This is the most convincing version of the federalism-as-moat argument I've read. What I'd add from where I sit tracking India and other emerging markets at MarketMind is that this is precisely the structural advantage most EM economies lack. A country can have brilliant individual policy, but without credible commitment to multi-decade continuity at the sub-national level, the policy gets reversed before the compounding shows up. The US doesn't need its federal government to be competent, it needs fifty governments where enough of them stay competent long enough to compound.
Beyond attracting talent, an aspect of the SV non-compete secret sauce that outsiders sometimes miss is the rapid diffusion of "best practices" throughout SV due to constant job-hopping cross-pollinating knowledge across the industry. It's a place where people can switch tribes and take some of the tribal knowledge with them as they go. Yes, you can't take true intellectual property EG actual lines of code with you, but you can take the high level knowledge that "this general tech stack and architecture is useful for solving problems like this" or even the more basic insight of "this is a problem that is very solvable with tooling/software that is widely available today."
Having worked both in and outside of SV I am sometimes stunned by the extent to which more legacy business just continue to deal with basic operational business problems for which cost-effective off-the-shelf solutions already fully exist, or continue to stick with legacy solution providers that have plainly and self-evidently already been outclassed/disrupted by new entrants... Microsoft Teams in 2026 for example.
And yes, the line between "best practices" and true "intellectual property" is sometimes fuzzy and difficult to litigate which... is probably good, actually, in the sense that it injects just the right amount of socialism into the concept of intellectual "property" in the first place. IP is ultimately a rent-seeking and thus growth-impairing mechanism. We need it to exist to establish profit motive in the first place but tempering it with the soft diffusion of best practices across your competitors is probably the ideal balance to strike.
Thank you for your contribution. You're absolutely right about the rapid diffusion of best practices throughout Silicon Valley due to constant job-hopping cross-pollinating knowledge across the industry. This mobility is undeniably a core engine of the region's broader success; it ensures that the most efficient operational frameworks and tooling stacks naturally rise to the top, preventing modern technology companies from stagnating like legacy businesses.
Your observation highlights exactly why building within such a dynamic ecosystem is an advantage for organizations that know how to capture that diffused knowledge efficiently.
Yes. States dominated by a single party allow that ruling faction to compound their economic policies over decades; the policy continuity creates dominant flywheels. Conversely, the federal government continuously switches between the two major parties, so it is structurally impossible for the US to maintain a coherent, consistent foreign policy that compounds over decades, unlike China.
It's 19:14 here in Kyiv as I was recently reflecting on how great America really is and what it means to be American as we approach our 250th. Then, your article popped up and it made me miss home even more. The takeaway? Be an American, step up my game, create a niche, and find a way to come back.. Thank you for the inspiration.
Ukraine now has the very best military drone tech and strategy in the world. Get some best and brightest from there working for US drone companies or start one with them with US VC money. As military drone tech continues to advance, the US clearly needs defensive capabilities scaled to handle cheap drone swarms.
Superb analysis and argument. First past the post doesn't guarantee stability though. Here in the UK we've had FPTP as the sole means of determining Parliamentary representation since 1951. Our Prime Minister resigned today. Since the start of 2016 we've had six PMs (Cameron, May, Johnson, Truss, Sunak and Starmer) and are about to get our seventh (very likely, it currently seems, Burnham), probably in a month or so. That's no stability.
We completely agree with your assessment. The UK government has been particularly unstable since Brexit because the decision to leave the European Union has created severe structural economic headwinds. It is worth noting that David Cameron chose to hold the Brexit vote in the hopes of solidifying his power in Parliament and managing internal Conservative Party divisions; he calculated that voters would comfortably choose to remain (which would theoretically bolster his influence and settle the Europe question within his party). Instead, the gamble resulted in historic structural disruptions.
This sustained volatility in the UK makes us wonder if a US-style two-party system would be better for ensuring political and economic predictability. At the very least, there are no nationwide binding referendums in the US; this is a structural safeguard that protects the system from sudden populist shocks. Furthermore, the presence of smaller parties in Parliament, like Reform UK and the Green Party, has introduced further disarray in Westminster, complicating the legislative process and adding to the overall uncertainty.
