If You Were TRYING To Destroy The Economy...（原声文稿）

Okay, so as a fun little hypothetical question, if you wanted to destroy the American economy, what would you do differently?

The delicate inner workings of the American market and its financial system might be prone to having their own little meltdowns from time to time, but around that soft, gooey center, the economy as a whole has a lot of unique privileges and advantages which all make it a remarkably tough nut to crack.

It has globally respected institutions overseeing the world's largest financial markets, all denoted in the de facto reserve currency.

It has a diverse set of leading industries, unparalleled reach their international companies, all staffed by the best and brightest people in the world, who can normally make more money here with their ideas than they can anywhere else on earth.

This is not to mention the fact that we are the most geopolitically entangled nation in history, mostly in a good way. The art of good business is being a good middleman.

And between our alliances, agreements, trade deals, financial plumbing, and good old -fashioned soft power, there are collectively tens of thousands of bureaucratic connections between us and other nations that just make America the default choice in a number of exorbitantly advantageous ways.

So yes, if you again hypothetically wanted to destroy this economy, it would be a lot harder than you might expect when compared to almost anywhere else. But how mommy works didn't raise a quitter.

So if you were theoretically so inclined, where exactly would you start?

Friday's a week jobs report and Monday's market route of the spike recession fears and place pressure on the Fed to cut out rates for a closer look the over government debt and inflation as bond markets worldwide skyrocket hitting the highest point since January 2025 is de -dollarization now inevitable more and more countries are looking to reduce their dependence on the american currency can we handle economic uncertainty more certainty was uncertainty Okay, so permanently crippling an economy like this is certainly not going to be easy, and it will take some time, but if you follow this simple checklist to stack some debuffs, nothing is impenetrable.

So the first and perhaps the single most important strategy to employ throughout this entire process is to make sure that everything you do is as inconsistent as possible.

Unfortunately, inevitably, during this process, you are accidentally going to make some good decisions.

But that's okay, so long as you unmake them as quickly as possible to keep people guessing.

Joking aside, though, even if you do actually have good intentions, one of the most widely studied phenomena in long -term economic management is that trying to over -optimize policy for any given point in time is actually worse than just setting and sticking to a nice consistent set of rules, even if they are not perfectly ideal.

All the way back in 1977, economists by the name of Kidland and Prescott wrote a paper called Rules Rather Than Discretion that basically outlined how this kind of consistency created credibility and that credibility gave people confidence to invest or consume, or do whatever else good little economic participants do.

Say for example, we intentionally did something really dumb, like put an arbitrary 100 % sales tax on any product that had to cross a river and we justified it as an essential move to protect our crumbling infrastructure.

In a country like America, that would obviously cause some major disruptions in price increases.

Companies would have to change their supply chains, build localized assembly plants, and reposition their warehouses or lean into air freight to get the components where they need to go.

But eventually, most companies would just accept these upfront costs, make the investments, and pass along the extra expenses to consumers in a price bump.

It's certainly not ideal, but even outside of this dumb little example, supply chain management teams almost always have tax lawyers on staff, because in the real world, good supply chains don't just assemble stuff in the most resource -efficient way. They balance practical efficiency with tax efficiency as well.

The point is, even if we do do something really dumb like this, the economy would find a way.

Households, businesses, and even international trade partners can eventually adapt to pretty much anything.

And since we are, for now, the biggest and most dominant economy on earth, we have the luxury of kind of making people fall in line with our decisions if they want to maintain access to things like our massive financial and consumer markets.

However, if we cancel this river tax and then double it and then cancel it again and then make it only apply to certain rivers, it quickly makes it impossible for businesses to know where and when to invest their money to deliver competitive products to market, so they just won't.

Making long -term investments is costly and risky at the best of times, and businesses do need to make arrangements to meet regulations.

But if those regulations are always changing, the only winning move is just not to play, or maybe even look for better places to make that same investment.

And hey, again, as a bit of foreshadowing, if you combine these challenges with tight credit markets and frothy investment markets, it gets even harder still.

Why build a warehouse to get around attacks that may or may not even end up getting implemented in the long -term when you can just whack up an extra data center, am I right guys?

Now obviously this is just a made -up example, and we would never do anything of this inconsistent in, uh, reality.

But the point is, the effectiveness of this kind of opening debuff has been very well studied.

Kinlan and Prescott actually won a Nobel prize for this particular idea in 2004.

Former Fed Chairman Ben Bernanke, who also ironically won a Nobel prize for his work on economic stability sort of took this idea further in a report that he published back in 1983 that basically laid it out like this.

Once a business makes an investment into doing something like building a factory, that decision can't be unmade.

So naturally, businesses have to weigh the advantages of investing early against the benefits of waiting for new information.

