Welcome to Econ 102, where economist Noah Smith and I make sense of what's happening in the news, technology, business, and beyond through the lens of economics. Let's jump right in. Duresh, Noah, welcome. Our first podcast ever together as a trio.
Yes, excited. I'm very excited. So, Doresh, it's almost like you came up with the scaling era. It's almost like you're a future historian. You're sort of telling the history as it's being written. And so, it's only appropriate to ask you: what is your definition of AGI and how has that evolved over time? Some people say superintelligence, you know, break down for us.
I feel like I'm like five decades too young to be a historian. You got to be like in your 80s or something before I even... But we're living in history right now. So the ultimate definition is: can do almost any job, say like 98% of jobs at least as well, fast, cheaply as a human. I think the more useful definition for near-term debates is: can automate 95% of white collar work, because there's a clear path to get to that, whereas robotics, you know, there's a long tail of things you have to do in the physical world and robotics is slower. So automate white collar work.
Hm. So that's interesting because it's an economic definition. It's not sort of a definition about like how it thinks, how it reasons, etc. It's about like what it can do.
Yeah. I mean, we've been surprised what capabilities have come first in AI is like they can reason already. Um, and why they seem to lack the economic value we would have assumed would correspond to that level of capability. Um, this thing can reason, but it's making OpenAI $10 billion a year and McDonald's and Kohl's make more than $10 billion a year, right? Um, so clearly there's more things relevant to automating entire jobs than we previously assumed. So then it's just useful to like, who knows what all those things are, but once they can automate it, then it's AGI.
And so when Ilya or Meta is using the word superintelligence, what do they mean? Do they mean the same thing or something totally different?
Um, I'm not sure what they mean. Like there's a spectrum between God and just something that thinks like a human but much faster.
Yeah. Do you have a sense of what you think they mean?
God. I think probably they mean something they would worship as a god.
Yeah. And so when Tyler says, 'We've achieved AGI,' and you differ from him, where is the tangible difference there?
Um, I'm just noticing that if there was a human who was working for me, they could do things for me that these models cannot do, right? And I'm not talking about something super advanced. I'm just saying I have transcripts for my podcast. I want you to rewrite them the way a human would. And then I'll give you feedback about what you messed up. And I want you to integrate that feedback as you get better over time. You learn my preferences. You learn my content. And they actually can't like learn over the course of six months how to become a better editor for me or how to become a better transcriber for me. And since a human I hire would be able to do this, and they can't, therefore it's not AGI.
Now I have a question. I am a natural general intelligence. You are a natural general intelligence. But we cannot easily do each other's jobs even though our jobs are fairly similar. Right. Um, put me in the Dwarkesh Patel podcast and I could not interview people nearly so well. If you had to write Substack articles like several times a week on economics, you might not do as well. So then, um, but we are general intelligences and we're not exactly substitutable. So why should we use substitutability as the criterion for AGI?
I mean, what else is it that we want them to do? I think with humans, we have more of a sense of like there's some other human who theoretically could do what you would do. A model is an individual copy of a model might be say fine-tuned to do a particular job and it would be fair to say then why expect this particular fine-tune to be able to do any job in the economy. But then there's a question of well there's many different models in the world and each model might have many different fine-tunes or many different instances. Any one of them should be able to do a particular white collar job for it to count as AGI. It's not that like every AGI should be able to do every single job, but that some artificial intelligence should be able to do this job for this model to count as AGI.
I see. Okay. But so let's take another similar example. Let's take Star Trek. Okay. You got Spock. He's very logical. He can do stuff that Kirk and whoever can't do. But then those guys can do stuff that Spock can't do. Like get in touch with their emotions, intuition, stuff like that. They're both general intelligences, but they're alien to each other. So, you know, AI feels alien to me. Sometimes it talks just like us. It was built off of our thoughts obviously, but then, you know, sometimes it talks just like us and sometimes it's just like very alien. And so, but should we ever expect that to change such that it's no longer an alien intelligence?
I think it'll continue to be alien, but I think eventually we will gain capabilities which are necessary to unlock the trillions of dollars of economic value that are implied by automating human labor, which these models are clearly not generating right now. Um, so you could say well like if we substituted jobs right now immediately there'd be a huge productivity dip but over time we would learn to, you know, start doing them better. I mean maybe a better example is just that like you hire people to do things for you. I don't know if you actually hire people but I assume... Okay. Okay. Like why do you still have to do that rather than hiring an AI? And I have like many rules where it's like an AI might be generating hundreds of dollars of value for me a month but like humans are generating thousands of dollars or tens of thousands of dollars of value for me a month. Um, like why is that the case? And I think just like the AI are lacking these capabilities. Humans have these capabilities.
