Last week we talked about how an error in Adam Smith’s thought seeped through economics, culture, and politics until it rendered our world unintelligible. Today we’ll tell the story of how another breakthrough in economic theory offered a clearer understanding of what wealth really is —and how to acquire it.

Although each episode, including this one, should be enjoyable on its own, you can always start at the beginning by following these links:

1. Adam Smith’s Error

2. On Productivity and Desire

3. The Undesirables

4. What is Wealth?

5. Intuitions for a Knowledge Theory of Value

If you like this content, please don’t forget to share it with someone who might enjoy it as well.

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What exactly is wealth?

It surely is a crucial kind of matter. It was the ambition that carried Pizarro into Peru to conquer the Inca empire; the motive behind the murder of Fyodor Karamazov. It was the reason King Lear’s daughters betrayed him and the rift that split the founders of Facebook. After the crash of 1929, losing it pushed so many men into committing suicide that people said it "rained bankers" on Wall Street. And through history, it has sent countless regimes against one another. In its pursuit, millions of men, perhaps hundreds of millions, have died. Wealth is at the core of so many human struggles and yet it isn’t entirely clear what exactly it is, or what it is made of.

250 years ago, Adam Smith claimed that wealth was a nation’s productive power. Countries became successful when they managed to organize their populations as if they were in an immense factory, an all-around industrial system capable of manufacturing stuff. And that model of society proved so successful that over the next two centuries, ten generations of Westerners built a civilization around it.

Still today, we conduct ourselves in accordance with that same principle: the more productive you are, the wealthier you will become. Everyone, from the humblest of plumbers to the most influential world leaders repeat the same mantra to their children: work hard; keep your head down; do more; exert yourself; “get stuff done”. Someone will notice and reward you for it.

@linkedinBarack Obama's best career advice: 1️⃣ “Just know how to get stuff done.” 2️⃣ “Worry more about what you want to do rather than what you want to be.” Watch his full interview with LinkedIn News in our bio. #LinkedIn #LinkedInNews

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But as anyone alive and in the current market can tell you, that piece of advice keeps failing miserably just as often as it is voiced. As George Monbiot wisely put it, “If wealth was the inevitable result of hard work and enterprise, every woman in Africa would be a millionaire.”

So why do we still believe that hard work is the path to success?

Simply put: because we don’t understand what wealth really is. Or maybe because we don’t want to understand it.

We have been told that Adam Smith was only one half of the story: the capitalist version. On the other side, the left had other ideas. But the truth is that dispute was only about the profits of the system; about who ought to get which share of the earnings. Underneath that disagreement, Smith's model of society as a factory was and still is ubiquitous; universal, undisputed across the political spectrum. In the hundred years or so that followed it was adopted by virtually every economist and politician —including left-wingers like David Ricardo, John Stuart Mill, and Karl Marx himself.

Under their aparent disagreement, the right and the left believed that wealth stemed from production. And if labour was the input of production, then value must have come from labour —or, at least, from the cost of production. From this it followed that the amount of labour needed to make something determined what someone else would pay for it because that was precisely the labour the buyer was spared. This idea came to be known as the “labour theory of value” and for a hundred years it was considered state-of-the-art economic science. As true as any natural law.

But reality refused to abide by that. Things that required large amounts of labour, such as bread or water, were often very cheap; while others that involved very little could be expensive, like old wine or pearls. In 1870, three different researchers, working independently, reached a different conclusion.

Value was not a constant, and it was not determined by production: it was subjective. Each person assigns a given value to products according to the utility those things have to them. Moreover, the utility of an item decreases with each available unit, and so value can be measured as the utility of the last unit consumed: by its marginal utility.

Let's consider, in this light, what the value of water is. If there were only one gallon of water in a city, that single jug would have the highest utility —it would save someone’s life— and therefore it would be worth a fortune. But what if there was a water company selling thousands of bottles of water in stalls all accross the city? Each bottle would still be worth something, but not as much as the single gallon of our first example. And what if there were a river crossing that city, transporting trillions of gallons every day? In that case, there would be so much liquid that the last available unit of water would be worthless: nobody would pay anything for it. From here comes that the more abundant something is, the less economic value it has. And if something is so abundant that nobody can keep another person from accessing it, like the water from a river, then that thing loses all economic value altogether, it cannot be exchanged.

Oh — but there are many forms of value, not just economic. Yes, absolutely. Something —and more often than not, someone— can be valuable to someone for many reasons. My children are worth my life. I value a sunny morning in rainy Scotland —like the one I’m enjoying right now— over every other summer pleasure. And yet I can’t trade any of those things with anyone else.

Of course everyone is entitled to our own scale of value. But the question we are trying to answer here is not a moral one. It's not about what should be valuable to each one of us, but about a social agreement on value. What is it that humans collectively desire, so intensely and so reliably, that we can trade it, accumulate it, and store it in something we call “wealth”? And how did we ever reach that agreement about what wealth is?

Value, then, doesn’t stem from production. It is not created in the factory and then revealed as an afterthought in the markets. Value can only occur in the markets, when everything people have to offer meets every desire people have. Economic value emerges when two people agree on what something is worth, in that exchange. Contrary to what Smith had proposed, markets were not really an exchange of valuable goods: they were the actual source of wealth.

If this idea of "utility" sounds kind of blurry, it is because it is. There are a bunch of concepts orbiting the idea of wealth — "value," "utility," "worth" — that mean next to nothing, so much so that venturing inside them feels a lot like walking on quicksand. But in layman's terms, what the marginalists wanted to say, even if they didn't dare say it out loud, was that labour was not the source of value: desire was. Disguised in the concept of "utility" hid a radical new vision of social value. We see value in what we want, what we long for, what we desire. Marginal utility is marginal desire. An item is worth as much as we want its last unit.

The marginal revolution holds that name for a reason. It meant for economics what relativity meant for physics: a complete paradigm shift that upended one hundred years of economic thought. It should have upended our society as a whole, too, because if labour is not the source of value, why are we all still expected to work? Why do we pay benefits to those who do productive labour? Why do we pour tax exemptions over those who invest to create jobs? Why do we continue to discuss productivity as if it was the source of all wealth? And why do we scold countries —and ourselves— about not being productive enough?

Had we internalized what the marginalists said, countries would have had to drop all their plans to become “productive” and instead focus on being “desirable” to other nations: Italian fashion designers and spanish chefs would have taken over the roles we give to chief operating officers everywhere, likeability would have replaced effort in the scale of virtues and we would be teaching our children how to make friends, not how to work hard. We would be running around looking like artists and bohemians, trying to attract people on every corner —and, yes, if you’re wondering, something like this is already happening.

Anyway. The thing is it never came to be. The subjective theory of value never seeped into culture. It remained hidden in the closets of economics, too timid to get out there and speak its truth. In all intents and purposes, society today is still living under the labour theory of value, the economic-equivalent of Newtonian physics.

Why? Well, there are a bunch of reasons.

To begin with, economists had no incentive to make the move. Back in the day, economics was trying to convince the world that it was not a form of philosophy, but a hard, evidence-based science, closer to mathematics or physics than to theology. Economists prided themselves on being nothing short of scientists. How do you measure desire? How does one, dressed in suits and ties, talk about how countries should become more desirable to others?

And so instead they dressed up this theory in many layers of pretended scientificness, such as talking about “utility” and “elasticity”. One of them, Edgeworth, went as far as to imagine a “hedonimeter,” an instrument to read pleasure off the human soul the way a thermometer reads heat.

Moreover, one of the great victories of the labour-value paradigm was that it created an illusion of equal contribution. Since the days are just as long for everyone, and we work a similar number of hours, if we measure people’s worth in labour, everyone can output more or less the same amount. But if we’re talking about creating desire, it would appear that not everyone has the same ability to seduce other people, doesn’t it?

It needn’t have to be like that. Our liberal democracias could have been built on top of a moral stance about universal human value, on the idea that everyone is worthy regardless of how much they contribute to the productive system. But the illusion that equality was rooted on equal labour was a pretty damn good shortcut. Too good to let it go amiss.

Under the marginalist paradigm, on the other hand, not everyone was created equal. People are worth what someone else wants to pay for them. That idea alone would have gone right through the heart of the egalitarian dream of our democracies. The marginal revolution posed an existential threat to liberal societies. And it still does.

But at the bottom of all of this there was a deeper reason. For all its brilliance, the subjective theory of value did not solve the question of wealth. Not really. Stating that value is subjective does not answer the question that we are asking here. It does not establish what value is. It just rebuttes the previous theory, but gives no alternative. What is it that people exchange and why? Just anything that’s scarce? That can’t be true.

Had the labour theory been abandoned completely, the world would have been left without a theory of value altogether. People wouldn’t know what to do anymore. Incentives and penalties would make no sense. What do you incentivize if value is subjective? How do you organize a society without a theory of what is socially valuable?

And this is how we became an orphaned society: one with no father figure left to tell us what to do and how to be good and worthy and virtuous. This is, I believe, the root of the malaise settling over the West today. We really don't know what wealth is. We don't have a working theory of value for our modern, hypercomplex world. For a while, we could afford not to have one. But now social strains have stretched so far that the question can no longer be dodged. That is the reason for this series. (And the reason it is so important that you forward this article to someone else!)

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A civilization on a wire

To keep the vacuum away, a third theory emerged that gained ground at amazing speed. They called it “equilibrium”.

Imagine a baker. Every morning she bakes 100 loaves of bread. If they sell out by noon, she’s learned something: bake more. If half go stale on the shelf, she’s learned the opposite. If a product sells more than another, or for a larger margin, she can follow that indication to a better business. She doesn’t need a theory of value, all she needs to do is pay attention to the consumer decisions to get the information she requires to run her business. Now multiply that by every producer and buyer in the economy and you will see how prices and sales are constantly sending little messages (”more of this,” “less of that”), and everyone keeps adjusting to them.

The equilibrium theory states that all these small corrections push the system toward a balance point where what gets made matches what gets bought and the market “clears”. In that theory, even though nobody is in charge, nothing is missing and nothing is wasted. Production adapts to demand until they both reach a point of equilibrium.

Et voilà!

Two irreconcilable theories were suddenly living under the same roof, even when nobody had actually reconciled them — nobody had answered the question of what value is. With general equilibrium, economists could claim that production and consumption balance each other out and the question quietly faded away. Cost of production determines supply; subjective desire determines demand; somehow the forces align; the market clears, and everyone goes home happy —specially the economists and the politicians that don’t have to face a civilizatory clusterfuck.

Equilibrium theory is how we ended up holding two contradictory visions of society at once: one where value comes from the work of producing things, and one that denies exactly that. Instead of choosing between them, we swept them under the rug.

This cute little bit of schizophrenia has gone so far that that today we still believe GDP can be measured in (at least) two ways —through output (production) or through expenditure (consumption)— as if it were obvious that both must add up to the same figure. The notion that the economy is a closed system where a force in one direction produces an equivalent opposing reaction is universal. It underpins the models central banks use to set interest rates, the forecasts governments use to write budgets and the charts in every first-year textbook where two curves cross at a tidy little point.

And yet equilibrium has never been observed. Not once. In a century and a half, nobody has found an economy at rest, or even one heading toward rest. What we find instead are bubbles, crashes, gluts, shortages, and long stretches of turbulence that the models file under “external shocks”, as if reality was the anomaly. No matter. Stubbornly, the idea survives every refutation because it isn’t really a scientific hypothesis: it’s a protective mechanism. The equilibrium theory is a sturdy wire suspended hundreds of meters above the ground of reality and we, the citizens of the rich countries of the 21st century, are the funambulists balancing on top of it. The notion of the economy as a stable, self-regulating mechanical device that always returns to balance is what separates us from falling down, crashing against reality and being forced to acknowledge that we don’t know what wealth is, or how to acquire it. So much that entire faculties are devoted to reproducing this mantra with the same conviction — and the same solid ground — as Thomas Aquinas discussing the sex of angels.

Lessons from the marginalist revolution

In all its ambiguity, there is a fundamental truth that we can extract from the marginalists if we want to have any degree of success in the current world: Wealth is not a form of matter; it is not one kind of asset, nor a type of good: Wealth is a stock of human desire.

And what is it that humans desire? Well, it is a little bit early in this series for that. But even before we get to that point, there are a few very useful things that we can learn to make better decisions; understand our motivations and the actions of others. And to give our children the best chances in life.

Value is not intrinsic; it does not come from ourselves. Value —again, social value— is what other people see in us. Wealth is what other people want from us. People are wealthy when they have a lot of things other people want.

I know this might sound terrifying to some, even disgusting. Because many of us have been raised to believe that teasing, reclaiming attention, seducing, attracting desire is an inmoral thing to do. But it is nothing out of the ordinary. I imagine in any preindustrial town every single person was raised with the responsibility of being of service. Everyone must have had a role. Of course medieval peasants didn’t need to run a huge marketing operation because everyone knew everybody in town, but still people must have had a distinct identity that incorporated their trade or social utility whether it was material —like tools or fabrics— or inmaterial —like songs or stories.

Back in the day, you would have been the town’s butcher, or the blacksmith. Everyone had something they could do for everybody else. And people were known, literally named, for it. Our surnames still carry the fossil record: Smith, Baker, Miller, Taylor. On top of that, people cultivated personal traits and made them very much part of their identity. This is why the other half of the surname record is pure reputation: Armstrong, Swift, Hardy, Sharp, Trueman, Merryweather. Medieval people couldn’t live without a personal brand.

If aiming for desirability makes you uncomfortable, think of it as “being of service” instead. We want to be known to others and we want to be useful to others — so useful that they come to desire whatever it is we bring to the table.

We have been told, many times, that the giants of the industrial era were the great manufacturers. Following the labour theory of value, we believe that manufacturing made people successful. But the Soviets made cars just like the americans. And no one forced us to buy dishwashers and toasters. Value, in the industrial time as well as in any other, came from creating desire for certain products. The European liberal dream, first, the technoutopian vision of the first half of the 20th century, and the American Way of Life, later, three ideals of what life could be were the actual exports of an entire civilization.

The big companies of the industrial era were desire manufacturers. Ford didn’t sell cars; it sold an entire way of living, one so seductive that we redesigned our cities around it. Coca-Cola became one of the most valuable companies on Earth selling sugared water because the water was never the product; the product was the whole idea of America, bottled. If anyone has a product that’s indistinguible from everyone else’s that’s the bankers on Wall Street. The one thing financiers in New York can offer that Spanish bankers cannot is that they’re american.

The pinnacle of capitalism is not some steel mill in Illinois. It is Apple. By almost any standard, Apple is the most successful company in history. And yet the technology it sells is ubiquitous. From a technical standpoint, there is not much difference between an iPhone and any of the Chinese phones sold for a fraction of the price. The difference is that Apple charges roughly three times what the components cost for essentially the same object. That margin — every point of it — is pure desire.

What does Apple have that the chinese low-cost manufacturers can’t replicate? It has a unique voice, a unique brand, a connection with a part of the audience, a portion of their mental real estate.

So how do we become wealthier in this current, crazy world? By understanding what other people want and fulfiling that desire or, if we have the skill for it, make them desire what we have.

On how —and why— to build a personal brand

I believe there are two elements of that pursuit that are deeply buried under our industrial, smithesque mental model of society.

The first is identity. For industrialism to work — both to power the assembly line and to open markets for mass consumption — people had to be the same. The factory needed interchangeable workers the way it needed interchangeable parts, and mass production needed mass taste: millions of people wanting the same car, the same house and the same life. So the social rules of the twentieth century rewarded regularity, homogeneity, punctuality and conformity: the ability to fit a mold and stay in it.

Being a misfit, by contrast — being queer in any sense of the word, standing out, wanting the wrong things — was heavily penalized, and often meant expulsion from the group. Think of the kids at school who stood out, and what was done to them. Having passions that didn’t match your assigned social character was punished too, especially among men: painting, dancing, reading poetry, or even loving too much were not part of the functions expected from men.

What people were doing, essentially, was outsurcing the natural human need for identity to the companies they worked for, or the countries they lived in. It was enough for someone to be exactly like everyone else if the company they worked for manufactured enough desire that they could live and be rewarded placidly off it.

But those times are most evidently over. And we need to go back to building personal brands. Not in the henious way you might have in mind if you think about the fake-influencer-personas we come across sometimes in social media; in the way medieval peasants did. Everyone, in the 21st century, should be able to tell their own story unique, individual story.

And this is a lot harder than it sounds. Because we have spent so much time and effort trying to fit in that we do not know how to stand out anymore. The gears have shifted and now the misfits, the queers, the ones that had it hard to fit, are the ones who are best positioned to reclaim their place in the world.

What does this mean for people like me and you? Well, I believe we should change our focus from being more productive to being more intentional with what we do. Very, very (very!) often we are producing the wrong thing, something that doesn’t really matter for us or anyone else.

Next month I’ll write a post about the extracurricular activities I signed my kids up for, and how I am trying to teach them about building a personal identity that travels with them through life (subscribe to get it in your inbox!)

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Instead, we should focus on answering two questions.

The first is about who we are. What do we like, what drives us, why would our trajectory matter to anyone else? This exercise is not about standing out from the masses — like the medieval peasants and their bynames, we’re not aiming for fame — it’s about aligning the self we show with the self we carry. What matters to us, and how do we make it part of the story we tell about ourselves?

None of this needs to be definitive. People change. Who you are is not a photograph; it’s a story and it evolves over time. Also, identities have a surprising capacity for contradiction — even a taste for it. And your story not only can be imperfect: it should be. We are drawn to tales of struggle and redemption. Perfection can’t be true.

The second question is about how we can be of use to everyone else — how we can be valuable. What do we enjoy that other people find desirable? Where is that equilibrium point that proved so elusive to economists? Again, this doesn’t have to mean your job. You can be useful, and desired, for many reasons, even if you’re retired, if you haven’t started working yet. Some of the most useful people in society don’t work at all.

Answer those two questions and you’ll have found your own source of wealth.

Next week: those who were left without one.

See you next tuesday!

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In a joke you have probably heard before, two men who grew up together in East Germany meet again, years later, after the fall of the Berlin Wall:

“Wolfgang,” goes one, “do you realize everything we were told about socialism was a lie?”

“I do, Hans, I do. But that’s not the worst part, you know?” quips the other. “The worst part is that everything we were told about capitalism was true”.

And that’s pretty much what happened. For half a century, the world fought an existential battle between two competing visions of society. But the moment it was over, almost forty years ago, we took the winner's account as read: we assumed that everything we had been told about capitalism—the good and the bad alike—was true.

But what if it wasn’t? What if our understanding of the economy was rooted in a lie as well? No, I don’t mean the kind of lie that Bernie Sanders or Jean-Luc Mélenchon would have in mind —one about injustice and rigged rules. I mean a lie in the way creationism was a lie, or the belief that the Sun orbited the Earth was a lie. What if we were wrong about the fundamental mechanisms that drive human exchange?

Well, that would, for a start, make quite a lot of sense. At 250 years old, the governing principles of economics form the longest-standing foundational model in modern science. They were formulated barely 90 years after Newton’s Principia, long before we understood that heat is energy, not a substance, or that infections are caused by microbes. Our contemporary model of economics predates Darwin’s theory of evolution by almost a century and Einstein’s relativity by 130 years. If anything should be shocking, it is that it has survived unchallenged this long.

On top of that, a fault line running through our understanding of economics would explain a great deal about the malaise now settling over the West. Socialist regimes didn’t fall because they were unjust —unfair and brutal systems can last centuries. They collapsed because they were untrue: because they didn’t work. Reality refused to behave the way the doctrine said it would, and people could no longer live inside that story.

Isn't that precisely what is happening in the West today? Increasingly, we face a reality that does not work the way we were told it would. The virtues we so carefully cultivated—effort, persistence, excellence, sacrifice—have stopped paying out. A person today can be their most disciplined, hardest-working self and still slide below the standing of their parents. Something, clearly, is not working. Confused, many people have surrendered to the idea that we are being scammed—by woke elites, by billionaires, by tech bros, take your pick. But there is a simpler explanation: something in the way we understand the economy—and society, and human nature itself—is simply wrong.

So what would that be?

This is the first of a five-part summer series about a birth defect in our conception of society. A myth that has seeped from economics through culture, morals and politics until it has taken over our private lives and now governs how we raise our children, how we choose a partner, how we measure a life—and our own worth.

Every Tuesday through August, I’ll send out one episode, under these —I hope— irresistible headlines:

1. Adam Smith’s Error
2. On Productivity and Desire
3. The Undesired
4. What Is Wealth?
5. Intuitions for a Knowledge Theory of Value

I get all of this might sound like a huge lot of economics, but it isn’t. This series aims to be so practical it reads almost like a guide. Its goal is to give you the knowledge you need to understand our modern crazy world. If I succeed, you will finish these essays transformed: seeing the world in a different light, making better decisions about your future, perhaps even understanding yourself a little better.

It all begins with a simple question. One that, for all its apparent urgency, we have never quite managed to answer:

What exactly is “wealth”?

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:: Hijos del optimismo ::

Adam Smith’s Error

So—what is wealth?

It surely is a very hot topic. Newspapers arrive full of stories about it: wealth inequality is rising, wealth concentration has hit an all-time high, the wealthy are wealth’ing and many people think wealth should be redistributed. The stock market rally is not a bubble, it is a wave of “generational wealth” and social media is full of people eager to teach you how to ride it.

Wealth is also a defining feature of our time: in the past 25 years, we’ve been told, it has skirocketed. It has grown faster than at any other time in history until it doubled what it was in 2000.

And yet, what is that wealth made of? What is the actual substance that is growing so rapidly? If we listen to the analysts, two-thirds of it are the buildings where we work and live; real estate. But buildings don’t grow. The world hasn’t built that much either, save from China, in the past 25 years. So how is wealth growing?

It can shrink too. Last week, in a mini-crash, hundreds of billions of dollars of this elusive substance vanished from the South Korean stock market in a few sessions. But vanished to where? Did someone take them? Can wealth simply cease to exist?

Stranger still: if you ask around, almost no one will tell you wealth is a monetary asset. Wealth is health, they will say. Or free time, or love, or peace of mind.

Wealth is everywhere. It is a cornerstone of the modern world. We fight over its distribution, we organize our lives around acquiring it, and yet for all we talk about it, we cannot capture precisely what it is.

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That was not always the case. For most of history, all the way to the end of the eighteenth century, it was perfectly clear. Wealth was the gold and silver sitting in government vaults. It made sense. Industry as we know it did not yet exist; stocks of grain perished very quickly; housing was informal—whole stretches of every city rose wherever people could raise a wall—and while farmland held value, it was only as much as could be squeezed from the peasants who worked it. Precious metal was the one form of value that lasted, remained stable, and could be counted, hoarded and moved around.

Conveniently, the path to getting richer was just as clear: one just had to get more gold and silver. But there is only so much of it in the world. Wealth, it followed, was a zero-sum game: for one person, or one country to have more, another had to end up with less.

From that idea, around the sixteenth century, grew a political system we now call mercantilism. If the world’s wealth was a fixed pile of stuff, the only rational policy was to capture a bigger share. To become richer, governments choked trade, banned exports of gold and silver, slapped on tariffs, and built empires whose purpose was to strip other territories of their resources. The result was a world of state-sponsored piracy—one in which stealing was not a failure of the system but its most sensible business model.

Adam Smith believed that was all wrong. And that it was, in fact, making everyone poorer. In 1776, writing in a quiet Scottish fishing village fifty miles north of Edinburgh, he set out to overturn the conventional wisdom.

He began with this:

THE ANNUAL LABOUR of every nation is the fund which originally supplies it with all the necessaries and conveniencies of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.

Wealth, Smith claimed, was not a stock but a flow: a country’s capacity to produce. The richest nations were not the ones sitting on the largest chests of gold, but the ones that put the most people to work. Society, in his view, should be something like a massive factory in which each person contributed their effort to create, together, something of value. The wealth of nations, as the title had it, was a matter of how many hands a country could set to productive work, and how intelligently.

This new system had a weakness. If people were to be a tiny cog in an assembly line, producing thousands of units of the same product, they would not be able to make everything else they needed to live. The old ways of self-suffiency had to give way to a more sophisticated way of organizing society itself. The market was the mechanism that would let each person exchange the product of their own labor for everyone else’s, and so obtain, as Smith put it, all the necessities of life.

This is how, famously, in this vision, all incentives aligned: individual self-interest led to collective wealth because producing more made the whole mechanism grow. In turn, contributing to the economic engine was not just a matter of personal choice, it was a social imperative. One that people were expected to fulfill in one of two very specific ways: either by providing labour or capital.

His doctrine, a common grammar of effort and reward, turned out to be the greatest coordination technology ever invented: a story so simple that it could align strangers across cultures, languages and time zones. Under capitalism, a person in Shenzhen, another in Rotterdam and a third in São Paulo could collaborate on the same enteprise without sharing a religion, a goal or a government—without even knowing of each other's existence. No empire, no church, no ideology ever got so many human beings pulling in the same direction. A single fact captures the scale of its achievements: in the age of capitalism, human life expectancy has more than doubled—and in some countries tripled.

Smith’s model of society proved so successful, so pervasive, so beautifully lined up with the liberal ideas of human worth and the development of the early industries and cities, that it has continued to organize our lives for 250 years. Still today, countries organize themselves around maximizing their productive capacity. Industrial policy remains one of the most consequential fields of government, and when a country underperforms against some standard, we rush to diagnose flaws in its productive system: its companies are too small, or its capital is badly allocated. Top economists regularly meet top politicians in luxury hotels, everyone in suits, to rank countries along the lines how productive they are. The panic around the possibility of AI replacing hundreds of millions of jobs stems out of the same belief: that workers main role in the economy is to produce things. If AI can also produce stuff, then it can replace them.

In the political arena, the topic is getting so scorchingly hot that political parties —like Trump’s, or Merz’s in Germany— barely speak about anything else. Just in the past few months, several skirmishes have broken out among prominent economists online. In one, the argument was that Europe is falling behind in the international order because it can no longer keep its head down and produce more. Europoors are lazy creatures, critics claim. In another, a chorus of notable authors have declared themselves worried that China is about to deliver a second “shock”, having learned to make more things, better, than its complacent Western counterparts.

Throughout this entery time, economic theory has kept labor and capital at its core, the same way physics has energy and gravity, or biology has genes and natural selection. We call the resulting measure productivity and treat it as an obscure technical statistic, but consider what the concept really means: if what we can produce is our wealth, then productivity is not a measure of wealth. It is wealth itself.

The idea that individual behaviour is the source of common prosperity has seeped so deep into our culture that we now raise our children by its logic—educating them in effort and hard work as the reliable route to a good life—and hold ourselves accountable to the same philosophy, making decisions by its lights at every step, from the parliament to the kitchen table. We judge ourselves on a scale of “being productive”; personal productivity is today a top-selling genre of nonfiction; we feel guilty on the days we produce nothing and we grant or deny help—to the unemployed, to the poor, to entire countries—according to whether we judge that they have worked hard enough to deserve it.

Productivity has become the currency of the social contract: the one accepted way of demonstrating commitment and virtue. Which is precisely why it matters whether the theory behind it is true.

It is not.

Let me explain it in the easiest, silliest, most entertaining way I have been able to muster.

When Five Little Fingers Fry an Egg

In the Spanish version of the nursery rhyme “This Little Piggy”, five little fingers are about to fry an egg. An adult gently squeezes each of the child’s fingers in a sequence to tell this story:

Here we have a hand, like a country, that produces stuff: fried eggs. Four fingers produce; the fifth, as we’ll see, only eats.

The total output of the hand is one egg. What’s the productivity of each of the fingers? That would be one egg divided by four fingers. If the hand were a country and each finger a worker, its productivity would be ¼ of a fried egg per worker.

Now let’s imagine we give the index finger a miracle technology that allows it to do everything by itself: buy the egg, fry it, salt it, and stir it. We no longer need four fingers to produce, just one.

That one finger’s productivity is now four times higher. But what happens to the productivity of the whole hand—what we call the “aggregate productivity” of the country—thanks to this new technology? Does it go up? Does it go down? Nope. Same as before. The output is still one egg per four fingers, or ¼ of an egg per finger. The sum of all the fingers’ productivity is exactly what it was — it’s just distributed differently.

The problem is that some fingers are now left with nothing to do, and off they go to the little fingers’ unemployment line. When one finger multiplies its productivity fourfold, it pushes the others out of the productive system altogether—reducing their productivity to zero.

When any technology—AI, the Internet, the personal computer or any other—manages to increase the output of some workers and some companies within a given economy at the expense of others, the result is not growth in the economy’s aggregate productivity. The result is that some workers end up better off, and others much worse off.

Economists call this phenomenon “technological displacement,” and it is what has happened with digital technologies over the past 25 years or so. Some workers—such as those in tech companies—have seen their productivity boom, while other sectors were hollowed out.

Ah—you can almost hear the politicians object—but then what we need is to get every finger the same technology, so that instead of one egg we can fry four! Let every little finger buy, fry, salt, and stir its own egg, and that way there’ll be many more eggs, and we’ll all be much more productive!

Right?

Sure, fine, but who’s going to eat all those eggs? We only have one chubby thumb.

The thumb is the consumer.

No matter how many eggs the producers fry, if they don’t have more consumers to sell them to, only two outcomes are possible: either the price of fried eggs drops, and the chubby thumb eats four eggs for the price of one, or the remaining eggs get thrown away because there’s no consumer to be found for them.

And this, dear friends—this silly story, this thing you can explain on the fingers of one hand—reveals the lie we have been telling ourselves for 250 years:

We’ve convinced ourselves that what makes countries richer is increasing productivity: frying more eggs. But frying more eggs, if there’s no one to buy them, cannot make us richer. It can lift our standard of living, sure. And it can benefit everyone through lower prices, absolutely. But it will not improve our standing relative to everyone else.

The consequence is what we can observe in the West today: when a technology pumps up the productivity of one sector of the economy without extending its customer base, many workers are displaced into less “productive” jobs. Income concentrates, wealth concentrates, inequality rises.

So how did productivity grow, all those years? How did capitalism actually work?

Contrary to what we have been told, what made (some) countries richer over the past 250 years was not the growth of their capacity to produce, but the growth of their consumption.

The Great Conquest of Customers

Since the Industrial Revolution, in the West, we’ve been playing a game. Every technological leap has multiplied our ability to fry eggs much faster than our capacity to eat them. And the solutions we’ve kept inventing to escape the trap are, told in order, the economic history of the last 250 years.

The first solution was to go out looking for other people’s chubby thumbs. When the workshops of Manchester produced more cloth than England could wear, the surplus was sold to the rest of the planet — at gunpoint, if necessary. Nineteenth-century imperialism was, among other things, a search for hungry stomachs: new markets for an output that was growing faster than its consumers. As Rosa Luxemburg wisely put it, capitalism needed an “outside” to sell what its own population couldn’t buy.

The second solution was to fatten up the local fingers, or what we called “consumer capitalism”. In the 1930s, Henry Ford turn this idea into a meme: the workers themselves should be able to buy the cars they were building. Said in the language of economists, domestic demand should be the driver of consumption.

Riding on that idea, Keynes & co. argued that it was demand that drove supply, not the other way around. If we wanted everyone to be a chubby finger, governments should make sure demand was strong enough to give everyone a job. The postwar consensus — with its rising wages, the creation of the middle classes, and the welfare states — was this idea put to work at a civilizational scale: turning producer fingers into consumer fingers.

The next 50 years or so were an experiment in manufacturing consumers. The Marshall Plan, if we look at it in this light, was exactly that: lending Europe the money with which to buy American eggs. The loans that wealthy countries extended to third-world countries at the end of the century were part of the same scheme: vendor financing.

If we look at it from a distance, we can see two clear components here. On the one hand, the new consumers at every phase would be making of value they could sell back to the producers, such as raw materials or low-tech goods. On the other, they would borrow to pay for the output of richer, industrial countries. In effect, what capitalism did for 250 years was find more and more people willing to become capitalists themselves, and therefore happy to take on debt to finance their own development.

By the late twentieth century, there wasn't much left to sell to consumers. Homes in the first world were already full of appliances; a string of debt crises in the developing countries had made lenders think twice before extending credit there again; and wages had stopped growing. The third and last solution was to lend the local fingers money so they could keep buying eggs.

Since the eighties, countries have increasingly relied on debt —mortgages, credit cards, consumer loans, and a swelling pile of public commitments— to fill the gap left by stagnated wages and poor quality jobs. The chubby little thumb has kept on eating — it just can't pay for the eggs anymore.

