Sovereign Investors & Geopolitical Traders
Political arbitrage, true sovereigns, and tradeoffs of democracy
This is the third installment of a series on the game theory of democracy. Part I establishes the logic, dominant strategies, and tradeoffs of democracies over time. Part II takes the concepts in Part I and reviews their empirical manifestations and real-life strategic applications. And Part III examines the geopolitical impacts of democratic timelines and its decision making.
Part II: Gain Dependents, Gain Power
Introduction
Political summits like these are predominantly acts of pageantry, diplomatic theater and photoshoot opportunities. WWE for the credentialed. The goal is to signal friendliness and stroke egos. Participants tacitly know nothing will be agreed upon that can't be reversed with a bad mood and a tweet, yet we perform the decorous ritual as a kind of minimal viable politeness. One of the more uniquely hollow exhibitions is when Russia or China hold flamboyant “deal-making” events with the US.
The only two credible counterweights to US unipolarity need to exhibit just enough diplomatic genuflection to avoid insulting American sensibilities, then return to whatever multi-decade strategy that was already in motion. Every handshake is rehearsed, every 'breakthrough' pre-scripted, every joint statement a masterpiece of saying little with great solemnity. The US doesn’t demand you listen, just that you be tasteful while ignoring it.
When Putin sits across from a US president, he's playing nice with that particular administration's temporary interpretation of American interests. He knows US agreements have a shelf life measured in electoral cycles, whereas Chinese ones are measured in dynastic potential.
Russia, China, and the US are all genuine sovereigns that exist on vastly different timelines, on account of how they’re governed. China and Russia are capable of making commitments to each other, the US mostly is not.
Putin has outlasted Bush's 'soul-gazing', Obama's 'reset button', Trump's Helsinki overture, and Biden's deeply confused 1,000-yard stare. He understands whatever promises a president makes can evaporate with news cycles.
This is how geopolitical game theory looks when one side can invest and the other can only trade.
Investors & Day Traders
In markets, investors rarely disagree on core facts - rather there’s differing beliefs on which facts are relevant. Competing emphasis on disparate facts are what happen when you have two different moral languages speaking past each other in the political domain, and two different temporal languages speaking past each other in the strategic. There are no right or wrong fact bundles, just unrelated values and/or timelines that implicitly disclose how far into the future someone’s looking. This communicates strategic priorities and incentives.
A decent finance heuristic: any portfolio position with a holding period under a year reveals a trader’s outlook. They’re likely allocating around a particular event or anticipating what others will do and trying to do it first. They’re hunting for a specific catalyst that will move charts, at which point they’ll sell and move on. They're not investing for value, rather trading around price.
If the intended holding period is beyond a year, you begin to enter the mindset of the investor. The nature of the thinking recalibrates towards financials and growth of the business - examining cash flow statements, industry-level developments, etc.. They're not trading around a price, they’re investing for value creation. As value is made, the score takes care of itself.
One of these dispositions demonstrates high time preference and is reacting to herd behavior; the other exhibits low time preference and is independently homed in on business success. To one, the stock represents a company they want to see fundamentally improve. To the other, the stock represents a series of letters and a price they expect to change X% by Y date due to Z catalyst.
In markets, the information these two mentalities metabolize and how they allocate capital won’t necessarily conflict, they’re just speaking past each other. What the trader touts will be noise to the investor, and vice versa. This concept is not exclusive to finance. You observe it in people’s impulse control, priorities, politics, how they plan for the future, and also how Russia and China engage the US.
The investor/trader dichotomy is apparent between the family office managing a multi-generational trust and a Reddit forum chasing meme stocks. To see it at national scale, we only need to recalibrate the duration of what a trading vs an investing mindset resembles.
An investing country plans in decades, a trading country thinks in election cycles. One is building a legacy, the other is hunting for a catalyst. Their priorities, motivations, and conceptions of value are incommensurable. The investor doesn’t concern himself with the metrics of the trader.
These “discussions” are like watching a chess player engage a poker pro; one calculates territorial endgame, the other for “next hand” headlines. The timelines are different because the incentives are. Show me the incentives, and I’ll show you the outcomes. A democracy and its political selection effects do not incentivize for grand objectives.
As such, there's not much reason to bargain beyond a couple years with Washington if you're an authentically self-directed nation.
