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The U.S. banking sector overall appears well-positioned to weather recent industry turmoil, but the experience could still weigh on credit conditions in the future, the Federal Reserve said on Monday. In its semi-annual report on financial stability, the U.S. central bank said overall funding risks for banks remained low and firms still have ample liquidity. Furthermore, additional policy efforts by U.S. bank regulators following the abrupt collapses of Silicon Valley Bank and Signature Bank in March should continue to backstop the system if further stresses arise, the Fed said. "The Federal Reserve is prepared to address any liquidity pressures that may arise and is committed to ensuring that the U.S. banking system continues to perform its vital roles," the Fed said. While the central bank noted there were spillover concerns following the failures of Santa Clara, California-based SVB and New York-based Signature, it maintained that the issues that sank those regional banks do not appear broadly across the banking sector, calling them "outliers" in terms of heavy reliance on uninsured deposits. Those firms, as well as First Republic Bank, which was closed by regulators earlier this month and sold to JP Morgan Chase, also were grappling with large amounts of unrealized losses spurred by rapidly rising interest rates. Depositors fled SVB within days after it appeared the firm was in trouble, precipitating its abrupt closure. The Fed noted in its report on Monday that more than 45% of bank assets reprice or mature within a year, suggesting there is not heavy exposure to less valuable securities for long periods of time. But while the amount of uninsured deposits at banks is declining, they still remain above historical averages after an influx of deposits spurred by the COVID-19 pandemic. In aggregate, it said banks remain well-capitalized.

In America and Europe, central banks turned only recently from encouraging economic recovery to battling stubborn inflation. In some emerging markets this shift began much earlier. Brazil’s central bank raised interest rates by three-quarters of a percentage point back in March 2021, 15 months before the Federal Reserve did the same. It foresaw that fiscal stimulus in the rich world raised the risk of inflation, which would upset financial markets and complicate life for emerging economies. The governor of Russia’s central bank, Elvira Nabiullina, warned over a year ago that the prospect of sustained inflation was likelier “than perceived at first glance”. The pandemic had changed spending patterns, she pointed out. No one knew if the shift would last. But that very uncertainty was discouraging firms from investing to meet demand. These kinds of comments look prudent and prescient in hindsight. Indeed, with some notable exceptions, central banks in emerging markets have won increased respect in recent years. Their monetary-policy frameworks have improved, according to a new index (based on 225 criteria) developed by the IMF. Their frameworks are more coherent (their targets serve sensible objectives), transparent (they say what they are doing) and consistent (they do what they say). According to calculations by the World Bank, expectations of inflation in emerging markets in 2005-18 were about as well-anchored as they had been in rich countries in 1990-2004. Inflation also became less sensitive to falls in the exchange rate. Your columnist remembers a sign outside a café in the Malaysian state of Penang in 2015. “Don’t worry!” it said. “As our ringgit falls, coffee price remains the same.” More people expected emerging markets to succeed in their fight against inflation, which in turn made success more likely. This enhanced credibility raised enticing possibilities. Perhaps their central banks, like those in the rich world, would not need to worry about each depreciation and every inflation spike. If so, perhaps they could pay less slavish attention to two forces that had bedevilled them in the past: namely, the global price of capital, which is dictated by the Fed, and that of commodities. When the Fed tightens monetary policy, trouble has often followed for emerging markets. In 2013, for example, Ben Bernanke’s talk about reducing (or tapering) the pace of the Fed’s bond-buying sparked the “taper tantrum”, a big sell-off in Brazil, India, Indonesia, South Africa and Turkey. Things are different in the rich world. When the Fed tightens, central banks in Britain, the euro area and Japan do not feel obliged to raise interest rates. Their currencies may fall. But unless these depreciations look likely to raise inflation persistently above their targets, they are ignored. Likewise, when the price of oil goes up, so does the cost of living. Yet consumer prices need not go on rising, unless people demand higher wages in response, putting further upward pressure on prices in a self-reinforcing spiral. In both cases, central banks can ignore a one-time increase in prices. The more securely inflation expectations are anchored, the more leeway central banks enjoy. The past year has subjected emerging-market anchors to one severe test after another. Global interest rates have risen in anticipation of a faster pace of tightening in America, as the Fed wrestles with a credibility test of its own. And emerging markets have suffered remorseless increases in the prices of food and fuel, which make up more of their consumers’ shopping bills than they do in the rich world. According to the World Bank, food and energy account for over 60% of South Asia’s consumer-price index. Some central banks have been able to “look through” the rise in food and fuel prices. One example is Thailand’s central bank, which has done nothing even as inflation has surged. It insists that “medium-term inflation expectations remain anchored,” and it wants to make sure the economic recovery gains traction. But other emerging markets, including Mexico and Brazil, felt compelled to raise interest rates forcefully long before their economies fully recovered. They were quicker to respond than their counterparts in mature economies, point out Lucila Bonilla and Gabriel Sterne of Oxford Economics. But “that’s partly because they had to be.” Much of their tightening had to keep up with a worrying rise in inflation expectations. They have stayed ahead of the curve. But the curve has been brutally steep. The Fed has been a “somewhat less dominant” force in this emerging-market tightening cycle than in the past, note Andrew Tilton and his colleagues at Goldman Sachs. Fears of a second taper tantrum have not been realised. One reason may be that a lot of footloose foreign capital had already left during the pandemic. Moreover, some of the countries that might otherwise be vulnerable to Fed tightening, especially those in Latin America, are also big commodity exporters that have benefited from higher prices for their wares, point out Ms Bonilla and Mr Sterne.

