FAFOnomics: How Chaos Became America's Economic Strategy

making sense of the news

This is my best attempt to summarize some key pieces of news and hopefully cut through some of the noise to explain what’s going on and where we could be headed.

The Chaos Strategy and FAFOnomics

The recent tariff drama- 25% proposed (then unproposed, then maybe-proposed-again) on Canada and Mexico, 10% on China - isn't just trade policy. Add in a sovereign wealth fund, a litany of executive orders, and Elon Musk's DOGE, and you've got something more deliberate: chaos as strategy.

A few things upfront:

• Tariffs can work as negotiating tools. But burning goodwill with allies isn't negotiation, it's self-sabotage.

• Innovation is important, the DOGE employees really do seem talented, but DOGE's approach to government (which seems to be the startup ethos "move fast and break things") is dangerous (and illegal) when millions rely on these systems. It’s also no way to govern a democracy as Sen. Brian Schatz pointed out.

• The Founding Fathers would freak right now, full stop. They fought against taxation without representation and now we're watching private actors gain unprecedented control over public finances with a concerning pushback to attempts of transparency (as Jamie Raskin said “We don’t have a 4th branch of government called Elon Musk.”)

Yes, America needs change. But change without wisdom isn't reform, it's recklessness.

And of course, there is an important point to all of this, which is that it is all noise. It’s what Tyler Cowen and Ezra Klein have both pointed out as strategic chaos: overwhelming the public's already limited capacity for attention until exhaustion sets in. It's the attention singularity that I wrote about last week in action, where power, narrative, and wealth merge into a self-reinforcing system of perpetual disruption.

Welcome to FAFAnomics - F*ck Around and Find Out Economics, something that feels like the policy equivalent of a TikTok influencer doing increasingly dangerous stunts off the side of a building for views. The goal isn't good governance; it's capturing attention at any cost. And it's working! While we debate whether each new crisis is legal, ethical, or even real¹(as we should) the broader transformation of American fiscal policy continues.

But beneath the daily drama, even if it’s all some joke or a way to drive attention, a fundamental restructuring of America's relationship with the world is taking place. To understand it, we need to start with the most basic question facing our economy: Can America do it all alone?

Can We Really Afford Isolationism?

There’s a belief that the U.S. has been too generous for too long - that it spends too much on other countries while neglecting its own. As JD Vance put it, he is "sick of being taken advantage of." It’s why Elon Musk has reportedly dismantled USAID² and is doing whatever else he is doing, power unchecked and why Trump is destroying trade relationships by rhetoric - the idea is that the US needs to take care of itself. The justification is America first. But in reality, it’s just America unplugging itself from the global economy while expecting all the perks.

This is where FAFAnomics meets economic reality: America's version of self-sufficiency is built on a foundation of global interdependence. Take Tesla, for example. It could not exist without China. That’s why Musk is fighting tariffs on Chinese graphite imports - his entire operation depends on materials from abroad. But in many ways, America is just a bigger Tesla, dependent on the world while pretending it’s not.

1. The US relies on the rest of the world for crude oil, semiconductors, cars, fruit, beer, and clothing, etc - we run a trade deficit, meaning we buy more from other countries than we sell to them.

2. And Americans like buying things! It’s a very big part of the success of Temu in the United States and it’s the reason Jeff Bezos has a superyacht and why our economy leads the world. As Dylan Matthews said, “Voters are consumers first and workers second.”

3. We don’t just import goods, we import investment.

When we run a trade deficit (buying more than we sell), we're actually creating an investment surplus. How?

1. Americans buy foreign goods, one of our favorite hobbies.

2. Foreign sellers accumulate US dollars

3. Those dollars flow back as investments like US stocks, government bonds, real estate, and infrastructure. Good!

As the Tax Foundation and others have pointed out, this global recycling of dollars is what has allowed America to borrow cheaply and sustain massive deficits. We're not just importing goods, we're importing the capital that funds our rather expensive way of life. The same people talking about "taking back control" are completely reliant on foreign capital to keep the lights on.

