Dwarkesh_Podcast_Alex_Imas_and_Phil_Trammell_–_What_remains_scarce

0:00Today, I'm chatting with Alex Imas, who is director of AGI Economics at Google DeepMind and professor of economics at University of Chicago, and Phil Trammell, who is head of economics at epoch and research scholar at Stanford. In general, in this interview, what I want to understand is what economics tells us about what we can expect in the world with more and more automation, more advanced AI, what that tells us about what will happen to wages, to labor share, what the best way to tax and redistribute the wealth that will be generated as a result of AGI will be, and what kinds of things will be scarce because what is scarce kind of tells you where the value will accrue. So I want to start there. What are some plausible candidates of what will be scarce? Something like the relational sector, which is what I defined as basically services and goods, where the fact that the human was in the loop was actually part of the value of that product. So because humans are naturally scarce,

0:57if we have automation where a lot of other things stop being scarce, we will still have scarcity and things that humans are kind of involved in and in the loop for. I'm curious to understand whether humans doing services for other humans can never be a big part of the economy. And here's maybe one intuition pump. So in a world where AI can physically do anything humans can do, there's this whole machine economy where they're like building factories.

1:25and doing research and coming up with new ideas. And humans may or may not be involved in the physical production of those things, but probably not given that in the ultimate limit, if robotics is solved. If you don't care about humans being involved in that process, why would humans be involved in that process? But then there's these other things which you point out where we actually, maybe in some cases, do want the ballerina or the barista or whatever to be a human that's part of the value of going to a cafe or our performance. But only humans have that preference.

1:54So there's this human economy where humans are doing services for each other, and part of their wealth is flowing to other humans, but part of their wealth is also like, they will want some of the automated goods this machine-only economy is creating, and so part of that wealth is flowing out. And so if you just think of this as like, this is not a closed loop, but a lot of things in the machine-only economy are closed loop, because the machines don't care about getting the human barista to make them a coffee. And so within that model, isn't it intrinsic that the human-only economy will become a smaller and smaller share?

2:24I would like to pitch kind of a rephrasing of that question. So I think my view is that kind of forecast that economists like us would make are not necessarily as individual forecast, like me and Phil are talking right now, are not necessarily very useful. The reason I think that, so there was this blog post by Andre Fredkin, Brian DeBerry, and then Andrew Koh that came out yesterday, actually, that looked at kind of people's forecasts, economists' forecasts about the labor market. And what they found is that there's a ton of disagreement.

2:52like in every single direction. So what they advocate for, and I think I'm in agreement here, is rather than thinking about individual forecasts like what me and Phil are going to do, rather looking at basically generating prediction markets where you get aggregate forecasts, where you get wisdom of the crowd effects. And the reason that I think this is because we have been famously terrible at forecasting. And so let's go all the way back to 1820.

3:20This sort of debate that we've been having actually is like 200 years old. So David Ricardo is one of the classic economists, not neoclassical, classical economists. And he, when Industrial Revolution started happening, he was wrote a bunch of stuff saying like, look, this is going to be great for everybody. Prices are going to come down. But then he turned around and he's like, wait, I can actually see all of these jobs that are creating value. They're going to be automated by these machines. This is going to be really bad that everybody's going to become unemployed and.

3:49there's going to be political unrest and things like that. And if you look at Ricardo's predictions, they're actually right. If you look at all those jobs that made money in Ricardo's time, they got automated. So if I was David Ricardo and I woke up and somebody told me all those jobs did get automated, and you asked me, Dave Ricardo, what do you think the prime age employment rate is in 2026? I think he would be surprised if you told him it was the highest it's ever been other than 2000.

4:19we have the highest number of employed people that could potentially be employed. Since 2000, that was like the peak and now it's like the second peak basically. So what David Ricardo ended up missing is the fact that essentially you have these economics of structural change where basically everything that got automated became cheap.

4:38people had more money to spend on things, and then they started spending money on services. And this is kind of like the lump of labor fallacy. That's what they call it. David Ricardo didn't think, hey, I should have considered the fact that new jobs would be created. But it's kind of not obvious that money would go to services. Why wouldn't they go to more automated goods and something like that? And I'm not using this anecdote as to say, this is what's going to happen now. We're going to have full employment. I'm using that anecdote.

5:07as to say it's really hard to make predictions. And what I think maybe a really useful tool that economists have is instead, start with a premise. Like maybe we'll start it today. Look, labor share is zero. Like labor share has gone down. What could possibly explain this? Let's write down an economic model of what happened. Phil will talk about this later today. Or you can start to write down a model to say, hey, what if labor share just stays the same? What can make that happen?

5:36And here's my main, here's, if you don't take anything out of this conversation for me, we don't have any data. I've been kind of saying we need a Manhattan project for data. We don't have data on basically consumer demand elasticity, so we don't know what they are. We don't know, we're not really tracking what jobs are getting created or destroyed, like the Onet database with all of the tasks and different jobs that's been rarely updated at super low quality. And so what I think is really useful, is to think about what are the potential scenarios, and we'll be talking about a lot of these scenarios, mapping them out and to say what dimension of scarcity will generate that scenario. So if there's full employment, we could talk about the relational sector or something like that. If there's very labor share collapses, we can talk about other sorts of scenarios. And then that will tell us what data we should be collecting. It's probably worth the defining labor share and capital share real quick.

6:31The whole economy like the total sum of goods and services sold Is either paid out to people in wages. Yeah, or it's paid out to Capital which is to say that there's like rents on buildings and then there's shareholders of companies that we get paid out and for many to hundreds of years in the economy 60 something percent of the economy or all the things that are sold in a given year basically gets paid out to humans and wages and the other 30 40 percent gets paid out to people who own machines and land, and claims on companies and whatever. And the question is, well, right now, if 60% is going to wages, does that shrink as automation, or as EIs get smarter and smarter and better and better? And it's like, really, this is a call to our fact, right? So it's incredibly, we should stress this, it's incredibly surprising that it's over 60% after the Industrial Revolution, after all of the automation we've ever seen.

7:28The fact that it's almost like some people are worried it's an accounting error or something like that, that it's kept being been so constant. And the fact that it's been over 60%. And there's even a controversy right now. So some might say like, labor share has been falling in the last 20, 30 years. But depending on how you...

7:47there's been a lot of accounting changes in the last 30, 40 years. So for example, Andy Atkinson has this paper showing that actually, if you keep the accounting constant over the years, labor share hasn't even fallen ever. But it's not that surprising, right? I mean, if, Phil, you made this point that if labor and capital are complements, you need both to do anything, it kind of makes sense that you kind of need to pay both of them to get something done. You have had stuff can be completely automated. Although you had the post where you were pointing out that Oh, yeah. Well, it's going to say there's a sense in which nothing's yet been completely automated. If you look at the network-adjusted factor shares of a good, which is to say you look down the supply chain and say, not just the final step, how much of that is done by capital and labor, but what went into the machines that can automate that final step, you'll find that labor is adding a lot of belly down the supply chain. So computer and electronic products.

8:42in the US has a very stable capital share, network-adjusted capital share of around 50%. It's not 100%. I do think there's this qualitative shift that I think we agree is coming, which is that there will be at least some goods whose network-adjusted capital share goes to one. Because the whole supply chain can be automated and there's no part in it that we care intrinsically about having a human do. So that'll be a qualitative shift.