If you get a nice new product to market first, you could secure market share.

But if that product ends up getting outlawed, you have just sunk a lot of money into something you can't sell.

The typical optimal strategy is just for the business to wait until it knows it can make a positive return before new information is presented.

For example, nobody knows what the regulatory future of something like prediction markets will be, but they can generate returns off such little capital so quickly that it doesn't really matter if they eventually get outlawed because right now, ironically, this is still a very strong bet.

Alternatively, nobody is making similar investments into coal -fired plants because it's clear to most people that regulations will not be kind to them in the decades they take to pay back their initial investment.

However, if new major economy moving information is coming in constantly, then it never actually makes sense to invest in anything that could be impacted by those changes.

Another economist, Danny Rodrick, found that in developing countries, even good reform could end up discouraging real investment because businesses become afraid that those reforms could be reversed, and their investments would end up being washed. So yeah.

To put it mildly, there is a pretty strong consensus. Indecisiveness is OP.

As you work your way through the rest of this list, the best thing you can do to increase the effectiveness of your blows is to flip -flop as much as possible, so that the market can't adapt to your hits.

So with that in mind, phase two is to undermine the reliability of institutions. Yes, I know. By design, they are kind of boring.

But government and non -government institutions that consistently and reputably report statistics districts, enforce rules and regulations, provide certifications or implement their own policies are kind of the unsung heroes of a healthy economy.

If businesses can reliably outsource something like the cost of enforcing a contract and households can be confident that their food won't kill them, it enables a much healthier and more competitive market.

If you run a business that wants to build a new factory, it's going to be a lot cheaper and easier if you can hire an engineer who is board certified, get a loan from a property charter bank, and get insured through a licensed company that you can take to a reliable and impartial court if they don't pay up.

You're also going to be much more likely to build that factory in the first place if you can get reliable statistics about consumer spending, unemployment rates, and inflation.

Likewise, that insurance company is only going to be willing to ensure you because they know your building was designed by a licensed professional.

People are going to be more willing to buy the products your factory produces knowing that, in theory, a reliable authority checked them to make sure they weren't filled with lead paint and asbestos.

Workers are going to be more likely to work for you if they know safety standards and workers' rights are going to keep them from being fed into the Victorian child mincer 9000.

And beneath all of this mutually beneficial self -interest, this whole little dance that needs to be facilitated by a well -managed medium of exchange which can buy roughly the same thing today as it will be able to tomorrow.

Yeah, I know, it's kind of easy to hate on bureaucratic red tape, especially when it goes too far, but it does let us outsource a lot of responsibility and risk taking on to people more suited to accept it.

On average, this actually generally makes most of the things we do every day a lot cheaper and easier.

And for America, being credible enough has really been the key to our exorbitant privilege.

A predictable rule of law, reliable administration, well -managed independent bodies, and general stability is a good part of the reason why individuals, businesses, and other governments from around the world are willing to invest in our companies and use our dollars as a medium of exchange. change.

This in turn gives us that capital to finance big ideas, outsource our inflation, and yeah, honestly, even avoid the consequences of our own actions for longer than we should realistically be able to.

Even at a smaller scale, institutional confidence is one of those things where you don't realize how important it is, until you don't have it.

If you independently verify the qualifications of everybody that worked for you, make sure reasonable safety standards were taken into account and trust that some company wasn't just going to scam you wherever they could, it would be very hard to buy anything, build anything, or invest in anything outside of a close, informal circle.

The old team at Micro actually did a great video on this recently which explored why Asia in particular has so many sprawling conglomerates that do everything from telecommunications to shipbuilding all under the same brand.

The video is worth a watch, but the TLDR is that when these economies started growing, their public institutions and authorities were either corrupt or not very reliable, people, or they just didn't exist at all.

So in the presence of these institutional voids, consumers only worked with the few home name businesses they could trust, and company management only hired from within their family, leading to sprawl at corporate empires that kind of filled in the holes in government oversight and authority.

Obviously, these days a lot of these countries have caught up, or even exceeded us, in good governance, which is why these mega -conlomerates are actually starting to break apart now.

But on the opposite side of the same coin, I am sure, if you were so inclined, you You could probably get some wealthy industrialists on board with the idea of breaking down public institutions in favor of letting them run their own sprawling corporate empires, again, you know, hypothetically.

The point is, if you really wanted to grind the gears of economic activity, just suck out that bureaucratic lubricant.

Gut departments, fire civil servants, threaten independent institutions that are supposed to be independent for a reason, question unflattering statistics, rule by decree instead of process, and make sure some firms are favored over others, and allow Now economic power to translate directly into political power.

Again, this particular strategy has been very well documented and a step -by -step guidebook you can follow called Why Nations Fail written by yet another two Nobel Prize winning economists.

