To begin our weekly newsletter, we take a look at Ukraine’s future and the debate surrounding US aid to the country. Moving on, we consider the future of artificial intelligence (AI) and the impact Google’s new lawsuit may have on it. Next, we analyze the economic opportunities in front of Mexico as competition with China has pushed companies to consider “nearshoring”. Finally, we explore how to address Social Security insolvency.

What Is At Stake in Ukraine?

Can Samantha Power Win the Battle for Ukraine’s Future?

Bret Stephens, The New York Times

A Trip to Ukraine Clarified the Stakes. And They’re Huge.

Thomas L. Friedman, The New York Times

Since Russia launched its full invasion of Ukraine in 2022, the United States has poured billions of dollars into the country to keep it afloat. For some, this conjures uncomfortable memories of American involvement in Afghanistan, where massive amounts of money were stolen by corrupt officials, captured by beltway bandits, or squandered on ineffective programs. Neither US officials nor our contractors have the power to track down every dollar’s destination, a problem compounded by the danger of even being present in Ukraine. The sheer scale of the aid, as well, makes this a near-impossible task. To complicate the issue even further, a slew of corruption scandals in the Ukrainian government have surfaced; President Zelensky fired all of his top regional military recruiters for bribery and his defense minister for financial misdeeds. This begs the question: Are Ukrainians using our aid wisely and honestly? And, perhaps more importantly, are our efforts to keep Ukraine fighting worth it?

To answer the first question, Ukraine and US agencies are making the effort to combat corruption. USAID, the main administrator of much of our humanitarian aid, is doing more with local NGOs and independent media organizations on the ground, rather than dictating efforts from the top-down. Zelensky, for his part, is taking on significant political risk to publicly combat corruption from the top levels of his government during wartime. For Ukrainians, tackling their longstanding corruption is life-or-death. As to the second question, whether their struggle is worth our help, our authors, Thomas Friedman and Bret Stephens, would say yes. Putin needs Ukraine away from the West, far from the wealth and freedom of the European Union (EU), in order to prove that his system, one of a repressed civil society and kleptocracy, is strong. Ukraine’s defeat would be an end to the longest stretch of peace, growth, and cooperation that Europe has ever seen. In order to continue this prosperity, Ukraine must survive this war with its peace secured, its economic growth supported, and strong democratic values with a healthy civil society. The alternative outcome is a far bleaker world, not only for Ukraine but for free countries across the globe.

The Future of Tech

Could OpenAI be the next tech giant?

The Economist

The Google Trial Is Going to Rewrite Our Future

Tim Wu, The New York Times

OpenAI, a startup backed by Microsoft, launched ChatGPT last November, which rapidly gained in popularity. Competitors quickly jumped in the ring after it. Venture capitalists gave more than $40 billion to AI firms in 2023’s first half, making up almost a quarter of all VC money this year. OpenAI is still leading the pack, with its models beating others on the ability to answer reading and math questions. Additionally, OpenAI reported earning revenues at an annualized rate of $1 billion, compared to $28 million the year before ChatGPT’s launch. To build on this success and to outcompete other firms, OpenAI needs to make wise decisions, as first-comers in new markets often set the direction of the new industries.

The ongoing federal case against Google, accused of breaking antitrust laws by negotiating deals to crowd out competition, may be a big factor in the future of OpenAI, the AI industry, and the tech sector in general. Google, which has a practical monopoly in the search engine market, has the same incentives as other monopolies: to stifle innovation from other, smaller firms. AI is no different – if the development of ‘useful’ AI disrupts Google’s main business, it has an incentive to crush it. If Google loses this case, it could make room for younger, more generative firms to flower out from under its titanic shadow.

Central American Development

Central American Development

A Persistent Crisis in Central America

The Editors, World Politics Review

Mexico’s Moment: The Biggest US Trading Partner Is No Longer China

Maya Averbuch & Leda Alvin, Bloomberg

Mexico has its second opportunity in thirty years to make economic hay while the sun shines, as nearshoring couples with derisking from China to position the country to become a manufacturing powerhouse in the Americas. In a sign of things to come, Tesla announced that it will construct a $5 billion factory in Monterrey, Mexico, which immediately spurred economic interest in the region, adding as many as 30 companies since the announcement. Yet, the question remains whether Mexico will use renewed business interest in the country to really strengthen the economy and turbo-charge growth, or if the country will see a repeat of NAFTA from the 1990s, where Mexico failed to fully reap the benefits of business interest in the country. Certain factors appear stacked against it. For instance, the current president, President Andrés Manuel López Obrador, is widely viewed as anti-business in his dealings with the private sector, for instance in the energy sector, while Mexico remains plagued by erratic power transmission, limited industrial space, and water scarcity. Stacking the deck further against Mexico is instability in Central America, which has caused a migration surge across Mexico and up to the US-Mexican border due to a combination of corruption, crime, repression, and a lack of the rule of law. Regardless, free trade between the US and Mexico means business is set to boom and Mexico can only stand to gain.

Social Security: Today’s financing challenge is at least double what it was in 1983

Louise Sheiner & Georgia Nabors, Brookings

Social Security, which is critically important for retired and disabled Americans, will require significant reforms as the trust funds supplementing tax revenues that are funding Social Security are set to run dry by 2034. At present, incoming tax revenue will amount to approximately 80% of the total funding required for Social Security. As such, reforms are needed and the 1983 Social Security reforms provide a road map. The key element is to act sooner rather than later, where Social Security was but a few months from insolvency when reforms occurred in 1983. The reason that Social Security came so close to running out of funds was due to recessions in 1980 and 1981, which dropped the horizon for insolvency from 2032 to 1983.

Fortunately, a slew of measures were introduced that supported a long-term solution to Social Security that helped to spread the cost of demographic transitional cross generations, allowing for the buildup of a sizable trust fund that helped insulate the Social Security system and a mechanism to raise the retirement age without political backlash by gradually changing the age of retirement. With these lessons in mind, this Brookings article gives three options to address Social Security insolvency (1) reduce Social Security benefits (2) raise Social Security’s revenues through payroll or other taxes and (3) allow general revenues to be used for Social Security (i.e., deficit funding). Additionally, policies that increase immigration, raise productivity, or increase labor force participation could also help. While the fund still has another 10 years, the time to act is sooner, rather than later.