Great pointer. The 1940 election is a striking one: FDR broke Washington's two-term precedent to win a third term, and the campaign was a target of documented foreign influence operations, with German and British agents running propaganda on US soil, from planted news stories to rigged opinion polls. Paul Starobin's "Fake News and Election Meddling—1940s style" (https://www.historynet.com/fake-news-1940s-style/) is a good overview, and a useful reminder that questions about election integrity long predate the 1990s. Thanks for adding the context.
Personally, I keep trying to decrease the US share in my portfolio mostly to keep it diversified. It is not easy, and for a good reason. Tech is outperforming and it is predominantly US based. The pro-business environment and shareholder value focus is hard to find somewhere else.
Where I am less convinced is the degree to which federalism alone explains U.S. outperformance. Deep capital markets, reserve-currency status, immigration, world-class universities and a culture that tolerates risk-taking have also mattered enormously.
One note on nuclear power in Germany. It is not the political system that 'stopped it', it was the electorate. The technology has been very unpopular for Germany for many decades and no one wanted to have the waste in their neighborhoods. That's the reason. The trigger and timing was the nuclear accident in Japan. It is neither the reason that energy prices are up; renewable is still cheaper where we are now at around 50% in the mix, especially after integrating the extreme long storage costs. That said, I agree though with the debate whether it was a good or bad decision but less for cost reasons and more future energy demand.
Congratulations on the strong performance of the US allocation within your portfolio.
"The pro-business environment and shareholder value focus is hard to find somewhere else. Where I am less convinced is the degree to which federalism alone explains U.S. outperformance. Deep capital markets, reserve-currency status, immigration, world-class universities and a culture that tolerates risk-taking have also mattered enormously."
We completely agree. Federalism is a crucial framework, but it acts as a force multiplier for those exact pillars. The point regarding immigration is particularly vital as an economic tailwind. Looking at the top companies by market capitalization globally, a disproportionate number, including Nvidia, Alphabet, Broadcom, Tesla, and SpaceX, feature immigrants or first-generation Americans on their founding teams.
Regarding the phase-out of German nuclear power, your observation about the electorate's prevailing sentiment is accurate. However, the core divergence between the US and Germany is how their political systems translate public unpopularity into policy.
The US constitutional framework is explicitly designed to limit the immediate influence of majoritarian sentiment. Mechanisms like the Senate, the filibuster, the Electoral College, and the Supreme Court create immense policy friction. While this prevents nationwide consensus on various social issues like abortion and gun control, it also insulates strategic economic engines from shifting public moods. A prime example is the US shale revolution; during the 2010s, hydraulic fracturing became highly unpopular among voters, yet the federal system's deliberate gridlock prevented sweeping national action to halt it, ultimately securing long-term energy independence.
Great post, I would add that another important factor is that the few things that the federal government needs to do has been effectively delegated to bureaucracies that manage these tasks independently, avoiding the bipartisan gridlock. Best example of that is the Fed, the federation would be worse off without a unique currency, partisanship would have wrecked the dollar, so everyone decided to just leave it to experienced economists, and everyone is better off as a result
This was great, though IMV a few of the explanations are more unicausal than they are in practice. Do you see a swing towards ‘more and greater federalism’ as the Presidency/Congress remain comparatively weak/unproductive, slash do you see state legislatures deepening their capacity as their effective relevance increases? Or do you largely view the status quo as a feature rather than a bug, with no especial structural solutions necessary?
The explanations are definitely more unicausal than they are in practice; this is to avoid turning a 30-minute article into a book.
To answer your questions: the answer is yes to both.
We anticipate states becoming the dominant drivers of policy and economic development, especially as gerrymandering exacerbates gridlock in Washington. The conservative Supreme Court has also consistently upheld state power and autonomy.
A highly united federal government might be theoretically optimal, but given current partisan antagonism, it is impossible. Thus, it is more effective to focus on what can be achieved under existing circumstances.
Hilarious and weirdly patriotic. God bless this fucked-up country, nowhere else compares
This is the most convincing version of the federalism-as-moat argument I've read. What I'd add from where I sit tracking India and other emerging markets at MarketMind is that this is precisely the structural advantage most EM economies lack. A country can have brilliant individual policy, but without credible commitment to multi-decade continuity at the sub-national level, the policy gets reversed before the compounding shows up. The US doesn't need its federal government to be competent, it needs fifty governments where enough of them stay competent long enough to compound.