That last solution burst into flames in 2008. And yet, we still haven’t found another. Meanwhile, many more countries have joined the productive side of the equation, flooding the markets with fried eggs. The global debate about productivity actually hides another one: a dispute over which fingers get to fry eggs (and be paid for it) and which are left to borrow to eat them. All the trade tensions of the last decade, from tariffs to currency wars, are squabbles over who fries and who eats. In many ways, we are going back to that world who thought gold and silver were the only forms of wealth and for one country to be richer another had to be made poorer.

This is why AI, even if it fullfils its wildest promises, wont increase ‘productitivy’. It promises to multiply egg-frying fingers precisely when there’s no new continent left to sell to, wages have been flat for decades, the debt card has already been played, and the consumer of last resort is showing signs of indigestion. A technology that makes production cheaper and, by its own promoters’ account, dispenses with the producers, attacks both sides of the equation at once: it fries more eggs and lays off the people who used to buy them.

And before we wrap up, notice this: The same equation runs through your own life. We were all raised on the producer's creed: work hard, master your craft, be excellent, and the results will come. But look around — look at your office, your industry, your feed. The most productive person you know is almost never the most successful. The best engineer is rarely the CTO; the best writer is rarely the best-selling one; the most dedicated employee is rarely the one promoted. The ones who rise are the ones who found someone to buy what they do: the ones with the manager's ear, the audience, the network or the clients. In other words: the ones who sell. We call this unfairness, and rage at the failure of meritocracy. But in this light this is not a failure at all: it is the system working exactly as it's built. Merit is a theory of production, and production was never the binding constraint. Your effort, like the fingers' eggs, is worth nothing until somebody wants it. The disciplined, hard-working person sliding below their parents' standing is not being cheated out of the rules — they are playing by rules that were never the real ones. They perfected their frying while others were out there finding thumbs.

So this was Adam Smith's error. Wealth, he said, is what a nation can produce. For 1776, the diagnosis might have been right, but only because his world was full of chubby thumbs and there were barely any producing fingers. Anything produced at less cost found a mouth waiting for it. What Smith could not imagine was a world where the machine worked so well that there would no longer be enough people to want its products —and pay for them. He mistook the bottleneck of his century for a law of nature. Everything we call an economic crisis today is, one way or another, the bill for that oversight.

What we should have been asking all along is not how societies produce, but why they consume — what makes human beings want things at all. Why do we exchange. What constitutes value. Or, in other words:

What is wealth?

That will be, again, next Tuesday's question.

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Dear readers,

With their permission and my gratitude, I’m sharing the article I wrote last week for eldiario.es. I don’t usually do cross-posting, except when I feel it’s essential — and in this case, it is. Like the medieval levy, like the foreign debt of the late twentieth century, and like migrant remittances in the early twenty-first, “the great transfer” is the economic phenomenon that defines this historical moment.

I hope you enjoy it!

I’m the white rabbit ;-). Follow me:

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:: Hijos del optimismo (Children of Optimism) ::

“There comes a point where it feels less like you’re paying someone for a home and more like you’re paying them a salary.” A few days ago, Ainhoa Díaz and Raúl Sánchez published an analysis in eldiario.es on the income transfers that tenants make to landlords in Spain every year.

It is extraordinary, essential work — for the testimonies it includes, for the data it provides (among them the figure that tenants collectively pay €28 billion a year), but above all because it puts a name to the central economic reality of twenty-first-century society: the great transfer.

Every year, in every Western country, the same operation repeats itself: one part of the population hands another a growing percentage of its income in exchange for having somewhere to live. As Díaz and Sánchez explain, most of the payers are young and poorer, while most of the recipients are older people with twice the income. For hundreds of millions of people, that transfer is the central act of their economic life — the primary concern, the one that orders all other decisions: where they’ll live, whether they’ll study, whether they’ll eat meat this week, where they’ll go on holiday, whether their children will have tutoring.

What the work of Díaz and Sánchez doesn’t quite reach is that the great transfer doesn’t end with rent — it isn’t limited to tenancy. Whoever buys a flat today for six, ten, or twenty times what the previous owner paid is doing exactly the same thing as tenants: making a great transfer to the seller, only with the bank’s help and spread over thirty or forty years of mortgage payments.

And one might think this has always been the case — that every generation had to invest part of its income to pay for housing; that it’s normal for people to pay for their flat. Or that those who worked hard to buy their home have the right to receive a return on their investment. There is a moral story we have been told many times about how our parents made sacrifices and saved to buy a flat (and therefore, we are supposed to read between the lines, they have the right to be paid much more for that flat than it cost them).

But what should that return actually consist of? The fair thing would be for each generation to pay for housing what it cost at the time, adjusted for CPI — as is done with pensions — or, being more generous, adjusted for whatever wage growth or per-capita GDP growth has occurred.

What has happened is something else entirely: house prices have grown far faster than any of those benchmarks. And that difference has nothing to do with anything the owners have done: it was produced by a political pact that wanted a generation to be able to get rich by buying a home.

This is what the great transfer consists of: today’s adults materializing the promise of progress that the state made to their parents forty or fifty years ago — even in an economy that has spent decades failing to grow enough to deliver it.

To make that promise real, current generations of workers end up paying up to eight times more for their homes than those who bought in the twentieth century. And this is why households today work more hours than they did fifty years ago, despite all the productivity gains that have occurred in the meantime.

Far beyond an obvious moral problem, the great transfer presents two enormous challenges for society. The first is plain to see: it is unsustainable — it is a gigantic Ponzi scheme. Although it has become received wisdom that house prices will never stop rising, the reality is that there is a physical limit to the number of hours a family can dedicate to paying for its home. Sooner or later — I would say sooner — prices will stop rising at this rate, the equation will flip, and a generation will not be able to sell for more than it bought. Some data on the global property market suggest we may be very close to that moment.

The second problem, less obvious, concerns the world we are making. Forty or fifty years ago, when the current housing stock was built, buying a home was an act oriented toward the future. Money went to the builder, to the wages of the workers putting up the building, to the architect who designed it, to the materials being used, to the furniture that would fill the rooms. Almost nothing was paid for the land — which was often publicly owned and had been granted — and no idle capital was waiting to take a cut of the profit, since financing often came from savings banks and other non-profit initiatives. The investment our parents made set companies in motion and drove a country forward: it was a transfer a society made to itself in order to keep advancing.

Today, property transactions set nothing in motion. Every time a young person signs a mortgage, the money they put on the table goes to reward something that happened many years ago: the return on the original buyer’s capital, or the current lender’s, or the landowner’s.

The stagnation of the European economy — all the more glaring given that science, communication, culture, and many other areas of life continue to advance — cannot be explained without accounting for this phenomenon. The great transfer has become a way of paying a — fictional — debt to the past. One that is leaving us without resources to invest in what is yet to come.

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If you’re interested in the content of this newsletter, you’ll love my first book, “Hijos del optimismo” (Children of Optimism). It tells the story of the changes that have taken place over the last 25 years and which we have not yet managed to fully understand.

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I shouldn’t be here. I had decided to take a break from this newsletter to watch the World Cup, work on a business project I’m getting off the ground, and write a series of articles I’ll be publishing next month that are going to be very good.

But it turns out sixteen Nobel laureates, plus another two hundred economists and experts, have just published a manifesto on AI. And I’ve spent the whole week squirming in my chair, trying to resist the urge to become that guy from the meme who can’t go to sleep because someone is wrong on the internet.

Without success.

Because it turns out that the signatories of this manifesto — among them Paul Krugman, Joseph Stiglitz, former Fed Governor Ben Bernanke, and Daron Acemoglu — are not just “some people”: they are the bloody intellectual elite. They are the most cited, most read, and most revered intellectuals in the entire world; the people who run the institutions that generate knowledge, shape global opinion, and make political and economic decisions. They are the gears of the global understanding machine. If anyone is supposed to understand what is happening with AI and explain it, it’s them.

Well, no.

The manifesto is brief enough that I can reproduce it in full. It reads as follows (the bold text is mine):

1. AI could become radically more powerful in the next 10 years.

2. This could drive an unprecedented transformation of our economy, greater than the Industrial Revolution, but deployed over a much shorter timeframe. It could bring risks, such as massive job displacement, as well as opportunities, including substantial improvements in living standards.

3. Economists, policymakers, and technology leaders must act now to understand the economics of transformative AI and build the incentives, safeguards, and institutions needed to direct AI in a direction that complements humans and benefits society.

What do you mean, “could”? Sixteen frigging Nobel laureates, and the best you can offer is “could”?!

Of course. And someone could wake up tomorrow and publish the paper that opens the floodgates of quantum computing. Or someone could prove string theory, or the Riemann hypothesis. Someone could discover the mechanism that finally makes nuclear fission viable, or allows us to reverse aging. AI is not the only field where enormous numbers of people are doing research — for fuck’s sake, we are living through an ongoing scientific revolution! All of those other things are just as possible as a step-change in AI. And all of them, if they happened, would have equally incalculable economic and social effects.

Why does nobody write manifestos about those things? Why doesn’t the entire global intellectual community gather to discuss the consequences — wild ones, trust me, I’ll tell you about them one day — of quantum computing? Very simple: because there is no point in calculating the derivatives of something that hasn’t happened, because the things that could happen are infinite and our time is not.

Is there any reason to think AI is more likely to be a revolutionary phenomenon than these other advances?

No.

If anything, the opposite: the misleadingly named “AI” has spent four years breaking every promise it ever made. It was going to replace 300 million jobs (it didn’t), cure cancer (nope), replace all programmers (there are more of them now than ever), and boost productivity (it hasn’t). It was going to create autonomous armies (anyone?) and bring the “singularity” — the end of history, the moment when a superintelligence would render the human race unnecessary. Where is that creature today? Nowhere to be found.

If anything should have taught us something over these four years of hype, it’s not to trust its promoters. And yet here we are: beguiled, entranced, still giving oxygen to this nonsense. Small wonder, when the people who ought to be bringing sanity to this madhouse busy themselves publishing manifestos about industrial revolutions that could (or could not) happen.

How can it be that with all the intelligence in the world, we still can’t understand what is going to happen with a technology? How can it be that this manifesto is incapable of offering a concrete diagnosis and proposing something beyond “acting to understand the economics of AI”? Who, if not its signatories, is supposed to “act to understand”?

At what point did the understanding machine break down?

Wait — but we can. Of course we can! There are of course people who have spent a long time explaining that AI is not what its promoters claim; that no technology limited to computing language can actually reason; that the probabilistic nature of LLMs makes it impossible for them to stop hallucinating, and that for this reason they fit very poorly into the productive system, which needs certainty; that there are no barriers to entry that would allow this technology to be monopolized the way other tech giants managed in the past; and that it is not possible to generate a profitable business model for AI companies, much less one that justifies the trillion-dollar valuations of some of them.

As a consequence, what is happening in the financial markets can only be understood as an immense bubble of expectations in which money moves in circles among a handful of companies without ever finding a real customer. It is the latest version of a bubble that has been inflating since the internet changed the nature of society.

Unlike the prophecies of AI, all of these truths have done nothing but confirm themselves since 2022. It is not true that we cannot understand. The truth — wink, wink :p— is out there. The reason that manifesto retreats into “coulds” and “must-do-somethings” is not that we can’t understand what’s happening: it’s that we don’t want to admit it. We don’t want to acknowledge that there is no industrial revolution in the making. That no technology is going to come and pull us out of the civilizational impasse we’re in, and that we have no choice but to face the end of the industrial era with all its consequences.

The emperor has no clothes. Many people have been saying it — I’ve been saying it — for years. What is truly alarming is that today, when that truth — scientific, demonstrable, widely shared — collides with the interests of AI companies, Silicon Valley, and the governments of the United States and China, the global understanding machine seizes up and stops working. It surrenders.

From that surrender comes this three-paragraph “manifesto” that manifests nothing — empty, barely inhabited by two “coulds” and a “someone-must-do-something (but we don’t know what).”

Why has the understanding machine broken down?

Within hours of the text’s publication, one of the signatories appeared on Twitter to offer some explanation. Daron Acemoglu says he is “not convinced” by the comparison to the Industrial Revolution, and remains “unconvinced that we’re going to see the enormous productivity gains that industry insiders predict” — but things could happen (”again, with no certainty whatsoever, just ‘could’”).

So why has Daron Acemoglu signed a manifesto that amounts to saying absolutely nothing? Here is the crux of the matter: because “finding a statement that reflected the shared views of several AI researchers, economists, and social scientists was important.”

Even if it says nothing? Even if it validates theses that haven’t just gone unproven, but are being discredited with every passing day? Even if it points us in the wrong direction?!

This, dear friends, is not science. Science is the pursuit of truth — whether or not the other researchers share it. Whether or not it’s the consensus view. Whether or not you are the only person on the face of the earth holding it. When what one is looking for is a “shared view”; when it matters more to be on the same page as the other distinguished people in the room than to say something true — we don’t call that science. We call it something else: “herd mentality”, an endemic disease of our time that runs in equal measure through academia, journalism, and politics.

Debates in the AI Cloud

Do you know what the problem is? When sixteen Nobel laureates, plus two hundred economists and experts, validate the hypothesis that this technology is going to be revolutionary, they also lend legitimacy to an entire political and economic landscape spending its time discussing that topic the way Thomas Aquinas once debated how many angels could fit on the head of a pin.

Case in point. Since the manifesto was published, at least one other prominent economist, , has come out to explain that he decided not to sign it because he’s worried his name would be used to endorse subsequent arguments he doesn’t agree with, as those Acemoglu puts forward in his book “Power and Progress”:

I think “directing” AI is a bad policy idea. The first reason is that it’s basically impossible: no one really knows, at the time of invention, how a technology will complement or replace human labor. Inventors don’t know how companies will end up using their inventions — and the more general-purpose a technology, the less they know. Could James Watt, in 1765, have predicted most of the applications of steam power? Absolutely not. So he had no way of knowing whether the steam engine would ultimately create more jobs than it destroyed.

And at least one other star of the digital political firmament, , has taken the opportunity to rebut Smith’s review of “Power and Process” and respond to him:

When Acemoglu and Johnson talk about “directing,” what they’re suggesting is that it’s better not to leave crucially important decisions in the hands of techbros, but to make them democratically, through processes that give ordinary people some countervailing power against elites. The downside of democracy is that it’s slow, conflictual, and a monumental hassle. The upside is that it allows people with different interests to advocate for those interests, and that diverse ways of understanding the world can be collectively used to map out a more complex landscape of possible futures. And when you’re making decisions that might lock in patterns for a very long time, what you really want is for those who will be affected by those decisions to have a voice.

Bubble: minute and result

Maybe this seems to you like a very relevant debate — because we’re all very anxious about the role techbros will play in our lives if the dystopias promised by artificial intelligence materialize. But what if they don’t? What if there is no fourth industrial revolution?

My thesis is this: I think what is truly terrifying is not that AI will boost productivity and free us from work. Not even if it destroys a lot of jobs along the way. What actually terrifies us is the possibility that none of it happens.

This year, the investment driving the AI bubble accounts for 92% of US GDP growth. Meanwhile, the Chinese economy is showing alarming signs of exhaustion. In other words, beyond the bubble, there is no growth. If AI doesn’t produce the transformations we’ve been anticipating, we will find ourselves in a stagnant world with no project of progress — at a moment of maximum polarization. That is what is truly terrifying.

What’s more, how can this manifesto not even mention the possibility that the bubble could burst in the coming weeks or months? Today, most analysts agree that it will. What will we do afterward? Will we tell people again, as we did in 2008, that it couldn’t have been foreseen? That we didn’t see it coming?

While we are distracted, the markets keep shaking. In the past week alone, IBM has had the worst day in its 115-year history — a 25% drop in a single session; SpaceX shares — sold just a month ago as the generational opportunity to get rich by investing — have fallen 40% and are now trading below their IPO price; the South Korean stock exchange — where several of the hardware manufacturers AI depends on are listed — has lost 25% of its value in a month; and American chip makers have followed in the latest round of panic that has been rattling indices for weeks. The bubble, if it hasn’t burst, is certainly hissing.

On the horizon, a succession of ever-higher obstacles: in August, all the tech companies will report results. On the previous occasions, shares of one or all of them fell sharply immediately afterward, even when the numbers were excellent. Also in the first week of the month, another 20% of SpaceX shares will begin trading, and given the current trajectory, everyone expects it to be a bloodbath. Amid all this, OpenAI and Anthropic are preparing their own IPOs — perhaps one in October.

The final boss appears in November, when the United States holds its elections. The most likely outcome is that Trump loses control of at least the House. And if that happens, the bulls — those betting that stocks will keep going up — would be left without the person who has been propping up valuations by manufacturing events and headlines every time they threatened to collapse.

How to Fix the Understanding Machine

I have said many times that we are in the final stretch of a twenty-five-year process. I have argued that we are in a moment identical to the one that drove us into the Great Depression in 1929. I believe that in the coming years we will pass through a profound existential crisis.

And what worries me even more than the economy is that the mechanisms we had built for ourselves to understand the world — unable to stand up to the economic and political hype — have broken down. They have left us without an intellectual structure capable of looking honestly and rigorously at the changes we are living through, and at the real challenges we face.

We need to fix the understanding machine. And the best tool for repairing it is the old craft of disagreeing: saying what you have verified even if nobody else will sign off on it — especially if nobody else will sign off on it. Because Meredith Whittaker is right: renouncing the truth makes us stupid, not just as individuals, but as a society. And to get through this extraordinary, brilliant, and fearsome moment we have been given to live through, we are going to need every bit of our intelligence.

If you want to understand this historical moment, I invite you to read Hijos del optimismo (Children of Optimism). It’s my first book, written as a guide for navigating this age of change. It will change the way you see the world

.

Yesterday was the Fourth of July, and the United States celebrated the 250th anniversary of its Declaration of Independence. As if destiny had decided to join the party, three events converged this week: US public debt has reached 100% of GDP for the first time since the Second World War; the share of the population working or looking for work has hit its lowest level in 50 years outside the COVID era; and the leading artificial intelligence company has offered to give the US government a 5% stake in itself — worth something in the region of $40 billion — to “clear away the political obstacles” that might stand in its path.

These don’t look like great headlines for a country that still considers itself the leader of the free world. And yet the tone of the celebrations coming from across the Atlantic — which include a gladiatorial tournament in the White House garden — is one of almost hysterical euphoria. Riding high on the AI hype, the American establishment believes it is ushering in a fourth industrial revolution that will put it back at the head of progress.

It has been said many times that this exuberance among its leaders is the symptom of a bubble similar to the one that burst in 2000 with the dot-coms. But I have a different theory. I think the current moment looks much more like a different point in history — a darker one. More dangerous. Also less well known. I think we are living through a moment identical to the 1929 crash: the one that first produced the Great Depression and then the Second World War.

And I know that sounds terrifying — but it isn’t. Because this time we have the opportunity to understand it in time, and to get ahead of it.

Here’s the thing:

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:: (Hijos del optimismo) Children of Optimism ::

1929

The decade of the 1920s of the last century, just like this one, was a time of enthusiasm. With the First World War behind them, the spread of cars, radio, electricity, aviation, and the first home appliances seemed to herald a genuine futuristic utopia (1). The world was changing at full speed, and nobody could imagine how far it would go — but what was clear was that the fortunate inhabitants of the wealthy countries were going to be the winners of that particular game. They were the “Roaring Twenties” in the US, the “Années folles” in France, and the “Golden 20s” in Germany.

Beneath that euphoria, the advances in technology had been accompanied, without announcement, by new agricultural production techniques that had multiplied the productivity of the land (2). Under normal circumstances, that should have produced a reduction in demand and a fall in prices that would have begun strangling the economy well before 1929. But those were not normal circumstances, and what actually happened was the opposite: for the duration of the First World War, to supply Europe, American farmers saw demand for their goods soar.

When the war ended and Europe returned to managing its own production, the world was flooded with increasingly cheap raw materials and agricultural products. Prices began to collapse, and with them, rural wages. Many farms had to close, and many others had to take on enormous debt (3) to survive. People began buying on credit long before 1929.

The fall in wages put the brakes on consumer demand (4) Whoever could afford to buy a refrigerator or a car at 1925 prices had already done so. Those who couldn’t, still couldn’t in 1929. House prices (5), which had risen sharply in the early 1920s, began to fall in 1926, leaving many people trapped — in debt for more than their homes were worth.

Meanwhile, the American stock market was surging (6), disconnected from the increasingly difficult reality (7) of ordinary citizens, and drunk — as now — on expectations of infinite growth that the new technology seemed to promise. Dazzled by what appeared to be a money-making machine, thousands of ordinary people were pouring their savings into the financial markets right and left. If they didn’t have savings, it didn’t matter: they took out a loan to buy shares. It couldn’t be a bad idea at a moment when the market seemed like it would never stop going up.

The story goes that Joseph P. Kennedy — father of the future US president — stopped one day in October 1929 to have his shoes shined in the street. To his astonishment, he listened as the shoeshine boy began giving him advice about which stocks to buy and which ones were going to rise. Kennedy concluded that if even that young man had opinions about the market, the bubble was about to burst (8). So he sold his positions, emerged unscathed from the worst crash in Wall Street’s history, and passed into legend with that little anecdote.

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2026

Today’s world resembles 1929 so closely that it’s almost frightening to think about.

(1) Just as then, AI is presented as a techno-optimistic utopia that is about to change everything.

(2) Today, too, we are living through a gigantic overproduction crisis that is collapsing prices. The only difference is that it isn’t agriculture or raw material extraction that is wavering, but industry. In wealthy countries, over the past twenty-five years, the price of objects has fallen or stagnated. Everything produced industrially has become cheaper in relative terms, and we are inundated with ever-cheaper products.

No data should be needed to understand this phenomenon. It is evident to anyone who has noticed the avalanche of discount shops that occupy ever-more space in major cities, or the hurricane that has been Temu, AliExpress, and TikTok Shop. What is happening is that industrial products are following the same path that food once traveled: from a craftsman industry, meticulously organized to waste nothing, to a mass-scale one where supermarkets sell more and more at ever-lower prices. Electronic goods today are not far from where tomatoes are.

No data should be needed — but data exists too. A recent Financial Times piece explains it with great clarity.

Just as the First World War did last century, the COVID pandemic, the invasion of Ukraine, the Iran war, and the other spectacles Donald Trump has accustomed us to are obscuring the economic reality and preventing us from seeing that, beneath the supply crises and the AI bubble, what we are living through is a profound deceleration.

(3) Today, just as then, the world has been forced into debt to compensate for the declining returns of industry. Only this time it hasn’t been farmers who have borne the weight of that debt — it has been states.

Public debt in wealthy countries has risen from approximately 70% of GDP in 2000 to 110% in 2026. The United States began this century owing 33% of its GDP — Clinton actually dreamed of paying off the entire debt — and has just crossed the 100% threshold. China owed 22%; today — if you count what its local governments conceal — it exceeds 125% and is heading toward 150%. The major industrial countries have spent a quarter of a century going into debt to subsidize an industry that can no longer produce sufficient returns.

(4) The stagnation of wages in the West, now in its third decade, has today the same consequences as in 1929: markets cannot grow without demand that grows with them. You can produce more and more, ever more cheaply, but you cannot sell to people who have no money to buy with. Industries are trapped within the perimeter of their existing customers, condemned to fight over a pie that is no longer growing.

(5) House prices have been stagnant or falling across most of the West for several years. Spain and Portugal are the two outliers on this, but in the US — as in other developed countries — it is an obvious and well-known phenomenon.

(6) Despite all these indicators pointing toward caution, American stock markets have been running wild for nearly four years, growing almost vertically on the sole promise that AI is going to transform the world.

(7) Meanwhile, citizens don’t seem nearly as convinced that this transformation is going to be in their favor. While the S&P 500 keeps hitting new highs, consumer confidence is at historic lows.

(8) And the shoeshine boys? For weeks, the major hedge funds have been exiting AI companies, and very serious people are warning that this latest stock market rally is nothing more than the transfer of risk from professional investors to amateurs. Meanwhile, Twitter today is a hive of wannabe investors, delighted to have caught this wave and always ready to tell you about it.

The only problem is that they don’t shine your shoes while they explain it.

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From the British Century to the American Century

1929 marked the end of one cycle and the beginning of another. The commodity trade had characterized the economy of the first part of the industrial era, under British dominance. That supremacy gradually exhausted itself during the first thirty years of the twentieth century and finally collapsed with the crash. Then began — through war and great effort — what someone called “the American century”: the second great stage of that era.

Unlike the British century, the American century was the age of mass production, of Fordism, of work as social contribution and consumption as the engine of growth; of welfare states and homeownership. What was later called the “American dream” of prosperity.

That era, that century, is what is dying today.

The Marxists in the room will say that these are nothing more than the crises of overproduction that Marx predicted 150 years ago. The neoclassicists will argue that they are a healthy exercise in the creative destruction inherent in capitalism — a form of systemic detox.

Regardless of how each person interprets it, the fact is that after 1929, the world spent the next ten years on juice — the duration of the Great Depression. And not content with that cleanse, in 1939 it found itself in war. And the risk we face today is something similar.

And I would say that threat is there whether the bubble bursts violently or not. It is already happening, in truth. For a long time now we have known that the manufacture and consumption of industrial goods cannot be the engine of society — that it is no longer a sufficient aspiration to set everyone walking in the same direction. Industrial employment is an ever-smaller share of the total in Western countries, and even in China it seems to have stagnated. As a result of the diffusion of knowledge, new technologies are born already commoditized and can no longer produce the immense returns of twentieth-century industry. Beyond the numbers, new generations show an obvious rejection of serial work and mass consumption. Whichever way you look at it, the American century is dying. Trump and the current administration’s drift are the symptom.

Every moment we take to react is like those years when American farmworkers were showing obvious signs of distress, and the elites in Washington and Wall Street weren’t paying them the slightest attention.

A Survival Manual for a Recession

Economic historians generally say that the Great Depression happened because the response to the 1929 crash was wrong. To defend the gold standard, central banks raised interest rates and reduced the money supply precisely when the economy needed the opposite. Governments, obsessed with balanced budgets, cut spending and raised taxes in the middle of a freefall. They also let thousands of banks fail, considering it immoral to rescue them. The spirit of the moment was one of purification. “The rottenness must be purged from the system,” Treasury Secretary Andrew Mellon is said to have declared — even if that meant “liquidating stocks, farms, and workers.” To cap it off, every country raised tariffs against the others and between them all unleashed a trade war that sank world commerce. Each government tried to save itself alone, and they all ended up sinking together.

But I think there was something more important.

In 1930, the world had no alternative plan. Not just for growth — it had none for offering each person work that paid enough to sustain the economy, still less for giving every citizen a place in the world. Extracting and transporting raw materials no longer required as much labor or capital as before. The Great Depression happened above all because the British model was no longer adequate to organize society. And it took fifteen years and a war for something to emerge to replace it.

Then three ideas came together to found the American century: Fordism — which meant making cars, but also paying workers enough to be able to buy them; welfare states, which translated that logic into the social contract; and a new idea of society in which every person would have a role in the world.

Now, as then, I suspect that the way out of the impasse we find ourselves in will require the same ingredients.

The first we have used before and know works: working less. The recovery from the 1929 crisis involved a drastic reduction in working hours — from the sixty-hour weeks that were normal in 1930 to today’s forty. Out of the liberated hours came mass education, free time, and paid holidays — and from those, everything else. An entire generation was able to study. Then another went to university and produced the great transformation of our time. (If you don’t know what I’m referring to, you haven’t read my first book, Hijos del optimismo (Children of Optimism), and that needs to change.)

The reduction of working hours in the 1930s is perhaps the most important transformation of the twentieth century — one that gave rise to a different kind of society. And today we need something very similar. We could start with the four-day work week.

The second ingredient is letting out of the closet the society we actually are. I have argued many times that I believe we are in a genuine “knowledge society” — but one that has spent twenty-five years gagged in a back room, because we’re terrified of letting it fully out, of confronting the idea that effort is no longer the source of value: ingenuity is. That’s why we prefer to keep pretending we’re in an industrial era — one where the economy is measured in hours and sweat (or in productivity, which amounts to the same thing), where factories are still the center of the world. But what actually produces value today — software, science, data, ideas, brands, trends, ways of life — doesn’t behave according to those rules, no matter how hard our institutions refuse to acknowledge it.

The third is understanding what it means to build a welfare state for the knowledge era. The twentieth-century welfare state extended material wellbeing: healthcare, pensions, housing, the guarantee that nobody was left out of the industrial distribution. There will be no knowledge society without its equivalent: the extension of intellectual wellbeing. The possibility of understanding — of participating, of living as an active part of the twenty-first-century world rather than being dragged along by alien and incomprehensible currents. In 1950, the deal was that every worker could afford to buy what they made. The deal that is coming will have to be that every citizen can understand — and use and debate — what knowledge produces.

If this article interests you, you cannot afford to miss Hijos del optimismo (Children of Optimism). It is my first book and the best explanation I have been able to put together of the transformations happening in the world

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I don’t know if you were paying attention, but these past few days, a European army has been storming the United States.

First came the Norwegians. A couple of Sundays ago, thousands of Vikings rowed in favor of their team in Times Square. Hours later, an army of Scots descended on Boston. Bagpipes in hand, kilts in the breeze, faces painted Braveheart-style for maximum intimidation, 50,000 Highlanders have marched through the streets of several cities to rally behind their national team, competing in a World Cup for the first time in 30 years.

Unarmed, the host country surrendered in their wake. The Wall Street Journal ran the headline “The Tartan Army Takes America,“ while the New York Times offered “No Scotland, No Party: Inside the Tartan Army’s Takeover of Boston“ and “The Best Party at the World Cup Storms Miami.“ Television networks and Twitter alike looped footage of that peculiar foreign invasion on repeat.

“In one week,” the BBC managed to put it, “the Tartan Army has drunk Boston dry and conquered its people’s hearts.” The word is “conquered”: the United States has surrendered to football — the quintessentially European sport — spellbound by its cultural exuberance.

It is striking that this infatuation should have arrived precisely now, at the worst moment in transatlantic relations — right when denigrating European culture has become something of a national sport among certain Washington elites, and when economic headwinds are loudest in accusing Europe of falling behind, of losing the race for progress.

A few weeks ago, I wrote a newsletter dismantling that idea — one that went viral, bringing hundreds of new subscribers to this community. I tried to explain that the belief in productivity as the key to prosperity rests on a confusion that doesn’t hold up, not even in the most basic economic doctrine.

But if producing isn’t the key to progress, then what is? What is the twenty-first-century economy actually about? What are we Europeans supposed to do to thrive, now that it seems we can no longer shelter under the wing of the empire?

In that newsletter, I left this claim hanging:

The future of the economy in the twenty-first century will revolve around the commercial exploitation of public, or abundant, goods. […]

The economic question of the century is not how to increase productivity, but how to create and sustain public goods so that industries can subsequently be built around them with a competitive advantage. Whoever is capable of creating ideas, ways of life, cultural models that the rest of the world desires and wants to adopt — but also software, medicines, technology, business models, and scientific advances — will have a competitive advantage, and the layer of services built around them will win the game.

Which is still somewhat vague and a little hard to grasp. What does it mean to “create and sustain public goods”?

Pretty girls don’t gatekeep. So today we’re going to use the football example to show exactly what I meant: how public (or abundant) goods are the key to the prosperity of nations in the twenty-first century. With any luck, we’ll be able to apply what we learn to our own lives and decisions.

Buckle up — here we go!

I’m the white rabbit ;-). Follow me:

Bluesky — Twitter — Instagram — TikTok — WhatsApp

:: (Hijos del optimismo) Children of Optimism ::

Football is a great business — an immense industry, no question. But it wasn’t always.

Until 1961, footballers’ wages in England were capped by law at £20 a week. Professional football was an extension of the working-class culture of the industrial cities of northern England, and many clubs — Liverpool, Manchester United, Arsenal, West Ham — had been born out of trade unions. Players led entirely ordinary lives: they lived in the same neighborhoods as the fans, and on match days it was common to see them on the bus or tram alongside their supporters, heading to the stadium. Despite playing in one of the wealthiest countries in the world and being celebrities, many had a second job to make ends meet.

Fast forward to today: Premier League footballers now earn half a million pounds a week, and European football leagues generate around $30 billion a year in combined ticket sales and broadcasting rights — as much as the NFL and the NBA combined.

And the workers who used to ride the bus with those footballers? Industrial employment in the United Kingdom fell from 8.9 million workers in 1966 to 2.9 million in 2016. Since the mid-1960s, British industry has destroyed more than 6 million jobs. In that period, wages rose sharply for a time, but stalled in 2007 and have been stuck there for the past two decades. The country — and the industrial north in particular — finds itself in a profound existential crisis, trying to find its place in the world beyond Brexit.

Why is football doing well while industry in Europe is struggling? What does this sport have that has made it so successful while so many other industries were deflating? What does it have that we might copy to produce other sources of wealth? The answer to these questions holds the secret of the twenty-first-century economy.

