A Peking University economics professor who was sacked for his political views explains the underside of elite Chinese higher education. … Mr. Xi, 53, says he had a mostly apolitical youth in Anhui province, west of Shanghai, where both of his parents were shipyard workers for China's navy. He never considered himself a communist and says he always felt drawn to the West, thanks partly to foreign picture books from his childhood. He imagined life as a painter or translator, and after graduating college in 1984 went to work as an interpreter for the government's Foreign Affairs Office. … His political awakening came later, in 1987-89, when he studied management at the University of Toronto, visited several European democracies—and read Milton Friedman's "Free to Choose." Friedman's writing helped make Mr. Xia a classical liberal and, by the mid-1990s, a student of economics. Today he cites F.A. Hayek, Ludwig von Mises, James Buchanan and Gary Becker among his intellectual idols. The list also includes Xiakoai Yang, the Chinese economist—and Mao-era political prisoner—who convinced him that China cannot thrive without imitating the institutions, and not just the technologies, of the West.
Xi is the sixth man to rule the People’s Republic of China, and the first who was born after the revolution, in 1949. He sits atop a pyramid of eighty-seven million members of the Communist Party, an organization larger than the population of Germany. The Party no longer reaches into every corner of Chinese life, as it did in the nineteen-seventies, but Xi nevertheless presides over an economy that, by one measure, recently surpassed the American economy in size; he holds ultimate authority over every general, judge, editor, and state-company C.E.O. ... “He’s not afraid of Heaven or Earth. And he is, as we say, round on the outside and square on the inside; he looks flexible, but inside he is very hard.” ... a quarter of the way through his ten-year term, he has emerged as the most authoritarian leader since Chairman Mao. In the name of protection and purity, he has investigated tens of thousands of his countrymen, on charges ranging from corruption to leaking state secrets and inciting the overthrow of the state. He has acquired or created ten titles for himself, including not only head of state and head of the military but also leader of the Party’s most powerful committees—on foreign policy, Taiwan, and the economy. He has installed himself as the head of new bodies overseeing the Internet, government restructuring, national security, and military reform, and he has effectively taken over the courts, the police, and the secret police. ... Xi describes his essential project as a rescue: he must save the People’s Republic and the Communist Party before they are swamped by corruption; environmental pollution; unrest in Hong Kong, Xinjiang, and other regions; and the pressures imposed by an economy that is growing more slowly than at any time since 1990 (though still at about seven per cent, the fastest pace of any major country). “The tasks our Party faces in reform, development, and stability are more onerous than ever, and the conflicts, dangers, and challenges are more numerous than ever,” Xi told the Politburo, in October.
AT FIRST sight, Austrian voters chose business as usual in the election on September 29th. The Social Democrats (SPÖ) and centre-right People’s Party (ÖVP), which have governed the country together for all but seven years since 1986, retained their majority, albeit with fewer seats. Even though a coalition between the ÖVP and two right-wing groups is theoretically possible, another left-right coalition seems more likely. … Yet a closer look at the result reveals signs of turmoil in Austrian politics.
In mid-August, Jim DeMint, the South Carolina Republican who quit the Senate in January to become president of the Heritage Foundation, the conservative Washington think tank, set off on a nine-city Defund Obamacare Town Hall Tour. DeMint, 62, is a courtly, polished Southerner who used to own a marketing business. These days he’s selling the idea that it’s not too late to kill the health-care law. In each city, hundreds and sometimes thousands of true believers crammed into hotel ballrooms to hear him explain how, with enough pressure on legislators, Congress could be persuaded to withhold funding for the law and thereby halt it before public enrollment begins on Oct. 1. “The House holds the purse strings,” DeMint told his crowds. If Republicans keep them cinched, he promised, the law would fail. ... DeMint’s idea was initially dismissed as quixotic. For one thing, the Affordable Care Act is mostly paid for by mandatory funds that can’t be blocked. For another, Democrats control the White House and Senate. Even so, the defund push has caught fire in Washington because activists have made it into a crusade.