The trade deficit is not just about trade, it’s really about debt. And America is a country that runs on other people’s money (about $14T worth of other people’s money). It’s not just incompetence. It’s an entire political strategy built on manufactured instability.

We like to think of tariffs, a tax on imports, as a way to protect American industry. But in reality, they are a tax on American consumers³, an affront to our closest allies, and a gamble that the global financial system won’t retaliate. The last time America tried using trade restrictions to fix economic problems, it exacerbated the Great Depression. As Kindleberger explains in The World in Depression, a lack of economic leadership made the downturn worse and the subsequent protectionism of Smoot-Hawley made it cataclysmic. And yet, here we are again.

• Mexico and Canada: Of course, we have another 27 or so days before tariffs get implemented on Canada and Mexico (the “concessions” the two countries gave to the US were policies they mainly were already doing).

• China: They will (?) got into effect in China on February 10th. China has hit back in a variety of ways, including investigating Google for antitrust violations, taxing US energy, agricultural equipment, and critical metals. The USPS has paused packages from China and Hong Kong (which are 30% of all packages shipped into the US everyday)

• Europe: We don’t quite know what’s going on with tariffs and the EU, but the pushback has already started. A senior EU official said the pivot back toward China “is already happening.”

We’re not punishing foreign competitors. We’re pushing them toward each other.

Quick Note on China

The US doesn’t really seem to understand it’s relationship with China right now, something I talked about on YouTube last week. They are doing very well:

• China’s solar and wind power installations have also soared to record highs in 2024 - and meanwhile we are fighting the dumbest of culture wars about all of it and it really feels stupid! They have amazing fighter aircraft, a new high speed train, the world’s longest sustained fusion reaction, Chinese satellite beats Elon Musk’s starlink, etc.

The real threat isn't Chinese efficiency, it’s American complacency. Our obsession with digital optimization is blinding us to the importance of physical infrastructure (by the way, there is no AI moat and we need high speed rail). Our market-driven approach to talent needs to be balanced with strategic direction (and immigrants are the main reason we have economic growth). We are pushing our allies into the arms of China, and threatening to defund and dismantle all the organizations that could help us keep up.

2. What is the Real Cost of Economic Nationalism?

Dollars

Tariffs are marketed as a way to protect American industry, but in reality, they’re a tax on American consumers (this bears repeating).

• American households could pay $1,000 to $2,000 more annually

• Homebuilders, already struggling with high costs, now face even higher material prices and NAHB even asked for an exemption

• The bond market may demand higher yields, raising borrowing costs, and completely skewering the Fed’s goals

Perhaps most concerning is the administration's stated plan to use tariff revenue to offset tax cuts. It's a circular logic that ignores basic economics: tariffs are ultimately paid by American consumers (this bears repeating, again) not foreign countries. We're essentially taxing ourselves while claiming we're taxing others, which is not efficient.

The fundamental assumption behind these tariffs - that they'll bring manufacturing jobs back to America, make people buy American products etc - ignores the lessons from Trump's first term.

• Bring jobs back: Tariffs can't override the basic economics of global supply chains. Modern manufacturing requires a huge network of suppliers, skilled labor pools, and infrastructure that can't be replicated overnight. When faced with tariffs, companies don't typically reshore to the US, they simply find other low-cost countries. During the 2018 trade war, production shifted to Vietnam, India, and other Asian nations rather than returning to American soil.

• Make people buy American products: As David Frum wrote, ‘every product is also an input’, meaning that most of the things we buy require other things to be built - like the glass used in apartment building windows. Most of the industrial level glass used in the US comes from Mexico. Tariffs on Mexico means higher home costs. There are countless examples like this, of intermediate inputs coming from abroad to make a final product - and a tariff could make that final product more expensive.

• America First: When companies face higher costs for steel, aluminum, and electronic components, it makes domestic manufacturing less competitive, not more.