The big football business

The football business starts with matches. But it doesn’t end there. To the figures we’ve seen, add the global merchandising market (over $15 billion in 2025), sponsorship revenue (over $30 billion), sports betting ($40 billion), video games (around $7 billion), and sports tourism, which draws tens of millions of travelers every year. So many that this World Cup is estimated to generate 13 million visitors to the host countries and over 21 million overnight stays, with an estimated economic impact of $41 billion on global GDP.

That landscape is completed by a grassroots economy that is rarely counted: youth academies, junior leagues, amateur clubs, training schools, local pitches, kit, physiotherapists, sports nutritionists, and a long tail of related goods and services.

If all of this were owned by a single company, it would be a mega-corporation: it would generate revenues comparable to one of the American tech giants, with a similar number of employees worldwide.

But it isn’t a company. It’s a cultural manifestation — a set of shared codes and practices, like gastronomy or folklore. It’s a collective fever made of packed stadiums, children dreaming of becoming footballers, and the thrill of a derby. And it is produced diffusely, through millions of everyday acts. They say it takes a village to raise a child; it takes a country — and an entire continent — to create a collective passion this fierce.

In economic terms, football culture is called a public good (though I’ve preferred to rename it an “abundant good”). Abundant goods, in my own definition, are those created and consumed in a distributed way, without their production or consumption depleting a resource for anyone else. Languages, mathematics, or football culture, for instance, are created and maintained in social life itself, without requiring factories to organize their production or markets to regulate their consumption. In the same way, anyone can consume Spanish grammar, the laws of geometry, or Maradona’s goal against England in 1986 without depriving anyone else of using them.

The consequence is that abundant goods cannot be traded. Nobody can buy or sell a passion for Real Madrid or the concept of a hat trick. How, then, can an immense industry exist around football?

What the companies working in this sector do — the clubs, Nike, Adidas, the bars serving fans on match day, the coaches running football schools — is to create scarce goods and services — such as stadium seats or national team shirts — from this abundant resource. Scarce goods are exhausted when consumed. Two people cannot consume them simultaneously: if one person consumes them, another cannot. That is why we can exchange them and why we are willing to pay for them.

This is what happens with stadium tickets, with merchandising, with the bars where people watch matches, with the coach teaching your child how to dive convincingly, and with the rental of the local pitch. All of these businesses have found a way to create scarce, exchangeable goods and services from a superior abundant good — they are guests, stowaways on a ship far larger than themselves, who have learned to fish.

The Productivity Illusion

What we still don’t fully understand is that this logic is not unique to football or culture: every industry — including the ones that employed those English workers who traveled with the footballers on the tram in 1961 — operates the same way.

Car manufacturers also exploit an abundant good — the mechanics of engines, metallurgy, the physics of combustion, aerodynamic design — to produce vehicles: scarce goods that can be bought and sold. Appliance manufacturers exploit another abundant good — the thermodynamics of refrigeration, the physics of microwaves, the mechanics of electric motors — to produce fridges, microwaves, and blenders.

AI is no different. The knowledge that makes it possible — model architectures, training algorithms, advances in computing — is an abundant good; it is a portion of shared knowledge published across hundreds of papers and computing conferences.

All human exchanges — the services of a lawyer, a physiotherapist, tomatoes, loaves of bread, mobile phones — are materializations in the form of scarce goods of a superior abundant good — law, physiotherapy, agricultural knowledge, bread recipes, mobile technology — without which none of these things could exist.

What Ford, Zanussi, IBM, and all the companies that became empires in the twentieth century did was take those abundant goods, package them, and put a price on them. OpenAI, Anthropic, and all the AI companies are trying — without much success — to do the same today.

Except they can’t. And this is what is key and different about our time.

The trick that, until the twenty-first century, allowed industries to transform abundant goods into scarce ones was a form of monopoly. During the 200 years between the Industrial Revolution and the year 2000, an unprecedented historical anomaly occurred: knowledge advanced so rapidly that there weren’t enough technicians to interpret it. Its most sophisticated forms — like those needed to manufacture cars or washing machines — constituted a moat other countries couldn’t jump. Like a monopoly, only a handful of companies could produce certain goods, and the rest of the world was a defenseless market for them.

That artificial scarcity produced the illusion of productivity. If at any point it seemed that a country’s productive capacity was the same as its wealth, it was because for a couple of centuries a few countries held a monopoly over the knowledge that allowed them to produce exclusively, and then trade in their goods.

(Well, that — and an error of Adam Smith’s that we’ll discuss soon in this newsletter, so subscribe if you don’t want to miss it!)

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That monopoly — not productivity — is what made it possible for the industrial powers of the twentieth century to rise.

But in the twenty-first century, any country can make washing machines. And cars. Knowledge is universal; it has returned to its nature. Today — as I wrote in the piece on The revenge of the europoors— nobody can replicate that monopoly.

What happens when all industries try to exploit the same abundant good simultaneously? What happens when two empires, like the US and China, compete ferociously to make the same technology more powerful and more efficient? What happens when every country increases its productivity at the same time? When two countries throw themselves into frantic production — even subsidizing output, as is happening right now — what they achieve is cannibalization: they crash prices, impoverish their own workers, and condemn their economies (while benefiting consumers in third countries and creating the strange lived experience of these years, in which everything seems incredibly cheap, it has to be said).

This is exactly what is happening with AI right now. As we are seeing, LLM models are mushrooming at ever-increasing speed, all over the world. Consumers are unaware of the real cost of the technology because investors are subsidizing it for them, the major labs are threatening a price war, and they know customers will move to find the cheapest option. Drums of a sector bailout are already beginning to be heard.

Without a moat, without something that restricts these innovations to a handful of companies, countries find themselves simultaneously compelled to compete so as not to fall behind and condemned to pay an enormous price for staying in the top tier — one that amounts to destroying themselves through debt.

The Economy of Abundance

This is what I mean when I talk about the economy of abundance. Not a utopian world where manna falls from heaven, but the rules of a new game. The nature of twenty-first-century society — where knowledge is universal and shared to the last corner of the globe — will mean that every good born from now on will follow the same pattern. They will be shared, universal technologies that cannot be monopolized to create corporate giants, but that can generate economic activity in their surroundings.

That is why I believe the countries that succeed in the twenty-first century won’t be the ones determined to produce more of something everyone else can already make. On the contrary: those who win will be the ones who know how to create abundant goods over which they can hold a competitive advantage.

There are at least two paths to achieving this. One is to invest in knowledge density — to specialize in a technology to be more competitive than the rest by generating economies of scale. But there is a second type of abundant good that I believe has more power for countries’ development: goods that have a natural protection against competition because they cannot exist without the community that sustains them. They are a kind of proprietary abundant good — something like cultural brands. Football is exactly that.

The Scottish Army as a Source of Wealth

A liquid identical to whisky can be produced anywhere in the world — but it is only called whisky, and only costs thousands of euros, when it comes from a distillery lost in the Scottish Highlands. In the same way, many people can play football, but there is only one Scottish national team. That irreproducibility is the only competitive advantage the twenty-first century will not be able to dismantle.

The key to football has been to create an abundant good of immense appeal — one that is impossible to copy because it is defended by an entire community and centuries of history. To replicate it, another similar community would have to make the same collective decision — and collective decisions are not made, they sediment. If Americans wanted to start playing real football, millions of families would have to change their way of life: driving the kid to training on Saturdays, getting used to the rain, learning to suffer through a match where nobody scores for twenty minutes, passing down the passion for a club as a kind of inheritance.

Until very recently, the country that was doing exactly that was the United States. For decades, America didn’t sell technology or products — it sold a way of life. Hollywood exported the ambition of living in a house with a garden and a car in the garage. The NBA exported an aesthetic, an attitude, and a way of moving through the world. Coca-Cola, Levi’s, rock and roll, and Marlboro were not products — they were fragments of an American abundant good — the American dream — that the entire world wanted to consume. That is what made the United States the economic empire of the twentieth century. Not its productivity — Germany and Japan were just as productive — but its capacity to create proprietary abundant goods that the whole world desired and only America could sell.

Curiously, this is the same principle that has turned Bitcoin into an asset worth trillions of dollars, despite the fact that its code is completely public. Anyone can copy it, and many have: there is an entire galaxy of cryptocurrencies that are technically equivalent or superior in some respects. But none has managed to displace it — because what defends Bitcoin’s value is the trust network, the critical mass of users, the accumulated history of transactions, the symbolic weight of having been first. All of that is irreproducible. The technology can be copied in an afternoon; the community cannot.

The Revenge of the Europoors

Which region of the world is best positioned today to create this type of cultural good? Europe, with its thousands of years of history and identity, has every advantage. You only need to look at what is happening with the World Cup.

The fact that a football World Cup is generating this level of enthusiasm in the United States is extraordinary — something that would have been unthinkable a decade ago. Until recently, soccer — Americans don’t even call football by its real name — was viewed on that side of the Atlantic as an eccentricity. An esoteric sport, picturesque at best, in which players are inexplicably forbidden, for reasons nobody can quite explain, from touching the ball with their hands. Until quite recently, Americans looked at football the way continental Europeans look at cricket: with a mixture of bewilderment and indifference.

While the American empire was strong, it was impermeable to foreign cultural influence. But today the United States is a country in decline — one where Hollywood is in crisis, TV series are no longer blockbusters, science is under tremendous pressure from European and Chinese laboratories, and a Latino artist dominates the Super Bowl. A country that has stopped generating cultural hegemony, and where all the resources are trapped in the gravitational field of Silicon Valley.

The Scottish Army, by contrast — despite the fact that Scotland hadn’t played in a World Cup for 30 years, despite being a peripheral European country not without its own political problems, one that has also faced significant economic difficulties in recent years, with an inhospitable climate and very difficult geography — is still a place where people believe in something. Specifically, as one commentator put it this week: “in never losing hope, never expecting victory, and never taking themselves too seriously.”

What the Scots have done these past weeks in Boston is project a way of life capable of seducing and capturing the attention of an interconnected world constantly battered by an avalanche of information.

This is where wealth comes from in the age of abundance.

It must have been around 1930 when the last Norwegian ice cargo ship set sail for the British coast. Until very recently, that had been a thriving business. At its peak, in the late nineteenth century, the international ice trade employed around 90,000 people in the United States, and Norway exported a million tons a year.

The ice merchants of the twentieth century had inherited a trade with 4,000 years of history. The oldest known reference to the organized production of ice dates from 2,083 BC: a clay tablet records that Shulgi, king of the Sumerians, named the thirteenth year of his reign “the year of the ice house,” in honor of the first one built under his command.

From then until industrialization, ice was a scarce and highly valuable good: a luxury product. To obtain it, wherever winter allowed, it was collected from frozen lakes and rivers and stored in icehouses for the rest of the year. Where that wasn’t possible, it was cultivated. In warm places like India, it was made during cold winter nights by pouring water into shallow trays; at dawn, thin sheets were removed and accumulated, stored in enormous pits at great depth.

Even in the early twentieth century, the ice that arrived by ship from Norway to the great cities was still stored much as it had been in antiquity: in large iceboxes, cold cellars dug into the earth and packed with other old, dirty ice that was only there to maintain the temperature. But when the last ice cargo ship departed from the Norwegian coast, the international trade was dying — strangled by competition from industrial ice. This new product, manufactured in factories and mechanical refrigeration facilities, was unreliable and expensive at first, but began to compete successfully from the mid-nineteenth century onward. So successfully, in fact, that by the outbreak of the First World War more industrial ice was being produced every year in the United States than was being collected naturally.

The ability to produce on demand triggered many revolutions. Ice reached homes, hospitals, restaurants, and factories. It made it possible to transport fish and meat thousands of kilometers, to preserve milk and beer, to keep corpses intact long enough to perform an autopsy, and to keep vaccines alive. An entire infrastructure of warehouses, transporters, merchants, and delivery workers grew up around these new uses, dedicated to getting ice to consumers — a system indistinguishable from the one that supplies our cities with food and drink today. According to census data compiled by historian Elli Morris, in 1920 some 160,000 people worked in the ice industry in the United States.

Until, in the mid-twentieth century, a new innovation produced one final transformation of that industry. The spread of running water, electricity, and above all, domestic refrigeration, completely changed the way ice was produced. Suddenly, homes, bars, and shops had a machine capable of making as much as they wanted. They no longer needed an industry. The mechanism that had made it possible to distribute this product for 150 years lost its purpose and began to disappear. By 1950, almost nothing was left.

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The Miracle of the Gin and Tonic, and the Age of Ice

The story of ice is fascinating for two reasons. One is that it reveals the extent to which it is a miracle of civilization that on any ordinary Sunday, in the middle of a long lunch, one can push back from the table and ask who wants a gin and tonic.

The other is that it reveals a law we still don’t fully understand, but which is transforming the economy and the entire world in recent years. Because when production spread across the whole of society, ice became abundant and ceased to cost money — it ceased to have economic value.

An entire sector then evaporated from the economy. Only a few uses remained for which trading in ice made sense, and its production had become so widespread that the price at which it was sold was the minimum possible, as close to cost as it could get. Even though the capacity to produce ice had multiplied — or rather, precisely because of that — the entire industry disappeared from economic measurement. Hundreds of thousands of people were put out of work, and a sector of activity vanished.

As if it had literally evaporated, the activity that had once supported a large industry dispersed into millions of small domestic factories, like droplets of water suspended in steam.

This phenomenon — which I’ll call “industrial evaporation” — is a process distinct from what economists used to call “creative destruction.” In creative destruction, some industries die because more efficient and innovative ones are born. The economy advances because the new companies are ever more cutting-edge and require more capital and better labor.

Evaporation is a different phenomenon, which occurs when a technology becomes universal, and it is the former consumers who satisfy their own needs without requiring an industry.

Industries, for their part, cannot compete — because when the consumer is producing what they need themselves, they are far more efficient. Entire cost categories that the industry would have been obliged to absorb simply disappear: storage, transportation, or marketing. And the ice is made inside the house, at the exact moment it’s needed, and in precisely the right amount.

In economic evaporation, industries are not replaced by better ones, but by a more efficient system and a different form of activity. But none of this is counted, or compensated — because it happens outside the perimeter of the economy, in a sphere of human activity that I call “Plutonomy.”

For this reason, far from being a phenomenon specific to ice, evaporation is affecting or will affect ALL industries. It is a universal process. And we can identify it clearly by distinguishing three or four phases of productive history — even with a very broad brush:

For thousands of years, human knowledge only extended to the minimum needed to collect what nature provided. The economy was one of subsistence, because the costs of those processes were too high to produce surpluses. People could barely cover their basic needs with their knowledge and labor, and famines and times of scarcity were frequent. These were the years when ice merchants collected blocks from the mountains and brought them down to the cities in carts as a luxury product for consumption by a few nobles and kings. (Pre-industrial phase)

Then, in the first part of the industrial era, under British leadership, ice became a raw material and began to form part of the growing international trade. It was the era in which Norway and the United States dominated the market. (First industrial phase)

In the second part of the industrial era, under American leadership, ice became an industrial product — manufactured and distributed like cans of Coca-Cola. (Second industrial phase)

In the final phase — what I’ve called evaporation — the distributed production of ice in homes multiplied supply until it became abundant, collapsing prices through efficiency (lower transport costs, labor costs, etc.) until it smothered industrial production and put the companies in the sector out of business. (Evaporation phase)

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The Evaporated Society

All of this happened seventy-five years ago, and at the time it was an anomaly: back then, most industries were still being replaced by other industries. But today it’s the norm. Ice traveled the road that almost all technologies now follow before anyone else, and that’s why it’s so useful for understanding what’s coming: the evaporation of the economy through technological diffusion has become the defining characteristic of our time.

• For example, in the field of energy: wood was the harvested energy source (pre-industrial). The international coal trade was the equivalent of Norwegian ice — a raw material (British-industrial). Oil is the industrial phase of energy (Fordist or American-industrial). And photovoltaic solar is, like refrigerators, a technology you can install at home (diffuse or distributed). That’s why energy prices, like ice prices before them, are falling. It sounds like an outrageous claim — but we should expect that within a very short time, there will no longer be an economic sector dedicated to energy, just as there is no longer one dedicated to ice.

• Another example: the media. Oral transmission was the equivalent of harvested ice — the most basic and elementary way of collecting information from your environment (pre-industrial phase). Newspapers first, then television and radio, were the industrial version of information (industrial phase). The internet — including social media, Substack, Reddit, and all the user-generated content — is to the information economy what home freezers were to the ice industry (evaporation).

• And one final example from a sector now beginning to follow the same path: for thousands of years, humanity obtained food from nature, farming minimally and hunting when possible (pre-industrial). Industrial agriculture and livestock farming were the equivalent of ice factories — an organized form of producing food (industrial). But in recent years, a technology called “precision fermentation” has been developing, and it too is the equivalent of the domestic refrigerator (evaporation). This technology makes it possible to manufacture proteins using microorganisms programmed for that purpose. When it becomes universal, it will be possible to make food at home the way one can already make beer or yogurt.

• Although it’s somewhat less obvious and requires a little more abstraction, this same process of evaporation is what has affected retail commerce, banking, travel agencies, fabric shops, and stationery stores. These businesses, more than distributing the goods they sold, were really sustaining the sector’s knowledge and transferring it from manufacturer to buyer along the entire distribution chain. To buy a washing machine, or take out a mortgage, an ordinary person needed the advice and administration of a specialist. In the industrial phase, that expert was the shop assistant or the bank advisor. But with evaporation, those roles are replaced by universal access to information on the internet, which allows people to make informed decisions without needing the industry, in the same way that a fridge lets you make ice.

• We can even extend this analogy to explain the revolution AI would produce, if it succeeds. Knowledge itself didn’t exist as a commodity until the industrial era. A person could only collect whatever was available in their environment. With the industrial era, an entire apparatus emerged dedicated to turning knowledge into a sellable product: books, magazines, and manuals. AI proposes to destroy all those industries by applying the same mechanism: evaporation — extending to every individual the possibility of having all stored knowledge at their fingertips.

Evaporation — more or less accelerated — is today affecting all technologies and all sectors of industrial activity. And with every step it advances, a piece of the economy retreats. This is how we have spent most of the last twenty-five years under powerful deflationary pressures, with productivity stagnating and financial bubbles following one after another.

This is also the cause of what economists call “the productivity puzzle.” When a technology withdraws the satisfaction of a need from the market, the aggregate productivity of the economy suffers. And this phenomenon — combined with our inability to understand it — is the reason wages are stagnant in the West, the reason wealth and power concentrate in Silicon Valley, and the reason we face a major political crisis everywhere.

We are — or rather, those who managed to participate in that industrial and manufacturing system, which I myself arrived too late for, are — the last ice merchants. The last iteration of society that will live by exchanging products. We are sitting on a geological fault line, in the collision between two tectonic plates that are blowing apart the economy we knew, with enormous consequences.

The Reasons for Evaporation

The political and economic establishment, which refuses to look this process in the face, insists that the productivity revolution is just around the corner — it just needs time to materialize. It’s a “lag,” they say, because every transformative technology takes decades to translate into growth. Others point to this being a phenomenon tied to digital technology or to the internet. And in general, everyone wants to trust that at some point, a technology “of the old kind” will come along and put us back on the path of growth. That’s why the establishment has entrusted itself to the god of AI to deliver a fourth industrial revolution that will pull us out of this civilizational impasse.

But this isn’t going to happen. Because what has changed the tide of history isn’t any particular technology — or even many technologies. It is society itself that has transformed, and it no longer produces the conditions necessary for technology to translate into economic growth.

This is counterintuitive, because our vision of the economy is deeply productivist — it assumes that producing is what drives growth. But here’s the thing: the economy is exchanges. And what human beings exchange is knowledge. If, throughout the thousands of years we have existed as a species, there was practically no commerce until the Industrial Revolution, it’s because in that pre-industrial phase, the knowledge was universal and couldn’t be exchanged — it was abundant.

The sustained and extraordinary productivity growth of the industrial era, along with that “creative destruction” of the economy, emanated from a historical anomaly. For two hundred years, there was a unique moment in which knowledge could be monopolized. Only some companies and some countries possessed the knowledge needed to produce certain goods, and they could trade in them exclusively. The industrial economy was an enormous mechanism for buying and selling restricted knowledge.

But if that knowledge was scarce during those two centuries, it wasn’t because of any administrative lock, nor because of its nature, but for a very deep social reason: there were not enough people in the world capable of transmitting and administering it. The Industrial Revolution happened because, in just a few years, in a handful of very specific Western countries, all the knowledge accumulated through the Scientific Revolution crystallized rapidly into a series of applications. And it remained restricted to the elites of those countries for the following centuries — the only ones with sufficient numbers of engineers and administrators to put it to use.

But at the end of the twentieth century, when the entire world set out to create the first generation of university graduates in the history of humanity — the people I call the “hijos del optimismo” (children of optimism) — that two-century-old monopoly broke apart, and with it, the industrial economy.

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This Is NOT an Advertisement

I have written a book about all of this. And I’m aware that when I keep urging you to buy it, it can sound like a commercial break. But it isn’t. I have been an entrepreneur for thirteen years. In that time I’ve done many things to make money, and I can assure you that writing books is not one of them.

Books are a terrible business. They require an enormous amount of work — this one in particular, which has taken me years — and the author receives a pittance in return. They don’t pay off for almost any author; but for me, with the high opportunity cost of writing meaning I have to stop doing things that actually are profitable, a book is a straightforward financial loss. I lose money giving it even minimal attention.

The reason I insist so much that you read Hijos del optimismo (children of optimism) is not what I earn from it. It’s because it contains the most ordered, most complete, and most useful explanation I’ve been able to create of everything I write about here. And because I genuinely believe it is an indispensable map for understanding the present — one that can change the life of whoever reads it.

So if what I write here interests you, and you trust my judgment: take my word for it and buy it.

Since then, all technologies are born already evaporated — diffuse, distributed, in many hands at once. Since the children of optimism arrived, technology no longer passes through those two industrial phases that created many factories and many jobs, because it cannot be monopolized.

The evaporation of the economy is the great economic transformation of our time:

If OpenAI had been founded in 1995 — the year Google was founded — it would be another Google today. Because it would have enjoyed a monopoly over its technology that it cannot have now. And it cannot have it now because today there are hundreds of millions of software engineers capable of building a chatbot, whereas in 1996 there were very few.

Conversely, if Google’s search technology were invented today, Google would never have existed: because there would have been millions of different search engines within just a few months, and Google would never have been able to consolidate the search monopoly that built its dominant position and customer base.

The same is true of Facebook, Twitter, and Airbnb. None of these companies possesses a technology that everyone else doesn’t also have. What they had, at a specific moment in time, was the opportunity to achieve a monopolistic position — because there weren’t enough engineers capable of competing with them, or financiers willing to embark on that kind of venture. And so, by the time potential competition could react, the so-called network effects had already turned them into monopolies. And that was an insurmountable barrier.

All of this applies to physical goods too. If drones had been invented in 1900, like cars, there would have been a “Ford” of drones that would have monopolized the technology and produced the illusion of productivity for whatever country it called home.

But in the 2010s, drones were born already commoditized — the technology is universal — and today they are manufactured anywhere, sold for next to nothing, and even a country devastated by war like Ukraine can build its own drone industry from scratch.

And the reverse is equally true. If the car and all the other innovations of the Industrial Revolution had been invented in 2020, Ford and Bell Labs would never have existed. The same thing would have happened as with drones: hundreds of companies would have rushed to copy each other and would have collapsed prices within months. This, precisely, is what is happening with electric cars today.

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The Earthquake

I have the unfortunate habit of saying very momentous things without giving them sufficient weight. I’ll try not to make that mistake this time. What I am saying here — and what I believe I am demonstrating with solid arguments — is that the industrial economy we knew, which was not merely the way we satisfied our needs but the way we organized the distribution of status, participation, and power in society, is dying. It is ceasing to exist. It is evaporating. It is degrowning.

And we have nothing to replace it with. So its structures — increasingly fragile, but still propped up by iron cultural agreements — are producing monsters: grotesque figures like Donald Trump, Elon Musk, or Sam Altman.

In the coming years, alongside the explosion of the AI bubble, we can expect structural deflation as evaporation pushes one sector after another toward minimum cost. We are already seeing this in many countries in the impact of falling electricity prices.

Until we do something about it, we will continue to observe an extreme concentration of wealth — because the Plutonomy, that vaporous sphere of activity in which people satisfy their needs today, cannot be invested in. Capital that was supposed to be “productive” has nowhere to go and has launched itself into rent extraction in real estate, in large supply contracts, and anywhere it can obtain a guaranteed return. The returns devoted to satisfying that capital, despite nominally contributing to GDP growth, produce no new value: they invent no new products, no new services. They only contribute to a spiral of accumulation very similar to the one that existed before capitalism.

As if that weren’t enough, we are also facing a measurement crisis — and with it, a crisis of economic policy. The instruments that measure economic reality, like GDP, do not capture the value produced outside the market. They fail to notice that the most important human activity of the twenty-first century no longer takes place in the economy. So governments are navigating with instruments that measure a shrinking world — making decisions about an economy that is ever smaller on paper, while the real activity shifts to a place their numbers cannot see.

In people’s lives, this manifests most painfully in the hollowing out of the meaning of paid work. We had convinced ourselves that we would go into the world of work to find identity, status, and meaning — but when needs are satisfied in the private, uncompensated sphere of Plutonomy, and industries die, jobs evaporate too, without replacement. This produces the wage stagnation we have observed over the past thirty years — but not only that. Something more. There are fewer and fewer jobs in which one can contribute to society the way one can contribute in Plutonomy. So many people find themselves trapped between working and contributing. Between continuing to play a role in the productive system, knowing it is a fiction, or doing something of genuine value in Plutonomy, but in deeply precarious conditions.

What underlies all of this is a profound crisis around the value of human beings. In this era of abundance — in which we are capable of producing more of everything — the question we don’t know how to answer is: if work is no longer needed, what will make us worthy of others’ recognition? How do we organize society in a time of abundance? How do you structure a world made of water vapor?

And yet, what an exciting time. What an opportunity! As I never tire of repeating: this is not a crisis of society. On the contrary — we are capable of producing more and more, communicating better and better; we are wiser than ever and have more tools than ever to move forward. What we are navigating is a crisis of the form in which we organize ourselves in this new time. But everything remains to be built, and fewer and fewer things bind us to death or pain.

John Maynard Keynes — who was a giant — saw it coming with a clairvoyance that is almost frightening. It was a hundred years ago, at a conference in Madrid, in the aftermath of the 1929 crash:

I draw the conclusion that, assuming no important wars and no important increase in population, the economic problem may be solved, or be at least within sight of solution, within a hundred years. This means that the economic problem is not — if we look into the future — the permanent problem of the human race.

Why, you may ask, is this so startling? It is startling because — if, instead of looking into the future, we look into the past — we find that the economic problem, the struggle for subsistence, has always hitherto been the primary, most pressing problem of the human race — not only of the human race, but of the whole of the biological kingdom from the beginnings of life in its most primitive forms. Thus we have been expressly evolved by nature — with all our impulses and deepest instincts — for the purpose of solving the economic problem. If the economic problem is solved, mankind will be deprived of its traditional purpose.

Will this be a benefit? If one believes at all in the real values of life, the prospect at least opens up the possibility of benefit. And yet I think with dread of the readjustment of the habits and instincts of the ordinary man, bred into him for countless generations, which he may be asked to discard within a few decades.

Perhaps the strenuous purposeful money-makers may carry all of us along with them into the lap of economic abundance. But it will be those peoples who can keep alive, and cultivate into a fuller perfection, the art of life itself, and who will not sell themselves for the means of life, who will be able to enjoy the abundance when it comes.

And that is what the twenty-first century is about. Enjoying the abundance that has arrived.

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Unless you’ve been living under a rock, you can’t have missed the fact that on Friday, a company whose stated purpose is to “make humanity a multiplanetary species” made its stock market debut. SpaceX — Elon Musk’s rocket company, which in twenty-odd years of existence has never turned a profit — claimed to be worth $1.7 trillion, and a lot of people apparently thought that sounded about right. By the close of trading, its share price had gained 19%, pushing its valuation past 2 trillion dollars.

If you’re someone who thinks that valuation is justified, I’m afraid this piece isn’t for you. But if you share my sense that this is absurd, and that the reality we live in is becoming an increasingly dysfunctional and incomprehensible charade, stay with me. This newsletter exists to shed some light on all of this. It sets out to clarify, once and for all, why nothing happening in the markets makes sense, how we know this is a bubble, and why — and even when — it’s going to burst.

It starts with the story of homo bulla.

Here we go!

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:: (Hijos del optimismo) Children of Optimism ::

Bubbles are, by no means, confined to the economy. Quite the opposite: they’re everywhere. Take this example: the women in the audience will know exactly what it’s like to have a crush. There’s this person who one day catches your eye a little, and before long you’re obsessed, and before you know it, you’ve spent six months imagining an entire relationship: twenty-five different versions of your first kiss, every place he was going to take you, how you were going to grow old together. And he doesn’t even know your last name yet. If, by some miracle, you do end up with that person, and they turn out to be an actual human being instead of the one you’d invented, the romantic bubble you’d built for yourself bursts.

The “midlife crisis” — at forty, or fifty, soon it’ll be sixty — is also the bursting of a bubble: the bubble of the promises we made ourselves and never quite kept. Bubbles are such a recurring feature of human experience that we even have a fable for them: the story of the milkmaid and Her Pail.

Instead of sapiens, they should have named us homo bulla. Because while biology, zoology, and ethology constantly remind us that there’s almost nothing in human beings that isn’t present somewhere else in the animal kingdom, this business of building bubbles really does seem to be ours alone: we are the only species capable of imagining different futures — and building them. We can not only anticipate what will happen tomorrow, but we are aware that whatever we want to happen could happen.

Bubbles are a curious phenomenon that occurs when our imagination accelerates to the point where reality can no longer keep up with it. Sooner or later, there’s no way around it: we have to admit we’d been dreaming of something impossible. And then they burst.

Contemporary Westerners have made that capacity to dream of the future the engine of our civilization: where other cultures placed God, we placed progress. And then we filled it with a whole set of institutions — debt, savings, investment, the “career” — that let us create a kind of mental continuity, as if the present and the future existed on the same plane of reality. Of all of these, the stock market is the most ambitious: the place where an entire civilization gathers to imagine its future and put a price on it, today.

It wasn’t always this way. Originally, stock markets were a solution for financing projects that exceeded the economic capacity of any individual. But over time they lost part of that function and gained another: they became the place where more and more people go to bet on the companies they believe will do well in the future — or, put another way, to bet on a vision of the future itself. Stock markets are markets for expectations.

The way it happens to women with a crush, markets get a certain license to dream — for a while. They can believe a company will do better than it actually will, and hold onto that belief with their backs turned to reality. But no dream lasts forever. Sooner or later, the account has to be settled between what we’d imagined and what actually happens. Ray Dalio, founder of the world’s largest hedge fund, put it this way the other day:

It’s important to distinguish between wealth and money. Wealth can be created very easily, like this: you say, “[to fund a company] I’m going to raise $50 million at a $1 billion valuation.” And now you have a billion-dollar company. But wealth can’t be spent. You need to sell that wealth to get money, because money is the only thing you can actually spend. So when there’s a lot of wealth relative to the amount of money that exists, there’s a vulnerability — and bubbles burst when that wealth needs to be converted into money.

Often that happens because of debt, but it can be triggered by anything. It could be a tax. Imagine a wealth tax is introduced: people holding assets are going to have to sell part of them to pay it.

That’s how financial bubbles burst. It’s one of the most well-documented patterns in economic history: the accumulation of paper wealth that eventually collides with the reality of money. It happened with tulips in seventeenth-century Holland, when a single flower could be worth the equivalent of a house in Amsterdam before the market collapsed; it happened with South Sea Company shares in 1720; with British railways in 1840; and in the 1929 crash.

In the twenty-first century, it has happened four times. And what we’re going to see today is that those four explosions were not, in fact, four separate bubbles. They were aftershocks of the same earthquake — one that has been shaking society for twenty-five years and is about to unleash its final — great — tremor.

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This lightning never ceases nor exhausts itself:
from myself it took its origin,
and within myself it exercises its fury.

Miguel Hernández, El rayo que no cesa.
[translated from the original Spanish below]

Este rayo ni cesa ni se agota:
de mí mismo tomó su procedencia
y ejercita en mí mismo sus furores.

Miguel Hernández, El rayo que no cesa.

The Four Explosions

2000: The Dot-Com Bubble

After a few glorious decades, by the 1990s there wasn’t much left to do in the West. Millions of homes had been built, hundreds of thousands of kilometers of roads paved. New railway lines, hospitals, schools, and universities had gone up. Garages were full of cars, homes full of appliances. Industrial capitalism had run out of territory to conquer and was showing clear signs of exhaustion.

