogenous to the system went wrong — e.g., bad actors took power. It doesn’t recognize that what goes wrong comes from within the system. The dialectic approach, however, is more of a yin-yang model (to put it crudely) where the thesis and anti-thesis necessarily exist together — in fact, they create each other — and the contradiction between them is what drives historical change.

The important point here is that cycles don’t just end, they implode because of their contradictions. Violence, chaos, and volatility are standard features of this phase because those contradictions have led to pent-up energy — for example, an oppressed working class that has had enough — that is unleashed. The more cycles ending together, the more the intersection of this process, leading to a whole greater than the sum of its parts.

“The old world is dying, and the new world struggles to be born: now is the time of monsters.” — Gramsci

This thesis, we believe, helps contextualize and explain the polycrisis. This is why the current era is not like the 1970s or the 1920s or whatever else. The latter is the closest analogy from recent history given that it too saw a short and medium-term cycle shift. However, the distinct differences are that European civilization was firmly hegemonic at that point and that long-term existential threats like ecological collapse weren’t dominant factors.

That’s what makes this era we are entering special because it is something that arises every few centuries. To reiterate, these changes take generations to play out, with a constant ebb and flow between trends and dynamics. What we do know is that, as this newsletter has made a point to note in almost every piece, is that volatility and uncertainty are the main themes.

There is a lot about the current world we take for granted, ranging from the existence of certain nation-states and the range of political possibilities to global supply chains and living energy-intensive (read: comfortable) lives. All that came into existence through past historical cycles, and so can easily — and likely will — get undone in this transition period.

The only thing real is the material world — i.e. physical constraints, the ecology, etc. Everything else is human creation, which is both liberating because the possibilities are endless if we expand our imaginations, but also terrifying because it reveals how fragile our way of life is.

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V. Case studies

Below is a visual illustration of the polycrisis from a dialectical materialist perspective.

Now let’s look at the 3 case studies using the framework discussed in this piece. Note that this is just a brief application; each of these examples warrants its own piece given the complexity involved.

Palestine

In newsletter #12, we wrote about how it was frustratingly self-defeating that most liberals, even the well-intentioned ones, were stuck in this doom loop of being shocked and calling on “international law” every time an atrocity happened. They still don’t realize that liberal notions of “human rights” and “international law” are fantasies that were set up by hegemonic forces to delude people into becoming active participants in their own oppression.

Understanding historical cycles shows that these notions arose in a specific civilizational context — that of Western Enlightenment — and hence are tied to the goals and modalities of that system. This same philosophy was the foundation of imperialist conquests, the loot and plunder of the Global South, genocide against natives, etc.

At the same time, seeing how cycles end would also clearly show that no real change in history (read: resistance against oppression) happens through moral rhetoric. No system gives up power because the people it is oppressing can make a convincing argument. Power shifts and the creation of a new system is a chaotic, and almost necessarily, violent process. That’s not an opinion, that’s just history.

Without this, any support for Palestine is merely jumping on a bandwagon that is implicitly still hitched to the status quo.

For a more accurate analysis of the situation, let’s contextualize it across the three historical cycles:

• Long-term: Israel is a manifestation of European imperialism, both operationally as a settler colony, and rhetorically with the colonial language of civilizing and democratizing a backward, unstable region. The clash of civilizations narrative to create the facade of a religious war is also consistent with the divide-and-conquer strategy that has been the go-to tactic of imperialists.

• Medium-term: This probably gets the least attention. The issue did not start in 1948. Instead, the roots were set decades earlier at the end of WW1 when. In those decades, we were witnessing another cyclical shift. The US was taking over as the global hegemon, which opened up power vacuums across the Middle East.

  For example, the new Saudi state was formed and chose to ally with the rising US as the first “ally” in the region. Even though the Saudi monarchy was staunchly anti-Zionist, and the US was firmly Zionist, the new Saudi state prioritized this alliance because it wanted to counter the growing influence of the Hashemite kingdom (aligned with the British) in the Greater Jordan area, the Mufti in Palestine (who was against the House of Saud controlling the Holy Sites), and the newly independent Egypt.

  Over the course of the 20th century, Arab monarchies continued to align with Western interests, undermining the Palestinian cause, to gain political leverage against the growing leftist, nationalist, and pan-Arabist movements that threatened to reform the region.

  Today, as US hegemony withers, those fault lines are opening again, and the political entities that arose, or were engineered, to meet the postcolonial interests of Western powers will potentially be undone (that includes Israel). The Faustian bargains many of these nations made were always unstable, and as the underlying risks in the system get more exposed, these systems will be harder to maintain, until it is impossible to do so. The contradictions leading to the implosion of Israel are plain to see, but it will impact the whole region given how much historical linkages there are between the existence of it and the Gulf states. The window of change is open.

• Short-term: The energy crisis of the 1970s shaped the system that we still live in today. Given the energy-exporting nature of regional powers and the importance of the Palestinian region as a trade route, as well as a source of natural resources, this is the dominant dynamic that has shaped the politics. We won’t get into the details about Gulf states striving for decades to normalize relations with Israel, but it goes well beyond the “the enemy of my enemy is my friend (anti-Iran)” logic that most commentators boil it down to.

  Lastly, the end of the neoliberal era is marked by the return of ideological politics. The Arab world, and with it the Palestinian cause, was a hotbed of ideological diversity, all striving to defeat imperialism in the region. Those movements were crushed and the past few decades have been a sterilized political lull. Now, as those medium-term cycle faultlines re-emerge, leftist, nationalist, pan-Arabist, and potentially other forms of politics, will tug at the core and inevitably reshape the region, liberating Palestine.

Climate change

• Long-term: We definitely have a philosophical problem of believing that human ingenuity, rationality, and technology can perpetually dominate nature. This isn’t just an economics problem, where ecology is merely seen as a commoditized input, but a literary, sociological, and cultural problem of hubris. The long-term contradictions here are clear: the more we exploit natural resources — e.g., the soil — the more fragile we make our civilization as those resources deteriorate, leading to us frantically exploiting more in an attempt to fend off disaster.

  Similarly, while we try to dominate nature to feed our consumption needs which is supposed to make us feel good, our increasing detachment from nature increases loneliness, and exacerbates physiological and mental health issues.

• Medium-term: During WW2, famous economist Simon Kuznets came up with the concept of GDP to measure sector-wise outputs in the economy and disruptions from the war. Through a complicated intellectual history of neoclassical economics, GDP became the core goal of the global economic system, even though Kuznets himself had warned against using it as such. Burn down a forest and replant some monolithic seedlings — GDP growth. Since we ultimately live in a material world, GDP growth is directly driven by increasing energy and material use as inputs, and more waste as outputs.

  Our obsession with growth is what drives climate change and ecological collapse.

• Short-term: The neoliberal era from the 1970s created an environment of deregulation and privatization, where large corporations and oligarchs could pursue profit unfettered by any social or ecological cost. At the same time, these agents and entities took over the state and other key institutions, leading to widespread lobbying and misinformation that undermined the climate cause despite consistent evidence. Even today, we remain stuck in this desire to “mobilize the private sector” — although as we keep saying, the return of the state as this cycle ends presents an opportunity for collective action.

Pakistan

This is one of the best examples of things that were formed to serve the needs of a specific cycle, and hence are most at risk of being undone as that cycle ends.

• Long-term: Pakistan suffers from the volatile political concept that a nation-state can be formed by bringing together distinct communities under the banner of an idea — in this case, religion. On top of that, there’s the belief that liberal democratic institutions can simply be built through some education, imported technocrats, and foreign aid. This has proven to be nothing more than Einstein’s definition of insanity: doing the same thing over and over again. This whole phenomenon is inherently unstable, made considerably worse by the Westernization of Islamic discourse.

• Medium-term: Pakistan’s geostrategic importance has made it an important “ally” (to put it politely) for Western powers, whether to contain Soviet or Chinese expansion, contain nuclear risk, or gain political leverage in the Muslim world. But as Western hegemony withers and the world fragments into more regional issues, the strategic value of Pakistan fades, and with it, the political and economic support that has served as crutches for the nation.

• Short-term: Particularly in the neoliberal era, Pakistan has been stuck in the IMF-induced debt trap. Other nations in the Muslim world have moved on with their political alliances, neighboring South Asian countries like India and Bangladesh have surged ahead into totally different leagues, and Chinese patronage is getting flaky.

  Today the country in the midst of deeply entrenched social violence along sectarian, ethnic, and political lines, a crumbling economy marred by the elite exploiting every piece of labor and natural resource that is available, and dwindling external support to keep the lights on.

  A country that has by far the lowest salaries compared to neighboring developing countries, along with milk prices higher than Germany, electricity prices higher than the US, and facing deadly summer heatwaves would expect to see riots. But Pakistan is so fractured along sectarian, ethnic, and political lines that even this catastrophic cocktail of events can’t bring the masses together.

  As a nuclear power with a large, young, and charged population, Pakistan should be on top of everyone’s fascism and global risk list.

  

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  ___

  Crazy things happen when historical cycles turn and the window of change opens up. This is that era. The world we live in, with all its issues and contradictions, wasn’t shaped overnight. And the undoing of it won’t be either. Every few generations there’s a chance to fundamentally reshape the world — this is our chance to make the most of it.

[Author’s note: It’s been just over a year since this newsletter started, and it has far exceeded expectations over that time, approaching 600 subscribers from 15+ countries.

Thank you for those that have stuck around since the early days and welcome new readers — we hope this continues to offer value in a market increasingly inundated with content. Always appreciate receiving feedback on content, style, and other attributes so please feel free to share!

Also, if you have never done so thus far, please share this or your favorite piece with your networks and on social media. This is a free labor of love so helping expand outreach would be considered a token of appreciation.

With that, hope you have an incredible 2024!]

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In late 2022, our first piece explained how the era of globalization was over, and to comprehend what was breaking, we first needed to realize how the global system was delicately balanced atop a few critical elements: energy, materials, finance, and supply chains. 2023 served that thesis well, and hopefully, our analysis helped you not just navigate the myriad of unprecedented events as they unfolded, but also recognize the failure of mainstream media and narratives in being able to understand what was happening:

• Where mainstream narratives were totally wrong: De-dollarization and how either the Yuan or some BRICS, gold-backed currency was going to replace the US$. They were also wrong about inflation and debt in the Global North.

• Where mainstream narratives were insufficient: Understanding why fossil fuels continued to hit all-time highs, the risk of supply chain disruptions, the ongoing genocide, etc.

• What mainstream narratives ignored: Chart-shattering extreme weather events, the death of 1.5C global heating target, etc.

In all these topics and more, our analysis has been geared to serve people who look at the whole through a myriad of lenses, ranging from policy, politics, financial decisions, business opportunities, activism, and general knowledge. Would love to hear feedback on ways to improve delivering this service!

The philosophy behind this newsletter continues to be simple: there is a lot of crazy stuff that is happening and ramping up, which is not only driving polarization across all sorts of social identities higher, but it is also causing real, physical harm to so many people. It is easy to get lost, disillusioned, and apathetic through this combination of overstimulation and powerlessness — this is why anxiety and its corollaries are surging higher. One of the first steps to bring back hope and motivation is to be able to understand how the world works so that we can then either take protective measures and/or better choose our role in making it better. That is what this newsletter is about. Knowledge is a powerful tool, and for too long we have been castrated by being given deceptive tools that only made us complicit in our own suffering.

This piece has 3 parts:

1. Our overall thesis

2. Top events of 2023 and what to look out for in 2024

3. Best resources for 2024 and beyond

I. Our thesis

Long-time readers of this newsletter will know that the first ~10 pieces focused on laying the groundwork for explaining the base layer. What’s common across each of the elements below is that although they are different types of things, they are all at the bottom of the explanatory food chain — i.e. the building blocks that can only change form but can never not exist — and they are incredibly hard to reconfigure.

The thesis can be explained in 3+1 parts:

First, the pitchforks are coming because increasing volatility in the base layer has caused people’s access to basic needs such as food, heating, security, etc. to become harder, thereby breaking the delusion that we all live under some meritocratic system where if you adopt the right liberal values, prosperity would come your way. Rampant inequality, increasingly glaring contradictions, and being squeezed even harder than usual because of energy shortages, inflation, climate change, etc. are what spark the fire and bring out angry, disenfranchised people onto the streets. Hence, the pitchforks.

Second, the liberal elite gets booted out and the right-wing fills the gap (for the most part). All systems are built on trust and deference, so as the masses turn against the elite, a power vacuum emerges. and people start looking for whatever reactionary, anti-elite narratives and movements they can find. You can narrow down potential alternatives to two broad types: right wing and left wing. Note: liberals and leftists are two totally different groups. In today’s world, given that left-wing movements have faced 50 years of non-stop suppression, the most organized anti-elite forces are right-wing, often far-right, movements. Hence, in many cases expect the far-right to fill that vacuum politically — Trump, Bolsanaro, Milei, Modi, etc. — as well as socioculturally, which you can see with the rise of Jordan Peterson, Ben Shapiro, Chris Ruffo, etc.

This is the part where whatever progress we have made on social, climate, economic, etc. topics over the past few decades can easily get undone. For example, just look at Roe v. Wade in the US, the resurgence of anti-immigration politics, the u-turn of fossil fuel companies and financial institutions on the importance of oil and gas, etc.

Third, the dying system doesn’t go down without a fight and lashes out. There are two ways for them to resist: partner with far-right leaders to protect their interests (which is what Bolsanaro, Modi, etc. are/were given their close alignment to the rich); and/or double down and increasingly turn towards suppression and coercion. The second option is what we are more likely to see, and are already seeing across the board with more blatant war/genocidal actions, surging us-vs-them rhetoric, etc. It’s the lashing out of someone knowing they are drowning. Sadly, that someone is a social group with tremendous wealth and power at their disposal, which is why things are getting increasingly violent and unhinged.

Based on the past year, it is relevant to add a fourth part to this, which is that this is also a time of incredible technological breakthroughs, and yet we are a civilization that severely lacks wisdom and maturity. AI and quantum computing are the biggest game changers we have had in a while and will redefine so many critical sectors, including medicine, energy, entertainment, etc.

Note: We don’t want to pile onto the AI bandwagon here as there is too much premature froth and excitement; however, over the next decade or so we expect big impacts.

We have this remarkably powerful tool at our disposal, but what comes out of any tool is a function of the socioeconomic setup under which it operates. How will these tools be used in a broken system that is shaped by the hypothesis mentioned above? Even if this wasn’t a decade when the global system was breaking, will our overall civilizational “full-steam ahead, no holds barred” type approach just use these tools to accelerate into hitting a wall? Who will benefit and who will face even more exploitation?

[More on this 4th part in the future but highly suggest listening to the experts on this — suggestions in the resources section]

In a world where all this is already happening, understanding things as they are is critical, although insufficient on its own, to not just protect yourself but also contribute to a better tomorrow. Hopefully, we are playing a small part in that.

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II. Hot topics

Here is our list of the biggest events in 2023 and the top 3 to look out for in 2024, by base element:

Energy, raw materials, and supply chains

Top stories of 2023:

• Fossil fuels (and CO2 emissions) hit all-time highs: Despite the narratives, the investment, and the technological progress, oil and coal (!) reached their highest levels of global consumption. This was very much predictable though if one understands what makes FFs special (see newsletter #6) and how the current systems aren’t designed to simply replace these energy sources with wind & solar seamlessly (see newsletter #13). The Norway and California case studies, as renewable energy leaders, offer valuable insights.

  

• The rise of the US and China as major energy players: Typically we think of the Gulf countries, Russia, etc. (OPEC countries) as the countries with the most market power in the energy space, given the supremacy of oil and the reliance on these countries for supply. 2023 was a year when this started to shift. In short, the US became the world’s largest producer of oil (10-15% of global supply, up to 20% if you include natural gas liquids) as shale oil production roared back. This doesn’t mean the world depends on US supply because the key metric for that is net exports, where the US is still behind countries like Saudi Arabia because it has to import certain grades of oil it doesn’t produce. However, this supply capacity, along with friction between OPEC countries, has severely reduced the pricing power of OPEC. Oil is still supreme, but the way the global market is structured has dramatically shifted.

  On the other hand, China’s leading role doesn’t come from it being a supplier of energy resources, but from having an iron grip on the supply chain for a variety of raw materials that are critical for electrification, decarbonization, industrial development, etc. Their dominance runs across the board, from nickel, cobalt, tungsten, and lithium to rare earth metals. As the world’s largest consumer of these materials (by far), countries that export these are dependent on China’s demand, while countries that use the processed version of these materials are dependent on China’s ability to refine and process these materials. This developing dynamic isn’t at the same level as oil in the 1970s — simply because raw materials are an eclectic group of substances and can’t be centralized the same way — but it is going to have similarly major implications on the global system.

• (Extremely) extreme weather & the death of the 1.5C target: Across all the main climate metrics, e.g., land temperature, sea surface temperatures, etc., 2023 was a record-breaking year, beating even the expected levels of global heating. This is because of a combination of two things: reduced aerosols (e.g., sulfur dioxide) because tragically these air pollutants helped reflect sunlight and cool the planet; second, switching from La Nina to El Nino, which typically results in higher than trend temperatures (see newsletter #9).

  As more heat is absorbed due to increasing GHG emissions and less heat is reflected due to lower aerosol emissions, global heating is accelerating! This can kick off feedback loops (e.g., higher ocean temperatures melt more ice which then leads to less sunlight being reflected and more being absorbed by the water, causing more heating) and push us over tipping points. More heat means more energy for storms (more rain, faster wind) in some places, while it means dryer air, and hence wildfire risk, in others.

  

• Supply unchained: If supply chain disruptions were bad in 2022 because of the Russia-Ukraine war, 2023 kicked it up to a whole new level. That front continues to remain open, with new issues raised in the Middle East with disruptions related to the Israeli genocide and the reaction of Houthis in the Red Sea. Commodity trading is always a high-risk, high-reward business, but it relies on a certain degree of predictability and routine because of the volume of stuff that needs to be moved around, as well as the complexity of managing all the routes, the equipment, etc. It is said that the most important institution in global trade over the past 50 years has been the US Navy because it, for better or for worse, was able to dominate trade routes and keep them stable. Now that confidence is missing and more fractures in the system emerge.

  This isn’t just about sea routes by the way; other examples include the revolt in Niger and the new government’s reluctance to supply France with Uranium (60% of French electricity comes from nuclear and Niger is a top 3 supplier). Lastly, this also isn’t just about geopolitical disruptions. Underinvestment in the industry and long-lead of new mines has limited the speed with which supply can be ramped up at a time when demand is exacerbating.

  Therefore, longer wait times, longer routes, higher insurance costs, demand-supply gaps, etc. will all have huge ripple effects across the global system, impacting prices and who gets what when.

For 2024, we expect these trends to continue and have chosen 3 big things to look out for:

1. First major heatwave catastrophes: The extreme weather situation gains momentum as this might be the year that the El Nino is in full flow. The past few years have already seen terrible heatwaves across the globe, major floods, terrible wildfires, etc. but 2024 may be the year that we have a real phase shift in the intensity of these events. Thinking along the lines of The Ministry Of The Future here.

2. The climate counterrevolution gains steam: In previous pieces, we have argued that the current climate movement relies too heavily on platitudes and reductive “win-win” situations; this might be the year that those start to unravel as the “other side” uses these failures (e.g., the offshore wind news in the UK), along with the growing chatter around energy security”, to undermine efforts to decarbonize. Remember, growth in renewables doesn’t matter if fossil fuels are growing in tandem!

   At the same time, we may also begin to realize, at the mainstream level, that a lot of the technologies that the current climate movement relies on aren’t as rose-tinted as they seem. Examples of this include busting the myth around how much cleaner natural gas really is compared to coal since we don’t have a good way of accounting for methane leaks, the viability of carbon capture (even through natural systems) and how our ability to ramp it up by 2050 is grossly exaggerated, and the limits of hydrogen as the messianic fuel (energy carrier) that will decarbonize the hard sectors like aviation and steel manufacturing.

3. The resurgence of nuclear energy: This warrants a whole piece but in the struggle to achieve the dual goals of decarbonization and cheap, stable energy supply, nuclear energy stands out as a clear winner. We are not propagating it as a solution (we will discuss that in a future piece) but the trend towards nuclear is undeniable. There was a pledge at COP28 to 3x nuclear energy capacity by 2050, nuclear-skeptic countries like Japan are looking to restart idle plants, and China is leading the way with expanding nuclear capacity and innovating on plants of various sizes. Expect a lot more demand to be announced for nuclear in 2024, while at the same time, supply is dreadfully limited because of years of underinvestment (uranium price 🚀).

To conclude this section, want to rehash a quote we have used before: In the fight between physics and platitudes, physics always eventually wins. 2024 might be the year the rubber band starts snapping back towards reality.

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Money, finance, and the economy

Top stories of 2023:

• De-de-dollarization: Our favorite news event of the year was when everyone from Twitter experts and mainstream analysts to local media in various countries was pounding on the “this is the end of the US$ hegemony” narrative. The Chinese Yuan, a BRICS gold-backed currency, or a basket of commodities was apparently going to become the global reserve currency. Even if one doesn’t understand the operations of the monetary system, it’s typically a winning bet to go against such a loud and eclectic majority.

  Amid all this confidence, we addressed this topic in a couple of pieces, explaining that once you understand how the system actually works, you can see that de-dollarization is simply not something you can wish or announce into existence. Yes, major countries like China and Saudi have taken measures to diversify away from using the US$ for global trade, but these transactions are not just paltry in size, they also don’t really hurt the US$.

  Our take on this is simply that yes, countries do want to decrease their dependence on the US$ given the geopolitical risks, but they don’t want to replace the US$ system. Countries like China are trying to expand the acceptance of the Yuan and build a parallel cross-border payment system not to replace the US$-Swift system, but merely as insurance in case they ever need to use it. De-dollarization — meaning lesser reliance on the US$ for trade and foreign exchange savings — will happen as a result of the global system breaking, but this will be a deeply painful process that will be forced upon most of the world.

