The Government Strikes Back: How Communications Technology and Economic Stress Reshape Politics

Alan's Note

I don't think AI is going to destroy jobs. That's the Hollywood version. What I see instead is AI accelerating a trend that's been building for decades: the gap between high-agency people who can leverage new tools and everyone else who can't.

That gap creates political pressure. And I'm increasingly convinced the release valve will be a turn to the left—explicit redistribution, wealth taxes, government as active economic player. Zohran Mamdani winning NYC as a democratic socialist and California's billionaire tax heading to the ballot aren't outliers. They're harbingers.

But here's the twist: right populism leads to the same destination through different means. Trump pressuring defense contractors on buybacks, industrial policy mandates, "produce it here" requirements—it's still government reasserting control over capital allocation.

After 40 years of the free market consensus, the government strikes back. Both directions lead there. The question for investors is: what thrives when the state returns as an active player?

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The 1848 Template

The revolutions that swept Europe in 1848 weren't caused by new ideas—liberalism and nationalism had been brewing since 1789. What made 1848 different was speed.

Railroads had just connected major European cities. The telegraph was emerging. Cheap newspapers had created a mass reading public. When Paris revolted in February 1848, Berlin, Vienna, Budapest, Milan, and Prague followed within six weeks.

Previous revolutions took months to spread. This one went viral.

But communications technology was only the accelerant. The fuel was economic crisis: potato blight and grain failures from 1845-47 combined with industrial recession in 1847. Urban workers and rural peasants were both hungry—a rare and explosive combination.

The pattern:

1. New communications technology removes friction on information flow
2. Economic crisis creates material grievances
3. Existing political frustrations find rapid expression
4. Regimes can't respond fast enough

The revolutions ultimately failed because the revolutionaries couldn't coordinate with each other—liberals, nationalists, and socialists wanted different things. But the speed of outbreak was unprecedented.

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The Mechanism Repeating

The internet and social media are our railroad and telegraph—but faster. Information that took weeks in 1848 now takes minutes. Grievances find communities instantly. Algorithms amplify outrage.

But AI isn't the economic trigger. It's another accelerant.

What AI actually does:

• High-agency people + AI = extraordinary leverage (one person does what five did)
• Low-agency people + AI = still need someone to tell them what to do
• The gap widens, but employment doesn't collapse
• This is the railroad pattern: restructured work, enormous wealth at the top, crushed competition in the middle

The economic trigger is already here:

• Housing costs vs. income: the worst ratio in American history
• Credential inflation: degrees required for jobs that don't need them
• Healthcare: one medical event = financial ruin
• Status anxiety: "I did everything right and I'm falling behind"

The 1848 trigger was absolute deprivation—hunger. Today's trigger is relative deprivation—working harder than ever while watching others pull away.

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The Left Turn

The signals are no longer subtle.

New York City, January 1, 2026: Zohran Mamdani sworn in as mayor—the first democratic socialist to lead America's largest city. He defeated Andrew Cuomo in the Democratic primary in what Bernie Sanders called "the biggest political upset in modern American history."

His platform: $30/hour minimum wage, fare-free buses, universal childcare, city-owned grocery stores, rent freezes. Funded by taxing New Yorkers making over $1 million.

"I was elected as a democratic socialist," Mamdani declared at his inauguration, "and I will govern as a democratic socialist."

California, November 2026 ballot: The Billionaire Tax Act—a 5% one-time levy on the net worth of California's approximately 200 billionaires. The tax is retroactive to January 1, 2026, leaving little time to flee. Some did anyway: Larry Page and Sergey Brin reportedly moved entities out of state before the deadline. Jensen Huang said he was "perfectly fine" with it.

Revenue allocation: 90% to healthcare, 10% to food assistance and education.

The Overton window has moved. "Billionaire" is now a pejorative in mainstream Democratic politics. Explicit wealth taxation is no longer fringe—it's on the ballot in the nation's largest state.

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The Right Turn Leads to the Same Place

Here's what makes this moment unusual: right populism also expands government's role in the economy—just through different mechanisms.

The deglobalization logic:

• Great power competition with China → supply chains must come home
• Defense spending must increase → but government becomes a demanding customer
• "Produce it here" → industrial policy, not free markets

The Trump precedent:

• Tariffs as economic tool
• Pressure on companies to forgo buybacks
• Direct intervention in corporate decisions (TikTok, CHIPS Act conditions)

Brett Johnson at Santiago Capital and Michael Every at Rabobank make the crucial point: right populism means more defense spending, but it also means government meddling. Defense contractors will get more revenue, but shareholders may not see the returns they expect.

The "shareholder value" era of 1980-2020—maximize returns to capital, minimize stakeholder obligations—is ending from both directions.