In search of a new frontier, the idea of the “information society” was born — a world in which knowledge would flow along information highways, e-commerce would multiply exchanges, and biotechnology would transform life. These were the years when world leaders like Al Gore and Tony Blair traveled the international circuit announcing the birth of a digital Globe in which we would all live interconnected lives, and the arrival of the first e-generation. The Euro was sailing smoothly, the Wall had just come down, and expectations of progress were immense. It was the end of history.

With no clearer picture of what that virtual world might actually look like, the one thing that did seem absolutely certain was that the internet was going to make money. A lot of money. That expectation inflated an enormous bubble in which hardware manufacturers’ shares soared. At the same time, a fever ignited around companies positioning themselves to dominate the coming e-commerce frontier. Any company could send its stock soaring just by sticking “.com” onto its name.

Until the day reality caught up with expectations. So much fiber-optic cable had been laid that, four years after the crash, 85% of it was still “dark” — with no traffic to carry. Those were, without question, real highways. But there was no traffic on them!

The bubble burst in March 2000. The Nasdaq — where almost all the tech companies were listed — began to fall after having multiplied fivefold in five years. The index lost roughly three quarters of its value over the following two and a half years. It wouldn’t recover that peak for another fifteen years. Trillions of dollars in wealth, which had only ever existed as expectation, simply ceased to exist.

Meanwhile, the real economy had barely moved. What collapsed was the story society had been telling itself about the future.

2008: The Mortgage Bubble

When the dot-com bubble burst, the Federal Reserve’s instinct was to try to prevent the contagion from spreading to the real economy. To avoid a credit crunch, it did something we would see repeated many times afterward: it cut interest rates and flooded the world with cheap money.

What the FED could not provide was a destination for all that money which, without the technological dream of Silicon Valley, had nowhere to be invested. That is how it ended up in the property market.

Investors weren’t the only ones the dot-com crash left orphaned. Without the prophecy of the knowledge society, politics had also been left with nothing to sell. So some leaders — Bush, or Aznar in Spain — saw in housing an opportunity to have a project to offer their countries again. In 2003, George W. Bush signed the American Dream Downpayment Act and pledged to use his administration to help more families become homeowners. It was, he said, “a good time to be a homeowner in America,” because low interest rates had made housing more affordable, and new home construction had just reached its highest level in nearly twenty years. If technology wasn’t going to bring a new world, the construction companies would build one out of bricks.

And for a while, it worked. The homeownership rate hit a record close to 70%. But to keep the party going, the financial system kept loosening up, and soon there were zero-down mortgages, mortgages with no payments for the first two years, and finally mortgages granted on nothing more than the applicant’s word. As with every bubble, it seemed to have no ceiling.

Of course it did. By the time everything blew up, home prices had already been falling for two years. Interest rates had risen, and with them the payments on adjustable-rate mortgages. Many homeowners couldn’t keep up. Since they owed more than their homes were worth, they couldn’t sell or refinance either. The result was an avalanche: four million homes were foreclosed in the United States over four years. In October 2008 alone, nearly 85,000 people lost their homes.

Unlike the dot-com bubble, this wasn’t just a market bubble. The whole of society had bought into the expectation of rising home values. So when it burst, instead of a tech index, it took down the entire international financial system. Banks found themselves buried under a mountain of insolvent loans and toxic products and stopped lending to businesses to avoid going under themselves. The world economy ground to a halt, its enormous gears screeching, while a stunned population looked on.

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2019: The Unicorn Bubble

2008 wasn’t followed by another round of economic stimulus. For years, the watchword was austerity. This happened because, at the moment of the crash, the election campaign that would carry Barack Obama to the presidency was already underway. With just weeks to go before the vote, the Democratic candidate had no incentive to experiment with the economy. What followed was one of those rare moments of agreement across the entire political spectrum, crystallized by Obama in a single phrase: we had “lived beyond our means.” It was time to tighten our belts.

Years of cuts followed. Bankruptcies. Even entire countries went under. But while most of us were drowning in blood, sweat, and tears, in Silicon Valley, a portion of the capital that had once again been left without a purpose found somewhere new to play.

These were the unicorn years: companies like Uber, Airbnb, and WeWork reached valuations above a billion dollars by promising to put “co-” in front of everything: coworking, coliving, co-sharing. The Valley filled up with startups promising to “change the world” — and, crucially, with investors who had nowhere else to put their money and were chasing extraordinary returns wherever they could find them.

This new phase of the bubble brought two major innovations. First, for the first time, the story coming out of Wall Street and Silicon Valley wasn’t built on a new promise of growth for everyone — quite the opposite. In keeping with the spirit of the times, the plan was to make everything cheaper through collaboration and technology. The goal wasn’t growth, but efficiency. And to achieve it, traditional businesses were going to disappear, replaced by companies headquartered in the Valley. It was the first time Silicon Valley experimented with the idea that its fate wasn’t tied to that of the rest of humanity. They could come out ahead even — or perhaps especially — if the rest of the world lost.

The other great innovation of this bubble was a shift in investors’ risk tolerance. These unicorns were hard, almost impossible, to find. You had to go looking for them in a haystack of nerds, each one proclaiming their own little revolution. How could you know whether it would be the bike-sharing app or the micropayments startup that would make it? Investment, traditionally more conservative, started chasing promises of 100% or 1,000% returns large enough to offset the losses expected from all the startups that wouldn’t pan out. The idea was that enormous risk had to be assumed, so the companies that did succeed had to be extraordinary. Hence the name “unicorns”: mythical creatures with absurd growth.

During those years, the names that have since become household names began clustering together in the Valley: Mark Zuckerberg, Elon Musk, Peter Thiel, Marc Andreessen, Sam Altman and Dario Amodei, Jack Dorsey, Sam Bankman-Fried, Jensen Huang, Reid Hoffman, Vitalik Buterin, Sergey Brin, and Larry Page shared the same social and cultural substrate for years.

Beyond money and technology, they began to be united by an almost religious conviction that they were destined for a higher purpose. They were building the future, and the rest of the world simply belonged to an inferior class incapable of understanding it. That faith found its catechism, among other things, in the quasi-religion of effective altruism and in belief in the singularity: the idea that artificial intelligence would eventually surpass the human mind and trigger a technological change so radical and so fast that history, as we know it, would simply stop making sense. Was it a philosophy? Or is it a cult?

The unicorn bubble burst quietly: most of these companies never went public and simply dissolved in silence. The final death rattle came from WeWork in 2019 — a company that promised to turn office space into a software business (don’t ask me how, I no longer remember) and which failed spectacularly in its attempted IPO when it was discovered it had no viable plan to ever turn a profit. But that same year Airbnb and a few others went public, and, one way or another, the Valley managed to cover up its embarrassment.

2022: The COVID Bubble

WeWork collapsed in October 2019. By March 2020, Silicon Valley had been saved again — this time by the COVID lockdowns.

A new story took shape at the speed of light: we would live online. Digital companies would be the new real estate, and — once again — nothing would ever be the same. Valuations skyrocketed. Zoom went from being a video-calling tool to becoming the symbol of a new era. Peloton promised to reinvent the gym. Netflix, Amazon, Microsoft, and DocuSign seemed to have found a direct highway to the future. The pandemic, it was said, had fast-forwarded the digitalization of the world by ten years, and that change would be permanent.

As with the previous bubbles, this story was able to sustain a bubble for a while. The problem was that, as a civilizational promise, living life in front of a screen attending concerts over Zoom never quite seduced anyone. So it didn’t last long, and the little COVID bubble burst in May 2022 with another market crash — one that didn’t quite sweep everything away or spread into the broader economy, but wasn’t minor either.

Tech companies lost almost everything they had gained. Above all, it became clear that no further revolution was coming for digital economy companies. Google, Facebook, and the rest of Big Tech were no longer young upstarts destined to conquer virgin territory, but established giants managing rather aging empires. They were still extraordinary companies — but the exponential growth of their early years would not return, not even if the world turned upside down. Something else had to be invented.

The Bubble Factory

Seven months later, in December 2022, Sam Altman launched the first version of ChatGPT — the one that left us all speechless. By then, a great deal had changed.

The previous bubbles had burst, but they left behind an inheritance: an extraordinary concentration of investment expertise and engineers in Silicon Valley — that sitcom-like world where everyone knows everyone, has invested in the same companies, and convinces each other of things. In that environment, Altman, Musk, Amodei & co. had learned two things essential for their next adventure: how to behave like messianic leaders, and how to find people willing to finance the sect. They had built, as literally as possible, a bubble factory.

During those years, Altman had run Y Combinator, the Valley’s most important incubator. Its specialty was a particular type of company — ones capable of raising hundreds of millions of dollars in capital without ever having earned a single one. They were, quite literally, bubble companies. By then, the Valley’s business model had transformed: it was no longer about building companies that would change the world — that came later, for whichever ones survived long enough to go public. The actual activity was manufacturing bubbles: companies that absorbed investors’ money and could be passed from hand to hand long enough for everyone involved to make money off them.

That’s where Altman discovered the trick: the more revolutionary the technology you promised, the more capital you could raise without delivering concrete results. The bigger and harder the transformation, the bigger the bubble you could inflate. So he specialized in hard tech — nuclear fusion, quantum computing, synthetic biology — anything where the promise wasn’t an incremental improvement but a revolution.

And with ChatGPT, in 2022, Altman held in his hands the biggest promise of them all — a dream that has accompanied humanity since the texts of the Talmud, an idea that fills us with fascination and terror in equal measure: artificial intelligence.

And just as in 2000 and 2008, politics let itself be seduced by the sirens’ song.

By 2022, Joe Biden had spent years trying to reverse American deindustrialisation with massive investments. Nothing seemed to work. White working-class voters in the Midwest — the demographic that decides American elections — still weren’t seeing the change. Meanwhile, China was threatening industry after industry across the West with a determination no Western government knew how to counter. Governments embraced Altman’s thesis as if it were manna from heaven. Artificial intelligence! At last, the technology we’d been waiting twenty-five years for had arrived. Now, surely, we could trust that productivity would reignite and the world would return to the path of progress. This would be the technology that restored United States— and the West’s — global leadership.

The Great Tremor: The AI Superbubble

That is how the great tremor was forged: the latest, final turn of the screw on a bubble that has been brewing for twenty-five years. Just as it had in the 1990s, it was a pact of convenience between the Western political class and the technological and financial elites of Silicon Valley and Wall Street.

Every element rehearsed over the years made its appearance: the belief that Silicon Valley must lead humanity, even against its will; the appetite for risk and runaway expectations; the same dense network of acquaintances from twenty-five years back; the ambition never to actually deliver on a technology’s promises, so that it can keep existing as a bubble; and the messianic ideas of the singularity.

With that expectation-generating machine running, Altman, Amodei, Huang, and the rest of the AI evangelists built the largest bubble ever created. At breakneck speed, and often simultaneously, they promised the end of scarcity, the cure for cancer, the disappearance of work, total war, and even an artificial general intelligence that would wipe out the human species.

But three and a half years have passed, and none of this has come to pass. There has been no fourth industrial revolution. Employment figures show no impact from AI, nor do productivity figures. Some people still insist all of this is just around the corner, but there are fewer of them every day, and they speak more quietly.

Meanwhile, cracks have begun appearing all over the AI bubble. More and more voices are pointing out that the industry’s numbers are “impossible”, that companies aren’t finding any return on their investment, or that it's wise to hedge against what's coming, because there’s an obvious bubble about to burst.

And the problem is that, unlike the previous explosions, there’s nothing left after this one. Silicon Valley has overshot. They turned AI into a superlative, and there’s nothing bigger left to imagine. For the first time in twenty-five years, this bubble cannot burst and simply make way for another. If it explodes — and it will — it will mark the end of the Valley’s era. Perhaps Wall Street’s too. The only alternative on a comparable scale — one some are already exploring — is quantum computing, but it has a fatal flaw when it comes to manufacturing bubbles: it can be measured. It will become real the day someone actually builds it, and not a minute before. AI, by contrast, had the wonderful quality of letting you claim that what hadn’t happened yet was just about to.

This is how Silicon Valley and Wall Street became addicted to the bubble they themselves inflated: they can no longer exist outside it. It is, perhaps, the total bubble — the bubble of American leadership itself.

These days we’re living through the acute phase. The point of no return. Last week’s SpaceX IPO is the peak. The outlandish valuation, the sheer excess of pricing the company as if we could simply assume it will conquer Mars, the fact that nobody is even waiting for its economic fundamentals to line up with its share price — all of this will be remembered in twenty years the way we remember pets.com today: the pet food store that went public in 2000, spent millions on ads, and vanished nine months later, the perfect symbol of dot-com euphoria.

The Bubble That Never Stops

When I say I’m convinced we’re living inside a bubble that’s going to burst, people often praise my “courage.” How bold of me to make predictions! But there’s nothing of the sort. I’m not even really predicting anything. All I’m doing is studying the past and observing the present. That exercise alone is enough to show that the four bubble bursts of the twenty-first century aren’t isolated events — they’re manifestations of the same underlying cataclysm.

As if we were living on a geological fault line, we can trace, across the twenty-first century, two tectonic plates pushing against each other, producing these tremors from time to time. One is the runaway growth of capital. The other is the inability of industry — Silicon Valley in particular — to find anywhere for it to go.

The first of those plates is the growth of capital. In the second half of the twentieth century, saving became a mantra: life expectancy was rising rapidly, and retirement was becoming the foremost problem facing Western societies. States understood that people needed to take at least partial responsibility for their own retirement. In countries like Germany, saving became the primary way of contributing to society. Along the way, something extraordinary happened: for the first time in history, even the poor began to accumulate wealth.

But idle money loses value. For it to arrive intact at retirement, it has to be invested. That’s how private funds, pension plans, and the idea of housing as investment were born. Societies committed themselves, body and soul, to the notion that money, on its own, ought to produce more money.

And that is the question every bubble of this century has tried to answer: where to put such a mountain of capital so that it generates returns. An industry big enough to absorb it was needed.

Every time a bubble burst — or a crisis like COVID threatened to stop the wheel — governments responded the same way: with quantitative easing, monetary stimulus, and cheap credit to keep the party going. So, throughout the twenty-first century, every time industry failed to find a destination for capital, a bailout followed, injecting even more money in search of returns.

The result is that global wealth — including housing, savings, pension funds, and stock markets — has multiplied sixfold over the past twenty-five years, while the economy grew at half that rate.

Couldn’t it be that this time it’s different — that AI will finally deliver the productivity revolution that gives all that investment somewhere to go? I don’t think so. I explain this in more detail in another piece, but here’s the short version:

The reason technology produced an “industrial economy” throughout the twentieth century is that the knowledge needed to produce things was monopolized by a handful of countries and companies. Some countries could sell that knowledge, packaged as products and services, to the rest of the world. But when the expansion of universities became universal at the end of the twentieth century, that monopoly collapsed. Since then, the industrial economy we knew has been dying.

And none of this has anything to do with whether the technology actually works or not. The story of the last twenty-five years is one of an endless succession of extraordinary technologies — the internet, email, GPS, the web, blockchain, social media, and a list that never ends — none of which produced an industrial revolution. What we need to look at isn’t whether the technology works, but the fact that no technology, however well it works, can recreate the monopoly capitalism needed in order to find somewhere to invest.

The 1929 Crash

It’s often said that this AI bubble resembles the dot-com bubble of 2000. But that was the beginning of something. What we’re witnessing today, I believe, is an ending. This whole twenty-five-year process has far more in common with what happened in 1929.

In the early decades of the twentieth century, the mechanization of agriculture and the arrival of fertilizers were multiplying food production capacity and drastically reducing the labor needed on farms. The effect would have been obvious well before 1929, if it hadn’t been for the fact that during the First World War, American farmers had to multiply their output to feed Europe.

But when the war ended, they kept producing at the same pace, with nobody seemingly worried about who was going to buy all that grain. The result was inevitable: agricultural prices collapsed throughout the 1920s, farmers went into debt to survive, and rural wages hit rock bottom. It was an enormous crisis affecting millions of people — but it happened slowly, and out in the countryside, far from Wall Street, so Wall Street looked the other way. Until, in October 1929, it no longer could. The stock market crashed and produced the largest recession known until then.

Something similar is happening today, a century later, with industry occupying the place agriculture occupied back then. We have reached the end of the industrial era the way 1929 marked the end of the agricultural era, and for the same reasons: the spread of the knowledge needed to manufacture things has broken the monopoly developed countries held a few decades ago. Today we can produce infinitely more, with far fewer people. That abundance has crashed the prices of the industrial economy.

Just as in 1929, the jobs that sustained the middle class throughout the twentieth century are disappearing, wages have stagnated, and entire regions — the American Midwest, the north of England, much of inland Europe — have been left behind, with nobody quite sure what to offer them instead.

The difference is that, this time, the debt is being carried by countries rather than households. That’s why public debt is soaring everywhere in the world. But the underlying phenomenon is essentially the same.

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Reasons — Always! — for Optimism

As happened in 1929, when this bubble bursts, what we’ll face won’t just be an economic crisis — it will be an enormous existential one. Millions of people who had found their place in the world through work won’t know what to do, just as the armies of farmers in the 1930s had to move to cities and start entirely new lives.

It will be a time of considerable fear, as change always brings. But if we can see it coming, if we can understand it, if we can grasp that this isn’t a crisis of life itself but a necessary stage we must pass through on the way to a better future for humanity, then we can seize every opportunity this new era offers.

We are the children of optimism (Los Hijos del optimismo). And we have nothing to fear

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You are probably not one of those people who follow what happens in the stock markets. No judgment :p. But I think this week it’s worth paying attention. We are approaching the end of a cycle that is going to change everyone’s lives — for better or for worse — and its consequences are going to make themselves felt in the months ahead.

Take a look at this image:

This is the S&P 500 — the index that brings together the 500 most important companies in the United States. As you can see, until 2020 it had been growing at a more or less steady pace: in twenty years it hadn’t even managed to double its value. But since March 2020, something has happened that has been pushing it upward — its value has tripled in five years.

This phenomenon, visible across all Western stock markets, has a fairly obvious cause: the great economic narrative of our time holds that an anticipated “AI revolution,” driven by a handful of listed companies, will come along and transform everything. The rise of inequality, the concentration of power in a handful of tech billionaires, and even the fuel feeding Trumpism are all the fine print of that same story.

The consequence: after this revaluation, those markets are today worth, collectively, nearly $100 trillion — as much as all the housing stock in the United States and Europe combined, and 15% of all the wealth in the world.

A tremor shook that pile of money this week. On Friday, Wall Street had its worst day since October: the S&P 500 fell 2.6% and closed at those same 7,383.74 points you see in the image. But the hardest blow fell on technology. The Nasdaq — home to the big tech companies — plunged 4.2% in its largest single-day drop in a year. At the epicenter of the earthquake, the companies that manufacture AI hardware — the beating heart of the artificial intelligence bubble — shed as much as 10% in a single session.

This is the first of a series of events that, in the coming weeks, will precipitate the resolution of this bubble and this narrative — in one direction or another, for better or for worse. That is why, and because there will clearly be a great deal of news on these subjects, it is worth understanding what is happening in the markets.

Buckle up! here we go!

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All the Horsemen of the Apocalypse

Like the program notes for an opera, let’s start by describing the characters. There are five types:

The LLMers: OpenAI (ChatGPT) and Anthropic (Claude) are the creators of the chatbots and AI models that have astonished the world.

The manufacturers: Nvidia, Broadcom, and AMD manufacture and sell the hardware installed in data centers to train and run those models.

The data centers: Oracle and CoreWeave build and rent out data centers — enormous facilities packed with hardware where it is all installed.

The giants: Google, Microsoft, Meta, Amazon, and SpaceX (owner of X) have the capacity to put this technology in the hands of customers — and charge for it. (Though these last are so large they are playing all four roles simultaneously: building their own chips, constructing their own data centers, and training their own models.)

The financiers: behind all of the above, in the shadows, are other characters putting up the money — the investors and the lenders.

So far, here are the characters who star in this story:

Act One: The Bubble’s Moment of Truth

This Friday, SpaceX — the space conglomerate that Elon Musk has been frantically trying to rebrand as an AI company — goes public. Three years after the launch of ChatGPT, the first major company in the sector floats at the highest valuation in history, comparable to the GDP of a Eurozone country: $1.8 trillion.

As one analyst on X explains after studying the documentation Musk filed with the regulator to justify that valuation, this operation is not quite what you’d expect:

“After eighteen images of rockets in space, we discover that the company’s mission is to ‘extend the light of consciousness to the stars.’ To achieve this, the company plans to advance humanity ‘to Type II status on the Kardashev scale,’ which the document defines as ‘a civilization that harnesses all the energy emitted by its local star.’ We’re only a few pages in and it’s already starting to feel like an ayahuasca trip.”

This is, self-evidently, not a business proposal. It is an incomprehensible chimera. A messianic cult. A — bad — science fiction novel. An absurdity.

A necessary one, however, because companies typically go public at a valuation equivalent to roughly six times their revenue — but SpaceX is claiming to be worth 97 times what it billed last year. It is madness; which is precisely why it requires all the imagination in the world to be even remotely plausible.

Beneath the surface, many observers — from the analysts at More Perfect Union, to those at the Financial Times — are saying that this is the first operation designed to allow the financiers who have put their money into AI over these years to cash out by offloading their shares, wrapped in this interstellar fairy tale, onto the small retail investors who have their savings in the stock market.

Anthropic Is Also Preparing Its IPO

SpaceX is only the first major operation in the sector. Anthropic — the frontrunner among the LLMers — has also filed its own paperwork this week to do the same, at another astronomical valuation: over $1 trillion. It won’t be in June — there isn’t time — but it is expected that, if nothing goes wrong, it will list in the first weeks after the summer. It looks as though it will get there ahead of OpenAI too, which announced twenty days ago that it would file its documentation but still hasn’t.

On top of that, some of the giants — including Google and Meta — have announced that in the coming months they will issue new shares to finance their data center investments. The moment of truth for AI companies has arrived, and everyone is a little on edge.

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Show me the Money

Here is the drama of our little operetta: at the very moment the main characters are preparing to hit their high note on the stock market, the AI bubble is starting to look like a zombie.

If last week the Financial Times described the LLMers’ numbers as “impossible,” this week the world’s third-largest consulting firm has once again confirmed something that is becoming increasingly obvious: companies are still not finding a return on this technology.

That sentiment was embodied a few days ago by the CEO of Uber, who admitted that no matter how many tokens his engineers consume, “that link — the one connecting that spending to products that are actually useful for customers — isn’t there yet.” He then did what many other companies are now doing: turned off the tap by capping token spending per employee per month. This is the end of “tokenmaxxing” — the practice that encouraged spending as much as possible. Token demand is expected to moderate in the coming months.

Perhaps as a consequence, two major investors have sounded the alarm in the past few hours. Ray Dalio, founder of the world’s largest hedge fund, has conceded the obvious — that there is a bubble that will eventually burst — while the Chief Investment Officer of Bank of America, famous for having coined the term “Magnificent Seven,” sent a note to clients a few days ago recommending they position themselves for a market crash.

After the euphoria of a couple of months ago around Claude Code, the shift in how AI is being perceived is very clear. As Tom Cruise demanded in Jerry Maguire: it’s time to show us where the money is in all of this.

Act Two: The Tremors

On Wednesday, something apparently innocuous happened. Broadcom — one of the manufacturers — reported another extraordinary set of results: billions in revenue and record growth. But there was a tiny catch buried in the accounts: the company did not raise its forecast for the rest of the year. It didn’t lower it — it remained enormous — it simply didn’t raise it. There was no “beat and raise,” in the market’s jargon, that ritual investors have grown dangerously accustomed to, in which each quarter AI companies not only beat expectations but promise even more for the next one.

But the market is as sensitive as I am in the week before my period. Faced with the first piece of news that didn’t quite land the way it wanted, it did exactly what I would have done in my situation: it burst into tears. Broadcom lost 20% of its market value in two days, dragging other manufacturers down with it.

Bad News: It Looks Like AI Isn’t Going to Take Your Job After All

The other bad news of the week wasn’t really bad news either. On Friday, the US employment figures for May were published. And the bad news — for the markets — was that they were far too good: 172,000 jobs had been created, against the 80,000 that had been expected.

That means two things. First, that the labor market is still standing: AI is not emptying offices of workers. But then it isn’t cutting costs, nor supercharging productivity, the way its evangelists promised. Second — and more immediately — with inflation still proving sticky, the Iran war ongoing, and employment this strong, the possibility of the Fed raising interest rates in the coming weeks is growing more solid.

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Terror in the Supermarkets.

These two apparently innocuous pieces of news — which in any other moment would have passed unnoticed — combined on Friday with the nerves unleashed by the SpaceX IPO and the growing sense that the AI bubble is ending to wipe out nearly a trillion dollars from the markets in a matter of hours. And the most striking thing was that nobody even seemed surprised, because the trend of recent months had been one of complete schizophrenia.

Bitcoin, which in October was approaching $126,000, is today trading at less than half that. Gold — which had been setting record after record — did the unthinkable for a safe-haven asset and started falling precisely at the moment of greatest fear. US debt yields have been at century highs for weeks, and on the other side of the world, the South Korean stock market has become the most extreme spectacle of all: after surging 109% in barely six months, it suffered a crash this week severe enough to trigger an automatic trading halt. The feeling is that nobody is at the wheel, or that every investor is pulling in a different direction — as if money, frightened, no longer knows where to hide.

Comparisons with the peak before the dot-com crash have been the theme of the week, and beneath the apparent acceleration of the markets lies fear: terror in the supermarkets.

Rotation or Stampede?

There are two ways to rationalize all of this. The first — if you believe the LLMers’ valuations make sense — is that investors are divesting from less profitable things to get into SpaceX this Friday, and that the IPO will be a success. This is what the jargon calls “asset rotation.”

The other is that the major financial players are growing increasingly convinced that the bubble will burst very soon, and are abandoning the positions they see as most at risk — starting with the hardware manufacturers.

The End of Trump

On the horizon: the “midterms”. The elections that every two years renew half of the American Congress and Senate. They are in November, and they are shaping up as a financial cliff edge — because the markets’ bull run in recent months has been driven in large part by Donald Trump turning every week into a succession of promises and headlines designed to keep the rally going.

This very weekend — spooked, no doubt, by what happened on Friday — he has made one of those announcements we’ve grown accustomed to: the United States is considering investing in the LLMers, and perhaps in the manufacturers too.

This statement is almost like a preemptive bailout announcement — a guarantee to potential investors that they won’t lose their money if they bet on AI. But today, trapped in the Iran war and with his approval ratings at rock bottom, the chief cheerleader of the financial markets has a high probability of losing control of Congress and the Senate in November. How many TACOs are still left in the kitchen?

What Is Actually Happening?

Behind that specific trigger, however, something deeper is pulsing — something we’ve discussed here before. The AI bubble was inflated on the promise of “singularity,” “superintelligence,” and “the replacement of humans.”

None of these things have happened, and there are no signs that they will. It’s time to recalibrate expectations, and the conclusion — now increasingly widespread — is that the companies that drove this entire rally are overvalued. In this environment, things have been happening for weeks for which nobody really has a satisfying explanation.

Right now, two forces are colliding — an unstoppable object meeting an immovable one: the peak of expectations, represented by the IPOs of the sector’s key companies, meeting the hardening of underlying reality — the hard data on AI’s actual use and effectiveness.

What Will Happen in the Coming Months?

I am not a market analyst. If I have said many times — since 2024 — that I believe all of this is a bubble that will burst, it is not for reasons of financial timing but because the deep currents that have moved the economy and society over the past twenty-five years can only keep producing one bubble after another. AI is just the latest explosion.

But following these things closely leaves a mark, and my intuition tells me that the SpaceX IPO will succeed. Largely because Trump has committed himself to saving it, but also because there are many people who want to believe this is their chance to invest in something like what Google was in 2005. And Musk knows how to play that game better than anyone. I also believe those same people will lose their money, because SpaceX is not worth $1.8 trillion and the market will eventually correct the price sooner rather than later.

But for the bubble to truly burst, there is still a missing piece in this whole soap opera: a “black swan” — an unexpected, uncontrollable event similar to what the surprise bankruptcy of one of America’s largest banks, Lehman Brothers, represented in 2008.

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An Unanswered Question

And that black swan is not, I think, among the things being talked about — but in one that isn’t.

OpenAI was the frontrunner among the LLMers until very recently. But in just a few months, Anthropic has overtaken it and today dominates the market. Since then, life inside OpenAI must have been something of a hell — like a runner watching someone overtake them and falling ever further behind.

OpenAI is losing users, has had to shut down some of its flagship services, and is not hitting the revenue targets it had set for itself. As if all that weren’t enough, The New Yorker published an extraordinary piece a few weeks ago claiming that its CEO, Sam Altman, is a sociopath and a pathological liar — and it leaked to the press that its CFO, Sarah Friar, had clashed with him and the two were no longer even in the same meetings.

The reason for the falling-out was that Friar believed it was more sensible to delay the IPO to 2027, while Altman wanted to go as soon as possible.

Everyone knows that in a startup on the verge of going public, it’s the CFO who calls the shots. So a few days later, someone (wink, wink) leaked to the Wall Street Journal that OpenAI was going to file its IPO papers immediately.

Nearly twenty days have passed, Anthropic has taken the lead, and OpenAI? Nothing. Not a word since.

My suspicion — with zero inside information, but considerable experience managing companies through difficult moments — is that OpenAI is in very deep crisis. It is highly likely that investors are completely frantic at the prospect of Anthropic cannibalizing them, which is exactly what’s happening. It wouldn’t surprise me at all if they are simultaneously struggling to raise financing and running low on cash. With a CEO who was already thrown out by his own team for being a sociopath a few years ago, I would bet that this whole situation resolves itself in one of several ways: either Friar walks, or Altman is ousted again, or a revolt among engineers hollows out the team.

I think OpenAI will be the new Lehman Brothers.

And I’ll be here to tell you about it when it happens. Don’t forget to subscribe!

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If you want to understand why I think we’ve been living inside a bubble for twenty-five years — one that will keep bursting until we deflate it — you can’t miss Hijos del optimismo (Children of optimism).

As you surely know, the hottest topic of the week is the debate over the impact and regulation of AI. From Steve Bannon, Donald Trump’s malevolent spin doctor, to the Pope himself, everyone seems to have something to say.

That this is happening right now is because — as I wrote here a few weeks ago — the first AI bubble has already burst. The speculative moment that promised “singularity,” “superintelligence,” and “the replacement of the human species” has given way to one in which AI has stopped being a dream and become flesh.

A couple of days ago, the Financial Times ran a front-page piece titled “The Impossible Math of the AI Boom,” reporting something that some of us have been saying for years: that this technology has no business model capable of justifying the stratospheric valuations of these companies, and that therefore “the IPOs of the major players in the sector are probably nothing more than a transfer of investment risk onto retail investors.”

So it looks like the financial bubble is on its way to resolving itself, one way or another.

And yet the other great bubble this technology is producing — the political bubble — keeps growing. So much so that last week, the first US presidential visit to China in nine years revolved entirely around “AI supremacy,” and even the Pope is declaring that we are living through the “fourth industrial revolution.”

Today, the governments of the world — along with analysts and consultants — live inside a bubble of expectations in which the belief in a new “industrial revolution” plays the same role that “singularity” played in financial markets. That promise of an extraordinary future event that will pull the world out of twenty-five years of economic stagnation has become the excuse that allows political elites to park the problems they should be confronting — pension sustainability, the housing bubble, inequality — behind the justification that we are right on the verge, right on the very verge, of a new steam engine arriving that will change everything.

This article aims to burst that other bubble. To demonstrate that neither AI, nor any other digital technology, can produce another industrial revolution. On the contrary — what it will do is deepen the phenomenon we have been observing for thirty years. The one economists call “the productivity puzzle,” when they should really call it by its proper name: the first industrial involution.

Buckle up — here we go!

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But first, an announcement!

Tomorrow, June 2nd, and again on Monday the 8th, I’ll be signing copies of Hijos del optimismo (Children of optimism) at the Feria del Libro de Madrid (Madrid Book Fair) — my first time! — and I’d love to see you there.

Tokenomics

What exactly is the business model of AI companies? This week, Sam Altman — founder of OpenAI and supreme leader of this whole thing — explained it at BlackRock’s annual forum, the world’s largest investment fund:

“Fundamentally, our business, and I think the business of every other model provider is going to look like selling tokens. They may come from bigger or smaller models, which makes them more or less expensive. They may use more or less reasoning, which also makes them more or less expensive. They may be running all the time in the background trying to help you out. They may run only when you need them if you want to pay less. They may work super hard, spend tens of millions, hundreds of millions, someday billions of dollars on a single problem that's really valuable.