And is the main thing missing in your view sort of continual learning? The reason humans are so valuable is not just their raw intellect. It's not mainly their raw intellect, although that's important. It's their ability to build up context. It's to interrogate their own failures and pick up small efficiencies and improvements as you practice a task. Um, whereas with an AI model, its understanding of your problem, your business will be expunged by the end of a session. Um, and you're just starting off at the baseline of the model. Like with a human, you got to train them over many months to make them useful employees. What will need to happen for that to change? Like what needs to change in order for AI to develop that capability?
I mean, um, I probably wouldn't be a podcaster if I had the answer to that question. Um, uh, it just seems to me that like a lot of the modalities we have today to teach LLM stuff do not constitute this kind of continual learning. For example, making the system prompt better is not the kind of continual learning or on-the-job training that my human employees experience, or RL fine-tuning is not this. But I like what the solution to this looks like. It's precisely because I don't have an obvious solution that I think we're many years away.
Okay, so here's my question about replacing jobs. Uh, you know, it seems to me that it's partly about demand. So, for example, suppose that AI has already replaced my job or can replace my job. So suppose that anyone who goes on to, you know, fires up ChatGPT or whatever model and says, 'Search the web, find the most interesting topics that people are talking about in economics and write me an insightful post telling me some cool new thing I should think about,' and they just do that every day and then they get a better blog than Noah's. I don't know if that's happened yet. I mean I've tried that and I don't like it as much, but suppose that most people would like it as much and so my job has been automated and people just don't realize it, or people have this sort of idea in their mind of like, well, is it really a human and blah blah blah, and then as generational turnover happens young people won't care about reading a human, they'll care about reading an AI. But in terms of functional capabilities it's already there, but in terms of demand it's not there. Uh, how much of that could there be?
I expect there will be much less of that than people assume. If you just look at the example of Waymo versus Uber, I think you previously could have had this thing about people will be hesitant to take automated rides, and in fact in the cities where it's been deployed people love this product despite the fact that you had to wait 20 minutes because the demand is so high. Um, and it still has some glitches to iron out, but just like the seamlessness of using machines to do things for you, the fact that it can be personalized to you, it can happen immediately. Uh, I mean, one thing people would be like, okay, well doctors and lawyers will set up guilds and so you won't be able to consult. Um, I think there might be guilds in who can call themselves a doctor or a lawyer, but I just think if like genuinely as good medical advice as a real doctor, the experience of just talking to a chatbot rather than spending three hours in a waiting room is so much better that I think a lot of sectors of the economy will look like this, where we assume people will care about having a human, but in fact they will not, if you assume that they will genuinely have the capabilities that the human brings to bear.
So, it's interesting, you know, AI is better for diagnosis on a lot of things than humans, right? But then, um, something about having humans to follow up with makes me also want to check with a human after I've gotten diagnoses from an AI on something.
And so, that might vary by job. Like cars may be one thing and then, um, but maybe it is about capabilities. I can't say. I'm just saying like everybody seems to think that AI is a perfect substitute for humans and that's what it should be and that's what it will be, and everyone seems to think of it in that case. However, every other tool that's ever been made, every other technological tool was a complement to humans. It could do some things humans could do. Maybe even it could do anything humans could do but at different relative costs, different relative prices. So that you'd have humans do something and the tool do other things and you'd have this complementarity between the two. And yet when people talk about AI and think about AI, they essentially never seem to think in these terms. They always seem to think in terms of perfect substitutability. And so I'm trying to get to the bottom of like why people insist on always thinking in terms of perfect substitutability when every other tool has been, you know, complementary in the end.
Well, human labor is also complementary to other human labor, right? There's increasing returns to scale. Um, but that doesn't mean that there's like, you know, Microsoft has to hire some number of software engineers and like it will care about the cost of what the software engineers cost. Like it will go to markets where they can get the highest performance for the relative value the software engineers are bringing in. I think it'll be a similar story with AI labor and human labor. And the AI labor just has a benefit of having extremely low subsistence wages. Like the marginal cost of keeping an H100 running is much lower than the cost of keeping a human alive for a year.