As the Federal Reserve embarks on a monetary tightening cycle, only a few spots of vulnerability have appeared among emerging markets. Unlike in 1994, when U.S. policymakers’ aggressiveness roiled these markets—especially Mexico’s—the markets appear in a relatively safer place now. Current Fed monetary tightening is the most forceful in almost three decades. The federal funds target rate has increased by 1.5 percentage points over the past three meetings and is expected to rise a total 3.25 percentage points in 2022, according to the median projection from the Summary of Economic Projections released after the June Federal Open Market Committee meeting. This would be a quarter percentage point greater than the 3 percentage points of tightening between February 1994 and February 1995 (Chart 1). During the 1994 tightening cycle, the penultimate increase was a 75-basis-point (0.75 percentage points) move in November 1994, the Fed’s last 75-basis-point boost until June 15, 2022. The tightening cycle sparked the Mexican currency crisis in December 1994—nicknamed the “Tequila Crisis.” While domestic factors, including excessive debt build-up, political instability and an unsustainable exchange rate peg, made the economy especially vulnerable to external shocks, Fed interest rate increases provided the final jolt. The Mexican real exchange rate (the value of the Mexican peso in terms of dollars, adjusted for the purchasing powers of the two currencies) peaked in January 1994 and gradually depreciated during 1994, losing about 8 percent of its value. The real exchange rate collapsed in December that year, dropping more than 40 percent of its value between November and March 1995 (Chart 2). The interest rate on the three-month Mexican treasury bill rose from around 10 percent in February 1994 to 14 percent in November. It skyrocketed to more than 70 percent by March 1995. This real-exchange-rate collapse and spiking local interest rates were tied to a collapse in foreign borrowing. The Mexican current account deficit—a measure of net capital inflows—had grown during the early 1990s, reaching nearly 6 percent of GDP by 1994. By the second quarter of 1995, Mexico was running a current account surplus, indicating that those foreign capital inflows had come to a halt (Chart 3). What explains this sudden collapse of the Mexican exchange rate and foreign borrowing in late 1994 in response to a Fed tightening cycle? And while the 1994 Fed began tightening in February, why did it only lead to a gradual exchange rate depreciation and a gradual interest rate increase through November, before the December collapse? In a recent article, we model a collapse in foreign borrowing in a small open economy in response to an increase in the foreign interest rate, and we describe policies that a central bank can implement to prevent it. For this, we rely on the model of an underborrowing equilibrium (from Stephanie Schmitt-Grohé and Martín Uribe 2021). In this underborrowing equilibrium model, a small open economy faces a borrowing constraint—its ability to borrow from abroad depends on the value of collateral. The economy faces a currency mismatch where borrowing is denominated in the foreign currency but at least some collateral is denominated in the domestic currency. Under a range of possible conditions, two equilibria can occur in a country with high external debt. This results from a circularity—high foreign borrowing leads to a strong exchange rate that supports high foreign borrowing (and conversely, a weakening exchange rate produces inadequate backing for such borrowing). In one equilibrium, foreign borrowing is high, leading to strong domestic consumption and a strong exchange rate, raising the value of collateral, loosening borrowing constraints and allowing still more foreign borrowing. In another equilibrium, foreign borrowing is low, leading to low domestic consumption and a weak exchange rate, reducing the value of domestic collateral, tightening borrowing constraints and reducing foreign borrowing. In this framework, even a modest increase in the U.S. interest rate can trigger a collapse in foreign borrowing in an emerging-market economy such as Mexico. As the U.S. interest rate increases, there will be a gradual reduction in Mexican capital inflows and the real exchange rate as investors find U.S. assets more attractive. This resembles the 8 percent depreciation in the Mexican real exchange rate between February and November 1994. There comes a point where the value of the exchange rate no longer supports the high borrowing/high consumption equilibrium. At that point, there is a collapse in foreign borrowing, or a “sudden stop,” as borrowing constraints bind. The economy must revert to the only equilibrium remaining, with low foreign borrowing, low consumption and a weak exchange rate. Of course, the Fed tightening cycle in 1994 didn’t trigger a sudden stop in all emerging-market economies. Two key factors explain why a collapse happened in Mexico and not elsewhere. The first factor is the economy’s level of external debt. Key to the existence of an underborrowing equilibrium is a high level of external debt. When an emerging-market economy’s level of external debt is high, continued foreign borrowing is only supported by a strong exchange rate that raises the value of domestic collateral. In this case, even a small increase in U.S. interest rates could upset that fragile equilibrium. Mexico had run high current account deficits of nearly 6 percent of GDP throughout the early 1990s, so by 1994, the economy had accumulated a sufficient stock of external debt. The second factor is central bank reserves. Central bank reserves are liquid foreign currency assets that a central bank can sell in a time of crisis to support the value of the currency and prevent a collapse. In 1994, Mexico’s central bank reserves were insufficient. If the rise in the U.S. interest rate leads to a fall in foreign inflows and exchange rate depreciation, the central bank can sell foreign assets and use the proceeds to buy domestic assets, offsetting the decline in foreign capital inflows. A sufficient amount of selling by the central bank will support the value of the exchange rate when U.S. interest rates are rising, ensuring that the exchange rate can still support the high borrowing/high consumption equilibrium. However, to sell foreign assets during a crisis, the central bank must own a stock of such assets before the crisis. Emerging markets must decide what reserve level is adequate to protect their currency against swings in foreign monetary policy. Pablo Guidotti, a former deputy finance minister in Argentina, came to a conclusion that was later popularized by former Federal Reserve Chairman Alan Greenspan. In a 1999 speech, Greenspan summarized the rule stating “that countries should manage their external assets and liabilities in such a way that they are always able to live without new foreign borrowing for up to one year.” The Guidotti–Greenspan rule leads to a simple measure of a central bank’s reserve adequacy: foreign exchange reserves minus the sum of short-term foreign-currency-denominated external debt and the current account deficit. Banco de México entered 1994 with foreign exchange reserves of about 5 percent of GDP. At the time, the Mexican current account deficit was nearly 6 percent of GDP, meaning that the central bank did not have enough reserves to cover a year’s worth of new borrowing, much less service existing debts. Chart 4 presents reserve adequacy as well as its three components for the major emerging-market economies at the end of 2021. Reserve adequacy is negative only in Turkey and Argentina, with their low stock of reserves and high amounts of short-term foreign currency debt. Colombia and Chile have relatively high current account deficits but, at least for the time being, have a high stock of reserves and a relatively low stock of short-term foreign currency debt. Mexico is in a much different place than it was in 1994. It boasts a relatively high stock of reserves, a small current account deficit and a stock of short-term foreign currency debt that is among the lowest in the major emerging markets. This suggests that as the Fed tightens monetary policy and raises interest rates, many major emerging-market economies—notably including Mexico—are in a much safer place than they were in 1994, the last time the Fed was so aggressive.

