The Macro Implications of the Blue Tsunami

Skanda Amarnath · Employ America

Data center buildout will be shaped more by economics than politics, as markets reward capital efficiency over raw capex.

After OpenAI changed its data center approach following local outcry, Skanda argues economics will matter more than politics for the buildout. He sees early signs that markets are not always rewarding more capex and are instead rewarding capital efficiency. He points to Anthropic's S-1 filing, the first he has seen from a frontier lab, as a sign that investors are scrutinizing the cost and risk of frontier spending. He asks whether capex is a burden or whether labs keep greenlighting it just because it advances the frontier.

“I suspect what will matter most there is economics more than the politics.”at 16:46

Skanda Amarnath · Employ America

Data center siting is getting harder as leading build states now have Democratic governors and the politics turned toxic.

Most power-related data center construction is decided at the state and local level, not federally. Texas, Georgia, Pennsylvania, Ohio, Virginia and Wisconsin, the leading states for data center construction, now have Democratic governors, and a single party controlling five or six of them makes coordinated policy easier. Blue states used to offer data center tax breaks, but the issue has been politically toxic for about the past twelve months. Even pro-data-center governors such as Shapiro and Abbott have had to pivot, which shows the policy environment has changed and changes how easy it is to do business.

“You have, like, you take, like, five or six governors and they all are of the same party, you could presumably even coordinate their own efforts if they really wanted to. That sort of changes, like, how easy it is to kinda do business.”at 17:23

Skanda Amarnath · Employ America

The Senate's state-based structure gives Republicans a durable advantage, though Democrats now have a path to compete.

The Senate allocates two seats per state regardless of population, which gives Republicans a structural advantage, since many small, rural states lean their way. That matters because the Senate confirms Supreme Court and Fed nominees. Skanda thinks this Democratic win could be a one-off, but the wins in states like South Carolina and Mississippi show Democrats can compete more sustainably. Senate terms are six years, so the result tilts the map for four to six years and affects later cycles.

“For a long time, there's been a pretty structural advantage for the GOP. In the senate.”at 4:47

Skanda Amarnath · Employ America

Congress checking presidential tariff power needs Republican defections from farm states, which is only a tail scenario.

Tariffs are being imposed purely by executive order, so Congress would need to act to constrain them. Farm states bear many of the costs of tariffs, so some Republicans from those states might defect. However, that would require pulling off a substantial set of Republican senators to work with Democrats against the president. Skanda calls this a tail scenario, though he expects Democrats to campaign on tariffs raising costs.

“But tariffs are being pushed through now purely by executive orders. So how much power does anyone else have to change that?”at 8:12

Skanda Amarnath · Employ America

Texas's pro-business reputation is more fragile than corporate America assumes, since political conditions can change.

Texas created a new business court to compete with Delaware, and Musk reportedly moved partly for that reason. Democrats won all statewide races, which Skanda calls the most underrated surprise. Corporate America had treated Texas as the perfect business environment, but political conditions can change. Voters in California also rejected a wealth tax, and the state's ban on future wealth taxes shows how much policy can swing with elections.

“Texas is the perfect business environment. It's like, well, political conditions can change.”at 12:36

Skanda Amarnath · Employ America

Big Tech's ad business now looks more like heavy industry, as capex arms-race spending squeezes returns.

The hyperscalers are in an arms race in which they feel they have to keep spending on AI infrastructure. Skanda argues that ads, once the best business model in the world, now look more like an industrial business because of the heavy capital needs. He ties this to a shift in the market, in which hyperscalers moved from funding capex with cash to borrowing in bond markets, and some, like Oracle, are now issuing equity. He treats capex as a real cost that shows up in depreciation and amortization even if it is not in EBITDA.

“We were all spending in some level of an arms race gear. Do we have to keep spending? What was once the best business model in the world, ads, is now one that looks a lot more like an industrial.”at 20:12

Skanda Amarnath · Employ America

A Powell vacancy would likely go unfilled through 2028 because a Democratic Senate can block the nominee.

Confirmation is far easier when the Senate is controlled by the president's party, since own-party nominees get less scrutiny. With Democrats now controlling the Senate, a Trump nominee would have to get through many Democratic veto points. Skanda thinks that math makes filling Powell's seat before his term ends in early 2028 very hard, so the seat probably won't get filled. He adds that the Fed board is less partisan than the Supreme Court, with Waller and Jefferson still voting in the same direction. Still, a president who is vocal about steering policy adds friction to influencing it.

“I think it's going be really hard to fulfill that by the end of the term because you're going to have to get through a lot of Democratic veto gates of sorts.”at 22:12

Skanda Amarnath · Employ America

A cooling in AI capex would soften the economy, but history suggests nothing will quickly offset it.

AI-sensitive segments (tech hardware, tech software, industrial equipment) now make up close to 8% of GDP. Spending by these firms shows up on US income statements and balance sheets, so it dictates the cycle. If AI capex falls, the economy softens and rates may fall. The non-AI economy is fine but not strong, and housing is still weak. Skanda is skeptical of a smooth offset because AI spending tends to be binary, switching on or off, and history suggests a housing boom or other sector would not quickly pick up the slack. So there is no countercyclical cushion.

“If you have less AI CapEx, you will have maybe a softer economy, lower interest rates.”at 30:46

Skanda Amarnath · Employ America

Hormuz disruption and refining constraints have pushed jet fuel prices sharply higher, lifting airfares.

The strain from the Hormuz closure and refining capacity problems, which may also be linked to the Russia-Ukraine conflict, has sharply raised jet fuel prices. Airfares have risen considerably as a result. Services inflation looks hot because airfares are sensitive to energy, not because of the labor market. Diesel prices are also very high. Their effect on consumers has not fully shown up yet, but they could feed into food and food-services inflation.

“The strain of Hormuz closure and, to some degree, obviously, the some of the refining capacity issues that are maybe tied also to the Russia Ukraine conflict have clearly blown out sort of set of prices for jet fuel... And that has pushed up airfares quite considerably.”at 32:35

Skanda Amarnath · Employ America

Inflation may stay stuck around 3% much longer than expected, though likely not rising to 4%.

Three, possibly four, themes will keep inflation elevated. First, energy: the Hormuz closure and refining capacity issues tied to the Russia-Ukraine conflict have pushed up jet fuel and airfares, and diesel costs are high. Food retailers facing higher energy and transport costs may pass them through, which would hit core. Second, the AI boom is pushing up prices for laptops and other memory-linked goods, and those effects may be more durable than people expect. Third, tariffs: several categories have moved, and Canadian tariff costs have not yet passed through to consumers. Autos have not moved yet because of a different tariff regime.

“It may not mean that we're gonna go to 4% inflation, but we may be stuck around three a lot longer than is currently suspected.”at 34:19