“It takes a lot of effort to ruin a network”he once observed Adam Smith.
Okay, it was actually “nation,” not “network”; he was assuring a fellow countryman that a British defeat at the hands of American revolutionaries would not destroy his country’s future. But both his original version and my update seem relevant today, in part because Smith was careful not to say unlimited ruin.
And we may be seeing in real time what happens when the level of ruin of a network – specifically Xbefore Twitter– reaches the tipping point at which the building implodes.
By network I mean a social structure held together by what economists call network externalitiesthat is, situations in which people find it convenient to carry out an activity because many other people do the same thing. I don’t know anyone who loves Excel, but companies still use it heavily because everyone uses it.
A less mundane example – in fact, one wrapped in a lot of mystical thinking – is the international role of the dollar.
I have spent more or less my entire professional career being bombarded with dire warnings that the global status of the dollar was at imminent risk of collapse, and with it American power. Even if such a collapse were likely, it would matter much less than people think; The United States certainly gains some advantages from what was once called the “exorbitant privilege” of issuing the world’s dominant currency, but they are not that great.
In any case, predictions about the dollar’s demise tend not to appreciate the extent to which the role of the dollar is the result of network externalities that no potential rival offers. International banks make payments in dollars because dollar markets are huge, largely because the dollar is widely used. Importers and exporters sign contracts in dollars because everyone else does, and they maintain dollar balances to make those payments. And so on.
Forty years ago, I wrote an article about how these network effects would make it difficult for the dollar to move, despite widespread predictions of its demise at the time. In the years since then, alarming news emerges from time to time, such as that Saudi Arabia could accept oil payments in Chinese currencywhich some interpret it as the beginning of the end of the dollar. But all those stories are marginal compared to the enormous advantage of the dollar.
Still, it wouldn’t be impossible for the dollar to lose its mojo if the U.S. government behaved badly enough.
Imagine the United States suffering from extreme economic mismanagement leading to very high inflation. Imagine a major erosion of the rule of law in our country, with politically connected companies gaining the upper hand in all sectors.
If either or both of these things were to happen, it’s not hard to see how the dollar could lose its special status: Yes, The dollar’s strength lies in its ubiquity, but also in the perceived stability of the nation that issues it.. And these scenarios sound much more possible now than they did a few years ago. But although I hope Donald Trump takes us down the path of crony capitalism, not even I believe it is about to destroy the dollar as a brand.
X may be a different story.
Before Elon MuskTwitter was the place where people in my business had to be. I know that each person used it for different purposes: I have nothing against Katy Perry, but not all of her almost 106 million followers are on social networks for the same reasons as me. I used Twitter to learn and interact with really expert people, sometimes in areas I know quite well, sometimes in areas I don’t, like international relations and climate policy.
I’m not going to go over the litany of ways in which the platform has changed for the worse under Musk’s leadershipbut from my point of view it has become basically unusable, overrun by bots, trolls, maniacs and extremists.
But where to go instead? In the last two years there have been several attempts to promote alternatives to X, but none of them have really caught on. To some extent, this may have reflected flaws in their designs, but much of it was simply due to a lack of critical mass: There weren’t enough people to interact with at the alternative sites.
Then came this year’s presidential election, which appears to have sparked an exodus (“Exodus?”) from Muskland. From my point of view, Bluesky, in particular – a site that functions much like pre-Musk Twitter – has suddenly reached a critical massin the sense that most of the people I want to hear from are posting there. The raw number of users is still much lower than that of X, but from what I see, Bluesky is now the place to find smart and useful analytics.
And yes, most of the new Bluesky posters I find useful are liberal, but that reflects the anti-intellectualism of the modern right more than political bias on the site’s part.
I have no idea what this means for X’s finances, and I don’t care. What I see is that you can ruin a network if you try hard enough. And it’s starting to look like Musk has achieved it.