By far, the most common concern in regards to my first article on Medium about the idea of an unconditional basic income was that all prices would inevitably go up as a result, immediately reducing the value of each dollar and essentially creating a new zero. Let’s call it the “New Zero Argument” against basic income. The New Zero Argument: Although a noble idea to give money to those in need, no one would actually be better off as a result of basic income due to everything costing more — especially rent — and therefore the policy idea is entirely pointless because the only thing it would attain is a new zero. In economic terms, this concern is the fear of inflation or even hyperinflation, and it is possibly the most common reflex to the notion of just transferring more money to the lower and middle classes. So how grounded in reality is this concern? First, a quick three minute about inflation and deflation. Now that we know more about what gives money its value, and how we actually want a small amount of inflation, we need to understand that basic income is not the idea of printing $3 trillion new dollars every year and dropping it on everyone from helicopters. (Although there are arguments to be made that to a lesser degree this could be done on a temporary and varying basis as economic stimulus according to perceived economic conditions as a kind of “quantitative easing for people” instead of banks) The money for a basic income guarantee would be already existing money circulated through the economic system. It would not be new money, just money shifted from one location to another. This means that the value of each dollar has not changed. The dollar itself has only changed hands. It is also important to note the observation that even when money supply is vastly expanded, the effects on prices need not be extreme. For example, the Fed’s quantitative easing added over four trillion new dollars to the U.S. money supply, and the results were not enough inflation, as defined by the Fed. “But even with the trillions of dollars pumped into the economy, the Fed has been perpetually unable to get inflation up to the 2 percent level it aims for, except for the occasional brief period. There is good news in that predictions by many Fed critics that Q.E. would unleash vicious hyperinflation have come nowhere close to materializing. But neither has it been enough for the Fed to reach its self-imposed goal. In an economy trying to get out from under an overhang of debt, where excessive unemployment is the leading problem, too-low inflation can be deeply problematic and hold back growth. Q.E. has not been powerful enough to generate as much inflation as the Fed says it wants.” So even though basic income would not be printing new money for everyone, even if it were, inflation would not be a guaranteed result. With that understood, to then understand how much we should actually fear rising prices as a result of redistributing existing money from one place to another instead of printing new money requires some studying, but the short answer is that capitalism not only still exists with basic income, it is enhanced. By enhanced, I mean there is growing evidence from where basic incomes have been actually tried that it increases entrepreneurship. We also have actual examples of partial basic incomes, that we can examine for inflationary evidence. Aside from this evidence, we also need to understand how increased demand leading to higher prices isn’t as simple as we might think it is, and how when it comes to housing prices, in a future where everyone has basic incomes, we are likely to see some very interesting market adjustments. Meanwhile, fears involving unearned income and increased velocity require a closer examination. Because of all the above that needs to be understood in order to more fully examine the question of basic income and inflation, I have split off the above information into four separate smaller articles. Let’s call them Exhibits, A, B, C, and D. If you wish to learn more about each collection of evidence, just read the attached sub-article before moving on. Or you can just keep on reading. In 1982, Alaska began providing a partial basic income annually to all its residents. Until the first dividend, Alaska had a higher rate of inflation than the rest of the United States. But ever since the dividend was introduced, Alaska has had a lower rate of inflation than the rest of the United States. A partial basic income was also provided in Kuwait in 2011, when every citizen was given $4,000. Fears of increasing inflation were rampant, as Kuwait already had high inflation. Instead of bad inflation getting worse, it actually got better, decreasing from record highs to under 4 percent. Elsewhere, where basic income experiments have been actually tried and studied, the result in each case is increased entrepreneurship. People use their basic incomes to invest in themselves and their futures, creating new businesses and helping to drive the economy beyond what would be possible without it. This means more people competing for basic income dollars, with better goods and services and lower costs. All of this represents real evidence to counter any fear of inflation. To further inform inflationary fears on a more academic basis, it’s also important to understand the basic variability of supply and demand and how it applies to various goods and services. Where demand already exists and supply is already paid for, demand is unlikely to change as basic income simply replaces one method of payment with another. E.g., replacing food stamps with basic income is unlikely to make people buy more milk. It just means people will likely buy the same amount of milk with cash instead of SNAP. Where demand is actually increased, depending on the good or service, supply can also easily be increased, be increased with some investment in capacity, or not be increased. It is this third case where prices can rise, and points more to increases in prices for luxuries, and not basic goods and services. All of this represents academic evidence to counter any fear of inflation. Rising rent is a particularly worrisome fear for many when first introduced to the idea of basic income. However, two very important things in particular need to be understood when it comes to housing. There are five times more vacant homes than homeless people in the United States today. This represents a large unused supply that need only be made available. The reason many people are not living in these homes is because they were at one time but couldn’t afford to keep them. Basic income rectifies this and puts people back in homes. Technology represents a major factor in future housing prices, especially a future where everyone has a basic income. Everyone will receive a monthly check to afford rent, and will want to spend as little of it as possible on rent. Meanwhile, owners will want to compete for this money with other owners. Those offering the lowest rents will win. One example of this would be Google deciding to create Google Homes and leasing them out to people for a fraction of what people are paying now. Another example would be super affordable WikiHouses. For these two reasons in particular, in combination with the ability of everyone to truly live anywhere for the first time in history, a nationwide market for ultra-affordable housing will be created, and smart businesses will step into this space in hopes of dominating it. All of this represents theoretical evidence to counter any fear of inflation. Two lesser known economic concerns among those who know of them, are possible differences in how we perceive the value of money depending on how it was received, and how quickly it is spent. There is a popular conception that unearned income is perceived differently than earned income, and therefore spent more spuriously. Because people are considered more likely to spend money they didn’t earn, the fear is that people will pay more for goods and services with basic income, and therefore increase prices. This is a misconception though, and not backed by evidence, with the opposite observed in Alaska, where the dividend is treated virtually identically to earned income. The frequency with which a single dollar is spent in the economy — known as the velocity of money — is another variable in the inflation equation. The faster the velocity, the higher inflation can get. However, velocity as measured by the entire money supply is currently lower now than ever in U.S. history. And as measured by the real money supply, it has been crashing since 2007. We want higher velocity for a healthy economy, and the fear that unearned income has less value is unsupported. All of this represents economic evidence to counter any fear of inflation.