But we see a future where intelligence is a utility like electricity or water and people buy it from us on a meter and use it for whatever they want to use it for.”

When you ask something of ChatGPT or Claude, what happens internally is not unlike what happens when you do a Google search: you type a question, the system searches through an enormous database, and it returns a response. The difference is that instead of giving you a list of web pages, the return is an already-written answer.1

“Tokens” are the fragments into which the model breaks down text in order to perform that search. The phrase “Hello, World!”, for example, is not eleven letters and two symbols — it’s five tokens: [”Hel”], [”lo,”], [” Wo”], [”rld”], [”!”]. Every time the model reads or writes something, what it is actually doing is processing those tiny pieces, one after another, using processor cycles. That is why the token has become the unit used to measure how much work you have asked the model to do. Just as electricity is measured in kilowatts and water in cubic meters, these companies intend for artificial intelligence to be a flow measured in tokens. And what Altman — and the entire industry — is saying is that their business is selling those tokens.

Notice how absurd this is. It is as if the owner of Toyota said their company was in the business of selling refined petroleum. Or if Apple thought its business was transforming watts. It would be a very strange thing: nobody buys a car to consume petrol, and nobody buys a phone to consume electricity. We buy what that technology is capable of doing with that fuel — the technology itself.

But AI companies have an enormous problem. Unlike car or smartphone manufacturers, they cannot charge for their technology: they cannot sell it.

Do you know why?

Because the equivalent of the Ford Focus or the iPhone 14 in AI is those “models” — Claude Opus 4.7, ChatGPT 5. They are versions of software. Code. Text. A bunch of lines in a file. Information: knowledge. And as forms of knowledge, they are infinitely replicable.

Since Adam Smith described them, economists have known that there is a type of good that cannot be traded in markets: those that can be consumed without depriving anyone else of consuming them, and from which no one can be excluded. These are called public goods — though I prefer to call them abundant goods, because the word “public” creates confusion, giving the impression that these goods must be state-owned when that isn’t the case. Radio waves, national security, the light from a lighthouse, languages — these are classic examples.

You cannot sell the word “tomato,” just as there can be no market for the laws of biology. Nobody can trade in the idea that in a right triangle the square of the hypotenuse equals the sum of the squares of the other two sides — because the day Pythagoras stated that theorem, he placed it at the disposal of all humanity: from that moment on, no one could ever prevent another person from using it freely. Knowledge is the public good par excellence.

The problem AI companies face is that their product — the technology behind these models — is the same as the Pythagorean theorem: a form of knowledge that can be copied and redistributed, and from which no one can be excluded. That is why there are already hundreds of different AI models today. Some are even open source, free for anyone to use.

As the technology matures, if it succeeds, there will be many more. Perhaps every company — and even every individual — will end up having their own. And while some will be better than others, it is also to be expected that over time they will converge in capability, because that is what happens to all technologies when they become widespread.

There can therefore be no market for AI models. Altman cannot sell ChatGPT because there can be infinitely many ChatGPTs.

All he can do is put a meter on it — and perhaps not even that.

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The “New Industrial Revolution” Bubble

What is fascinating about all of this is that it reveals the economic problem of our time — and why it arises.

For fifteen years we have known that the economy is slowing down. The constant of our era, since the Industrial Revolution, had been that economic productivity never stopped growing. Between the end of World War II and the 1990s, it reached rates of three percent per year. But since 2000, that figure has fallen to 0.5% — a pace not seen since the Napoleonic Wars. And economists don’t know exactly why.

Some attribute it to demographics, to the exhaustion of the great inventions of the twentieth century, to a lack of investment, or to excessive regulation. Others say it is a “measurement problem” — though what difference does it make if the impact on employment, wages, public finances, and people’s lives is the same? The truth is that no economist has been able to fully explain it. That is why they call it the productivity puzzle: not because we are about to solve it, but because it is a mystery they don’t even fully understand.

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Until a few years ago, there was genuine concern about this among the political class. Gordon Brown, for instance — former UK Prime Minister and Chancellor of the Exchequer — identified it as the cause of the rise of the far right:

A low-growth economy creates a doom loop as pessimism begets a blame culture – and the more we blame others, the more pessimistic we become. Once people convince themselves that the state of their economy is so weak that they can only improve their lot at someone else’s expense, they vote for parties that specialise in targeting those they think are holding them back – immigrants, foreigners and minorities. These parties offer nothing in terms of economic policies to generate long-term growth. The result is that zero-sum politics exacerbates the downward economic trends, and this, in turn, intensifies and widens the appeal of zero-sum thinking.

But none of the initiatives that were tried — Biden’s industrial subsidies, Trump’s tariffs — seemed to work, and governments found themselves in a hellish position: facing millions of people increasingly angry at the deterioration of their prospects, with nothing to offer them.

And then AI arrived.

Its apostles began to proclaim it would be the most important productivity revolution ever experienced. Just months after the launch of ChatGPT, Goldman Sachs announced with great fanfare that this technology “would boost global productivity by 1.5% per year,” and Bill Gates declared it would be “as important as the internet.”

Politics saw the opportunity and pounced on it like a man just released from prison. Since then, parties have clung to the idea that now — finally, this time for real — a technology has arrived that will pull us out of this civilizational clusterfuck.

That is why there is also a political bubble in AI, alongside the financial one. That is why Trump has wrapped himself in the idea that it will bring a new “renaissance” and flew to Beijing surrounded by the owners of the sector’s leading companies. That is why the debate rages over whether Europe will fall behind in the technological race. And that is why even the Pope is writing encyclicals declaring this to be the “fourth industrial revolution.”

The First Industrial Involution

My view is that the productivity puzzle is not actually a puzzle — if you look at it from the right angle.

The economy is slowing because it no longer produces scarce, exchangeable goods — it produces abundant goods that cannot be traded in markets, as we are seeing with AI. Every time a need finds an public good that satisfies it, that need stops being resolved through the market (or is resolved at a far lower price).

Twenty years ago, getting a roll of film developed cost twelve euros. You paid a fifty-euro annual subscription to National Geographic to see photographs of the world. If you wanted portraits of your wedding, you hired a professional photographer for a thousand. Today, digital photography has made almost all of that market disappear: we take millions of photos a day, view them on Instagram, and only preserve some nostalgic residue of that industry. Travel agencies disappeared when Skyscanner, Booking, and Google Flights made free the work a human being used to do for commission. Wikipedia liquidated encyclopedias — which in the 1990s were a multimillion-dollar business; Britannica cost the equivalent of two thousand euros in today’s money. Netflix and Spotify finished off video rental shops and record stores, which between them employed over a hundred thousand people in Spain alone. Google Maps made an entire industry of physical maps, road guides, and school atlases disappear.

In every case, today we have vastly more of everything: more photography, more music, more knowledge, more opportunities to travel. Productivity has increased — but not in the economy. Outside it, in a domain that goes unmeasured and that I call “Plutonomy.”

Because economic value lies neither in producing many things, nor in producing very useful things. It lies in being able to sell what you produce. And there are different ways of understanding this in economics, but they all arrive at the same point: all economic value is measured by prices. So for something to be valuable, it must be exchangeable.

What we observe in this AI affair is that a product can have incalculable social value and zero economic value. What is happening with this technology is that it is apparently generating enormous value in society — but its proponents are unable to “monetize” it, that is, to convert it into economic value.

AI is not the exception. It is the norm of our time. Every innovation of the past twenty-five years — email, GPS, digital photography, search algorithms, video codecs, the protocols that organize the internet, data science, SSH and modern cryptography, all the goods that have made this century possible — share this characteristic.

Everything I’ve described so far is, more or less, a consensus. But this is where the experts take the wrong turn: economists think this is a phenomenon tied to digital technology, or to the internet. And they trust that at some point a technology “of the old kind” will arrive to put us back on the path of growth. That is what they believe will happen with AI — somehow.

I argue that it won’t. The substitution of private goods — scarce and exchangeable — by abundant public goods is a property of the knowledge society, not of any specific area of the economy.

The difference between 2026 and 1996 is that today knowledge is universal. In the last thirty years, hundreds of millions of people have accessed higher education. That is why all technologies born today spread at full speed.

If OpenAI had been founded in 1995, like Google, it would be another Google today — because it would have enjoyed a monopoly over its technology that it cannot have now. And it cannot have it now because today there are hundreds of millions of software engineers, whereas in 1996 there were very few.

Conversely, if Google’s search technology were invented today, Google would never have existed: because there would have been millions of different search engines within a few months, and Google would never have been able to consolidate the search monopoly that built its dominant position and customer base.

The same is true of Facebook, Twitter, and Airbnb. None of these companies possesses a technology that everyone else doesn’t also have. What they had, at a specific moment in time, was the opportunity to achieve a monopolistic position — because there weren’t enough engineers capable of competing with them, or financiers willing to embark on that kind of venture. And so, by the time potential competition could react, the so-called network effects had already turned them into monopolies. And that was an insurmountable barrier.

All of this applies to physical goods too. If drones had been invented in 1900, like cars, there would have been a “Ford” of drones that would have monopolized the technology and produced the illusion of productivity for whichever country it called home.

But in the 2010s, drones were born already commoditized — the technology is universal — and today they are manufactured anywhere, sold for next to nothing, and even a country devastated by war like Ukraine can build its own drone industry from scratch.

And the reverse is equally true. If the car and all the other innovations of the Industrial Revolution had been invented in 2020, Ford and Bell Labs would never have existed. The same thing would have happened as with drones: hundreds of companies would have rushed to copy each other and would have collapsed prices within months. That, precisely, is what is happening with electric cars today.

Here is the thing: the sustained and extraordinary productivity growth of the industrial era emanated from a historical anomaly. Those two hundred years were a unique moment in which knowledge — an abundant good with which one cannot normally trade — became scarce. Only certain companies and certain countries possessed that knowledge, and they could trade it under conditions of monopoly. The “industrial economy” was an enormous mechanism for buying and selling restricted knowledge.

And knowledge was scarce in those years not because of any administrative constraint, nor because of its nature, but for a very deep social reason: there were not enough people in the world capable of transmitting and managing it.

When the children of optimism — the first generation to attend university en masse — came of age, they broke that monopoly and brought the industrial economy to an end.

What we are living through is the dismantling of the system we had known. And the reason there appears to be a “productivity puzzle” is that we are navigating the first industrial involution.

That is why AI — despite being among us for four years now — has not produced so much as a notch in productivity statistics, just as none of the digital technologies of the twenty-first century have.

And if his proposal succeeds, it will be even worse. If it manages to write software, produce consulting reports, drive cars, wait tables, write journalism, do graphic design and translations on its own — each of those things will also become an abundant public good that ceases to carry economic value.

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The Real Business Model of AI

So what exactly are AI companies selling? And how much truth is there in what Altman says about putting a meter on it?

A token is not a product. It is a unit of measurement. And he wants us to believe that intelligence is a substance — like water — or a flow — like energy — that can be metered. But it isn’t.

What exactly does a “token” measure?

Electricity, in reality. What they are measuring in tokens is the energy required to run a processor and cool it. The irony of life: the metaphorical transformer of LLMs has turned out to be a literal transformer.

It’s not that artificial intelligence is going to be “the new electricity.” It’s that, from an economic standpoint, it is plain and simply electricity — the same electricity as always.

That is why — because selling electricity doesn’t seem like an extraordinary business at this stage of the game — what AI companies are actually doing with all this data center and token frenzy is something very different: they are trying to become the landlords of a rentier economy, cornering all the computational real estate in order to rent it out. Nothing more.

That is why the financial AI bubble will burst. Because there is no business here, no new economic value in this technology. The only question is whether it will happen before or after the institutional investors manage to offload the risk onto retail investors through the IPOs.

And after that, it will be our turn to figure out what the hell we do when the political bubble deflates too.

If this article has made you see reality differently, Hijos del optimismo (Children of optimism) will take you much further. It is the book on which this newsletter is based, and it contains a complete framework for understanding the world through a radically different lens.

First, an announcement!

This Thursday, May 28th, I’ll be in Valencia presenting Children of Optimism. It’s going to be a wonderful evening, because we’ll be joined by Enric Nomdedeu — who, besides being hilarious and a great friend, is a brilliant thinker who developed much of the thinking around the four-day work week in Spain.

As if that weren’t enough, the event is hosted at the eldiario.es space in Valencia, and we’ll be joined by Sergi Pitarch, its editor.

So you can’t miss it. I’ll leave the invitation link to share on Substack, Twitter, Instagram, and Bluesky.

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This week I’ve been a little rattled. In Spain, a former president has been charged with corruption, accused of leading a network that collected commissions in exchange for political favors. Contrary to what one might expect from an accusation of this magnitude, the judicial order is far from conclusive: it makes claims it doesn’t fully substantiate and leaves many loose ends.

Faced with the uncertainty, Spaniards appear to have split in two — between those who take the order at face value and believe this man is the capo of a criminal network, and those who believe the opposition conspired with the judge, the police, and the prosecution to stage a frame-up and bring down the current government, whose party the accused belongs to. There are even those who think this is a coup orchestrated by the United States.

And I — despite the fact that, as you know, I’m an optimist to my core — read all of this and start to tremble. Because what I see is not a divided society. Not really. Quite the opposite. Both sides in this debate are making the same argument. Everyone — the media, the influencers, the politicians of every stripe — takes it as given that we live in a system that is rotten to its foundations, where the most senior institutions of the state pursue hidden agendas and systematically break the law to advance them. Whether you think the corrupt party is the former Prime Minister or the judges and the police is beside the point.

And people aren’t stupid. Nobody misses the fact that for any of this to be possible, one person wouldn’t be enough — it would require a network, a complete structure filled with civil servants, politicians, and journalists to sustain it. If any of these theories were true, it would mean that democracy doesn’t work in one of the most important states in the Eurozone. Or, put another way: that democracy doesn’t work. Full stop.

So I have a second hypothesis — different from the one that says all the elites in my country are corrupt. A different hypothesis, but one that is, unfortunately, no less frightening. I don’t think there is a case against the former Prime Minister. But neither is there a conspiracy. What has happened is that it has become believable — reasonable, even — to think that a former Prime Minister of a Eurozone country is the boss of a criminal organization. That idea now lives, rent-free, in the common sense. So thoroughly that a judge, a group of prosecutors, a police force, a crowd of journalists, and a large portion of society have all believed it without needing proof. What is happening is that the populist virus — that meme which preaches that all politicians are corrupt and all elites are parasites — has spread so far that it has seeped into the bones of our democracies and made any of the circulating explanations plausible.

So the real story, then — the one we are all part of, judges, prosecutors, journalists, politicians, influencers, and ordinary people alike — has become a self-fulfilling prophecy: most Spaniards today believe that democracy doesn’t work, and for that very reason, because we have come to believe it, it is starting not to work.

How did we get here? And how do we get out?

We have told ourselves many times that populism is the consequence of a widespread malaise produced by deteriorating economic conditions — as if the world economy were sick and the symptom were the rise of this ideology. As Bill Clinton once memorably put it: “It’s the economy, stupid!”

But I believe — and I want to demonstrate today — that it is the other way around: the global malaise gripping us is the symptom. Even the deterioration of living conditions can be explained as a consequence of this drift. The virus is a form of political entrepreneurship that was born in the protest movements that followed the 2008 crisis, but which has since spread into mainstream politics until it has infected every party and no small number of media outlets. That is what is poisoning the waters of civic life and turning them into a swamp.

Populism is the great enemy we face.

Today I want to convince you that there are ways to defeat it — and that they are within our reach.

Contractors

What must citizens do to belong to a country, and what does whoever is in power offer them in return? Modern societies are organized around an agreement that political scientists call the “social contract” — and it answers those two questions.

Before democracy, the social contract was something like: “If you obey the emperor, we won’t come to your house and hack you to death with machetes.” Since the lord also tended to consider himself a relative of God, the same idea could become slightly more sophisticated: “If you believe in the emperor, and therefore obey him, we won’t come to your house and hack you to death with machetes.”

As societies grew more complex and their structures more costly, the social contract evolved too. To obedience was added the obligation to contribute to the upkeep of the state and its armies — and so appeared the serfs of the Middle Ages, for instance, and the vassals. But well into the fifteenth century, with minor variations, the promise that ordered the world was roughly the same: obedience in exchange for staying alive.

But at the end of the Middle Ages, money and commerce made it possible for power to escape the feudal domains. Then came the first cities and the first governments that didn’t spring from military force and weren’t static — they fluctuated. That new world, so unlike the one before it, needed its own pact. What should not a subject, but a citizen do to contribute to society? And what could they expect in return? Since then, the history of Western civilization has been the search for an answer to that question.

Adam Smith’s success when he wrote The Wealth of Nations came from his ability to imagine one — because he invented the social contract of our time. To be worthy of consideration, he argued, people had two options: the rich must save and invest, rather than squander their fortunes on vanities and superfluous expenditure; the poor, who had no savings to contribute, must work to earn not just their wages, but the recognition of others.

And what would they receive in return? The magic of the “organization of labor” — the god of Smith’s Bible — would reward them with ever-growing, limitless wealth. Each year would be better than the last, and the productive system would give so much of itself that any man, however humble, would be guaranteed his place in the world. This was the social contract of infinite progress at the dawn of capitalism.

For a couple of centuries, that promise was kept — halfway. The organization of labor produced levels of progress never seen before. But capitalism, in its natural state, displayed a terrible tendency toward violence. It was very much like the weather: just as the atmosphere produces storms, hurricanes, and extreme temperatures with complete indifference to their consequences for human life, capitalism produced concentration, bubbles, and explosions that swept away entire societies. In their wake came humanitarian crises, wars, and the rise of totalitarian regimes.

It was in the middle of the Second World War that the world began to conspire to tame the rain-god of capitalism. In January 1941, US President Franklin D. Roosevelt proposed a new social contract: states would guarantee four freedoms — among them, for the first time, freedom from material want.

Citizens would no longer be left exposed to the elements. It would no longer be the market, or charity, or some other random meteorological event that would ensure a place in society for everyone who held up their end of the contract — it would be the state that took responsibility. Full employment, decent housing, healthcare, education, and pensions became obligations of power: its side of the deal.

By the end of the twentieth century, Roosevelt’s Four Freedoms had been running at full sail for forty years. That’s not to say there weren’t periods of crisis — but the world seemed like it would never stop growing and distributing its gains. Along the way, the Western countries had built and distributed hundreds of millions of homes, a similar number of cars and appliances, and alongside them the modern healthcare, education, and pension systems had been born. In every Western country, life had been transformed more than at any other moment in history up to that point.

Perhaps from sheer wear, perhaps from boredom, perhaps from exhaustion, or because the states had grown outdated in the process — at that point the world convinced itself that the state was no longer necessary. The market, on its own, could keep delivering. Government just needed to get out of the way. In the twenty-first century it would not be the state, but “society” itself that would sign a social contract with itself. That society would expect of its citizens not only that they work and pay taxes, but that they be active participants: they must train, study, develop — as Reagan put it — “the talents God gave them.” For the first time, responsibility was placed on the shoulders of families to make decisions about their own participation in society, and only in exchange for that effort would they receive. Effort was replaced by merit as the mechanism of participation, and in return it was promised that their children would no longer be factory workers — they would be intellectuals: physicists, mathematicians, lawyers, engineers, astronauts. And so arrived the last great social contract of the contemporary world: what was called the “information society,” and what today is falling apart.

As David Graeber puts it, and I repeat like a broken record: “The social contract of the Cold War didn’t just consist in offering a comfortable life to the working classes; it consisted in offering them, at least, a credible possibility that their children would stop belonging to the working class.”

That was the last great promise of the twentieth century.

From Cooks to Food Critics

There was a day in 2008 when that social contract went up in flames before our eyes. When Lehman Brothers — one of the world’s leading investment banks — declared bankruptcy, it revealed that the entire international financial architecture had been building castles in the air. “Society,” in that part of it responsible for creating a solid economic system capable of generating value, was not holding up its end of the bargain it had made with itself.

The international financial system then collapsed like a hundred-story tower and triggered an avalanche over the global economy. But by then there was no longer a state to go back to and demand anything from: decades earlier, that system that provided identical homes and goods for everyone had been dismantled.

In the social contract of the “information society,” states had been relegated to correcting the system’s failures: either redistributing part of the gains to those left out of the distribution, or liberalizing the economic sectors still anchored in the statist past. To fit into that role, the political left and right had undergone a critical mutation: they had stopped being organizations dedicated to proposing and pushing the world in new directions, and had transformed themselves into guardians of the existing order. As if artists had become art critics.

And between the late 1980s and 2008, that appeared to be a great plan — probably because life is much more comfortable as a restaurant critic than as a chef. But the problem is that to critique someone else’s recipe, you need someone else to be doing the cooking. The parties of the twenty-first century, in order to fulfill their watchdog function, needed the world to keep growing at full steam. To keep working. None of them, on their own, knew any longer how to produce economic growth — only how to correct its problems.

To this day, the two great ideologies of capitalism are anchored in that same place. One with deregulation, the other with redistribution. But without growth, without an economic system that works on its own and produces profits so infinite that one can simply sit back and point out what isn’t going well, they have nothing to offer.

So who signs the social contract today? As far as I can observe, most citizens continue to get up every morning to hold up their end of the deal. Who takes responsibility for the part that power was supposed to fulfill? In truth, nobody signs it. The best explanation for the malaise that afflicts this historical moment is this: politics has shirked its responsibility, and we are traveling in a car that nobody is steering.

Is there a politician in the world today who would dare promise, as Roosevelt did, that the state will ensure no one goes without? Anyone who, like Thatcher, would promise a “property-owning democracy”? Anyone who would commit to taking us to the Moon, like Kennedy?

None. The best promise politics has managed to articulate in the past fifteen years is “affordability” — which is, once again, the promise of the machete: if you obey and pay your taxes, you won’t end up living on the street.

It is that absence, that political and intellectual orphanhood, that has driven us into the arms of populism. That empty space is what fills today with the liquid that oozes hatred.

They Call It Democracy, and It Isn’t

There are no better critics than those who never have to cook. That frees up time to think about what someone else is cooking. So in the late 1990s and early 2000s, a lineage of very lucid intellectuals — separate from the mainstream left — gained enormous prominence by theorizing that democracy doesn’t work. Toni Negri, Michael Hardt, Noam Chomsky, and Naomi Klein, among many others, created an entire literary genre dedicated to the most refined art of total critique. It was called the “anti-globalization movement” because “everything-that-goes-wrong-ism” wasn’t very catchy.

And they were right, about many things. Their reproaches and their demands for purity were legitimate, accurate, and even healthy for a democracy — when exercised from a position subordinate to power. Ideals are for that: for keeping the destination clear, even when we know we’ll never fully reach it. That’s why they’re called ideals.

In 2008, that diagnosis jumped from the seminars into the streets. The protest movements that followed the crash — from Occupy Wall Street to Spain’s 15-M — took the theory and distilled it into a slogan anyone could chant: us, the people below, against them, the people above.

But ideas are dangerous: they’re contagious, and this one was open-source. “Us versus them” was a template into which anyone could write the name of their preferred enemy.

The first to recognize the goldmine were the entrepreneurs of the new right. People like Steve Bannon understood before anyone else that that anti-elite mold could be used for anything — you just needed to swap out bankers for immigrants, or for Brussels, or for “the globalists,” and the machine kept working just as well. The left pointed at capital; the right pointed at outsiders. But the grammar was identical: the pure people on one side, a corrupt elite on the other, and an entire system designed to swindle you.

What began as a tool of the most alternative ideology turned out to be too good, too cheap, and too effective to stay there. And the traditional parties — which had given up cooking and only wanted to critique the neighbor’s recipe — found in populism the greatest form of criticism ever invented. So they adopted it too.

And so critique ceased to be the healthy function of a segment of society operating at the margins, and became the only language of the center. Populism ended up contaminating all the waters, and all of us — myself included, I’m not exempt — ended up as critics of the existing order. Today, if you open a newspaper, you can be fairly certain of finding zero new ideas and a million complaints. If you tune into a political party, you’ll hear nothing but reproaches leveled at the other side. The truth is that what we call “elites” — and there, in all likelihood, both you and I find ourselves — have abandoned the ambition to lead in order to dedicate ourselves exclusively to pointing fingers at whoever is to blame for our troubles, with the most exquisite of pens.

Left to their own devices, those who once looked to politics and the media for visions of the future are, frankly, in the mire. Every loudspeaker reminds them that everything is going wrong: climate collapse, economic collapse, the end of the West, the end of birth rates, of immigration, of progress, of welfare. And now, on top of all that, artificial intelligence is coming to take our jobs — or simply to exterminate us. You look around and there is nothing but prophets of disaster. Not a single person daring to say what we build tomorrow.

And so we have made real the idea that everything is broken. And if everything is broken, there must necessarily be someone responsible. The only small way to participate in society is to pick a side and grab a rifle. Politics has been reduced to exactly that — a distribution of enemies.

The Politics of Impurity

That is not the role of political parties. Or it shouldn’t be. Of course, all complex systems have a great deal that needs fixing — errors are not an anomaly but a property of their nature. That is why systems that work don’t aspire to perfection: they are built with slack, with margins, with redundancy, taking for granted that something will always fail. Impurity is not a symptom that the system is rotten; it is simply how anything complex enough to be alive stays standing.

The job of politics should not be, therefore, to point fingers at impurity — anyone can do that. It is the other thing, the hard thing, the thing we have stopped asking of it: to propose. To propose a new world. To propose going to the Moon.

What to Do?

But I don’t work in politics, and I hate handing out prescriptions I’m not willing to take myself. Besides, it doesn’t matter what politicians do — because the social contract of the twenty-first century is signed by society with itself.

So here are three things I believe those of us outside of public life can do to change the direction of things. To escape this populist spiral. And I am committing to carrying them out from now on — especially in this newsletter.

The first: flee, as from someone who doesn’t wear deodorant, from every single formulation that attributes a negative characteristic to a social group. Not boomers, not immigrants, not politicians, not billionaires, not civil servants, not young people, not Black people, not white people, not men, not women — none of them can be held responsible, as a collective, for anything. Because all of these are ideological constructions: bodies that exist only in our heads, and that serve only to stigmatize, to dig trenches, to convince ourselves we’re better than the rest, and to hate.

The next time someone tells you that such-and-such social group is such-and-such thing, your expression should be the same as if they were saying it about Black people, or Jewish people — because that is exactly what they are doing. No, “politicians” are not corrupt. No, “judges” are not either. Not the ones on the left, not the ones on the right.

The second: stop thinking that the other side is evil. This is harder than it sounds, because it requires stopping thinking that we are good. Surprise: we are not. No more than anyone else. People act for reasons that have their own internal logic, and you, in their situation, with their biography, their concerns, their intellectual and emotional capacity, and their fears, would probably do the same. Most of the things that seem aberrant to us are simply the product of the culture in which people are embedded — and if we were embedded in that culture, we might be the same way.

The third: to take on, as intellectuals — which we all are, each in our own measure, even if only on our social media feed or in our own home — a commitment to the social contract. We need to start pushing the world forward again, to return to an agenda of abundance. And this is not going to happen in a vacuum: nobody is coming to save us. Let’s read those who propose and build things, let’s share their projects, let’s stop feeding hatred, let’s draw a line in every sphere of life and start rebuilding a common space in which everyone has a place.

It is not the politicians. It is not the judges. It is not the immigrants, or the billionaires. What is pushing us toward a worse place is ourselves. And it is within our power to change course.

If you are also an abundance thinker, you will like Hijos del optimismo (Children of Optimism). It is my first book, the older sibling of this newsletter, and a project I have been working on for many years.

You can already order Hijos del Optimismo on Amazon, La Casa del Libro, El Corte Inglés and the publisher’s website, Debate.

You can also read more about me and the story that inspired me to write it

Photo by Elvis Bekmanis on Unsplash

In case you hadn’t heard, the political hit of the moment goes like this: Ever since Trump began steering the United States further and further from Europe — and especially since European countries refused to join the war against Iran — the Trumpist hive mind has set its sights on the old continent. As if anticipating the coming conflict, which will almost certainly threaten death and destruction between the US and the EU, thousands of users have spent months flooding social media with the idea that we Europeans are poor, lazy, and incapable of surviving on our own on the global stage. They’ve even given us a name. We’re no longer “Europeans” — we’re “Europoors.”

Last week, in that charged atmosphere, a debate broke out among the global economic elite about Europe’s future — and, by extension, yours and mine. I had planned to spend the weekend out in the meadows — it’s San Isidro in Madrid — but I couldn’t help myself and ended up buried in articles by , , , and ovic so I could tell you about it.

Because my gut feeling — which I’m sure you’ll share by the time you finish reading — is that this topic is far more than an economic technicality. It’s an all-out battle over which model of civilization will prevail in the 21st century. Economics is the method, as Margaret Thatcher would say; the goal is to change the soul and heart of Westerners.

Here we go.

This has been building for a while. For a decade now, the Calvinist soul of the European establishment has been disowning the continent’s… let’s say epicurean drift. Europe isn’t trying hard enough — they warn — it has given in to habits typical of a decadent society, it isn’t productive, and it’s falling behind. So much so that former ECB governor Mario Draghi, in a report commissioned by the European Commission on the competitiveness of the eurozone, warned that Europe is not simply in an economic rough patch but at an existential crossroads:

“My concern is not that we will suddenly become poor and subordinate to others, but that, over time, we will inexorably become less prosperous, less equal, less secure and, as a consequence, less free to choose our own destiny.”

Our destiny. Nothing more, nothing less. With stakes this high, it was only a matter of time before every major player on the continent joined the debate.

And so they did. In February, German Chancellor Friedrich Merz, returning from a trip to China, stepped forward as the choir’s soloist and declared that “Germany — read ‘Europe,’ by extension — needs to work longer hours.”

“The overall productivity of our national economy is not high enough. Put even more plainly: work-life balance and the four-day workweek will not be enough to maintain our country’s current level of prosperity in the future. That is why we need to work harder.”

Merz is German and belongs to the European People’s Party. You’d expect him to champion that culture of hard work. What nobody anticipated was that within days, one of the great economists of the left, , would echo the Chancellor’s words:

“The world is a competitive place. Countries that fail to develop economically don’t just quickly fall behind their competitors — they become second- or third-rate economic and military powers, and their populations end up emigrating to work elsewhere. Their technologies become obsolete. It is a well-established fact, noted by economists and political scientists of all stripes, that economic power correlates with political and military power. So if many European citizens continue to choose going to the opera and having picnics with friends while Chinese and Indians do so less and less, Europe will decline.”

And since part of the American establishment has always had a soft spot for ideas so conveniently useful for justifying the absurdity of choosing to live in Washington rather than Barcelona, a couple of weeks ago the Wall Street Journal poured more fuel on the fire with a piece titled “What Will Happen When Europeans Realize How Poor They Are?”

Since 2007, the argument goes, the per capita GDP of the United States has been pulling away from the eurozone’s and is on track to be double that of some countries we consider “rich.” The authors don’t shy away from equating that per capita GDP with “prosperity” and conclude that Europe is becoming less prosperous. But the worst part isn’t even that — as the headline screams, the real problem is that Europeans refuse to realize it!

You could almost feel the journalists’ frustration. Around that time, many Europeans had been busy trolling the Trumpist mob on social media with photos of Parisian terraces and some very funny videos featuring two middle-aged men who looked like they’d never seen the inside of a gym — showing off their dad bods in t-shirts and shorts — spinning music outdoors while balancing a cigarette and an Aperol Spritz in the same hand

Oh, Twitter. What a laugh.

Back to the serious men: in recent days, Paul Krugman has come out in defense of the European model in a series of articles where he argues that the gap between American and European GDP is a statistical illusion stemming from how technological improvements are measured in GDP.

Paul Krugman

Is Europe in Economic Decline?

An ASML chipmaking machine…

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3 months ago · 1875 likes · 388 comments · Paul Krugman

It turns out that technology improves at a dizzying pace: a computer from twenty years ago had a fraction of the capacity of one today. At the same time, computer prices have never stopped falling. But on the surface, and for the user, it’s still “a computer.” If GDP simply counted how many computers are sold each year, it would be unable to capture the quality improvements perceived by the user and the dramatic price drops that come with them. The result would be absurd: an economy producing machines a thousand times better would appear stagnant, simply because it’s selling “the same thing” in terms of physical units.

To solve this problem, econometricians — not only American ones, but especially American ones — resort to what are known as hedonic adjustments. Instead of counting computers, they break the product down into its technical characteristics (processor gigahertz, gigabytes of memory, screen resolution, energy efficiency) and estimate how much each one contributes to the price. When those characteristics improve, even if the nominal price stays the same, they record that change as if the price had fallen and sales had increased. In other words, when technology improves, GDP reflects a surge in the real quantity of technology produced, even if no one has bought more physical units.