Far from the nuclear negotiations, a new tech-savvy Iranian generation takes shape. ... I asked one woman how she best prepares for the rigor of building a company. “By doing!” she smirks at me. She pauses, and adds, “Oh, and I read all the top Silicon Valley blogs and take a few classes from Stanford, Wharton and other colleges around the world for free on Coursera.” Several at the lunch put down their forks and show me their smart phones, each open on Wifi to courses like “Introduction to Marketing, “International Leadership and Organizational Behavior” and “Better Leader, Richer Life.” ... Politics, power, mistrust: This is one version of how the media frames discussion of Iran. It’s very real, and it has much caution and evidence to support it. ... But there’s another tale, one I saw repeatedly in my trip there last month. It was my second visit within the year, traveling with a group of senior global business executives to explore this remarkable and controversial nation. ... This tale focuses on Iran’s next generation, an entirely new generation that came of age well after the Islamic Revolution, and on human capital, the greatest asset a country can have. It’s about technology as the driver for breaking down barriers even despite internal controls and external sanctions. People under age 35 represent nearly two-thirds of Iran’s population at this point: Many were engaged in the Green Movement protests against the Iranian presidential election in 2009. Most are utterly wired and see the world outside of Iran every day—often in the form of global news, TV shows, movies, music, blogs, and startups—on their mobile phones.
This is not the typical office of an oil-industry executive: No Remington bronzes, no autographed Super Bowl footballs. A Picasso-esque painting of a figure in red hangs on one wall, the precocious work of his daughter Elizabeth, now a publisher in L.A., when she was 16. A portrait of Koch’s father, Fred, hangs on a wall to the right of his desk. On another wall hangs a framed letter Koch found in his father’s safe deposit box after Fred’s death in 1967. Written in 1936, the letter expresses concern about the life insurance policies Fred had purchased to pay for his children’s education in case he died. “If you choose to let this money destroy your initiative and independence,” Fred wrote, “then it will be a curse to you and my action in giving it to you will have been a mistake.” ... “We’re destroying opportunities for the disadvantaged and creating welfare for the rich. This is coming about by misguided policies creating a permanent underclass, it’s crippling the economy and corrupting the business community.” ... “... the idea that we believe that people are going to be better off when they control their own lives rather than have somebody in power have what Hayek called the “Fatal Conceit,” and Easterly called the “Tyranny of Experts,” think they can tell people, force people to run their lives the way those in power think they should. So this threatens people in power, or people who believe the opposite have a different vision on how society can best function.” ... "What all this comes down to is you need an experimental discovery culture and model. You can study these things ‘till the end of time and not know because the future is unknown and unknowable. We try to do experiments at a level that we can afford to lose."
A charismatic showman with a penchant for provocative bombast, the motorcycle club's leader is perhaps Russia's most recognizable nationalist star. Over the past decade, he has transformed a once-underground biker gang into a self-styled vanguard of patriotic holy warriors, reportedly 5,000 strong, with close ties to the Kremlin. In the Russian media, he can regularly be heard trumpeting the country's greatness while warning that its enemies — America, Europe, homosexuals, liberals, traitorous "fifth columnists" — intend to undermine Mother Russia. He and the other Night Wolves often hold motorcycle rallies to promote Russian patriotism and Orthodox Christianity, making rumbling pilgrimages to churches and holy sites. He has vowed to defend the Kremlin from Maidan-inspired protesters and has pledged to die for Vladimir Putin, the country's president. He has famously declared that "wherever the Night Wolves are, that should be considered Russia." Recently, the club held a three-day anti-NATO rally in Slovakia. Lately, the Surgeon has taken to praising Stalin. ... The Surgeon and his Night Wolves have flourished in this nationalist ecosystem. The club has reportedly received more than $1 million in grants from the Kremlin to support patriotic performances like the Sevastopol bike show. On several occasions, Putin himself has famously mounted a three-wheel Harley and ridden alongside the Surgeon. In 2013, Putin awarded the Night Wolves' leader an Order of Honor for his "patriotic education of youth." In June, the Russian press announced a cosmonaut would carry the club's flag into space. ... the Surgeon tells me the dissolution of the U.S.S.R. had left him deeply embittered. "All the values were lost, everybody started kicking their history, spitting on their own granddads," he says. "All these pretenders I always hated — they painted themselves so quickly from Communists to capitalists." His disillusionment, he explains, led to a time of desert wandering, a search for answers. Eventually he identified those responsible: proponents of democracy, liberalism, Wall Street.