Beyond attracting talent, an aspect of the SV non-compete secret sauce that outsiders sometimes miss is the rapid diffusion of "best practices" throughout SV due to constant job-hopping cross-pollinating knowledge across the industry. It's a place where people can switch tribes and take some of the tribal knowledge with them as they go. Yes, you can't take true intellectual property EG actual lines of code with you, but you can take the high level knowledge that "this general tech stack and architecture is useful for solving problems like this" or even the more basic insight of "this is a problem that is very solvable with tooling/software that is widely available today."
Having worked both in and outside of SV I am sometimes stunned by the extent to which more legacy business just continue to deal with basic operational business problems for which cost-effective off-the-shelf solutions already fully exist, or continue to stick with legacy solution providers that have plainly and self-evidently already been outclassed/disrupted by new entrants... Microsoft Teams in 2026 for example.
And yes, the line between "best practices" and true "intellectual property" is sometimes fuzzy and difficult to litigate which... is probably good, actually, in the sense that it injects just the right amount of socialism into the concept of intellectual "property" in the first place. IP is ultimately a rent-seeking and thus growth-impairing mechanism. We need it to exist to establish profit motive in the first place but tempering it with the soft diffusion of best practices across your competitors is probably the ideal balance to strike.
Thank you for your contribution. You're absolutely right about the rapid diffusion of best practices throughout Silicon Valley due to constant job-hopping cross-pollinating knowledge across the industry. This mobility is undeniably a core engine of the region's broader success; it ensures that the most efficient operational frameworks and tooling stacks naturally rise to the top, preventing modern technology companies from stagnating like legacy businesses.
Your observation highlights exactly why building within such a dynamic ecosystem is an advantage for organizations that know how to capture that diffused knowledge efficiently.
One question to ask: does this weak federal government make for stronger domestic economic policy, but worse international policy?
Yes. States dominated by a single party allow that ruling faction to compound their economic policies over decades; the policy continuity creates dominant flywheels. Conversely, the federal government continuously switches between the two major parties, so it is structurally impossible for the US to maintain a coherent, consistent foreign policy that compounds over decades, unlike China.
It's 19:14 here in Kyiv as I was recently reflecting on how great America really is and what it means to be American as we approach our 250th. Then, your article popped up and it made me miss home even more. The takeaway? Be an American, step up my game, create a niche, and find a way to come back.. Thank you for the inspiration.
Ukraine now has the very best military drone tech and strategy in the world. Get some best and brightest from there working for US drone companies or start one with them with US VC money. As military drone tech continues to advance, the US clearly needs defensive capabilities scaled to handle cheap drone swarms.
Unfortunately that ship sailed at least two years ago. Already being done or in the works. One of my friends here runs the main VC
Sounds like a good place to have a friend!
Superb analysis and argument. First past the post doesn't guarantee stability though. Here in the UK we've had FPTP as the sole means of determining Parliamentary representation since 1951. Our Prime Minister resigned today. Since the start of 2016 we've had six PMs (Cameron, May, Johnson, Truss, Sunak and Starmer) and are about to get our seventh (very likely, it currently seems, Burnham), probably in a month or so. That's no stability.
We completely agree with your assessment. The UK government has been particularly unstable since Brexit because the decision to leave the European Union has created severe structural economic headwinds. It is worth noting that David Cameron chose to hold the Brexit vote in the hopes of solidifying his power in Parliament and managing internal Conservative Party divisions; he calculated that voters would comfortably choose to remain (which would theoretically bolster his influence and settle the Europe question within his party). Instead, the gamble resulted in historic structural disruptions.
This sustained volatility in the UK makes us wonder if a US-style two-party system would be better for ensuring political and economic predictability. At the very least, there are no nationwide binding referendums in the US; this is a structural safeguard that protects the system from sudden populist shocks. Furthermore, the presence of smaller parties in Parliament, like Reform UK and the Green Party, has introduced further disarray in Westminster, complicating the legislative process and adding to the overall uncertainty.
Great piece, thanks for sharing
>Starting around the same time that US elections became “fake” in the 1990s, the US went from having similar per-capita output
If you really want to have your mind blown take a look at the election of 1940.
Great pointer. The 1940 election is a striking one: FDR broke Washington's two-term precedent to win a third term, and the campaign was a target of documented foreign influence operations, with German and British agents running propaganda on US soil, from planted news stories to rigged opinion polls. Paul Starobin's "Fake News and Election Meddling—1940s style" (https://www.historynet.com/fake-news-1940s-style/) is a good overview, and a useful reminder that questions about election integrity long predate the 1990s. Thanks for adding the context.