9:11Interestingly, the implications of that shift for the overall capital share are ambiguous, because let's say that we've got the two sectors, the human intrinsic sector with the ballerinas and everything else. Right now, everything else has been scarce because of the lack of labor in it. But if we fully automate the supply chains for everything else, and we satiate everything else really fast, then the quantity of everything that's not a ballerina, say, It goes to infinity, but are the marginal utility in that stuff goes to zero faster than the quantities rising? I also kind of want to move if you don't mind move away from the ballerina example because I think like the kind of point that I was trying to make in my post Again and the point of the post was like to work backwards from a particular scenario Was that kind of the ballerina and the kind of performer? That's the wrong reference class right now. We have a lot of jobs where

10:09you have different tasks. So this is the task-based model of jobs where you have like a lot of different tasks. So like a doctor, what is their job? They're filling out insurance documents. They're going and calling different pharmaceutical companies. And one of their tasks is to actually see the patient and talk to them. But that's actually not the main part of the job. So you could have a job and a service or a good be a product of different types of tasks. And you can automate a ton of those tasks. And if the consumer is willing to pay more for a product or service where every single task is automated versus every single thing except for that one part where the doctor is actually delivering the diagnosis, providing support and things like that, we would call that job a part of the relational sector because a human is, people are willing to pay more for the human to stay in the loop in the job. I think we don't have data.

11:06To say like here are relational jobs here or not because you literally need to collect data of the following sort Do a conjoint analysis of like here's my willingness to pay for this service this good Here's the counterfactual where everything is pursued to spy machine. Here's the counterfactual where this one task is not produced What is your willingness to pay? What is your elasticity for that for the human to not be in the loop and like literally if I don't have that data What prediction am I gonna make?

11:34in this story, right? Right. But I guess isn't there another point, which is that there's a lot of fully automated goods that don't even exist yet, and you can't collect any data right now about, say, how much people will want to keep buying more and more of some drug that makes you healthier, that's fully produced by DEIs. And that's kind of Phil's point. That's right. And you can make it, is that, look, you could have an increase in variety in capital where you don't get the satiation.

12:01So, you're increasing varieties. You're not hitting that really diminishing marginal utility point where you're basically most of your income is going to the human sector. If that increasing variety is fast enough and there is no such increasing variety in the human sector, then you can get all of the relational that you want, but it doesn't matter for labor shift. It goes to zero. Phil, I liked your analogy to some Mongolian economists sitting there in 1400.

12:30thinking about what will be scarce and the limits of that kind of analysis. I think you should talk to that. Sure. Yeah. So if you just looked at the goods available to a Mongolian of the distant past, no expert on this society, but I know that they didn't have nearly the variety that we have now. And they looked at the jobs that were sort of intrinsically human, like being a singer, say. And they looked at the things that We're not intrinsically human. The transportation service is provided by their horses or the different kinds of food they had. If they just held the varieties fixed in both categories and asked what will happen once we have a lot more automation, they might have said, well, we'll just satiate in a horse-like transportation and in yogurt and in yurts. Those shares will all go to zero and we'll be less spending all of our money on singers.

13:31But of course that's not what's happened because as we've accumulated more wealth and more advanced machines and so on, we've expanded the range of things other than singers to spend our money on and the share spent on singers that stayed sort of negligible. So likewise, that's sort of my central prediction about how the future unfolds, though it could go either way. I was going to make a point and I realized it's a fallacy, but the reason it's a fallacy is interesting. So I was going to say, I mean, it's just hard to imagine a world where there's trillions upon trillions of robots, but there's only some billion-odd humans. And then the cumulative amount we're spending on robots and building more robots and whatever is less than what we're spending to pay Magnus Carlson and- Or financial advisors or doctors or tutors- Or podcasters or whatever. Or podcasters. But then I realize about the fallacy, the number of transistors in the world.

14:28has literally, certainly trillion next, maybe quadrillion next or something. And your colleague, Chad Jones, has a very interesting result about how the share of the economy that is going towards paying for computing basically, like paying for the transistors, has been decreasing. The point that you made is that one way to think about Moore's law, What sets price? Well, the price is a supply and demand, and so not only are we producing more transistors more cheaply, but also the value of the marginal transistor is decreasing. As you were saying, another way of saying Moore's Law is, I'm sure you should say it. I like that the pessimistic framing of Moore's Law is every 18 months, the value of computation has.

15:19We're just running out of uses for computation so fast that it's sustaining more as law. And this is in fact literally relevant to a conversation about AI where maybe for the first time, this is no longer true. Right. So the famous fact here is that an H100 costs more to rent now than it did three years ago, even though we have much superior technology and we have much more compute in the world. Because as models get smarter, the opportunity cost of compute gets higher. But this is Phil's point about increasing variety. What we have done is increase the types of things that people demand from capital. Now, all of a sudden, you have a new variety that you could be using capital for. And all of a sudden, you jump back up. Yeah, you could imagine we just never satiate demand for compute. And as long as that stays the case,

16:11then the share of the economy that is going towards compute would keep increasing. And that's the big question, right? It's like that is the ultimate question that we need to be kind of looking at is like, what number of new uses are we finding for that commute where you have the demand for these uses? So what I kind of want to emphasize is that a lot of models in economics, especially in the space that we're talking about, take demand is almost kind of exogenous.

16:39and they don't unpack like what is that like the psychology of what people actually want. And so what got me kind of also thinking about this the idea of the relational sector's work that I was doing on the fact that there does seem to be this value this intrinsic value that is it's not just because it's scarce it's because there's some intrinsic preference that people have.

17:01for empathy and connection and interacting with another person. So one of the experiments that we ran was like, there's an art print, right? And we actually have an incentive-compatible way of basically saying, how much are you willing to pay for this art print? People are actually paying real money for it. And then we say, look, there's only one of those art prints, and it's either made and these are between subject conditions by AI or by a person. So with one, you get the effect that the person Produced our print is valued much much higher than the AI version and that what we do is to say there's in a set of other conditions There's 500 of these being produced so for the human made one the price goes down a lot Because it's no longer seen as like you're not like making a connection with this one artist versus with AI There's no difference AI is already viewed as like a commodity right and you know We need to do a lot more research on this but it seems like that's kind of like the the key difference between

17:58You know, something like let's say a horse, right? There's no, a horse was an input into an output where you can replace the horse with something else. You only care about the output. The only way this relational story works, and this is what we need more data on, is if it's not, a human is not a horse in the sense that it is providing value from the output, where if you replace the human, the value of the output decreases. And if that's not strong enough, and if it doesn't hold for enough sectors, if it doesn't hold for enough jobs, then this kind of story doesn't work anymore. There aren't that many institutions that have thought as hard as Jane Street about how to turn smart people into some of the most competent researchers and engineers in the world. This relies in part on an apprenticeship model where new hires are paired with senior mentors. But Jane Street also runs a bunch of classroom-side lectures and hands-on boot camps. These courses cover a range of topics and they go pretty deep.

18:52There's one lecture that focuses on reverse engineering systems with tools like S-Trace and GDB, and another that teaches you how to profile code down to the cache hierarchy level. Importantly, Jane Street designs these courses not just to teach the relevant object level skills, but also to impart the relevant tasks and knowledge. For example, their week-long neural net bootcamp starts with general theory, but then quickly progresses to how to apply neural networks to trading. And here they cover the specific obstacles that Jane Streeters tend to encounter and the workarounds they've come up with to get around them.