Not every country can act as a purely agentic investor. To do so, they must be a true sovereign.
Sovereignty Calculus
The traits of a genuine sovereign:
Unilateral capacity to wage and sustain offensive war without anyone’s approval
Unilateral ability to defend its territory by itself, needing no external authorization
Issues its own currency backed by a substantive economy. A currency functionally derives its value from being a claim on the resources of the issuing country; the greater the economy, the more valuable and in demand those claims are.
Why are these the criteria? Because this is what’s required to make undoubtedly autonomous national and geopolitical decisions. If a country possesses these traits, it’s as sovereign as we know.
Consider the alternatives:
How self-determining is a nation that requires aid to defend itself?
How independent is a country whose currency is pegged to another's whims?
How powerful is a state that needs permission to act?
To ask the question is to answer it.
Projection and Porcupines
Nuclear weapons are a necessary, but not sufficient, condition for unqualified sovereignty.
Nukes provide a partial sovereignty floor — a nation that possesses them can't be totally conquered — but offers no power-projection sovereignty ceiling. For example: Pakistan is less of a sovereign than non-nuclear nations with massive conventional forces that can actually be used. A nuke without noteworthy standard forces is like owning a sword you can’t unsheathe - intimidating to hold but with no offensive capacity. They are endgame options, not tactical national-interest tools.
Nukes are nation-sized suicide vests. You can't capture territory with them, can't enforce a blockade, can't even credibly threaten a neighbor without risking global intervention. All they do is make sure someone cannot eliminate you, because then they’d eliminate themselves. They alter the calculus of how conflict manifests; this is further deconstructed in War Is How a Nation Eats.
North Korea resides in this purgatory: nuclear-armed but economically prostrate, lethal enough to resist but not to impose. Nations like these are not truly sovereign, they’re preventively feral. Not leashable, not offensively dangerous, just inconvenient to swat. North Korea is a spam folder with missiles. Iran, should it ever get a nuke, will still be a bounded siege economy fueled by grievance, barter, and oil. Their capacity to shape history is derivative, not generative. They’re the geopolitical equivalent of a porcupine: unpleasant to swallow but incapable of hunting.
Saudi Arabia presents the inverse case: swimming in wealth, buying cutting-edge weaponry, yet requiring Pakistani troops to guard its holy sites and American contractors to maintain its F-15s. Independence isn’t for lease, it’s either owned or absent.
The sovereignty gradient reveals itself most starkly in proxy conflicts, aka when you can get others to fight your wars for you. Ukraine discovered that being democracy's darling means receiving enough weapons to not die, but not enough to win; a Goldilocks zone of suffering calibrated to avoid nuclear escalation while maintaining sufficient prime-time headlines so the Lindsey Grahams of the world can get their talking points. I’m sure Taiwan sees this, though unlike other proxy playgrounds like Afghanistan and Syria, what resides in Taiwan is categorically worth waging a major war.
NATO members are quasi vassals - outsourcing their defense, and thus independence, to the US military. A Faustian bargain that trades agency for the luxury of funding welfare states. They're self-directed like a trust fund kid is self-funded. Israel is completely reliant on Washington’s charity and weaponry to go on the aggression. Japan and South Korea can wage war… so long as the US gives its blessing and firepower. These nations are sovereign in the way a teenager with his parent’s credit card is financially independent.
India is an interesting one. It’s working towards military sovereignty while maintaining economic autonomy and a GDP that’s currently 4th in the world, likely to be 3rd place within the decade. It may eventually become a fourth bona fide sovereign, maybe.
Only three genuine sovereigns exist: China, Russia, and the US.
Why?
None of them have to consult anyone over geopolitical business that is not a direct incursion against each other
The only country that has a chance of defeating any of these nations in serious combat is one of these three.
They can, and do, invade other countries while asking for no one’s permission.
They have complete control over their domestic defense, relying on nobody to back them up to do so.
They all have credible aspirations of expanding their territories, should they want to - Taiwan, Ukraine, and Greenland know this too well.
They are certified financial sovereigns and issue their own unpegged currencies, backed by substantial economies.
This is what authoritative geopolitical power looks like. Right now, no other nations can make these claims.
Commitment
Negotiation requires commitment. Commitment demands promises. Promises only meaningfully manifest over extended timelines.
