America’s Edge: The Impact of Risk-Taking on National Greatness
Are individuals or the system at the heart of American exceptionalism? It’s time to take The Sniff Test.
An Exceptional Idea
The idea of American exceptionalism dates back to Alexis de Tocqueville in the 1830s. Is America exceptional or are its people?
Americans often describe themselves as risk takers. They point to the wild dreams of Elon Musk and six-leg parlay sports bets. This is the home of meme stock mania and crazy crypto bets.
America is founded on the twin freedoms of religious observance and controls on officialdom. It was forged from 13 individual colonies demanding autonomy, which results in the rights of 50 states today. The nation formed before it had a standing army, and still affords its citizens the right to bear arms.
The US is entrepreneurial. It has a winner take all approach to business, but there is no stigma in trying and failing. America loves a comeback kid, in business, in politics and in Hollywood.
The US is the home of technology. Marx understood that technological change uprooted the social fabric, destroyed tradition and was the source of political power. He failed to understand capitalism’s capacity for rebirth.
Successful individuals are never far from government, while others feel abandoned by it. Big business cosies up to politicians, while small firms want fewer regulations. The cult of the individual peaks every four years in a presidential election, but it is the discipline of the party machine that carries the day.
Every few decades the relationship between federal government, the states and big business is recast. Each time central authority is challenged, it emerges stronger.
American exceptionalism is manifest in its all-conquering stock market, dominated by a handful of global technology monopolies. Their space race into artificial intelligence threatens a great upheaval in society. But there is another risk looming that is what makes America different. Massive overinvestment in the latest and greatest idea.
The Importance of Immigration
De Tocqueville described Americans as fixed on “purely practical objects”. Europe was the home of the “pursuit of science, literature, and the arts”. Americans stood apart because of their “strictly Puritanical origin, their exclusively commercial habits, even the country they inhabit.” As such, American democracy could not be a benchmark for the rest of the world.
The founding story is essential to America’s understanding of itself. It is open to interpretation. The first European settlers escaped religious persecution, but brought a zeal to convert indigenous peoples. The founding fathers fought imperialism because of their desire to conquer westward. But most of all, America opened its arms to opportunists. Its approach to immigration sets it apart.
Emma Lazarus wrote “Give me your tired, your poor, your huddled masses” out of inspiration from the Statue of Liberty. She celebrated the acceptance of Jews fleeing European pogroms. But her words have come to stand for an acceptance of economic migrants, who are a major reason why the US grows faster than Europe.
Europe focuses on political migrants. This is part guilt over empire and part a sense of grubbiness about economic matters. But without America’s wide open spaces, those fleeing persecution keep one eye on home. They’d rather not have moved and resent the host that harbours them. They bring their political struggles with them and project them onto new neighbours.
The US is a magnet for the world’s most aspirational people and for some of its poorest. The potential to better yourself is why people identify as Irish American, Chinese American and Indian American. No one calls themselves Chinese French.
Economic migrants are risk takers. They leave towns and villages in search of a better life. They are adventurous. Does America make the individual, or do they make America?
There is mass migration all over the world and only one US. It is large and has a big population, but nothing like India and China’s. There is something in the American psyche that the data does not capture that extols risk taking.
The US is also a single market in the true sense and trades freely with countries to the north and south. It is a commercial-first system as de Tocqueville noted, with a geography that supports a continent-sized economy. Is this the source of exceptional optimism and do Americans take unusual risks?
Gambling, not Risk Taking
When it comes to gambling, the Irish, Chinese and Australians all claim to love a bet. Australians are prepared to lose the most. By comparison, Americans appear modest gamblers.
The US has a puritanical relationship to gaming. Sports betting is still only allowed in 38 states. Only Louisiana and Nevada allow statewide casino operations and two states don’t even have a lottery. Maybe US gambling losses will explode with the development of online betting. This would be an example of technology uprooting the social fabric.
Gambling is entertainment, not taking risk. It is addictive and potentially destructive. It has much in common with investing everything into meme stocks and cryptocurrencies, and little to do with business risk. The growth of gambling online, in option markets and in new assets, is financial nihilism.
Stuck in your parents’ basement, with no chance of starting a family of your own, putting it all on black, GameStop or dogecoin is an expression of political powerlessness. Success in business, by contrast, is all about purposeful risk taking.
Access to Capital
Our World in Data offers an estimate of risk taking by country. The US is on a par with Australia and above China. Yet pockets of Africa and the Middle East are shown to harbour bigger risk takers.
These results are more fun than science, since risk taking is subjective and often self reported. If everyone around you is gambling, you might feel you don’t take enough risk. Meanwhile, relative to the rest of the world, you are free soloing El Capitan.
CEO World magazine compiles an entrepreneurial index. It rates innovation, competitiveness, infrastructure, labour skills, access to capital and openness for business. The US ranks top, followed by Germany, the UK, Israel and the UAE.