  This is also tied to the narrative that China is dumping US bonds, which will inevitably spell trouble for the latter. Not only does it make no sense for China to do that, it has continued to invest heavily in US assets, simply switching from bonds to other types of securities.

  [Here’s a dollar dominance monitor]

• The inflation rollercoaster & another loss for mainstream economics: In 2021-2022, with the first serious round of inflation in the Global North in decades, analysts were jumping on the hyperinflation bandwagon. “Look at all the government spending, this is going to be terrible for inflation” was common wisdom. Instead, not only did inflation sharply come down in 2023, it also did so without causing a recession!

  Let’s think about this for a second: 85% of economists expected a recession in 2023. Larry Summers, former US Treasury Secretary & ex-Harvard President, was calling for “five years of unemployment above 5% to contain inflation” — that means millions of Americans, mostly working-class people, losing jobs!

  There’s no data-picking or politicking here. Mainstream economists said one thing would happen, while heterodox economists said another, and the latter were proven right. Why? Because they understand how the real world works and don’t rely on archaic textbook theories and faulty models.

  There are two major reasons why the heterodox crowd got it right. Firstly, the inflation was driven by supply-side factors such as manufacturing restarting in a gradual and fragmented way in a post-lockdown world, sanctions on Russia which is a major supplier of oil, wheat and other commodities, etc. Rather than crushing demand through forced unemployment and recession, which is what mainstream economists were calling for, increasing supply and clearing up supply chains was what was needed — and what we got.

  

  Secondly, high government spending is a huge boost to the economy. Countries like the US that can spend in their own currency rather than borrowing in other currencies (explained in newsletter #5) crowd-in investment through productive spending, which is what the US did with the IRA bill and all the efforts to bring back manufacturing, achieve energy security, etc. This is exactly what Obama did not do in 2008, choosing instead to believe the economic orthodoxy and declaring that the govt had no money to support its citizens, which resulted in a sluggish recovery lasting many years.

• The return of industrial policy: For the past 50 years, the one-size-fits-all policy recommendation from mainstream economists and multilateral institutions like the IMF and the WB has been to deregulate, privatize, and loosen trade protections. This has of course been disastrous for many Global South countries and was always hypocritical because it was not how rich countries developed either. Now that the polycrisis is hitting Global North countries and they are desperate to (re)develop, the buzzwords making a comeback are industrial policy, the developmental state, the de-risking state, etc. Basically, after 50 years of preaching the opposite, the state is well and truly back.

  There is simply no other way to deal with the challenges of organizing economies to tackle the multitude of crises that we face than for the state to return as a key coordinating actor. Now, this isn’t by definition a good thing either. Daniela Gabor has done excellent work to highlight the difference between the de-risking state and the big green state, in the climate context. The former is what the US is becoming, where state investments and subsidies are focused around coralling private capital into certain sectors (e.g., EV manufacturing) by offering them higher risk-adjusted returns. The big green state, however, is when the state is much more direct in its actions and pushes economic sectors to meet certain social goals (e.g., energy nationalization in Europe, Chinese state focus on advanced manufacturing, etc.).

  This trend is just getting started, and countries around the world — including Brazil, Mexico, Indonesia, Malaysia, etc. — are following suit. The various shapes and forms the “industrial state” takes will be something to watch out for, and fight over.

  

As for the top 3 things to look out for in 2024:

1. Stagflation: There are basically 3 camps in terms of where Global North economies, mostly focusing on the US with implications for the globe, end up. The first one is the “hard landing” camp which predicts a strong recession sometime this year. The second is the “soft landing” camp which believes that no recession will happen and inflation will stop being a problem. The third is the “no landing” camp which believes the economy will be strong but inflation will come back.

   Given the combination of economic factors and geopolitical events, we fall in the no landing camp, which basically predicts stagflation to be prevalent. High GDP growth, relatively strong employment, but a resurgence of inflation. We believe that continuing government spending, particularly in productive areas like energy and manufacturing, will keep the economy strong but supply chain disruptions and potential commodity shortages will send prices higher again.

   We mentioned in the first newsletter piece that for the past few decades, we were staunchly in an era of secular low inflation, driven by increasing globalization, access to low cost (exploited) labor, cheap access to energy and materials, etc. Now we have entered a secular inflationary environment because of our surging material needs, geopolitical tensions, brewing financial crises, etc. There will be volatility — and hence bouts of low inflation or even deflation (which is also bad) along the way — but the trend is upwards.

   

2. Global South funding dries up: In 2023 we expected debt crises to start wreaking havoc on the Global South countries, particularly the ones with high foreign debt. For the most part, that did not happen and countries like Egypt, Pakistan, and maybe to an extent Argentina, have managed to hold on — although just barely as they continue to suffer from high inflation & slow growth. However, the causes for our analysis remain at play, including the drying capital that is available for these nations, higher costs to import critical things like food and energy, etc.

   Therefore, as geopolitical risks heighten, the system breaks down further, and economic agents become more concerned with domestic issues, funding for Global South countries is going to get much, much tighter. This includes sovereigns being able to borrow, developmental aid funding, VC funding, etc. From the Global South side, higher interest rates, costs of recovery from climate damage, etc. will reduce the ability to raise finance domestically.

   This will get exacerbated by the weaponization of funding as rich nations will use it as a means to buy geopolitical leverage, or deliver punishment.

3. All eyes on China: There is little doubt that China has been the powerhouse behind the global economy for over a decade now. It is the largest consumer of commodities from developing, commodity-export countries, it is one of the largest exporters of goods to many nations, it imports advanced industrial goods from Japan and China, etc. 2023 was a bad year for China, moreso relative to expectations than in absolute terms.

   With the end of the zero-Covid policy, investors and economic analysts were expected a huge surge of pent up demand that would drive global growth. This never materialized, and instead, issues regarding their real estate sector and high state government indebtedness continued to dominate the headlines. Those, combined with youth unemployment hitting new highs and a falling population size, have led some experts to predict China is going to follow the 1990s Japan model: a few decades of stagnancy.

   However, we believe that 2024 might be the year that China finally recovers economically and drives global growth forward. It has continued to develop robust capabilities in advanced sectors like robotics, AI, EV manufacturing, renewable energy, etc., becoming a world leader in many of the biggest industries over the few decades.

   The main challenge for it is that the model that has brought so much success over the past 50 years — which is to focus on export-oriented industrial development — needs to shift to a domestic consumption driven model so that Chinese households can act as a source of demand. Although this is a fundamental rethink of the political economy setup and will be tough to implement, it seems like experts in Beijing have learnt from Japan’s mistakes and are willing to stimulate domestic consumers, not just invest more in production.

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Geopolitics & social movements

This piece has gone on longer than expected so we are going to combine the top events of 2023 with what to look out for in 2024.

1. Conflict, conflict, and nuclear risk: Even a cursory glance at the news at 2023 felt like there were constantly new conflicts being talked about. Well, many of them aren’t new. They either just accelerated or the powers that be finally decided to care about them for one reason or another. The genocide against the Palestinians is definitely the biggest news, but we shouldn’t forget the ongoing violence in Sudan, Congo, Armenia-Azerbaijan, Venezuela-Guyana, etc.

   The takeaway here isn’t simply that violence is increasing, but what its drivers tell us about where we are going. In many cases, this is related to the point mentioned at the start about a dying system lashing out combined with stresses at the level of energy, food, etc. On the one hand, the existing hegemonic forces are feeling the pressure from all sides. The tried and tested political playbook in such moments tells us that the one that can get domestic constituents to rally behind you is war, and sadly it seems that many nations, particularly Global North countries, are choosing that path.

   Whether it is the Sinophobic narratives that have been festering over the past few years, the blind anti-Iran sentiment, or the recent revival of bombings against Yemen, the strategy of creating an us-versus-them is fully at play.

   On the other hand, many communities in the Global South are realizing that the promises of self-determination and global human rights are, and always have been, deceptions, and as more communities realities that the system is never going to deliver freedom and justice, conflict will emerge as the only option.

   And it is not just conflict. 2023 marked various coups across the African continent, finally revolting against West-favoring regimes that have continued to extract and sell natural resources for cheap while pocketing the gains. Remember, this is intricately tied to the decarbonization and materialization story because many of these conflicts are in resource rich areas.

   Lastly, it’s been a few decades since this has been a serious risk, but we should be putting nuclear attacks back on the radar. The US is planning to spend $1.5T on modernizing its nuclear arsenal, China is doubling its weapons, and Russia suspended the last remaining major nuclear treaty with the US. This definitely does not mean a catastrophe is inevitable, and the odds remain incredibly low. However, even minuscule but rising odds about an event at this level of brutality and existential risk cannot be ignored. Don’t forget, it’s happened before.

2. The biggest election year in history: 60 countries representing about 4B people will be participating in elections this year — a staggering number! Countries like US, India, Pakistan, Russia, Iran, etc. are a part of that list, and regardless of the outcome, the results are going to be monumental in shaping how things turn out. There could be an essay on the dynamics of each country and the broader global implications from those elections, but in short, we should expect a lot more reactionary movements, right-wing forces, and/or militaristic elements to come out as the victors. This is simply because of the thesis mentioned at the start, which is that as societies revolt against the status quo and the liberal elite, the only forces with the grassroots level organization and political structure in place to fill that vacuum are largely right-wing forces. Argentina already presented a good example of that a few months ago.

   However, movements always produce their anti-thesis at the same time, and so we are also seeing an increasing emergence of left-wing (again, not liberal) forces. Although in different regions these forces are at sharply different levels of maturity — the strongest being in Latin America — the trend is clear. This is reminiscent of the early 20th century, a period we have been referring to in previous pieces as the best analogy for where we are today.

   But in the short-run, this just means more volatility and polarization.

3. South-South cooperation: The most promising trend has been the reemergence of strong cooperation across the Global South. South Africa taking Israel to the ICJ, countries like Brazil, Bolivia, and Chile being the early voices against Israel, the aid of Yemen, etc. are all examples from just the genocide against the Palestinians about how countries that recognize the system is against them are coming together. Note, what ties these countries together is not religion, ethnicity, or geographic proximity — their bond is based on ideology, which is the only type of bond that can launch a challenge against the status quo.

   This is of course not without challenges. Expanding the BRICS by adding Saudi Arabia, Iran, Ethiopia, Egypt, Argentina and the UAE is a promising sign, but these countries have a vast and divergent array of interests, which often collide. The BRICS, and the Global South, are not monolithic entities and hence expecting serious joint efforts from them is futile.

   The hope, however, is that across the Global South, there is a recognition that they need to diversity their range of partners, which creates platforms for ideological bonds that do have anti-imperialism and justice at their core, even if the governments of these countries remain embedded in the status quo and at odds with other liberating nations (*cough* Gulf states).

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III. Resources

We get asked a lot by people regarding what to read to understand both the specific topics we discuss, as well as the deeper & bigger picture, better. Our answer is typically two-fold:

First, stop reading the people that use the wrong approach, often because it is in their interest to do, so that you can unlearn the mainstream narratives that confine our imagination and depth of understanding. This includes reading airport books by authors such as Yuval Hariri, Jared Diamond, Steven Pinker, etc., as well as mainstream political scientists, economists, and intellectuals like Tom Friedman and co. Oh, and if the person you get your worldview from is often on CNN, MSNBC, BBC, or any other mainstream source, you need to seriously diversify. The track record of these people is not just wrong but nefarious, and its out there for everyone to see and verify.

Second, there is a serious need to explore three types of thinkers:

• Heterodox thinkers (and this doesn’t just mean left-wing).

• Historians (because there is a lot we can learn from the past as most of this isn’t new)

• People who write theory (because that is the deeper layer of understanding that we need to first unlearn and relearn — basically ideology).

Based on that, here is our top 5 list of people to read across a range of topics:

1. Economics

   1. The fab five economists: Stephanie Kelton, Marianna Mazzucato, Kate Raworth, Claudia Sahm, and Isabella Webber — have not just pushed back against the elite male dominance of economics, they have been right across over highly-contested topics just over the past few years, ranging from inflation, industrial policy, ecological economics, government debt, central banking, etc.

      

      Financial times piece (although it wrongly excludes Webber)

   2. The Economic Consequences of Peace by Keynes: This short, prescient book was written in the lead up to WW2 where Keynes argued that the post WW1 peace was fraught with risk because of how unjust the global arrangement was, and how socioeconomic oppression would breed fascism and future war. Very relevant today.

2. Big history: Too many mainstream books like Sapiens or Fukuyama’s The Orings Of Political Order or Guns, Germs and Steel rehash the same fictional story about human history — that we went from hunter-gatherers to farmers to city people and developed violence, inequality, and states along the way. They say this because they want us to believe that the world today is the peak of human civilization and we have little to learn pre-Enlightenment (also meaning outside the West).

   But that is wrong. The Dawn of Everything by David Graeber and David Wengrow may be one of the most important books of the 21st century because it shows through anthropological and archeological evidence how human history was, in fact, very different, and how ideas of freedom, justice, and rationality are did not suddenly emerge in Enlightenment Europe but can be found in Native American and other cultures.

   This is the type of book that is essential to read to expand the horizons of what we think is possible with society today, where to find inspiration from, etc.

   Plus, Graeber was a powerhouse intellectual and we highly recommend his other work too.

3. Theory: No one better to read for the predicaments we face today than Antonio Gramsci. He was writing in a time that we think is the best analogy for the state of the world today and offers incredibly incisive analyses on how change happens, how hegemony works, etc. Although a Marxist, many of today’s right-wingers actually apply Gramscian principles on how to fight the status quo and gain power.

4. General principles & thinking: It’s hard to even classify him in a bucket if Nassim Taleb is one of the greatest intellectuals alive today. His work debunks myths left and right, including IQ tests, modern statistics, behavioral economics & psychology, risk management approaches, etc. But his work is essential just to understand everyday concepts in the world that we all encounter daily: probability, chance, randomness, risk, etc. His Incerto series of books is designed for a general audience — cannot recommend it enough. We may live in an information age, but as Taleb shows, that just puts us more at risk at a false sense of understanding.

5. Neuroscience, philosophy, etc.: Also hard to bucket, but in a world with rapid changes and powerful new forces like AI, Ian McGilchrist & Daniel Schmachtenberger offer profound new ways of thinking and decision making. For them, we are the most powerful civilization in human history but also the most lacking in wisdom — a highly dangerous combination. Their work really makes you see your own approach to the world differently.

Over the next week, we will also be publishing a “year in review” piece for 2023, highlighting the main developments that happened, how our work potentially helped you understand them, and big things to look out for in 2024. So stay tuned for that, and, as always, please help share this publication with your networks!]

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Perhaps one of the greatest and most underrated achievements of modern civilization is the electricity grid. Most of us don’t realize the scale, complexity, and coordination that is required to make sure that people have access to cheap and reliable electricity. Those of us from the Global South are much more cognizant of this because oftentimes electricity is either not always available or is expensive — or both. Over the past 2 years, richer nations have also begun to reckon with this as natural disasters (e.g. wildfires or extreme cold), higher energy costs, and mechanical failures due to aging infrastructure have disrupted the electricity grid.

We really cannot overstate how important the grid is as a topic going forward. It has all the 3 elements that make a topic exciting and critical:

• Various, intersecting interests: Poverty alleviation, (re)industrialization & onshoring, climate change, national security, socioeconomic justice, etc. are all heavily dependent on an effective grid.

• Multi-disciplinary: Modernizing and running the grid requires everything from engineers, manufacturers, innovators, financial traders, policymakers, and everyone in between.

• Huge opportunity gap: Despite its importance, the grid has been a largely neglected sector for many decades, and hence is ripe for change and investment. There are a lot of quick wins and long-term disruption at play here.

Just to reiterate on the climate front, there is NO decarbonization without a radical transformation of the grid. (Newsletter #11 offers a deep dive on renewable energy, which should be read in conjunction with this piece).

While there are a lot of ways to look at the grid, this piece provides an introduction to electrification and explains the physical infrastructure that constitutes the grid.

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I. Introduction to electrification

Electricity is one of the forms of energy that we consume today, accounting for 1/3 of global energy consumption. Of that, 66% is consumed by the two largest sources of electricity demand: industrial uses and residential customers.

Total electricity consumption has been growing at ~3% annually, which is close to the same rate as global GDP growth. That is to be expected as we have already seen in previous pieces how energy consumption is highly correlated to global growth. Most of this growth is being driven by Asia (largely India and China), but there are still huge gaps in the per capita consumption differences between rich nations and the Global South.

There are 3 main drivers of increased electricity demand going forward:

1. Fulfilling development needs of the world’s poorest: Despite progress and electricity being a requirement for basic necessities, there are still ~750 million people globally without access to it — ~600 million of them are in sub-Saharab Africa (50% of the population!) and ~100 million in Asia (places like India, Pakistan, etc.). Access to running water, light, basic heating/cooling, and other necessities are all severely impeded without electricity, which then impedes education, safety, economic activity, etc.

   It is important to note that simply access isn’t everything.

   There are ~1-2B+ people globally that have limited access to electricity or have to reduce consumption due to high costs. Take Pakistan for example. Officially, 95% of the population has access to electricity. But access simply means being connected to an electricity source, not that electricity is actually available. Even large urban centers have been facing up to 12 hours a day without electricity over the past few decades.

   On top of that, the per unit cost of electricity in Pakistan is almost the same as that in the US (~$0.2/kWh) while the average salary in the US is about 20-30x times higher!

2. Decarbonization: Electricity demand is expected to be 75%-150% higher than today by 2050 (the bigger number is to achieve net-zero targets). That is a huge increase given we already have a considerable amount of electrification today. But given the scale of decarbonization needed, and that so many of the solutions (e.g. EVs, heat pumps, green steel, etc.) are electricity dependent, this shouldn’t come as a surprise.

3. AI, AR/VR, and other new tech: There simply isn’t enough recognition of how much electricity is consumed by technology. Even before this recent round of next-gen tech, things like video gaming and social media are already consuming high amounts of electricity. It is estimated that 2.5% of residential electricity consumption (~5-6% of total electricity consumption) is due to video gaming in the US — that is more than what many large Global South countries consume for their total electricity demand!).

   Now with the increased proliferation of AI products like ChatGPT, we can expect exponentially increasing electricity consumption because of the increased data center requirements. Some estimates put just AI-driven electricity consumption at 3-4% of global electricity use by 2030! Now add to that AR/VR and other GPU-driven, data center-dependent technologies and you get the point.

So one way or another, our insatiable global system is going to need a lot more energy in the form of electricity going forward.

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II. Understanding the grid

The electricity grid has evolved over the past 150 years owing to changes in technology, increased coverage in terms of area, and regulatory changes; however, the core principles have remained the same. All types of grids have three main steps: electricity generation, transmission & distribution, and consumption.

The goal of the grid is simple: reliably deliver electricity at the lowest possible cost.

How it does that is also simple: move electricity from where it is generated to where it is consumed.

One of the main reasons the grid is such an incredible achievement is that everything from large factories and buildings to small things like bulbs and phone chargers are connected through this massive network of wires and equipment. Given that this is not localized but covers huge cities and even whole countries, the task of keeping this whole system in balance is truly remarkable.

Simple visualization

More realistic and complex visualization (as generation and consumption nodes are spread out, not linear)

Just to recap from newsletter #11, supply must match demand at all times, by the second. Although demand follows a relatively predictable profile during the day, with predictable changes by season and other external circumstances, it still changes dynamically in real time. Everything about the grid is designed to make that work.

There are two main dimensions to the grid:

• The physical infrastructure (generation, transmission & distribution, and consumption)

• The operational infrastructure (the people and systems that make sure everything is in balance and working)

In this piece, we explain the physical dimension.

III. Electricity generation

There are various ways to produce electricity, ranging from huge power plants burning large amounts of fossil fuels or relying on water from dams to a small, single solar panel. You can see below that today, most of the electricity generated globally is through a combination of FFs and hydropower.

[The map below is a great visualization of electricity and socioeconomic development. Check out this amazing interactive tool to explore the power plant database.]

Not all generation sources are created equal though in terms of the value they provide to the grid. Remember, the goal is to make sure that supply equals demand at all times at the lowest cost possible. Demand is what changes first, and so supply has to follow — in real-time!

There are 3 types of generators:

• Baseload: These are power plants that consistently provide electricity 24/7, with limited ability to ramp up or down. Typical examples of these are coal-fired plants, hydropower, nuclear, and geothermal.

• Intermediate: These power plants are more flexible than baseload and are used to ramp supply up or down as demand changes throughout the day. Examples of this are combined-cycle gas turbines (increasingly the most popular), thermal powerplants using steam turbines, etc.

• Peaker: These plants are used in rare instances (e.g., peak summer days) to avoid grid shutdowns and blackouts.

  

To understand the differences between different power sources and their qualities, let’s explore the 5 dimensions that matter:

1. Marginal cost: The cost to generate one additional unit of electricity, which depends on the fuel, operational, and maintenance costs. This is what is used to prioritize power plants on a day-to-day basis in terms of which gets used first to meet demand (cheaper ones go first). The graph above is stacked based on marginal cost. RE is missing from that graph but the marginal cost of production from wind & solar is zero as there is no fuel cost.

2. Capital cost: The capital investment required to set up the power plant. There is an inverse relationship between capital and marginal costs, which is why nuclear power, for example, produces the cheapest electricity when operational but has the highest capital investment required.

   

3. Start-up time and cost: The time and cost it takes to turn on the power plant after it has been shut down. Large thermal plants and nuclear plants can take up to 1-2 days to restart. This is why some plants are kept running even if they are not producing the cheapest energy (e.g., gas steam turbines run throughout the day even when surplus solar and wind is available).