19:21Jane Street takes this sort of learning incredibly seriously. Every office has dedicated classrooms space and courses are prioritized as part of regular work. If you'd like to work at a place like this, Jane Street is hiring. You can check out their open roles at JaneStreet.com slash DoorCache. There's one possibility which Molly Kinder has written something about this messy middle scenario and there's that possibility made me think about whether it might be better to have at least as far as wealth distribution and redistribution goes. It might be better to have much faster AI takeoff. And I want to ask you whether the following possibility is at all likely, or there's any set of assumptions that this can make it so, which is that AI makes it possible to automate jobs such that many people are losing their jobs, but it doesn't create enough wealth while the process of automation is happening to pay off basically the people who are getting laid off, such as there's a Pareto improvement.

20:19Everybody's getting better as a result of AI automation. And of course, there's a trivial sense in which that must be true because whatever money you're saving, whatever money the company is saving by not paying the humans instead of just paying the AIs, those resources still exist in the economy and they can just be paid off to people. But there's going to be some allocative inefficiency. Like the government doesn't know exactly who got laid off because of AI. There's some political problem of like if the meta worker gets laid off first and they're making 200k a year.

20:47Is there a politically sustainable situation where you give them a 200k check a year when there's many people who are working who are making much less? So do you at all find this in your plausible where AI is actually automating a bunch of things but there isn't enough wealth creation as there is automation? I think it's is that plausible possible to me it does seem like a pretty narrow window My guess is that if we have the technology to automate So many jobs that it becomes like a new kind of political problem and the firewalls be growing really fast Well unless in all of those professions that it's automating. It's just a hair more productive. So like the cost of all the capital to To replace all the software engineers is just you know a hair less than the cost of what we think is off from engineers And why is it implausible that it just like a company can save money by?

21:38Laying off a bunch of software engineers, but and in the long run there's a chevons paradox thing and you know We can't anticipate in advance what we do with more software and surely there's gonna be more uses but in the short run The fact is just that a lot of people are laid off and they still need to figure out how they can use a million X more Yeah, JavaScript tokens. I think the thing that like is in either like, you know Philip Phil and I have been like writing about these things and we have mathematical models in the back of these things We don't have any political economy in any of our mom

22:04Andy Hall wrote a really nice blog post about the politics of AGI, and he made a really interesting observation. If there's a 2% increase in unemployment, the political wins completely change. Like unemployment, it has a huge effect on what happens politically. So, you know, Tamali's excellent essay, by the way. I think in some ways, like one of the worst scenarios is a drip scenario because of the political economy piece, right? Because like...

22:33You know, people, essentially what you might see is like people not really being unemployed in mass, but kind of like moving into sectors that pay them less money, kind of basically getting what happened with phone operators in the mid-century of the, between 1920 and 1940, phone operators were completely automated, right? But it took 20 years, even though it's a technology existed. And therefore, there was this drip. It wasn't like this giant sector just disappeared.

23:01And when it ended up happening, there's a really nice QG paper on this, basically showing that they got reabsorbed into the economy, but at lower salaries and they were mostly underemployed. And I think that's the scenario that Molly was writing about, this kind of messy middle where things aren't a disaster because we saw it with COVID.

23:22Like the fiscal response can move quickly if there's an emergency. And an emergency is a quick uptick in unemployment, which could even look like two or three percent. That becomes a national emergency if it becomes fast. The concern is that suppose whatever you're saving on those white collar workers, if that's not growing the economy, but it's just creating some saved resources that can be allocated elsewhere, is that enough to do...

23:50a broad-based redistribution scheme. Because then you have the money you saved off a couple of people. And unless you can figure out exactly how to get it to them specifically, you have the problem of, can I do a UBI off the money I saved? So you're basically saying like, look, the pie did not grow that much. You're just basically displacing a bunch of people, but that actually didn't grow the technological frontier of what the economy can produce. And so then there's a question of like, Well, maybe every time, I don't know if this is the case, maybe every time this has happened in history, the technological frontier has expanded a bunch. And so I think that's the case. I think simply in history, the technological frontier has expanded. So it's kind of, I think Philip made the same point. Like it's hard to imagine that sort of scenario where you are getting like intelligence that's kind of just enough to replace the software engineer, but still costs a lot of money.

24:45Like it's just a hair less expensive than the software engineer. So you're not getting this abundance effect. Right. And so where is the redistribution going to happen because the pie didn't grow? Yeah. Yeah. Okay. So this is very helpful. So there's many different things that are to be true for the scenario to come to pass, each of which seem unlikely. One, it has to be the case that it is possible to automate entire white collar jobs, but only in a piecemeal way.

25:11That is to say that you can only automate software engineers, but that same program can also automate an accountant and an analyst and whatever, where I think at least my model of intelligence is such that both of the breadth of tasks that acquire us to do something like software engineering and what intelligence is, is such that if you can really just lay off all the software engineers, you've got enough in the bucket there that you could automate all kinds of white follow work. So yeah, you're saving.

25:39There's huge amounts of potential savings that have happened as a result of these layoffs. And also that AI is going to be cheaper than human labor. And if both of those things are true, this messy middle scenario, where we literally don't have the wealth to go around seems unlikely. And the question is, what is the best way to tax it and redistribute it? Yeah, I have some thoughts. I think it's just really important to outline the costs and benefits. It's also important to know that so first, there's differential complexity in implementing these things.

26:09Two, they differ in the timeline of like being actually helpful. So like something like universal basic capital, that's not like, that's not going to generate returns for something that happens in six months. So you probably are going to end up with a layer of things. So like, for example, like a negative income tax, like you implement it and the day it turns into law that you already have the sort of insurance that there's a floor for which everybody gets a certain amount of money. And then if you earn more money, you get tax more and things like that. But there's positives and negatives to negative income tax. With UBI, for example, I worry a lot about the political economy implications. For example, if people are just kind of dependent on a check,

27:00it really matters who's in power. Like right now we're endowed with labor that can turn into income when that is no longer the case and we are now at the mercy of the elected official for like basic needs, right? So that to me feels like a power sharing arrangement that's really dangerous. But wouldn't that be true of any sort of government redistribution program? So something like university basic capital where you have like an ownership share and you have property rights for capital.

27:30Then you just you're just you just your normal shareholder normal person and but this goes back to the question of indexing because if indexing is hard the universal basic capital is hard That's the that that's the problem of universal basic capital is targeting right right? What do you target to put into people's? Like what if enthropic goes to zero but some random robotics company takes all the service Exactly, so that's the risk of universal basic capital with the negative income tax You have the same sort of issues that with UBI we're like, you know somebody comes into power and Says like this is we're not gonna do that anymore and people can't work

28:00And then, you know, you have the issue of the floor being up. Right. One concern with the wealth tax is that, you know, there's no politically sustainable equilibrium at like 0.5% wealth tax. And, you know, I mean, this happened with the income tax of course, right? It starts low, it's like for war or something, and then it slowly and slowly escalates until the marginal tax rate in the US is probably on the order of income tax rate is like 40% or something. And in certain states upwards of 50%.

