Dan once attended a Frontier camp organized by the Collisons. During the event, participants played Avalon, a social deduction game where a hidden group of evil players tries to deceive a majority of good players. One player attempted to solve the game by using a state space matrix on a whiteboard. This analytical approach uses a process of elimination similar to how one might solve the Monty Hall problem in statistics by mapping out a decision tree.

I was thinking, what if we wrote the state space matrix on a whiteboard, which was either the really smart thing to do or really dumb thing to do.

While intended to help the good players, the mathematical logic actually provided a roadmap for the opposition. Dan, who was playing an evil character, used the calculations on the board to deduce the identities of key players. This shows how bringing formal data structures into social games can sometimes backfire by revealing more information than intended.

China operates as an enduring state while America functions as a lawyerly state. Although Xi Jinping keeps communist symbols, his leadership focuses on a nationalist conservative revival of five thousand years of history. This reverses the path of Mao, who previously attacked traditional values and filial piety. When Deng Xiaoping took power in 1978, he rebranded the nation by keeping the party logo but completely changing how the system worked internally. He shifted the country toward capitalism after being purged multiple times.

Deng managed to take over and shifted it towards the capitalist road, even after he'd been purged three times and his son had been thrown through a window.

Deng maintained many of the governing styles of Mao despite his different economic goals. He was a ruthless leader who purged enemies and removed successors to maintain control. Dan points out that Deng shared Mao's ruthless nature even though his ultimate goals were more productive for the country. One theory suggests Deng started the war with Vietnam specifically to gain the support of the army and distract generals while he implemented reforms in the capital. To run China effectively, a leader typically needs to control three main pillars of power: the state, the party, and the military.

Many people have spent years waiting for China to fail. They argue that the country will grow old before it gets rich. However, China continues to lead in sectors like electric vehicles, solar energy, and advanced manufacturing. This industrial energy is real and has proven successful. At the same time, this success exists alongside significant internal problems.

Dan points out that the political situation is unstable. High-level officials and generals are frequently purged. While the technological growth is impressive, the economic reality includes a property market collapse and high youth unemployment. These issues have led many people, including successful entrepreneurs, to leave the country.

Last year, customs and border patrol were apprehending something like 40,000 Chinese nationals every single month. That is a lot of people who want to take leave of the great rejuvenation of the Chinese ethnostate.

This creates a complicated picture. We must reconcile amazing technological growth with deep political and economic uncertainty. Many people are now traveling to places like Ecuador to find a way to the American border because they see no future in the current political environment.

China provides a high standard of living for the middle class. People up to the 90th percentile enjoy clean streets, low crime, and efficient delivery services. However, life changes for the top 1 or 2 percent of society. These individuals face constant surveillance to ensure they remain in line with the Communist Party. If they fall out of favor, they risk losing their status or safety. This pressure drives many of the wealthy to move to places like Singapore or Dubai.

Dan notes that the United States is arguably the best place in the world to be enormously rich. Wealthy Americans can bypass problems like housing crises or deteriorating infrastructure. They live in luxury skyscrapers and do not have to worry about the loud or dirty subways that common citizens use. In America, wealth allows individuals to separate themselves from the struggles of the general population.

However, the American economy might be less stable than it appears. While it is called capitalist, it operates more on Keynesian principles. The government prints money to redistribute wealth, which acts as a form of hidden taxation through inflation. There is a social contract in the US where the upper middle class expects the stock market to rise because their retirements are tied to index funds and 401k plans.

The plunge protection team at the Fed will actually print to make sure that in extreme circumstances stock market doesn't go down. Some of that was explicit like the mortgage backed securities that were bought in 2008. Some of that is implicit. They do just keep the market nominally going but in real terms versus gold or digital gold, it's going way down.

The US economy relies on various forms of manipulation to keep markets afloat. This includes programs that value assets based on their purchase price rather than their current market value. This creates a system that looks successful on paper even as the real value of the currency declines compared to assets like gold.