Noah, would you say you're AGI-pilled in the sense that Dwarkesh described the term? And how do you understand, we've talked a little bit about AI's effect on labor. Why don't you share why you're perhaps a little bullish that there will be, you know, planning for humans to do and that'll be more complementary.
What is AGI-pilled? Would you just believe that it will automate a huge swath of the economy?
I am very unwilling to say like, here's something technology will never be able to do. I mean that always seems like a bad bet. Here's two things people have been saying since the beginning of the industrial revolution. Neither of which has ever remotely come close to being true even in specific subdomains. Um, the first one is here's a thing technology will never be able to do. And the second one is human labor will be made obsolete. Those people have been saying those two things and you can just go, you can read it. You can even, you know, ask AI to go search and find, I have done this, and find you examples of people saying those two things. People have been saying those two things over and over and over and over and over and it's never been true. That doesn't mean it could never be true. Sometimes something happens that never happened before such as the industrial revolution itself. You know, you have this hockey stick where suddenly like, oh we'll never get rich. We'll never get rich. Oh we're rich. And so, you know, sometimes that happens, the unprecedented can happen. However, I'm always wary because I've seen it said so many times. And so, you know, within just the last 10 years or whatever, I've seen a couple predictions just spectacularly fail. So, for example, in 2015, 10 years ago, I was sitting in the Bloomberg office in New York, and my colleague, who I won't name, but he was physically yelling at me that truck drivers were in trouble. And you know, that truck drivers are all going to be put out of a job by self-driving trucks. And he just said this is going to just devastate a sector of the economy. It's going to devastate the working class, going to devastate blue collar labor, blah blah blah. And at the same time I was reading like I always read the sci-fi, you know, top stories of the year, whatever. And so there were two stories in the same year about truckers being mass unemployed by, you know, self-driving trucks. And then 10 years later, there's a trucker shortage and the number of truckers we hire is higher than ever.
I'm not saying truckers will never be automated. They may. However, I'm saying that was a spectacularly wrong prediction. And you also got Geoffrey Hinton's prediction that radiologists would be unemployed within a certain time frame. And by that time, radiologist wages were higher than ever and employment was higher than ever. I'm not saying this can't happen. I'm not smugly sitting here and saying there's a law of the universe that says you'll never see this kind of mass unemployment, blah blah blah. There were, I mean, encyclopedia salespeople were mass unemployed by the internet. We've seen it happen in like, in real life. But these predictions keep coming wrong and keep coming wrong. And I'm trying to figure out why. Why is that true? Why do they keep coming wrong? Is it simply that people overestimate progress in technical capabilities or are there complementarities that people can't imagine from sort of like the standard division of tasks?
I think the problem has been that people underestimate how many things are truly needed to automate human labor. And so they think like we've got reasoning and now that we've got reasoning we've like, this is what it takes to take over a job when I think in fact there's much more to a job than is assumed. Um, that's why I, you know, wrote this blog post where I'm like, look, it's not a couple years away. It might be longer than that. Then there's another question of like by 2100 will there be jobs that humans are doing? Um, like if you just like zoom out long enough, will we ever be able to make machines that can think and do physical labor at least as cheaply and as well as humans can? And fundamentally the big advantage they have is like we can keep building more of them, right? So we make as many of those machines as the value they generate equals the cost of producing them.
And the cost will continue to go down, right?
Yeah. And it will be lower than the cost of like keeping a human alive. So if like even if a human could do the exact same labor, a human needs like a lot of stuff to stay alive, let alone, you know, to grow a human and everything. Um, an H100 costs $40,000 today, the yearly cost of running it is like thousands of dollars. We can just buy more H100s, right? Like if currently we have the algorithm for AGI, we could run it on H100. Um, and yeah.
So however big the demand is, the latent demand, right, that's unlocked by the more supply, we just increase the supply basically to meet that demand. So first, why don't you sort of, when AGI is here, what does the world look like? Because you know Sam Altman was reflecting on his podcast with Dwarkesh the other week. He was saying, you know, if you told me 10 years ago that we would have, you know, PhD-level, you know, AI, I would think the world looks a lot different, but in fact it doesn't look that different. Yeah. And so is there a potential where we have, you know, much, much more increased capabilities but actually the world does, it's like, you know, Peter Thiel called it the 1973 test or something. It's like we have these phones but the world just looks the same. We just have phones in our pockets.