28:28With a capital tax, is there a reason to worry? Would that distort investment? Because people would just be like, why would I invest in anthropic or Intel? The government is going to take larger and larger shares of it and dilute my share. Well, hold on. I think it's worth separating.

28:45how the revenue is raised, like what's tax, and then how it's distributed. It could be that the government hands out shares of Amphropic to everyone by a broad-based tax and then buying Amphropic, which would probably be the right thing to do. Hopefully, some populist proposal doesn't interfere with that and expropriate some particular company that everyone happens to know about. You're suggesting there could be a tax that is some sort of optimal tax.

29:12We're taxing externalities, or we're taxing land, or we're, I guess, we probably need to tax something other than just those two things, but that tax is... We're consumption, yeah, we're consumption. Okay, so a consumption tax, like a European value-added tax type thing, that allows the government to go buy a bunch of stocks, and then they just distribute those stocks to everybody. That's David Otters. Yeah, I mean, that's not going to be that different from just redistributing the stocks, but it'll be a little different. Yeah.

29:42That's what social security, that was the proposal for social security, by the way. That was privatizing social security, right? So it's like you have, you turn like this sort of weird, like not weird, but it's been working, it's worked so far, but you know, there's questions for how long it's going to keep working. Like basically privatizing social security was giving everybody a basket of stocks. Right. All right. I'm curious to understand people talk about whether there's a white collar apocalypse already. Is there any evidence?

30:11that suggests that there is mass automation or unemployment as a result of AI already. I think there's a lot of people are looking at it. So this is an area where there's like a lot of eyes and a lot of data being produced. So the budget lab over Yale is doing really good analysis on this. They just recently released a report. And I think like you really have to squint to see anything happening. Like basically if you want to take kind of like approach across the entire economy and looking at even looking at like software engineering like the most exposed sort of sectors there's just like not really anything going on. There might be a little bit of a signal about like junior developers getting jobs less than before but that's like a

30:54less than before rather than a level shift is then there's actually an increased demand for senior manager for senior software engineers if anything And so if you look at trend it's kind of like for junior managers It's a bit below trend so as in you're saying the growth is slower than before yes, but there is still growth even on entry-level software engineers Yeah, exactly. And what do you think is going on with the anecdotal evidence of? graduating college students saying that they're finding it harder to find CS jobs or something. I think that's anecdotal evidence you think it's always been hard to get Jobs for some people and now it's getting turned into an AI narrative same with the layoffs where it's probably just normal layoff and they turned into an AI layoff Yeah, I mean you you have to be careful with all of this I think like there are these like you know There are these like coordinate public coordination devices for like let's say we get into a narrative Or like if you're a firm and you're not laying people off

31:46then you're seen as not adopting AI enough, so then you're going to just get a cascade effect. A firm's just needing to keep up with the Joneses in terms of starting to lay people off. That's super worrying where actually the firm might be worse off after the layoffs than before the layoffs, but it's just doing the layoffs to have the perception that look, we're not behind the times where we're using AI.

32:11You probably heard these anecdotal stories of like these token counters that like you have to maximize tokens and things like that. So again, like right now we don't really have any evidence of a white collar bloodbath. And is that surprising at all? I feel given the fact all these things that I can do is just like, this is a story as old as time. If you automate some complimentary task, the overall bucket of things that the...

32:35The human labor, which complements the automation, will increase in value. So this is one of the statistics that's really important for that argument is elasticity of demand. So you take the O-ring model of jobs. So again, jobs is a series of tasks. Let's say the AI automates nine out of 10 tasks. One task is not automated.

32:58if that person can now focus in on that task, the job will become more productive. If that translates into a price effect where the product is actually cheaper, if the demand responds enough or it's being bought more, it's being used more, the service is being used more, that could actually lead to more hiring. A lot of people on the internet have been making that argument very generally, saying, look, if anything in the data, we're seeing an uptick in software engineering, which suggests that at least for now, given the way the jobs work, it might be. But I think this Elasticity to Demand argument is incredibly important for a lot of arguments that people make or just a lot of labels that people use without understanding what the underlying causation is. So people often talk about Jevons Paradox. Yeah. This is this idea that as something gets cheaper, you will want so much more of it that the total amount you spend on the thing increases. And so famously this happened to

33:57coal in Britain 200 odd years ago. But really, this only happens if there's the demand for something is highly elastic. There's many things for which there is not super elastic demand. If oil, for example, gets super cheap, it's not like magically, right? Exactly. Magically, there's going to be so many more cars that now we're going to be using way more oil than before. At least not in the short run. Exactly. So the longer I know elasticity is higher, the shorter I know elasticity. But Even the long run, so agriculture famously is an example where we can produce way more food if we dedicated the same portion of the economy that we dedicated to agriculture. We're already producing more food regardless, but we could produce even more food if the same portion of the economy that was producing food 100 years ago was currently producing food. But you eat enough and then you're done. And so the claim with software is that it is not some inherent property of markets that...

34:52as it gets cheaper, you will just keep wanting more of it. Absolutely not. The thing about software is this is a particular kind of good, whereas it gets cheaper, we'll want more and more of it. It is also highly relevant, and you wrote an essay about this. A lot of this podcast is me summarizing your essays back to you, that there's this very viral scenario planning about the future by Citrini, where they're predicting as a result of automation, as a result of very powerful AI, there will be a recession, because white collar workers will get automated.

35:21their salaries, which were, you know, paying for a bunch of things, will no longer be available. And so there'll be a slump. Do you want to recapitulate why this might be implausible? Well, I mean, so part of it is plausible. Part of it's not plausible. So like the part that's kind of like within the, this is something that we started the conversation with.

35:41is the idea that there could be unemployment, a lot of unemployment. If the speed of automation is quick and things like that, people could get laid off and they may not find work very quickly. So that part of the Centrini essay about the unemployment, we can quibble about that, but that's not the issue. The issue is that they talked about negative economic growth.

36:01Right. And so what I did in the piece that actually Phil and I had a back and forth on was to say, like, let's start with the proposition that there's negative economic growth. What conditions do you need on the economy to get negative economic growth? And it turns out the conditions are pretty improbable. So one thing that you need is like for the holders of capital, like rich people basically, like basically what you have in those sorts of scenarios, like you have a reallocation of wealth and income from like lower income people who are working, who are using their label towards head capital owners. So what you need is that basically demand to be bounded, like a hard bound, not even like a soft sort of like diminishing sensitivity. You need for them to eventually say, I've had enough. I don't want to spend any more money. And for that money to not enter his investment. Right. Right. And then you can get negative growth, which is like. And the crucial thing is even if we don't want more shit.

36:56The world in which there's a singularity and we don't want to invest more money is crazy, right? Where we're not like, let's build more data centers. Let's build more FAVs. Even though we have AGI, we're not like investing in more data centers to run the AGI. And that's like driving a more economic growth. Yeah. And so I set the essay to Phil. And Phil actually wrote back being like, this is pretty dumb. Yeah. Like my essay saying like, you're trying to say that there's going to be negative economic growth.

37:22These are very implausible conditions. And I was like, actually, that's the point of the essay that these are very implausible economic conditions. So that's where I think scenario planning really shines is you have the Centrini essay, which I think is like, I think it was great that it's written because it kind of started a conversation. But it's just like, it's so intuitive this idea that like, look, if there's demand collapse, we can get the economy to shrink. But it's actually, you could get that with a depression.