The American economy can often feel fictitious compared to the industrial speed of China. While the United States creates trillion-dollar corporations, these companies sometimes struggle to build physical products. Apple spent ten years debating whether to build an electric vehicle before eventually giving up. In contrast, the Chinese electronics company Xiaomi built a car within four years of its announcement and even won races with it. This contrast highlights a potential flaw in the American financial system. It assigns massive valuations to software companies while perhaps losing the ability to engage in serious hardware manufacturing.

What would you rather have? A company that is able to build cars within four years of announcing it, as Xiaomi did, or to be Apple and just debate this for a while and then give up? I think I would rather take Xiaomi.

The experience of being an elite differs greatly between the two nations. In the United States, the wealthy can translate their money into stable political influence. In China, being rich is precarious. The state can cap salaries, turn entire industries into non-profits, or dismantle professional networks through anti-corruption purges. However, the United States is becoming increasingly fractured. It may be more accurate to view it as the Disunited States, split between Blue America, Red America, and Tech America. These groups operate with different premises and foreign policies, much like the distinction between North and South Korea.

As traditional national structures face challenges, the internet may emerge as the primary successor. Just as Christianity survived the fall of Rome, the internet and its rule of code could survive the decline of the American legal system. Bitcoin and smart contracts offer a predictable order that exists outside the control of any single government. This creates an asymmetric contest for the future. On one side is China, a vertically integrated meta-organism. On the other side is the internet, a messy and chaotic network that offers more freedom to the rest of the world.

In the 21st century, the contest is asymmetric. It is between China and the internet. China is like Apple, vertically integrated with the nation. The other seven billion people will be the internet, which is messy and chaotic, but also more free.

Political movements often compete by appealing to different parts of a person's identity. In the early 20th century, the swing vote in Germany was the worker. The Soviets appealed to them based on class while the Nazis appealed to them based on race. A similar dynamic exists today. Some groups appeal to people based on their race or gender. Others appeal to them based on their membership in the American class. In the coming years, the Chinese technologist will become the new swing vote. China will likely appeal to them based on heritage while the internet will appeal to them based on their professional class.

There is a debate about whether modern figures like Elon have truly defeated established institutions. Dan suggests that Elon often defeats himself through his own management of companies like Tesla and X. Both the United States and China are currently engaged in self-sabotage. The U.S. faces internal political unraveling. Meanwhile, the Chinese government is driving away its most entrepreneurial and creative people. This internal friction could defeat the goals of the Chinese state more effectively than any external force.

Xi Jinping can be compared to FDR in the 1930s. FDR broke many norms and used the government against his enemies. While he was a controversial leader, the United States ended up in the strongest relative position because it screwed up the least compared to its rivals. China is following a similar path by prioritizing sovereignty above all else.

Japan didn't just lose, it was basically killed because it is like a U S occupied country. Japan's constitution is written by the US and most importantly, Japan is not a sovereign. China is hyper conscious of not going through that.

China learned from the stagnation of Japan after the Plaza Accords in the 1980s. Japan lacked the sovereignty to resist American economic pressure. To avoid this fate, China has been willing to take hits to its public image. It banned foreign social media and built its own digital walls to ensure it remains in control. Digital borders are now just as important as physical borders for maintaining national power.

The Great Firewall might eventually be seen as a very far sighted strategy because it creates digital hard borders. These borders prevent outsiders from scripting drones or humanoids on Chinese soil. They also block the spread of destabilizing memes that can cause social friction. While the unmoderated internet in the West is filled with divisive content, China stays insulated. Dan notes that the government is also removing English from schools to create multiple levels of firewalls. This allows the country to maintain stability while other nations struggle with internal conflicts.

Dan argues that the Chinese government follows the rule that the game goes to whoever does not lose. This focus on stability makes more sense when compared to the problems faced by Western tech companies. In the late 2010s, American leaders were accusing their own social media platforms of destroying society. It is hard to argue that China should have welcomed those same products into its borders.