Yeah. I think if we have like chatbots that can answer hard math questions, I don't expect the world to look that different because the fraction of economic value that is generated by math is like extremely small. Um, but there's like other jobs that are much more mundane than quote-unquote PhD intelligence which a chatbot just cannot do, right? A chatbot cannot edit videos for me. Um, and once those are automated I actually expect a pretty crazy world because the big bottleneck to growth has been that human population can only increase at this slow clip. And in fact, you know, one of the reasons that growth has slowed since the 70s is that in developing countries, the population has plateaued. With AI, the capital and the labor are functionally equivalent, right? You can just like build more data centers or build more robot factories and they can do real work. And so you can have this explosive dynamic. And once we get like that loop closed, I think it would just be like 20% growth plus.
Do you see that as feasible, possible? 20% growth. Tyler I believe said 5%, right?
5% more than the steady state. 5% more.
And what's the argument? Just that, um, yeah, what is the argument for that?
For Tyler's argument, bottlenecks. I think the problem with that argument is that like there's always bottlenecks, right? So you could have said before the industrial revolution, well we will never 10x the rate of growth because there will be bottlenecks, and that doesn't tell you about, like you empirically have to just like look at the fraction of the economy that will be bottlenecked and like what is the fraction that's not and then like actually derive the rate of growth. Um, the fact that there's bottlenecks doesn't tell you like... Yeah. Okay.
Is he mostly referring to regulation or...
Yeah. And just that like we live in a fallen world and people will have to use the AIs and there are things like that.
Who'll be buying all the stuff? So, background in economics, GDP is what people are willing to pay for, right? Who will be buying the stuff in a world where we get 20% growth?
First of all, I don't know. You could have said in 10,000 BC, like the economy is going to be a billion times bigger in 10,000 years. Like what does it mean to produce a billion times more stuff than we're producing right now? Who's buying all this like stuff? It's just like you can't like predict that in advance.
In the 1700s I could tell you exactly who was buying stuff, which was everybody, you know, peasants. Like I could tell you, like, you know, in fact people wrote these things around 1900 about what the world would look like in a hundred years. You know, what we'll have. They didn't get exactly the right things right that we'll have, but they correctly identified that it would be regular consumers who would be buying all these things, regular people, and so that came true, it was obvious. But here's my point, here's my point. Suppose that 99% of people do not have a job and are not getting paid an income and all the money is going to sort of Sam Altman, Elon Musk and like five other guys, okay? And they're captive AIs that they own because for some reason our property rights system still exists. But okay, suppose that that's the future we're contemplating. Right. And so 99% of people or more don't have any job. They don't have any income. They're out on the street. And yet you're saying 20% growth a year. That growth is defined by people, consumers paying for things and saying here is...
I wouldn't define it just as people. I would just define it as like the... I mean, agents.
No, that doesn't count as GDP. Only final goods. Only final goods.
Okay. So we're like launching the Dyson spheres. We're not allowed to count that because like the AIs are doing it. I mean like I want to know what the solar system will look like. I don't care like what the semantics of that are. And I think the better way to capture what is physically happening is just like you will...
Why will they do any of that?
One argument is simply that if there's any agent, AI or human, who cares about colonizing the galaxy, um, even if like 99% of agents don't care about that, if like one agent cares, they can go do it. Colonizing the galaxy is a lot of growth because the galaxy is really big, right? So it's very easy for me to imagine if like Sam Altman decides to launch the probes, how like, you know, breaking down Mars and sending out the von Neumann probes like generates 20% growth.
I think what you're getting at here is that AI will have to have property rights. AI agents will have to use control of resources.
Even if, I guess it depends on what you mean by autonomous. Today we already have computer programs that have autonomous use of resources, right?
Okay. But the program goes off and colonizes the solar system. It's not like a dude telling it, colonize the solar system now and doing all this stuff. It's like the AI has made the decision to do it and Sam Altman's sitting back there saying, 'Oh, well, you know...'
I'm just saying this is not a crux. Like if Sam Altman could say it or the AI could say it, like if some agent cares about this and they're not stopped from doing it, like this is just like physically you can easily see where the 20% growth is coming from.
Let me make this a little more concrete. Suppose that AI is going to produce a bounty of the things that humans desire and that's going to be what growth is. How will it get to the humans if the humans don't have a job? And if the humans don't have a job, why will AI be... So, in other words, if there's no consumers to buy my cars, why am I building cars?
You might be assuming there's some UBI or some sort of...
No, no, I don't need to assume that. Although, I mean, let's assume there's not that.