37:50where in the depression, the technological frontier didn't expand. Here, the technological frontier is expanding. You actually have abundance. And for abundance to generate negative economic growth, that's really hard to count. Right, exactly. Google recently announced Gemini Omni, and its video editing capabilities are incredible. You can upload a video and then tell Omni to do things like change the background, or adjust the lighting, or add or remove elements.

38:17all while keeping everything else consistent. But Omni isn't just a video editor. I got a chance to sit down with the research and product team behind Omni, and I learned that it's a preview of how future frontier models will be trained. It can take in any kind of input, whether that's text or audio or video. And while it doesn't currently do so, architecturally, it's capable of just a seamlessly outputting images or text. So it's really a bet on the multimodal data transfer hypothesis. The model becomes better at predicting one data type by seeing the others.

38:46For example, Omni is really good at accurately rendering text on video, even though Google didn't specifically target that capability in this model. And Omni is the next step towards more accurate world models. Because in order to predict the next frame of a video, you have to have a deep understanding of physics and spatial dynamics. As Omni progresses, it'll be interesting to see whether it can close a sim to real gap. Because it's much harder to collect data in the real world than it is in simulation, robotics progress has lagged other applications of AI.

39:11But if you have really good video models that can simulate reality, maybe that stops being the case. In the meantime, if you want to try Omni, you can check it out in the Gemini app at gemini.google or use it in Google's AI Creative Studio Flow at flow.google. We're talking a second ago about why there isn't more automation as a result of LLMs. And one plausible mechanism could be that, as you're saying with the O-Ring, so O-Ring theory refers to this fact that the challenge or shuttle blew up because there's one component that malfunctioned and it destroyed the whole thing. And maybe that's a more general model of how goods are produced in the economy that you got to make sure everything is reliable and works well. And you can't automate entire job to an AI right now, even though it might be able to perform it at some probability, you need extreme reliability in order for it to not destroy the finished good. I think this...

40:04is, so this might explain why there's less automation now than there otherwise could be, but I think it works in the other direction once AI's get advanced enough that integrating humans into the production flow of future goods, even beyond the even beyond the arguments about how humans will be more expensive or dumb or whatever, even beyond that just there will be whole production flows that are organized for AI labor, where they're talking in neuralese, they're thinking many thousands of times faster.

40:32So even if there's some comparative advantage where it makes sense to hire a human, there will be like transaction cost and worries of a reliability that will actually make it hard to integrate humans into future production gloves. Yeah, that seems right to me. In particular, I just want to distinguish between the point that if you automate like nine tenths of a job, then people might kind of shift over to the last tenth, but like there might be 10 times more work demanded of them from the model of owing automation from like Gans and Goldfarb recently which was that if you can only automate nine tenths of the job that you can do it to a lower standard of quality then the human could do it you might not want to automate even those nine tenths and that's the thing that could totally port over to like Symmetrically it could be a reason why we don't use a human for one kind of the job anymore because a human just can't perform it to the level of quality that the AI can form the other parts of the job or the level of speed or whatever and

41:31they end up pulling down the quality or speed of the finished product. By the way, the model you're talking about seems extremely plausible to me of why more lawyers or accountants or whatever are not automated. There are cases, or even software engineers, where there's a pretty good probability that the thing worked as you expect, but the thing you're paying the lawyer for is like, no, really, my company's not going to go under because... You're also paying for a lot of regulation-type stuff. So with lawyers particularly, you need some entity to...

42:01backup the product. You need kind of like an ownership of the product. You need somebody to be able to fire or hire, like licensing issues. There's a lot of like sort of like regulatory layers that are like also going to be keeping, even if there's no relational element, human in the loop that have nothing to do with like the ability of the human to actually perform the service. Yeah. Yeah. I mean, you know, all of these frictions on the political type decisions that we are accustomed to only trusting humans, you know, only having humans for, like legislation and being a judge, being a jury, or all the licensing that keeps certain professions human. That all strikes me as transitional, right? I mean, what we expect to come from a human and like how we organize our politics, that's changed so many times throughout history, right, from little undergathered bands to empires and whatnot. And yeah.

42:58once an AI-run political system is much more efficient than the alternatives, then those will probably tend to outcompete the others. So speaking of which, we've been talking about what preferences humans currently have and what impact that has on what kinds of goods will be scarce in the future. But of course, we'll have different kinds of entities in the future, AIs. There's a time when there were no humans on Earth, but evolution selected for agents that have specific drives and preferences because those tend to survive the most and those preferences now basically determine how a hundred trillion dollar world economy what it produces. And so why not expect the same thing of AI's in the future? This is not even a world with catastrophic misalignment. That is to say they just kill everybody. But there will be evolution of even if not individual AI's and firms which have AI's as part of them.

43:55And what will that evolution favor? Well, it will favor probably firms or agents that grow, right? There's like a selection argument that things which grow will be more prevalent. And maybe just based on that, you can make some predictions about what their preferences will be. But it is the kind of entity which prefers to have human intrinsic goods going to be the kind of entity that accumulates resources the most. Probably not, right? Probably like saves more. It like has...

44:23unsatisfiable demand for things like whatever the relevant resource happens to be, compute is an obvious one. And can we use that to make some prediction about what the non-human preferences that we'll be guiding the future? Yeah. So I think if there's like an AI that's like has its own welfare and it's fully autonomous and it's like making its own decisions that are welfare relevant, to be honest, I have absolutely no prior that it would like...

44:49at all prefer to deal with humans. There's no reason. But let me take the other side of that argument. Will humans' preferences to be interacting with one another and to trust and empathize on all of these sorts of things with other humans versus a simulated AI? I think it's a really important question whether those will change. So I've heard a lot of arguments saying, look, right now we're just not used to the technology.

45:18at some point, like what you're thinking of relational or something like that, people are just going to see like an AI therapist as a superior product. And they're not going to need the sort of like empathy or whatever that the human is providing. I think this is actually a really complicated question. Here's one argument for why it's not going to go away and that has to do with evolution. So let's say there's two types of people. One person doesn't really have this preference. They can just interact with other.

45:47AI, whatever can simulate it better. The other one has almost like a like a moral emotion, like from the using Jonathan Heights framework, moral emotion against interact, like offloading those sorts of social interactions to an AI. Which of those two people are going to reproduce, find a mate, all of these sorts of things? I think the answer is kind of clear, right? It's the second one that has the preference for other people. That's how the reproduction is happening. Fair. But if we're if we're in, you know, the world where like Reproduction is still happening the way that it's happening. I think and this is a big question I'm not even like I'm not making a prediction again I'm just saying like if we're thinking you know, do you have David Reich and on the show like? His point on the last podcast was that you know, we're buzzing with natural selection, right? So even if like you get some sort of indifference now you might get selection to point into like an even stronger preference for other humans Here's one way to think about it. How is the wealth of the richest people in the world instantiated?

46:46Of course, as you were having a call earlier and making the point that their consumption is more geared towards relational goods, like Mark Zuckerberg is hiring MMA instructors and dancers for his wife's birthday and so forth, but most of his wealth is just stock and meta, and he as a controlling shareholder could say, hey, meta, just give me all this income, or turn all this wealth into dividend income, and I will just spend that on consumption, but instead.