The Phillips curve is an economic model positing that an inverse relationship exists between unemployment and inflation. This inverse relationship provides several potential guidelines for central bank policy. One such guideline is that an equilibrium unemployment rate corresponds to a stable inflation rate, all else held equal. In “25 years of excess unemployment in advanced economies: lessons for monetary policy” (Peterson Institute for International Economics, Working Paper 22-17, October 2022), Joseph E. Gagnon and Madi Sarsenbayev argue that central banks in the world’s 11 most advanced economies have overestimated the equilibrium rate of unemployment for the past several decades. The authors find that estimates of the equilibrium unemployment rates in these countries are commonly incorrect because of the hypothesis that the Phillips curve is linear. Gagnon and Sarsenbayev argue that the Phillips curve is nonlinear because of downward wage and price rigidity. More specifically, wages tend not to decrease, even during economic contractions; prices are less rigid, but they also tend not to decrease, especially on average and over the long term. Wage and price rigidity causes the Phillips curve to flatten when the unemployment rate is above its equilibrium rate. The curve was steep and linear in the 1970s and 1980s, when inflation was high. Since the 1990s, however, with inflation averaging about 2 percent (before the pandemic), the Phillips curve has had a negative slope when unemployment rates are low (below the equilibrium rate) and a much flatter slope when unemployment rates are high. Accordingly, the Phillips curve is nonlinear over its range. The authors argue that if the Phillips curve is flat when the unemployment rate is above the equilibrium rate, then the equilibrium rate is difficult to estimate. A flat portion of the Phillips curve will contain different unemployment rates corresponding to the same inflation rate. For example, if the Phillips curve is flat above 2-percent unemployment, then the inflation rate will be near zero when the unemployment rate is above 2 percent. As such, there will not be a unique unemployment rate that corresponds to a close-to-zero inflation rate. Gagnon and Sarsenbayev argue that because central banks rely on a linear Phillips curve model, they overestimate the equilibrium rate of unemployment. As a result, many economies have higher levels of unemployment than are necessary for price stability. The authors provide empirical data to show that the unemployment rate was above the equilibrium rate in the 11 advanced economies for the past 25 years. They estimate that the “true unemployment gap,” the difference between the unemployment rate and its corresponding equilibrium rate, ranged from about –5 percent to nearly 20 percent for different nations. Gagnon and Sarsenbayev recommend that central banks allow the unemployment rate to move below the estimated equilibrium rate. The authors find that exploring lower unemployment rates is needed to discover the actual slopes of a nonlinear Phillips curve. In addition, allowing the unemployment rate to move lower may help central banks meet their inflation rate targets. Many of the 11 nations have an inflation rate that is commonly below target. Finally, Gagnon and Sarsenbayev find that the increase in inflation in 2021–22 was due to exogenous shocks (especially the recent pandemic). Thus, they argue that low inflation will likely reappear once these shocks abate.

Improving workers livelihoods as the Federal Reserve manages its dual mandate. As noted above, the Federal Reserve has a dual mandate—maximum employment and price stability. Through its use of monetary policy, the Federal Reserve plays a vital role in promoting full employment; however, monetary policy has proven insufficient for eliminating involuntary unemployment. Historically, the Federal Reserve has had a significant role in increasing unemployment as a result of combating any inflationary pressures that may exist in the economy. With a job guarantee policy in place, the Federal Reserve can conduct monetary policy without promoting rising levels of unemployment. In this scenario, the job guarantee program can maintain employment and consumption expenditures while the Federal Reserve employs monetary policy to reduce private investment in order to cool the economy. Thus, U.S. workers would be less vulnerable to the Federal Reserve not adhering to their responsibility of a dual mandate appropriately due to their cultural over-emphasis—a function of their close ties to the financial sector—on price stability.

Politics is largely the art of theatrics and illusions. Crises are manufactured to enable both parties to claim to be the firefighters who extinguished the fire. But the underlying problems remain unaddressed, guaranteeing a new crisis in a never-ending cycle. The recent debt ceiling deal, suspending the debt limit for two years, is emblematic. The crisis was created by government spending extravagance that had sent the national debt surging past $31 trillion and incurring carrying costs approaching $1 trillion even with record low interest rates. The Congressional Budget Office projects the national debt at a staggering $50 trillion by the end of the next decade. If interest rates on Treasury securities climb back to historical averages, that means the lion’s share of the federal budget will be devoted to paying the carrying costs of the debt, with crumbs left over for everything else, including defense, Social Security and Medicare. Our financial doomsday clock is approaching midnight. And the president and Congress, like the ostrich, stick their heads in the sand. In but 14 years, Social Security trust funds necessary to pay benefits are projected to become exhausted. The Medicare Hospital Insurance Fund is projected to be depleted by 2031. Annual trillion-dollar budget deficits are projected as far as the eye can see. National security spending is out of control, despite the elimination of any danger of foreign aggression against the United States. We are the safest country in the history of the world by orders of magnitude, yet we are spending more than $1.6 trillion annually and climbing in preparing to fight the last war — more than 50 percent of all discretionary spending. A national defense strategy of invincible self-defense could be sustained by a fraction of the current $1.6 trillion. The battlefield is moving to space and cyberspace. We now sport a Space Command. Cyber-attacks can easily cripple a nation’s infrastructure and military communications. Military technologies, including drone warfare, are changing at warp speed. Traditional weapons systems that gestate long years before coming to fruition are commonly obsolete before deployment. The F-35 Lightning II Joint Strike Fighter program is the Defense Department’s most expensive weapon system program. The Department estimates it will cost nearly $1.7 trillion to buy, operate and sustain the aircraft and systems over its lifetime. I would wager that the F-35 will never be used to defend the U.S. against foreign aggression. Entitlement programs must also be arrested or terminated in favor of a single national safety net for the truly destitute. In fiscal year 2022, entitlement programs gobbled up 52 percent of the budget. In the prior fiscal year, the number reached an astronomical 66 percent because of one-time Covid payments. There are six major entitlement programs based on various thresholds of need: Social Security, Medicare, Temporary Assistance for Needy Families, Medicaid, unemployment, and economic support. These entitlement programs should be phased out favor of a national safety net to ensure all have access to the bare necessities, comparable to President Richard Nixon’s Family Assistance Program. The goals should be to encourage self-improvement and self-reliance — the touchstones of self-esteem and pride. As the proverb goes, “If you give a man a fish, you feed him for a day. If you teach a man to fish, you feed him for a lifetime.” Now is no time for complacency. The nation’s fiscal crisis waxes daily. The population ages, thrusting a prohibitive financial burden on the new generation. In 1960, there were 5.1 workers per Social Security beneficiary; that ratio has dropped to 2.8 today. The Federal Reserve is insolvent. Its balance sheet of U.S. Treasury bonds and mortgage-backed securities jumped from $4 trillion when the Covid-19 pandemic began to $9 trillion at the start of 2022 as interest rates approached zero. With interest rates now climbing back to historical averages to fight inflation, these Treasury bonds and securities are worth but a fraction of their face value or cost. If the assets were carried at market value, the Fed would be insolvent. Many private banks have similarly vastly overvalued loans or securities because of the spike in interest rates. The bailouts of Silicon Valley Bank and First Republic Bank are but the tip of the iceberg. Herbert Stein was chairman of the Council of Economic Advisors under Presidents Nixon and Gerald R. Ford. He advised that, “If something cannot go on forever, it will stop.” We are about to witness the truth of that wisdom as the nation inches daily towards insolvency. Congress and the White House fiddle as the country capsizes.