The United States is structurally incapable of commitment, on account of its governance.
US Executive, Senate, and Congress control shifts every 4-8 years, and strategic orientations along with it. The Iran deal lasted one administration; a diplomatic one-night stand that masqueraded as a marriage. The Paris Accord: in, out, in… super serious stuff! Even NATO guarantees are now within the Overton range of "obsolete" and "sacred", depending on which elderly gentleman occupies the Oval Office. What dissolved these “long-term commitments”? Leadership changes. The last guy liked them, the next guy wasn’t a fan.
Treaties officially need 67 senate votes to pass; a quaint threshold that made sense when senators could agree the sun rises in the east. Executive orders die with each administration. US international agreements have the binding force of a geopolitical drunk text.
Fun fact: In 1986, 98 senators confirmed Antonin Scalia to the Supreme Court. The other two? Absent that day! This is what nonpartisan cohesion and competent, functioning governance looks like. It used to exist in the US, it has not always been this obnoxiously toxic. Today, a nominee’s high school yearbook is grounds for national trauma and if the president’s party doesn’t have a Senate majority that nominee isn’t getting through. The arc of democratic governance bends toward spectacle, not strategy. Our adversaries see this.
China, pragmatic players of the ultimate long game, observed this pattern and adapted accordingly. When they "agreed" to intellectual property protections during WTO accession, they knew enforcement would oscillate with American political seasons. Steal during administrations focused on tax cuts and/or domestic gender studies, then back off during ones focused on multilateralism and trade deficits. They treated agreements like suggestions, knowing America's response would get a reset every four years.
In the 1994 Budapest Memorandum the US, UK, and Russia all provided security assurances for Ukraine's territorial integrity in exchange for nuclear disarmament. Ukraine kept its end, giving up the world's third-largest nuclear arsenal. Then Russia took Crimea, and now it’s in the process of subsuming the whole thing. America sent strongly worded letters and sanctions that Russia had already priced in.
The US is certainly helping Ukraine with weapons and defense, however that support is waning; the public grows weary of “another $50B to Ukraine” headlines. Do you think voters are factoring in the 30-year-old Budapest Memorandum? Did anyone vote for that? Will citing that help your polling numbers? Ha. American security guarantees can fluctuate with the winds of willingness and trends. The common man cares not for the Budapest Memorandum, and he’s responsible for the politician put in place who decides whether to adhere to it or abandon it.
Russia sees a Ukraine with no more sovereignty floor, and American resolve as a temporary obstacle it can outlast. So, it acts. As sovereigns are known to do.
This inability to persistently commit creates a perverted structure where America's adversaries are rewarded for patience while its allies can be punished for trust. Every Ukrainian soldier who dies defending territory they denuclearized on US promises is a walking advertisement for why you should never, ever give up your minimum-viable-sovereignty on account of anyone’s good intentions. North Korea and Iran understand this.
Sovereign Investment, Geopolitical Trading
Russian and Chinese regimes manage their interests and strategies as investors, concentrated on country fundamentals with 20-year timelines. America is a lines-on-a-chart democratic day trader who only sees about 18 months into the future, whenever the next WWE Royal Rumble big election is.
One exhibits impulse control, the other is encouraged to let its impulses take control. Show me the incentives and I’ll show you the outcomes.
Examples:
China's Belt and Road Initiative is a one big mortgage on the developing world's infrastructure. When Sri Lanka couldn't pay its loans, China took their port on a 99-year lease (the same duration of Britain's New Territories lease on Hong Kong, how poetic).
In Montenegro, Chinese loans nearly created economic collapse; with payments exceeding over a third of the government’s entire budget.
They enticed Laos into a similar crushing debt cycle.
This is how a multi-decade geopolitical investor practices his craft.
China’s not building infrastructure in other countries for next quarter's political earnings call; they're thinking of their grandchildren's strategic positioning. Meanwhile, America can't agree on an infrastructure bill for its own bridges without government shutdowns.
Russia plays the energy card with Europe knowing that democratic volatility means eventually someone will cave when their constituency shows disinterest. They watched Germany shut down nuclear plants as the “green things and kindness” party (I assume that’s their name) forced them to become dependent on Russian gas, because apparently that’s a “green” thing to do. Russia’s multi-decade investment in European energy dependence paid off handsomely. Investor grindset.