Trust

In terms of goodwill, thousands of people have worked really hard over the past 80 years or so to build a system of permanent friends and enduring partnerships, where other countries prosperity reinforced our own. Now, we are entering a world of “temporary pain”, treating Canada and Mexico, who have both come to our aid many times, as competitors.

As Prime Minister Trudeau reminded Washington, Canadians have fought and died alongside Americans in countless conflicts. They were there on 9/11, during Hurricane Katrina, during the California fires. The message is clear: this isn't just about trade, it's about trust. There is no allyship, only fleeting interests. (And also, an interest in Canada becoming the 51st state.)

The worse the economy gets, the more extreme and erratic the leadership response becomes. And that’s the real feedback loop we’re stuck in - economic chaos isn’t just a byproduct of bad policy, it’s the fuel for further political radicalization. If you can’t deliver prosperity, you need to deliver an enemy, and tariffs, USAID cuts, and privatized governance all serve that purpose. Instead of fixing the fundamentals, leadership is breaking more things, faster, ensuring that the next crisis is always more distracting than the last.

This leads us to the most important question: What happens when the world takes America at its word? What if other countries decide that if America doesn't want their goods, it doesn't want their capital either?

A Changing World Order

But us not keeping up seems to be the plan. What if what is happening now with tariffs isn’t just bad policy, but rather a controlled demolition of America’s postwar role as the economic leader of the world? Marco Rubio, Trump’s Secretary of State, seemed to acknowledge that recently, stating:

“It’s not normal for the world to simply have a unipolar power... that was an anomaly. It was a product of the end of the Cold War... eventually, you were going to reach back to a point where you had a multipolar world”

This seems to be an admission that we're actively dismantling the system we built. The old order, where American economic dominance was an unquestioned fact, isn't being challenged by rising powers. It's being unwound by our own hands. And the thing is, economic dominance can break! No empire lasts forever. Argentina is a good example of this - the 3rd richest country in the world in 1900 to 71st richest in 2025 because of Juan Peron and isolationism.

Conventional wisdom says that America is in a new Cold War with China. But as I’ve said a few times, evidence suggests America is actually in a cold war with itself:

1. Between our self-image as an independent superpower and our reality as the world's largest debtor nation

2. Between our instinct for economic nationalism and our need for global capital

3. Between our desire to punish our trading partners and our dependence on their continued goodwill

Like all great powers in decline, we're doing it while convinced we're actually becoming stronger. Add to this mix the wild card of cryptocurrency and projects like Trump's World Liberty Financial, and we're looking at a weird mess of things.

The US isn’t just making a mistake—it’s revealing a truth we’ve been avoiding for decades. Hegemony was never going to last forever. The question was always whether America would adapt to a new world, or try to fight it. These tariffs (and all accompanying noise) are our answer.

3. Who Really Controls American Finances?

If the tariffs are a sign of America’s economic confusion, Musk’s control over the U.S. Treasury payment system is a sign of something much darker: the privatization of the American state itself.

The Treasury payment system isn't just another bureaucratic function—it's the primary artery through which trillions flow in Social Security payments, government contracts, and tax refunds. Giving DOGE even "read-only" access⁴ raises profound questions about the separation of private and public interests, especially given Musk's business empire and its complex relationships with government contracts. Again, if all of this was done legally and without people like David Lebryk, the Treasury's most senior career official in charge of payment systems, departing, it would be less concerning. But the lack of transparency and accountability sends an extremely worrying signal about the potential for institutional destabilization.

This isn't just about Musk and the DOGE team. Like I said at the beginning, I am glad the government is working with younger people - but with is the key part of that sentence. As Derek Thompson said

My view is that some of the young men working with Elon really are very talented, and also, as an entirely separate matter, what’s happening to global public health and foreign aid is a horrendous outcome for America and the world.