   

4. Reliability / Capacity factor: This refers to the ability to generate electricity when needed (called “dispatchable resources”), as opposed to being intermittent (e.g., wind and solar). One key metric that captures this is the capacity factor: actual electricity produced over time as a % of the total capacity of the plant. Other reasons reduce the capacity factor as well, e.g., efficiency losses, maintenance downtime, etc. but intermittency is a major reason for solar & wind scoring low here. For example, solar panels have a 25% capacity factor, meaning that a 100MW solar plant produces 25MW electricity over a year.

   

5. Emissions: The intensity of CO2, SO2, and other greenhouse gases per unit of electricity generated over the lifetime of the source.

   

Power generation is currently evolving from a centralized industry to a more decentralized, distributed network. By having more generation nodes with an increasingly broad array of features, the grid is becoming substantially more complex. Most of the implications are on the transmission and operational infrastructure, but there are some key ones related to generation as well.

Let’s look at California as a case study.

It is a global leader in renewable energy, achieving the goal of running on 100% renewable energy some days of the year in 2023. Despite the remarkable investment, the conducive weather, and being home to Silicon Valley, natural gas still dominates the grid.

One of the biggest reasons for that is the infamous duck curve. The curve below (right image below) plots net-load, which is the total electricity demand minus renewable energy generation, for the best day of the year (when RE can cover the maximum % of demand). Therefore, the y-axis represents the power that needs to be generated by non-renewable sources on the best day for RE.

As solar is the most dominant renewable source in California, you can see that as the sun comes out, solar provides most of the electricity that is required. So for the time before dusk and after dawn, non-renewable sources run the show. The interesting thing is that even as renewable energy installations have been ramping up over the past 6-7 years, the belly of the curve is gone to 0 but the two ends remain robust. So even with more renewable capacity, the same amount of non-renewables still need to be installed and available from dusk to dawn, even on the best day.

On other, more typical days, you can see that natural gas is prevalent throughout the day, even when solar is at its peak. There are two main reasons for this:

• We know natural gas will be needed from dusk to dawn. However, it is costly and impractical to rapidly ramp down these generators when solar takes over, and then rapidly ramp them up when solar dies down. Therefore, a certain amount of natural gas generators need to be kept running throughout the day.

• Natural gas power plants need to make a certain amount of money to stay installed. Often, they cannot make that amount just by running from dusk to dawn; therefore, they are “selected to run” (will be explained in the operational infrastructure section) so that they make sufficient revenues to cover their costs — primarily capital costs.

California is an excellent example of how simply adding more renewable energy capacity doesn’t solve the problem, and has severely diminishing returns because if it is mostly solar, then it is tackling a specific set of hours daily — unless there is a lot more long-term storage that becomes available.

Lastly, and this does not get talked about at all, there are also severely diminishing returns when it comes to reduction in emissions, which should be the most straightforward benefit of RE. For all the reasons explained above, the reduction in emissions has plateaued despite the massive increase in installed RE capacity. After a certain level, RE just ends up displacing other low-emissions sources like hydropower and nuclear — which is the case in California — because those natural gas power plants are still required for their flexibility.

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IV. Transmission & distribution (T&D)

This is the most interesting, overlooked, and arguably the most important part of the grid. The basic role of this part is to move electricity from the point of generation to the point of consumption. Transmission refers to moving electricity over long distances (e.g., tall electricity towers along highways), while distribution is the next step of moving electricity within specific localities to the point of consumption (e.g., electricity poles within neighborhoods) — the difference between a highway and a within-city street.

This is the level where the complexity really hits because it is an incredibly vast network of wires and cables of different sizes connecting hundreds of millions of consumption nodes (households, buildings, factories, etc.), generation nodes (all the power plants), and the T&D infrastructure (transformers, etc.)

You can see why T&D is going to attract significant investment going forward. There is no point in all the conversations around electricity sources and diversifying the portfolio if we can’t move that electricity to where it needs to be used. And with an increasingly distributed and decentralized grid, that is a tall order. How easy is that going to be in societies with increasing distrust of regulators, bureaucrats, and political office?

The key thing to reiterate before diving into this further is that if you think about the electricity coming into your home, it isn’t coming directly from the power plant. There is a web that intermediates this power flow and it is more accurate to think about the different zones of equipment that make it all happen. Therefore, each zone presents its risks and challenges. This is also why electricity is a fungible commodity — i.e., there is no way to tell where the electrons flowing into your house are coming from at any given moment.

Transmission lines

The first piece of equipment we will be focusing on is transmission cables. These are high-voltage cables that are carried by those big, pyramid-shaped structures we see along highways and open fields (although increasingly they are being placed underground). Their main task is to move electricity from the point of generation to the general point of consumption, which typically entails long distances, as efficiently as possible.

For the grid to work effectively, transmission cables need to mitigate 3 main problems:

1. Efficiency: Electricity flowing through cables encounters resistance, which results in power loss in the form of heat. This is exacerbated over long distances. Although losses are unavoidable, even small excess losses are a major loss of value when considering the scale of the grid. Therefore, transmission cables are designed to carry high-voltage electricity, as losses are inversely proportional to voltage (high voltage is like high water pressure, it pushes the electrons/water faster through the pipe). This is also why transmission cables are either placed atop high poles or underground, as the voltage levels of the electricity in them are deadly.

   Currently, 4-5% of electricity is lost as heat during transmission.

2. Congestion: This refers to the fact that even though there may be sufficient electricity being produced to meet demand, the customer may not receive electricity because the transmission lines to that specific location are congested — another incredibly important point that most people don’t realize.

   So for example, imagine demand is 1000MW and generation is ramped up to match 1000MW; however, the transmission line only has 800 MW. In this case, the customer will only receive 800MW and there will be power outages, even though enough generation capacity was available.

   This is why the only way to think about the grid is as an intricate web of nodes all connected through T&D lines. Some demand nodes may have sufficient redundancy in terms of transmission lines, so even if one reaches peak capacity, demand can be served through other lines. For locations that don’t have this privilege, they either face power outages or high electricity costs (there are congestion charges).

   This is also true from the generator perspective, as there are cases when the lowest cost generators are forced to produce below their capacity because the transmission lines they are connected to cannot carry more electricity, forcing higher cost (or higher emissions) generators to produce electricity.

   Take the example below: at certain times, electricity prices in North & West Texas are negative (meaning the power producers would have to pay to produce electricity!) while prices in South & East Texas are not just positive but high. Both are losing out simply because there is not enough transmission capacity to carry the surplus wind energy from North & West Texas to the major demand centers in the South & East.

   

3. Safety: Either due to high air temperature or due to excess heat being generated when transmission lines carry too much electricity, the lines expand and sag, which makes them vulnerable to trees and other hazards. This can not just create a fault in the line and lead to power outages but can also spark wildfires.

Transformers

This is the second critical piece of equipment in the T&D infrastructure. We won’t go into too much detail here except to briefly explain what transformers do and the challenges we face in rolling them up with the required features, and at the required scale, that is needed.

Transformers are electromagnetic devices that are used to step up and step down voltage (this is for an alternating current system, which most of the world is). When generators produce electricity, it is at a low voltage. Before transmission, the electricity goes to a substation to be stepped up to very high voltages — for reasons explained above. At the other end of transmission, a substation uses a transformer to step down the voltage, which then makes the electricity viable for distribution.

Additional transformers are then used as part of the distribution network (the ones you see around your neighborhood) to further step down the voltage to household consumption levels.

It is important to stress how critical transformers are to the modern grid. Our increasingly electrified society includes use cases that require a broad variety of voltages — for example, household devices, commercial data centers, factories, etc. all use different voltages. Within each group as well there are voltage differences based on specific requirements. The one device that allows all these to be served is transformers. Therefore, without adding, managing, and upgrading transformers, there can be no reformation of the grid.

Lastly, as we integrate more renewable energy and the grid becomes more distributed, the role of transformers becomes more complex and important. A distributed grid simply means more transformers are required at various nodes, while a more diverse generation portfolio, coupled with rooftop solar, EVs, smart meters, etc. requires transformers with considerably more flexibility and voltage ranges. Without these features, ensuring that the grid is operating smoothly without outages and other risks (e.g., sparking wildfires, etc.) will be increasingly challenging.

This is precisely why over the last few years, with supply chain constraints, higher material costs, and the scramble to improve grid operations, transformer availability has gone from a few weeks to 1+ year, and prices have risen by 400%+. Without expanding manufacturing capacity for transformers, this is a serious impediment to the energy transition, domestic manufacturing, and national security.

On the other hand, the challenges in making this happen are vast. This is all physical infrastructure that needs to be built, but there are blockages at every step of the value chain:

• Planning & permitting: It can take years to get transmission infrastructure approved because it requires coordination across land developers, regulators, communities, etc. For example, a 732-mile T&D project in the US West was approved in 2023 after 18 years — NIMBY-ism!

• Manufacturing: Transformers, T&D cables, and other equipment are all resource-intensive, requiring massive amounts of copper, aluminum, steel, etc. All that has to be mined, processed, and then manufactured into the equipment, which typically happens across countries facilitated by seamless supply chains.

• Implementation: Even with all the equipment ready, there are a lot of resources (labor, energy, etc.) required just to put all the poles, cables, and machinery in place. This is especially challenging for T&D because it is, by definition, spread out over vast distances, from densely populated urban areas to far-off, difficult terrains.

IV. Demand

This is relatively the simplest part of the grid operationally, but it is changes in this domain that are causing ripple effects through other parts of the value chain.

From the previous two sections, here’s what we already know about demand and how it is changing:

• Demand is what drives the electricity grid. Generation must constantly match changes in demand, both in real-time (minute by minute) and over the long run (as the world becomes more electrified).

• This is a broad category that encompasses an array of quite divergent agents, ranging from households and commercial buildings to heavy industry and data centers.

• There are various drivers of increasing demand, ranging from reshoring manufacturing, providing electricity to those without it, electrification of society, etc. The demand from AI, data centers, and AR/VR is going to be a major factor. Most importantly, increasing extreme temperatures and climatic events are going to require considerably more electricity consumption (heating, cooling, etc.)

• We are moving from static, predictable demand profiles to more dynamic demand profiles because of smart devices, EV charging, etc. Therefore, there are a lot more variables that need to be factored in to make more accurate predictions (which is what is needed to have power plants ready to go) and ensure that the grid is balanced (from the T&D side).

The most important feature that we have not covered yet is that, for the first time in history, demand centers are becoming bi-directional, meaning that they both consume and produce electricity. Rooftop solar and small-scale commercial solar plants used by industries are allowing consumers to have on-site electricity generation. This blows apart the fact that the fundamental goal of the grid has been to enable a single direction of energy flow from generators to consumers. Now, however, there are two complications:

1. Generators need to provide electricity that is net demand (total demand minus on-site generation). This creates even more volatility because generators have to both match changes in demand and changes in on-site generation.

2. The T&D infrastructure needs to accommodate electricity going into the demand centers and coming out of the demand centers. This creates multiple challenges because there are often voltage differences that need to be regulated, a potential overload of T&D infrastructure, etc.

To better manage all of the challenges above, demand centers will need to incorporate smart meters and other smart devices that can create and help create a digital grid. These devices allow for better transparency, more flexibility, and an increased ability to localize issues before they cause wider grid problems. This adds to the complexity for grid operators and adds to the infrastructure rollout challenges (same issues as T&D around equipment and installation).

Lastly, there is an interesting development in how demand centers are responding to how the grid is changing. In the T&D section, we highlighted that one of the big challenges was that large amounts of renewable electricity was left stranded and/or had to be curtailed (forced shutoff) because it couldn’t be moved to demand centers. Modular and mobile demand centers, such as data centers, Bitcoin mining, and small industrial applications like grinding, are moving their operations to where the stranded electricity is located.

This creates a win-win situation: the demand centers can get access to cheap electricity, while the electricity producers get to receive a positive revenue rather than be forcibly shut off. These demand centers are also innovating to provide more grid-stabilizing services, such as voltage regulation and shutting off when the grid is overloaded so the electricity can be repurposed for urban centers.

The latter point is called demand response, and grids like Texas have incorporated this recently by incentivizing Bitcoin miners to move to West Texas (with surplus wind energy). For most of the year, these miners consume the surplus electricity and create a win-win situation; for the few days of the year when demand is at its peak (the hottest days) or when supply is struggling (winter storms), these miners shut off and some of that surplus wind electricity can plug the gap.

Why this matters

Hopefully, by this point, it is evident that the grid is at the heart of modern civilization. It requires the best of all human systems — physical infrastructure, real-time management, policy and regulation, and technological innovation — to work together seamlessly 24/7. While this piece explained the physical infrastructure, 3 important topics remain for anyone looking to think about and work on reinventing the grid.

1. Climate resilience: As ecological damage picks up pace, the grid is going to be forced to adapt and become resilient to imminent catastrophes. There are two ways in which the grid is affected by these events: increased stress resulting from higher and more volatile demand; and direct damage from wildfires, extreme heat/cold, flooding, storms, etc. Often, these occur at the same time and compound the risk.

   

   Here are some examples

   1. Winter storm in Texas: Freezing temperatures in February 2021 caused power outages across the grid as a lack of winterizing the natural gas and wind turbines were forced to shut down. Estimates of resulting deaths range from ~50-500, with a ~$80-130B economic loss. Electricity prices shot up from ~$25/MWh to ~$9,000/MWh, which customers were forced to pay. That’s more than what most families make in a month! At the same time, the extreme cold was forcing people to turn up their heat to survive.

   2. Extreme heat in China, France, India, etc.: Record-breaking summer temperatures forced grids in these countries, amongst others, to ration power and adopt rolling blackouts. This resulted in tremendous human damage, particularly to the vulnerable populations who don’t have backup power or require medical services, and economic loss as industries are forced to shut down. This happened both because demand surged and high temperatures reduced electricity generation — solar panels have reduced efficiency at high temperatures, nuclear power plants shut down as the water they need for cooling becomes too hot (which happened in France), etc.

   3. Floods in Pakistan: 1/3 of the country was inundated with water during the summer which led to power outages of 10-14 hours as ~25% of the electricity uses hydropower sources. There was also longer-term damage to the physical infrastructure, such as T&D poles, transformers, etc.

   In short, measures such as replacing wooden poles with steel poles, undergrounding transmission cables, and waterproofing and winterizing critical equipment, are necessities now for a functioning grid.

2. Politics of the grid: There is a lot to be said here but there are two dimensions across which politics are much more important than most realize:

   1. Domestic political setup: Grids vary from centralized, fully government-owned entities to a privatized value chain. We are not going to get into the pros and cons here, but the critical questions to think about are: how can electricity be provided to vulnerable and unprivileged populations? what profit-making motives should be in place given that electricity is a basic necessity? how does accountability work since all grids require some centralized coordination?

      Ultimately, the grid suffers from the same politics that all critical services and commodities (e.g., healthcare and education) do. The additional angle is that given the physical nature of the grid, there are a lot of working-class jobs created by this sector, which raises questions about unionization and fairness. How do we make sure that the people who make the grid function have access to, and can afford, the commodity they help create?

   2. Geopolitics: Ignoring the global supply chains for a second, there is a lot of electricity trading that happens across international boundaries. Imports and exports of electricity are important for grid balancing, avoiding blackouts, etc. Like with other forms of trade, they require trust and coordination. Unlike other forms of trade, the physical infrastructure required for these interactions creates the risk of huge sunk costs and leaves little room for real-time alternatives. As the grid gets more distributed, electricity trade will likely increase, which raises questions about co-owing the T&D infrastructure, balancing trade necessities with domestic necessities, etc.

      

3. Material reality: We have said this in other newsletters, and it is perfectly showcased in this piece — decarbonization is rematerialization. Even more so for the grid, the material requirements are going to surge higher even without the renewable energy angle because of all the reasons mentioned at the start. To learn about this in more detail, would encourage you to read newsletter #11 where we cover raw materials comprehensively.

   In summary, the amounts of silver, copper, aluminum, steel, rare earth metals, lithium, and other materials that are going to be needed will require expanding mining capacity at a rate faster than at any other time in human history. We already consume a lot of these materials, and now we will have to consume substantially more, and at breakneck speed. That brings to the fore its challenges around the ecological impact of mining, the geopolitics of supply chains, the politics of manufacturing, etc.

   

With that, we wrap this piece up. The initial plan was to also cover the operational infrastructure — how grid operators balance the grid, select generators, price electricity, etc. — but that warrants its own piece for the future.

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Although this explicitly talks about Palestine, the framework used here applies to all socioeconomic topics: poverty and development, climate change, women’s rights, etc.

Understanding what needs to be done and expressing our support for it is wholly different to actually making things happen — and that is what this piece is about. Also, check out the resources section at the end to learn more about Palestine from this specific framework.

Please share this with others and engage in this conversation, even if it is in your own social spaces. This a highly complicated situation and no single individual has all the answers.

Lastly, please consider donating to relief organizations in Gaza as they deal with one of the worst massacres of our generation.

Islamic Relief, UNRWA, Save the Children.

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Disclaimer: The authorship of this piece comes from the Fictitious Capital publication and is not linked to any individual or organization.]

Introduction

Even the most cynical of us did not expect the grotesque violence of the last 2 weeks to be so glibly cheered on by many. But we shouldn’t be surprised. Society has been teetering on the edge of ripping apart the false sense of decency and “shared values” that we — the elite — have been living in. Just look at what is happening to the freedom of speech and right to protest in Europe, to rising tensions in US colleges (the microcosm of liberal Western society), to the polarization in workplaces and other typically apolitical spaces.

What are witnessing is not a show of strength; it is the angry lashing out of a system in decay, and the reluctance of those in power to accept that reality.

https://twitter.com/hazarwlabgad/status/1716799400054329560?s=46

We thought we could have our cake (benefit of a grossly unjust system) and eat it too (have our egos stroked by pretending to be civilized and liberal). As has been the premise of this publication, the global system is fraying — “the old world is dying” — and for many reasons, some of which we will discuss here, “the new world is struggling to be born”. The last time the world was going through this natural cycle of rebirth, and leaving space for monsters, Gramsci was writing his notebooks — where the above quote is from — under imprisonment by the Italian fascist regime.

Anyways, this piece is not about the evils of apartheid and fascism. Nor is it about trying to convince people about right vs wrong. If you’re still having moral qualms about what is happening, then there are deeper problems.

Instead, this is for those of us who have been feeling the pain, agony, helplessness, and anger — which itself is merely a fraction of what those who have loved ones or a personal connection to Palestine are going through. We who continue to share the horrors that we are witnessing, speak out against those committing these acts and those defending them, expose the hypocrisy of those that lecture about morality, and proclaim that we will never forgive and forget.

However, while trying to wade through a deeply emotional climate, some questions must be asked:

• Why do we keep repeating the same tactics for decades when nothing has changed? Selective humanity, media bias, disregard for morality and international law, etc. have all be thoroughly documented and discussed since the 1970s. So why will this time be different?

• Is this an isolated incident — and exception to the norm — or a feature of the system we live in?

• Why do we keep acting surprised by “civilized countries” and liberals enabling such evil when they’ve given us centuries of evidence to prove jus that?

• Who exactly are the “we” who are not going to forget, and who exactly are we not forgiving?

• What is the alternative to deliver real change?

Compared to previous pieces, this make sound like academic intellectualization. But it isn’t.

It is a fact that we are stuck in a rut, where various forms of brutal oppression and injustice continue despite our moments of outrage. If we want real change in the real world, the type Palestinians and others desperately need and deserve, there is no way way around the questions above.

There is a reason that although the past decade has been one of protest movements — from Occupy Wall Street to the Arab Spring to Latin America uprisings to Black Lives Matter to the climate movement — we have barely any results to show for it. So why would the result for Palestine be any different, lest we step back and reassess.

So in this piece, we try to answer the questions above by talking about ideology and Politics (note: capital-P politics refer to the concept of be political, not about elections, political parties, etc. that we usually think of).

Most of us are political in the sense that we have opinions about right and wrong, but being Political (ideological) is something one level deeper, which most of us avoid.

Ideology is what translates moments of outrage into movements for change. It is what opens our eyes to the world as it is and our place in it, no matter how hard or painful that may be. It is what births the new world.

The thesis is simple:

Oppression acts as a system and is a feature of it, always. The genocide against the Palestinians, and the decades-long apartheid, is a *part* of the system. This is inextricably connected to current and previous instances of apartheid, fascism, imperialist invasions of countries, Islamophobia, anti-Semitism, racism, poverty, etc. The same system that is enabling the violence against Palestinians creates poverty and suffering in places like Pakistan, Argentina, Sudan, etc. If we pick and choose, we’ve lost. Like cancer, oppression is a disease that festers, redevelops, evolves, and feeds off itself.

The system and it’s oppression is mostly hidden, until it is not. It is mostly good-natured, well-intentioned people propping it up, not just those with guns and bombs. This is why ideology is so important — without it, we are at best blind, or at worst, complicit because we fail to understand the context and implications of what we falsely believe to be localized actions.

No form of oppression is externally imposed in totality. There are always native/local beneficiaries who are helping propagate that system and profiting of it. Resisting them is often harder. Recognizing that, at times, we may be those local beneficiaries is the hardest.

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I. What is ideology?

Ideology, different from politics, is a framework that allows us to organize, and hence understand, disparate pieces of information about the world. It is distinct from politics such that is not only a set of beliefs, values, and goals; instead, it is a way of forming connections between events across time and space in a coherent and systematic way.

We are bombarded with so much socioeconomic and political information constantly. Events, opinions, analyses, and predictions from around the world stimulate and overwhelm us. How do we know if these are interconnected? Or if they have the same root causes?

Ideology serves as a canvas or a map through which we can arrange all this information into an image that connects, demystifies and explains what is happening. For example, is there a link between European support for ongoing apartheid and the debt-traps propagated by the IMF? What do women’s rights in South Asia have to do with water pollution by chemical factories in Ecuador?

It is not controversial or particularly insightful to say that the world runs based on power and operates as a system. But how can we analyze that power or develop an understanding that system if we don’t have a framework that takes what we learn about the world and organizes it into something coherent. Therefore, ideology is the canvas which takes the seemingly random colors around us and creates a digestible image.