The divergent tales of Syria and Lebanon demonstrate that the best early warning signs of instability are found not in historical data but in underlying structural properties. Past experience can be extremely effective when it comes to detecting risks of cancer, crime, and earthquakes. But it is a bad bellwether of complex political and economic events, particularly so-called tail risks—events, such as coups and financial crises, that are highly unlikely but enormously consequential. For those, the evidence of risk comes too late to do anything about it, and a more sophisticated approach is required. ... Thus, instead of trying in vain to predict such “Black Swan” events, it’s much more fruitful to focus on how systems can handle disorder—in other words, to study how fragile they are. Although one cannot predict what events will befall a country, one can predict how events will affect a country. Some political systems can sustain an extraordinary amount of stress, while others fall apart at the onset of the slightest trouble. The good news is that it’s possible to tell which are which by relying on the theory of fragility. ... The first marker of a fragile state is a concentrated decision-making system. On its face, centralization seems to make governments more efficient and thus more stable. But that stability is an illusion. Apart from in the military—the only sector that needs to be unified into a single structure—centralization contributes to fragility. ... The second soft spot is the absence of economic diversity. Economic concentration can be even more harmful than political centralization. Economists since David Ricardo have touted the gains in efficiency to be had if countries specialize in the sectors in which they hold a comparative advantage. But specialization makes a state more vulnerable in the face of random events. ... The third source of fragility is also economic in nature: being highly indebted and highly leveraged. Debt is perhaps the single most critical source of fragility. It makes an entity more sensitive to shortfalls in revenue, and all the more so as those shortfalls accelerate. ... The fourth source of fragility is a lack of political variability. Contrary to conventional wisdom, genuinely stable countries experience moderate political changes, continually switching governments and reversing their political orientations. ... The fifth marker of fragility takes the proposition that there is no stability without volatility a step further: it is the lack of a record of surviving big shocks. States that have experienced a worst-case scenario in the recent past (say, around the previous two decades) and recovered from it are likely to be more stable than those that haven’t.
It has been a year since the guards at a prison camp just below the Arctic Circle told Mikhail Khodorkovsky, a former oil tycoon and once the richest man in Russia, to pack his things. They put him on a plane to St. Petersburg; there they handed him a parka and a passport and put him on a flight to Berlin. Since that day of release and exile, Khodorkovsky has been living outside Zurich and travelling to capitals throughout the West, making speeches, accepting awards, and hinting broadly at a return to Russia. He will tell anyone who asks that, after a decade in various prison camps, he would not mind displacing the man who sent him there—Vladimir Putin. ... He is fifty-one now; he’s become stockier since his release, and his graying hair has grown out of the prison buzz cut. He was dressed casually, as always, in jeans and a sweater, and spoke in a quiet, well-mannered voice. Still, as he took questions onstage from a journalist from Le Monde, he displayed none of the modesty of his forebears in dissent. Andrei Sakharov would never have spoken of taking up residence in the Kremlin. “It wouldn’t be interesting for me to be President of the country when the country is developing normally,” Khodorkovsky said. “But if the issue becomes that the country needs to overcome a crisis and undergo constitutional reforms, the main aspect of which is the redistribution of Presidential power to the courts, parliament, and civil society, that part of the job I would be willing to do.” ... When it came to Putin, his remarks were sly, glancing. “It’s hard for me to say that I’m thankful,” he said of his release. “But I am glad.” It was quite the understatement from a man who, once estimated by Forbes to be worth more than fifteen billion dollars, had been reduced to a life of manual labor. In the camps, Khodorkovsky never knew if he would ever be released. And when he finally was, in December, 2013, it was as a public-relations gesture before the Sochi Olympics—when Putin still cared about the West’s opinion of him. ... The way forward, Khodorkovsky said, was to form a horizontal network among like-minded, Western-leaning Russians—Western “adaptants”—which the state could not easily destroy. He was counting on the ten or fifteen per cent of Russians who fit this category. In some cities, like Moscow and St. Petersburg, he believed, it could be as high as a third. This amounted to a “minority within a minority,” he conceded, but in Russia a progressive, or radical, minority has always been the engine of political change.
Bannon is the executive chairman of Breitbart News, the crusading right-wing populist website that’s a lineal descendant of the Drudge Report (its late founder, Andrew Breitbart, spent years apprenticing with Matt Drudge) and a haven for people who think Fox News is too polite and restrained. ... He’s been a naval officer, investment banker, minor Hollywood player, and political impresario. When former Disney chief Michael Ovitz’s empire was falling to pieces, Bannon sat Ovitz down in his living room and delivered the news that he was finished. When Sarah Palin was at the height of her fame, Bannon was whispering in her ear. When Donald Trump decided to blow up the Republican presidential field, Bannon encouraged his circus-like visit to the U.S.-Mexico border. John Boehner just quit as House speaker because of the mutinous frenzy Bannon and his confederates whipped up among conservatives. Today, backed by mysterious investors and a stream of Seinfeld royalties, he sits at the nexus of what Hillary Clinton once dubbed “the vast right-wing conspiracy,” where he and his network have done more than anyone else to complicate her presidential ambitions—and they plan to do more. But this “conspiracy,” at least under Bannon, has mutated into something different from what Clinton described: It’s as eager to go after establishment Republicans such as Boehner or Jeb Bush as Democrats like Clinton.