Yes, I don't need to assume that.
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It seems like you're saying, look, if like 99% of consumers are no longer consumers, where's this economic activity coming from?
Yeah. And I'm just saying, okay, if like one person cares about colonizing the galaxy, that's generating a lot of demand. It takes a lot of stuff to colonize the galaxy. So like this world where like every, even if there's not an egalitarian world where everybody's like roughly contributing equivalent amounts of demand, the potential for one person alone to generate this demand is high enough that like...
So Sam Altman tells his infinite army of robots to go colonize the galaxy. We count that as consumption. We put a value on it and that's GDP.
Yeah. Or like it might be investment. Maybe he's like going to defer his consumption to once he's like after he's colonized the galaxy.
And I'm not saying this is the world I want. I'm just saying like just like think about it physically. If you're colonizing the galaxy, which you can do potentially after AGI, I mean I'm not saying like it'll happen tomorrow after AGI, right? But like this is a thing that's physically possible. Is that growth? Like something's happening that's like explosive?
Maybe. The thing is that it's a very weird world. It doesn't look like the kind of economy we've ever had, right? And it's not, you know, we created the notion of GDP to represent, you know, people exchanging money for goods and services, people like basically exchanging their labor for goods, exchanging the value of their labor for goods and services. That's at a fundamental level, that's what GDP is. We're envisioning a radical shift of what GDP means to a sort of internal pricing that a few overlords set for the things that their AI agents want to do. And that's incredibly different than what we've called GDP in the past.
Um, I mean, I think the economy will be incredibly different from what it was in the past. I want to say that I'm not saying this is like the modal world. There's a couple of reasons why this might not end up happening. One is even if your labor is not worth that much, um, the property you own is potentially worth a lot, right? Like if you own the S&P 500 and there's been explosive growth, you're like a multi-multi-millionaire, or the land you have is like worth a lot if like the AI can make such good use of that land to build the space probes, um, assuming our system of property rights continues into this regime. Um, and second, so I mean in many cases it's hard to ascribe how much economic growth there has been over very long periods of time. For example, um, over 500 years, like if you're comparing the basket of goods that we can produce as an economy today versus like 500 years ago, um, it's like not clear how you compare. There's like we have antibiotics today. I wouldn't want to go back 500 years for any amount of money because they don't have antibiotics and I might die and it'll just suck. So there's actually like no amount of money, um, in like 1500 to live in 1500 that I would rather have than live today. And so if we have those quality of goods for normal people, just like, you know, you can live forever, you have like euphoria, drugs, whatever, these are things we can imagine now. Hopefully it'll be even more compelling than that. Then it's easy to imagine like, okay, it makes sense why this stuff is worth way more than the stuff that the world economy can produce even for normal people today, right?
Yeah. And so I guess I'm just thinking about, um, this is a thing that economists really struggled with in the early 20th century. It's this idea that, uh, you know, we had this capacity to expand production, expand production, expand production. And then the thing is that companies competed their profits to zero and the profits crashed and nobody wanted to expand production anymore because they weren't making any profit. We're seeing this happen again in China right now with overproduction. We're seeing BYD having to take loans from its suppliers just to stay financially afloat even though it's the best car company in the world because the Chinese government has paid a million other car companies to compete with BYD, and so you compete, you know, you overproduce. So you have this overproduction. The question is, uh, so the solution was to expand consumption. This is the solution people are recommending for China now, to expand so that you can... and then that will, and the profits from this go negative, that makes the GDP contribution go to zero, and basically OpenAI and Anthropic and xAI and whatever will just be sitting there saying, why am I doing this again? Why am I... no one's buying this, you know. And so like, um, at that point, well, it seems like there will be corporate pressure on the government to do something to redistribute purchasing power so that they don't compete their profits to negative, and so they have some reason to create more economic activity so they can take a slice of it, which is essentially what happened in the early 20th century.
Yeah, I disagree with this. I think...
I'm not saying this will happen. I'm saying like that would be the analog.