Put another way, ideology is like a language. You don’t know what you don’t know when you don’t speak a language. But as soon as you learn it, it unlocks new realities. You learn new words to describe things, your inner voice make sense of the world in new ways, and your imagination can think of more possibilities. Psychology tells us that when we learn new words, we start seeing new things. And language isn’t even about just words, it is about the ability to access the treasure of existing knowledge in that language, it is about connecting to others, and it is about being a part of something bigger than ourselves. Endless possibilities.

Note that thus far, we haven’t talked about or propagated any specific ideology. Instead, we have just discussed the importance of ideology as a concept and the need for all of us to expand our horizons through it.

Most people will hear this and think one of two things: this is some academic hogwash that has no value in the real world; or that this is something radical and I am too “neutral” or “apolitical” for this.

Both those concerns can be expressed through the simple fact that, whether we like or not, and whether we realize it or not, everyone is ideological all the time. There is no such thing as neutrality.

Like language, ideology is pervasive and always present. Again, it is simply the way we make sense of the world, how we ascribe cause and effect, and how we judge right and wrong. Can you think of someone who doesn’t do this?

The trick here is that we live under a dominant ideology that is so deeply rooted that we don’t even realize it is there. Like fish living in water who don’t know what water is.

That ideology, unless you explicitly ascribe to something else, is liberalism.

Two key points here:

1. Being a liberal (colloquially used to represent a political position) is different to liberalism (an ideology).

2. Liberalism (and liberals) have nothing to do with leftists (and the left). It is only the result of recent reductivism and the dumbing down of American, and hence global, discourse that these two are somehow used interchangeably. Liberals and leftists are as different as liberals and conservatives.

Liberalism is about a belief in universal human values and rights, such as the right to property, the right to self-determination, free speech, etc. It deals more with the world of ideas, seeking to teach and transform one mind at a time, with the belief that conflict and oppression is overcome through debate, dialogue, and reason. It believes in the individual as the unit of analysis. To reaffirm, this isn’t about liberal political opinions, which we may or may not agree with; it is about using the liberalism framework to make sense of the world.

Leftism (vague generalization) is more about recognizing the material conditions, such as the ownership of resources, as the source of power and oppression. It argues that society progresses not by rationally convincing those at the top to be more moral, but by stripping away their power. It also recognizes that society is organized primarily by class, where one class is rich and powerful *because* the other class is not, and that the struggle between the two drives change.

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II. Understanding the oppression

There is a well-defined playbook, perfected over 50 years, that is being deployed against the Palestinian cause. The 3 key features of it are:

1. Manufacturing consent: All political systems require some form of broad consent. Previously, monarchs used to appeal to their divine authority. Today, liberal democracies appeal to their secular authority. The narratives are the same though: “us, the civilized, embarking on a holy mission. Look at the terrible things they, the uncivilized, did, leaving us with no choice”. In this case, the instant use of the 9/11 analogy, the false flag stories about the 40 babies, the fake global threat on Friday 20th October, etc. were all ploys to quickly manufacture support for brutality, as it was done for Iraq, Afghanistan, Vietnam, etc.

2. Dehumanization: How do you get people to override their conscience and participate in oppression? Dehumanize the victims. Call them “human animals”, paint them as uncivilized brutes, and demand that they constantly earn their humanity. The repeated questions about condemning Hamas are exactly this — prove you are not a terrorist, otherwise we are right in oppressing you. This is a trap that liberals set because the answer doesn’t matter; simply by responding to their demand, you have participated in your own dehumanization.

3. Platitudes: Liberalism has mastered this, which is why it has been so successful for so long. It creates these beautiful narratives of rights, values and ideals that are impossible to oppose because who would not be for equality and freedom and so on. But again, there is a trap. All of these values either are contradictory by design or only apply after the oppressor is already in position.

   For example, freedom of speech is inherently contradictory because it leads to chaos and stupidity and hate. But the contradiction is the point as it creates the space for oppression through selective us. Burn religious scripture in Europe? Free speech. Say the wrong thing as a Muslim? Imprisoned under the Patriot Act.

   Second example: the right to property. Sounds fair, but we forget that the liberal philosophers who came up with its modern formulation were doing so after they had already stolen land from indigenous people and were slave-owners. See why they suddenly wanted the right to property as an inalienable right?

Most of this stuff isn’t news to most people. The question is: what do we do about it? Right now the strategy by and large is calling out people when they use the playbook. But what’s the theory of change here?

Do Christian Amanpour and Piers Morgan and all the rest not know what they are doing, despite executing it so perfectly over decades? Does Mr. Goebbels (Blinken) not know that he is being so brazenly hypocritical that it’s comical?

Of course they know! They don’t need us to tell them. They know they’re duplicitous, they know they’re dehumanizing, they know they’re supporting a genocide. But they do it because they sit atop a system that requires them to do it. Without this, their power fades away. No amount of brave and dignified interviews by Bassem Youssef, Hussam Zomlot, Mustafa Barghouti, and others will make them realize. Because that is simply the wrong game. Has anyone ever given up their power voluntarily?

Our strategy of naming and shaming and moral outrage is also a liberal trap. Liberalism preaches the theory of change that:

information —> awareness —> moral awakening —> public pressure —> policy change

It makes us believe that evil in this world is an exception that only happens because the evildoers don’t know any better. So if the oppressed can get enough people to care, the problem will be solved. Climate folk, human rights activists, and others should recognize the similarities here.

They want people to stick to expressing their disbelief about “how could xyz let this happen,” “what about international law,” and so on. That is the point! This is the easiest form of resistance for the system to deal with. It exhausts us, frustrates us, and keeps us from realizing that true resistance is to give up trying to appeal to the morality of others and stand up for ourselves.

This is true not just of the neoliberal, war-mongers that most of us know off, but also of our “progressive” heroes (Bernie, AOC, etc). Being a “progressive” is not an ideology, it is not a political position, and is a meaningless catch-all term that revolves around sterilized, feel-good content but cowers when it’s time to resist. It has been extremely surprising to see even leftists show their anger at people like Bernie being sell-outs. Come on, the writing has been on the wall for a long, long time!

Also, it is not just about the present; in fact, liberalism rewrites history using this narrative. And this is the history that many of us, even if subconsciously, base our worldview on because the mainstream scholars and their books, which is what we read, propagate it — talking about the likes of Steven Pinker, Jared Diamond, James Scott, Yuval Noah Hariri, Frank Fukuyama, etc.

They tell us that history is some linear process where bad things like slavery and colonization happened because people didn’t know they were bad, and as soon as a group of smart, rational people realized this stuff was bad, it stopped. And this is why the rational Western world is so developed while the Global South needs workshops and trainings on being civilized because they are simply a few centuries behind. What they forget to teach is that many of their heroes were blatantly vile, corrupt, and brutal (remember Cesaire’s quote from above).

So how would they be shamed into decency and morality now? There is no recourse here. There is nothing we can say or do, no imagery grotesque enough we can show, no outcry loud enough or plea desperate enough to tackle this system. To rely on a strategy of primarily calling out “the other side” and sharing information in the hope that it will lead to more awareness and a moral awakening is an insufficient strategy. That is exactly what liberalism wants the extent of the resistance to be, because that can be neutralized by new ways to manufacture consent, dehumanize, and apply platitudes.

But before moving on, there is a critical point to make about how this “us vs them” outlook serves as a convenient situation for us as well. It externalizes the problem, making it seem as if there is a clean split between “us” as the victims and “them” as the sole perpetrators. And that all we have to do is use our words to stand up and explain our position. However, oppression is a system and grounded in material reality, not just narratives. Actions speaker louder than words.

For example:

• People in the Global South manufacture consent all the time when it suits them. That is exactly how countries like India and Pakistan have fed perpetual war narratives against each other in order to serve those who profit off this jingoism.

• Our elite (us) dehumanize the poor and minorities constantly, using that to justify the stark social divisions and exploit cheap resources in those countries. Whether it is migrant labor in the Gulf or religious minorities in South Asia or indigenous communities in Latin America, we — who see themselves as victims most of the time — partake in recreating the global system locally.

• Nothing unites the global elite —including the elite of the Global South — like a shared sense of political correctness to veil exploitation. We all believe in equality and collective prosperity, until we need to profit of the working class’ labor or takeover peasant land to build housing projects.

• On Palestine, Muslim leaders love putting out bold statements condemning Israel and its supporters but lack any real action. But weren’t the Gulf states in the last stages of normalization, despite the raging apartheid? Aren’t all Muslim states either financially or militarily or operationally capable of materially helping out the Palestinians? So why just the platitudes? Why does the Muslim community only focus on Biden and Macron but not its own leaders?

As we hope this sections makes clear, ideology lays out a clear map that charts oppression and its working (this was just a tiny summary). But what it also does is force us to reckon with uncomfortable truths which, without a map, we can simply cast aside. Truths about us and our role.

It is only through an ideological map that we can then identify how and where to resist injustice.

Of course, no ideology calls for or can achieve moral purity. At the very least, however, it can provide doses of humility and create pockets of impact more locally around us. This is not meant to detract from the larger, global causes — like Palestine — but to recognize that our biggest contribution to them is to counter the system wherever possible.

And for so many of us, that is resisting against the liberal enablers of fascism.

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III. What is to be done

This is the big question. But rather than theorizing, let’s learn from history and get to the point.

Abolishment of slavery, women’s rights, de-colonization, labor rights (incl. the weekend and the 8-hour work day), civil rights, etc. — basically all the things we take for granted today — were won through the same method:

Organized, ideological, and collective movements.

Liberals, in order to distort history, will deny this and say “look at Martin Luther King Jr, Mandela and Gandhi, they peacefully were able to make the case for their cause”. This is, of course, not just factually untrue but a fallacy so amateurish it insults our intelligence.

For every MLK Jr, there was a Malcolm X and Black Panther party. For every Mandela, there was the ongoing struggle of the ANC (remember, Mandela was imprisoned for 27 years for “terrorism”). For every Gandhi, there was a Bhagat Singh, and the countless others who were imprisoned, tortured, and murdered.

Back to what is to be done.

1. Organized: Liberalism preaches that everyone can do what they think best. But fighting injustice needs to have a structure and discipline to channel people’s energy towards a united cause, rather than have have their energies dissipate in different directions. This requires an organizational structure — a movement — with clear leadership, roles, and commitments. Movements that lack organization are easily crushed or slowly fizzle out. The current system is deeply organized and structured through its institutions and schools and media organizations, etc. That must be matched to stand a chance.

   Lastly, moments and emotions are fleeting, regardless of how intense and painful. Humans have a remarkable tendency to get desensitized to thing; this, combined with a world of information overload, makes the need for an organized movement to sustain public pressure even more important.

2. Ideological: Liberalism has made “ideology” a bad word. If you’re ideological, you’re a “radical”. But the system that creates oppression has an ideology of its own. Whether we look at economics, climate change, social rights, etc., the principles of “free markets” and “individual action” remain constant. That’s how strong the ruling ideology is. The only way to counter it is to be ideological, and put together a coherent and comprehensive alternative. Being ideological means everyone in the movement has a shared context that brings them together.

3. Collective: Liberalism has done a tremendous job of making us all feel alone and isolated, individuals lost in a vast and complex system. The concerted effort to takeaway communal spaces and collective organizations (e.g. unions, student politics, etc.) has left a void in us individually and as a society. This is why we feel helpless; this is why there is a major mental health crisis globally. But a collective movement, where different causes come together in solidarity against the common enemy of oppression, and where there is a strong system of support and motivation, empowers us. It stops us from falling into reductive traps of “West” vs “us” — instead, it creates solidarity between whoever shares a common cause, regardless of ethnicity or religion or class. There is no space for misogyny, anti-Semitism, racism, Islamophobia, and other forms of oppression in such movements.

Most of the movements over the past decade failed, despite at one point having vast public support and a lot of passion, because they were leaderless, structure-less, lacked an ideological agenda, and could not create solidarity with other causes.

Take Occupy Wall Street or Black Lives Matter or the Arab Spring or the climate movement. They all got crushed or even back fired (in the case of Egypt for example) because they had no plan of what happens after the brief moment of resistance, and the lack of organization allowed other forces to co-opt the fervor on the streets.

All this is true for Palestine today. We can be as passionate as we want individually, but what is the larger plan? Who is representing “us”? How are our energies being concentrated so that they have maximum impact? There is definitely growing support for the cause globally, especially amongst the youth. But that support and energy needs to be channeled into a movement that can actually take on a well-resourced, well-organized, and deeply entrenched oppressive system. Even if a ceasfire is achieved, what happens after that? Where was the resistance before Oct 7th?

Spontaneous moments of protest always get co-opted by the system. That is why so many civil rights in the Global North are under threat. That is why whatever bare minimum progress that has been made on the climate front is also under threat.

The question isn’t about the intentions or passion of those involved, but about strategic value in first getting over the line, and then ensuring that those gains are protected.

Take the following examples of what ideology, or the lack of it, can do. And let’s alsonswer the questions of “who is not forgiving” and “who is not being forgiven”. Chastizing the West is easy, but who is the West? Who are we? We can broadly break it down between governments and their people.

• Global South people: The Palestinian cause naturally appeals more to Muslims and people of the Middle Eastern & South Asian regions. And yet a vast majority of people there aren’t willing to go beyond periodic condemnations and some self-victimization narratives. They don’t want to fight against the system as a whole because the liberal trap of merely speaking out provides a comfortable middle: protect your own morality but also not disrupt your participation in the global system (e.g. people in Pakistan jump to speak about Palestine but about pushing back Afghan refugees to the Taliban or the continuing brutalities against religious and ethnic minorities). Hence the lack of protests in Muslim countries against their own governments’ roles.

• Western people: Of course Islamophobia, and even anti-Semitism, are deeply rooted in these societies. At the same time however, this is also where there are large swathes of people going through the struggle of organizing massive rallies, protesting against arms suppliers, hosting teach-ins, etc., all at great personal risk. They are acting out against their own governments (0.5M people in London, Jewish protestors in NYC and DC, etc). Many of them are driven by the ideology of anti-imperialism and justice, otherwise they have no stake in this.

• Governments: When the Russian invasion of Ukraine happened, Europe and the US immediately launched a campaign to defend their ally, even at serious domestic costs (inflation, food and energy shortages, economic shocks in Germany, etc.).

  But Muslim countries and Arab states aren’t doing the same for Palestine — and didn’t for Yemen, or Libya, or Afghanistan, and so on.

  Why is that? If we apply the mainstream framework, it doesn’t make sense. Aren’t religious-ethnic communities supposed to stick together? If the “West” can do it, why can’t the “non-West”?

Fact is, this is the wrong framework. If you look at it from an ideological lens, it makes much more sense. Ukraine helps serve the ideology of Europe and the US, while Russia does not. So it’s clear why they are going full steam ahead with their support. When it comes to Palestine, Muslim nations are ideologically aligned with the global system. Hence their passivity makes sense.

But there are other countries and leaders with a clear ideology against global oppression who speak and act out against economic inequality, climate change, and now the genocide against Palestinians. They have no religious-ethnic link to the Palestinians — it is simply the moral compass and empowerment that comes from their ideology that enables this.

This is true today as much as it has been over the past 50 years. Castro, Chavez, Allende, and others supported Palestine with whatever limited resources they had.

Therefore, talking about the “West” in some vague generalization isn’t helpful. We need a framework that is not just more nuanced but just more accurate.

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Why this matters

Just to repeat, the world has drastically changed just in the past 2 years. Band-aids have been ripped off, and they are never going back. There are crises, risks, and volatility around every corner, and yet we are only in the early innings of this historical phase shift.

Like all forces of nature, it doesn’t matter much whether we acknowledge what is happening or pretend that we are immune from them — eventually, everyone will be affected.

The opportunity to be “moderate”, “neutral”, and “practical” is gone — these were always just ploys meant to appease and sterilize dissent anyways. We have had 50 years of (neo)liberalism delude us into thinking there is a “marketplace of ideas” while it destroyed heterodox academia, dismantled unions and grassroots politics, rewrote history through media propaganda, terrorized resistance movements. We walked into that trap and are still in it.

“The internet is the Che Guevara of the 21st century” — Alec Ross, former Hillary Clinton advisor and US state department official, said about social media and the Arab Spring.

But no amount of techno-utopianism can replace the reality that it is only the collective human spirit, represented by organized movements and their leaders, that pushes us towards progress. It is now time to now move past these rose-tinted liberal fallacies and recognize the need to actively choose between right and wrong in ways that are consistent and structural. And that starts with having an ideology.

Much like learning a new language or starting the gym, the initial phase of “becoming ideological” is frustrating, hard, and painful. But like with other things, the gains are life changing. To be clear, this point of the piece was not to propagate a specific ideology, but to generally explain the concept of having one. Ideological diversity is critical because it is only through debate and dissent that we grow collectively.

To conclude, the arc of history bends towards justice and ultimately Palestine will be free one day. But we must ask ourselves: what role did we play in it, and can we avoid the next round of oppression?

And even if you don’t care about Palestine, it’s good to learn from history that injustice can never be contained. The chickens always come home to roost, and no arsonist can control a wildfire. So whether you’re a “progressive” that cares about climate or social justice or inequality, you should know that the same forces of oppression are coming to a topic near you.

[Bonus: Highly encourage reading the history of the 1920s-50s. You might be surprised by the similarities to today, and how fascism didn’t just come out of nowhere. Like today, there were a lot of “normal” people that supported, enabled, and profitted off it, right till the very end!

Bonus bonus: In ~10 years, the climate movements, especially the climate justice part, will be facing the full wrath of this system. The scramble for materials, energy security, industrial policy, etc. are all leading us there. At that time, we hope those that were silent on Palestine at least have the intellectual honesty to not act surprised.]

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Resources

Podcasts:

War on Gaza

If We Burn

The Missing Revolution

Towards Liberation: Palestine on Fire

Decolonization Is Not A Metaphor

What Is To Be Done

The Hundred Years War on Palestine

Books:

If We Burn: The Mass Protest Decade and the Missing Revolution — Vincent Bevins

The Wretched of The Earth — Frantz Fanon

Selected Writings — Antonio Gramsci

This approach will hopefully help increase frequency of publication and enable the Fictitious Capital community to grow.

You can also find us on X (@fictitious_cap) and Bluesky (@fictitiouscapital.bsky.social)!

The goal is not to give a definitive judgement on renewable energy but to provide context to help analyze what we hear about in the news constantly (especially about cost!!)

Both the pro and anti-renewables narrative get so much wrong, and hopefully this piece helps clear some of that and provides a clear framework for thinking about the rest.

I planned to cover electrification in this because it is inseparable from renewable energy but I will just have to do a separate piece on it next.

Please share with your networks & reach out with any thoughts/comments/feedback!]

There is so much to say about this topic. Over the past decade, it has become a part of political correctness almost to be “pro-renewables”. For others, especially recently, it has become an important “I’m a contrarian” marker to be “anti-renewables”. Many on both sides wear it as a badge of honor, armed with the fervent belief that they are doing what is best for human flourishing.

As with the oil primer, I do not want to create a false equivalency between the two positions. We must not only deploy renewable energy (RE from here on), but at an unprecedented scale and breakneck speed.

However, as you may realize is a common theme in this newsletter, to properly and sustainably achieve something, we must first holistically understand it, lest our simplifications and misgivings provide fuel to those looking to keep the status quo going.

If you have ever shared a comment or image saying “solar & wind are so cheap this is a no brainer”, you’re going to want to read this!

TLDR:

• Solar & wind aren’t as cheap as the mainstream narrative says.

• They are re-buildable, not renewable. They are not green, just green-er than fossil fuels.

• There are no easy answers here. The complexity of choices, the scale & speed of development, the level of planning and infrastructure development, etc. required means there is a wide range of possibilities.

In this piece, I provide an overview of the RE sector. It’s quite a broad space with technologies across maturity spectrum, but here I focus on solar and wind, leaving out hydro, nuclear, and some of the emerging technologies.

[Note: Most of the water bodies in the world where hydropower can be developed is already being used so limited opportunity to increase capacity. Nuclear is more complicated — I am pro-nuclear but it warrants a separate piece.

Tip: Every time you hear renewable energy, always check what’s under the hood. 60% of the EU’s renewable energy comes from biomass, which is the burning wood pellets from fast growing trees. Ecologically terrible & not renewable per se. For other countries with a high RE %, like Costa Rica, the majority is made up on existing hydropower.]

There was too much to talk about in this piece from a technology and cost perspective so I couldn’t analyze the geographic and geopolitical dimensions of RE. I also could not discuss electrification and the grid, without which it is impossible to sufficiently understand RE. Both these covered in the next piece!

The 3 sections covered in this piece are:

1. The basics of RE

2. Energy quality of RE (cost, reliability, density, EROI)

3. What’s in a name — how renewable is it?

I. The basics

Renewable energy installed capacity is soaring, with 83% of all newly installed energy capacity being renewable.

Global investment in the energy transition, of which RE is the biggest component, has crossed $1trillion.

Despite this, a sobering reminder that RE is not replacing FFs, it is simply meeting our additional energy needs. There is no energy transition!

Why renewable energy?

Too many times we get into analyses and debates without clearly defining the context, which leads to all sorts of miscommunications. In the energy context, let’s not forget that fossil fuels (FFs) are an almost miraculous form of energy, perched at the top of the energy quality framework. Their unique qualities have allowed us to build this vast, complex, and globalized civilization.

So why should we then care about RE?. There are 3 main reasons:

• Decarbonization: It comes as no surprise that this is probably the biggest driver. FFs are causing climate change through CO2 and methane release, they cause air pollution through the release of toxic fumes, their extraction causes ecological damage, and so on.

• Energy security: As geopolitical risks increase, the global supply chains that moves FFs from producers to refiners to consumers could become more strained (remember, FFs are a relatively centralized commodity geographically). RE instead provides a more decentralized way to meet energy demand. This is partly why even some of the anti-climate people in the US supported the Inflation Reduction Act.

