Venkat Rao’s latest essay for The Question publication asks us to reconsider the global economy’s trajectory, shifting focus from whether we’re in a leverage or deleveraging cycle to which theory of coordination society should prioritize.
The Leverage Camp
Proponents of the leverage camp point to the sheer scale of investment in AI, persistent fiscal deficits in many western economies, and the current bull run in the stock market as evidence that we’re still in a period of economic expansion.
They argue that this surge in AI investment is driving growth, even as it exacerbates income inequality and strains on the social safety net. Fiscal deficits, while a concern in the past, are now seen as a necessary evil in a world where governments are struggling to find room for maneuver in the face of an increasingly complex global landscape.
The Deleveraging Camp
On the other hand, the deleveraging camp is convinced that the current economic uptick is nothing more than a delayed reaction to the debt-fueled binge of the 2000s.
They see the massive investment in AI as a sign of a desperate attempt to boost productivity and maintain profit margins in a world where wages are stagnating and the cost of debt is rising. Fiscal deficits, in this view, are a recipe for disaster, as they risk fueling inflation and undermining the very stability they’re intended to preserve.
Which Theory to Leverage?
Rao’s essay asks us to consider which of these two theories of coordination society should prioritize. Should we be investing in the tools and infrastructure needed to drive growth, even if it means taking on more debt and widening the gap between the rich and the poor?
Or should we be focusing on reducing the debt burden and rebuilding the social safety net, even if it means sacrificing some of the short-term economic gains that come with a growing economy?
What this means: In the end, this debate is not just about economics – it’s about the kind of society we want to live in. By choosing which theory of coordination to prioritize, we’re effectively deciding whether we value growth and stability above all else, or whether we’re willing to take a risk on a more equitable and sustainable economic model.