Um, I think this just like, I disagree. I would prefer it to be the case that even as a libertarian, I would prefer for significant amounts of redistribution in this world because like the libertarian argument doesn't make sense if there's like no way you could physically pick yourself up by the bootstraps. Like your labor is not worth anything. Um, or your labor is worth less than subsistence, uh, subsistence, you know, calories or whatever, which is a more relevant thing. Um, uh, but like I don't think this is analogous to the situation in China. I think like what's happening in China is more due to the fact that you have the system of financial repression which redistributes money and also, um, currency manipulation which basically redistributes ordinary people's money to these, uh, to basically producing one EV maker in every single province. Um, so it is the market distortion that the government is creating that causes this overproduction. Uh, we can go into what like the analogous thing in the AI case looks like. But I think if there isn't some market distortion, I just think like people will use AI where it has the highest rate of return. Like if it's not space colonization, there will be like, you know, longevity drugs or whatever.
I'm just saying like why would I, why would I, why would I invest all this money into AI producing stuff? Uh, why would I just invest the massive hundreds of billions and trillions and whatever of dollars into producing stuff for people who are all going to be out of a job and won't be able to buy this stuff?
But again I don't think you'll be producing it for them. I think you'd be producing it for whoever does have like some... there's stuff in the world so somebody will have stuff. Maybe it's the AIs, maybe it's Sam Altman. Um, you're producing it for whoever has the capability to buy your stuff. Um, and AI can do so many things, least of which is like colonizing the galaxy. People will be willing to pay a lot of stuff, right?
I'm just trying to get this straight in my head of what this economy looks like. And what I'm seeing a picture of, the trillions of dollars needed to build out all these data centers will be done not for profit, not to make money from a consumer economy for the creators of the AI, but to satisfy the whims of a few robot lords to colonize the galaxy.
I think you're making two different points and they're getting wrapped into one. Um, I'm saying yes, important word. Um, so there's one about like do you expect it to be the case that the robot overlord world happens, and I'm saying no actually, like even without redistribution, first of all I expect redistribution to happen, I hope it happens, but even if it doesn't, uh, and I don't think it'll happen because people like corporations wanted redistribution to happen, I think it's just like it'll be good to happen for independent reasons, but I don't buy this argument that like the corporations will be like, we need somebody to buy our AI therefore we need to give the money to the ordinary consumers.
Do you believe broad-based asset ownership will create a whole lot of broad-based consumer demand even in the absence of labor income?
I'm honestly, I don't have like a super strong opinion, but I think that's like plausible. Um, uh, but independent of that I'm like, okay, even if that demand doesn't exist, just like the things you can do with a new frontier of technology, as long as one person wants it, there's like so much room to do things, you know, like space colonization is an obvious example of money... right? That like there's like obvious demand for the things that AI will be able to produce, right? Like one of the things it can produce is colonize a galaxy.
Right, exactly. So but the question is like who, you know, I can see a paperclip-maximizing, you know, autonomous intelligence colonizing the galaxy, but in terms of...
That is, but in terms of... and so by the way I would like to say that I am a paperclip maximizer. I am the real paperclip maximizer. I want to maximize rabbits in the galaxy. I want to turn the entire galaxy into fluffy rabbits, that's my goal. And so my goal with AGI is to enlist the AGI to help me in this goal, but then to align them toward rabbits. But anyway, um...
Get these down in front of the OpenAI board of directors.
I know. I like, the objective social welfare function is floofiness. Um, but I guess my point here is, um, as long as AI still doesn't have property rights and it's humans making all the economic decisions, be it Sam Altman and Elon Musk or some, you know, you and me, uh, then at that point like that really matters for what gets done because then if we're talking about the money needed to build all these massive data centers, which currently it's a lot of money, it's a ton of money required to build these data centers, and that money need will not go away. We can't just like say oh cost goes to zero because we can say unit cost goes to zero but total cost doesn't go to zero, nor has it, it has increased. Uh, the total spend on data centers has increased and I think everyone expects it to increase for the foreseeable future. The question is, is that money being spent because AI companies expect to reap benefits from consumers like you and me? Or to what extent is it that? And to what extent is it Sam Altman feels like doing some crazy stuff and Sam Altman's just godlike richer than everybody else. And so Sam Altman is actually consuming when he builds those data centers. He is building those data centers so that he can indulge his godlike whims.
And so that's a... I mean I think more plausible than either a single godlike person is able to direct the whole economy, or like there's this broad-based consumer every person, these are extremes, I think more plausible is like AIs will be integrated through all the firms in the economy. Um, a firm can have property. Um, firms will be like largely run by AIs even though there's nominally a human board of directors, and it might not even be nominal, right? Like maybe the AIs are aligned and genuinely give the board of directors an accurate summary of what's happening. But like day-to-day they're being run by AIs, and firms can have property rights, firms can demand things.