• Declining FF availability: The debate over “peak oil” — which is the date when global oil production peaks — has been raging since the mid-20th century. Horizontal drilling, fracking, shale oil, etc. have all helped boost oil and natural gas supply over the past decade. But I think there is a largely uncontroversial narrative that, barring any miraculous technological change, our oil supply will be (maybe significantly) lower by 2040-2050. Key things to remember here:

  • Supply of commodities doesn’t depend on how much is stored in the ground but on how much can be accessed at current price and technology levels. Accessing deeper reserves means higher costs, and hence higher prices.

  • Energy consumption (which for our civilization has meant FF consumption) has a 1:1 relationship with GDP, human development, etc.

  If we are indeed running out of cheap FF energy, there is a serious need to find alternative energy sources.

  [Unconventional oil is what we extract from harder to access reserves using fracking and other costly methods. More details in the oil primer]

  

What is renewable energy?

Renewable energy, defined here as solar & wind, is a way for us to convert solar energy from the Sun and the energy in wind currents on Earth to generate electricity. Without getting into the technical details, here’s what you need to know:

Solar energy: When the sun is shining and the solar panel receives sun rays, the energy particles (photons) carried in the rays interact with the material that makes up the panel (mostly silicon) to generate electric current. ~20-30% of the energy that hits the solar panel gets converted into electricity; rest is lost as heat. All solar panels create DC electricity so an inverter is needed to convert that into AC. Then the electricity is either directly consumed (e.g. by a house or a factory), sent into the grid, or stored in a battery.

Panels need to be installed in areas with high exposure to sunlight year round and the angle of installation needs to maximize sun exposure.

Solar panels are quite modular, meaning they can be installed as a single panel or stacked to create power plants. They can also be installed in a variety of locations, ranging from rooftops to out in the fields.

They usually last for 20-25 years.

Wind energy: When the wind blows, the energy carried in the currents rotates the large turbines. This rotation spins the attached generator which then create electricity. ~20-40% of the wind energy gets converted into electricity. No inverter is required since the electricity is already AC.

These turbines are large in wingspan, to maximize the area impacted by the winds, and quite tall, in order to get higher windspeeds. Therefore, they are not as modular, meaning they cannot be installed in smaller sizes (e.g. rooftops). However, they can still be installed in a variety of locations, including in the middle of the oceans (offshore wind turbines) and don’t suffer from the same temporality that solar powers faces since the wind can blow all day.

They also last ~20 years and require more maintenance.

Primary Energy Myth

Before we assess the pros and cons of RE, it is imperative to understand that any analysis that does an apples-to-apples comparison with fossil fuels is inherently insufficient. This is really important and something many renowned energy experts like Vaclav Smil also got wrong until quite recently.

Most RE energy analyses assume that these resources have to replace the total primary energy amount of that fossil fuels produce. Primary energy is total amount of energy consumed at the start of the value chain (before losses, inefficiencies, etc.).

However, whether it is in burning gasoline in cars or coal in power plants, 50-80% of energy in the current system is lost as heat (65% of energy in the US is lost, as shown below).

RE does not have this problem since there is no fuel being burnt — it only has to replace final energy that we use as “useful work”. This does not mean that in a fully renewable world our energy consumption will automatically be 50-80% lower because there are nuances for each sector and the system has to be (re)built in a particular way, but the takeaway is that due to lower heat loss, RE has to replace a smaller energy amount that we currently use (estimates 20-30% smaller).

This requires electrification. For example, replacing gas heaters with heat pumps, diesel trucks with electric trucks, etc. An EV is ~4x more efficient than a combustion engine car because the latter has high heat loss when converting from one energy source to another, while EVs simply use the stored electric energy.

Hence, if you see an analysis that is talking about RE having to replace the full FF primary energy amount, know that it’s automatically misleading.

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II. Energy quality analysis of RE

Recap from newsletter #2: There is this myth that 1J of energy from one source can simply be replaced by 1J from another source. Instead, each source has its own features that lead to a certain quality score for that 1J of energy. Here’s the framework below:

1. Reliability (and cost)

This is the big one! If you talk positively about RE a few times, you are bound to be jumped on by someone talking about how these energy sources are not reliable.

“What happens when the sun sets or the wind stops blowing" blah blah. As if this is some new insight that no one has thought off before.

However, I am compelled to say that in the interest of fairness, there are way too many people who tout RE as some techno-utopian dream, again falling for that 1J = 1J myth I talked about above.

The reality is that when it comes to reliability, most experts are obviously aware of the unique challenges that RE face (so it is not some “gotcha” point) but most onlookers, climate-tech folk, and policymakers need to understand the specifics.

This is intimately tied with the cost point, because too many people fall for the “look how cheap solar is, let’s go full steam ahead” argument.

Let me explain.

What is reliability? In short, it is the ability for supply to meet demand 24/7. This is particularly true for electricity, but also applicable to the energy demands for industries and so on. We live in a world where everything is tied to the centralized energy system: heating/cooling, electric devices, transportation, functioning hospitals, etc. Therefore, when reliability standards are not met, the results range from inconvenient (uncharged phones, spoilt food, etc.) to catastrophic (life-saving machinery in hospitals not working).

Fossil fuels are special because they are easy to store. They can sit around until you need them; therefore, excluding external challenges related to distribution and transmission, they are near perfectly reliable. In the electricity sector, they are known as dispatchable resources, reading to be started, stopped, or ramped up/down as needed.

RE sources are of course not that reliable. Solar doesn’t work on a cloudy day or after sunset, and the turbines don’t rotate when the wind stops blowing. You can see below that solar starts around 5-6am, reaches its peak early afternoon, and then declines till it stops at ~9pm (this of course varies by location, time of the year, daily weather, etc.). For wind it is more interesting to look across the month because some days the wind is strong and consistent while others it is not.

The demand profile looks something like this: it picks up in the morning, then has an afternoon stabilization, and then increases again in the evening more declining into the night. Regardless of where you are in the world, it probably looks like this because we all start consuming more when we wake up, then are usually in offices or schools throughout the day (where there is a lot more collective use of energy) and then come home in the evening to turn on our individual ACs, TVs, etc.

It also makes sense that summers and winters are a lot more energy-intensive because of heightened heating/cooling demand.

Fun fact: The UK electricity utility provider realized that at a particular point in the evening, demand would suddenly ramp up. It realized that was happening because a popular show on cable TV would have its commercial break at that point and everyone would turn on their kettle or microwave or whatever at exactly the same time!

Reliability is simply the ability to match this demand to the supply curve of all energy resources. FFs are controllable and flexible (e.g. simply burn more or less coal as needed) but what happens when it’s a cloudy day or the wind isn’t blowing? Demand of course remains constant (we don’t turn off the fridge if the sun isn’t shining).

This makes it very hard for the utility companies because it requires significantly more forecasting capabilities, more flexibility to switch from one resource to another, and a more complicated and decentralized transmission system, etc.

Simply put, there are a lot more variables to control in a RE system and hence, more potential risk and volatility.

The industry term relevant here is capacity factor. This looks at the how much energy is actually produced by a specific source divided by the total capacity of that source. For example, if a 100MW solar plant produces an average 20MW (this is both due to efficiency of the solar panel and because the sun doesn’t always shine), then it has a capacity factor of 20%. Non-RE sources, because they are available on demand, obviously have a significantly higher capacity factor and the losses are only due to efficiency, maintenance, etc.

Technologically, there are multiple ways to fill that demand-supply gap.

• Backup FFs: The most obvious way is to just have thermal generation power plants (coal or natural gas) ready on standby. They can step in whenever RE supply decreases. This happens in a lot of regions with high RE capacity.

  You can see below how natural gas picks up when RE (solar in this case) drops off.

  

• Storage: The RE solution is to of course have more storage capability. Ideally, this would mean that we install excess RE capacity so that when the wind is blowing and sun is shining, supply exceeds demand, and the surplus gets stored. Then when demand exceeds RE supply, the storage plugs that gap. Storage can be in various forms, but the two most popular ones are likely batteries (of which there are also many kinds) and pumped hydro (kind of like a dam). Other technologies include hydrogen and bioenergy, but those are for another time.

• Flexible demand: This is increasingly becoming popular as well. In an increasingly electrified world with smart appliances, we can potentially reduce demand when the supply-demand gap becomes too big. For example, ensure that not everyone charges their EV at the same time, or offer consumers discounts to run their washing machines when overall demand is low, etc. Industries can participate in this by offering to lower their consumption during crunch periods (e.g. when there is a snowstorm and its more critical for hospitals to get electricity than an aluminum smelter). By the way, this applies to FFs as well because storms, outages, etc. can happen to any system.

So when people do RE analysis to solve the reliability problem, there are multiple choices and nuances that can change the result:

1. How much storage is required? This is very location dependent. Different regions have different susceptibility to weather volatility — both in terms of length and frequency — and other factors such as changes due to climate change, prevalence of storms, etc. A study that analyzed 35 years of the German power system found that storage that equaled 10% of total generation capacity, covering about 12 weeks of backup, was required to get through the worst years. That is 40x was Germany had installed in 2018 — a sizeable but not insurmountable task.

   While that is for electricity (which is only ~20% of total energy consumption), there are additional technologies that need to be scaled up for more industrial energy demand.

2. How diversified is the RE portfolio? If solar and wind plants are geographically concentrated, then they have a high correlation in terms of facing bad weather. However, if they are spread across multiple locations, then there are better odds of generation from one location being able to cover reduced generation from another location. This, of course, is more costly as it requires more transmission infrastructure (more on this in the electrification piece) and lower economies of scale.

   There is also the question of how many other non-FF technologies can be employed in the system (e.g. geothermal, nuclear, hydro) to serve as backup or support. Not all countries have the same resources available.

3. How much overcapacity can the RE system have? One thing is for sure — solar and wind systems will need considerable overcapacity to make up for the lower capacity factor. Remember, actual production is simply installed capacity x capacity factor. So if you increase the installed capacity, you can have more energy production. This has the additional challenge of "curtailment”, which means switching off RE plants when supply exceeds demand. Again, more planning, more infrastructure, and higher costs.

   Oversized system means more energy throughout the day but needs to be clipped (curtailed) at peak hours to maintain system balance.

   

We have all seen those charts showing how drastically cheap RE has become, which leads people to say why aren’t we just building more RE. But as explained above, there are multiple other factors that go into the energy system beyond just installing more capacity.

The cost that we typically hear about in the mainstream is the Levelized Cost of Energy (LCOE) — this is the cost of producing one more unit of energy. This, however, is not the full cost because it misses the cost of backup, intermittency, overproduction, etc. — all the things needed to make that extra unit of capacity work reliably.

The full cost is called the system cost and is what we should be actually looking at. These non-generation costs increase as more renewables get added to the system.

Here’s the chart (or a variation of it) everyone always sees and talks about.

Now let’s look at different attempts to estimate the system cost.

System cost analysis from 2013 for Germany:

Cost of Valued Energy for Germany & California 2019-2021. This measure assigns a “value” to the energy produced by a source based on the price of electricity in order to account for the intermittency, curtailment, etc.

The green line represents the true systems cost. The cost benefit for RE seems to disappear!

Levelized Full Systems Cost of Electricity for Texas and Germany 2012-2019. While LCOE assumes only generation cost, this metrics estimates the other end of the spectrum where it assumes that each energy source has to individually carry the weight of generation and system reliability.

You can see that the wind + solar model (W+S) is relatively comparable to nuclear but significantly higher than natural gas.

The takeaway here is both stark and critical. The mainstream narrative of cheap RE is grossly misleading because it only looks at the cost of generation, not of ensuring that the generation actually can be transported to its end-destination and used reliably. The real cost of RE is not as low as we think, which has serious implications for our civilization that relies on cheap and readily available energy.

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2. Energy density

You may not have heard this but there is an easy mental model to understand density called the Iron Law of Power Density:

There are multiple ways to compare density across resources, including surface area, volume, and mass. Across all 3 of those metrics, solar and wind rank considerably lower than fossil fuels. This is both intuitive and well-known as fossil fuels have had millions of years of high heat and pressure to compress large amounts of energy into small spaces.

[Note: Energy refers to capacity of work that can be done vs power is the rate at which work can be done. Energy is the size of the water tank while power is the much water can flow through the pipe.]

Power density by area of the generation site

Energy density by volume of the resource

Energy density by mass (here RE are represented by Lithium-ion batteries)

However, when we think about land area, which is arguably the most important metric across the 3, the analysis above only looks at the power generation site (e.g. comparing a thermal power plant to a solar generation plant). That is misleading, and sadly what most anti-RE people use, because it doesn’t take into account the land area required for extracting the fuel (oil, coal, etc.), the area required for transportation (e.g. pipelines), and so on — called the lifecycle land area. When we take all that into account, the differences aren’t as stark.

A definitive answer on the land-use question is hard to come by. Estimates range from slightly lower land-use than the current FF system to 4-5x land-use. The important thing is to recognize the factors at play in different types of models:

• How much does the new system rely on nuclear, geothermal, and hydro vs. just solar & wind?

• What type of energy storage is being considered (mostly lithium-ion batteries vs. pumped hydro) because that impacts how much raw material will be mined?

• Do we count the land area between solar panels and wind turbines as land-use for energy?

• How much biomass energy (which is the most land-use intensive form because it’s basically growing crops like corn to be used for fuel like ethanol) is going to be used?

Lastly, the final 3 takeaways I would have on the land question are that:

1) It’s common to read analyses that say a very small amount of land could be used to power the Earth through wind & solar (0.3% of land to meet global electricity demand — which is only 20% of total energy btw) but these exclude the difficulty of transporting energy, ensuring reliability and so on. You can’t just put all your solar in one place, for reasons I explain below and in the next piece on electrification.

2) There are many unique solutions to reducing RE land footprint, ranging from agrivoltaics, covering canals with solar panels to reduce evaporation, using the land between wind turbines, etc.

3) Despite the lack of a definitive answer about the area needed for RE, the future land-use will look starkly different to the current system. Whether we can minimize ecological damage, social costs, etc. depends primarily on our ability to efficiently plan, collaborate and get things done fast enough.

3. Energy Return on Investment (EROI)

This piece is already quite long so I am not going to devote a lot of space to this because I think I covered what needs to be said in newsletter #2. In summary, EROI measures how much energy we get from a resource after subtracting the energy we spent to be able to utilize that resource.

For example, how much energy do we get from burning oil after we account for the energy spent extracting, processing, refining, and transporting it. That energy surplus is the basis of civilization. If we don’t have an energy surplus, then all our energy is simply spent getting the next unit of energy; there is nothing left for growth, development, and progress. This is what agrarian societies were for example: most of their time and energy was spent growing food for sustenance, so there wasn’t anything of those resources left for progress. Until of course we found ways to do more with less.

There is a lot of debate in the industry about what is the true EROI for fossil fuels vs RE. Again, a lot depends on how you set up the problem (e.g. what goes into the energy input required to use oil and how can we best measure that input).

From my own research into this, the majority expert view is that:

• There is a minimum EROI threshold that needs to be met for our civilization work. This intuitively makes sense — most of our system is not spent in the process of extracting the next unit of energy, leaving considerable time & energy for us to do other things (all though it’s a shame most of us spend that doing non-creative jobs).

• RE EROI < FF EROI. This means that we are moving from a world with high surplus energy to low surplus energy. More of our resources will have to be spent in getting the next unit of energy, making everything else harder and more expensive.

Here are two great resources that explain this better than me:

Does Renewable Energy Have a Higher EROI Than Fossil Fuels? - Art Berman

III. What’s in a name?

I mentioned at the start that the biggest driver for solar & wind is the decarbonization narrative. This is why these resources are called “renewable energy” or “clean energy” or “green energy”.

But are they really?

It shouldn’t be controversial to say that renewable refers to that things that can regrow themselves. Plants, for example, can be considered renewable because when they die, their remnants feed the cycle of growth for new plants with minimal intervention. Solar and wind, however, do not work this way. They follow the same cycle we have for everything else:

Lots of RE analysis do another sleight of hand, similar as the cost narrative, where they don’t count the lifecycle ecological impact of solar and wind — the emissions from extracting materials, manufacturing, post-use waste, etc. Yes, the CO2 lifecycle emissions are much lower, but that just makes these resources “cleaner”, not clean (there’s a lot more ecological and health damage than CO2).

This is where the base layer foundation of this newsletter serves as a useful model. We know the cost and ecological challenges of the raw material value chain; we also know how the global manufacturing and transportation system is dependent on oil products (diesel, petrochemicals, etc.). So we can apply that to the simple fact that RE needs a lot more materials to produce energy!

Note: Add to this the materials required to (re)build our energy infrastructure to intergate RE, the machinery and equipment required for these sources to work (e.g. EVs, retrofitting buildings with electrified HVAC), etc.

“Take copper, for example: the world has mined about 700 million metric tons of copper since we started mining thousands of years ago. We’ll need to mine another 700 million metric tons just in the next three decades, Papathanasiou says, in order to meet climate targets.

Production of dysprosium and neodymium, rare-earth metals used in the magnets in wind turbines, will need to quadruple over the next several decades.” — MIT Technology Review

The materials exist, the question is how clean and green is it to extract them? Yes, the CO2 emissions of RE is considerably lower than fossil fuels. But what about the overall ecological impact of mining, refining, processing, and waste? What about the socioeconomic costs from indentured and child labor being used across the global mining sector?

Let’s say in the next 10 years we somehow create a 100% renewable energy system. The climate and ecological impact from using coal, diesel, gas, biodiversity loss, pollution, ocean acidification, etc. is not negligible. Some would say yeah that’s a cost worth bearing because the current system is worse, which is true.

This paper estimated that to meet the 1.5C emissions pathway, the upfront emissions impact would only result in 0.1C of warming but would lead to an energy surplus reduction of 25-35%!

But then in 2050, we have to do it again — rebuildable. How much of the energy and materials will come from the green and yellow lines in the above diagram? Can we recycle 100% or close of the materials? Those are all the questions we need to answer to determine how clean or green solar and wind will be.

The 3 takeaways here are:

• RE is unequivocally better than FFs. However, the clean/green/renewable narrative hides the reality of the ecological damage that will still happen.

• The level of green-ness of RE depends a lot on our choices. We could follow the existing model of ramping up coal to produce steel to produce wind turbines or ramping up cobalt production in Congo using child labor.

• It’s not just about the scale of what we need to do but the speed at which we need to do it. To repeat, we need the same amount of copper in 30 years that we have mined across human history! (Yes, I recognize that replacements such aluminum, and recycling, offer an easier alternative, but this gives a directional sense of scale.)

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Why this matters

Everyone is talking about renewable energy. But few understand the specifics and the nuances, which leads to 2 risks:

1. Losing the narrative war to pro-FF shills because RE people get caught out through their simplifications.

2. Getting hit in the face by ecological damage that we ignored or didn’t anticipate.

Renewable energy is an imperative, but it is no panacea. The sooner we realize that, the better it is for our civilization. One way or another, our global system is going to radically change, so systematically understanding how things work beyond the feel-good narratives is the only way to prepare for that.

There is a lot of positive news coming out about RE (like the one below), but hopefully this piece helps put all that in perspective. There is no energy transition yet, just energy addition!

Leave a comment

Also, since I last wrote a piece I have had the privilege of appearing on multiple podcasts to talk about energy, the Global South, degrowth, etc.

As always, feel free to reach out with questions, feedback, counterpoints, etc. I tweet at @mtaa324]

Introduction

We live in a material-intensive world. Despite all the hype about digitization (metaverse, AI, cloud, etc.) or about a services economy, this great civilization of stuff that we have built has required copious amounts of raw materials — and continues to do.

In 1900, the mass of human-built stuff was ~3% the weight of all living things on Earth; in 2020, that figure reached 100%.

The amount of new material added every week equals the weight of 8 billion humans — yes, that’s every week!

Rather than slowing doing, this material consumption is only going to accelerate going forward, driven by 4 potential factors:

1. Decarbonization = re-materialization: Renewable energy, EVs, etc. are require an incredible amount of materials, both to build the devices themselves but also the supporting infrastructure (e.g. long-distance electricity transmission lines, EV charging, etc.). The energy may be free, but our ability to harness it isn’t. This isn’t just about the climate; any climate-skeptic readers should note that this is also about energy security, air pollution, etc., as was realized even by the conservative, anti-climate Democratic senator Joe Manchin

   

   

2. Onshoring & industrial policy: If globalization led to economies of scale, then the attempts to de-globalize should do the opposite. China already had a robust onshoring and domestic manufacturing policy; now we see the EU, US, India, and making emerging economies follow suit with large, even unprecedented industrial policy programs. That means more mines, more factories, more equipment, etc. — all material intensive.

3. Tackling poverty & inequality: There’s no question that the rich consume orders of magnitude higher resources and energy that the non-rich. Hence, both from a climate perspective but also just as a socioeconomic moral imperative, redistributing wealth is paramount. However, this is not as simple as just taxing away $1T — as an example — from the rich and distributing across the non-rich because especially as lower income levels, the material intensity of consumption is quite low. Therefore, more income will mean moving to higher material intensity forms of consumption (e.g. housing, transportation, technological devices, etc.). This means more demand materials. Just think of how much material it will take to build proper homes for the 1.6 billion people globally who are either homeless or in insufficient housing.

4. War: If there’s one thing that leads to sudden, sharp increases in raw material consumption, it’s war. I don’t need to explain why war itself, and its consequences (rebuilding), are material intensive. ~6% of global emissions come from this industry. At a time when geopolitical tensions are rising across multiple fronts, we shouldn’t forget how our already strained biophysical systems would suffer if more escalations emerge.

By 2040, it is estimated that demand will be 2x-4x of 2020 levels — and this is just from the clean energy transition. For some specific materials, such as rare earth metals, the demand is expected to jump as high as 10x!