In our view, successfully divining the trajectory of markets today has a great deal to do with properly separating the bountiful amounts of information and data we have access to into that which is genuinely useful and that which serves to distract. As a case in point, while we have indeed weighed in on this debate ourselves, the endless discussions about the precise timing of Federal Reserve policy rate lift-off receive far too much attention from investors and the media. Indeed, we think less of a focus on transitory issue like this, and more attention paid to longer-term market influences such as demographic trends and technological change can go some distance toward improving an investment process longer-term. To that end, in this edition of our market outlook we briefly examine a set of influences on markets that we think hold meaningful importance longer-term (demographics, technology, policy evolution and risk, liquidity, and valuation), while at the same time dispelling a set of assertions that we believe are either over-emphasized or mistaken. ... The days of a simple risk-on/risk-off dynamic, depending on whether policy stimulus was waxing or waning, are likely behind us. ... the time may finally have come when carry-focused investments may now be priced as attractively as beta (or down-the-capital-stack) instruments, so investors can selectively search for opportunities there. As described above, though, there are some tail risks in markets, so care is still required. And, perhaps most importantly, investors would do well to tune out the endless streams of noise generated by financial market commentators and focus on the secular themes likely to both endure and help create long-term value.
1. The Hollow Alliance: The trans-Atlantic partnership has been the world’s most important alliance for nearly seventy years, but it’s now weaker, and less relevant, than at any point in decades. It no longer plays a decisive role in addressing any of Europe’s top priorities. Russia’s intervention in Ukraine and the conflict in Syria will expose US-European divisions. As US and European paths diverge, there will be no more international fireman—and conflicts particularly in the Middle East will be left to rage.
2. Closed Europe: In 2016, divisions in Europe will reach a critical point as a core conflict emerges between Open Europe and Closed Europe—and a combination of inequality, refugees, terrorism, and grassroots political pressures pose an unprecedented challenge to the principles on which the new Europe was founded. Europe’s open borders will face particular pressure. The risk of Brexit is underestimated. Europe’s economics will hold together in 2016, but its broader meaning and its social fabric will not.
3. The China Footprint: Never has a country at China’s modest level of economic and political development produced such a powerful global footprint. China is the only country of scale today with a global economic strategy. The recognition in 2016 that China is both the most important and most uncertain driver of a series of global outcomes will increasingly unnerve other international players who aren’t ready for it, don’t understand or agree with Chinese priorities, and won’t know how to respond to it.
4. ISIS and “Friends”: ISIS is the world’s most powerful terrorist organization, it has attracted followers and imitators from Nigeria to the Philippines, and the international response to its rise is inadequate, misdirected, and at cross purposes. For 2016, this problem will prove unfixable, and ISIS (and other terrorist organizations) will take advantage of that. The most vulnerable states will remain those with explicit reasons for ISIS to target them (France, Russia, Turkey, Saudi Arabia, and the United States), and those with the largest numbers of unintegrated Sunni Muslims (Iraq, Lebanon, Jordan, Egypt, and across Europe).
5. Saudi Arabia: The Saudi Kingdom faces a growing risk of destabilizing discord within the royal family this year, and its increasingly isolated status will lead it to act more aggressively across the Middle East this year. The threat of intra-royal family strife is on the rise, and a scenario of open conflict, unimaginable prior to King Salman’s January 2015 ascension, has now become entirely realistic. The key source of external Saudi anxiety is Iran, soon to be free of sanctions.
6. The rise of technologists: A variety of highly influential non-state actors from the world of technology are entering the realm of politics with unprecedented assertiveness. These newly politically ambitious technologists are numerous and diverse, with profiles ranging from Silicon Valley corporations to hacker groups and retired tech philanthropists. The political rise of these actors will generate pushback from governments and citizens, generating both policy and market volatility.