47:14He rather would have his wealth compound and met out to build more data centers, basically. So you don't even have to change humans for this to be the case. It is just the case that humans, which are wealthiest and are growing wealthier because their wealth is compounding, just have this almost Nicklandian preference for accelerating capital. And that does seem to suggest that, yeah, is that an important determinant of what kinds of things are produced in the future?

47:41Yeah, I could kind of just say like, there's two ways you could get the two kinds of people, one of whom prefers the human therapist and one of whom is fine interacting with the AI. If they both satiate equally quickly in capital, right? But the one who likes the human therapist just also likes having some human intrinsic services. Then the marginal value, like how the marginal value of capital in the future...

48:07compared to the marginal value of capital today for each of them, if they start out equally rich, should be basically the same. I mean, there could be interactions and whatnot, but basically that should be the same. If what's driving the difference is that one person just doesn't satiate in capital because they're engaged by the prospect of exploring the universe and turning their head into a galaxy brain or whatever, and the other one satiates, then the person who doesn't satiate in capital is going to have, if they're being rational, they're going to have a higher savings rate.

48:38Okay, so in the long run, they're going to have most of the well. And the overall capital share will basically be the capital share of that person's spending, which is going to be one. It's important that this is... We're not talking about a hypothetical future. Elon Musk is talking about mass drivers on the moon. And he's like, by far the wealthiest person in the world. I mean, obviously currently his...

49:00His investments are going towards humans as well as machines, but I don't think he cares particularly that is like future researchers and engineers are humans versus a man just reproduced fast as well. So Yes So anyway, so I just think it's worth drawing that distinction. Yeah, there are currently some rich people that don't seem to Satiate quickly in capital and and so maybe in the long run they'll save the most and right. Yeah That doesn't seem sort of right to me And I would just also say, even if they do reproduce more slowly, like biologically, that might just not matter that much in the long run. If they can live forever. The living forever is key. Yeah. Right. So I think, again, we're scenario building here. So I think if you could live forever, a lot of stuff changes for my story as well. I think it's to your point about...

49:58rich people just consuming, not consuming a lot of investing. I think this will all depend on the returns to capital, right? So like right now, the returns to data centers are super hot, right? But if we get into a situation where people are satiated with capital, then the returns to accumulating capital are going to be lower. And so then these rich people are going to be consuming more, right? So because they were the incentive to invest is smaller. So basically, you kind of think about this in general equilibrium.

50:27Yeah. The general equilibrium of this sort of process, like we have gotten tremendously more richer since, you know, 1820. We've gotten many more people are investing, but you're still getting a consumption response, which keeps, you know, people employed in labor share high. And that's because... Well, hold on. Not necessarily. I think you're probably making the same point. But I mean, they could just... It could be that their investment has to be chitrated through actual laborers, but to go like do things for their investment to work, which like...

50:57In the future, only the consumption is human-mediated, right? Because the investment can just be done by the robots. So we're in the scenario with how you can keep high-labour share, right? Let's take that scenario. In the scenario with high-labour share, for whatever reason, the returns to capital are going to be lower. Yeah, that's right. I mean, to the earlier thing, we were in the messy middle, we were saying why this is implausible. I feel like we can do a similar thing here.

51:24before returns to capital to be lower, the growth rate has to be lower, right? I mean, it certainly has to be lower than what we're expecting through the period of transformative AI, you know, if there's explosive growth. Yeah, yes and no. I mean, so the capital stock could grow quickly, but the price of capital goods relative to consumption goods could be falling faster than the capital stock could grow. Oh, interesting. Yeah. It's the difference between like the potential...

51:50Frontier of technology and like what the realized prices of these things because you have relative prices So you're saying I could be putting my money towards You know earning 30% interest in investing in data centers Or whatever there'll be something in the future if the growth rate is high that earns high returns Or I could as a result of all the technological breakthroughs or some cool product That I really want to buy right now and both of those will be compelling options Yeah, it doesn't have to be a new product. It could be a human intrinsic product. Right. Although, if it's a human intrinsic product, we would want to have it much more in the future than we want it now because the thing it compares against is... So we might want it the same as we want it now in the sense that the marginal utility in a ballerina performance is exactly the same as now, right? But the marginal utility in a robot might just be a lot lower than now, right?

52:44So in units of robots, we want it a lot more than we want it now. So would the interest rate be 30%? It depends what you mean by the real interest rate. It might be that every robot now can turn into 100 robots next year.

53:00So in units of robots, the interest rate is 10000%. But if the price of robots is falling really fast. Price is adjust. I think that's the whole point. Yeah, but here prices are adjusting in this interesting way that too many macro models don't allow for. So what's happening is what would be called investment specific technical change, where the price of capital is falling relative to the price of consumption. Instead of doing the standard macro thing of saying there's just output.

53:29It's like chimera of a thing called output, which is one for one can be allocated to capital or consumption, right? That's not going to be true in this world. Every unit of capital next year is giving up way less consumption than each unit of capital this year. Because the just one robot now turns into many robots next year, but the number of ballerinas is the same. And again, we're going to go back to the increasing varieties thing.

53:55All of those extra robots next year are actually different varieties of robots that I'm not getting satiated on those robots. Then it's a very different story. Yeah, right. But now we're talking about the consumption world, whereas for the investment side of things, there could be just some greedy titan of industry who keeps wanting more and more robots. And that alone would be enough to increase the marginal value of robots and therefore decrease labor share. Yes.

54:26Yeah, okay. But why are we not expecting greedy titans of industry to keep existing? I mean, greedy titans of industry historically have like built libraries and... But that's because they die. And they're like... They all die. Everybody dies. Well, we'll see. But I mean, like conditional on people dying, I think like, you know, like, again, you had a guest on the show who said like, you know, to understand the future, you should think about the past. And I think like...

54:55you could have new types of Titans being born, where their entire reason for accumulating wealth is just to accumulate wealth. But a lot of the time, at least historically, I'm just talking about historically, the wealth accumulation process is part of a large social...

55:17sort of like social interaction amongst peers, amongst the community, where you want to be admired in some way or something like that. So people end up like the stylized fact of titans of his, of industry is like you accumulate the capital and then you like buy a bunch of stuff. Yeah. I mean, I guess it is sort of a historical question, but it does seem to me in a lot of cases what is happening is that as a near the end of their life, they either hand it off to their children.

55:46who are worse stewards of capital than they are, and they don't even manage to grow their wealth at the rate the economy grows, much less fast than the economy grows, which their parents are doing, and also they're like, well, I care less about my children having it than me sort of playing this game of accumulating wealth, and so I'm just gonna give it to some trust. And if people are living longer, or if they can figure out some way in which to align, their trust to this wealth accumulation process. It just feels like the evolution here is so strong where you just need a couple of agents that think this way for this to be the dominant thing determining the preferences of the whole economy because this part is growing much faster than the other parts of the economy. I think you just like the part about satiation and diminishing marginal utilities, it keeps coming up, but I think it's really, really important. Like, you know, if a person has an intrinsic preference for accumulation. Right.

56:36That's just like that's what they want. I think your story is totally right. But but that's just like not how usually preferences work, right? Like you have enough, whatever you hedonics in your life. And then then like the social status, all of this sort of, you know, we're so wrote about this, St. Augustine wrote about this. This is like a kind of like a basic part of preferences. Now, to you guys are arguing about something else where like you could have such high concentration.