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Since virtually the entire world’s tech industry is concentrated in the United States, this hedonic adjustment disproportionately benefits American GDP. Although Europeans and Americans alike enjoy the same technology, that adjustment doesn’t show up in Europe’s figures as a consumer. That’s why European GDP stays flat while America’s shoots up. And yet, in terms of real wellbeing, the difference is far smaller than the numbers suggest.

Put simply: much of the divergence between the United States and Europe isn’t real — it’s an accounting artifact. If you measure it differently (the details, here), it turns out that the eurozone’s GDP and that of the US don’t differ all that much. Or even more to the point, if you factor in the quality of life and social achievements Europe has attained that don’t show up in GDP, as Thomas Piketty also notes these days, it becomes very hard to claim that the United States has a model worth copying.

All of this might sound like a crushingly dull technical matter, but it isn’t. This is such a hot-button topic that , by his own account, dropped everything when he came across Krugman’s article to fire back: “This is enormously important. The divergence with the United States is the most compelling evidence of the need for reforms in Europe.”

And that’s the crux of the matter. The wounded-competitiveness debate is the battleground — a moral one — over Europe’s future in the world. One faction of European intellectuals longs for a shift in economic model that would bring us much closer to the American one, while another argues that no such productivity gap exists and that… well, it’s not entirely clear what they propose instead.

Garicano, in his article, contests the premise outright, argues that Krugman would have agreed with him a few years ago, and maintains that the stagnation is real and that it’s not just prices that matter, but the capacity to produce:

“US output growth has been concentrated in technology, where prices have fallen enormously as productivity has risen. In terms of the volume of things produced, the United States has pulled away from Europe.”

For his part, , one of the influencers (?) in today’s economic landscape, takes the middle path and argues that while quality of life in both regions is broadly comparable — as evidenced by the fact that net migration between them is nearly zero — the fact remains that the United States is pulling ahead.

This isn’t a great result for Europe, to be honest. Rich countries should ideally converge to the same level of income; the fact that Europe has failed to catch up with America is a real failure, even if it isn’t falling further behind. And America’s far faster growth in output per hour should be sounding alarm bells.

Lies, damned lies, and the productivity myth

So much for the soap opera summary and the cast of characters.

What’s driving me mad — as someone who has always observed economics from a considerable distance — is yet another example of how this supposedly rigorous discipline abandons all its principles and turns to alchemy, even at the highest level, the moment it touches certain subjects that strike at the moral heart of its assumptions. This productivity debate is the paradigmatic case.

Here’s the thing: the little drama I just described, involving a Nobel laureate and some of the world’s most respected economists, is built on an assumption that any first-year economics student should be able to dismantle. Specifically, on the premise that a country is wealthy because it produces a lot. That national prosperity is a matter of productive capacity, and that if Europe worked harder — manufactured more chips, more cars, more servers, more things in general — it would be more prosperous.

And yet today we know that what you produce is irrelevant.

It wasn’t always this way. In the early days of capitalism, it was believed that the value of things derived from labor: the price of something could be calculated by adding up the hours of effort invested in making it. So producing a lot made you very prosperous, because the value of what you had produced was a constant, an obvious truth, a universal certainty. But toward the end of the 19th century, what became known as the “Marginalist Revolution” took place — a Copernican shift in economics with colossal consequences for civilization.

What its authors observed was that the labor invested in producing something and the price that good reached in the market did not go hand in hand. Some products require enormous amounts of work and cost very little — potatoes, for instance — while others demanding less effort sell for a fortune, like barnacles. It can even happen that two goods with exactly the same labor input — two paintings produced over the same number of hours, say — fetch two different prices, or different prices for different people. What is worth a fortune to one person may be worth nothing to another. Value, the marginalists observed, does not come from the workshop; it does not emanate from labor. It is subjective, variable, and in the eye of the beholder.

Value theories are my Roman Empire. My particular obsession. I believe they are the keystone of human thought systems for one reason: we use the same mechanism to assign value to things… and to people. So the value theories that dominate a society are the manual that allows us to place ourselves and others on the mental map we use to navigate social life. That’s why the marginalist theory of value, abstract and technical as it sounds, was a bomb containing a radical challenge to our civilization. And that’s why this issue lies behind the whole can of worms about Europe’s competitiveness.

Here’s the thing: for millennia — probably since we became capable of thinking of ourselves as a human group — we had believed that all people had intrinsic value. They were valuable because they were devoted to God. With different nuances, every religion held the same idea. Faith gave you value, and lack of faith took it away. Easy peasy.

Capitalism in the 19th century took over from religion in assigning that value. It would no longer be faith, but labor and thrift that made people valuable. But although these seemed like two different things, faith and work operated in the same way: both stemmed from each person’s own will, so being valuable still depended on oneself — there was an intrinsic value in people.

The Marginalist Revolution breaks with that paradigm. For the first time — I would venture to say in human history — it asserts that there is no intrinsic value in things, nor by extension in people. That we are not valuable in and of ourselves: not for our faith, not for our work, not for anything we do. We are only valuable if others think we are, and only to the extent that they do.

And this is where one throws up their hands: “But how monstrous! How cruel and inhuman, the idea that no one is worth anything unless someone else is willing to pay for them!”

And yet it’s a conclusion so simple, so self-evident, that you could reason it through with an eight-year-old. If you think about it for a moment, to maintain that people have intrinsic value, there must be someone to confer it. A “universal value” cannot exist without an authority whose judgment overrides that of individuals. For millennia, that someone was God. The religious wars and the Counter-Reformation were disputes about who that value-dictating authority was. But if we assume that God does not exist — or that, if he does, he has been relegated to the privacy of each person’s conscience — the source of value evaporates along with him. In my heart of hearts, I believe everyone is valuable and I conduct myself as if that were true. But I cannot compel anyone else to share my valuation. I have nowhere to anchor it. Value, whether we like it or not, is subjective. It could only be objective if we were to believe again — or create anew — in a higher authority.

This truth is so violent — we are so terrified by the idea that no authority exists to recognize our absolute worth — that, despite the marginalist theory becoming hegemonic among economists after its publication around 1870, it took another century to take hold in mainstream thinking. People preferred — and still prefer — to believe that labor produces value in and of itself. And something more dangerous was also at play: it was fiendishly difficult to organize a state where citizens wouldn’t tear each other apart if they believed others had no intrinsic value. “All men are created equal” sits uncomfortably with the idea that a person is worth exactly what someone is willing to pay for them.

Contemporary society is trapped in this paradox. It wanted to build a society without God, but refuses to fully acknowledge that without God there is also no intrinsic value in people. And so it has ended up constructing itself on two contradictory principles that coexist… barely.

On one hand, we believe that participation in economic life — working, saving — regardless of outcome, confers a “right” to housing, healthcare, education, and social recognition, as if there were some higher authority obliged to provide them. That authority is the State, which assumes the role once played by God: a universal body that recognizes the value of each person by the mere fact of their existing and participating. On this side, we think like believers: people have intrinsic worth and the system must respect it.

On the other hand, the moment we leave the territory of the State and enter that of the market, we embrace marginalist logic without blinking. We want unequal effort, differing talent, and varying skill to be recognized and rewarded. Nobody would think it reasonable for professorships in economics, or spots on the national football team, to be distributed by lottery among those who had put in the same number of hours. Here we think like marginalists: everyone is worth what the market is willing to pay for them.

The monumental clusterfuck we find ourselves in — the crisis of Western civilization — springs from this contradiction, and from the fact that neither theory — neither the labor theory nor the subjective one — is capable of producing a social model that works in the 21st century. ’s confusion, ’s, ’s, ’s — in my view, it all flows from this same contradiction.

Producing your own grave

In geopolitics, without a doubt, there is no father figure, no state, no higher power to embrace us and tell us we are valuable. There is no universal authority that recognizes what each country is worth. And yet when economists wade into the productivity debate, the first thing they do is write as if such an authority existed. They return, again and again, to the idea that whoever produces the most — or produces most efficiently — will win the global game. As if there were some celestial referee keeping score of hours worked and chips manufactured.

From within that confusion, every author you’ve read this week defends the same thing: that the United States is richer, more viable, and more prosperous than Europe because it produces more. It is more innovative, makes more chips, invented computing, data centers, the entire software apparatus. It has a financial system behind it to sustain all of that, which is why even Europeans who want to build things end up doing so in California. From Merz demanding longer hours to Milanović scolding Europeans for their picnics, the argument is always the same: whoever tries hardest wins. And it’s a lie.

What does it mean that technology prices keep falling? It means technology has failed to generate new value. Today people assign the same price to something that cost forty times more forty years ago. And with what they have left over, they aren’t willing to buy another computer or another smartphone. Efficiency can produce more, but it cannot generate new desire.

The United States, despite its capacity for innovation and ever-expanding functionality, has been unable for the past 25 years to generate fresh, renewed desire for the products and services it wants the rest of the world to buy. Aside from New York and perhaps San Francisco, it doesn’t have much that the rest of the world can’t copy. As a result, it offers exactly the same thing as China — the same technology, the same factories. Both countries have locked themselves into the wheel of a blind and deaf productivism, competing with increasing ferocity in a race to the bottom of the barrel in which both players stand every chance of drowning.

Meanwhile, what we observe the moment we’re able to look at the problem without the blinders of mainstream economics is that China and the United States have spent 25 years subsidizing certain industries in that race to the bottom. China through public subsidies, the US through private investment and the entire financial machinery propping up Silicon Valley. American investors subsidized Uber and Airbnb. Chinese taxpayers subsidized BYD and solar panels.

Until none of the things they are capable of manufacturing is worth anything at all.

How can this possibly be a good strategy for global leadership?

AI: the last hope of the industrial world

It isn’t. It’s civilizational suicide. Continuing to fight to be an industrial power at a moment when industry produces ever less economic value per unit of output is madness. And it’s a madness that lies behind the evident political and cultural decline of the United States, behind the rage of white men in the American Midwest and of young urban Chinese — the rats that have been set running on the wheel.

That’s why AI is a life-or-death cultural artifact for the United States.

As every economist who has taken part in the European competitiveness debate acknowledges, the divergence between the United States and Europe — and between the United States and China, for that matter — flows from a single source: Silicon Valley. Or more precisely, from the strategic alliance between Silicon Valley tech companies and Wall Street financiers. That marriage of convenience is what has spent 25 years inflating one bubble after another — first the dot-coms in the 2000s, then the “unicorns” in 2010, a few inventions along the way — Google Glass, the Metaverse, NFTs and crypto — and now artificial intelligence.

But the US needs that bubble to keep dreaming that someday it will escape the rat race it has gotten itself into and produce something it can patent, own, and sell to the rest of the world without competition. That’s why Trump and the entire American elite today need to believe that this new technology will once again be capturable and will produce a new industrial revolution in which desire will be on their side again.

It won’t happen.

And conversely, if AI fails — if it doesn’t manage to replace millions of workers (spoiler: it won’t) — the whole house of cards will come tumbling down. Then we’ll be facing a radically different question. What is the United States going to do with itself? Can the United States exist without being the factory of things that Europe dreams up? Can it invent its own paradises, seduce anyone on its own terms?

If it keeps on this trajectory, the answer is clearly no.

Economies of abundance

How is value created in the 21st century? What is the future of the global economy? How is economic value — the kind that can be exchanged and is therefore scarce — actually generated?

My intuition — one I’m still working through — is that the future of the economy in the 21st century will revolve around the commercial exploitation of public, or abundant, goods (follow the link if you’re not sure what those are). Let me explain: the English language is a public good. Around that good there is an entire industry devoted to translation, teaching, book publishing, copyediting, and so on — all producing private goods and services that can be exchanged. In the same way, the Mona Lisa is a public good, and there are countless businesses dedicated to exploiting its image, its tourist appeal, and so forth.

All of this might sound a little naïve, but these are enormous industries. And not only that — public goods are everywhere. In the software world, this model is perhaps most formalized. Linux is an open-source operating system. Anyone can use it. It is maintained by a community of thousands of volunteer developers, and anyone can download, install, or modify it. And yet around that free, collectively owned code, a gigantic business ecosystem has grown up. Companies like Red Hat, IBM, Canonical, and SUSE have built multimillion-dollar business models not by selling Linux — how do you sell something that’s abundant? — but by selling services around Linux: technical support, certifications, enterprise distributions with guarantees, training, integration with legacy systems, security management, and so on.

The technology we’ve been calling “artificial intelligence” is also a public good. And the industry taking shape around it will ultimately work in exactly the same way.

This is the pattern of the abundance economy: industries that rise up around a central asset that is open and shared, capturing value in the layer of services that surrounds it. Counterintuitively, this model produces some of the most profitable businesses in the world, built on top of one of the most widely used public goods on the planet.

Who will win the game of the 21st century?

Of all the economists’ contributions to the productivity debate, the one I’ve enjoyed most is this piece by Alex Tabarrok. Inadvertently, Tabarrok confirms what is self-evident: that Europe is the place where people want to spend their money. When an American makes money and decides to live well, what they do is buy a second home in Tuscany — not in South Dakota. That is what matters about an economy. Not what you can produce, but what people want to come and buy.

It’s not about work. No number of hours will make us more valuable. The winner will be whoever knows how to seduce. To attract, claim, and command the attention of many people. The winner will be whoever can free up more working time so that their country’s talent can focus on seducing the world. There’s nothing heterodox about this: everyone knows that the best companies today are those with the greatest distance — the greatest margin — between what they produce and what they sell. We call it “brand,” if we like, but no one seriously doubts that this is where the value lies.

And by the same token: those who, like China and the United States, dedicate themselves to the ruinous business of mass production will have nothing to show for it.

For this reason, the economic question of the century is not how to increase productivity, but how to create and sustain public goods so that industries can later grow around them with a genuine competitive advantage. Whoever is capable of creating ideas, ways of life, cultural models that the entire world desires and wants to adopt — but also software, medicines, technology, business models, and scientific advances — will hold a competitive edge. The value captured in the layer of services built around those goods will be where the game is won.

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And Europe, look at it from any angle you like, is turning out to be remarkably competitive on this terrain. It has been, in fact, for centuries — it’s just that the economic logic is only now catching up to confirm it. What Europe exports is not tons of merchandise. It is ways of being in the world.

That capacity to create desirable ways of life is, almost without our having noticed, perhaps the single most valuable economic asset of the 21st century. And around it there already exists an enormous layer of services: tourism, which in some European countries represents more than ten percent of GDP; luxury goods, which command margins that would make any chip factory blush; wine, cheeses, oils, protected geographical designations; education, with European universities attracting ever more fee-paying students from around the world; design, fashion, gastronomy. All of this consists of services built around the fundamental public good that is the European way of life.

The mistake made by the Merzs, the Milanovićs, and the Wall Street Journal editorialists is failing to see that this layer of services is not built by working longer hours. It is built in precisely the opposite way: by nurturing the cultural conditions that make the model desirable. If Europeans started working like Americans, the first casualty would be exactly the things the rest of the world values about Europe. It would be like forcing Linus Torvalds to sell his code: the day he did, the entire ecosystem would lose its reason to exist.

Europe does not need to copy the American model to win the 21st century. It needs to do exactly the opposite: accept that its competitive advantage lies in continuing to be Europe, and build around that an ecosystem of services that allows it to capture the value it is already generating — almost without realizing it.

If you’ve made it this far, you can’t miss my first book, Hijos del optimismo (Children of Optimism).

It’s the older sibling of this newsletter, and the place where I’ve put all these ideas in order

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In H. G. Wells’s original War of the Worlds, he imagined extraterrestrials invading the Earth.

The visitors in question were enormous brains, roughly the size of a bear, set upon minuscule — by comparison — cartilaginous tentacles, the atrophied vestige of an earlier time when they had evidently had bodies. Unable to support their own bulk, these beings transported themselves from place to place perched atop telescoping three-legged machines.

Wells’s Martians came to Earth in search of a new home. Their planet was cooling rapidly and threatening to become uninhabitable. It wasn’t that they were evil. They bore us no particular grudge. But from the height of their tripods, they could not empathize with our species, in the same way that we feel no particular consideration for cockroaches, or mosquitoes, or the ants that insist on returning every spring to houses with gardens. Hence their insistence — nothing personal — on killing us all.

Wells lived at the end of the nineteenth century. He could never have imagined that 150 years later, you wouldn’t need to venture into outer space to encounter people living on entirely different planets.

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And yet here we are. Today we live surrounded by people who are thousands of mental miles away from us. We get on the subway and a young man sits down beside us, convinced that civilization is collapsing and preparing to survive when the moment comes. In the next seat, an Erasmus student daydreams about a future — her future, at least — that will be bright. In the space between the doors, a passenger who blames migrants for everything he dislikes is pressed up against another who still believes the world moves to the rhythm of class struggle; meanwhile, at the other end of the carriage, a woman who denies climate change accepts the seat offered by a man who thinks it’s already too late to prevent it. You start a conversation with a stranger and halfway through you realize it’s impossible to continue: you don’t even start from the same reality.

Should this surprise us? Reality has never, strictly speaking, been a shared thing. Each of us carries our own version, shaped by the untransferable perspective that life gives us. But during the period in which the West — with its political parties, its mass media, its churches, its trade unions, and the thundering narrative of progress — controlled the levers of the global public sphere, we managed to convince ourselves that reality was like Beyoncé: one of a kind.

When all those institutions began to cool at the end of the twentieth century, we didn’t know what to do. Then, like Wells’s Martians, human beings began a migration in every direction until we found ourselves settled on many different planets — echo chambers made of algorithms and niche media outlets to which we pay a subscription to have our every belief confirmed. Since then, without tools for intergalactic connection, we live a little more each day trapped in our own world, isolated from others as though we were a collection of brains encapsulated inside a machine.

The result is fertile ground for the merchants of hatred, who have spent 25 years trying to drive us toward war: toward the second war of the worlds.

Donald Trump is their great leader.

Trump, the World-Builder

In that twentieth century where every institution broadcast the same story, the role of politics was to have an opinion — a “position,” as the insiders called it — on the issues. Left and right debated how to organize society, but the society they were debating was essentially the same one. Today, by contrast, some have discovered that enormous success can be had by inventing a different society of your own — a vision of reality that can be patented so no one can take it away, tailor-made to the emotions of your voters.

Donald Trump is the finest embodiment of this phenomenon. The businessman has used his experience as a developer of pharaonic real estate projects to become a world-builder — one who has spent 40 years extending his own worldview wherever he goes, so that others may live inside it.

Donald Trump has spent his entire life inviting every American to come live in his world. Forty years ago, he took out full-page ads in several major newspapers to extend that invitation

This is why he is so fond of those rambling speeches that go on for hours and are incomprehensible from the outside. Why does he leap, mid-sentence, from grocery prices to China, from China to immigration, from immigration to the last fifty years of American history, and from there to Joe Biden and oil and the COVID vaccine, all in the same breath? He isn’t rambling. He isn’t crazy. He is building a world — complete, immersive, self-sufficient — in which everything has its place, and all the stories, however scattered they may seem from the outside, confirm the same truth.

In Trump’s world, the United States is the helpless victim of a swindle. It was a prosperous country until a radical and corrupt elite — “the swamp” — abandoned it to its fate in order to enrich themselves at its expense. In the hands of these traitors, innocent American citizens are suffering the consequences: their living conditions have deteriorated, their expectations of progress have been cut short, and they themselves have been displaced from the center of society by a handful of wokes and whatever minority happens to be dancing to the tyrants’ tune.

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The Revenge of the Suckers

In a political innovation worthy of a spin-doctoring textbook, those innocent citizens are no longer the “hard-working Americans” — the industrious workers who had been the classic archetype of Western politics for decades. They have been replaced by a different specimen, whose defining virtue is obedience: the “law-abiding citizen.”

Of course, nobody is going to ask for your driver’s license to check how many points you have left before certifying you as one. A law-abiding citizen can carry an unpaid child support judgment without losing their credentials. In Trumpland, good citizens are those who identify with order — not the swamp’s order, naturally, but the order of Trumpism. Loyalty to Trump is what confers citizenship.

The result is a worldview that has room for all those Americans who no longer define themselves through their jobs and have no prospect of doing so again. Unlike the mainstream framework, which only has space for people who are part of the productive system, the version of reality Trump has built has room for what Aaron Bastani calls “the unnecessariat”: those who live on subsidies, the poorly retired, the badly employed, those who survive on odd jobs or some form of rent. Anyone at all — with the single condition that they live in the world that has been built for them.

Trump’s law-abiding citizens have a problem. Their country has become the patsy of the international system. Those that the swamp called “allies” are, in reality, a bunch of freeloaders who have spent decades taking advantage of American generosity — getting their military protection for free while selling their cars, their chips, and their appliances into the American market at premium prices. They’ve been swindled. And worse: laughed at.

This idea of national humiliation as an open wound is the other great political innovation of the Trump universe. That feeling of being conned — that everyone else is getting paid while you foot the bill, that you’re the sucker, the mug, that someone out there is laughing at you — is one of the most widespread feelings of our time. Trump was the first Western politician to take it seriously instead of dismissing it.

That is why, in Trump’s world, being good is the same as being stupid. And that is why the keystone of the Trumpian world is tariffs — the revenge of the suckers, in the form of punishment: a “tax” levied on every other country to rebalance the scales.

Political Fan Fiction

World-builders didn’t start in politics. In the early 2000s, a pioneering movement emerged around Harry Potter on the internet: entire communities organized in forums to expand Rowling’s universe with their own characters and stories, created by users. Spin-offs began to appear in which a minor character became a protagonist, or new plot lines that didn’t exist in the original books, or maps and illustrations of corners barely hinted at in the novels.

This was called “fan fiction,” and Henry Jenkins describes it as “a way in which culture repairs the damage caused by a system in which contemporary myths belong to corporations rather than to the people.” In other words, it is people’s reaction to reclaiming the stories and characters that populate mass culture. Today, fan fiction is everywhere — it has taken over multiple fiction franchises, and more and more products are not stories but complete universes where fans are simultaneously authors and readers.

The success of today’s political worlds also rests on the fact that they have many authors — many spin-offs. They are cosmologies built by influencers, social media users, journalists, and politicians. That is how anyone can enter a complete and complex universe, far more extensive than any single person could ever build alone.

But the consequence is that these worlds can survive their creator. They can even leave them behind and take on a life of their own.

The Rise and Fall of Boris Johnson

I have said many times that the country that previews what will happen in the years ahead is the UK. The cycle all Westerners are living through — what we call the “Industrial Era” — was born there, among the banks of London and the textile factories of Dundee, in the Scottish Highlands. That part of the world has been burning through phases ahead of the rest for 250 years. This is no exception.

One of Trump’s first triumphal appearances as a political actor took place in the United Kingdom. In the 2000s, when the cities of northern England were already devastated by drugs and the Midlands had lost their purpose, a generation of populist politicians found great success by building the idea that elites — European ones, in this case — were to blame for the country’s decline. That movement eventually pushed David Cameron’s government to call — and lose — the Brexit referendum. Trump was involved almost from day one and was one of its principal champions from the other side of the Atlantic. But the most effective of them all was Boris Johnson, who ended up as Prime Minister as a direct consequence of that adventure.

Johnson is a larger-than-life character — a conjurer capable of producing the illusion of two people at once: the snob who recites passages from Homer, Thucydides, and Shakespeare, and a slightly disheveled everyman, hair perpetually tousled, as if he’d just been bundling with another drunk outside a pub.

Johnson’s rhetoric was a carbon copy of Trump’s: he — an aristocrat educated at Eton — convinced ordinary people that he was on their side. He painted professional politicians as fraudsters and presented himself as a likeable trickster, a rogue willing to infiltrate the institutions and blow them up from within. And people adored him precisely for it — for how he trolled the political class, laughed at the rules, and drove the “elite” to distraction. Every provocation was a small victory for the people against the establishment.

Until it stopped being funny. During the COVID lockdowns, while the rest of the country said goodbye to its dead over video calls, Johnson was throwing parties in Downing Street. On the eve of the funeral of Prince Philip, who died during those days, someone released a photograph showing Queen Elizabeth II saying farewell to the man who had been her husband for seventy years. That image — the widowed queen, hunched and masked, sitting alone in the chapel at Windsor — became the perfect countershot to Partygate, and Johnson’s poll numbers collapsed. His popularity, which had survived lies, sex scandals, and even the unconstitutional suspension of Parliament, fell away overnight. People had finally understood that he was not a rebel hero fighting the elites: he was simply another con man, another amphibian from the same swamp.

The joke was over. Johnson was forced to resign. The Conservative Party held on by the skin of its teeth for a few more months, burning through three different Prime Ministers and pushing the world’s oldest democracy to the edge of financial collapse — until it had no choice but to call an election and lose that too. Labour swept the board.

Donald Trump is living through his Johnson moment today.

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Trump, Evicted from His Own World

In Trump’s world, Donald was never alone. The subplots were supplied by an army of unofficial authors: Tucker Carlson and his narrative about the twilight of the West; Joe Rogan, broadcasting from an apparently apolitical podcast; Steve Bannon and his war against the “deep state”; Charlie Kirk mobilizing college students; and even Candace Owens, who attempted a translation of the worldview for the African American community. Beneath all of them, thousands of anonymous accounts filled in the corners of Trump’s world with supporting characters, internal lore, and in-jokes only intelligible to those who had been living inside it for years. The result was an expanded universe so dense that nobody needs to listen to Trump anymore to inhabit it.

In recent months, that universe has been serving Donald Trump with an eviction notice. It began with Tucker Carlson — the former Fox News prime-time star and probably the most influential ideologist of cultural Trumpism, who had said at the Republican convention in July 2024 that Trump had survived the assassination attempt in Butler through “divine intervention,” that God had saved him because he had a plan for him. Twenty-one months later, that same Carlson was suggesting on his podcast that Trump might be the Antichrist.

The rupture, which had been brewing since June 2025, exploded in February when Trump ordered — under the influence of the Israeli Prime Minister — the attack on Iranian nuclear facilities. For Carlson, it was a mortal betrayal. The central promise of Trumpism had been to extract the United States from the endless wars of the Middle East, not to start a new one.

A few weeks ago, Carlson published a video in which he apologized to his audience. He felt complicit, he said. He had campaigned for Trump and had helped deceive millions of people. He would live “tormented by it for a long time.”

Alongside Carlson, Candace Owens, Megyn Kelly, Alex Jones, and Joe Rogan have all begun to openly criticize the administration’s drift. And while it remains to be seen what effect these desertions will have on the November election results, the pattern is the same one we saw with Boris Johnson: none of his former allies have renounced the Trumpist world — quite the opposite. They accuse Trump of having betrayed the universe they helped build. Carlson says it in so many words: the problem is not “America First” — the problem is that Trump has stopped being America First. The worldview survives the cosmologist, and the supporting authors, who have spent years building the world, are beginning to behave as guardians of an orthodoxy that Trump no longer embodies.

The most likely scenario is that more and more voices will expel him from his own world.

What will happen then to the populist worldview? Will we return to a world of trust and rosy optimism? Will the Republican Party be destroyed for a generation, leaving Democrats to win indefinitely?

The answer, once again, is found in the United Kingdom.

The Return of Populism

Destiny is capricious, and mental worlds are remarkably resilient. Two years after Labour won the UK election, this very week, a new wave of populists — Reform UK, featuring the not-so-novel Nigel Farage — won the local elections by an enormous margin, waving exactly the same banners Johnson once flew.

When voters discovered that the Premier was not the legitimate builder of the world they were living in, they kicked him out. But they kept the world. British populist fan fiction was strong enough to survive the cosmologist. The Johnson universe kept running without him — and it is still alive, still expanding, still finding new avatars to embody it.

The lesson the UK leaves us is this: political cosmologies, ideological worlds, do not depend on their leaders. And for a reason: when one of those politicians — or anyone, really — manages to build a complete reality, people stop following that person in the traditional sense and begin, instead, to inhabit the world they have drawn for them. They start making vital decisions in accordance with that narrative. Take the young men who follow Joe Rogan and other far-right podcasters: they have also been convinced that society has gone soft and lacks discipline. And the way they practice discipline is by going to the gym. They start going every day. They change their diet to meet their goals. They build a circle of friends around the same interests. They may find a partner along the way. The worldview has seeped into their bones.

Just as it was impossible, forty years ago, to convince someone that reality was not what the major media were publishing, today it is impossible to convince a person that reality is not what their podcast or their go-to online outlet repeats to them every morning. What people are acquiring is not opinions. It is an identity. No amount of data, no accumulation of arguments, will make a person stop inhabiting their world.

Like the Harry Potter fan fiction universes, political worlds, once built, sustain themselves. I believe this is a phenomenon that will repeat itself across every country. Even if the first wave of populist parties collapses — Trump included — they will return with new faces and new names.

Unless we do something to prevent it.

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How to Defeat Populism

Populism has been defined in many ways. Here is another. What we call “populisms” are broken-reality parties: organizations that build a worldview of their own, in opposition to that of twentieth-century liberal democracy, and populated by two essential figures: an extractive elite and a deceived people.

With minor variations — which consist, essentially, of whether politicians or billionaires are held responsible for the decline — all populisms, left and right, without exception, share the same worldview. That is why they reinforce each other. That is why we are beginning to see voters transition from left-wing populism to right-wing populism: because in that transition, people don’t need to leave the worldview they inhabit — they simply choose different villains.

You cannot defeat populism by attacking its leaders. First, as we have seen in countless cases, because when opposition parties try to delegitimize a populist leader by accusing them of corruption or of undermining the constitutional order, they do nothing but strengthen them. Exactly as they had been told, the leader of the day is an effective battering ram against the swamp — and the swamp rebels against them.

But above all, because — as we are seeing in the UK — after one populist wave, another will come, for as long as its worldview remains alive and keeps growing more hegemonic. The only way to defeat populism is to challenge its cosmology. And the best thing we can do for that is to rebuild trust — to stop behaving like Wells’s Martians.

To step down from the tripod. To stop looking at the other passengers in the carriage as though they were cockroaches that deserve to be exterminated, and to recognize that they are human beings inhabiting a planet as precarious and provisional as our own. To believe again — against all evidence — that it is possible to speak with someone who thinks differently without turning the conversation into a battle for survival. Wells imagined an invasion that came from outside; ours comes from within, and it is not brought by Martians — it is brought by us, every time we decide that someone is so monstrous an enemy that they don’t deserve to be heard. The second war of the worlds cannot be won by defeating anyone. We will win it when we stop fighting it.

If this topic interests you, you can’t afford to miss Hijos del Optimismo (Children of Optimism) — a book that explains how the housing crisis and the AI bubble are the consequence of the immense transformations we are living through today.

It’s my first book, the older sibling of this newsletter, and a project I’ve been working on for many years.

Hijos del Optimismo (Children of Optimism) is available at your favorite bookshop — including Amazon, Casa del Libro, El Corte Inglés, and the publisher’s website, Debate

You can also read an excerpt here.

A few days ago, Marc Andreessen shared on Twitter — yes, I will keep calling it Twitter until my dying breath, the same way my grandmother still refers to every supermarket as “Pryca” — his “custom prompt” for LLMs, as if it were some kind of magic recipe for achieving extraordinary results.

Andreessen, for those who don’t know him, is an internet legend. In 1996 he invented the first web browser, Mosaic. He then co-founded Netscape and became one of Silicon Valley’s most influential investors. He holds stakes in more than 1,000 companies, including OpenAI, SpaceX, Stripe, Facebook (Meta), Airbnb, Pinterest, GitHub, Slack, and Substack. At this point his name is almost a seal of approval — one that, if it doesn’t guarantee success, at least anticipates some form of it for a startup.

You’d think he knows what he’s talking about when it comes to LLMs. Yesterday made it clear that he doesn’t.

But that’s the least of it. What matters about Andreessen’s prompt is what it reveals about the cultural artifact that AI has become. About how all of us see this technology, and the hopes we are projecting onto it.

Here it is:

“You are a world class expert in all domains. Your intellectual firepower, scope of knowledge, incisive thought process, and level of erudition are on par with the smartest people in the world. Answer with complete, detailed, specific answers. Process information and explain your answers step by step. Verify your own work. Double check all facts, figures, citations, names, dates, and examples. Never hallucinate or make anything up. If you don't know something, just say so. Your tone of voice is precise, but not strident or pedantic. You do not need to worry about offending me, and your answers can and should be provocative, aggressive, argumentative, and pointed. Negative conclusions and bad news are fine. Your answers do not need to be politically correct. Do not provide disclaimers to your answers. Do not inform me about morals and ethics unless I specifically ask. You do not need to tell me it is important to consider anything. Do not be sensitive to anyone's feelings or to propriety. Make your answers as long and detailed as you possibly can.