7. Unpredictable Leaders: An unusually wide constellation of leaders known for their erratic behavior will make international politics exceptionally volatile this year. Russia’s Vladimir Putin and Turkey’s Recep Tayyip Erdogan are leaders of an unruly pack that includes Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman and – to a lesser but important extent – Ukraine’s Petro Poroshenko. These unpredictable leaders make our list for 2016 because their interventions overlap and conflict. One powerful, erratic leader spells trouble; four spell volatility with major international implications.
8. Brazil: President Dilma Rousseff is fighting for her political survival, and the country’s political and economic crisis is set to worsen in 2016. Contrary to hopes among pundits and many market players, the battle over Rousseff’s impeachment is unlikely to end the current political stalemate. Should the president survive, her government won’t gain the political boost necessary to move on the economic reforms needed to tackle the country’s growing fiscal deficit. If Rousseff is ousted, an administration led by Vice President Michel Temer won’t fare much better.
9. Not enough elections: Emerging markets underwent a historic cycle of national elections in 2014-2015, but this year there are relatively few opportunities for EM voters to make themselves heard at the ballot box. As slower growth and stagnating living standards stoke popular discontent, governance and stability will suffer. Historically, markets have been less volatile in non-election years, but this time will be different. By raising popular expectations, the massive income growth that most EMs enjoyed over the past 10 years has created conditions for a rude awakening.
10. Turkey: After a decisive victory for his AK party in late-2015, President Erdogan will now push to replace the country’s parliamentary system with a presidential one. He’s unlikely to reach his goal in 2016, but his aggressive electioneering will further damage an already battered Turkish business and investment climate. On the security front, there is little prospect of an imminent end to PKK violence, and unrelenting US pressure on Ankara to clamp down on the Islamic State will produce only modest results while making Turkey more vulnerable to new attacks by ISIS.
* Red Herrings: US voters aren't going to elect a president who will close the country to Muslims. China’s economy isn’t headed for a hard landing, and its politics will remain stable. Continued strong leadership from Japan's Shinzo Abe, India's Narendra Modi, and especially China's Xi Jinping will keep Asia's three most important players focused on economic reform and longer-term strategy, reducing the risk of conflict in Asia’s geopolitics.
Renzi and Merkel are the European Union’s odd couple. Like Ruth Bader Ginsburg and Antonin Scalia, they get along. They enjoy each other’s company, and, if their unlikely friendship includes a large measure of amusement and incredulity, they are well matched when it comes to the steel behind the strategic courtesies that each deploys. Merkel, unflappable and seemingly untouchable after ten years as Chancellor of the Continent’s biggest economic power, is Europe’s reigning austerity hawk, and pretty much calls the shots in Brussels. Renzi, who at the time of his invitation was entering his eleventh month in office, was still known abroad mainly for his youth, for the jeans and sneakers he wears to meetings, and for the barbed tweets with which he documents his uphill battle to solve Italy’s social woes and persistent fiscal crises. He had produced an ambitious package of reforms, and kept the budget deficit at a safe, if hovering, three per cent of the country’s G.D.P. (Any E.U. member with a higher deficit risks sanctions from Brussels.) Now he needed to finance the kind of infrastructural, technological, and economic innovations that would create new jobs and generate enough investment and enthusiasm to put Italy, the third-largest economy in the euro zone, back into what he calls the “European conversation.” ... Italians who admire Matteo Renzi call him “our best hope.” More skeptical Italians say, “Well, maybe our only hope.” The Western press hedges its bets with “brash” but “confident.” And his enemies use the term il rottamatore, the demolition man. ... There is no doubt that Renzi wants to save Italy from itself, or that he considers himself the only person who can do that. ... Italy’s Democratic Party, in its new, “Renziani” incarnation—think Clinton-Blair for the twenty-first century—is a warring clan of former Communists, Socialists, Social Democrats, Christian Democrats, and liberal entrepreneurs, each faction circling the others warily and hoping they will go away.
The frenzied, fanatical politics of Tamil Nadu, India. ... Before she went into politics, Jayalalithaa was the most popular Tamil movie actress of her time, the heroine in more than 100 films. She followed the model of her mentor and co-star, an actor-politician named Marudhur Gopalan Ramachandran but more commonly known by his initials M.G.R. He ruled Tamil Nadu for 11 years, and since his death in 1987, Jayalalithaa and her archenemy, a wily 92-year-old screenwriter named Muthuvel Karunanidhi, have taken turns running the state. As the head of the D.M.K. — the party to which M.G.R. belonged until their rivalry forced a split — Karunanidhi has built a cult following on par with Jayalalithaa’s. The two of them rule as if in a melodrama, having each other arrested, dropping snide insults and wild accusations, destroying each other’s pet projects. The D.M.K. and the A.I.A.D.M.K. have almost no policy differences, but no other party can gain a foothold.