It is not surprising then that in 2023 we have seen the struggle over raw materials escalate. Numerous countries have announced that they will no longer allow these material resources to be cheaply mined and then exported for foreign consumption. Chile, Namibia, Indonesia, Zimbabwe, China, etc. have instated policies, or at least raised the prospect of, restricting the export of materials such as copper, lithium, aluminum, and so on. The recent news coming out of Niger, Burkina Faso, and Mali points towards the countries reclaiming ownership of their resources, much to France’s detriment.

In this piece, I provide a primer on the raw material ecosystem. Similar to the one on oil, this provides a broad overview across 3 fronts:

1. Why are minerals & metals (raw materials from here on) critical

2. What does the industry look like

3. What are the geopolitical dimensions

To take a step back, I started this newsletter as a project to explain how the base layer of our system works. Thus far, we have covered energy and the monetary system. The third, and final, piece of the base layer are raw materials.

We cannot access or meaningfully transform energy without having the raw materials to do so; concurrently, we need energy to access and use the raw materials. This is how those two pieces fit together. Money, as I have mentioned in other pieces, is the tool that connects market participants together to allow this activity of using energy and raw materials to make stuff happen. Energy and raw materials are physical concepts so they are slightly more fundamental, but I’d argue that those two together with money form the base layer of human civilization.

I. The criticality of raw materials

Since this is a very broad sector, let’s define some basic categories. Raw materials can be broken down into metallic, non-metallic (sand, gravel, etc.), biomass (lumber, food commodities, etc.), and energy resources (fossil fuels). In 2021, it is estimated that ~100 billion tonnes of raw materials were extracted globally.

As with energy, raw materials have a highly positive correlation with GDP. This intuitively makes sense — in a consumption driven economy, more economic activity will require more materials to be extracted and consumed. Remember, we live under a system that requires exponential growth!

It is also important to recognize that while metrics such as CO2 emissions per capita are falling in richer countries — something they use to shift the climate onus onto countries like India and China — material footprints have remained constant at an exceedingly high level for the Global North. So at the top when I said humanity is adding a staggering amount of new materials every year, it’s mostly the Global North and the global top 10% of wealthy people.

It is clear that we use a lot of, and increasing year-on-year, amount of raw materials. Our economic system of growth depends on it. These materials are used for everything around, ranging from food, housing, roads, buildings, smartphones, cars, etc. to weapons, heavy machinery, and so on.

In order to dive deeper into this sector, I cannot generalize across all 4 categories of materials. Therefore, in this piece I will focus on metallic materials mostly because of their importance to decarbonization, technological development, and heightened geopolitical dynamics.

Even within metallic materials, we are talking about a remarkably broad array things (the following classification is somewhat arbitrary because the use and importance of these materials is context dependent):

Precious metals (e.g. gold, silver, platinum): These elements are used both for non-industrial — such as jewelry or as an monetary store of value — and industrial purposes. In terms of weight, these are a relatively small proportion of the total amount of metals mined.

Industrial metals (e.g. lead, copper, iron, aluminium): Our industrial civilization depends upon vast quantities of these metals because everything we build requires them. Just stop to think about how much iron is need to make all the steel we use in constructing infrastructure, or the amount of copper use in all the electrical wiring in the world. In fact, iron ore makes up more than 90% of the total metals mined annually. No wonder Vaclav Smil called steel one of the 4 pillars of modern civilization.

Critical metals (e.g nickel, lithium, cobalt): The use of the word critical here is of course context dependent. These elements have been classified as such primarily because of their supply chain risks, and their growing demand due to electrification and decarbonization. Batteries, for example, which are the key to unlocking renewable energy, EVs, etc. are one of the largest use-cases for lithium and cobalt.

Rare earth metals (e.g. dysprosium, neodymium, cerium): This is formally a group of 17 elements. Technically they are not rare, meaning that there isn’t a shortage of deposits in the Earth’s crust. Instead, the fact that they are found in low concentration deposits makes them hard to mine, leading to their rareness. They also have special properties (e.g. high degree of magnetism) which makes them critical for so many existing and upcoming technological developments, ranging from cellphones and steel alloys, to EV motors and wind turbines.

Lifecycle of these materials

Much like the story with oil, the process of extracting metals and making them ready for commercial use involves multiple steps.

Mining: Metals are usually found in ores, which are themselves found in rock deposits across the Earth’s surface. When ores are not too deep, surface mining methods such as open-pit mining or strip mining are used. Although less invasive, these require stripping away or digging through the top layer of soil and rocks to access the minerals below. For deeper ores, extensive digging and tunnels through the Earth’s surface are used to access and excavate the ores.

Concentration: Once the rocks containing the ores are excavated, the process of removing impurities is undertaken. Depends on the type of ore, various methods are employed, including hand-picking (the traditional way), hydraulic washing (use high-pressure water streams), and chemical reactions. This process results in significant waste materials called tailings.

Refining: This involves a vareity of activities that prepare the metal for commercial activity, including purification, crushing, grinding, etc. Electrolysis, distillation, chemical reactions, and heavy machinery are all used in this process.

Post-use: Most conversations stop at the point of end-use but it is important to understand what happens to these materials afterwards. Not only does our use and throwaway model require increasing amounts of material mining, but it also contributes to waste as these materials end up in landfills. Some products, such as steel, have high recycling rates (40% of annual steel production is recycled), while others have rates as low as 1%. One of the problems with recycling is the feasibility of going through our waste products (small and scattered) and going through the tedious process of extracting tiny amounts of materials.

There are 3 main takeaways that I would emphasize from this process:

1. Ease of access: When it comes to any type of material, the industry terminology differentiates between the total estimate of that material on Earth (called material resources) and the total amount of that material which is accessible given the current technological and cost dynamics (known as reserves). So for example, the estimated copper resource is 5,000 million tonnes but the copper reserves are only 870 million tonnes. Mining deeper ores requires considerably more energy and resources, henceforth raising the cost of these metals. Thus far we have been tapping into the low-hanging fruit but as our current system goes on, we are forced to shift towards tougher mine practices (e.g. ocean mining). And that isn’t going to be cheap, easy, or reliable.

   

2. Waste rocks: The indsutry used the term of rock-to-metal ratio (RMR) to determine how much rock needs to be mined to give 1 unit of metal. Although the ratio varies significantly across metal type, the numbers range from 1,000,000:1 for gold and silver to 10:1 for iron and aluminium. That’s a lot of waste rock (known as tailings) that are left behind and then need to managed. Apart from the energy and space required to store these tailings, there are also environmental damages such as landslides or water pollution (as rain water mixed with mercury, sulfur and other toxic chemicals from tailings and pollutes water bodies — know as leeching).

3. Ecological damage: Apart from tailings and even the climate impact from fossil fuel across the metal production process, there are considerable other forms of damage that occur. For example, the loss of biodiversity and damage to ecosystems occurs both because of the intense impact mining has on the land (think back to those pictures — top soil stripping, explosions, chemicals, etc.) and because upto 50% of mining occurs in relatively close proximity to ecologically important sites. Another major source of damage is water pollution at numerous points of the process. Toxic and radioactive materials are released through mining the rocks, the chemicals used in mining, refinings, etc. seep into underground water and other water bodies, the disposal of wastewater isn’t done properly, etc.

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II. The geopolitics of metals

I’m sure everyone has heard by now that China dominates the supply chain for metals and minerals, whichy is why the Global North countries have been pushing the “decoupling” narrative so hard. You can see below that even China doesn’t have a lot of mining activity, it is leaps ahead of other countries in essentially all the value-added steps. More on this when I do a country profile of China but this isn’t just cheap labor driven manufacturing stuff; these are technologically advanced, sophisticated processes that aren't easy for other countries looking to enter the space (e.g. the US) to replicate.

What do these images say about the possibility and impacts of isolating China?

The second key geopolitical question is about mineral reserves. If demand for these materials is going to exponentially increase, then the question of which countries have the deposits comes before everything else.

The map below shows that the deposits of these materials overlap with conflict-areas, fragile states, exploited states, etc. Areas for primary focus should be the continents of Africa and South America. For some supply chains (e.g. Cobalt, which is a key component of EV batteries), the deposits are much more concentrated, with the Democratic Republic of Congo having the lion’s share.

Map of major metal reserves (circles) overlaid on state-fragility scores (country coloring)

Map of cobalt reserves (circles) overlaid on state-fragility scores (country coloring)

There’s more to explore in this China-Global South question. In Western countries, there has been this epiphany that raw materials are important and that China has secured the supply of these through considerable investments across the African continent. The truth is somewhere in between the fear-mongering and the reality that China is in pole position.

On the one hand, China is by far the largest importer of raw materials, has most of the processing/refining capacity, etc. It has made investments in countries to secure long-term supply: for example, it owns a stake in nearly all the cobalt miners in Congo (70% of cobalt supply); it invested $4.5B in lithium projects across Mali, Zimbabwe, and Namibia; 40% of China’s copper imports come from Chinese-owned mines abroad (it consumes more copper than the rest of the world combined). 33% of Africa’s metals and ores exports go to China!

On the other, the global mining industry is much larger than we imagine. China controlled only 7% of the total value of mine production in Africa and 3% of the global share (estimate from 2019). While that definitely puts China in the lead, it is far from the position of total control that the common narrative makes it out to be.

Now let’s take a step back and look at the broader geopolitical picture, both across time and space.

One can write a whole history of our civilization, going back the past 200 years at least, as well as an analysis of the present and near future based on the maps above (as well as the maps in the oil primer). What we call development or progress is wholly dependent on material resources, which is why wars have been fought and systems have been designed to maximize access to them. It should be uncontroversial to say that from the 1700s, the search for these materials drove colonization; from the 1950s, the neocolonial system has done something similar, albeit more veiled, where the Global South has been perpetually pushed into debt traps and military conflict so that the richer nations can have easy and cheap access to these resources.

Whether in South America (Brazil, Cuba, Chile, Nicaragua, etc.) or Africa (Burkina Faso, Mali, Niger, etc.), democratic/revolutionary governments have tried to nationalize resources in order to develop domestic capacity for value-added processes and consumption. However, either through coups, proxy wars, of IMF-led deregulation programs, the access to cheap resources has been maintained.

Today, we are seeing the same efforts again across the world. Brazil, Chile, Indonesia, Niger, Burkina Faso, etc. are just some examples of countries looking to develop local industrial capacity and challenge this status quo of one-directional development. So whether it is attempts to compete with China through investment and ownership, or through direct action (as France is weighing against its neo-colonies in sub-Saharan Africa), this will be a critical part of geopolitical dynamics going forward — even if your politics don’t recognize the historical dynamics I laid out above.

III. The raw materials industry

I think it’s fair to say that this the most important industry in the world that no one has ever heard of. When we think about large oil and gas companies, almost everyone can names the likes of Shell, Exxon, Aramco, etc. But how many people can name the major commodity producers or traders — the later being the ones who get these essential materials from producers to consumers no matter the odds?

Commodity traders

First let’s look at the trading companies. With them, it’s not just that they make pretty good money. In fact, these companies are pivotal in history shaping events by getting materials to and from some of the most dangerous places and situations on Earth, choosing sides and picking winners in the process.

For example, the commodity trading giant Vitol was able to get refined oil to Libyan rebels during the Arab Spring, helping turn the tide against Gaddafi. They also circumvented US sanctions against Cuba and sold Cuban sugar to the Soviets. Other companies like Glencore and Trafigura have worked with apartheid governments in South Africa, Saddam’s government in Iraq, and dictatorships under sanctions.

I would be willing to speculate that the continuing supply of commodities from Russia, despite the sanctions, is only possible because of these companies.

[You can read more about these stories in the book]

So who are these companies?

In the food space, a handful of companies such Cargill, Cofco, and Archer-Daniels-Midland (ADM) dominate the global seed markets and agricultural commodity trading, controlling up to 50% if not more of this sector.

In the minerals and metals space, Glencore, Trafigura, Vitol, Mercuria and a few others dominate. At one point, Glencore controlled 40% of cobalt production in Congo (where 70% of cobalt production occurs). Now it has been overtaken by the Chinese state-owned company CFOB.

As with the fossil fuels industry, these companies saw a huge boom in profits following the Covid-19 supply shock.

There’s a lot more to be said on this — I highly recommend reading Javier’s and Jack’s book — but let me just cap it here by saying these large trading companies truly operate in the regulatory and financial shadows. They not only control the supply of the energy and materials that make our world possible but also influence prices, accessibility, and so on. There is no way to analyze geopolitics, the politics of where these companies are most active, decarbonization, industrial policy, energy security, etc. without understanding this space.

And lastly, this is where understanding money and global financial system becomes so important because these companies rely on funding from (shadow) banks to engage in all types of deals. The Euro$ system, how banks create money, etc. are all what enable this to happen.

Metal miners

Now let’s look the mining part of the industry. The 3 biggest mining companies are based out of Australia but have projects all over the world. For example, Rio Tinto and BHP either own or have major stakes in copper mines in Chile, including the largest copper deposit in the world.

It is common knowledge by now that the energy transition requires orders of magnitudes more of these materials but miners are not yet willing to invest in more capacity. Capex investment in new developments is estimated to continue falling, even after huge profit-making years for these companies recently. Instead, the extra income is either being used to boost shareholder returns or being kept as cash on the companies’ balance sheets. Without more mining, it is hard to see how the gaping demand-supply mismatch can be closed.

Just look at ~$150B of uncommitted capex just for copper that needs to come from somewhere!

There are multiple reasons for this, some of them related to the prevailing policies and impending tradeoffs.

1. Mining is a long, arduous and costly process: Investing in new supply isn’t easy. The process requires various steps, including exploration, permitting, drilling, and eventually production — anywhere from 5 to 20 years. Then the mine must operate at a profit for the first 5-10 years in order to recover the initial investment. While recently higher commodity prices have helped miners make huge profits, the prior decade of low prices has left little incentive for them to invest in new, long-term supply.

2. ESG: There’s no question that mining is an ecologically “dirty” business, especially as deeper deposits need to be accessed. Therefore, ESG standards put pressure on miners and increase the risk to their investments, which again reduces their incentive. This is a real tradeoff — how much dirty mining are we willing to accept to achieve our “clean” energy plans?

3. Permitting: For various reasons, including the ESG one, permitting has become a highly bureaucratic and tedious process that can end up taking years.

Ultimately, miners are currently in the sweet spot. They know that exponentially increasing demand is around the corner, if not already here. If they don’t increase supply, the price of commodities will go up, and so will their profits because = their are no substitutes to these materials.

This is also why industrial policy, for better or for worse, has become so mainstream now. Governments realize that, regardless of their reason, they need access to more materials. Hence, they are throwing a handful of carrots at this space (and the whole supply chain in general) to de-risk private investments.

From an investment perspective, this could be an important dynamic to understand. Many in the finance space, from Zoltan Pozsar to Jeff Currie (outgoing Goldman Sachs commodities research head), have been calling for a commodity supercycle. And from a equity valuation perspective — these stocks are at their cheapest level relative to the broader market in 50 years — coupled with the demand-supply gap explained in this piece, the risk-reward does look favorable.

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Why this matters

With this piece, I have covered all three parts of what I think constitute the base layer of civilization: energy, raw materials, and money. The three topics have considerable overlap and are in some ways inextricably interconnected to create the foundational network — an invisible layer — for everything around us today.

Regardless of political affiliation, everyone is encountering an undeniable feeling that the winds of change are picking up speed. Any analysis of what is happening, what might happen, what should happen is, in my opinion, severely handicapped without understanding the forces that truly makes the essential cogs of our system work.

Our current civilization requires exponentially increasing amount of cheap and easily accesible materials and energy, a functioning monetary infrastructure which most parties trust, and geopolitical stability in order to maintain global supply chains. All technological progress, all political ideals of freedom and democracy, are built on top of this.

At the same time, this same civilization also develops, and at this point grants luxuries to, some at the direct cost of others, veiled by the illusion that everyone can have it all, while being increasingly whacked on the head by ecological constraints.

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If you haven’t heard yet, there’s something crazy going on with the weather. And no, this is not just about having some city in South Asia or the Middle East break the temperature record.

I initially mentioned this in newsletter #7 as one of the top three things to be on the lookout for in 2023.

Here are three charts to relay what maybe thousands of words cannot.

Figure 1: Global temperatures breaking records across the board

Figure 2: Ocean temperatures are not just breaking records but literally going off the chart.

Figure 3: Staggeringly low sea ice in the Antarctic (and in fact globally).

2023 has been a year of extreme weather conditions, to the extent that even climate scientists — people who by this point are used to record breaking temperatures every other year — are perplexed.

“We’re seeing numbers that aren’t just off the charts, they’re off the wall the chart is tacked to.” — Bill McKibben

“This is totally bonkers and people who look at this stuff routinely can't believe their eyes. Something very weird is happening.” — Brian McNoldy

“Everything is happening so fast, it's hard to get a sense of the enormity of these anomalies, let alone their consequences.” — Eliot Jacobson

This piece delves deeper into this topic, focusing on 3 parts:

1. Brief explanation of what’s going on with the weather

2. Potential causes for these anomalous weather conditions

3. (Most importantly) How this impacts the global system & our everyday lives

It is important to make the climate vs. weather distinction here.

While the two are of course similar concepts with a temporal difference, the key point here is that the alarm bells in 2023 are not only ringing because of a change in the long-term (climate) trends (e.g. global warming, CO2 emissions, etc.) but because of extreme weather conditions happening as we speak.

So this is not about the future, this is about the present!

Here’s the summary:

• The oceans are warming at an unprecedented, chart-shattering pace. This is bad because ocean’s trap heat which eventually gets released into the atmosphere.

• Lots of feedback loops being activated (e.g. sea ice sheet melting means more heat absorption by water, leading to more sea ice melting)

• Human-induced global warming is the main driver but a range of reasons, including the start of an El Nino cycle, are causing these extremities.

• Serious impacts across 2023-24 at least, ranging from heatwaves, storms, droughts, food & energy crises, etc.

• The weather is a complex system that is hard to model or control, and yet our actions and narratives are based on simplified frameworks and assumptions.

[I want to note at the outset here that this piece draws heavily from the work of people such as Leon Simons, Eliot Jacobson, Michael E. Mann, Peter Dynes, Jeff Berardelli and others. Highly recommend following them on Twitter to keep up to date & learn more]

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Extreme weather (2023 edition and beyond)

The charts above highlight the basic problem:

This year is seeing a sudden and unexpected degree of warming in the oceans, particularly in the North Atlantic, along with record-breaking land temperatures and dangerously low levels of ice in the Antartic. All these are interconnected because the weather is a complex system.

The results of this have been the extreme weather conditions you may have heard about in the news, ranging from blazzing heatwaves in Texas, Mexico, the Middle East, West Africa, Southern Europe and South East Asia, severely warm winter temperatures in Southern Africa, massive wildfires in Canada, developing drought conditions in parts of the US, Europe, and South Asia, stronger than usual storms (including hail storms, flooding, tornadoes, etc.) in Guam, Myanmar, parts of the US and Uganda.

[I know I have almost nonchalantly listed these events but I want to emphasize the gravity of the risk posed, and damaged already caused, by each of these. We are talking about scores of adults and children dying, serious illnesses, loss of homes and property, etc., with the most vulnerable in society disproportionately affected.]

Figure 4: Extreme summer temperatures in the Northern hemisphere coupled with anbormally warm winters in the Southern hemisphere

Figure 5: The scale of wildfires in Canada has been unprecedented

While the wildfires and their impact on NYC have fallen out of the newscycle, the threat is not over and the smoke is now crossing over towards Western Europe while Chicago has the worst air quality in the world these days. The illustration below shows how interconnected and complex our weather systems are globally.

Figure 6: Wildfire smoke from Canada crossing over to Western Europe

Source: Nahel Belgherze

And this list is only of recent weather events — anomalous activity has been happening right since the start of 2023. Here’s a list of select extreme weather events this year.

Now let’s look at why the ocean warming in particular is causing climate scientists such distress.

Up to 90% of the global warming that has occurred over the past 50 years has been absorbed by the oceans. This is because water has a higher heat capacity than air and the oceans cover 70% of Earth’s surface area. However, the heat does not stay in the oceans; through various phenomena, this heat gets released back into the atmosphere, ultimately causing air and land temperatures to rise.

For example, there is increased evaporation with higher ocean temperatures. This transfers heat into the atmosphere, increases humidity, and traps more heat as the increased water vapor is a greenhouse gas. This also increases the likelihood of serious storms as there is more water in the air and the warmer air temperature allows for more energy to be carried. Hence, more rain, stronger winds, more thunder, etc.

Other methods include melting ice shelves, lower CO2 storage capacity of the oceans (which creates a positive feedback loop with more CO2 in the air —> more heating), direct heat exchange with the air, etc.

Basically, the oceans act as a giant store of heat, gradually releasing it over time. This protects us from feeling the full force of global warming initially but also means that the effects linger for longer and get distributed across the Earth by the ocean current system. So all the extreme weather events mentioned above are happening while the oceans are still heating up — the latent impact on land and air temperatures is still to be felt!

For those more quantitatively inclined, I found this back-of-the-envelope calculation to be hauntingly fascinating. That’s a lot of energy that is currently heating up (read: being stored in) just the North Atlantic Ocean — this will get released one way or another over the next 6-24 months.

The situation with low levels of global sea ice, particularly in the Antartic (for now), also raises alarm bells because of the feedback loop it spurs. Ice sheets reflect heat while water absorbs it; therefore, more sea ice melting means more heat absorbed by the Earth, causing more melting of the ice sheets and so on. I don’t want to get into the whole spiel about rising sea levels and all that since this piece is about the weather (near-term impacts) but sea ice plays critical roles in ocean circulation and regulating land + air temperatures. It’s melting negatively impacts extreme weather conditions, storm formations, etc.

So in summary, we are already seeing extreme weather conditions this year. But even more worryingly, the increased ocean heat & low levels of sea ice pose tremendous risks for more extreme temperature (think deadly heatwaves) and catastrophic weather events (incl. storms, floods, droughts, wildfires, etc.) not just this year but in 2024 and beyond.