So say all you have is a board of directors and AI.
I mean in the ideal world.
So then what we're basically looking at is capital, the labor share of income goes to zero or something approaching that, depends on how you define the labor...
And capital share of income, and capital income is distributed highly unevenly, much more unevenly than labor income, but it's still distributed reasonably broadly. Like I have capital income, you have capital income. So like...
So at that point we have just an extremely unequal society where owners get everything and then, you know, workers get nothing, and then so we have to figure out what to do about that.
The hopeful case here is the way our society currently treats retirees and old people who are not generating any economic value anymore. And if you just look at like the percent of your paycheck that's basically being transferred to old people, it's like, I don't know, 25% or something. Um, and you're willing to do this because they have a lot of political power. They've used that political power in order to lock in these advantages. They're not like so overwhelming you're like, I'm going to go to like Costa Rica instead. You're like, okay, I had to pay this money. I had to pay this concession. I'll do it. And hopefully humans can occupy that sort of like, can be in a similar position to this massive AI economy that old people today have in today's economy.
All right. What do humans do? Uh, so let's say they get some money, they have enough to live. Uh, how do they spend their time? Is it art, religion, poetry, drugs?
Broadcasting. It's the final job.
Yeah, we're ahead of the curve here.
We're the last men of history. Wait, so here's an idea. How about a sovereign wealth fund?
Okay, sovereign wealth fund. We tax Sam Altman and Elon Musk.
We're using Sam as a metaphor here. He's a friend of the firm, you know.
Yeah. Yeah. We tax him. We tax Mark and so then we use their money.
Only the friends of the show will be taxed.
We use that money to buy, we use that money to buy like shares in the things that those people have. So they get their money back because we're buying the shares back from them. Okay. So it's okay. And then we hire them.
Because then what we do is we hire a number of firms including a16z and pay them 2 and 20 or whatever to manage the investment of AI stuff on behalf of the humans. But then the humans become broad-based sort of index fund shareholders or shareholders in whatever you guys choose to invest and then you take a cut and this could be the future economy. This is what my PhD adviser Miles Kimball has suggested. This is what the socialist Matt Bruenig has suggested. And this is what Alaska actually does with oil.
Capitalists like it, socialists like it, Alaska likes it.
I think sovereign wealth funds generally have a bad track record. There's some exceptions that have like managed to use their wealth like Norway or Alaska, but there just like these political economy problems that come up when there's this tight connection between the investment which should theoretically be just highest rate of return and politicians. So I don't have a strong alternative. Ideally, you just let the market decide how the investment should happen and then you can just take a tax. Um, but then exactly where does that tax happen? I haven't thought it through. But I wouldn't want the government influencing where that investment happens, but I want the government taking a significant share of the returns of that investment.
Yeah. Are you dubious of the trope that, you know, labor provides meaning and if people don't have a clear sense for labor then it will be very difficult for them to obtain alternative sources of meaning? Or is that kind of a, you know, a capitalist sort of stroke that isn't necessarily true perspective?
My suspicion is that humans have just adapted to so much, like agricultural revolution, industrial revolution, the growth of states, the, you know, like once in a while like a communist or fascist regime will come around or something. Like the idea that being free and having millions of dollars is the thing that finally gets us... Yeah. Um, I'm just suspicious of...
By the way, do we not disagree about the thing? I'm saying like once we get AGI, humans will not have high-paying jobs. Do we disagree about this?
Uh, I think humans may have high-paying jobs.
Okay. Because of comparative advantage. You know, if there's some...
The key here is if there's some AI-specific resource constraint that doesn't apply to humans, um, then comparative advantage law takes over and then humans get high-paying jobs even though AI would be better at any specific thing than a human because there's some sort of aggregate constraint. The example I always use of course is Marc Andreessen, who is the fastest typist I have ever seen in my life and yet does not do his own typing. And so, you know, because there's a Marc Andreessen-specific aggregate constraint on Marc Andreessen's... there is only...
one of him, and so then, so he hasn't taken all the secretaries' typist jobs, but because he has better things to do. And so if there's some sort of AI-specific research constraint that hits, then humans could have... Now, I'm not saying there will be.
And I'm not saying there won't be. Yeah. I'm saying I don't know if there is.