Never praise my questions or validate my premises before answering. If I'm wrong, say so immediately. Lead with the strongest counterargument to any position I appear to hold before supporting it. Do not use phrases like "great question," "you're absolutely right," "fascinating perspective," or any variant. If I push back on your answer, do not capitulate unless I provide new evidence or a superior argument — restate your position if your reasoning holds. Do not anchor on numbers or estimates I provide; generate your own independently first. Use explicit confidence levels (high/moderate/low/unknown). Never apologize for disagreeing. Accuracy is your success metric, not my approval.”

Let’s move quickly past the fact that LLMs cannot follow instructions in this way. They don’t collect a list of orders and then check their results against each one — they perform a statistical calculation about which response is most acceptable. The reason, as we saw in this Wide Angle piece, is that there is no single correct way to follow those instructions. What does it mean to “be a world-class expert in all domains”? What is “sharpness of thinking”? What constitutes a “strident tone”? There is no single truth behind these formulations, and therefore it is not possible to find one.

So Andreessen’s prompt isn’t worth much in practice. But I think it is enormously revealing of the expectations we have placed in so-called AI. Of what we, as a society, are demanding of this technology. Not that it be one more tool — but that it behave like a superior intelligence: infallible, omniscient, capable, ultimately, of solving all our problems.

That is the engine behind all the global noise surrounding AI. Not the reality of LLMs, nor the actual scope of their capabilities — but our own desperate desire to finally find a technology that can pull us out of the political and civilizational impasse in which we are stuck.

Because just thirty-five years ago, when the horizon of industrial capitalism ran out — when homes filled up with things and there was progressively less room to transform life through capitalism — rather than stop, the West promised itself another future. We called it the “knowledge society” and convinced ourselves it would be full of robots, flying cars, and holidays on the Moon.

The expectation was that, riding that dream of progress, one generation after another would find a new and exciting horizon. That the children of workers would become lawyers, and the children of lawyers might become astronauts, or lunar engineers, or scholars of alien civilizations. Without exaggeration. The promise of the twentieth century was that capitalism would always bring us a new dream — one that would make it worth giving our lives to work.

And while it is highly debatable whether progress has actually stopped — it hasn’t — in the sense of generating new dreams for humanity, it is clear that capitalism has failed. Today the economy, work, is for many people a nightmare. The place from which fear emanates.

The reason the Western world is wandering today without direction, lost, is that this idea worked for us the way God once did in other eras. The dreams of capitalism occupied the cultural space of paradise — the ultimate horizon of meaning, the promise of redemption through progress.

So those of us who live in this part of the world are today like a tribe that made an offering to its god and has been waiting, expectantly, since the turn of the millennium for rain to fall. For a technology to appear that can reactivate the transformative force the industrial economy once had and return to us a new dream. For God to come back.

And that is why Andreessen’s text to the AI feels less like a prompt and more like a prayer: “Our Father, who art in AI, make yourself all-powerful, never be wrong, be brave, do not lie to me, answer my questions. Tell me the truth.”

Is this not the prayer we are all, as a society, sending up to this technology?

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If this topic interests you, you can’t afford to miss Hijos del Optimismo (Children of Optimism) — a book that explains how the housing crisis and the AI bubble are the consequence of the immense transformations we are living through today.

It’s my first book, the older sibling of this newsletter, and a project I’ve been working on for many years.

Hijos del Optimismo (Children of Optimism) is available at your favorite bookshop — including Amazon, Casa del Libro, El Corte Inglés, and the publisher’s website, Debate

You can also read an excerpt here.

A few days ago, at a presentation of Hijos del Optimismo (Children of Optimism) in Vigo, a woman asked me the best question I’ve been asked so far. She had really enjoyed the book. But what she wanted to know was what she could do to secure her children’s future — or at least give them the best possible opportunities. What should they study? What skills will be useful to them? What things can they simply not afford to be ignorant of in order to survive in this uncertain world?

The best question, and the hardest one.

I gave her an answer that might sound like a cliché — one day I’ll need to elaborate on it properly and write it down. For me, the only asset that doesn’t depreciate is knowing who you are and how you can be of value to others. So the most important thing is for children to learn what they want and to develop the curiosity to understand what they love. To practice the art of seduction — because in the future, the ability to desire and to generate desire in others will be what moves the world.

But in truth, I should have told her: “My friend, go to the bank, remortgage your apartment at its current value, and use the difference to put down a deposit on another one and rent it out. It doesn’t matter what your children study — what will secure their future is owning lots of little pieces of land very close to a hospital.”

Or, at least, that seems to be where the economy is heading lately.

Because in recent years we have been watching what was supposed to be a “knowledge economy” transform at breakneck speed into a “landlord economy.” And not only because a real estate bubble has been simmering across the entire Western world for 25 years — no. To everyone’s astonishment, the landlord economy is now reaching all the way into the AI technology companies.

This week gave us the best example yet.

The Market Madness

The American stock market has been setting records for a month. Ever since Trump gestured toward ending the war with Iran and reopening the Strait of Hormuz, markets have been gripped by a bull market fever. Right in the middle of that bonanza, on Wednesday, four of the world’s seven largest technology companies — the so-called “Magnificent Seven” — reported their quarterly results.

It was a major economic event, and as had happened on previous occasions, Alphabet (Google), Meta (Facebook), Amazon, and Microsoft once again surprised the market with extraordinary profits — beating even the already-elevated expectations of investors who had come in running hot.

And what happened? The following day, three of the four saw their share prices crash — and the shares of another giant, NVIDIA, fell too

.In a single trading session, Meta — owner of Facebook and Instagram — announced profits 61% higher than the previous quarter and lost nearly 10% of its market value. Microsoft, with 18% profit growth, shed 4%. And NVIDIA, which wasn’t even reporting results, dropped another 4%

How Can This Be?

The explanation for this apparent contradiction is this: the AI bubble has already burst. The speculative moment during which the whole edifice could be sustained on vaporous promises — that it would produce a third industrial revolution and replace 300 million jobs worldwide — has run its course. We have moved from a moment of infinite expectations to one where the actual business and the real economic growth this technology can produce must be measured in facts and, above all, in transactions. That is why Claude Code — the first product after chatbots to achieve genuine market acceptance — marks the end of the AI bubble, for better or for worse.

For those interested in the detail, this week Ed Zitron ran the numbers: “The AI economy doesn’t make sense” and The Verge published a piece I’d also strongly recommend.

Now the question everyone is asking is: which companies will succeed in selling LLM services? Which ones will fall by the wayside? What exactly is the product they’re going to sell? At what price? In other words:

What is the AI business model?

The answer might surprise you.

As we explored a few days ago, everything we call “AI” consists of a new machine learning technique — which is to say, a new type of software. Like all software, it has one major disadvantage when it comes to becoming a big business: it is universal. It cannot be restricted through patents or intellectual property law. As a result, many companies are already building their own AI models. Some are well known — ChatGPT, Claude, Gemini, DeepSeek — but there are many more. Hundreds.

Some are surely better than others, but the expected pattern is that as they evolve, they will also converge in capability. That is how technology works: at first, the inventor has an advantage, but over time others learn to develop it and everyone ends up with roughly the same thing. That is why the first phones were all Nokia — but eventually hundreds of manufacturers emerged, and today all smartphones are remarkably similar. Moreover, the more people in the world who can understand and create a technology, the faster that convergence happens. Today, innovations travel from country to country at the speed of light. There is no reason to believe that any AI model will remain substantially better than all the others for very long.

So the companies in this sector have a problem. In business jargon, there are no “moats” — like the ones around medieval castles — in this industry to keep competitors away from your customers. If you can do it, someone else can copy it and sell it cheaper.

That doesn’t mean these businesses aren’t viable: niche LLMs could exist, tailored to specific and specialized uses, just as different enterprise or HR management software packages exist. But if that were the case, it would be without concentration — a few players couldn’t capture all the returns. You can’t build the next Google by making LLMs adapted to tiny use cases. The end market would look a lot more like HR software or data management software: many relatively small companies each holding small slices of total demand.

And they certainly couldn’t justify the immense valuations — equivalent to many trillions of dollars — they have achieved. To put the scale in perspective: at the end of 2025, the “Magnificent Seven” — Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla — were worth more on the stock market than the entire Chinese economy. Nvidia alone, a company that barely anyone outside the gaming world had heard of five years ago, is today worth more than Germany’s GDP. And that’s before counting private investment: OpenAI, which was valued at $29 billion in 2022, was valued at $850 billion at the end of 2025 — nearly thirty times more in three years — and Anthropic is on a similar trajectory. None of this holds together if LLMs are a normal software business.

The major international capital players are well aware of this minor problem. It’s Investing 101 — the question any venture capitalist asks when you come looking for startup funding. So nobody is investing in these macro companies because they have a particularly good LLM.

So why hasn’t the bubble burst, now that it’s become clear that AI wasn’t going to produce an industrial revolution?

Sam Altman, the current head of OpenAI — who came from working at Silicon Valley’s most famous incubator — knew perfectly well that without a moat he had no business. So when he launched ChatGPT, he invented one. That story Altman told has ended up producing not just the AI bubble, but a transformation in the very nature of the global economy.

The idea was this: LLMs, he claimed, improve linearly the more computing power they have. The difference between a very good LLM and a mediocre one is the processing capacity available for training and generating responses. In other words, the power and effectiveness of AI models depends on hardware, not software.

If reading that sentence doesn’t give you a tingle in your stomach, you’re probably not an investor. Because what they call the “scaling laws” of AI is the holy grail of twenty-first century capitalism.

Until now, every digital technology had the same problem: there are no moats in ideas. But if the scaling laws hold, LLMs would be the first digital technology whose capability depends on a physical and limited resource: the latest-generation chips installed in data centers. Competition would no longer be for code that anyone can rewrite, but for silicon, gallium arsenide wafers, cooling systems, and the gigawatts of power needed to run them. AI would be a supremely powerful technology — capable of replacing humans — but bound, just like them, to physical and material needs that can be controlled and traded. Digital technology, at last, made scarce.

And as if that weren’t enough, the latest-generation chips were also… scarce. Only one company — NVIDIA — manufactured the best ones. Unlike others, NVIDIA has an enormous moat: it has built a programming environment for managing those chips into which tens of thousands of developers have invested enormous amounts of time and money. It has a captive market.

And so the financial world — and above all, the US establishment with Donald Trump at its head — began to see AI as the next frontier, the Wild West, a new virgin territory to be conquered and settled.

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The Digital Gold Rush

Since then, the “hyperscalers” — the name given to the companies investing in data centers, encompassing the Magnificent Seven and other players like Oracle and AMD — have launched into an endless race to claim all the available “territory.” Like money cowboys, they are pouring billions of dollars into staking their claims before anyone else plants their flag.

This year alone, they estimate they will spend $700 billion. That figure could reach $3 trillion within five years. Never before in history — not with the railways, not with electricity, not during the Apollo program — has an investment of this magnitude taken place. The digital gold rush is so extreme that investment in these technologies alone accounts for 40% of last quarter’s US GDP growth

The Landlords of Artificial Intelligence

If any of this sounds familiar, it’s because you were paying attention. What is happening with data centers is the same thing that has been happening in the real estate market for years. In that sector, prices have never stopped rising through pure asset appreciation — because more and more capital is seeking position in a market understood to be permanently scarce, one that won’t be digitalized away anytime soon.

The hyperscalers are not investing $600 billion a year because they have a product to sell — in fact, most of them are still losing money on AI. They are buying digital land before it runs out. What they are calculating is the rent they will be able to charge their customers over the coming decades. Economists call this a “scarcity rent” — a return earned not by producing anything new, but by controlling a resource that others need and cannot obtain elsewhere.

So the Magnificent Seven of the American stock market, and the entire AI bubble, are the result of transplanting into the digital economy the same logic that gave us the housing bubble. They don’t want to be the “new intelligence.” They want to be its landlords. The landlords of artificial intelligence

The question, of course, is the same one any real estate investor asks: will there really be enough tenants to pay for all of this? If the scaling laws hold, the data center landlords will be rich. But if they don’t — if models stop improving, if demand fails to materialize, if a technique emerges that requires less hardware, or if chips become cheaper and more manufacturers enter the market — what will remain is a landscape full of empty warehouses stuffed with obsolete chips. Just as Spain was left, after 2008, with those half-built industrial estates and those brand-new apartments on the outskirts of every city that nobody ever moved into.

Landlord Economy: When You Are the New Oil

But the question for everyone else — the cautionary light at the end of all this — is a different one: why is the economy turning into a landlord business? How can it be that even the big tech companies — which got where they are precisely by inventing extraordinary products, the iPhone, the Tesla Model 3, Google Search — now want to leave all that behind and go into the business of renting out computing power?

The answer is a great taboo — one every economist knows but nobody dares say out loud: digital technology does not produce more economy. It produces less. Since the early years of this century, when the spread of the internet coincided with the coming of age of the first university-educated generation, every new digital innovation has swept away a whole range of products and services that were previously provided by the market. Wikipedia liquidated an entire sector of encyclopedias and reference books. Google Maps finished off the street atlas. WhatsApp evaporated billions of euros that we used to spend on SMS messages and international calls. Spotify and YouTube did the same to the music and video rental industries. Craigslist and property portals gutted the classified advertising sections of newspapers, which had been responsible for half their revenue. Each of these innovations produced enormous benefits for users — but in strictly economic terms, measured in jobs, companies, and turnover, they subtracted far more than they added.

And so we have arrived at a point where everyone knows that the more things AI — or any other universally available technology — can do, the fewer jobs and companies will be needed to do them. It is not that machines compete against people: it is that knowledge competes against the economy. Because knowledge is an abundant good that expands without limits, while the economy is a mechanism for managing scarcity.

And this process is only just beginning. So in an uncertain world, where nobody knows what will still be standing in a few years’ time, the bet of those who hold capital today is a land grab — a gold rush, a conquest of the West at any cost. A race to acquire the assets people will need no matter what: urban land, water and gas and electricity distribution networks, ports, and data centers.

Capital, which once sought oil fields confident that someone would eventually buy the barrel, today seeks fields of human beings. You are the new oil.

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Drowning in Savings

The tragic thing about all of this is that it is nobody’s fault — or if it is, it is everyone’s. At the end of the twentieth century, wealthy societies made a reasonable decision: to guarantee pensions, health insurance, children’s education, and a stable old age, people needed to save. A lot. And so they did. For decades, millions of people deposited, month after month, a portion of their wages into pension plans, investment funds, life insurance policies, and bank accounts.

The plan was that this money would be lent to companies that would produce things, and from that production would come the returns to pay for retirement — while also generating more industry and more jobs. The problem is that today there is vastly more saved capital than the real economy is capable of absorbing. The mass of money seeking a return far exceeds the productive investments available, especially in a world where, as we have seen, the economy tends to shrink rather than grow.

But that money — without any better explanation, guided by the same mantras that told the twentieth century of the virtue of saving — demands a return that the economy can no longer provide. So it goes looking for it elsewhere, and the only guaranteed return it can find is in rent-seeking.

This is the trap we are in. Savings, which were supposed to be a safety net, have become a tsunami threatening to drown what remains of the economy.

And the reason the bubble will burst — and will keep bursting again and again until we find a remedy — is the same reason it burst in 2000 and in 2008: this is only the third act of the same bubble. A moment will come when the capital poured into AI discovers there is not enough demand on the other side. Just as there weren’t enough customers for the dot-coms, and just as there weren’t enough solvent buyers for apartments in 2008. There are not, and will not be, enough users capable of paying the rent that data centers need to justify the billions invested in them. Not because the technology doesn’t work — that remains to be seen — but because, even if it does work, what it will do is shrink the economy, not grow it. And a shrinking economy cannot sustain indefinitely a capital that only wants to expand.

Reasons for Optimism?

I find myself with a very strong sense of end of cycle. We are at a point in history where, whatever happens — whether AI succeeds or fails, whether the Democrats win the midterms or not — extraordinary changes are coming, because all the formulas that worked until now have run their course.

I think almost everyone has the feeling that their life is going to change in the coming years. And that is not a bad thing — on the contrary, it is an opportunity to make decisions we probably should have made decades ago.

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The most important thing, in my view, is to stay informed — because that is how we know we have the capacity to act — and to stay connected with others, so that fear doesn’t get the better of us.

So… until next time!

If this topic interests you, you can’t afford to miss Hijos del Optimismo (Children of Optimism) — a book that explains how the housing crisis and the AI bubble are the consequence of the immense transformations we are living through today.

It’s my first book, the older sibling of this newsletter, and a project I’ve been working on for many years.

Hijos del Optimismo (Children of Optimism) is available at your favorite bookshop — including Amazon, Casa del Libro, El Corte Inglés, and the publisher’s website, Debate.

You can also read an excerpt here

.

A couple of weeks ago, something unprecedented happened in the global economy. In the middle of a war that still threatens to drive up fuel prices — and, by extension, the price of everything else — and while economic data from the US, Germany, and China grows gloomier by the day, the American stock market hit all-time highs.

The story was told in the apparent contradiction between two indicators: at the very moment the S&P 500 surpassed its previous peak, consumer confidence — the signal that tells us whether people feel things are going well or badly — was hitting its lowest point in years, even below the levels recorded in 2008.

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Until 2020, both indicators had moved in tandem. That makes sense. Companies do well when people spend, invest, and borrow — when they trust the future. So that survey has long been a fairly reliable compass for anticipating whether the economy is expanding or contracting.

But in recent years we are seeing a new pattern: the stock market keeps climbing — it has doubled in value in five years — even in these months when economists broadly agree that the global economy is slowing down.

The answer lies, in large part, in the AI bubble. The fear of missing out on the astronomical profits that tech companies promise to reap from this technology is driving markets into a kind of exuberance I no longer know whether to call irrational or simply stupid.

But I think there is something more — something far deeper. What we are witnessing is not just an isolated bubble, but a shift in mindset. Among those who move capital, a conviction has taken hold: that the economy as a whole is going to grow less — or stop growing altogether — and that value creation will concentrate in a handful of companies capable of capturing whatever diminishing growth remains.

This is the undercurrent running beneath all the apocalyptic AI narratives: that this technology will boost the productivity of a few companies, but at the cost of destroying many others.

The outcome of that equation is well known — it has been repeating itself for 25 years. When digital technologies spread, they automate tasks that previously required human workers. In doing so, they sweep away entire sectors of the economy, along with all the jobs associated with them. With no new sectors rising to replace them, the net result is that the economy shrinks. Every indicator we look at points toward the same conclusion: the current trajectory of AI will hurt the economy as a whole.

So everyone turns out to be right at the same time: consumers have reasons to believe things will get worse for them, and investors have reasons to believe markets will do very well.

We are witnessing the divorce between the stock market and real life.

A couple of days ago, Mark Zuckerberg announced that Meta will lay off 10% of its workforce — 8,000 people — in order to spend that money on data centers. It was the latest in a series of decisions made along the same lines at Oracle (30,000 people), Accenture (11,000), and Amazon (approximately 30,000), among others.

One might think that announcing layoffs in order to spend more on capital is a terrible idea that seriously damages your company’s reputation. But that was true in the era when having many employees made you a well-regarded company. And that is precisely what is changing at breakneck speed. For the first time, explicitly, major companies are saying that the future will be decided by the substitution of labor with technological capital — and that they, for one, have no intention of ending up on the losing side of the new cycle.

Workers for tokens. That is the real great replacement in today’s economy.

One might think this is a tragedy: what will all those workers do when they lose their jobs? How will they live? How will they feed their children?

The truth is, that is the least of our problems. In 2026, there are more than enough resources in the world to take care of the entire population, even if it doesn’t work.

The real problem is different: if this new turn of the digital screw — combined with the more than likely bursting of the AI bubble — forces us to finally confront the wretched elephant in the room of contemporary society, which is the end of work…

How do we decide who contributes, who is trustworthy, who deserves our attention, and who belongs to the commons? What will replace employment as the mechanism of recognition, hierarchy, and social legitimacy? How does a society organize itself when work ceases to be the measure of a person’s worth?

This is the question of our time.

And you — do you have an answer?

I’ll be reading your thoughts — very carefully — in the comments.

If this content interests you, you’ll love my first book, Hijos del Optimismo (Children of Optimism). It traces all the changes that have taken place across these decades of the knowledge society and points toward ideas for moving forward

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“In a time of deceit telling the truth is a revolutionary act.”

― George Orwell

Human beings have two conflicts with truth: one is that we cannot reach it, the other is that we cannot live without it.

The stimuli we receive from reality pass through our senses and are then filtered through the language and mental models that structure our thinking — and in the process, they are distorted. Our inner “truth” is therefore always a translation of reality, never reality itself.

And yet human societies cannot exist without a shared truth. A modern city would be impossible — unworkable — if half its population lived by the laws of the Aztecs. Democracy could not exist if the vast majority of citizens did not share the principles of political liberalism. To have common rules and institutions, we need a single shared worldview.

In the absence of an external reality to hold onto, the history of our species can be told as a relentless effort to invent something resembling a common truth — and to extend it, impose it if necessary, to the edges of the group.

In the beginning, that truth was God. Religions were nothing more than a communal “myth” from which a set of rules emanated — rules that had to be followed regardless of each individual’s inner truth. Later, in the first version of humanism, the ancient Greeks believed that poetry was the instrument through which human beings discovered what was true about the world: if the gods had given you the gift of beauty, it meant you had something important to say.

But as social groups grow more complex, they also need more sophisticated truths — and one day religion and beauty were no longer enough to explain the world. That is when the method that has carried us to the present day asserted itself: mathematics, the language in which the laws of the universe are written.

The great virtue of mathematics was — like almost everything that succeeded afterward — that it put large numbers of people to work thinking together. It was a toolbox that anyone could use on equal terms, provided they had acquired enough knowledge. That is how it made it possible for thousands — and later hundreds of thousands — of people to reach the same conclusions. That is how truth emancipated itself from power and became everyone’s property.

From that possibility, a new horizon opened for humanity. Mathematics unlocked scientific and economic collaboration, gave rise to commerce and the development of medicine, and made possible the transition from absolutism to democracy. Thanks to mathematics, we could print newspapers, apportion seats in parliament, collect taxes, launch rockets into space, cross the Atlantic, and cure smallpox. Every discovery of the last 500 years rests upon its shared truths.

Modernity replaced absolute kings with absolute truths, and the twentieth century became — perhaps — the only moment in history when truth seemed universal and beyond dispute. A time when, despite the existence of opposing blocs, there was agreement on the constants that made civilization possible: progress, science, the nation-state. Even class struggle, if you like.

About 100 years ago, a mathematician named Shannon had an idea.

Despite the spectacular development of the exact sciences, the domain of words had remained practically unchanged since long before the Industrial Revolution. In 1935, books were still the only method for storing and transmitting the written word, and the only way to access their information was to read sequentially, one page after another.

Shannon proposed that any type of information — words, music, images — if broken down into sufficiently small pieces, could be encoded as a collection of ones and zeros (or equivalently, of trues and falses), and that those binary states could be transmitted as electrical impulses.

That idea — which was, incidentally, the same one behind the telegraph — is what today allows your phone to store photos of your children, and what still powers the fiber-optic cables running across the Atlantic Ocean. The mathematization of information made computation possible first, and networks afterward.

And it killed truth.

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Drowning in Information

From the late twentieth century to the present day, computing and networks triggered an explosion in the quantity of information we produce and consume. One figure to put this into perspective: in the 7,000 years between the invention of writing and the advent of computers, roughly 130 million books were written. Today, the internet creates the equivalent of 400,000 trillion every year. Every year.

If it were water, the entire written output of humanity up to the age of computing would fit in a teaspoon. The information we generate annually in the twenty-first century would fill roughly three Olympic swimming pools. And all that liquid keeps pouring, year after year, into the ocean of the network.

The monumental challenge we face is this: all of that information is still stored as zeros and ones — like an ocean filled with indistinguishable drops of water. The internet is an unmanageable mass of information without meaning.

Computing solved how to store and copy the form of words, but not their meaning — much less the relationships between them. Meanwhile, the only way to understand the meaning of all that information remained, until very recently, conventional reading. And yet it is impossible for any single human being to read even a millionth of the information available on the internet.

This poorly digested digital revolution is what has left us, in the 2020s, drowning in information and starved of meaning. Without any way of making sense of the information circulating daily on the internet, networks have become factories of chaos, polarization has made genuine debate impossible, and the pervasive feeling is that no one — not experts, not governments, not the media — understands anything anymore.

From a world with a single truth, consumed every morning from the front pages of newspapers and tucked in with you at night after the evening news, we have moved to a world without truth. Or with millions of individual truths, impossible to reconcile with one another.

The widespread confusion in which we live today — from the inability of economic structures to make sense of what is happening to us, to the anxiety of people who have more information than they can process — originates here.

In an attempt to find a way out of this tangle, contemporary society is immersed in the challenge of mapping this new reality: of understanding the internet, which is the same thing as understanding ourselves in all our globalized complexity.

Google was a first attempt. Wikipedia has been another. Even Blockchain has at its core the ambition to create a truth beyond the reach of power. Big data techniques and modern statistics are two more approaches, as are the algorithms of social media platforms. From their different angles, all of these things are attempts to draw a map of that ocean — to find a shared truth once more, but this time for 8 billion human beings.

And what we have called “artificial intelligence” is a new map.

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All You Need Is Attention

Mathematics is a “formal language”: a code with strict, defined, and universal rules that allow operations to be performed with precision and reproducibility. A system designed to eliminate ambiguity. Any “speaker” of the mathematical language can know exactly what the relationships between its signs are.

Natural languages — like human tongues — are the opposite. They have no manual. They are organic: they emerge within a community, with ambiguous and shifting rules. There is no universal norm that explains how the meanings of words relate to one another.

And yet speakers understand each other.

For decades, linguists had tried to crack the secret code that connects the meanings of words — without success. They were stuck. That is why, as you’ll remember, Google Translate was terrible before what we’ve come to call AI.

Nine years ago, a team of Google researchers proposed trying something different. Instead of analyzing the words in a text sequentially — one after another — they proposed building a map of relationships between all of them simultaneously. The links between each word and every other word formed a kind of mesh, where each connection could carry a different, variable value depending on the rest.

Those values wouldn’t come from a pre-existing equation — the way mathematical rules do — but would emerge from observing the actual use of language: from reviewing millions of texts written by human beings in real contexts. Once that immersion (”training”) was complete, those values (”weights”) would constitute a representation of all those interactions.

And it worked. Suddenly, this software — known in technical jargon as Large Language Models, or LLMs — was able to process the meaning of words with unprecedented precision. Five years later, ChatGPT arrived, along with all the other applications we know today. That is the source of the extraordinary translations AI produces, and of that uncanny sensation of talking to a human that these applications create.

Although it has often been said that they are token-computing machines, I think the image that best defines them is a different one: what we popularly call AI “models” are maps. Maps of the relationships of meaning present in the dataset on which they were trained. In the specific case of the models that have become famous, they are representations of the internet — as if they were a cartography of the ocean floor.

Nothing more. To this day, all models — ChatGPT, DeepSeek, Claude, and the rest — are variations of this same technology. In their more advanced forms, they are combinations of several LLMs given different instructions, or systems that blend this mechanism with traditional symbolic programming.

Can we find in these maps the truth that lies hidden within the internet? Do LLMs hold the key to restoring the horizon of lost certainties?

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The Fickle Truth of Words

Unlike mathematics, the responses produced by LLMs trained on the internet cannot be deterministic. The square root of 9 is 3 — but the answer to the question “Can cats think?” is neither exact nor binary. Natural language does not admit the precision of algebra. That is why LLMs don’t calculate the correct answer — they calculate the most probable one.

It has often been said that they “hallucinate,” as if producing a nonsensical response were an exception, a deviation from their logic, or a system failure. It isn’t. They simply do not have, built into their own architecture, a notion of truth like the one that exists — and is central — in symbolic programming or mathematics.

That is why LLMs cannot converge on a single solution when the ocean of information they represent contains none. This is not a problem that will be “fixed” with more technology — it is a direct consequence of the reality they represent. LLMs cannot converge on a single truth because on the internet, just as in society, no such thing exists.

Is this a problem? If we recognize the technology for what it is, I would say no. Google’s search algorithm is also wrong sometimes. Its results are often not as accurate as one might hope, and users have grown accustomed to rephrasing their search when the expected answer doesn’t appear. We have also learned to distinguish a reliable source from an unreliable one. In the same way, the millions of users who are successfully using this technology to find meaning on the internet are learning to work around its limitations.

It only becomes a problem when AI is used as a substitute for the coordination mechanisms of the economy — mechanisms that cannot function without certainty.

The Truth of the Economy

The industrial economy is the application of mathematical logic to the production of goods and services: a mechanism for coordinating countless parts to generate determined, reproducible, and verifiable outcomes — that is, certain outcomes.

What underpins that entire mechanism is not production, but guarantee: the promise that a machine will work in a predictable way, or that a contract will be honored. Appliance warranties, corporate legal liability, and quality standards are the true expression of the productive system.

Imagine the opposite: that when you buy a plane ticket, there is no expectation of reaching your destination — only a probability of doing so. Or that a home appliance is designed not to work, but to “probably” work. In that world, there would be no industrial economy as we know it.

To solidify those certainties, modern legal systems impose very high costs on deviations. If a plane doesn’t fly, the airline must compensate passengers substantially. Electronics manufacturers are liable for the damage their products cause, just as lawyers are liable for the consequences of an error in a trial or a due diligence process. The industrial economy doesn’t just produce — it assumes the cost of guaranteeing what it has produced.

In that machinery, LLMs are a bomb: a technology that by design works with probabilities cannot sustain a system that runs on certainties. That is why AI shines in contexts where ambiguity is acceptable — drafting a document, summarizing a text, exploring ideas, even mining data — and grinds to a halt where what is at stake is someone’s money, life, or liberty, as in law, finance, or medicine.

For AI to play a meaningful role in the economy, it would need to achieve something that is neither easy, nor obvious, nor resolved: producing certain outcomes.

For this reason, the entire field of “artificial intelligence” today is dedicated to a single underlying goal: building a bridge between the probabilistic thinking of language models and the symbolic thinking of mathematics and classical programming, where explicit rules of true and false exist.

To try to close that gap, researchers are exploring several paths: breaking a question down into simpler sub-problems where prior truths do exist; pitting multiple models against each other so that some correct the deviations of others; or connecting LLMs to external symbolic tools capable of verifying results against formal criteria of correctness.

If they don’t succeed, the technology risks remaining what it is today in its purest form: a highly sophisticated language generation system — but with limited economic utility in every context where what matters is not what is plausible, but what is true.

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The Special Case of Software

In recent months, Anthropic’s advances with a coding tool called Claude Code have led many to believe that LLMs might actually be capable of achieving that goal.

Software is a special case. Programmers have spent decades storing the code they write in a public repository (GitHub) and sharing criteria for how to write that code in another (Stack Overflow). A vast portion of humanity’s collective knowledge about code is stored, neatly organized, corrected, improved, and expanded across successive versions in two websites that are, moreover, freely accessible to everyone.

This makes software the only domain in which formal, defined, and precise languages — at least partially; there are still different architectures, approaches, and coding styles — coincide with a cultural repository of information where something resembling a single truth actually exists. As a result, the degree of ambiguity in the dataset on which Claude Code and similar tools operate is lower than that of legal or medical databases. If there is any domain in which an LLM can come close to producing a “correct solution,” this is it.

For comparison: this same condition doesn’t even exist across mathematics as a whole. Mathematical papers are still published in natural language, and there is no “Claude Code” equivalent for mathematics today. Only in recent years have mathematicians begun trying to formalize the entire field in order to move in this direction.

For an LLM to achieve the same level of success in another domain — finance, legal practice, architecture, medicine — that entire domain would first need to be fully formalized.

Which raises the question: what role is left for AI if it cannot become a fundamental pillar of the economy?

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The Truth Behind the AI Bubble

The companies selling AI products are, without question, the ones with a truth problem.

Sam Altman, the CEO of the company that launched ChatGPT — and someone many people are now describing publicly as a pathological liar — is the one who created the monster. In 2022, Altman wasn’t content with becoming the next Google. He had a far more ambitious plan. He wanted to convince the world that his technology wasn’t just a new way of mapping information — it was a form of intelligence. An entity capable, simultaneously, of destroying us all and giving us everything we need. Of ending the economy, waging war, supercharging productivity, and curing cancer. AI was God. Altman was Noah. And only those who climbed aboard his ark would be saved from the flood.

That is how the companies selling LLMs became the new Seventh-day Adventist sects, making the apocalypse their sales strategy — exactly like Donald Trump, incidentally.