57:04then you could just have a couple of exceptions to the rule and that's going to be enough. And I have nothing to say about that. Yeah. Yeah. I mean, I think the claim's a little stronger. Not just like you could have some exceptions, but that it seems that historically and today we see the exceptions and they just haven't really taken over the economy historically because they've been these dissipation shocks as they're called. So they've like given it to their kids. Just wanted it or they put it in foundations which which spent it. I mean, it's not really a shock, but I mean, people might have liked to fill the universe with monuments to themselves and sort of live forever very wealthy. And it's like a weird preference, but it's not a hypothetical preference. I think that's the point. But who knows what's going on in their heads? I think even without the kind of intrinsic preference for accumulation, there are some

58:01instrumental reasons why people, some people might value accumulation, which is also worth bringing up. So there's the desire for political or philosophical or religious influence, right? So people get into sort of an arms race over like what, you know, what this idea looks like and what people believe. And then similarly, but differently, because it's not an arms race, there's just a total, total utilitarian philanthropy, right?

58:31So, when I think about why it might be good to have a lot of wealth in the future as a good classical utilitarian, to me, the value is at least one way you could have a kind of almost unsatiating utility function in having wealth in the future is to create new happy beings, right? They just add to the total welfare of the world. You know, I mean, this idea goes at least as far back as like Boston's astronomical waste point that we could like put Dyson's fears around the stars and turn all the energy into really happy simulations and whatnot. I think the particular greediness of this optimizer doesn't matter what they're greedy for. I think, forgetting about utilitarian philosophy or whatever, like just pure von Neumann probe has, I don't know what the, is this inaccurate to say yet? They just have high-

59:17a marginal value for the random solar system they'll occupy, because that turns into more solar systems, it turns into more solar systems. But like Von Neumann-Farob is a thing that can exist, right? And that's a very greedy optimizer. Yeah. I mean, if we're talking about whether they'll dominate the economy, maybe this is a technicality, but we only count...

59:38Final consumption goods and investment goods is GDP, right? If there's just this phenomenon. How does a von Neumann probe show up in GDP? Exactly, right? So if it's like if we recognize it as a person that like owns itself and it's like sort of you know optimizing on the margin between like spending a bit more on a baby von Neumann probe that colonizes another star system or like a ballerina or something and it's just like it doesn't value the ballerina very much, but it's yeah Yeah, when we're talking about like AI beings are like Like, it just completely depends on how we're doing the accounting there. Right. Yeah. But it's just like, what does the world look like in a world where like one Neumann probes are possible? Is it possible labor share is high? Anyways. Yeah. I think it's possible the labor share is high the way we usually account it. One of the biggest problems in RL right now is credit assignment because you have these extremely long rule outs and you need to know why they succeeded or failed. One of the first researchers, Sasha Rush,

1:00:28gave me a blackboard lecture on how they use targeted RL with textual feedback to deal with this problem and train Composer 2.5. I filmed on my iPhone, so apologies for the camera work. So we've generated this output. It's just a sequence of tokens. We're going to send those sequence of tokens to this model that's going to read it. And then it's going to isolate a specific, say, tree that it says is problematic. Then we're just going to do taxi manipulation. We're just going to take that trajectory, and we're literally just going to, like, Smash in some extra tokens. After cursor injects these hidden tokens, they run another forward pass. The trajectory itself doesn't change, but the hint causes the model to assign lower probability to the error tokens. Cursor then trains the original model to match those probabilities, basically teaching it to down weight these specific mistakes. There's a lot more nuance that we couldn't include in this mineral. If you want to watch the full thing, I posted it on my Twitter. And if you want to try out Composer 2.5, head to cursor.com.

1:01:28Do economists have any advice or countries which are not in the AI production chain? If you if you're not either producing the AI models you're not producing The hard word that goes in the models if you're not Korea making HBM or Taiwan making with the FAS or not The Netherlands with ASML Like what is India or Nigeria? What should they be doing right now if you're talking to Modi right now? What do you say? I think the biggest lack of resources that we have allocated in the economic profession is thinking about middle income developing countries in the in the age of AI. And I mean, this is this is my fault. You know, this is something I fault myself with as well. There's not enough people thinking about this question. Like there are scenarios where, you know, you get like AI technology, you know, being allocated and dissipating to Nigeria and developing countries and things like that. And like that leveling the playing field, like essentially like giving them a

1:02:25like a level up as far as capabilities. But there's another world where like because they don't have enough resources, they're not making in, they're not training the models. They don't have the hardware where they just completely get left behind. And because of, you know, automation, we can produce commodities in developed countries now. Then we don't even have, you know, the consumer market. And then that world looks pretty, pretty bad. Yeah. This seems to me like an extension of the messy middle case. Right.

1:02:55One of the ways in which the messy middle might only be bad in a narrow range of scenarios isn't just like it would be easy to redistribute because the power would be bigger, but because the interest rate would be way higher and or sort of equivalently the price of everything except the human intrinsic goods would be would be falling really rapidly. It's sort of two sides at the same point.

1:03:17A little bit of savings would turn into a lot of consumption next year, right? So things have to go really wrong for us to just get over the threshold of capital being productive enough to automate lots of work, but not be productive enough that the interest rate is high and or the price of capital produced goods is falling a lot. So even without redistribution, a little bit of savings will save a lot of people.

1:03:39Sorry, you're saying that the developing countries have some savings in the developed world. That will be enough to produce a lot of surplus that they can- They will now be able to consume a lot using their savings. But I mean, the messy middle could be like wider in this case. I mean, they're starting from such a lower level in terms of like how much they have and how much it's like actually indexed to the global economy. And I think it's important for them to get on it now.

1:04:05have strong feelings about whether it should take the form of sovereign wealth funds that invest in the right supply chains or just subsidies to their own citizens to buy a little bit. This is actually, I think, a crucial point. We were talking earlier about why the Rockefellers are one of the world, why their descendants don't control everything, if our argument about the selection of these kind of greedy optimizers hold. And one argument is just that it's very hard to index the economy.

1:04:30And maybe they would have just decided to have their heirs indexed the economy and have it grow at the rate of economic growth. And they would be trillionaires, their heirs would be trillionaires by now. But it just has, before index funds existed, it just very hard to just get it represented. It's just a very small fraction of the economy going back 100 years accounts for a majority of the value created now. And if you missed those particular things, you would have basically, your wealth would have just kind of stagnated.

1:04:59And maybe there was a brief golden window from the creation of index funds up until, I don't know, five years ago, where actually you could index the economy and you could have your wealth grow at the rate of the economy grows. But now that we're in this world with very concentrated returns, especially two private companies, which is capital that is, as we were making a point in our blog posts, the average person has disproportionately less access to, as opposed to most of their capital is having a random house, at least in the US.

1:05:28Or a part of a house. Yeah, which is, as we're saying, is sort of unique, a capital that is uniquely ill-suited to be complementary to the production of AI or the serving of AI or to robots. Or the kinds of goods that the rich will bid up the price. Exactly, right? Because what is the value of a house currently? It is really the land is close to other humans and modular relational stuff.

1:05:55That is just not going to be the main factor of production in the future. And that's really why George and tax would not raise enough money for the sort of programs that we were describing. Right. But stepping back, the point I was trying to make is, if it gets harder to index the economy now, and that it's supposed to be the main way in which both one and normal people are supposed to module this and sort of use universal big income in the developed world.