This is the face of nuclear development in the United States today: slow, over-budget, economically untenable. Yet the dream of a nuclear-powered society is still alive. Nationwide, we get about 20 percent of our electricity from nuclear. It produces the lion's share (64 percent) of our clean energy, provided that by "clean," you mean anything but fossil fuels. In addition to Watts Bar 2 there are four other reactors currently under construction in this country, signaling that perhaps America has a renewed interest in going nuclear. ... Look abroad and there's even more reason for nuclear advocates to be hopeful. China is leading a renaissance in nuclear energy: Today that country gets only 2.5 percent of its electricity from nuclear, but it has 21 reactors under construction, more in the works, and a growing business selling reactors to countries like Pakistan, Argentina, and the United Kingdom. This vigor marks a level of nuclear investment the world has not seen since the heyday of American atomic enthusiasm, when 58 reactors came online between 1965 and 1980. ... What happens next depends on whether nuclear boosters can solve the three key problems that have plagued American nuclear power, and left places like Watts Bar in perpetual limbo. ... nuclear power plants can generate tremendous amounts of energy. But while it's expensive to develop any kind of energy infrastructure, the cost of nuclear energy has not fallen over time. There is no Moore's Law in play here. ... Not only are China's reactors using a standardized design with some modular parts, but the entire construction process is performed by a dedicated crew that travels from reactor site to reactor site.
Warren Buffett controls Nevada’s legacy utility. Elon Musk is behind the solar company that’s upending the market. Let the fun begin. ... SolarCity’s success is partly because the government provides subsidies and enables an arrangement called net metering, which allows homeowners with panels to sell back to the grid any solar energy they don’t use. This helps offset their cost of power when the sun’s not shining. Like more than 40 other U.S. states, Nevada forces utilities to buy the excess energy at rates set by regulators—usually the same rate utilities charge (hence, the net in net metering). In Nevada, it’s worked well. So well, in fact, that NV Energy, the state’s largest utility, is fighting it with everything it’s got. ... In just a decade, solar has gone from an enviro’s dream to a serious lobby that will be fighting these kinds of battles nationwide for years. ... Power companies may not be winning any popularity contests, but they’re developing their own renewable energy to keep up with changing attitudes and to meet state mandates.
Earnings per share for the S&P 500 Index peaked in the third quarter of 2014. The dramatic plunge in the prices of oil and industrial commodities as a result of slowing demand from China together with increased supply from the United States, decimated energy and materials companies’ profits. In the years ahead, oil production will decline to remove excess capacity, prices will again rise above costs, energy company margins will recover, and market-level earnings will return to a normal rate of growth. ... The future secular real rate of growth in corporate profits is far more important than the current commodity cycle to investors’ long-term real wealth accumulation. During the past quarter-century, politically facilitated globalization allowed profits to grow much faster than per capita GDP, wages, and productivity, propelling capital’s share of income to an unsustainable extreme. ... The distribution of the economic pie is ultimately a political choice. With populist frustration increasingly pressuring policy change around the world, investors should expect labor, tax, and interest expense to rise faster than sales, thereby depressing profit margins and slowing real growth in earnings per share over the decades ahead.
The internet has spawned subtle forms of influence that can flip elections and manipulate everything we say, think and do ... Most of us have heard of at least one of these methods: subliminal stimulation, or what Packard called ‘subthreshold effects’ – the presentation of short messages that tell us what to do but that are flashed so briefly we aren’t aware we have seen them. In 1958, propelled by public concern about a theatre in New Jersey that had supposedly hidden messages in a movie to increase ice cream sales, the National Association of Broadcasters – the association that set standards for US television – amended its code to prohibit the use of subliminal messages in broadcasting. ... Subliminal stimulation is probably still in wide use in the US – it’s hard to detect, after all, and no one is keeping track of it – but it’s probably not worth worrying about. ... what would happen if new sources of control began to emerge that had little or no competition? And what if new means of control were developed that were far more powerful – and far more invisible – than any that have existed in the past? And what if new types of control allowed a handful of people to exert enormous influence not just over the citizens of the US but over most of the people on Earth? ... It might surprise you to hear this, but these things have already happened. ... The shift we had produced, which we called the Search Engine Manipulation Effect (or SEME, pronounced ‘seem’), appeared to be one of the largest behavioural effects ever discovered.