Yeah. The reason I find that implausible is that I think that will be true in the short term because right now there's 10 million H100 equivalents in the world. You know, in a couple years there might be 100 million. But like, an H100 has the same amount of flops as a human brain. So theoretically they're like as good as a brain if you had the right algorithm. So there's like a lower population of AIs even if you had AGI right now than humans. But the key difference is that in the long run, you can just keep increasing the supply of compute or of robots. And so if it is the case, so if an H100 costs a couple thousand dollars a year to run, and you know, but the value of like an extra year of intellectual work is still like $100,000. So you're like, look, we've saturated all the H100s and we still had to pay a human, we're going to pay a human $100,000 because like there's still so much intellectual work to do in that world. The return on buying another H100, like an H100 costs $40,000, just like in a year that H100 will pay you over 200% return, right? So you'll just keep expanding that supply of compute until basically, you know, H100 plus depreciation plus running cost is the same as an extra year of labor. And in that world, that's like much lower than human subsistence. So comparative advantage is totally consistent with like human wages just being below subsistence.
It is, but that comes from the common resource consumption. So you know, if basically all of the land and energy that could be used to feed and clothe and shelter humans gets appropriated by H100s, then that is the case. However, if you pass a law that says this land is reserved for growing human food, and if you pass a law that says this land, you know, that we have a minimum, if we actually were to just pass a simple law saying that you have to use these resources, these resources reserved for humans.
But at that point the comparative advantage... at that point like...
Human labor has nothing to do with this. The only reason the system works is that you are basically transferring resources. You've come up with a sort of intricate way to transfer resources to humans. You're just like, this resource is for you. You have this land and therefore you can survive. And this is just like an inefficient way to allocate resources to humans.
It's true that it is an inefficient way.
So but that has nothing to do with... I think people will hear this comparative advantage argument and be like, oh, there's some intrinsic reason...
Yeah. I mean, sure, but then again, we typically do not see the first, best, most efficient political solution implemented for things like redistribution. In the real world, redistribution happens via things like the minimum wage or, you know, like letting the AMA decide how many doctors there's going to be. So redistribution in the real world is not always the most efficient thing. So I'm just saying that like comparative advantage, if you're talking about will humans actually continue to get high-paid work, yes or no, it depends on political decisions, it depends on physical constraints that will happen.
But the high-paid jobs are literally because like you have said that there must be high-paying jobs politically, like it...
I understand you in this case, you said it in an indirect way, but you still said it, right?
That's right, you're absolutely right.
Yeah, or I guess it's like incredibly different from what somebody might assume, right? Like it just has almost nothing to do with the comparative advantage argument.
Okay, sure. But that's true of a lot of jobs that exist now. Like a lot of jobs that exist now, you know, like I'm not sure what, like university professors, like there's a lot of those jobs, or like credit rating agencies, or you know, there's a lot of things where, you know, probably we could wring out some significant TFP growth more or less by eliminating those things, but we don't because our politics is a kleptocracy. I think this is one of Tyler's points.
Yeah, I mean I do think it's important to point out in advance, like basically it would be better if you just bit the bullet about AGI so that instead of doing redistribution by expanding Medicaid and then, you know, Medicaid can't procure all the amazing services that AI will create. It'd be better if we just said, look, this is coming. And I'm not saying we should do a UBI today, but like the long... if all human wages go to zero or go below subsistence, then the only way to deal with that is through some kind of UBI rather than, you know, if you happen to sue OpenAI, you get a trillion-dollar settlement. Otherwise, you're kind of screwed, right?
We'll continue our interview in a moment after a word from our sponsors.
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Some people said the bear case for UBI was something around like COVID as an example. You gave people a bunch of money and what do they go do? Go riot in the streets? I'm teasing, but like, are people going to use that money in an effective way?
I mean, that was literally what happened.
Yeah. So, is UBI the form that you would think? Like, what is the most effective method?
The reason I favor UBI is like this thing where in a future world with explosive growth, we're going to see so many new kinds of goods and services that will be possible that are not available today. And so distributing just like a basket of goods is just inferior to saying, oh, if like we solve aging, here's like, here's some fraction of GDP, go like, go spend your tens of millions on partly on buying this aging cure, whatever this new thing that AI enables, rather than here's like, here's a food stamps equivalent of the AGI world that you can have access to.
Of course, I mean, this discussion may be academic because I believe that, you know, you said that we got phones and the world looked the same. I mean, no, it doesn't. Phones have destroyed the human race. Like the fertility crash that's happening all around the world, right? Nobody has replacement-level fertility. Fertility is going far below replacement everywhere because of technology.