The Great Firewall, in retrospect, looks like a good decision. It becomes really difficult to say that the Chinese really wanted the internet in the late 2010s when Congress was regularly dragging Zuckerberg and Twitter into Congress to say, your products suck. You're destroying us.

While China seeks stability, the biggest risk comes from the literal-mindedness of the CCP. Policies like the one-child policy and Zero-Covid show how the government can be too rigid. These engineering-style solutions often ignore the human cost. Dan points out that the best scenario would be for the government to leave the people alone, but they often find new ways to intervene in society.

There are different levels to the argument about the success of the Chinese model. Some people have an outdated view of the country as a place of slave labor. Others point out that China is building infrastructure in Africa and avoiding wars while the West remains internally divided. This internal unity helps Chinese brands like Xiaomi and BYD grow their market share through new trade deals even as other nations implement tariffs.

The geopolitical landscape is shifting as the United States moves away from its role as a global empire. For decades, the US operated as a one-party state abroad because it lacked a significant rival to check its power. This led to a period of unchecked behavior and military intervention. Now, the US is pulling back its troops and focusing more on domestic issues, effectively transitioning from an empire back into a nation. This shift is accompanied by massive debt and internal social strife that resembles the instability seen during the collapse of the Soviet Union.

America at home is a two-party state with Democrat and Republican, but abroad was a one-party state where it blow up everybody because it wasn't checked. It's an interesting way of thinking about the last thirty years or so. And now America's coming home. It's becoming a country, not an empire. It's giving up the imperial burden.

While the US withdraws, China is gaining momentum as a dominant physical force. Its manufacturing capabilities are unprecedented, with single shipyards producing more than the entire US Navy. China is already significantly more powerful than Russia, and its industrial overproduction continues to grow. This reality challenges the traditional American military mindset, which still relies on 20th-century concepts of combat. The US military is already struggling against smaller forces, suggesting that its current approach is ill-equipped for a conflict with a much larger industrial power.

China will just be the most powerful physical force to have ever existed. Right now, many Americans aren't mentally living in that world because they still think the US military exists. But the US military is being unfortunately beaten by the Houthis. NATO is being beaten by Russia. China is like ten times Russia easily.

To balance a force as massive as a Chinese drone armada, a completely different strategy is required. The traditional romantic idea of fighting with fists is no longer viable. Instead, the focus must shift toward decentralization, agility, and invisibility. These non-traditional methods may be the only way to counter such an enormous and concentrated industrial power.

The United States and China are engaged in a long-term competition where neither side holds all the advantages. Both nations have unique strengths and significant flaws. Dan notes that no country in this rivalry is likely to implode suddenly. Instead, the danger often comes from overconfidence. When one side feels they are winning, they tend to make strategic errors. Dan points to China's behavior in early 2021 as a prime example. After successfully navigating the initial pandemic while the US struggled, the Chinese government began a series of aggressive moves against its own tech and real estate sectors.

When one country is ahead, it is going to get overconfident and make a lot of mistakes. I felt like I lived through this in China when at the end of 2020, at the start of 2021, Xi Jinping felt like he was at the top of the world. He was able to control Covid, in which the US was not. What does he decide to do? Smash a lot of tech companies, destroy the real estate sector, and then also hold on too tightly to Covid? I think that is a classic mistake of overconfidence.

There is a counter-argument that these moves were a calculated effort to prune the economy. In this view, the state acts like a platform owner making changes to its API. Just as a social media company might restrict certain apps to improve the overall ecosystem, China moved to suppress sectors like private tutoring and video games to prioritize advanced manufacturing. Dan agrees that manufacturing is essential for any economy, but he warns that the costs of these interventions are high. He highlights rising youth unemployment and the persistent threat of deflation as evidence that the state's meddling has created new, difficult problems.

Manufacturing is really important. But, you know, he didn't only hurt a lot of the video games. He also smacked around people like Jack Ma. Youth unemployment is real. Inflation is bad, but the only thing that might be worse than inflation is deflation, which the Chinese are not quite able to get out of.