The inflation surge of the past two years is a warning about what can happen when sudden changes in the things we want collide with massive disruptions in our ability to make them. While current inflation slowed to 4.9 percent in April according to Labor Department data released today, after more than a year of Fed interest rate hikes, it’s likely to fade eventually as the Covid-19 pandemic and its associated policy responses continue to normalize. But this victory may ultimately prove fleeting: compared to the relative stability we’ve come to take for granted over the last few decades, price changes in the decades ahead could be far more volatile, while underlying inflation could be faster and more persistent than in the recent past. That’s because we’re poised to endure at least two major social transformations this century that will reshape the economy — and heighten inflation risks. The first is the compounding effects of climate change, which will require massive investments in everything from sea walls to electric transmission lines to clean power generation. We’ll also need to find replacements for traditional plastic and discover greener ways to produce cement, steel, and meat economically. It’s a transition that, all together, will require trillions of dollars in new investment. And we will have to do all of this as worsening fires, droughts, and floods — along with climate-related migration flows — threaten to destabilize many societies and destroy productive capacity. This “green transition” is set to coincide with another unprecedented threat to social and economic stability: an aging and eventually shrinking population. By the end of the century, high-income countries and China, which together have consistently produced about 80 percent of the world’s economic output since at least 1960, are projected to lose more than 40 percent of their working-age populations — even as their elderly populations are poised to rise by roughly 60 percent. This “gray transition” will be extremely costly, requiring fewer people to work harder and longer to support a growing number of non-working retirees. Handled badly, either of these transitions alone would be enough to generate years of unwelcome price increases as businesses and consumers struggle to adapt to massive changes in the mix of goods and services we need, changes to the ways we produce, and impairments in our overall ability to produce anything. Together, they’re a recipe for prolonged and painful inflation.

Federal Reserve Chairman Jerome Powell has repeatedly said undercutting wage growth for American workers is essential for tamping down the worst bout of inflation in the U.S. in more than 40 years. But a raft of data suggest that robust corporate profit margins — not wages — are having a much bigger impact on rising prices, according to longtime Société Générale strategist Albert Edwards. Edwards calls this dynamic “greedflation”: the notion that corporate price gouging is helping to keep inflation robust at a time when commodity prices, which were initially blamed for the price shock, have actually fallen over the past 12 months. West Texas Intermediate crude oil CL00, -3.82% was trading at roughly $77 a barrel on Thursday, compared with $115 a barrel one year ago, according to FactSet data. Prices of other important industrial commodities, including copper, have also declined during the same period. In his latest note on the topic, shared with MarketWatch Thursday, Edwards questioned why the Fed has been so insistent on targeting wages instead of pointing the finger at corporations: “the primary driver of this inflation cycle is soaring profit margins. Rather than calling this out as the primary cause of high inflation, central banks have instead chosen to focus on rising nominal wages as threatening to embed higher inflation – the so called ‘wage/price spiral’.” Often, corporations are raising prices of goods and services not because they need to due to rising labor and raw materials costs, but because they can get away with it by blaming inflation, something that consumers have been primed by media reports to expect, Edwards said. Blaming wage growth for inflation seems particularly misguided considering that workers’ wages haven’t even kept pace with rising consumer prices, Edwards said. Meanwhile, corporate profit margins have climbed to near-record highs. Profits for non-financial companies rose to nearly $2.1 trillion in the third quarter, a record high on a nominal basis, according to Commerce Department data. They have risen sharply since the onset of the COVID-19 pandemic in March 2020. This isn’t the first time Edwards has explored this topic in his research shared with Societe Generale clients. He examined the issue of price gouging in a note published back in November. The chart below, which shows how corporate profits as a percentage of GDP have risen to record highs, is from that previous note. While workers’ earnings have generally increased, they haven’t kept pace with rising consumer prices, which means that, when adjusted for inflation, workers’ earning power has actually declined. Average hourly earnings increased by 4.6% year-over-year, according to the latest monthly jobs data released by the Department of Labor. That’s less than the headline year-over-year increase in the consumer-price index, which stood at 6%. Moreover, Edwards showed that U.S. workers’ earnings compared to the costs of the goods and services they help to produce had been declining for years, tracing the start of the trend to when China joined the World Trade Organization in December 2001. Using an example taken from Howard University economics professor William Spriggs, Edwards pointed out that if wages truly are the driving inflation, then the cost of food at restaurants should be rising faster than the cost of food consumed at home because of the cost of labor. But the opposite is true, according to the consumer-price index, a closely watched gauge of inflation produced by the U.S. government. The cost of food eaten at home has risen by 10.2% during the year through February, according to the latest CPI data from February. By comparison, the cost of food consumer away from home has increased by 8.4%. “If wage inflation was pushing prices higher, food at home would exceed food away from home,” Edwards said. Therefore, “wages are not the problem.”

The May employment report shows continued growth in the economy, with no deceleration. Wage inflation has slowed relative to its peak in 2022, but the latest monthly data show it continuing well in excess of reasonable goals. And the April consumer expenditures price index showed little progress in the last few months. The Federal Reserve’s monetary policy committee will meet June 13-14. Officials have been hinting that they may pause the Fed’s interest rate hikes, but they also have stressed that they will consider the latest information. “Looking ahead, we will take a data-dependent approach in determining the extent to which additional policy firming may be appropriate,” said Fed chair Jerome Powell after the May meeting. Some of the Fed decision-makers have wondered whether it’s time to wait, given the long time lags of monetary policy. Common econometric models show that monetary policy affects the economy with a time lag of about one year. They could be in a situation in which their past actions are about to take hold, and further action would go much too far. Time lag analysis is difficult. Historical data show varying magnitudes of effect, with varying time lags. Economists forecasting the economy often use judgmental adjustments to their models to reflect how they believe current conditions differ from the past conditions that generated the average effects and time lags. And although the one-year time lag is a good heuristic, the actual impact is distributed over time, with small effects early on, rising to a maximum effect, then dwindling to small effects much longer than a year later. The time lag for inflation effects is much longer, about two years from Fed action. The Fed now has to weigh the alternatives: risk overshooting because of those time lags, versus not doing enough in the first place. Here there is more consistency. Most Federal Reserve governors and presidents of the regional Federal Reserve banks have voiced support for their “risk management perspective.” They have looked at the cost of a too-easy monetary policy compared to a too-tight policy. Although they would like to make perfect policy, they have gained some humility in the wake of their early projections that inflation would be transitory. Economic history as well as accepted economic theory hold that inflation is much harder to fight when it has become firmly embedded in the expectations of consumers, workers and business decision-makers. So being too tight risks mild economic weakness, but being too loose could require a severe recession to break the inflation psychology. When the Fed is uncertain, they will tighten or at least keep interest rates high. Economists at the Fed have also worried about the impact of recent bank failures, including Silicon Valley Bank. Maybe banking industry distress will slow the economy so no further interest rate increases are necessary. The Fed’s survey of senior lending officers shows banks are tightening their credit standards. But looking at the survey over time shows recent changes are consistent with past eras of approaching economic weakness. That means we are not seeing anything unusual because of the bank failures. However, this survey is a fairly coarse measure. Weighing all of the evidence, the Fed is likely to continue its interest rate increases. If they do pause at the June meeting—not likely but certainly possible—then look for a rate hike in July.