By their nature, democratic elections necessarily produce leaders who promote short-term comforts and soundbites over long-term strategic goals; the common man is concerned with what you can do for him right now, not the delayed gratification of your ten-year plan. Schröder, Merkel, Scholz: each one inched deeper into the bear hug knowing voters cared more about heating bills than Ukrainian independence. You gotta give the people what they want, that’s how you keep your job as a democratic politician.
In 2016, the Permanent Court of Arbitration (PCA) in The Hague ruled overwhelmingly against China's claims in the South China Sea. China rejected the ruling, calling it "null and void” and kept building - a foreign court does not dictate to a sovereign. The term “international law” essentially means “the law of the military hegemon and their willingness to physically enforce it”. No enforcement? That’s a suggestion my friends. Your suggestion is duly noted.
China went on to build artificial islands knowing America would object, protest, sail some ships through, then get distracted. By the time the US circled back, the islands had airports. Today those islands are military bases, and America is debating West Point diversity metrics: investing vs trading.
The investor’s mentality is witnessed in Africa. China builds infrastructure with colonial patience and colonial outcomes, but sweeter optics. They don't care who's in power; they care about access to copper mines in 2074. These are essentially forward contracts on geopolitical leverage, collateralized by concrete.
China is building a network of strategic dependencies that compound over decades; the difference between owning a toll booth or controlling the highway. Ports that control chokepoints, railways that redirect commerce. You either repay China with interest, or it foreclosures on your critical infrastructure: sounds like a win-win if you’re Beijing. Not all annexations use tanks.
America shows up every four years with a new multicultural-themed Africa strategy that lasts until the next administration decides Ghana isn’t polling well. Only one of these approaches earns you lithium deposits without launching a land invasion.
Punishing Kingdoms
The US deploys a sanctions model that’s more like a timeout, or scolding, when applied to sovereign peers.
Russia has been under some form of Washington sanction since 2014. Their economy has adapted, pivoted eastward, and learned to survive in the shadows of the global financial system. Each new package announced with fanfare in Washington is absorbed with a shrug in Moscow. Russia knows sanctions fatigue is real, enforcement is inconsistent, and a future American administration will eventually need their cooperation on something — Iran, North Korea, space station maintenance, nuclear terrorism — and the timeout will quietly erode.
The miscalculation is assuming economic discomfort translates to political capitulation. For a sovereign, it can have the opposite effect: fostering a 'fortress economy' mentality, consolidating power around the state, and worn as a badge of honor against ‘foreign aggression’. The pain can be real, but the intended outcomes often aren’t. Sanctions represent irritants to authentic sovereigns; they can cripple Iran, not China or Russia.
When the West ejected Russia from SWIFT in 2022, rather than financial collapse it accelerated de-dollarization and parallel payment networks. By 2024, Russia and China's trade in yuan increased some 2,000% and over one-third of Russian trade was conducted in yuan. India buys Russian oil in rupees, and recently allowed special Russian investment in Indian debt from their oil sales. A bunch of small tweaks and shifts end up creating a whole new way for capital to flow without US supervision.
On aside, it’s suspected that Russia might be the only country on earth that could be completely resource, energy, and agriculturally self-sufficient if it had to. Technologically it would suffer, but for the basics it could likely manage. It’s difficult to definitively know that, but this is the kind of scale of resolute autonomy we’re talking about here. It’s extremely hard to punish a country like this. Also Russians are historically capable at handling suffering.
The financial 'nuclear option' galvanized adversaries to build around US rails. When you sanction a legitimate sovereign, it can act as a vaccine that makes the target more resistant to the next dose.
American Investing
American geopolitical investing is not impossible, merely improbable. Things like Roosevelt’s wartime management and the global architecture that followed World War II show the US can be a very talented long-term thinker when it chooses to be. However, these were not democratic decisions, but a result of quasi-autocratic leverage: winning wars and deeply insulated institutions.
FDR ruled like a wartime CEO with a four-term mandate. The war gave him discretionary powers peacetime wouldn’t have permitted. The New Deal was a central economic plan imposed by executive fiat under the pretext of emergency. Roosevelt got things done by treating the electorate like shareholders who needed steady quarterly confidence while he managed the hard stuff internally.