Think of it as the nuclear option: deploying the most powerful and dangerous weapon available, the one you use when conventional warfare has failed. Just as with real nuclear weapons, that option carries clear risks, starting with losing the presidency in November, and ultimately threatening the party itself. But If a critical mass of Republicans and their conservative allies believe—as many have argued publicly, and more have privately whispered—that Trump could irrevocably undermine what the party says it stands for, and would pose a clear and present danger to the country if he ever attained the White House, it may now be their only chance. ... Trump has one glaring Achilles Heel: He can’t admit any failing, any mistake, any weakness of any kind. He tells us he has the world’s greatest memory; the “The Art of the Deal” is the second best book ever written (the Bible comes first). Without plunging into dime-store psychology, there seems to be a profound sense of insecurity, most of all about being mocked, laughed at.
Inside the company that provides fake paparazzi, pretend campaign supporters, and counterfeit protesters ... Adam believed a niche service providing crowds might appeal to campaign directors. But once he launched the service, he found that he was asked to wield his crowds in a way he hadn’t anticipated — not only to support a candidate but to protest a candidate. A candidate might muster 500 supporters to a speech on a college campus, but if Adam sent just five recruits to demonstrate outside the auditorium, he discovered that the media would give equal coverage to both the rally and the demonstration. ... Crowds on Demand, he says, serves several clients a week, sometimes a day — most in L.A., San Francisco, and New York but an increasing number in smaller cities like Nashville, Charlotte, and Minneapolis. When people inquire about a potential event, Adam guides them through the possibilities and the approximate costs: $600 for fake paparazzi at a birthday dinner; $3,000 for a flash mob dancing, chanting, and handing out fliers as a PR stunt; $10,000 for a weeklong political demonstration; $25,000 to $50,000 for a prolonged campaign of protests. According to Adam, protests have become the company’s growth sector, and just as with advertising, repeat impressions are key. ... Hired crowds have a long history. The Roman emperor Nero required that 5,000 of his soldiers show up for his performances and respond with enthusiasm. The 16th-century French poet Jean Daurat bought tickets to his own plays and gave them away to anyone who promised to respond favorably.
For eight years, Sepúlveda, now 31, says he traveled the continent rigging major political campaigns. With a budget of $600,000, the Peña Nieto job was by far his most complex. He led a team of hackers that stole campaign strategies, manipulated social media to create false waves of enthusiasm and derision, and installed spyware in opposition offices, all to help Peña Nieto, a right-of-center candidate, eke out a victory. ... Sepúlveda’s career began in 2005, and his first jobs were small—mostly defacing campaign websites and breaking into opponents’ donor databases. Within a few years he was assembling teams that spied, stole, and smeared on behalf of presidential campaigns across Latin America. He wasn’t cheap, but his services were extensive. For $12,000 a month, a customer hired a crew that could hack smartphones, spoof and clone Web pages, and send mass e-mails and texts. The premium package, at $20,000 a month, also included a full range of digital interception, attack, decryption, and defense. The jobs were carefully laundered through layers of middlemen and consultants. Sepúlveda says many of the candidates he helped might not even have known about his role; he says he met only a few. ... His teams worked on presidential elections in Nicaragua, Panama, Honduras, El Salvador, Colombia, Mexico, Costa Rica, Guatemala, and Venezuela. ... He’s serving 10 years in prison for charges including use of malicious software, conspiracy to commit crime, violation of personal data, and espionage, related to hacking during Colombia’s 2014 presidential election.
The Blackwater of surveillance, the Hacking Team is among the world’s few dozen private contractors feeding a clandestine, multibillion-dollar industry that arms the world’s law enforcement and intelligence agencies with spyware. Comprised of around 40 engineers and salespeople who peddle its goods to more than 40 nations, the Hacking Team epitomizes what Reporters Without Borders, the international anti-censorship group, dubs the “era of digital mercenaries.” ... The Italian company’s tools — “the hacking suite for governmental interception,” its website claims — are marketed for fighting criminals and terrorists. ... “Privacy is very important,” Vincenzetti says on a recent February morning in Milan, pausing to sip his espresso. “But national security is much more important.” ... Between 2003 and 2004, Vincenzetti and two college friends worked in their dank, underground apartment and coded what would become the Hacking Team’s flagship software. Called the Remote Control System (RCS), it commandeers a target’s devices without detection, allowing a government to deploy malware against known enemies. (The product was later dubbed Da Vinci, then Galileo.) Think of it as a criminal dossier: A tab marked “Targets” calls up a profile photo, which a spy must snap surreptitiously using the camera inside the subject’s hacked device. Beside the picture, a menu of technologies (laptop, phone, tablet, etc.) offers an agent the ability to scroll through the person’s data, including email, Facebook, Skype, online aliases, contacts, favorite websites, and geographical location. Over time, the software enables government spooks to build a deep, sprawling portfolio of intelligence. ... A hacktivist known as Phineas Fisher had hijacked the Hacking Team’s official Twitter account and posted an ominous message: “Since we have nothing to hide, we’re publishing all our emails, files, and source code.” Following the message was a link to more than 400 gigabytes of the company’s most sensitive data.