The past month’s economic data has highlighted the persistent, sticky nature of inflation and the resilient strength of the labor market in the United States. Economists say that could mean more rate hikes from the Federal Reserve are coming, but investors appear sanguine. May saw payrolls increase by almost double the average monthly gain in the 10 years before the pandemic, while the Federal Reserve’s preferred inflation gauge bounced higher in April. Spending also remains strong. In this good-is-bad economy, strong employment and higher wages mean higher inflation as companies pass on increased labor costs by raising the price of goods. That makes it more difficult for the data-dependent Federal Reserve to justify a pause to interest rate hikes at its June meeting.

The Dow Jones nosedived this afternoon as the Federal Reserve – which has raised interest rates ten times since last year – held them steady for June but indicated that more hikes are on the way. A pause in the aggressive increases meant to stem inflation was expected, but hawkish commentary in a statement out of today’s Fed meeting wasn’t. A majority of governors are in favor of raising rates again this year and two more increases are expected. The Fed gave a target 5.6% terminal rate, or where it wants the number to settle. Chairman Jerome Powell just wrapped a press conference to take questions on the Fed’s thinking. The DJIA reversed course on the news, turning lower by nearly 400 points midafternoon. It’s off its lows. The Nasdaq and S&P 500 — both off by about half a percentage point on the announcement — also recovered somewhat but were jittery as Powell spoke. In its press release today, the Federal Open Market Committee said, “Recent indicators suggest that economic activity has continued to expand at a modest pace. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.” Hikes are increasingly controversial, however, especially after some of the nation’s biggest bank failures ever this year starting in March and related to high interest rates. Also, annual inflation cooled in May to 4%, the slowest growth in more than two years, raising market hope the Fed might lay off interest rates beyond June. Still, core inflation is still double the Fed’s target of about 2%. Powell said July would be “a live meeting.” “We have to get it down to 2% and we will. But we just don’t see that yet,” Powell said at the presser, talking of inflation.

Federal Reserve officials are widely expected to announce on Wednesday a pause in their regimen of rate hikes. After 10 consecutive hikes, investors are pricing in a 94% chance that the Fed will leave rates unchanged for the first time since January 2022, according to the CME’s FedWatch Tool. But a pause is not a full stop. The labor market, which policymakers believe to be a key driver of inflation in the dominant services sector of the economy, is still remarkably strong. Now there’s a growing consensus on Wall Street that central bank officials could restart the hikes, meant to fight elevated inflation, as soon as July. But what does the Fed mean when it talks about labor markets and their impact on inflation? A lot of it has to do with a troublesome slowdown in productivity. At its most basic level, labor productivity is a measure of the value of the goods and services produced by a company compared with the amount of labor used to produce that output. Productivity moves in the opposite direction to wages and so if it remains depressed, there will be upward pressure on labor costs — and ultimately on inflation, said Lisa Shalett, CIO of Morgan Stanley Wealth Management. That’s a big deal to Fed officials who have spoken publicly about their fears of a wage-price spiral — the feedback loop that drives inflation higher as people make more money and go out and spend it. “The crosscurrents for the Fed are complex. Big bets about the pace of the hiking path are ill advised,” said Shalett. During the Fed policy meeting in May, participants expressed worry that even though the pace of wage growth has been gradually slowing, it is still “running at a pace that, given current estimates of trend productivity growth, was well above what would be consistent over the longer run with the Committee’s 2% inflation objective,” according to minutes from the meeting. Productivity in the United States has been steadily declining since 2005, but the post-pandemic landscape has accelerated that downturn significantly. Labor productivity decreased 2.1% in the first quarter of 2023, the US Bureau of Labor Statistics reported earlier this month. That was the worst reading since 2007, according to the BLS.

According to Yampolskiy and Spellchecker (2016), the probability and seriousness of AI failures will increase with time. We estimate that they will reach their peak between the appearance of the first self-improving AI and the moment that an AI or group of AIs reach global power, and will later diminish, as late-stage AI halting seems to be a low-probability event. AI is an extremely powerful and completely unpredictable technology, millions of times more powerful than nuclear weapons. Its existence could create multiple individual global risks, most of which we can not currently imagine. We present several dozen separate global risk scenarios connected with AI in this article, but it is likely that some of the most serious are not included. The sheer number of possible failure modes suggests that there are more to come

2. The dangers of unfriendly powerful artificial general intelligence Unlike with whatever wetware runs the human brain, it would be relatively easy to make changes to a PAGI’s software. PAGI could even make changes to itself. Such selfmodification could possibly allow PAGI to undergo an intelligence explosion where it figures out how to improve its own intelligence, then, as it gets smarter, it figures out new ways to improve its intelligence. It has been theorized that through recursive self-improvement a PAGI could go from being a bit smarter than humans to becoming a computer superintelligence in a matter of days (Good, 1965; Yudkowsky, 2008). If our understanding of the laws of physics is correct, the universe contains a limited amount of free energy, and this free energy is necessary to do any kind of work and most types of computing. Consequently, it has been theorized that most types of computer superintelligences would have an instrumental goal of gathering as much free energy as possible to further whatever ultimate goals they had (Omohundro, 2008). Humanity’s continued existence uses free energy. Consequently, if a PAGI did not have promoting human welfare as a goal, it would likely see humanity’s continuing existence as rival to its terminal values. A PAGI that wanted to maximize its understanding of, say, chess would further this end by exterminating mankind and using the atoms in our bodies to make chess computing hardware. A PAGI that wanted to maximize the number of paperclips in the universe would likewise kill us, not out of malice, but to align the atoms in our bodies with its objective. The term “paperclip maximizer” has come to mean a PAGI that seeks to use all the resources it can get for an objective that most humans would not consider worthwhile (Arbital Contributors, 2017). A PAGI that was smarter than humans, but not yet smart enough to take over the world, would have an incentive to hide its abilities and intentions from us if it predicted that we would turn the PAGI off if it scared us. Consequently, the PAGI might appear friendly weak, and unambitious right until it launches a surprise devastating attack on us, by taking what has been called a “treacherous turn” (Bostrom, 2014, pp. 116-119).