So if you're unsure what to do next, you can refer to this instruction manual linked in our suggested books library like always.

Now once you have these first two fundamental tools in place, you can get to slightly more fun and creative combinations.

So, it's time to learn how many works to find out what we should be doing differently.

But you know, if we do end up flushing our economy down the toilet, it might be nice to have some income that does not depend on any one employer or any country.

The code applies to the first 100 people who use it.

Okay, so again, for most normal economies, just these first two tactics would be enough to cost pretty severe value destruction, and given enough time, it probably would still do the trick even to a tuffle nut like America.

But after you get the basics out of the way, there are certainly some fun additions you can sprinkle into the mix to speed up the process. With the armor removed, we can start hitting the tender bits.

On top of America's size, institutional stability, and relative predictability, one of the other reasons why we have such a dominant position in the global economy is because we have wrapped an intricate web of international relations around us.

Formally, there are tens of thousands of agreements that we have with almost every other country on earth, covering everything from extremely high -end mutual defense packs all the way down to mundane tax agreements and universal intellectual property rights treatment.

This all just means that in a diagram of degrees of separation, it's usually just really easy to go through us.

There is also a virtuous feedback loop here where, because we are large, predictable, acceptable and stable, we have been able to cultivate these relationships, and these relationships have in turn allowed us to grow larger and more stable, and also put us in a stronger position to negotiate even better deals.

The exact figures vary slightly, but according to one recent estimate from economists, just being the financial middleman for international trade lets us run a debt to GDP burden about 20 % higher than most other countries, because we get to print the currency that almost everybody universally accepts. Now, remember this because it's important for later. And also, it's far from the only privilege this gives us.

The point for now, though, is that this, alongside a host of other perks, ultimately comes from the opportunities we get from people going through us rather than around us.

Now, to play Devil's Advocate, some of these connections are more beneficial than others, some cost a lot and come with more questionable returns, and others do have second or third order side effects.

So yeah, if for some reason you just, hypothetically, wanted to deal a blow to the economy, Maybe you would have to accept that cleaning up some of these cobwebs may actually provide a short -term boost. On paper anyway.

But on net, the buffs from each consecutive deal kind of stacks multipliers in our favor because each deal makes every other successive deal slightly more important.

So yeah, it's probably in your best interest to try and weaken as many of those links as possible.

The good news is that if you can do this, it also helps to nerf one of America's biggest weapons, an immense pool of talent.

Now, I know I have yapped about this in a recent video, so I am not going to give you the whole spiel again, but the headline issues are that smart people attract smart people and funding their work returns between 140 and 210 % of the investment put in, at least according to some research from some smart people themselves over at the Dallas Fed.

To maintain this kind of work, we need to ensure that smart people can get the funding for the work they are doing, we need to make sure that we have smart people dedicated to this work at every level of academia, and we also need to make sure that we are open to smart people from abroad coming in to spread their general smartness around.

In just the raw numbers alone, it's estimated that a 25 % cut to public R &D funding, which is itself only about 0 .6 % of our economy, would end up costing us about 4 % of overall GDP according to researchers at American University in DC.

So in plain English, a 25 % damage multiplier, and that's on the lower end of projected estimates.

Now, the good news here is that all you need to do is hit one of these areas, and if other countries see that these smart people are up for grabs, they will go out of their way to do the hard work for you.

These smart people are also kind of smart.

If they see better opportunities elsewhere, they are going to take it, weakening the economy you are trying to crack, which can cause a feedback loop as they move to new intellectual hubs.

There are some historical case studies on this I am going to bully how business worked into making a video on.

Now, to be fair, the greatest benefit and perhaps the biggest drawback of all of these strategies so far is that their effects aren't felt immediately, they just stacked up in the background.

This means on one hand we won't visibly see that many major cracks in the armor early on unless we really know what we are looking for, but on the other hand we also won't see it until it's too late to fix them.

Yeah, if you feel so inclined, there is the obvious stuff like just straight button mashing the debt with high tax cuts, expensive unfunded commitments, and reinforcing investment manias, but that's the simpler stuff.

And even though this is obviously going to be a tough opponent, one of the final things that you need to keep in mind is that it has a tendency to only deal with the things immediately in front of it.

Perhaps more than ever before, it is reacting to what will play well in the next two years.

These long -term strategies are so effective because this particular boss bond is just really bad at recognizing anything but very short -term attacks.

The best part is that more damage builds up in the background, the more reactionary it will get to these issues, and it might even start hurting itself in confusion.

Again, you know, hypothetically.

Now if you're still having trouble with this opponent and you would like to see the extended guide where we discuss some more advanced strategies, go and watch this video next.

And don't forget to like and subscribe to keep on learning howlmoneyworks.