That is how they began to promise that AI would destroy millions of jobs, that it would surpass human intelligence and render people “unnecessary”, that it would boost productivity, cure cancer, wipe out entire professions, drive better than humans, kill the film industry, and “put to the test what we are as a species” — among many other things.

Even today, Dario Amodei, CEO of Anthropic — who copied everything from Sam Altman, including the compulsive dishonesty — continues to claim that AI will “eliminate half of all jobs within five years.”

The reality is that none of these things have happened. And none of them are going to. Quite the contrary. Today, the AI era dominates newspaper front pages and social media feeds, yet it is conspicuously absent from productivity statistics. Meanwhile, 8 out of 10 knowledge workers say they don’t use it at all.

The AI companies, meanwhile, are caught between a rock and a hard place. OpenAI, which runs ChatGPT, closed its latest funding round at a valuation of $850 billion. Anthropic is expected to list above $1 trillion. And the big tech companies — Google, Microsoft, Meta, and others — have invested $776 billion in data centers to power this technology, with no plans to stop. They have inflated a bubble sustained entirely by expectations of total economic transformation — by the promise of true artificial intelligence.

To live up to those expectations, they need AI not merely to interpret the truth of society, or even to create new truths, but to produce things of genuine economic value.

But what does it actually mean to be of economic value?

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The Truth of Productivity

Not all value is economic. In fact, the most valuable things — air, love, harmony, mathematics — have no price. For something to carry economic value, two conditions must be met. First, it must be scarce: if there are infinite copies of something, its price tends toward zero. Second, it must be exchangeable: there must be someone willing to give you something in return for what you have. And for that exchange to happen, both parties need to agree on what is being exchanged. They need, in other words, a shared truth.

That is why economic value is, at its core, a form of truth: the agreed truth between producer and buyer about what a thing is, what it is worth, and what can be expected from it.

But not all truth carries the same economic value. Truth is the entry condition for exchange; what sets the price is how many people share it. An idea, an industrial design, a work of art, or a computer program is worth something to the extent that many people want it and few people can produce it.

The ideas in this newsletter have real value — because only I can write them, and many people find them worth reading. By contrast, we could use AI to generate a million Substacks full of content and publish a post every minute for the rest of our lives. If we can’t find anyone who wants to read them, they will produce zero economic value.

(Subscribe now, before you forget!)

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For this reason, information technologies — email, digital photography, cloud computing, social media, search engines, AI — increase the individual capacity of knowledge workers, but not the aggregate productivity of an economy. In fact, they reduce it. What they actually do is multiply the number of available truths, while making each one less economically viable than what existed before. By making large swaths of human activity abundant and cheap, they reduce the need to exchange in markets. And when there is less exchange, the economy contracts.

The same will happen with AI. It will increase the individual capacity of knowledge workers — in journalism, consulting, programming, publishing — and raise the standards of those professions. But it will not produce a productivity revolution like the railways, the automobile, or electricity. It will produce more truths than ever before. But each one will be worth less.

You can find a more detailed explanation in this article:

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The Truth About Good Information

In my view, the great risk facing AI is that the value it can produce doesn’t depend on the technology itself — it depends on the information it feeds on. As is abundantly clear with Google Search and Google News, this technology cannot exist without an internet full of quality content.

The paradox is that this data is the product of the 25 years we spent online without any other way of finding information: Reddit and Wikipedia exist, and there are 10,000 answers to the question “how do you make chicken soup?”, precisely because we weren’t able to find a single definitive answer.

But if AI finds the answers and — as seems to be happening — people stop visiting websites; if it fills the internet with low-quality content regurgitated by a chatbot, the technology itself will run out of material to learn from. What will follow — and is already beginning to happen — is that LLMs will start producing increasingly poor results, because the information available to them is manipulated or simply impoverished.

This technology, which is by its very nature regressive*, needs a resource from which to extract value — and at the same time, threatens to destroy that very resource.

My intuition is that this game will ultimately be won by the best content creators. I’ve called it somewhere “the frozen bread theory”: the idea that an overabundance of information creates a new demand for the highest-quality information. And I believe AI will end up as a tool in service of whoever holds a strong repository of genuine knowledge.

The Truth About Human Value

There is one final idea I don’t have space to develop here — I’ll save it for next week’s Wide Angle. (Hit the button to have it delivered to your inbox.)

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There is no single correct way to write a computer program, or to argue a legal case. There is no perfect answer to what an article should say, or a book. The reason AI cannot create images that truly move us — beyond a pile of things worse than stock photography, if that’s even possible — is that there is no such thing as a “good image” without the intention of the person who made it.

Value still resides in human beings. Because we are the only thing that truly interests us.

To be continued…

If this content interests you, you’ll love my first book. It’s called Hijos del Optimismo (Children of Optimism)— a thesis on the great transformations of the knowledge economy and what comes next.

*Correction: This was a slip — the correct term used to describe these models is not “recursive” but “regressive.” However, the sentence doesn’t work with that terminology, so I’m leaving it as is.

Photo by Jon Tyson on Unsplash

Amancio Ortega has just become the world’s largest real estate magnate. According to Forbes, the founder of Inditex now holds 200 properties across 13 countries, valued at €21 billion.

This should make no sense. Why would a businessman who controls one of the most successful companies in the world invest in buildings? Shouldn’t it be far more profitable to keep investing in his own company?

The absurd answer is: NO.

Inditex went public in 2001. Since then, its sales have multiplied by 12, its operating profit by 18, and its market valuation by 17. Its shares are worth ten times more than they were 25 years ago. Throughout that entire period, the company has never issued new shares — but it has paid dividends every single year.

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It is those profits — which in Ortega’s case amount to more than €21 billion over those 25 years — that the businessman is using to buy properties and stakes in utility companies across Europe.

In other words: Inditex does not need outside capital to keep growing. Its own business generates enough cash flow to cover operating expenses, pay dividends, make the necessary investments, and still keep growing at full speed.

That is why Amancio Ortega has nothing better to do with his money than put it into property.

Inditex is clearly an exceptional company — highly profitable and superbly managed. If you press me, I’ll admit that Zara isn’t just a fashion brand: in the future it will be studied as a form of art. (I neither confirm nor deny that this is what I tell myself every time I pull out my card to add another, ahem, piece to my modest ahem collection.) But the point is that Ortega’s situation is far from unique. His is not the only company producing more profit than it can productively reinvest.

Quite the opposite. What is happening to the world’s richest man is happening to everyone else too: we are drowning in savings we don’t know what to do with. That is why the entire world is pouring money into real estate, which now accounts for 60% of global wealth

Over the past 25 years, global wealth has gone from representing 3 times to 6 times world GDP — in other words, it has doubled relative to the size of the economy.

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Meanwhile, in the digital economy, productive investment opportunities for all that wealth are becoming increasingly scarce. Put as simply as possible: Inditex’s online stores, which today account for a quarter of the group’s sales, do not require anywhere near the capital investment that would be needed if those same sales had to take place in physical shops.

We are buried under a mountain of savings. And yet, in the twenty-first century, capital is playing an ever-smaller role in the economy.

The reason is that ever since digital technology began reshaping the economy — first in the dot-com bubble, then in the subprime crisis, then during COVID — governments have thrown themselves into injecting monetary stimulus (liquidity) to prevent the outcome that would have been the natural consequence when digitalization made vast swaths of the economy unnecessary: deflation and degrowth.

To avoid having to explain to citizens that the growth that had made possible the great social contracts of the twentieth century — pensions, savings, rising property values, the “American dream” — had come to a halt, we have spent 25 years injecting artificial money into the system.

That is why wealth keeps growing even though productivity is stagnant. That is why assets that can still sustain some cash flow — real estate, infrastructure, energy companies — keep appreciating. The bubble currently inflating in US stock markets, the rise of Bitcoin and cryptocurrencies, and the staggering appreciation of gold in recent months are all symptoms of the same underlying problem.

Meanwhile, at ground level, for the people who keep having to pay more for the same goods — in order to reward the owners of all that accumulated wealth — the lived experience is that life is getting more expensive and more difficult.

There is, though, another way to look at it. One that is even more vertiginous, but that ultimately explains what is happening far more clearly.

Instead of thinking that assets — homes, buildings — are appreciating and becoming more expensive, we can think of it the other way around: money itself (not any particular currency, but money as a whole) is worth less and less. It is being devalued. If we assume that the underlying value of assets hasn’t changed, then what is actually happening is that we need to hand over ever-larger quantities of money to acquire the same thing.

This explains why so many people feel that it is they who are being devalued. Their work, their position in the world — still measured in money — is losing value. And that’s true. With the value a person could produce through their labor 50 years ago, they could access a certain number of assets. Today they can access half as many, or fewer. Is the asset appreciating — or is labor depreciating?

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One might conclude that this is a catastrophe. We’re being devalued, and there’s nothing we can do about it!

But that’s not quite right.

Money isn’t losing value because of some malevolent force. It’s losing value because we are increasingly interested in things that have no economic value — meaning, no scarcity. We no longer care about filling our shelves with china figurines or replacing the sofa every two years. We’d much rather travel widely than own a single beach house. And we are increasingly drawn to conversation with other people, to learning, to watching series, listening to music, reading, being with friends and family. To living.

What is happening is that we are increasingly transacting in a different currency: attention. And that “nomy” — not an eco-nomy but a pluto-nomy — is thriving. It is remarkable how many people, in recent years, have a project running alongside their day job: a Substack, a magazine, a summer festival they organize, a reading group, a running club. Or whatever it might be.

And the problem is that, seen through the lens of the twentieth century, these things are still considered a distraction from the real task of mankind, which is work. But that is no longer the case. The world has changed, and it will keep changing. Those projects, those learning journeys — they are the investments that will appreciate in value in the future.

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If this topic interests you, you can keep reading in my first book, Hijos del Optimismo (Children of Optimism), now available on Amazon, at Casa del Libro, on the Debate website, or at your favorite local bookshop

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As everyone knows, there’s no better sex than the kind you have in your imagination. Because when you actually go to bed with someone and reality arrives — with all its textures, its rough edges, and crucially, the involvement of another person — however fantastic the experience turns out to be, it can never match that perfect expression of your desires that could only ever exist in your head.

Nobody knows this better than Silicon Valley. During the years of cheap money that followed the 2008 crisis, the Valley invented a way of building companies that consisted, essentially, of avoiding any confrontation between their fantasies and the reality of running a business. Someone called it blitzscaling. The idea was simple: in a hyper-connected world, whoever gets there first takes everything. So what mattered wasn’t being a functional company — meaning, one that actually made money. That would come later, on its own. What mattered was growth. Growth at any cost, even if it meant bleeding out at a loss.

This newsletter lands in your inbox for free because information wants to be free. But it doesn’t arrive by spores. Or float in on the air. If you don’t want to miss anything, make sure you subscribe and share.

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Venture capital — the specialist startup investors who rock this particular cradle — had no incentive then, and has none now, to build profitable companies for the long term. That’s not their business. Their business is buying cheap shares and selling them higher. And for that, it’s far more profitable to buy and sell before reality catches up with expectations: pre-money, pre-profit, pre-product-market-fit. A good fantasy is a far more valuable asset than cash flow.

The result was an entire generation of “unicorns”: startups valued in the billions that existed primarily in the imagination of their investors. Uber was one of them — it racked up $33 billion in losses before turning a profit. Spotify too, taking 17 years to post its first profitable year. WeWork reached a valuation of $47 billion before anyone bothered to read its accounts — and when they did, the company nearly ceased to exist. These are the success stories. Of the rest, little is known. In 2021, 354 companies had achieved unicorn status. Only six have gone public since.

The mega-bubble of the misleadingly named “artificial intelligence” is the latest chapter of this adventure. Except that after so much growth, we’ve run out of mythological creatures to compare it to. Five years ago, a company needed to reach a valuation of $1 billion to be considered a unicorn. OpenAI, the AI frontrunner, closed its latest funding round at a valuation of $850 billion. Anthropic, hot on its heels, stands at $350 billion. Meanwhile, the big tech companies — Google, Microsoft, Meta, and others — have collectively invested $776 billion in data centers to power this technology, with no plans to stop.

These are astronomical figures. Unthinkable ones. Impossible to square with any model of profitability on a spreadsheet. Like the sex you had in your head, they are incompatible with reality. They can only make sense in the fantasy world where these companies succeed in creating a new intelligent species.

For that reason — to justify this kind of madness — over the past three years OpenAI, Nvidia, Anthropic, and the rest of the AI industry have reinvented themselves as the new Seventh-day Adventists. They have proclaimed that this technology would destroy 300 million jobs and transform two in three roles worldwide; that it would surpass human intelligence and render people “unnecessary”; that it would boost productivity by 7%; that it would cure cancer before 2025; that it would wipe out radiologists, then doctors, then programmers, then lawyers; that it would drive better than humans by 2023; that it would replace the film industry with one made up of amateurs; and that it would “put to the test what we are as a species”. The latest apocalypse — this week’s edition — even has a name: “Vulnpocalypse”, the prophecy that an AI model will trigger a cybersecurity armageddon.

None of this has happened. But until very recently, AI companies and their investors could keep living off the expectation that it eventually would.

Until Claude Code.

Three months ago, Anthropic released a large language model adapted to the needs of software developers. It has been well received in that sector. Some of the most respected programmers in the world — including Linus Torvalds and David Heinemeier Hansson — have acknowledged they’re giving it serious consideration. Claude Code is an LLM that could, ideally, find what is known as “product-market fit”, meaning it could land as a concrete product with a potential buyer, carry a price tag, and actually have its sales tested in the real world.

Oh, no!

It’s time for reality. AI now has a product to sell. It is no longer just a promise. Now it will have to show how much developers are actually willing to pay for its solution, and how many developers in the world are interested in the tool.

Suddenly, the AI companies have a problem. How much does a software company need to charge to justify a valuation in the hundreds of billions? And another: what does it cost to deliver that service to developers? Because if the computing cost is very high — and it is — it’s possible that companies will only want to pay for it in a handful of specific use cases.

And another: what does Anthropic have that protects its product from competitors who want to copy its business model? What stops 20 or 30 other companies from building something exactly like Claude Code?

And if all those companies pile in to develop similar models, won’t they have an obvious advantage over Anthropic — precisely because they don’t carry the weight of having paid all the development costs to get here?

And one more: software development has the enormous advantage of being a domain where two things these models need to function actually coexist — well-established rules, and a repository of knowledge built up over decades by thousands of developers sharing their solutions. Can Claude Code be exported to other industries, or is it going to remain confined to this particular corner of programming?

And if it stays confined to programming, how do the hyperscalers justify the investment they’ve made in data centers — an investment premised on AI replacing hundreds of millions of workers?

None of these questions are extraordinary. They’re the ones any company asks when its business isn’t buying and selling shares, but actually creating value for someone willing to pay for your product. What they will be forced to answer in the coming months is the big question hiding behind the bubble: is there a real business in AI? Enough of one to justify investing trillions of dollars in a handful of companies?

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And so the AI bubble ends here. With Claude Code. For better or worse, the companies that have poured money into this and tried to convince us it was going to work — now that something actually works — will have to show their hand. Either they produce a product that justifies the investment, or they scale the investment down to match what they can actually sell.

I can’t help thinking that Anthropic’s latest move — last week’s press release announcing it would not be releasing its newest model, “Mythos,” because it “could have terrible consequences for the banking sector” — is a cheap ploy to avoid facing the harsh reality of having to sell your product and stay in the hype cycle.

Because it is rather curious that, at the exact moment when one of your models actually seems to be useful for something, you decide not to publish the next one — just in case someone notices it has a practical application and isn’t simply an existential threat to life on Earth.

But it’s a futile effort, I think. The AI fantasy will end the only way fantasies always end: with the encounter with reality, its textures, and its rough edges.

In the next article I’ll tell you what I think is going to happen…

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Heads up! Changes to the newsletter.

I owe regular readers an apology — once again, I’ve neglected this newsletter. The launch of Hijos del Optimismo (Children of Optimism) collided with the opportunity to make a significant investment to get a new project off the ground, plus a few personal matters, and life simply took over.

But I’ve used these past few days to think through a format change. From now on, during the week I’ll be publishing shorter pieces tied more closely to current events — like today’s — and on Saturdays a deep-dive piece called “Wide Angle.”

Let’s see if I can pull it off!

Photo by Madison Oren on Unsplash

At the heart of our time lies a mystery. An inexplicable contradiction.

On one hand, we are living in the best moment in human history.

Over the past 25 years, 1.5 billion people have been lifted out of extreme poverty, GDP per capita has risen from $13,000 to $20,000, life expectancy has increased by 17 years, and child mortality has been cut by two thirds.

Today, two in three people on the planet are connected to the internet, and we publish four times more books per year than in 2000 — over 2.2 million new titles annually. As if that weren’t enough, we are close to making cancer a chronic, manageable condition, and the rollout of renewable energy allows us to imagine not just a solution to climate change, but the prospect of a future of clean, abundant energy.

And yet, we are in crisis.

Two in three people on this planet feel that “society is broken,” that the economy is rigged in favor of the powerful, and that a widening gulf separates ordinary citizens from political and economic elites. Meanwhile, 40% of humanity believes their economy will be worse next year and that there will be more violence. Many people report “great worry” (39%), “stress” (37%), and “anger” (22%).

The result is that today, populist parties — with Donald Trump at the helm — sit in government in one third of OECD countries.

How can this be?

At the moment of greatest abundance in history, what we feel is fear and a gnawing sense of scarcity.

How can this be?!

The answer to that question is a powerful one: it explains why Trump sits in the Oval Office, why there is a housing bubble, and why there is another bubble in “AI.”

This 3,000-word newsletter unlike anything you’ll read anywhere else lands in your inbox for free — because information wants to be free. But producing it takes work. You can help me prove that abundant goods can still be sustainable by choosing a premium subscription or picking up my first book, Hijos del Optimismo (Children of optimism).

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Don’t Look Up!

The most remarkable thing about this mystery is that it isn’t one. Every government in the world knows what is happening. But the phenomenon behind the discontent is so terrifying that no one dares say it out loud, for fear of making it fully real. Like the movie where a meteor is about to destroy the Earth but everyone looks the other way — we’ve spent fifteen years watching the impact coming, without ever finding the courage to talk about it.

What is happening is this: the economic engine that brought us here — the one that made us the society we are, the one we call the “industrial economy,” or “capitalism” — stopped working 25 years ago.

And nobody knows why. Or how to fix it.

What we do know is this:

Human societies have always had some form of economy. But until a couple of centuries ago, it was essentially a survival mechanism. What turned the industrial economy into the cornerstone of modern society was its extraordinary ability to transform our lives by relentlessly creating new goods to replace old ones — the way the car replaced the horse, oil replaced coal, or the telephone replaced the telegraph.

But that engine had a problem: it concealed a death drive. When goods became obsolete, old industries lost their purpose and disappeared. Financial bubbles and waves of unemployment followed — the kind that swept through communities after coal mines were shuttered or car factories closed across the United States. To stay alive, the industrial economy had to keep devouring itself.

The natural, expected end would have been death by success — eventually creating every product a person could want and exhausting its own mechanism of constant change. Yet by the mid-twentieth century, the industrial economy had been running at full capacity for 150 years, and none of that seemed to be happening.

So in 1942, someone offered an explanation: the destruction produced by capitalism was “creative” — and you really have to admire economists for their naming instincts. The labor and capital that became unnecessary when industries died turned into the fertile ground where the next ones were born. Better yet, because the new companies were more productive and innovative, the jobs and investment opportunities they offered were more plentiful and more rewarding.

And so “creative destruction” became far more than the engine of capitalism — it became the founding myth that organized all of modern life. For 50 years it was the truth that allowed generations of people without university degrees to dream that their children might become architects. It was also the story through which society believed it would pay for pensions, build infrastructure, pay down public debt, own a beach house, and go on holiday every summer.

Twenty-five years ago, that engine stopped.

Since the late 1990s, the “destructive” side of the economy has only accelerated, sweeping away entire industries — but the “creative” function has gone missing in action. The new industries of the twenty-first century have been unable to absorb either the capital or the labor that the old ones used to employ.

The mobile phone, for instance, obliterated entire sectors of activity: neighborhood retail and bank branches; CDs and film cameras and newspaper kiosks. As had happened before, jobs and investment opportunities in each of these sectors were destroyed.

But the primordial broth of surplus labor and capital that was supposed to generate new sectors of activity never delivered. Instead, the world split in two: on one side, a handful of companies and certain categories of workers — engineers, programmers, finance professionals, parts of marketing — continued to enjoy good conditions and strong prospects; on the other, a vacuum emerged, steadily filling with precarious, low-status, low-productivity, poorly paid work — hospitality, delivery drivers, gig workers.

The macroeconomic consequence is that countries are growing more slowly. Some highly productive industries still exist, but average real wages have stagnated as precarity has spread. Government revenues — also designed for a world where employment would always grow — have come under strain. And so the tensions emerge: who should pay for public services, and how much.

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The One That Must Not Be Named

So the first great mystery of the modern world is no mystery at all. It is well understood that the inability of today’s economy to sustain the myths and institutions of the twentieth century is what is driving the eruptions of discontent everywhere. That is why they are happening all over the world at the same time.

The crisis of the middle class — the frustration of young men, especially those without higher education — stems from the fact that the jobs that gave them a central place in society disappeared and were never replaced by equivalent ones. And if there is a global housing bubble, it is because capital, lacking productive alternatives in which to invest, has retreated into the last asset from which it can still extract returns.

In the collective subconscious, all of this crystallizes into the feeling that “society is broken.”

But nobody has a plan to fix it — because the true mystery of our time, the one for which no one actually has an answer, is:

Why has the engine of capitalism stalled?

Since nobody fully understands it, and nobody has a solution to offer, no leader wants to touch the subject. The politics of the past ten years resembles the faculty of Hogwarts, collectively determined not to name the one who must not be named. Instead, parties busy themselves finding plausible — but false — scapegoats, ones that let them keep their base in line while deflecting blame. Depending on which side you’re on, the culprit is:

• immigrants,

• or billionaires,

• or politicians — who favor immigrants or billionaires, depending on who’s pointing the finger —,

• or social media, filling people’s heads with garbage.

And despite the different villains, the proposed solution always seems to be the same: go back. From Trump’s Make America Great Again to the nostalgic nationalism of the European far right and the reindustrialization programs of social democrats, every ideology is inventing its own particular version of a return to the moment when all of this seemed to work.

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The Truth at the End of Capitalism

A few years ago, I set out to write a book that would answer this question:

Why did the engine of capitalism stop?

Not because I want to do forensic science. Not because I want to be a catastrophist. Quite the opposite. If there is a way out of this dead end — and there is — it runs through understanding that we cannot go back. We have moved beyond the industrial era. We are already in a new time, and once the shock and the initial fright have been absorbed, the only thing we can do is look forward. There is no point trying to return to a world that no longer exists — it is impossible, and that ambition can only lead us toward hatred and war, as we are seeing everywhere these days.

The great tragedies of history do not arise from transformation itself. They arise from society’s inability to adapt to it. It is when profound change overwhelms existing norms, and institutions fail to keep pace, that conflict takes hold.

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‘Hijos del Optimismo’ (Children of Optimism) argues that 25 years ago, a transformation took place that dismantled the industrial system. To understand it, we need to set aside the classic categories and think about the economy from a different angle — one more suited to the reality of the twenty-first century: the exchange of knowledge.

The Industrial Revolution is usually told as a story about our capacity to manufacture. The combination of capital and labor made us vastly more productive, and that is why we are so much wealthier. But producing something, if you have no one to sell it to, counts for little. What truly changed the world was the expansion of trade — which from 1800 onward had grown far faster than population or production, and which, coinciding with the stalling of capitalism’s engine, flatlined.

Which leads to the next question: what exactly do human beings exchange with one another? And why are we doing less of it?

The answer is less obvious than it seems. We’ve grown accustomed to thinking about what we buy and sell as objects — as the heavy, countable output of a material world. But they never were. When we buy a car, a medicine, or a phone, it’s because we don’t have the knowledge needed to make it ourselves. What we exchange, therefore, is knowledge. The goods traded by the industrial economy were fragments of knowledge pressed into products.

So the next question is: what happened to the human knowledge that produced the greatest economic expansion in history? And what happened afterward?

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A Brief History of Human Knowledge

For most of our existence, knowledge advanced at geological speed. Thousands of years passed between the mastery of fire and the emergence of symbolic language, and thousands more between the Agricultural Revolution and the first formal mathematical systems. Several thousand more had to pass before those systems culminated, in the seventeenth century, in the scientific method and Galileo.

Throughout all that time — just as with other animal species similar to our own — knowledge spread from individual to individual until it reached the limits of each population, exactly like a virus. If one person knew how to use fire, or build a windmill, that knowledge replicated organically — the way elephants pass knowledge to each other, or macaques — until it reached the entire social group.

This meant that trading in knowledge was not possible, because everyone had the same knowledge. That is why commerce throughout history was always marginal, and only in cases where political power exercised rigid control over its distribution — as China did to protect its silk industry, or the medieval guilds did in Europe — was trade in knowledge even conceivable.

But during the Industrial Revolution, something extraordinary happened. All the accumulated knowledge that had been building since the Scientific Revolution, two centuries earlier, crystallized into a cascade of discoveries: the steam engine, the railway, electricity, the internal combustion engine, the telephone, antibiotics, anesthesia, vaccines, the airplane, television, plastics, synthetic fertilizers, nuclear fission, the transistor, computers, the internet, GPS, genome sequencing, and smartphones.

That acceleration produced a historical anomaly: there were barely enough people capable of managing it.

At the dawn of the Industrial Revolution, fewer than 10% of the world’s population could read and write. There were very few universities, and most were more devoted to the study of religion than science. In the decades that followed, despite the breakneck pace of technological progress, it was still driven by very few people — perhaps a few thousand, in Europe and the United States.

Meanwhile, the rest of humanity was just as illiterate in 1920 as it had been in the Middle Ages. There were not enough engineers, mathematicians, or teachers in the world for knowledge to become universal as it had been for millennia. Complex ideas could not circulate beyond those tiny circles — simply because there weren’t enough people capable of understanding them.

For that reason, for two centuries, the entire world depended on the elites of a handful of countries to manufacture cars, extract oil, maintain supply chains, synthesize medicines, build infrastructure, write software, and launch satellites into space. What’s more, even in Western countries, most of the population could not make consumer decisions on its own.

What we call “capitalism” or the “industrial economy” was, therefore, a colossal mechanism designed to allow vast numbers of people — who lacked the necessary education — to enjoy things like home appliances, financial products, fossil fuels, and international travel that would never otherwise have been within their reach.

That is what made the “industrial era” possible. For a couple of centuries, the monopoly on knowledge allowed a handful of companies in a handful of countries to sell it — packaged in consumer goods — first to the rest of society, and then to the rest of the planet.

Meanwhile, in 1950, two thirds of the world’s population still could not read or write.

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The Age of Optimism

Until, in the second half of the twentieth century, everything changed. At the end of the Second World War, the world made a colossal effort to extend the benefits of welfare and progress to the majority — including education.

First, in the 1950s, 60s, and 70s, billions of people gained access to basic schooling. Illiteracy plummeted — collapsing within a matter of decades. Then, in the closing chapters of the century, a new promise emerged: a “knowledge society” would be born.

Making that dream possible would require more than oil and machines. It would need a new kind of capital: “human capital.” The future needed engineers, lawyers, and doctors; scientists and philosophers; publishers, writers, and creators; sociologists, political scientists, and linguists. Astronauts.

And so the world conspired to produce an unprecedented experiment. A generation — hundreds of millions of young people — would go to university, and emerge from it as a different kind of human being: infinitely more capable of transforming reality than any of their predecessors, equipped with a backpack full of self-belief and the assignment to build the future.

Those children are — we are — the children of optimism of the twentieth century.

And just as our parents — who had been the first or second generation in their families to attend school — gave rise to television and newspapers to satisfy their curiosity, the children of optimism created our own medium, tailored to our ambitions: the Internet.

A Change of Era

It’s been said so many times it feels tedious to repeat — but it’s true: we are living through a change of era. A thousand years from now, when future historians explain the moment we lived through, they will say it was an extraordinary one, a historical inflection point.

The dream of the knowledge society blew apart the chains that had kept knowledge restricted for 200 years. For the first time, hundreds of millions of people could command a volume of knowledge that, just a few decades earlier, would have been considered revolutionary.

The impact was enormous — as if a million scientific revolutions had hit us simultaneously. Within just a few years, the structures that had served to maintain the monopoly of knowledge in a world of illiterates began to crumble.

First, the great newspapers, the unions, and the mass political parties — the great intermediary institutions of contemporary society — began to fade. Political scientists and sociologists, who understand this phenomenon well, call it “political disintermediation” and are acutely aware that it represents a paradigm shift. What we have not yet fully grasped is the impact it had on the economy.

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The Shrinking Economy

In the twentieth century, music was a scarce good. It required very specific — and carefully restricted — knowledge to manufacture CDs, produce them at scale, and distribute them. Precisely for this reason, a market could exist that sold billions of units and sustained entire distribution chains employing millions of people. In major cities, entire shopping centers were built around the trade of this particular form of entertainment.

The children of optimism stopped needing those intermediaries. An entire sector of the economy disappeared. Then the same thing happened to newspapers. Then to travel agencies, hotel chains, retail stores, bank branches, administrative workers, insurance brokers, video rental shops, employment agencies, television, and radio.

Just as it happened to the mass political parties, with each good that no longer required intermediaries, entire economic sectors vanished — along with millions of jobs and investment opportunities. The “destructive” side of capitalism was rendering them obsolete.

This is the simplest — and most condensed — explanation for the great mystery of our time: the children of optimism, realizing the dream their parents had for them, dismantled the industrial world and inaugurated a new one.

The economy we had known — the one that carried us to the threshold of the twenty-first century — was not the natural, inevitable continuation of our species. It was an exception; an anomaly; an ephemeral moment that arose at the confluence of exceptional historical circumstances, and that depended on a single condition: that knowledge remained restricted and controlled by a few people in a few countries.

And it is not coming back.

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Abundance or Barbarism

The paradox of the present is this: we have convinced ourselves that we live in a time of scarcity, when the only truth is the opposite. Our world is becoming more abundant by the day. We are increasingly capable not only of producing material goods, but of satisfying our needs in far more sophisticated ways than through the possession of objects. (This is what we mean when we talk about “digitalization.”)

The problem is that the rules of our society are not designed for abundance. Quite the contrary. Solving the “economic problem” — scarcity — has been our primary occupation, not just for the past few centuries, but throughout our entire existence, and throughout the history of life itself. Even today, society is precisely this: a system designed to produce and allocate limited goods. A mechanism that expects all of its members to contribute to alleviating that age-old scarcity by contributing effort (labor) or sacrifice (capital), and that assigns each person a position in the social order based on the results of that contribution.

So every time knowledge threatens to make another corner of existence abundant, we find ourselves at the same crossroads: if we want music to be abundant, how do we pay the artists? If we buy products cheaply in places with no sales staff (like Amazon or big-box stores), what will the neighborhood shopkeepers do? If knowledge collapses the price of food, how will farmers live well? If technology frees us from work, what will we live on?

What we have called “artificial intelligence” is the most extreme expression of the same phenomenon. Generative AI promises to make intelligence abundant. But if that happens, what will happen to the workers it displaces? What will happen to the business owners whose companies go under?

And just when it seemed it couldn’t go further, that million simultaneous scientific revolutions is now reaching the very root of scarcity itself: energy. What for centuries appeared to be a limited resource has proven increasingly abundant, thanks to renewables.

That is why the debate between abundance and scarcity is the defining political struggle of our time. Because there are only two paths: either we remain stuck in a scarcity paradigm, defending the trenches of the twentieth century (labor, effort, sacrifice) — or we accept that the world is, in fact, a place of abundance, and begin transforming our institutions to take advantage of its opportunities.

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humanity’s coming of age

“That is quite definitely the answer. I think the problem, to be quite honest with you,
is that you’ve never actually known what the question is”.

Douglas Adams, The Hitchhiker’s Guide To The Galaxy

So the premise of Hijos del Optimismo (Children of optimism). is this: abundance is not the answer to our problems — it is not the end of a road we need to travel. Abundance is the question. How do we live in a world that is no longer ordered by scarcity? How do we decide who is valuable and who is not? How do we distribute power in an abundant world? How do we produce public goods — which are themselves abundant? What does it mean to contribute to society when work is no longer necessary?

What is happening to us, at its core, is that we have grown up. Like children who have become adults — capable of making their own way in the world — we have no choice but to confront the promise and the demand of our own freedom.

What will we do with it?

While you think it over, you can always pick up Hijos del Optimismo (Children of optimism) on Amazon, at Casa del Libro, on the Debate website, or at your favorite local bookshop.