And let me be extremely clear: The US government has to change (legally). That’s why we are where we are right now. There is waste, there is mismanagement, there are inefficiencies. Part of those inefficiencies serve as checks and balances against potential abuse of power. Part of those inefficiencies should be innovated away, but that’s nuance, I guess. We do deserve to know how money is being spent, but the pushback against transparency by DOGE is confusing. Why can’t the public know the names of the people working there?

JP Morgan bailed out the US government many times, including paying the entire US army in 1877 and helping the government during the Panic of 1895. There is no doubt that there will always be some threads weaving between titans of industry and the US government. But gold is breaking records for a reason - there is immense uncertainty.

The Way Forward

China, Europe, and even Canada are watching America burn diplomatic capital in real time. And while we’re busy taxing maple syrup and tequila, they’re cutting deals with each other on energy, tech, and global security. The U.S. used to set the rules of global trade. If we keep this up, we’ll be sidelined from the very system we built.

Our military is shrinking. If we entered a conflict with China, the Air Force would run out of munitions in two weeks. We don’t have enough recruits. We don’t have enough horsepower to play the games that we are playing.

America's real strength has never been in our ability to bully our trading partners. It's been in our ability to create a system where other nations want to trade with us, want to invest in us, want to partner with us. Right now we're not just fighting our trading partners, we're fighting basic economic reality. That’s extremely inefficient, and something DOGE should look into or something.

The sooner we recognize this, the sooner we can do what America does best: lead by example, not by ultimatum. Economic strength has never come from isolation, it comes from building a world where our prosperity and our partners' prosperity rise together.

And maybe this isn’t just bad economics. Maybe it’s something bigger: a conscious retreat from global leadership. Either way, America is testing a dangerous bet, that it can step back from globalization without collapsing under its own contradictions. So what happens next? If America is in decline, is it managing that process—or accelerating it? Here are four possible futures:

1. Managed Decline: America gradually accepts a multipolar world, reduces its global commitments, and focuses on domestic renewal. This path is scary because it acknowledges America is unfit to serve, and leaves a hole open for a different country to take our spot.

2. Crisis and Reset: Financial markets force a reckoning through a massive selloff (this feels unlikely as of now, because investors are now very excited about buying Twitter’s debt because of Musk’s role in the government. He is supposed to speak with Jamie Dimon about DOGE on Twitter Spaces later this week. Chaos has a premium or something). Trump says he doesn’t care about the market⁵, but that is easy to say. There would be rapid policy reversal and new international arrangements.

3. FAFOnomics to the end: There is a continued attempt to maintain hegemony while throwing away goodwill and trade relationships as we continue to f*ck around and really find out, creating a growing gap between commitments and capabilities, as well as increasing domestic instability.

4. Artificial Intelligence: Honestly, there is totally a world at this point where the AI takes over and the petty meddling of people becomes a problem of distant past. It’s very strange to read about the advancements in AI while also reading about the inefficiencies of governance.

For a conclusion, Howard Zinn on uncertainty:

If we remember those times and places–and there are so many–where people have behaved magnificently, this gives us the energy to act, and at least the possibility of sending this spinning top of a world in a different direction. And if we do act, in however small a way, we don’t have to wait for some grand utopian future. The future is an infinite succession of presents, and to live now as we think human beings should live, in defiance of all that is bad around us, is itself a marvelous victory.

Thanks for reading.

1. Some of it, like opening the California dams, is painfully real and will have painful repurcussions come summer.

2. USAID is not a ‘criminal organization’ and it is illegal for Trump to shut down USAID or fold it into the state department. This is impacting millions of children around the world.

3. I have a more-indepth tariff explainer here

4. The details of their access are a bit confusing. Reports suggest that DOGE has been involved in Treasury functions, raising concerns about transparency and oversight.

5. The paradox of modern economic nationalism is that while it claims to be about independence, it’s entirely dependent on confidence games. Investors are piling into Twitter’s debt because of Musk’s government role, not his company’s fundamentals. Trump is testing whether chaos itself can be monetized, and so far, Wall Street seems willing to buy in.