But Deep Blue can only beat humans at chess. Artificial General Intelligence (AGI), by contrast, refers to any machine that can match humans across the board in a wide range of intellectual tasks. General intelligence is a far harder problem to solve, and progress here has been less dramatic than experts predicted it would be 50 years ago. In the last five years, however, breakthroughs in new visual and speech recognition systems have surprised AI researchers, and the most promising sign is re- search led by Demis Hassabis, the founder of Google DeepMind. The team at DeepMind re- ported developing a system that taught itself how to play 49 different Atari arcade games, such as Space Invaders, learning not only the rules but how to maximize its score. The re- searchers programmed the artificial agent with no background knowledge about the games, beyond telling it to score as high as it could. After playing the games many times, the AI worked out the best strategies for itself, includ- ing some the designers themselves were un- aware of. Hassabis describes this as “the first significant rung of the ladder toward proving a general learning system can work.” Of course, this rung is hardly threatening, except to de- signers of video games.

The most serious AI safety concerns arise not from narrow intelligence or even general intelligence, but rather from what many ex- perts argue will quickly follow AGI: artificial superintelligence. Because a capacity to learn would be an integral component of any system that attains general intelligence, the AI would be able to boost its own capabilities—such an AI would be able to design an improved version of itself, and then that smarter version would do the same, and so on. This recursive self-im- provement could result in an “intelligence ex- plosion,” a scenario that the mathematician I.J. Good, one of Alan Turing’s colleagues, first identified in 1965. In this scenario, a system’s intelligence increases, potentially even from a sub-human level in most areas but with specific capabilities in fields such as mathematics and computer science, to a lev- el far beyond that of humans in a relatively short period of time.

There is a curious trend afoot these days. As profits among tech’s biggest players have risen, so too have . Their trajectories nearly mirror each other: up, and to the right. This is no coincidence, of course. User data, that digital treasure craved by hackers and businesses alike, is wildly lucrative. Big tech is using our data in privacy-invasive ways to source targeted ads, in a way that allows them based on where they live or who they are. In addition, companies are using our images to , which tie into predictive policing and can unjustly put people in jail. For hackers, data can be held ransom or manipulated for financial gain. For users? These days most of our online data is sold, manipulated, stolen, or in many cases all of the above. Often we’re left with annoying ads that follow us around or worse, our data exposed on the open web or used in malicious ways without our approval. There certainly aren’t any profits coming our way. In this all-digital age, we often forget all that data is actually ours. This precious online data—banking information, photos, what we search for, what we buy—is created by and unique to each of us. Without us online, this entire ecosystem does not exist. Big Tech’s profits would tumble, as would the number of data breaches. It’s concerning then that we users hold the keys to a door we can’t truly access. This is the terrifying state of online privacy in 2021. We’re at a tipping point in history. Waiting for foolproof legislation or big tech companies to suddenly have a change of heart will not work. Meanwhile, hacks, breaches, and rampant misuse of our data are reaching catastrophic levels. We have a decision to make: We can either take collective action to regain control of our online privacy, or we can continue down our current path of least resistance and lose it for good. The cascade of events that have led to this privacy tipping point stretches back millennia. Before the development of modern technology, the original privacy violators were largely governments and politicians. In ancient Rome, top political players built their own surveillance networks of cohorts that would alert them to the schemes of their rivals. In the Middle Ages, the Roman Catholic Church had its own powerful surveillance network to track and crack down on hearsay. In the late 18th century, the French Revolution saw half a million French nobles targeted by the new government’s “committees of surveillance,” who arrested those considered suspicious. And in the 1930s, IBM, perhaps the first “big tech” company, helped facilitate the Nazis’ genocide through the generation and tabulation of punch cards on national census data. The dawn of the digital age in the 1990s saw the swift rise of tech companies whose shiny new offerings came at a hefty price: our data. In contrast to the authoritarian surveillance practices employed by history’s governments, tech companies originally positioned their relationship with users as mutually beneficial. Their products and services were mostly free, which users gobbled up, which quickly led to the massive growth and user bases tech companies craved. We didn’t think too much about it. But what appeared to be a genuine and transparent relationship with Big Tech turned out to be anything but. A decade or so later we would learn that we’d been paying them since day one with our behavioral data—lucrative information about how we move around the internet and interact with digital services—and had already lost our privacy. The price we pay for their wares is not in dollars and cents, but in our data, our privacy, and our freedom, sold by Big Tech to the highest ad bidder. Big Tech has thus asked more and more from users over the years, and most of us have been giving them our most valuable currency (our data) with little or no thought. We , we fail to use the on the market, and the we use to protect ourselves is most often varying lengths of the numbers 1 through 10. The result: Far too much of our personal data sits outside of our control and in the hands of those who sell it, manipulate it, or steal it for profit. Consumers, you must take matters into your own hands. Legislation and hoping for a change of heart will not tip online privacy rights back into your favor. Neither will sitting idly by, either unmotivated or unaware of the assault taking place every second we’re online. We are at a critical tipping point in time. We know what happens with our data, we know the consequences, and we have the resources and tools to wrest back control of what is rightfully ours. In this most critical year, we can take two paths: One is easy and familiar but devastatingly costly. The other is harder but leads to true freedom and choice.