1:06:19in the developer world are supposed to have some leverage on or have some purchase on the wealth from AI. And it's also the way that developing countries are supposed to have some purchase on the wealth gains from AI. But it's very hard. I don't know. Is like a right. Is Nigeria own a lot of SK high necks and like anthropic. I'm guessing not. Right. It's not enough for them to just own the S&P 500. So actually this brings up a really important point like is AI going to be like electricity or social media. Right. If it's.

1:06:48So think about ComEd or ComEdison, whatever the electricity provider here is. It's a monopoly. It provides a resource that everybody uses. But do we think about electricity as generating concentration of power and as ComEd having this huge amount of political power, social power, something like that?

1:07:11No, because a lot with electricity a lot of the downstream benefits actually came to like the users of the electricity rather than the rather than the actual entity producing the electricity. On the other hand with social media was the opposite case, right? Social media, you know, it was everywhere. Everybody uses social media, but the rents went to the platform. But that's a really interesting point. The more you think, I don't endorse this take yet. I'm gonna talk out loud, the more you think AGI is going to be, Our economy is going to be run on AGI, the way our economy currently runs on electricity. That is, there's a broad fundamental transformation of the entire economy. The more it looks like electricity, and the more it's like every company in the S&P of the future. Exactly. If it's going to make it to the S&P 500, it is because it has leveraged AI. Exactly. And then you're indexed again. Yeah, exactly. But then again, I guess it is totally, if you just look at how concentrated the S&P is over time, you know, just like these big tech companies, much more so.

1:08:11I guess this is a good fundamental point that it's hard to reason about, about how much of the gains from AI these individual private companies will be able to control. And I think like the open model thing is going to be a big, big point here, right? So like if, if we're indeed like, we're in a, we're in a world where it's like the open miles, there's models are six months behind the frontier of nine months, then, you know, we'll hit AGI, we'll hit whatever. And like in six months.

1:08:36like everybody has access to this resource. And this goes to show you that every question is connected to every other because then that question about whether there's runaway gains connects to questions about recursive sub improvement and even if I have recursive sub improvement then continual learning which or online learning which lets a model learn on the job so if it's deployed it gets to learn more and these are just sort of like technical question or forecasting technical questions which then impact I guess whether you're gone that will have any purchase on the returns of AGI.

1:09:06But it sounds like your answer really, the reason I'm emphasizing the question is I think both for the messy middle and for developing countries, a recommendation that is often made naively is you got to do some kind of retraining, you got to do some kind of like jobs program or you got to have them build data centers in our country. And I think you guys are suggesting something closer to just buy the index of AGI that's like a probably much more cleaner and much more likely to succeed strategy.

1:09:34It's really good. These are the two scenarios, right? So I think there is a world where it is concentrated, in which case it's going to be really hard to index AGI. There is another world where it's electricity, then basically every company has access to AGI. So you just buy the index. So Nigeria just needs to buy the index. And Nigeria has access to AGI. Because of the open models. Yeah.

1:10:05Get back to the question of like about whether to go with retraining or just trying to index I would prioritize trying to index but just given how fast I could you know hit the world but I definitely wouldn't just rely on that because like it could the the sort of Messy middle type cases or just the long timelines cases on which like you we don't get anything like a GI all that soon you'll just be leaving a lot of value on the table if you could have retrained to be a bit better educated to how to use the latest wave of computing. I don't think there's that much of an either or there. I mean, maybe the reason to be pessimistic about this is because one of the reasons the country's poor is that it's a bad education system. And to becoming the best in the world at retraining people using AI, it doesn't seem like a particularly promising strategy for this therefore country.

1:11:02Although there are cases where in developing countries, you had this leapfrogging effect with, for example, mobile banking or something like that. It's much more prevalent in Nigeria than it is in Germany or something like that. Everybody is doing mobile banking. They have it on their phones. They're constantly doing this sort of thing. Again, I'm not putting probabilities on this, but with a transformative technology like AI, you could get leapfrogging.

1:11:32where you skip the step in the middle and you can get really astronomical growth. Maybe. Just about the ease of indexing, can I just quickly say? I think it's definitely something to worry about a bit and keep an eye on. But as discussed in our own essay and as other people have pointed out, it's already not that hard to index. So there's been a bit of an increase in the privatization of returns, but it's still well under 20% of...

1:12:01the total market cap of non-tiny companies in the US is private. And everyone thinks about open AI and Anthropic. And then if that's where all the wealth will accrue, then yeah, all these questions about whether open models will stay only a little bit behind, those are important. But even they look like they're going public.

1:12:24before too long probably. And the frictions that have been keeping companies from going public might themselves be alleviated by AI a lot, right? Just all of the disclosure requirements and whatnot. They want to get access to more potential investors too. And if I had to guess, I would guess that the kind of long kind of general trend of just like lowering those frictions and making it easier for more and more people to index more and more will continue despite the recent bump in the other direction.

1:12:54This actually makes me hope even more so than before that the labs do get commoditized. Or at the very least they go public as soon as possible, but hopefully they just get totally commoditized because I think AI will be much more popular and more importantly will be much more likely to lead to broad increases in prosperity if the gains are...

1:13:16Just not particularly, it is as hard to capture the gains of AI as it's captured the gains of electrification. Yeah, exactly. So I think like everybody, there's no anti-electricity people out there, right? I mean, electricity doesn't take your job, but it takes some people's jobs. Yeah, yeah. And I think it's, you know, this is maybe a tangential to the conversation. I think like there's like a really, narratives matter and there's this like really negative.

1:13:44narrative around AI right now. But that's because people are not putting out the positive narrative. And there's a reason. It's more difficult to imagine something that doesn't exist that's a good thing than losing something that exists. Right. Yeah. Right. So it's very easy for somebody to go on a podcast and to say, like, these jobs that you like, they're going away. Then to somebody to spin up like a utopia which doesn't exist yet. Right. I hope this isn't...

1:14:12Two out of left field but I think I would be remiss if I didn't point out one big cost of having commoditized frontier AI models, which is the The tech race dynamic right that like for safety purposes you might want fewer frontier yeah companies so that each one has a buffer in case they want to slow things down to make things safer and The way this relates to our point before about the kind of widespread access, you know of the returns So I think there's a lot less of a trade-off there than some people imagine where you know, some people think either Frontier AI gets commoditized and we all enjoy the benefits but there might be some risk because like it's the market's really competitive and cutthroat or Things are safer because there's a big gap between the leader and the laggard But that means that the leaders get fantastically wealthy No, like you could just have a relatively big gap, but it's a public company

1:15:11ownership and it's widely distributed. Yeah. More recently I have been thinking that the risk of commodification, which is that it sort of diffuses the, it diffuses the ability to use AI to harmful ends is worth the benefit that I just feel I worry that not only having these concentrated labs makes it so that the sort of surplus isn't as widely distributed through society, but also it creates a very tangible, clear political target for the government to, I mean, we saw this with the Defense Production Act threat against Anthropic. If there wasn't one lab that is, or a couple of labs that are clearly ahead of others, this kind of threat would be much harder to make. Then yes, we're doing this. Yeah, thank you. Thank you. I feel like there's a lot of unresolved questions, but it is helpful to know what the relevant, at least like what is the first branch along all these important dimensions. Great. Thank you.