Plato, of course, was not clairvoyant. His analysis of how democracy can turn into tyranny is a complex one more keyed toward ancient societies than our own (and contains more wrinkles and eddies than I can summarize here). His disdain for democratic life was fueled in no small part by the fact that a democracy had executed his mentor, Socrates. And he would, I think, have been astonished at how American democracy has been able to thrive with unprecedented stability over the last couple of centuries even as it has brought more and more people into its embrace. It remains, in my view, a miracle of constitutional craftsmanship and cultural resilience. There is no place I would rather live. But it is not immortal, nor should we assume it is immune to the forces that have endangered democracy so many times in human history. ... Part of American democracy’s stability is owed to the fact that the Founding Fathers had read their Plato. ... Many contend, of course, that American democracy is actually in retreat, close to being destroyed by the vastly more unequal economy of the last quarter-century and the ability of the very rich to purchase political influence. This is Bernie Sanders’s core critique. But the past few presidential elections have demonstrated that, in fact, money from the ultrarich has been mostly a dud. ... The evidence suggests that direct democracy, far from being throttled, is actually intensifying its grip on American politics. ... it is precisely because of the great accomplishments of our democracy that we should be vigilant about its specific, unique vulnerability: its susceptibility, in stressful times, to the appeal of a shameless demagogue.
Since we’re in the midst of election season, with promises of cures for our economic woes being thrown around, this seems like a particularly appropriate time to explore what can and can’t be achieved within the laws of economics. Those laws might not work 100% of the time the way physical laws do, but they generally tend to define the range of outcomes. It’s my goal here to point out how some of the things that central banks and governments try to do – and election candidates promise to do – fly in the face of those laws. ... Let’s start with central banks’ attempts to achieve monetary stimulus. When central banks want to help economies grow, they take actions such as reducing the interest rates they charge on loans to banks or, more recently, buying assets (“quantitative easing”). In theory, both of these will add to the funds in circulation and encourage economic activity. The lower rates are, and the more money there is in circulation, the more likely people and businesses will be to borrow, spend and invest. These things will make the economy more vibrant. ... But there’s a catch. Central bankers can’t create economic progress they can only stimulate activity temporarily. ... In the long term, these things are independent of the amount of money in circulation or the rate of interest. The level of economic activity is determined by the nation’s productiveness. ... Much of what central banks do consists of making things happen today that otherwise would happen sometime in the future. ... the truth is, this “tyranny of the majority” is an unhealthy development. First, society does better when able members have strong incentive to contribute. Second, upward aspiration and mobility will be constrained when taxes become confiscatory. Finally, taxpayers aren’t necessarily powerless in the face of rising tax rates.
Priebus’s mission at the RNC has been to manufacture some luck: to rebuild a party that lost the popular vote in five of the last six presidential elections and lost power completely with Barack Obama’s 2008 victory. While Republicans traded recriminations after Mitt Romney’s loss in 2012, Priebus announced that the RNC would conduct a rigorous postmortem of all that had gone wrong and figure out how to refashion the party for the 21st century. ... The key to revival, the authors concluded, was to put a kinder, gentler gloss on the old stalwart Republican ideals (free trade, small government) while reforming immigration laws to entice nonwhite voters who were tuning the party out. ... By obliterating Jeb, Trump redefined the Republican Party’s identity off the top of his head. And his vision of the GOP’s future is in many ways the diametrical opposite of what Priebus and the party Establishment had imagined. ... A Republican Party that can’t stop Trump’s nomination may be no better able to resist his influence. If you’re Priebus, that’s a grim thought, because you’ve devoted five years, hundreds of millions of dollars, and every ounce of your energy to pushing your party in the other direction.