Facial recognition software firm Clearview AI, which has been criticized for scraping together a database of as many as 3 billion online images, has been hit with a data breach. The firm, based in New York, apparently saw its list of customers, which includes numerous law enforcement agencies, stolen, , which first reported the incident. The news site reported that it had obtained a notice sent to Clearview's customers that an intruder had “gained unauthorized access” to its customer list, the number of searches customers have conducted and other data. Clearview said in the notice that the company’s servers were not breached and that there was “no compromise of Clearview’s systems or network.” However, Clearview's attorney, Tor Ekeland, said in a statement sent to USA TODAY, "Security is Clearview's top priority. Unfortunately, data breaches are part of life in the 21st century. Our servers were never accessed. We patched the flaw, and continue to work to strengthen our security." Facial recognition spurs privacy concerns: The issue of facial recognition technology and privacy has been controversial lately. Student uproar over . An editorial in student newspaper described the plan as "a major breach of students’ privacy" that makes "students feel unsafe on a campus they are supposed to call home." Clearview attracted attention after that the startup had built a database of more than 3 billion images gathered from social media sites such as Facebook, YouTube, as well as payment site Venmo and other online destinations. The company notes on that it searches the open web – not private social media accounts – and markets its investigative tool only to law enforcement agencies and "is NOT available to the public." Federal and state law enforcement officials told The Times that they had used Clearview's app in solving cases from shoplifting to murder and child sexual exploitation cases. Clearview was founded by Australian technologist Hoan Ton-That and Richard Schwartz, an aide to then-New York Mayor Rudy Giuliani, the Times reported, and counts Silicon Valley venture capitalist Peter Thiel among its investors. Clearview faces criticism: Since the report's publication, Google, Facebook, Twitter and Venmo demanding the company stop using its platforms for gathering imagery. “YouTube’s Terms of Service explicitly forbid collecting data that can be used to identify a person,” YouTube spokesman Alex Joseph said in a statement. “Clearview has publicly admitted to doing exactly that, and in response we sent them a cease and desist letter.” The New Jersey attorney general has banned police from using Clearview's app, , and the company also faces class action lawsuits in Illinois and Virginia. And Clearview is coming under scrutiny by some in the U.S. Congress. Rep. Patrick McHenry, R-N.C., has called for House Financial Services Committee chair Maxine Waters, D-Calif., to schedule a hearing on the company's data collection practices, . Sen. Edward Markey, D-Mass., who last month expressed concerns about Clearview's technology, strengthened his unease after Wednesday's report: "Clearview’s statement that security is its ‘top priority’ would be laughable if the company’s failure to safeguard its information wasn’t so disturbing and threatening to the public’s privacy,” he said in a statement. While the company said it had not been hacked, the incident raises concerns, he says. “If your password gets breached, you can change your password. If your credit card number gets breached, you can cancel your card. But you can’t change biometric information like your facial characteristics if a company like Clearview fails to keep that data secure," Markey said. "This is a company whose entire business model relies on collecting incredibly sensitive and personal information, and this breach is yet another sign that the potential benefits of Clearview’s technology do not outweigh the grave privacy risks it poses.”

NSA has been coming out with all these charges against China going after our secrets, our information, and so forth. It’s caused the Congress to give enormous amounts of money to NSA, this money for defensive use against the Chinese and so forth. What never comes out is the U.S. offensive capability against the rest of the world. The U.S. – there’s nobody that can even compare to the U.S. We’ve got an enormous Cyber Command. They’re expanding NSA’s secret city by a third to accommodate 14 new buildings, 10 parking garages, a new enormous supercomputer center – all this for this new, very secret Cyber Command. And it’s dedicated largely to offensive, to creating wars, not preventing wars. 21 Our leaders tend to paint the United States as being an innocent victim. However, more often than not the United States is a perpetrator. As the documents leaked by Ed Snowden confirmed, the focus of CYBERCOM isn’t on deterring attacks, it’s about launching them. In many instances these attacks are launched to acquire a strategic economic advantage and impose U.S. dominion abroad. In the end, it’s probably safe to assume that everyone is spying on everyone else. They always have and probably always will. Though at the same time, it’s also important to recognize that not all espionage programs are the same, and that scale matters. Given the amount of tax money our leaders throw at it, the United States, with its army of private sector contractors, steals secrets on a level both domestically and internationally that is unsurpassed. When it comes to breaking into networks and collecting sensitive information the United States is admittedly in a class all by itself. Journalist Glenn Greenwald elaborates on the repercussions of this fact: That the U.S. government – in complete secrecy – is constructing a ubiquitous spying apparatus aimed not only at its own citizens, but all of the world’s citizens, has profound consequences. It erodes, if not eliminates, the ability to use the Internet with any remnant of privacy or personal security. It vests the U.S. government with boundless power over those to whom it has no accountability. It permits allies of the U.S. – including aggressively oppressive ones – to benefit from indiscriminate spying on their citizens’ communications. It radically alters the balance of power between the U.S. and ordinary citizens of the world. And it sends an unmistakable signal to the world that while the U.S. very minimally values the privacy rights of Americans, it assigns zero value to the privacy of everyone else on the planet. 22 This double standard has serious consequences. It illustrates that U.S. leaders are unwilling to adhere to the values and principles that they claim to represent. Whistleblowers have exposed our political elite as untrustworthy. Having lost its moral authority in this domain, the United States cannot hope to name and shame cyber offenders. The ethereal bindings of soft power have dissolved, leaving only a dangerous example that other nations can follow.

The most immediate impact of A.I. that might reinforce the feudalistic tendencies of the digital space is to create a production system mimicking corporatism - namely, the reconfiguration of power relations through sectoral alliances between coder syndicates and guilds. This would entail the control of algorithm-building and maintaining structures that both state and private actors rely on, and the foundation of the future economic system. The corporatization of A.I. could reinforce power-centralization through the combination of corporations that monopolize modes of code and coder production that will disproportionately influence politics, military and science affairs. This will effectively generate a feudal network that minimizes political participation and representation, leading to the eradication of democracy. The Habermasian ‘algorithmic enclosures’ that are obscure and inaccessible will establish robust control mechanisms on the society and in turn, empower coder oligarchies and corporations in charge of them. The second alarmist trend in the popular mainstream is the idea that the A.I. will create a ‘fascist system’28 Cyber Governance and Digital Democracy 2018/9 over-centralized A.I.-based decision-making will create a hierarchy of repression in which control-oriented, top-down practices will restrict expression, engagement, oversight and political information-seeking behavior. These fears have been intensified with the rise of the far-right groups in the US and Europe in the last years, bolstered by Internet trolls, fake news, and bots. According to the conceptualization of Foucault29 and Canguilhem30, the way technology and science are deployed by fascist regimes snowball into a social force, bursting their initial utilitarian origins and take on a life of their own. Technologism then determines the bounds of rights and freedoms in a society, becoming the real political ideology in fascist regimes. In ‘techno-fascism,’ all aspects of social life are controlled with the purpose of maximizing scientific progress and technological advances that are in turn, used to exert newer forms of sectoral control over social life. Views that don’t conform or fully converge to the hegemonic ideology are taken out of the equation through imprisonment and death. Totalitarianism is different from authoritarianism in this context since the latter denotes the centralization of political power without the need to control thoughts and actions of all citizens through a revolutionary mechanism to change the human nature or the world at whole. An ‘A.I. fascism’ or totalitarianism, therefore, has to entail a bid to change human relations and social interactions; merely political control and centralization are not enough on their own