Potential causes

There is significant debate going on the scientific community about what could be causing this unexepctedly rapid warming. Before climate-deniers jump on this, there is no debate about the fact that greenhouse gas emissions are the macro cause — the debate is about what exacerbating factors are compounding GHG-induced global warming.

Let me quickly summarize 3 causes being discussed.

1. Transitioning from a La Nina to an El Nino:

These are two naturally occuring climate phenomena that occur primarily in the Pacific ocean, affecting the surface temperature of the ocean, which then impacts the weather globally through changes in the jet stream, ocean currents, etc. Remember, small changes in the weather system in one corner of the world results in cascading impacts everywhere. Rainfall patterns, global temperatures, etc. all change effected by this.

Figure 7: How La Nina & El Nino work

Figure 8: Global temperature anomalies in La Nina & El Nino years

La Nina years are typically cooler and wetter while El Nino years are warmer and dryer. These phenomena usually last ~1 year, occuring every 3-5 years. However, we have been in a La Nina event for the past 3 years. One example of the impact can be seen in the extreme winter temperatures seen in central and southern US, resulting from a weaker jet stream that usually keeps cold air in the Northern part of North America.

In 2023, we seem to be moving from a La Nina (cooling impact) to an El Nino (warming impact). While these are natural cycles, global warming is making the impact of these more severe and unpredictable.

Figure 9: Change in seasonal weather relative to normal years

2. De-sulpharization and reduced air pollution:

This may come as a surprise but air pollutants, particularly particles such as sulphur and nitrogen oxides, actually have a cooling impact and counter global warming. At the same time, these are also of course toxic pollutants with severely dangerous impacts on human and ecological health.

In short, these particles are released through fossil fuel burning. Then, through various chemical reactions in the air to create aerosols, they result in increasing cloud cover which reflects more heat away from the Earth. Over the past few decades, and ramping up over the past few years, desulpharization has been a major policy achievement in order to counter air pollution. The flipside of that has been, almost in a greek tragedy sense, that the cooling effect of these pollutants has been neutralized, leading to more warming.

In particular, the desulpharization of fuels for ships has led to reduced sulphur emissions over the oceans, potentially exacerbating ocean warming through reduced cooling. To add to the complexity, the scrubbers used for this process on ships create acidic waste water that is simply thrown into the ocean, creating ecological damage on its own.

You can see the effect below — the red band is where most of the shipping routes are.

Figure 10: Global shipping routes & sulphur dioxide emissions areas

Figure 11: Correlation between sulphur dioxide emissions & solar radiation absorption

This is a major conundrum not just for ocean warming but also more generally. Desulphurization in coal power plants, oil refineries, and shipping fuels is necessary to counter air pollution but will lead to more global warming impacts. Look at the case of India for example — stuck between a rock and a hard place.

Figure 12: India’s deadly air pollution acts as a blanket against warming

3. Other natural events (e.g. reduced Sahara desert dust, Hunga-Tonga volcano eruption, etc.):

~180 million tons of dust get kicked up into the atmosphere every year and get carried over the North Atlantic ocean by winds, resulting in cooling effect as the dust reflect heat from the Sun. For multiple reasons, one of which is weakened and change wind systems, the Saharan dust has not made it to the atmosphere above the North Atlantic, thereby contributing to ocean warming.

Figure 13: Reduced Saharan Desert dust in 2023

The eruption of the Hunga-Tonga Volcano in 2022 has also potentially contributed to the increased warming this year. As with a typical volcanic eruption, suphur dioxide was released into the atmosphere but the quantity, and hence cooling effect, was lower than average. Instead, because this was an underwater volcano, huge amounts of water vapor was released. The amount is estimated to be ~140 megatons shot up straight into the stratosphere (~40km above the ground). This increased the water vapor content by 10-15% of that layer.

To summarize, the takeaway from these potential causes for all us, regardless of our interest in the science, should be recognizing the complexity of weather systems. This means that our ability to sufficiently model and predict is limited, as anomalous events can lead to serious multiplicative risks, and that human-activity (i.e. global warming) is disrupting a system that is hard to control. Those relying on incrementalism and future technologies are playing a dangerous game.

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Impacts on the global system

“This El Niño will likely be costly to the global economy. The one in 1997-98, one of the most powerful in history, led to $5.7 trillion in income losses in countries around the world according to a study published earlier this month in the journal Science. It was also blamed for contributing to 23,000 deaths as storms and floods amped up in its wake.” — Umair Irfan (Vox)

It should come as no surprise that the weather impacts every facet of our life. From the potentially deadly health impacts of heatwaves and damage caused by storms to the second degree effects resulting from changes to agriculture, energy systems, supply chains, etc., there is no way to escape the disruptions that have already, and may continue to, arise.

An El Nino year is already bad (we are only in the early innings of one); the combination of everything else described above, along with decades of climate change, will make it worse.

Here I am intentionally going to avoid the more climate-related impacts of this warming (coral reef loss, change to marine life, etc.) and just present a select range of more immediate and tangible — in the short run — impacts:

1. Damage to food production: Drought conditions are already present in many parts of the world and expected to get worse in 2023 and into 2024. The Horn of Africa is already facing the worst drought in 40 years, impacting 20 million people. Same for other parts of the world, including South Asia, Europe, etc. These issues are in no way local. While the poor and most vulnerable in these regions suffer the first degree impacts, the damage ripples through the global system by putting strains on food production, potentially leading to shortages and price spikes.

   Figure 14: Drought conditions in India and Europe

   

2. Damage to energy infrastructure & decarbonization efforts: There are multiple ways in which the energy infrastructure comes under stress and/or suffers serious damage. For example, increased demand for cooling in heatwaves putting more strain on electricity generators, transmission lines, transformers, etc., leading to blackouts. Storms do that too by directly damage the infrastructure.

   “Baseball-sized hail took out a solar farm in Scottsbluff, Nebraska… He [Nebraska Public Power District representative] said the panels are designed to withstand hail, but the size of the hail Friday was exceptional.” — Source

   Figure 15: US electricity grid risk assessment 2023

   

   In many cases, countries may have to increase fossil fuel consumption to meet the increased energy demands and also because renewable energy faces efficiency losses during high heat. For example, the efficiency of solar panels reduces at higher temperatures, ultimately needing to be turned off to avoid damage. Nuclear power requires copious amounts of cool water; when this is not available, as was evidenced in France last year due to high temperature of river water, the nuclear stations have to shut down.

   So here’s another feedback loop: global warming —> more fossil fuel use

   —> more global warming.

   This then has the knock-on effect of increasing prices for fossil fuels, leading to richer countries like Germany pricing out poor ones like Pakistan and Bangladesh, which is what happened post the Russian invasion of Ukraine.

   Higher natural gas costs also lead to higher fertilizer prices, which can exacerbate an already strained food production situation.

3. Supply chain & infrastructure damage: All the weather patterns discussed in this piece lead to more and worse storms. This can have relatively smaller impacts like increased turbulence during flights (which can still cause serious injury) to larger impacts like hurricanes and cyclones that decimate homes, roads, factories, etc.

   Just think about the impacts the Canadian wildfires have had by not just damaging ecosystems (oh and by also releasing CO2, which is another feedback loop) but by dangerous levels of air pollution in Canada, the US east coast, now potentially Western Europe.

   Similarly, we are all well aware of the catastrophic damage that extreme weather events, such as the floods in Pakistan, can cause and how long it can take to recover (many regions do not recover).

   All this is on top of the existing crises, some of which I have talked about in previous pieces: social unrest, economic crises, long-term climate impacts, etc.

Finally, I want to emphasize here that, as with all other things, the burden of this is borne by the most vulnerable and exploited people in society, both within countries (e.g. rich people can afford to stay indoors and have ACs) and between countries (e.g. Global South countries lacking the material and financial resources to invest in mitigation, disaster management, and recovery).

This is inextricable from growing social unrest and geopolitical risk. Feedback loops are everywhere.

Conclusion

On the one hand, the mainstream climate narrative pretends that we are in the 1980s, meaning that we have time to experiment and wait for technological solutions. The severity of impact is already happening now, as is clearly evidenced. The narrative also is predicated on the belief that humans can control the natural system we live in. Again, as evidenced by this piece, we live in a complex system where small changes that have major, non-linear impacts, and where the causal relations between factors is circular, intricate, and too complicated for us to sufficiently model, not to mention control.

On the other hand, we have the very real challenges of energy security, development shocks, and geopolitical risk. Tackling those is often at odds with other goals (e.g. reducing air pollution is a health prerogative but increases global warming or that heatwaves warrant the use of whatever energy source is available to protect people).

I am not going to pretend that I can offer a solution here (although in future pieces I will build up to my opinion of what needs to be done); instead, I hope we can build our analyses, debates, and proposals on a real understanding of the world. Wishing complexities away just because it supports desire to somehow maintain the status quo or have it all is ultimately self-defeating.

To repeat a line I love to quote: “In the war between physics and platitudes, physics always wins (eventually).”

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Resources

Thread on radiative forcing and cumulative energy

Academic paper: Earlier collapse of Anthropocene ecosystems driven by multiple faster and noisier drivers

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I will hopefully be ramping up the speed of pieces before a summer hiatus — upcoming topics include:

— Primer on commodities (metals & minerals)

— China’s role in the global system

— Understanding renewable energy & decarbonization

— Ecological crisis, not climate crisis

— Global development & the return of industrial policy

Some other exciting developments coming up soon as well!]

“The monetary system is designed to be hidden.” - Jeff Snider

“The costs of the dollar's status as the international reserve currency now outweigh the benefits, and the United States should take the lead in moving to multi-currency reserves.” - Michael Pettis 

Introduction

In recent pieces I have talked about how the recent hype about de-dollarization is wrong. In this piece, I go further and explain how the mainstream understanding of the US$ system itself is flawed because it leaves out critical features and markets.

If you think being the global reserve currency (GRC) is a huge benefit to the US people or that the US$ system is some centrally controlled policy run by the US government (and central banks), this piece should offer some interesting provocations.

I cover 3 parts here, which I hope will provide a simple yet comprehensive way to think about this topic:

1. What is a global reserve currency? 

2. How the US$ ended up here (including the most important financial market you’ve probably never heard of).

3. Why de-dollarization is hard, and how we are painfully stuck in a dying system.

To understand the US$, global trade, and the second order impacts such as geopolitics, US-China decoupling, etc., it is important to know what money is and how it works – the standard conception is wrong and leads to errors cascading through other analytical domains.

Anyways, here’s the 1-min summary of this piece: 

→ The US$ system makes the global system run and hence it must be integrated into political/policy analyses more often. 

→ The weaponization of the US$ against Russia, Afghanistan, etc. recently has exacerbated a long-term trend of using the US$ for geostrategic gains (swap lines are a good example).

→ Many countries across the Global North & South are looking to diminish their reliance on the US$ for a myriad of reasons (sovereignty, debt crises, etc.)

→ However, no country wants to (or even can) take up the mantle because of the domestic hardships that the GRC country must experience.

→ The US$ system is run through a decentralized, unregulated and private global banking system, not through central bank policies per se. Banks, shadow banks, and other financial entities run the show!

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The Making Of A Global Reserve Currency

Money is simply a tool that mediates financial transactions and commerce. That’s the primary objective. In order to do this holistically, the GRC is more than just the currency we conduct global trade in; instead, it is a multi-faceted, comprehensive system and must be understood as such. 

There are 5 key features to think about:

1. Pricing: Pricing goods (say oil) in multiple currencies is significantly more complex than simply pricing it in one currency across time and space. With the lower transaction costs and greater coordination that comes with using the same unit of account, more and more economic agents begin adopting it, leading to network efforts. This bottom-up phenomenon is coupled with, and maybe even driven by, the top-down imposition of a specific currency.

   So one function is a standardized form of pricing goods & services so as to make trade more efficient.

2. Supply/availability: Each currency is the creation of a specific sovereign entity. When it comes to the GRC, one country issues it and the rest of the world needs some way to access it. This means that the issuer of the global reserve currency must be willing to supply the global economy with its currency.

   Some ways to do that include running a perpetual trade deficit (you buy more from the rest of the world than you sell, allowing foreign countries to net earn your currency) or by heavily investing abroad. The US does the former, while in the previous system under the British sterling, the latter approach was used.

   This includes emergency lending when needed to protect the system from breaking. US$ swap lines, IMF lending, all sorts of borrowing facilities created by the US Fed, etc. are hence forced onto the US. 

   So that’s the second thing: the issuer must supply the world with its currency. This is why the US must run trade deficits and act as a global lender of last resort!

3. Savings & investments: Say Brazil has a trade surplus against the US (meaning it earns US$). Once it has those US$, it needs to be able to invest them in order to build reserves for the future.  This means that it needs access to US$-denominated assets: bonds, stocks, real estate, etc. For Brazil to have that, the US must be willing to have open financial markets and absorb these Brazilian financial inflows, allow foreign ownership of US assets, etc. 

   The Asian Financial Crisis of the 1990s occurred because high-performing developing countries (Thailand, etc.) were running trade deficits and hence relied on foreign US$ investment to cover the gap. When that investment suddenly went away, their currencies crashed, and chaos ensued. 

   This experience taught other developing countries that the only way to be protected is to run trade surpluses against the US and stockpile the US$ (in the form of US assets). China’s massive US$ reserve stockpile, along with that of Taiwan, Singapore, Korea, etc., is explained by this dynamic. The US has to then absorb all these financial flows because these surplus nations want to park their cash somewhere, ideally with a positive return on investment.

   Both sides – the US and the trade surplus developing countries – are forced to act this way by the system.

4. Institutional support: The system requires that the GRC issuer is trustworthy, stable, and transparent, at least to an extent. 

   There needs to be a robust and trusted legal system to settle disputes (which is why a lot of debt issues for example get settled in NYC), the GRC issuer needs to have domestic stability so that all the features explained above remain consistently active, and there needs to be sufficient geopolitical trust and cooperation. Military might, policing of trade routes, and the ability to enforce compliance are also inextricable from this mix. 

   This is why the GRC issuer is typically always the global hegemon and why the weaponization of the US$ causes geostrategic tremors. 

5. Domestic economic management: The economy is a set of interlocking balance sheets such that it is impossible to influence one end without doing so with the other. This means that all the aforementioned features (trade deficits, open financial markets, etc.) have domestic counterparts which must be applied and managed.

   For example, the US$ system requires the US to have open financial markets to absorb the US$ savings of the rest of the world. This means that this liquidity is ending up on domestic balance sheets as liabilities (debt), which is why US households are heavily indebted, while Chinese households have excessively high savings (both are a problem).  [More on this later]

Not all features are equally important though. For example, given the evolution of digital banking and the liquidity in financial markets, it almost doesn’t matter what currency you conduct trade in since anything currency can be instantly exchanged for the US$. What matters is what countries do with whatever currency they receive.

Ultimately, no currency regime is perfect or sustainable. Like everything else, they run with the cycle of history and are subject to a myriad of political, geopolitical, and economic forces. 

Here’s an illustration of the history of global reserve currencies. 

[I would take this chart with a grain of salt because the specific setup of GRCs has evolved over the centuries, as the level of globalization has changed, but the general principles hold]

The rise of the US$ & the Eurodollar

“The dollar is our currency, but it's your problem.” – John Connally (Nixon’s Treasury Secretary), 1971. 

Let me start by recapping the conventional story about the US$ (aka the petrodollar) that most people know by now: 

Post World War II, the Allied Powers held a session at Bretton Woods to establish the new global system. The discussion was primarily between England (the sunsetting empire) and the US (the established hegemon by then), resulting in a system where all currencies had a fixed exchange rate against the US$, while the US$ was “backed by gold”. The US was also largely financing the recovery of Europe, which is why this system seemed to make sense. 

[The history of this is interesting because John Maynard Keynes (representing England) and Harry Dexter White (representing the US) had competing proposals about what to do with the global system and although White won – leading to the US$’s role – they both agreed that the free flow of capital needs to be limited. Hopefully by the end of this piece it will be clear why free, unregulated capital is a problem.

Note: This system was designed without any Global South representation, and yet somehow the IMF & WB, which came out of this, are supposed to work for global development.]

Then in 1971, as the US had to finance its invasion of Vietnam, the shift from a US trade surplus to a trade deficit, and with European countries (primarily France) applying pressure on the US regarding whether it had sufficient gold reserves to back its spending, President Nixon oversaw the end of the Bretton Woods 1.0 system. To replace this system, the US cut a deal with major oil exporters (primarily Saudi), to establish the petrodollar: Saudis would sell oil in US$ globally, and since all countries need oil, everyone would need US$. 

And this is how, as the story goes, the US was able to impose itself as the reserve currency.

Now let’s add some color, context, and understanding of money to explain how the system actually works. 

I have touched on this in previous writings, but basically Eurodollars are US$ that exist anywhere outside the US banking system. Despite the name, they have nothing to do with the Euro currency (and precede the Euro by half a century).

The simple version of this is that when a Turkish construction company, for example, wants to buy steel from China, it borrows US$ from a Japanese financial institution to make the transaction happen. The Chinese steel manufacturer then uses those US$ and pays a Brazilian mining company for the iron ore. Since the Brazilian company has a bank account in a French bank, the US$ move from the Japanese to the French entity. At no point in these transactions was a US government agency, bank, or company involved, yet US$ were created (through borrowing) and used. 

[Foreign offices of US banks & companies do participate in the system but those are not under US regulation.]

You may say well what’s controversial or insightful about this – if some non-US countries have surplus US$ lying around, they can lend it to whoever they want. But this is where understanding money and banking correctly is critical (and why newsletters #4 and #5 went deep into this). 

Eurodollars are not just stacks of dollars that a country earned and has stored; instead, they are US$ *created* by non-US banks. 

Recap: money (today at least) is debt. Money gets created when a government or its chartered entities (banks) increase its liabilities. When the government spends, money is created. When banks lend, money is created. It is a liability on the issuer’s balance sheet and an asset on the receiver’s balance sheet. 

The US$ is a liability of the US govt so of course it can create this currency. US banks can also do that because they are chartered entities under the regulation and payment system of the US government. But how can non-US banks, and here I use the word banks loosely because it’s more than just commercial banks, create US$ when they have no conventional access to the US Federal Reserve (the bank of banks)? 

In the words of Milton Friedman, whose essay was one of the first real explanations of the Eurodollar system, this is: "the latest example of the mystifying quality of money creation to even the most sophisticated bankers, let alone other businessmen." For him, the Eurodollar, like all money today, is the “creation of the bookkeeper’s pen”. 

Realistically how this worked is that as large amounts of money was flowing from the US to Europe to finance the reconstruction efforts, non-US entities started accumulating US$. They then used these US$ holdings to start lending out “eurodollars” (a promise to pay in US$). So a holding of say $100 billion could be used to create $1 trillion worth of loans. Again, this is how money creation works. If both the issuer and the receiver agree to value a paper claim (liability), and then other agents will accept those claims as payments, the system works. 

And since everyone in the world needed US$ for trade, even before the petrodollar existed, the Eurodollar system became the primary source of US$ funding in the world. The US government facilitated this because it eased the pressure on it to manage the supply of US$ to the world. 

The reason I try to explain this carefully is because this changes how we analyze the US$ system. The conventional story is quite state-centric, predicated on there being a masterplan skillfully executed by a group of bureaucrats and technocrats. The latter, in fact, centers the role of the market and sees the current system as a spontaneous evolutionary process shaped by shifting dynamics and emerging crises, leading to a starkly different analysis. 

Here are 5 ways this story changes about how we understand the global system and the US$: 

1. The US$ was “chosen” by a broad swath of market agents (the “market”) because it was deemed to be the best fit for what was needed in order to make global trade most efficient. 

2. The Eurodollar system is the main financial engine for the global economy (it was instrumental in financing China’s development for example). One market connecting together sovereign nations, banks, conglomerates, traders, etc. 

3. It is a decentralized, market chosen system that creates unregulated money (laissez faire on display). 

4. Nixon in 1971, by ending the Bretton Woods 1.0 system, was actually trying to relieve the US of the burden of being the GRC. The Eurodollar system stepped up to fill the void and eventually forced the US into a position where it had to support this offshore market. The unprecedented Reagan era financial deregulation, removal of capital controls in 1983, and continued financial innovation by the Fed to backstop the global system can be seen as a part of this.  

5. The extent to which this system runs on trust is very high, given that this funding is all just non-government backed IOUs/liabilities built on top of each other. Remember the hierarchy of money I have talked about in previous pieces. Eurodollars, as shadow money, are at the riskiest end of the pyramid. Fictitious capital, perhaps. 

This is why in the 2008 financial crisis, the majority of US Fed emergency lending went to European banks. This is why swap lines are so important. This is why the US Fed keeps innovating ways to provide US$ liquidity to players well outside its domain. This is why Japan (which is arguably the main node of the Eurodollar system as it lends to China and other Asian countries) is so important. 

This is also why the US-China decoupling is so hard, why de-dollarization is not up to world leaders to announce their intents to change, why all nations (incl. the US) are stuck in a broken global economic system, and why the situation is so precarious right now as geopolitical risk and financial instability could cause serious havoc. 

Lastly, this is why critics of the current monetary system who talk about “central planning”, government debasement of currency, money supply increase, Bitcoin, etc. are missing the point. The Eurodollar is an unregulated, opaque system left to the whims and innovations of a broad group of global market participants. We don’t even know how much money exists in this system, let alone who owes how much to whom. And yet people, including Central Bank chairs and economists, talk about measuring the money supply and interest rate hikes as the primary controls over the monetary system. 

It’s like trying to manage the water in a swimming pool by focusing on 1-2 pumps in a corner, with no visibility on other pumps, drains, the shape of the pool, etc. 

We already live in a world with a decentralized, market driven system run by finance that simultaneously tussles with and relies upon a group of bureaucrats and technocrats. It is a key example of how “market driven” doesn’t mean democratic or equitable or beneficial for the mass majority. 