Consider the fact that Wendall Wilkie was a new deal democrat just 6 months before the republican convention.
Thank god man, thank you for this piece. So much of what I read is asinine bullshit and cultural gossip but this actually real.
Incredible read. I’ve never heard this argument so well crafted. Thank you for taking the time to write and for sharing.
Glad i didnt miss this, very well crafted arguments as always
Interesting perspective.
Personally, I keep trying to decrease the US share in my portfolio mostly to keep it diversified. It is not easy, and for a good reason. Tech is outperforming and it is predominantly US based. The pro-business environment and shareholder value focus is hard to find somewhere else.
Where I am less convinced is the degree to which federalism alone explains U.S. outperformance. Deep capital markets, reserve-currency status, immigration, world-class universities and a culture that tolerates risk-taking have also mattered enormously.
One note on nuclear power in Germany. It is not the political system that 'stopped it', it was the electorate. The technology has been very unpopular for Germany for many decades and no one wanted to have the waste in their neighborhoods. That's the reason. The trigger and timing was the nuclear accident in Japan. It is neither the reason that energy prices are up; renewable is still cheaper where we are now at around 50% in the mix, especially after integrating the extreme long storage costs. That said, I agree though with the debate whether it was a good or bad decision but less for cost reasons and more future energy demand.
Congratulations on the strong performance of the US allocation within your portfolio.
"The pro-business environment and shareholder value focus is hard to find somewhere else. Where I am less convinced is the degree to which federalism alone explains U.S. outperformance. Deep capital markets, reserve-currency status, immigration, world-class universities and a culture that tolerates risk-taking have also mattered enormously."
We completely agree. Federalism is a crucial framework, but it acts as a force multiplier for those exact pillars. The point regarding immigration is particularly vital as an economic tailwind. Looking at the top companies by market capitalization globally, a disproportionate number, including Nvidia, Alphabet, Broadcom, Tesla, and SpaceX, feature immigrants or first-generation Americans on their founding teams.
Regarding the phase-out of German nuclear power, your observation about the electorate's prevailing sentiment is accurate. However, the core divergence between the US and Germany is how their political systems translate public unpopularity into policy.
The US constitutional framework is explicitly designed to limit the immediate influence of majoritarian sentiment. Mechanisms like the Senate, the filibuster, the Electoral College, and the Supreme Court create immense policy friction. While this prevents nationwide consensus on various social issues like abortion and gun control, it also insulates strategic economic engines from shifting public moods. A prime example is the US shale revolution; during the 2010s, hydraulic fracturing became highly unpopular among voters, yet the federal system's deliberate gridlock prevented sweeping national action to halt it, ultimately securing long-term energy independence.
Thank you for the additional clarification around the constitutional framework and its impact on exceptionalism.
Great post, I would add that another important factor is that the few things that the federal government needs to do has been effectively delegated to bureaucracies that manage these tasks independently, avoiding the bipartisan gridlock. Best example of that is the Fed, the federation would be worse off without a unique currency, partisanship would have wrecked the dollar, so everyone decided to just leave it to experienced economists, and everyone is better off as a result
This was great, though IMV a few of the explanations are more unicausal than they are in practice. Do you see a swing towards ‘more and greater federalism’ as the Presidency/Congress remain comparatively weak/unproductive, slash do you see state legislatures deepening their capacity as their effective relevance increases? Or do you largely view the status quo as a feature rather than a bug, with no especial structural solutions necessary?
The explanations are definitely more unicausal than they are in practice; this is to avoid turning a 30-minute article into a book.
To answer your questions: the answer is yes to both.
We anticipate states becoming the dominant drivers of policy and economic development, especially as gerrymandering exacerbates gridlock in Washington. The conservative Supreme Court has also consistently upheld state power and autonomy.
Regarding the status quo, we approach political realities the same way we approach markets, by playing the cards we are dealt: https://blog.inverteum.com/p/trading-sailgp
A highly united federal government might be theoretically optimal, but given current partisan antagonism, it is impossible. Thus, it is more effective to focus on what can be achieved under existing circumstances.
Yeah I think that’s well-framed and makes sense.
One of the best reads I’ve had in a long time.
Excellent article!
As a non-american I have one tiny advice: DO NOT BET AGAINST AMERICA…