The UAE is a mini magnet for the aspirational as well as the working poor. The UK, Singapore, Hong Kong and Dubai are regional venture capital hotspots, because of their history as financial centres. Access to capital is first among equals in the creation of entrepreneurs.
Large capital markets require coordination and control. The heavy hand of the state allows capitalism its rein. The single biggest thing Europe could do to challenge the US would be to unite its national stock exchanges. But the EU is built on protectionism and political power matters more than prosperity.
This is evident in Europe’s hostility to technology. Fines for breaching privacy and competition laws are an alternative to taxing footloose US firms, which play off one tax regime against another. But they are also protection of the old ways, of tradition and of the established power structures.
Technology is growth and the US is the hotbed of innovation. China and India may deliver half of the world’s recent productivity increases, but this is catchup more than competition for primacy. The relentless pace of change in America unnerves the deep conservatism in the ancient regimes of Europe and Asia.
Technological change is how Marx foresaw capitalism ending. The growth of capital changes the prospects for workers and they would only win when they seized the means of production. Today, an increasing share of profits flows to relatively few owners of capital, but popular discontent is barely a murmur.
Trump offers tariffs to make America great again. But going back to the future is the opposite of the American way. Tariffs cannot provide expensive labour with permanent protection. The Midwest may vote for factories, but it will find them run by robots if the US is to compete again.
This is the way when technology trumps all.
The American Dream Evolves
America is the home of the new. California is occasionally able to meet all its electricity demand from renewables. Many of its laws echo European challenges to big business. But Arizona and Texas willingly house any economic emigrants.
The size and structure of the US enable choice. One thing the EU has right is the free movement of people. It is the proximity to chaos that threatens Europe. The US is protected by two vast oceans.
Marx and Engels admired technological prowess. They wanted to control it for their own ends. They would be shocked at how often capitalism reinvents itself. Much as the American Dream evolves and may have to change again.
The Pilgrim Fathers dreamed of freedom from religious persecution. As the colonies filled up there was pressure to push west. An ideology needed living room. When the Nazis tried this in the confinement of central Europe, the world pushed back. America’s first nations were too few and too remote and the world would find out only after the event.
Once the land was claimed, the dream became to own a piece of it. A small holding was promised to southern slaves during the civil war, but never delivered. After the gold rushes opened up the far west and population flooded in, a job, a family and a house of your own became the dream.
Now this is in peril. Millennials are the first generation whose politics does not age to the right. The costs of education, health and housing haunt them into middle age. It was not supposed to be this way.
For now the system ignores financial nihilism. Business risk is different. Elon Musk funded Tesla with carbon credits sold to fossil fuel competitors. It grew into the largest electric vehicle manufacturer by slowing other car companies entry to its market. Genius.
Only now does Musk overstep. Questioned about demand for robot assistants he answers the eight billion citizens of the world. His robotaxis lack government support and delays see investors sour on Musk-world. This is part of a larger questioning of technology behemoths.
The giants that dominate the stock market suck capital and revenue from the rest of the economy. Their concentration on building ever bigger large language models (LLMs) draws capital from more promising AI technologies. OpenAI spins out a small language model in recognition that running large ones costs too much. Admitting this provokes a reality check.
Individualism and opportunity run out of room. Then the state steps in to manage resources. The oil barons were cut down, the telephone companies split up, and the same fate awaits the tech giants. The trigger is always the power to threaten the central authority.
The Sin of Success
Companies in every industry feel compelled to show off their AI spending. Their costs are big tech’s revenues. But the Federal Trade Commission is investigating many of them. AI may mine personal data to enable discriminatory pricing. Protection of individual consumers, an appeal to constitutional freedoms, is what decapitates monopolies.
Big tech’s biggest sin may be its success. De Tocqueville wrote “a thousand special causes, of which I have only been able to point out the most important, have singularly concurred to fix the mind of the American”.
American exceptionalism is the melting pot of individuals, ideas and opportunities. Big tech’s concentration of wealth and power, and an unhealthy obsession with LLMs, may be its undoing.
This is what Marx missed in how capitalism reinvents itself. Massing of wealth gives rise to excessive monopoly to the detriment of ordinary citizens. Wealth inequalities rise to extremes but the people don’t seize power. The government intervenes on their behalf.
The difference between US and Europe is when the intervention occurs. Europe passes laws out of prudence, in case something happens. The US passes them when it does. Europe tries to calm the economic waters, while America rides the waves.
Risk begets reward. Not for everyone, but for the fortunate few. The freer the flow of the economic tides, the more opportunity exists to reap rewards.
When you suppress volatility you stigmatise it, and failure along with it. When you ride the waves you value the persistence of effort. Europe adopts the first model and the US the second. Perhaps this is exceptional, but it is certainly different.