Reality is a lot more complicated.

The US$ hegemony, the IMF/WB, etc. have at least been routinely criticized for their role in economic crises globally; but as Jeff Snider remarked in the quote at the start, the success of the Eurodollar system is its ability to stay hidden and remain beyond critique, despite being the driving force of the system.

[Here’s a comprehensive paper on the Eurodollar system.]

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Economics & geopolitics of the US$

Now we can combine the explanations in part 1 and 2 to better understand what the US$ system is, and hence make more informed analysis about global events and the future. Since finance & money is the water in which we all swim, there are multiple layers in terms of implications but let me focus on 3 for now:

US economic development

The phrase “exorbitant privilege” gets thrown around a lot regarding the US$’s special status, as if the US as a whole benefits from being the GRC. That is far from the truth. 

Becoming the linchpin of the global financial system has benefitted Wall Street, Silicon Valley and related elite groups globally at the expense of the real economy and the working class – manufacturing, industry, etc, – turning the US into a financialized, speculative country with burgeoning inequality, crumbling infrastructure, etc. The government has the unenviable task of managing domestic development while backstopping a global, complex financial system that it didn’t create and can’t oversee. 

For example, if the US wants to rebuild its manufacturing, it needs to import less, maybe have a weaker exchange rate (to make local goods more competitive), definitely limit the inflow of global financial savings (the US has sufficient investment), and have monetary policy designed for domestic needs. All these, however, would pull the rug from under the global financial system, which would ultimately harm the US because of how interconnected the global economy is. 

Dollar shortage, not de-dollarization

Since the global economy is just a set of interlinked balance sheets (the Eurodollar system represents that in its purest form), then it’s much easier to think about de-dollarization. There are trillions of dollars of liabilities and debt denominated in US$ which can’t simply be wished or ordered away. Can you imagine an orderly way for those liabilities to be unwound or settled in another currency? Given the coordination required, I for sure cannot. 

In fact, the recent hype about de-dollarization actually reflects the brewing pain underneath the surface as countries begin to face a US$ shortage, which of course leads to terrible outcomes like financial crises and economic misery. A combination of higher US interest rates and a faltering Eurodollar system are sucking out US$ liquidity from the global system. De-dollarization narratives may then actually be a cry for help. 

💡Lastly, can you think of any country willing to shoulder the burden of this global financial system? For example, an integral part of Chinese development are strong capital controls and a highly regulated banking system. Is China going to give that up to the whims of the global finance market? Highly unlikely. 

Global development, Chinese lending, and sovereign wealth funds (SWFs)

There are 3 types of countries in the world: those with huge US$ reserves (China, Singapore, etc.); those with sufficient reserves (e.g. Brazil, India); those with chronic US$ shortage (e.g. Argentina, Pakistan). All are facing their own challenges in this system.

The ones with huge reserves have accumulated them by suppressing domestic development so that wages are low, imports are limited, and savings are high. This creates the trade surplus which allows US$ accumulation. This is an unsustainable system. On top of that, these countries now need to get creative about what to do with the US$. 

The Belt & Road Initiative (BRI) represents China’s attempt to use its US$ reserves in a way that does not involve buying US assets but as it is finding out, similar to how the US found out in the early 20th century, investing in emerging markets is quite risky. The growth of SWFs, particularly in the Middle East, along with investments in trying to build futuristic cities in the middle of the desert, are also just attempts to break away from the earlier model of simply buying US assets.

The ones with sufficient reserves are stuck in a specific development model where they must ensure trade surpluses to protect themselves from a US$ shortage – basically the present – but that involves all sorts of domestic development trade-offs, continued reliance on the US$ system, etc. 

The one’s without US$ are, of course, stuck in a perpetual doom loop (which I explained using Pakistan’s example in newsletter #5). Being able to tap a liquid Eurodollar system, for example, has been a vital avenue for trudging along but now with that even faltering, large swathes of the global population are at serious risk of negative food, energy, etc. shocks.  

Slightly tangential point on the Global South: even under this postcolonial, US$ system, there exist 14 countries in Sub-Saharan Africa (formerly colonized by the French Empire) that are still forced to use the CFA Franc, which is a colonial currency controlled by the French government. A literal colonial policy that continues to be enforced.

Here’s a podcast where Ndongo Samba Sylla (who recently wrote a book on this topic) explains.

So what’s next?

This is the trillion-dollar question and frankly, no one has an answer. All we know is that the post Bretton Woods system is broken, and arguably has been since the 2008 Financial Crisis which is why global growth has been so sluggish. The current system doesn’t work for the people of any country, it only enriches the financial elite and rentier class. Trade wars are class wars!

Here’s what we do know: the current push towards industrial policy, reshoring manufacturing in the Global North (led by the US), efforts to decouple from China, etc. cannot be done under the current regime. Just for the US alone, its attempts to develop domestic supply chains and manufacturing capability is at odds with the GRC status. 

On the other hand, countries have massive US$ debts in a system with rapidly drying up liquidity. 

Most likely the situation will require coordination and compromise – a la Bretton Woods – but increasing geopolitical tensions are a minefield for that. 

I leave you with this is excellent discussion between two godfathers of understanding the global financial system — Zoltan Pozsar & Perry Mehrling — on what could replace the status quo, as well as this great piece on the need for a “Bandung Woods”, rather than a new Bretton Woods, to create a system that actually serves a majority of the global population.

Resources

Eurodollar University

Hugh Hendry (Acid Capitalist)

TransAtlantic Ties — Harry Whomersley

Be sure to check out the 3 potential risks to look out for over the next few months.

As always, thank you for the continued support — if you like this piece or learnt something from it, please share across your networks.

Follow me on Twitter (for less curated takes and more shitposting!)

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Key topics covered: US dollar dominance; China-Saudi; BRICS; oil; IPCC.

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Introduction

When I wrote the pitch for this newsletter, I quoted Lenin’s infamous line:

That has been the driving motivation behind this publication, and I suspect you’d agree with me that a lot has been happening recently. It’s not just the changes but the speed, intensity, and complexity with which it all seems to be unfolding.

So with this piece, I want to take stock of what have been the most significant developments over the past few months. This is, of course, by no means exhaustive but provides a commentary on some of the events we have likely been hearing about more frequently.

In newsletter #1, I presented a framework that had 3 pillars that explain the base layer of our civilization:

• Energy & raw materials

• Macroeconomics & finance

• Geopolitics.

Let’s look at the biggest events across each of them.

Macroeconomics & finance

In the winter, I was in Pakistan and there were murmurs about the possibility of a financial crisis. People were worried about liquidity risks and bank failures. While Pakistan remains in a precarious situation, it is weirdly ironic, and perhaps even more worrying, that the two main bank failures have been in highly prosperous places: California, with Silicon Valley Bank, and Switzerland, with Credit Suisse.

There’s sufficient good commentary and debate on why these failures happened so I won’t get into that (Nathan Tankus is the person to read on this), but it’s the policy response that is more interesting. The US government promised to protect all deposits in US banks (while the current legal limit protects only $250,000 per account), although there has been some confusion between the Federal Reserve and the Treasury about what the actual design of this is.

This has brought up a lot of interesting questions about the nature of banking: if private banks need government backstopping, is banking truly a private industry? Or are banks basically performing a public good by creating money through loans on behalf of the government?

This excellent write up in the Financial Times provides an answer that I agree with – and explained in newsletter #5.

The second response was that the US Federal Reserve (Fed) extended dollar swap lines to its key allies: Canada, England, Japan, the EU, and Switzerland. To recap, the US$ is the global reserve currency meaning that every country and private entity, for the most part, needs US$ to transact. In times of financial stress, such as a (perceived) banking crisis, the financial instrument everyone needs to inject liquidity and stabilize the market is the US$. A swap line is simply a direct way for the central banks of countries to borrow US$ directly from the Fed and quell financial risks. There’s a financial implication here, which is that the use of swap lines is evidence for systemic risk in the global financial system, and a geopolitical implication that although every country needs US$, only a handful get privilege access to it.

Swap lines are as much about economic conditions as about national security.

The countries not lucky enough for this access do have some recourse. The Fed has a separate facility where foreign central banks can borrow US$ - but that is up to a limit and with stricter terms. This is typically one of the last options for these countries. It is worrying then that an undisclosed central bank, rumored to be Turkey, maxed out the use of this facility by borrowing $60B a few weeks ago.

More signs of brewing global distress.

End of the US dollar?

Simultaneously, however, there is also a lot of kerfuffle about the US$ replacing its global reserve currency status. Note, this arrangement is the linchpin of the global system so this would be no small wave in the ocean. The leader of this revolt seems to be China, with other major countries like India, Brazil, Saudi Arabia, the UAE, Kenya, etc. also joining the bandwagon.

There are two hypotheses out there:

1. China wants the Yuan to replace the US$

2. The BRICS countries (Brazil, Russia, India, China, and South Africa) want a more multi-faceted currency system for global finance.

Here are some recent news stories about it:

• Russia & China trading in the Yuan

• Saudi Arabia accepting Yuan for its oil

• France’s TotalEnergies accepting Yuan for a LNG trade

• Brazil & China opening up a Yuan settlement channel for trade

• India settling trade with Malaysia & Tanzania in Indian Rupee

Based on all this, fear-mongering about the US$’s demise is running full steam ahead across the political spectrum:

Except, we have been here before many times.

Analyzing this is a tough balancing act because, as I wrote in newsletter #1, I do think de-dollarization is on the horizon. This isn’t particularly surprising — nothing lasts forver. However, I don’t think it is going to happen soon or smoothly, and that many of the above analyses represent stark misunderstandings about money and finance.

My base case is that countries will continue to push around the edges but it will mostly be for show because of three reasons:

1.     The plumbing of the global financial system is built around the US$ (swap lines, global payment systems, etc.). It’s a little like shifting the HVAC system for a building from individual ACs and heaters for each room to a central system. The scale and complexity of the task at the hand, particularly within the structural confines of the global system in terms of trade, geopolitics, etc., is almost impossible without significant disruptions.

2.     The world has major liabilities and debt denominated in US$. Whether it is private companies ranging from raw material importers in Nigeria to multinational shipping firms, or governments and state-owned enterprises, everyone has significant liabilities denominated in US$. Unless there some wholesale wiping of the slate clean – a debt jubilee maybe – these agents will need to get US$ somehow to clean their balance sheets.

Figure 1: International foreign currency debt of non-banks as % of global GDP

3.     Being the global reserve currency (GRC) is a tough life. This particularly true when people talk about China wanting the Yuan to takeover. I don’t think there is any evidence of that desire since being the GRC isn’t simply about what currency global trade is denominated it, it’s about opening up your national financial system for the rest of the world to use. For example, the US$ has its position because the US is open to huge financial inflows from the rest of the world. Agents get their hands on US$ and then use it to buy US assets (bonds, stocks, real estate, etc.). This makes the circle whole. China on the other hand runs a very closed financial system tightly controlled by the state.

Just simply take China’s example here. For many years there’s been this myth that China holds a certain power over the US because it own’s so many US bonds, and that it has been selling them recently which is a sign of the latter’s weakness. Well, not quite. US assets reign supreme, which is why China is selling US bonds but buying US agencies (mortgage-backed securities).

Remember, the US is not borrowing from China; it is China who relies on US assets being available so that it can park the money it earns from its trade surplus.

To conclude this section, I think a lot of this dollar death dance is just another example how so many commentators just don’t understand how the financial system works. It almost doesn’t matter whether Saudi Arabia sells oil to China denominated in Yuan because Saudi Arabia is likely going to convert those Yuan into US$ to buy US assets or use those US$ to trade with someone else who needs US$ to pay off their liabilities.

The dollar system will, like all those systems before it, die. But it will be messy, painful, and chaotic. The US$ will die of strength, not weakness, because everything else around it will suffer first – such is the nature of the system.

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Energy & raw materials

I wrote recently about how oil is in many ways making a comeback, mostly in terms of spotlight because it’s importance to the system never dwindled. Biden going ahead with approving the mega drilling project in Alaska, on the back of faster oil drilling permit approvals than Trump, along with his Energy Secretary talking about how the reduction in oil dependence will take decades, just offers a pungent reality check.

Fossil fuel dependence is not withering; in fact, it is reclaiming geostrategic importance. Take the recent news about Japan buying oil from Russia at above the price cap imposed as part of the sanctions. Japan is a staunch ally of the US and the West, not particularly known for bold moves against the grain. And yet, it is also highly dependent on energy imports.

Similarly, India has been beating the same drum for months, talking openly about how it has no reason to not make use of cheap fossil resources from Russia to serve its own domestic needs. As I wrote in the last piece, Europe has also been doing the same, merely buying Russian resources through intermediaries like Turkey and Saudi Arabia – can’t let reality get in the way of political handwaving.

China, as the largest oil consumer and importer in the world, is also making big moves. It recently signed a major deal with Saudi Aramco to build a refinery. Such moves are essential in delinking these countries, in materials terms and not just vague commitments, from the Global North.

In terms of the raw materials, the impending criticality of metals and mineral such as copper, cobalt, lithium, nickel, and so on in order to meet decarbonization needs has been in the news for a while. Producers such as Indonesia, Chile, and Brazil have thus been talking about forming an OPEC style cartel to gain market power and not simply be exploited for cheap resources. The dynamics of oil are quite different than these materials; nonetheless, OPEC has yielded significant political power over the decades and so a new cartel would also have major implications of supply chains, military conflict, trade, etc.

Lastly, Chad recently announced it is nationalizing the oil sector, taking over the resource extraction operations that have thus far been run by Exxon. Although it isn’t a major oil producer, the development is emblematic of what we might see going forward for the aforementioned reasons.

Useful to remember how nationalizations of critical sectors such as energy and agriculture in the second half of the 20^th century was a core driver of regime change, overthrow of democracies, and military interventions in the Global South by the Global North.

In the backdrop of all this, the new IPCC report just dropped and it doesn’t look good.

Here’s a great thread on how the report is watered down because of politicians:

Geopolitics

This angle is already deeply embedded in the topics above but let me present three quick developments that I think warrant attention:

• China’s increasing global mediation: The news of China brokering a deal between Saudi Arabia and Iran is massive for many reasons. China’s ability to exert influence in the Middle East, a key geostrategic area for the US, to the extent that it brought KSA and Iran, who have been engaged in decades of proxy wars, together is impressive.

• More Global South integration is on the horizon: There has been news that Saudi Arabia, Egypt, UAE, Argentina, Mexico, and Nigeria have all requested to join the BRICS cohort. These are major regional players and such coordination would challenge not just the current unipolar system, but also reduce chances of a bi-polar one in favor of regionalization.

• The Global South is speaking up: More on the narrative side, the past year has seen multiple instances of countries not falling in line to the whims of the Global North. Leaders from Brazil, India, Malaysia, and South Africa have not complied with the anti-Russian demands of the West, reminiscent of the Non-Aligned Movement of the 20^th century.

Lastly, although not directly geopolitical. I would say that looking at brewing domestic uproar in countries is critical to watch because of the spillover effects. The massive protests in France, even by French standards, the chaos in Pakistan, even by Pakistani standards, and the increasing politico-social violence in India are all examples of events that could structurally change the dynamic of these countries, and hence, the global networks they exist in.

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What to look out for

Here’s my top 3 things to keep an eye on for the next few months:

1. Global economic slowdown (recession: unemployment ↑, stocks/wealth ↓, inflation sticky) driven by lower credit availability — credit drives the economy — and a weak Chinese recovery. The recent OPEC oil production cuts are a sign of this recognition. Increased risk of financial crises, particularly in the US commercial real estate sector and emerging market debt, pose major threats as well.

   (Bonus: Watch the big tech stocks, Japanese bond market, and USD-HKD peg as they are pillars of global financial stability).

   

2. Global North fractures due to anti-China moves. The US might be willing to push even harder on China — the recent TikTok hearing is a good example — and may even go as far as investment bans, but places like Europe will find it much harder to decouple.

3. More extreme weather. This winter has already seen intense weather conditions (much more rain and storms) — the summer could be worse with the possibility of an El Nino in the US and Europe. We are already seeing unprecedented ocean heat this year. The weather is one of those few things that can light a spark in a heightened socioeconomic powder keg because it impacts energy use, food production, health, etc.

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Conclusion

With so much going on, it feels overwhelming to just try to keep up, let alone make sense of everything. Polarization, media hype, and the opacity of systems can lead to either resigned acceptance, even blissful ignorance, or despair.

I think that to protect from that, it is useful to try to not miss the forest for the trees. While the latter can feel disorienting, the former can offer more digestible structures and maps, allowing some way to comprehend events.

That is the goal here. Learning how things really work, while maintaining a big picture perspective, can help come to terms with what we must live through and also be more prepared to build a better tomorrow.

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Topics covered:

• Where oil is consumed & what a barrel of it constitutes

• The geopolitics of oil (Russia, China, etc.)

• US production & self-sufficiency narrative

• Fossil fuel industry subsidies & record-profits

• The truth of decarbonization and risks to Global South development

Sidenote: There’s too much happening globally to integrate into these pieces but sharing two recent events that I think are highly consequential:

Chartbook

Chartbook #200 Something Broke! The Silicon Valley Bank Failure - How tech hubris and low interest rates combined to produce a big mess.

For a while we have been asking, as the Fed drives a global interest rate hike, what will bend and will break? The stress has been felt around the world. With Silicon Valley Bank’s collapse we now have a significant bank failure at the heart of a vital part of the US economy directly linked to the interest rate hike…

Read more

3 years ago · 134 likes · Adam Tooze

Anyways, eager to hear feedback and thoughts on this piece & how to achieve decarbonization + development of the Global South within this context.]

Introduction

The problem statement is simple: we need to use less fossil fuels because of ecological reasons and their declining cheap availability. Yet we live in a world where fossil fuel companies are making record profits, fossil fuel consumption is steadily increasing, and the “climate president” in the US is speeding up oil drilling.

Why?

*****

Fossil fuels have become a taboo topic over the past decade. For those worried about climate catastrophe, fossil fuels must go – and fast. As with all taboos, there’s a growing and vociferous countermovement. These aren’t necessarily climate deniers – that’s very 20^th century. Instead, these folk recognize the climate problem (although with lots of caveats) but hinge their argument on the benefits of fossil fuels to human civilization. For them, the benefits outweigh the costs.

I want to provocatively say that this countermovement does have a point: we are tremendously dependent on fossil fuels. This countermovement, to which I do not subscribe at all btw, has been getting more traction recently (check out how popular Alex Epstein has gotten — he recently testified in front of the US Congress — or this speech at the Oxford Union that went viral a month ago) is because those of us who worry about the ecological crisis have not adequately acknowledged just how entrenched fossil fuels are, and how challenging and disruptive reducing their consumption is going to be.

[I explain how this countermovement is wrong at the end].

Also, even if you don’t care about the climate, it is still important to understand the role of fossil fuels because our cheap and easy access to them is declining, which has major socioeconomic and geopolitical implications.

I think a good framing for this is: “don’t hate the player, hate the game”. Making fossil fuels a dirty concept doesn’t help. They are incredible packets of energy presented to us as gifts of nature – it is our overuse, profiteering, and exploitation that has led to this crisis. The problem is the system, not the energy source.

[Note: fossil fuels companies are part of the system.]

So in this piece, I will deep-dive into the monarch of fossil fuels: oil.

As I explained in newsletter #2, our energy honeymoon is ending one way or another, which will lead to major disruptions to our way of life. But we can only adapt, prepare, and respond, both from an ecological and developmental perspective, by better understanding oil and its role today.

There are three parts to understanding oil:

1-    How oil contributes to everything we consume

2-    It’s role in the geopolitical order

3-    The political economy of the fossil fuel industry

Part 1: Oil’s role in economic activity

Oil is the driving force of modern civilization and yet its demise has been an oft-repeated claim over many decades. Just take a look at this Economist cover from 2003:

Over the past decade, the mood around oil replacements – mainly renewable energy – has been boisterous. Solar, wind and battery costs have dramatically reduced, EVs and electric bikes are becoming trendy, and there’s been a narrative shift away from dirty fuels.

And yet, global oil production has been continuously increasing year-on-year, tightly correlated to global GDP growth. People talk about decoupling but in the terms that matter (absolute oil consumption & global), growth = oil consumption.

Figure 1: Global oil production. [Expected to rebound to all-time highs in 2022 and keep trending higher. The dips correspond to recessions.]

Conventional wisdom says that this is being driven by growth in the Global South, mainly India, China and so on. But look at the interesting case study of Norway, where oil consumption has remained flat (it has one of the highest per capita oil consumption levels globally — 3x China & 10x India) despite EVs being 90%+ of new car sales and 98% electricity coming from hydropower.

Figure 2: Norway oil consumption compared with share of EV sales.

What makes oil consumption so sticky?

The popular energy expert Vaclav Smil identifies 4 products as the foundations of modern civilization: cement, steel, plastics, and ammonia.

This is no exaggeration. If you think about anything in our life, from survival goods (e.g. food, clothing, housing) to sources of comfort and satisfaction (e.g. furniture, packaged goods, hospital equipment, transportation), they are all wholly dependent on some combination of these 4 foundations.

What is the primary ingredient in the production of these 4 essentials? Oil!

There are two ways in which oil provides value:

• As a high-quality source of energy. In fact, oil sits on top of the energy pyramid given it’s the most energy dense (along with natural gas), relatively easy to transport, etc.

• Source of various chemical compounds that get used in producing other materials.

Across both of these roles, a single barrel of oil provides a surprisingly high level of output.  

Add to the infographic above the following, inexhaustive list of other things oil is an essential component off: cosmetics, hospital equipment & medical instruments, pharmaceuticals (e.g. aspirin), cleaning chemicals, household furniture, and roads & pavements, etc. Just think about the quantity and variety of plastic products we use!

[Another cool visual]

Basically, almost everything around us uses oil as an ingredient. And then the value chain that is used to produce and transport everything around us uses oil as an energy source.