Both China and the United States are making errors driven by hubris. Dan explains that China is dealing with the fallout of a property sector crisis that was less controlled than leaders hoped. Meanwhile, the United States is becoming increasingly polarized. The country now feels more like an economic zone than a unified political entity. The US dollar is the main thread holding the different political factions together. If the dollar loses its status, there is a risk that red and blue states will completely decouple and follow their own foreign policies.

It is an economic zone, not a country, because the only thing holding it together is this piece of paper called the dollar. And when that tears, unfortunately, there is nothing keeping blue and red together.

China is shifting its focus to a younger generation that is deeply nationalistic. This group prefers local brands over Western ones. They believe products from companies like BYD and Xiaomi are superior to Tesla or Apple. In neutral markets around the world, Chinese products are often winning on both price and quality. Even the American tech sector, which once dismissed China as a land of copycats, now recognizes that Chinese engineers are becoming genuine innovators in fields like AI and robotics.

Actually, the Chinese engineers aren't just copycats, they're actually innovators.

The political landscape is also changing as different US leaders engage with China in unique ways. While some see anti-China sentiment as a bipartisan issue, the motivations differ. Blue America may seek stability and partnership for economic reasons, while Red America often holds a more visceral aversion. This internal division complicates how the United States competes with a rising China on the global stage.

China maintains a pragmatic approach to international relations by working with diverse regimes, including Iranian fundamentalists and Singaporean meritocrats. This cooperation continues as long as these groups do not interfere in China's internal affairs. This strategy could extend to specific American regions if they engage in a form of soft secession, allowing goods to flow through West Coast ports while bypassing national tariffs.

Despite its global reach, China faces significant domestic hurdles. The property sector, once the primary driver of wealth, has collapsed by twenty five percent. This downturn makes it difficult for the population to accumulate wealth. Additionally, many young people are choosing to leave the country for places like Northern Thailand to escape the pressures of the state. Dan notes that while demographics may not be a crisis today, they will become a much larger problem in twenty to thirty years.

The biggest driver of wealth in China is the property sector. When you have a property sector collapse of 25% and then people aren't really buying homes, it's really hard to build more wealth after that.

The political stability of China is also tied to its aging leadership. There is uncertainty about what would happen if Xi Jinping were to suddenly leave power. While an orderly transition is possible, a disunited politburo could lead to internal friction. This political tension was evident during the pandemic. In both the United States and China, COVID responses often functioned as tools in power struggles rather than purely scientific measures. One major distinction was the technological success of the United States in developing mRNA vaccines, whereas China focused on strict lockdowns and frequent testing.

The Chinese were locking people up and swabbing their noses and mouths every other day, and they did not do the vaccines, which is really, really strange.

The 2022 Shanghai lockdowns revealed a complex mix of political maneuvering and local exhaustion. Dan observed that Xi Jinping promoted Li Qiang to Premier despite the politician being widely disliked for his harsh handling of the Shanghai lockdowns. This promotion signaled to other party officials that loyalty to central mandates was more important than local popularity or traditional success.

Think about how that distorts the incentive structures of all of these other party secretaries who thought, this guy messed up big time and he gets promoted.

While public protests played a role in signaling dissatisfaction, the collapse of the zero Covid policy was also driven by a lack of state capacity. Local governments in smaller cities simply ran out of the resources and energy required to maintain such strict control. When the virus began spreading in Beijing, the central government realized it could not even enforce a lockdown on itself. This led to a sudden and messy end to the policy.

There is a striking contrast between the urban environments of China and the United States. Even tier 3 cities in China often feel cleaner, more modern, and safer than major American hubs like San Francisco or Los Angeles. Infrastructure in remote, poor Chinese provinces frequently exceeds what is found in wealthy American states like California or New York.

I open my book by talking about my bike ride in 2021 from Guiyang to Chongqing, cycling through Guizhou, fourth poorest province, deep in the southwestern mountains and finding much better levels of infrastructure in China's fourth poorest province than California or New York.

