America’s Path Towards an Authoritarian Economy

The USA’s taking gigantic economic leaps backwards by the day now. Tariffs exploding. Prices rising. Jobs numbers crashing. The head of the statistical agency that released them fired. You can feel in the pit of your stomach that things are on a knife edge, and it won’t end well. But what does it all mean?

America’s now on a path towards an authoritarian economy. You probably feel that in your gut, already. Let me take a moment to teach you what it really means. It’ll be a lot to take in, so come back and re-read this as many times as you need to, split it up, take your time with it.

There’s a vicious spiral that nations collapsing into autocracy tend to follow. It goes like this. Capital controls, price controls, informational vacuums, monetizing the debt, defaulting on it, and crashing the currency. We’ll go through all those. But first…

An authoritarian economy means just what it sounds like. Most of us in the West are used to market economies, which are the counterpart poltiical democracies. Market economies aren’t necessarily fully democratic—they’re still rife with powerful oligopolies. But the ideal is still to have some semblance of decentralized markets setting prices and allocating resources. An authoritarian economy means precisely the opposite: an autocrat is dictating what an economy is. Prices, quantities, levels, rates. For capital, labor, investment, interest, all of it.

That is where all this is heading, and in many senses, already is.

Now, this is abstract, and I’m trying to teach you a great deal concisely, so let me make it more concrete.

What are tariffs? They’re a form of capital controls. Capital controls are just what they sound like, controls on capital. Tariffs say: you can now only send this much capital to that country, effectively. And once tariffs are in place, much harder forms of capital controls tend to follow. I’ll elaborate in just a moment.

What will Trump’s tariffs inevitably be followed by? Usually, in autocratic collapses, they’re followed by price controls. Why? Because tariffs cause inflation, and then the autocrat, who’s promised to lower prices, is then in a bind. So to stem this inflationary tsunami, autocrats tend to put in place price controls—autocrats tell CEOs you’d better not raise prices this much, on this or that. Often, they’re hard, dictated by an “economic board” or equivalent body. In America’s case, they’ll probably be softer: Trump dictating to boardrooms, threatening them, bullying them, coercing them into not raising prices.

Price controls, of course, only increase the pain. What do they do? When autocrats tells CEOs they can’t raise prices, they have to try and “eat the cost” of the tariffs. But to do that, they have to lay many people off, and often close entire lines of business. See how America just learned the labor market’s in shock because of the tariffs, and has been for a while? The effect of protectionism is to increase unemployment, which is why autocratic economies tend to have sky-high real unemployment rates.

At this juncture, autocrats tend to respond with financial repression: calls to lower interest rates, so as to juice the economy out of the negative effects of their own foolish decisions. America’s already there, Trump attacking the Fed over and over again. But lowering interest rates at this point only destabilizes the economy even further, because it’s usually a precursor to printing money to devalue the nation’s debt, before defaulting on the rest. Imagine that Trump does control the Fed. What’s to stop him from doing all the above? Nothing whatsoever, which is why every time he threatens it, the world’s most sophisticated investors shudder, and sell US T-bills—they understand financial repression is about to shred their portfolios.

See how this is a vicious spiral already? At this point, an economy’s already in deep, deep trouble. But by this stage, something else is usually rotten, and that something is even trusting the numbers, or informational vacuums.

In America, you can’t, now. Trump firing the Commissioner of the Bureau of Labor Statistics is a very big deal. Because it means that government statistics—which are a kind of public good, by the way—now are suspect. I don’t mean that politically, I mean it financially. To operate, markets need information. And the primary information they need comes from governments: growth, unemployment, inflation, and so on.

Why are autocratic economies so dysfunctional? One level of answer, which I’ve taught you, is price, wage, and capital controls. But a deeper one is that they’re informational vacuums, and without veracity of information, markets can’t function well.

Think about what Trump’s really doing to the stock market. It’s becoming a casino, whose only real purpose is to try and second-guess whom Trump will favor, and whom he won’t. That’s not a market, really, it’s just Russian Roulette, because in this case, all we’re doing is allocating capital to the autocrat’s whim.

So when information goes bad, markets don’t function. Price discovery doesn’t take place. Efficiency turns to mania and euphoria. Crashes and crises happen far more frequently. And what happens as a consequence of that?

Capital runs away from such risk. That’s why autocracies grow poor, and then stay poor. They are terrible places to invest, because poor information increases volatility so much that capital will scarcely risk it. As a consequence of bad information, to even try to attract investment, autocracies have to pay steep, steep risk premia—interest rates, incentives, etcetera—that lock them into poverty for generations.

Capital tries to flee autocracies. Now let’s come back to capital controls. Many of you have asked me in sessions: is my money safe in America? The answer to that question goes something like this. As capital runs away from the rising risks of autocracy—higher inflation, lower growth, poor information, and rising unemployment, to name just a few—autocrats try to stem this tide.

And they do so with hard capital controls. Why did Trump target Switzerland, of all places, with a sky-high 40% tariff? It’s not because of any sort of trade issue, really—it was to crash the Swiss franc, and thus disincentivize Americans from buying it. The next step after that is to say to Americans: you can only trade this amount, let’s say, $100,000 USD, for these currencies, in any given year.

If that sounds outlandish, please understand that this is how economies still work in most of the rest of the world. If you’re in China, for example, you can’t just freely trade currencies, there are hard limits, hard controls on capital, only this much Chinese currency in a given time horizon, and that’s why Hong Kong remains its financial center, because there, capital controls are far softer.

So. What I’m trying to teach you is that autocratic collapse becomes a vicious spiral. It’s a very real one, which we’ve seen around the world, from Latin America to Asia and beyond. And it has a classic pattern, which goes like this. Tariffs beget price controls. Price controls beget unemployment. Inflation surges, the economy slows, and demand shrinks, usually dramatically. Autocrats cook the books to try and hide it all. Markets stop functioning, and crashes and crises erupt.

And then as capital tries to furiously leave this doom loop, then the endgame becomes hard capital controls. And at that point, we have what’s known as a “closed economy,” which is more or less what it sounds like. And in that kind of suffocated, choked off economy, the currency is worth far, far less than it used to be, because, well, would you hold much of it? (By then, we’re pretty close to a Soviet economy, and that’s one way to understand the stakes here.)

The questions for you are these. Do your finance guys understand any of this? The answer is: probably not. Do you fully grasp the consequences? The answer is: maybe, at a gut level, but you’d better act so as not to get burned, before it’s too late.

All of this is very real. This isn’t a far-off prediction: it’s an observation. This vicious spiral has already begun. I explained it to you as a pattern so you can see it as a whole. But the question now isn’t “can it be stopped?” To ask that is to miss the point entirely. You can’t stop it any more than you can suspend gravity in mid-fall. This vicious spiral has a momentum all its own. To imagine that this moment in history is about AI or stock markets or micro level what have you is to fail to see it at all.

This moment is about American collapse. The macro risk of collapse from democracy into autocracy, and its immense, historic consequences. America isn’t going to play the role in the world it once did. In any way. Geopolitically, democratically, or financially. It is now becoming an autocracy, and it will be a much poorer, less stable, more authoritarian, severely dysfunctional country. The question before you is about that stark transformation, and how much you will invest in it—whether money, time, days of your life, your career, energy, and so forth.

Lots of love,

Umair (and Snowy!)

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