Bretton Woods, the UN, IMF, and the postwar global order weren’t hashed out in democratic debate, but drafted by hand-picked elites like John Maynard Keynes and Harry Dexter White, operating behind velvet curtains.
Postwar containment — perhaps the most-impactful commitment in US history — was sustained not through democratic consensus but bureaucratic inertia. The national security state created in the 1940s was engineered explicitly to survive political rotation (some unsavory brutes refer to this as the “Deep State”). The CIA, NSA, Alphabet Soup, and State Department were all fortified against the volatility of electoral turnover, because that’s how you get things done.
Fun fact: the petrodollar, the agreement the US made with Saudia Arabia where they’d provide military defense in exchange for denominating and selling their oil in USD, was made in a handshake side deal during the Nixon administration. Nothing formal was passed through democratic means and Congress never sanctioned it.
The petrodollar is kind of its own insulated military institution, generating material demand for USD and helping sustain American trade deficits. This oligarchical decision has sustained resolute commitment over decades, because it’s so gosh darn helpful for us! We’re pretty good at committing to things if they’re really, really in our self-interest.
How these institutions operate isn’t debated in town halls, but crafted by elite policy mandarins existing outside the approval of the unwashed masses; who are mostly completely unaware of what these institutions even do. That’s why containment and commitment lasted, because it didn’t require your neighbor’s opinion every four years.
These exceptions prove the rule. America can invest like a sovereign when it routes around its own internal trading noise, ceasing to be a true democracy and kinda sorta behaving like an oligarchy in the process.
When existential stakes are high enough to override voter sentiment, or when institutions are deliberately cordoned off from popular-vote meddling, commitment becomes possible. But absent these exceptions, the structure reverts and the Yankee day trader takes the reigns.
Concluding
US governance has many positives. We all ultimately vote with our feet, and I vote to live here over most other countries. But keep in mind tradeoffs are embedded in all frameworks. Transience is a foundational feature of “every vote counts the same” democracy, for better and worse. Also keep in mind… America is a young country.
There isn’t some massive, robust history to point to regarding how this empire and its methods have persisted beyond history’s well-known cycles. Spend some time in Europe, you’ll feel the multi-multi-century age differences. 250 years is a whopping three human lifecycles. Just, you know, keep that in mind if you think it’s worked so far, so it’ll work forever.
The core of American democracy — designed primarily to thwart authoritarianism and political violence through regular rotation of power — also prevents strategic consistency and durable decisions. The Founders built a system to stop kings, and in doing so inadvertently built one that can't play chess against kingdoms.
America rotates presidents at roughly the same rate as a call center manager. Putin has served under five US presidents. Xi has dealt with eight throughout his political career. I bet their internal memos list the US president they’ll be speaking to as *INSERT NAME*.
Democratic societies optimize for different values: mostly greater degrees of expression and political representation. However the frequency of these electoral expressions devolves into liability when facing adversaries who don’t need to check Gallup polls to see what their opinions and priorities should be that week.
Embedded in every decision of consequence is a tradeoff of some kind. You cannot make the same trade forever and expect to have an advantage; this applies to any domain in life. Markets simply paint the clearest numerical picture of it, and give the swiftest feedback, when the trade stops working.
Democracies swap calculated consistency for inclusiveness, long-term planning for public accountability, and competence for whoever’s most popular. Monarchy tends to present the inverse of these strengths and weaknesses. A democratic framework is a populist one, the only real difference is whether you support the outcome of the vote. They are synonymous when you strip away ideological veneers. Democracy = I like the outcome; Populism = I do not like the outcome.
The other true sovereigns function as patient monarchies, and have learned the rhythm of American populist volatility. They know you don’t make telescopic deals with the US and expect them to stick to it. You perform with it, dance with it, flatter, and never mistake a temporary position for permanent policy. Let it exhaust itself with internal arguments while quietly building the world you want your descendants to inherit.
American democracy, designed to prevent the concentration of power domestically, must now compete against nations wielding that concentrated power internationally. Our methods to stop tyrants at home struggles to engage them abroad.
The nature of equilibrium accounting means any pronounced strength in one domain results in a corresponding weakness in another. The Founders' greatest success for the homeland has a commensurate vulnerability outside of it. They weren’t wrong about tyranny, they simply had to decide which form of tyranny to defend against, and which tradeoff they preferred. Show me the incentives, and I’ll show you the outcomes.
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