Keynesian economics suggests that a 2% inflation target is healthy for the economy. However, this target acts as a 2% wealth tax that dilutes value over time. Conventional theory warns that deflation causes people to stop spending, but the technology sector proves this idea wrong. Moore's Law is a form of hyper-deflation where prices drop rapidly, yet tech remains the most productive and active part of the economy. Consumers continue to buy digital goods even when they know the same products will be cheaper or better in the future.

Now actually what that is is a 2% wealth tax. It is basically, on top of everything else, you have 2% diluted down.

China has adopted a model of hyper-deflation driven by intense competition and massive scale. This approach keeps the cost of living low and ensures their exports are highly competitive globally. While China prints money, it focuses that capital on building public infrastructure and maintaining its export advantages. This makes the country a highly effective capital allocator compared to systems that prioritize financialization over physical production.

A significant role reversal has occurred between the US and China. In the 20th century, the US was praised for its price system while the Soviet model was criticized for its focus on raw production numbers. Today, Chinese manufacturers produce physical goods that must be disciplined by international market competition. In contrast, the US price system has become increasingly influenced by central planning and Keynesian targets.

American prices were more capitalist in the 20th century, and now they are really Keynesian. Communist widgets were Stalinists in the 20th century, but they are actually capitalists now because they are being exported.

Dan moved to China in 2017 to study this shift firsthand. He wanted to move away from what he calls the fictitious economy of Silicon Valley, which focuses heavily on consumer internet and digital assets. He observed that the tangible economy of physical production provides a more robust foundation than the software bubbles and speculative markets found in the West.

I moved away from Silicon Valley because I was tired of the fictitious economy, namely consumer Internet.

China has transitioned from making simple widgets to dominating major industries like electric vehicles, batteries, and robotics. This rapid growth has exceeded many expectations and is already impacting the industrial base of countries like Germany. There is a growing concern that the American manufacturing workforce could be cut in half over the next decade. This decline in manufacturing jobs in states like Michigan and Pennsylvania could lead to further economic weakness and political disunity.

I definitely really worry that the US manufacturing base is going to be deindustrialized. I mean, the German industrial base is already being pretty substantially deindustrialized by China today.

Some suggest that Elon Musk might be the only person capable of fixing critical American supply chains for chips and naval equipment. However, even he faces intense competition from Chinese manufacturers. While there is a hope that the two nations could eventually live in peace, Dan points out that the US economy relies heavily on only two competitive exports: tech and the dollar. The global status of the dollar is under pressure as gold prices rise and more states move away from US Treasuries.

The dollar is very quickly going away because if you look at just gold soaring, going from 2,000 dollars an ounce to 4,000 in two years is crazy. That is a 50 percent devaluation.

The US appears to be moving toward a more isolated economic model, which some describe as a form of self-sanctioning. By closing trade and imposing new taxes on remittances, the US is shrinking its global tax base. When fewer people globally use the dollar, the impact of inflation is felt more heavily by those remaining in the system. While stablecoins might provide a temporary extension for the dollar's relevance, the underlying military and economic support for the currency seems to be withdrawing.

Recent AI models have not shown the massive leaps in progress that many expected. Even highly anticipated iterations like GPT-5 have felt like smaller steps rather than major breakthroughs. This suggests that the path to artificial general intelligence might not come from software alone. Instead, AGI is increasingly gated by the physical world. Real intelligence requires a world model that understands the logic of 3D space and physical friction.

The very Abrahamic Western concept of a single AGI that will tell us what to do might have been plausible three years ago. I don't think it's really that plausible right now. We're seeing that AGI is gated by the physical world. You can't just think your way into an advantage.

China may have an advantage in developing these world models due to its lead in hardware. The country is already shipping sidewalk robots, hotel robots, and delivery drones in cities like Shenzhen. These machines use sensors for simultaneous location and mapping. This constant stream of data from the physical world allows AI to learn how the environment actually works. In contrast, progress in the United States faces heavy political and regulatory resistance. Elon Musk deals with opposition from both sides of the political spectrum. This friction makes it difficult to move at the speed of physics because innovators are slowed down by the speed of permits.