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The Common Destination

| | Left Populism | Right Populism | |---|---|---| | Government role | Expands via redistribution | Expands via industrial policy | | Corporate target | Wealth taxes, antitrust | Buyback restrictions, tariffs | | Defense posture | Skeptical but maintains | Increases with strings attached | | Labor posture | Pro-union, minimum wage hikes | Mixed—some protections, skeptical of unions | | Net effect | Government as active economic player | Government as active economic player |

Russell Napier calls it "national capitalism"—governments directing national savings toward national purposes. Whether the purpose is universal childcare (Mamdani) or onshoring semiconductor production (CHIPS Act), capital allocation is no longer left purely to markets.

The free market consensus that dominated from Reagan through Obama is over. The question is what replaces it.

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Historical Rhymes

After 1848: The revolutions failed, but the pressures didn't disappear. The next generation saw:

• Bismarck's welfare state (social insurance to defuse socialism)
• Gradual expansion of suffrage
• Labor reforms
• Nationalist channeling (German and Italian unification)

The elites made just enough concessions to preserve the system.

After the Gilded Age: The railroad barons' excesses produced:

• Progressive Era reforms
• Antitrust enforcement
• Income tax (16th Amendment)
• Eventually, the New Deal

Again: concessions that preserved capitalism while redistributing some gains.

The pattern: Periods of rapid technological change + wealth concentration → political instability → elite concessions → modified system continues

The question for the 2020s: Are we in the instability phase? And what do the concessions look like this time?

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What It Means for Investors

If government is back as an active economic player—regardless of partisan flavor—some asset classes benefit and others suffer.

Winners in Both Scenarios

Real assets broadly Both left (spending on social programs) and right (spending on defense and reshoring) paths lead to fiscal expansion and likely inflation. Hard assets reprice upward.

• Gold (the traditional hedge against currency debasement)
• Commodities (copper, rare earths, steel—needed for both green transition and defense)
• Land and property (with rent control risk in left-leaning jurisdictions)

Domestic industrials Both sides want onshoring. But avoid pure "shareholder value" plays—look for companies that benefit from revenue growth even if margins face pressure.

Infrastructure Everyone needs it.

• Left version: public transit, green energy, housing
• Right version: defense infrastructure, ports, domestic manufacturing capacity

Complicated—Revenue Up, Returns Uncertain

Defense contractors

• Revenue: up significantly (deglobalization, great power competition)
• Shareholder returns: uncertain (no buybacks, cost-plus pressure, government meddling)
• Consider: suppliers to defense primes (materials, components) may capture value with less political scrutiny

Healthcare

• Left wants price controls
• But demographics are unstoppable (aging population)
• Medical devices and services may fare better than pharma

Losers in Both Scenarios

Long-duration bonds Financial repression targets bondholders. If governments need to inflate away debt while funding expanded programs, real returns on bonds will be negative.

Cash Purchasing power erodes in inflationary environment.

Big Tech Target of left (wealth taxes, antitrust, "break them up") AND right (cultural grievances, national security concerns, TikTok-style actions). The regulatory vise tightens from both directions.

Globalized supply chain beneficiaries The 40-year arbitrage of producing where it's cheapest is ending.

Pure financial engineering plays Buyback machines become politically toxic. Companies that returned value primarily through financial engineering rather than operational excellence face headwinds.

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The Questions That Remain

How fast? 1848 played out over weeks. The Gilded Age-to-Progressive Era transition took decades. The internet accelerates everything—but political systems still move slowly. This could be a 2-3 year shift or a 10-15 year grind.

How much resistance? California billionaires are already fleeing. Capital is mobile in ways it wasn't in 1848 or 1932. Can states (or nations) actually capture wealth, or does it just move? The retroactive nature of California's tax suggests awareness of this problem—and willingness to be aggressive about it.

What breaks the pattern? The optimistic case: AI-driven productivity gains boost growth enough that debt ratios stabilize and political pressure eases. The "productivity miracle" escape valve.

The pessimistic case: Neither left nor right concessions satisfy the underlying grievances. The instability continues or intensifies.

What do the concessions look like? If history is a guide, elites will concede just enough to preserve the core of the system. What's the 2020s equivalent of Bismarck's social insurance or the Progressive Era reforms?

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The Bottom Line

Communications technology doesn't cause political revolutions—it removes the friction that previously contained them. Economic stress provides the fuel. The combination overwhelms institutions designed for a slower world.

AI isn't destroying jobs. It's accelerating inequality. And that inequality is producing political responses from both left and right that point toward the same destination: government as active economic player, capital allocation no longer left to markets alone.

The free market consensus is over. The government strikes back.

For investors, this means: real assets over financial assets, domestic over global, revenue growth over shareholder returns. And a clear-eyed view that the rules of the game are changing—regardless of which party holds power.