This week, we look at the failures of Xi Jinping and Vladimir Putin to bring stability to their people and we assess where this has led them. For Xi, the economic growth and stability that was coined China’s “economic miracle” may have come to an end. Meanwhile, Putin’s global political gambles have brought the danger home to the Russian people. Across the world, the US economy is proving to be more resilient than originally anticipated, but investors and financial experts should be wary of the risks that lurk behind the success. Also this week, we dive deeper into artificial intelligence and the daunting task of regulating it.

China May Not Overcome its Downturn

Why China’s economy won’t be fixed

The Economist

China’s Crisis of Confidence in Six Charts

Nathaniel Taplin, The Wall Street Journal

China’s economic rise, once described as a miracle, seems to be faltering. Housing prices have fallen, property developers are in trouble, consumer spending, business investment, and exports have all fallen below estimates. Youth unemployment has gotten so high that Chinese officials have stopped publishing data, and households have started to save more. An even more ominous sign is that China’s consumer prices fell, signaling deflationary pressure in some sectors. Beijing’s old methods of overcoming crises, such as cheapening credit, building infrastructure, and stimulating the property market, built up considerable public and private debt. Compounding the issue is Xi’s reactionary stance on “welfarism”, or any method of government spending to boost consumption. The slowdown, and the Chinese Communist Party’s disinterest in alleviating it, reflect top-down policy choices that favor a strengthening of the country’s security regime in regards to competition with the United States. Instead, the focus on security over growth is likely to hurt competition rather than help. Chinese living standards are less than 20% than those of Americans. Additionally, the country’s rapidly aging population promises future problems down the road. If China is not able to reverse course, it’s “economic miracle” may have ended for good.

AI Governance

The AI Power Paradox

Ian Bremmer & Musta Suleyman, Foreign Affairs

This is how AI will transform the way science gets done

Eric Schmidt, MIT Technology Review

As Artificial Intelligence (AI) becomes ever more complex, cheaper to produce, widespread, and integrated into all facets of life, governments will need to work closely with AI companies to develop a framework for governing this new and explosively innovative technology. The reward for doing so would be to nurture an industry that has the potential to drastically improve productivity, including the advancement of science while mitigating the potential harm from bad actors or the development of an AI arms race between great power adversaries. Yet the pace of advancement presents significant challenges for doing so, and governments to date have proven ill-equipped for the task. Therefore, governments will need to engage AI corporations as stakeholders in the development of the rules for AI governance on a global stage, while incorporating a three-part framework, as suggested by Bremmer and Suleyman.

First, an international body will need to be established that would be composed of technocrat experts who would engage in fact-finding and advising on behalf of governments. Second, arms control measures will need to be taken to ensure that military applications of AI do not worsen the security situation globally. Third, a commission will need to be set up to manage the disruptive forces unleashed by AI, so as to maintain stability globally. By developing such a framework now, the world can be brought closer together and reap the benefits of AI, while failure to do so will leave governments behind the eight ball and engender a more unpredictable situation as AI technology rapidly advances.

The Russian Crime State

The Godfather in the Kremlin

Michael Kimmage, The Wall Street Journal

Putin’s Age of Chaos

Tatiana Stanovaya, Foreign Affairs

The recent death of Yevgeny Prigozhin, leader of the Wagner private military group and close associate of Putin, illustrates both the criminal nature of the Kremlin as well as the upheaval that the war in Ukraine has brought. Prigozhin went from ex-con to one of Putin’s associates in his lifetime, and his main legacy, the Wagner Group, operates in a criminal manner as well. It was used as a proxy for Russian state interests in Syria, Africa, and Ukraine, giving Moscow deniability for the manner it conducted itself. In Africa, the group offered security for dictators and warlords in return for access to resources. In Ukraine, the group employed criminals who were released from jail to be thrown into the conflict, most famously in Bakhmut. Prigozhin’s story ended in the flaming wreckage of a plane, suspected by some to be intentional, a mafia-like retaliation for Prigozhin’s aborted mutiny to Moscow earlier this summer.

Prigozhin’s rise, rebellion, and demise fit in with the larger story of Russia in the 21^st century. The state, fallen from the height of its power as the Soviet Union, has been owned by oligarchs who orbit around the ‘don’ of Russia, Putin. For a while, the social contract with the citizenry was that in exchange for controlling political life, Russians could live in stability. The war in Ukraine has proved that Putin is no longer able to deliver such stability – the Wagner mutiny, drone attacks deep in Russian territory, and attacks on key infrastructure have brought Putin’s geopolitical gamble home. Oligarchs are likely wondering what may come next if Putin wasn’t able to foresee the Wagner crisis. The machinery that the Russian state runs on is becoming increasingly weaker, and it is only a matter of time before things begin to fall apart.

America’s Economic Resilience

US Budget Deficits Are Exploding Like Never Before

Liz Capo McCormick, Erik Wasson, Christopher Condon, & Alexandre Tanzi, Bloomberg

America’s astonishing economic growth goes up another gear

The Economist

The US economy continues to grow in 2023 despite expectations for a downturn, with the Atlanta Fed signaling as high as an astounding 5.8% growth figure for Q3. While that figure may skew towards the upside, the story of American economic resilience is nonetheless remarkable. Yet behind that success lurks trouble. For one, American policymakers have pumped money into the economy continually. While fiscal largesse has proved to buoy the economy and charge growth, it has also added to a ballooning federal debt, while running the risk of complicating the Fed’s goal of tamping down inflation. As the cost of government expenditures rises and the workforce retires faster than jobs are filled, the net impact may well be systemically higher interest rates which will impact consumer spending on everything, including housing, as higher rates weaken consumption. Businesses, too, may be “crowded out” as public spending competes for private funding, crippling private investment in the market. Still, in the short-term, the economy has proven resilient and may well prove to be so despite the odds moving forward.