There is a hierarchy of underestimation in the world. Democrats underestimate Republicans, who underestimate China, and many people underestimate the power of the Internet and India. These groups often surprise their doubters by succeeding in unexpected ways. In terms of political structure, China has historically placed the state above the law. This was a pragmatic system where the emperor was far away, allowing for practical local freedom. India followed the opposite tradition by placing law above the state. Kings were bound by dharmic law because they feared the spiritual consequences of breaking it. This resulted in strong laws even when political leaders were weak.

As Assange put it, no amount of violence can solve certain kinds of math problems.

Cryptocurrency represents the modern version of placing law above the state. It uses cryptography and smart contracts that no government can break. While China is a dominant force in the physical world, it often functions as a software modifier rather than a software developer. It imports systems like communism or techno-capitalism and adapts them rather than creating the root versions. A middle ground exists between American anarchy and Chinese control through digital societies that use consensual moderation. This is a network where coders use rules to build rather than to obstruct.

Dan notes that American universities are a significant export alongside technology and the dollar. High-ranking Chinese officials frequently send their children to schools like Harvard or Stanford. This means America also exports its ideologies. For example, Western ecological doomerism in the 1970s influenced China to adopt the one child policy. This shows that the export of academic ideas can have massive and sometimes negative real world consequences.

The Chinese Communist Party views cryptocurrency as a threat because it empowers individuals at the expense of the state. This opposition is a rational choice for a government that seeks to maintain total control over its internal networks and the Great Firewall. While the global diaspora may embrace these technologies, the central party sees them as fundamentally incompatible with its governance model.

Crypto gives power to the individual at the expense of the state. It is rational for the way that China works. You could imagine a small state fused with the network, but China is fused with the network in a different way where it has root control over the Great Firewall.

Meanwhile, the global balance of academic and scientific power is shifting. American universities are facing challenges ranging from funding cuts for top researchers to visa denials. In contrast, China has overtaken the United States in highly cited research papers, particularly in physical sciences like material science and civil engineering. To further separate itself from Western influence, the Chinese leadership has reduced the role of English in its curriculum and prioritized nationalist loyalty for party members.

Dan argues that this strategy of total isolation might be a mistake. He compares the need for foreign ideas to a vaccine. By allowing a controlled amount of exposure to outside narratives, a society can learn to identify and resist flawed logic. Without this intellectual immunity, a state risks being led astray by sophisticated but incorrect theories, similar to how population growth fears once drove extreme policies.

A significant political shift is occurring where the technology sector is becoming a target for both ends of the political spectrum. In the past decade, tech and liberal groups were often aligned against conservative ones. This dynamic has shifted, and a new consensus is forming where both political sides may eventually unite against tech workers. This group is relatively small but highly visible, making them easy targets for class-based resentment. Historically, when societies face major economic shifts, they often turn against specific classes. In the coming years, if AI displaces jobs or the financial system changes due to crypto, those who build technology could face the blame.

I think they're going to go after the guys with keyboards in America. If the dollar goes away and AI is blamed for taking all the jobs and crypto takes all the money, tech guys will take all the blame.

This pressure might trigger a global tech diaspora. Much like scientists fled Europe during the conflicts of the 20th century, American technologists may seek new homes in places that are more welcoming to digital nomads and remote workers. Countries like El Salvador, Palau, and even parts of Eastern Europe are becoming attractive alternatives. Dan notes that while many people currently flock back to San Francisco after trying cities like Austin or Miami, the leverage of the Bay Area is decreasing. China is already leading in robotics and manufacturing, and many new startups are now building on open Chinese AI models.

The decision to stay or leave often comes down to quality of life and safety. Issues like street crime and visa difficulties in the United States may eventually outweigh the benefits of being in Silicon Valley. Dan points out that many Chinese researchers still want to move to California, but that could change if the environment becomes too hostile or if other regions offer better opportunities. The goal for many in the industry is to build a decentralized version of Silicon Valley that exists on the internet rather than being tied to a single nation.