I’ve got to be careful how I talk about this due to NDA’s, but I’ve got first hand experience integrating AI into production lines in boring parts of the economy. I tend to think the role of AI is under appreciated in fueling future growth. But I don’t think it will be because of chatGPT models. There are a lot of more fundamental parts of the economy with highly technical aspects that will drive growth. Some hypothetical examples:
1) AI-driven alleviation of administrative burden (e.g. automated reading of forms, automated ID verification, etc.)
2) Signal processing, where AI can make a best guess of missing parts of a spectral signal to keep transmission humming
3) Micro-grid software, where AI can apportion energy use and estimate power output from power plants. As EVs are adopted, they can also estimate which portions of an existing grid should be prioritized for upgrades.
4) Manufacturing decision making, which shrinks the gap between problem presentation and solution for in-line processes.
None of these have the appeal of say, asking your computer to turn a family photo into a Picasso painting or having chatGPT adopt Tolstoy’s War and Peace for the wizarding world. But they are more likely to leave an impact. What’s more, the advances in consumer AI tend to outpace the use of highly technical AI. So as cool as chatGPT is, it vastly exceeds the AI applications in industry today. As such, I don’t think the current generation of AI techniques is baked in yet, and the current generation is moving fast.
20% growth is a huge overshoot for AI predictions. Ideas are useful, but we can see growth rates where the ideas are already there and just need to be implemented. This is what the developing world does; they copy existing models which is how they get such fast growth--textiles; steel; cars; electronics; etc. but maybe 9%, not 20%.
“I wish the people who complain about these things would imagine what their ideal situation for housing prices would look like.”
Probably they want everything to stay exactly the same forever. That’s the common human instinct which then turns into unspoken assumptions by journalists. It’s not very sensible!
1) China/Asian Coalitions: Chinese growth was driven by three items...all of which are in strategic decline:
a) Deficits: Extreme Deficit spending on the investments. (RE being the biggest, but not unique). Without market discipline, there are all sorts of capital misallocations.
b) Exports: Export driven by largely low-value manufacturing with the availability of cheap and highly scaled labor. Over time, it was no longer cheap and with demographics, no longer scalable. These are shifting rapidly from China to other locations and robotics is shifting the value of cheap labor in any case.
c) CCP: To maintain control, CCP has created conditions to kill internal and external partnerships.
Overall, it is unlikely that China will remain the world's manufacturing hub for long. BTW... Mexico just passed China as the biggest trading partner for US.
2) AI: AI is a misnomer ... there is no real intelligence there. However, there are significant additional capabilities which will add quite a bit of productivity in nearly all industrial sectors. The biggest impact is likely to be in the "physically" connected robotics (think Agriculture, Industrial, Transportation, etc). White collar work will also be impacted...especially the non-create mundane... low-level programming. I would not be surprised if medical delivery (as opposed to medical research) will also be impacted in an economic sense.
3) Regulation: This is a huge issue. The nature of the issue is finding the right impedance match between necessary regulation and market innovation. Fixing this is of benefit to all... on a policy level finding metrics/models to measure regulation impact, volatility, renewal rates is an important area to study.
BTW, Juhasz, Lane, and Rodrik recently have an excellent paper on the new industrial policy https://www.nber.org/papers/w31538. You may want to make use of it in your discussion on this topic.
Hey Noah, do you have thoughts about the millenial Argentinian presidential hopeful Javier Milei? He is leading the race at the moment and says he wants to eliminate their central bank. I think he joking said he wanted to burn down the building in which the bank resides. I have a feeling you could do a great analysis of his economic ideas (and his haircut).
Here's a bloomberg video of him (briefly) describing his desire to use the US dollar and eliminate the bank:
The underlying problem is that democracy works too well and humans are too easily distracted by the low-hanging fruit of the highest standard of living the world has ever seen and expect everything to go their way, everyday and in every way.
It took hyperinflation to bring Hitler into power and then the depression to allow him to con the German people into giving him total power, but all Trump needed was his ability to make people feel like victims when conditions changed and they had to move and maybe settle for a somewhat less Bountiful standard of living.
I think you addressed that when you quoted someone as saying the millennials might have been expecting to be able to live in a large apartment in New York City when less than 100 years ago, my father grew up in a two room house, kitchen and bedroom, and there were seven kids. I spent Summers in that house and they still had their workhorses, now retired, replaced by a small tractor. We are going to have ups and downs, maybe a lot of them given climate change and the fact that the autocrats are making one more effort to be modern-day Tamerlanes.
l am more concerned that we same to have forgotten that that low-hanging fruit grows on the tree of Liberty and that needs to be watered and fertilized and paid attention to. As the saying goes "Eternal vigilance is the price of Liberty."
As for China's future I would like to see you and Peter Zeihan thrash out your conflicting visions of China's future. He thinks China also forgets that their success is due to us giving them a chance to develop their economy without having their exports hijacked on the high seas and forgetting that if they start a fight with us that's not going to apply anymore.
Regarding this non-stop exponential growth didn't someone in here make a statement that if something can't go on forever then it will stop sometime? Well, what form is all that growth going to take? What do humans need that would create demand for what? I know, that things will appear that we seem to think we need and I've been reading science fiction since 1955 so I know there is a lot of room for that growth but if there's only a few humans necessary to that growth, then who is going to consume it.
One last thing. I'm a big fan of AOC and I hope she is spending a lot of time at Nancy's knee learning how politics work.
With respect to progressives being open to deregulation why is it that I *never* hear about deadweight loss due to housing restrictions *except on Slow Boring*. Seems like a really important thing to tell people that density might be irritating in some cases but we’ll probably be wealthier for it. Too jargon-y and abstract for us, the hoi polloi?
How is that chart of homeownership rates supportive of the idea that millenials are doing fine?
It shows that, from 2000 - 2010, almost 50% of 25-34 year olds owned a home. Then, from 2010 - 2020, that dropped below 40%.
That is a pretty dramatic drop. Assuming that a lot of that homeownership is not people "buying a home" but just "Relatives dying and getting a home," the rate of newly bought homes was lower.
It’s interesting with AOC. Her sunscreen PSA is good and very needed and if this leads to real legislation honestly good on her. There will be so many less cases of skin cancer for what’s ultimately a cost less fix. Talk about low hanging fruit.
I say interesting because it’s very clear she’s changed some of her views since coming to Congress. Mostly for the better. Most important is housing. She’s clearly become more of a YIMBY and honestly good on her. Remember the kerfuffle over the Amazon HQ in Queens (talk about in retrospect an overrated story)? I’m curious what she would say about it now.
Gives me a lot more confidence she’s got the chops to really move up the food chain politically.
On millenials doing well, the figures you cite are misleading.
- yes they can afford homes, but too often have to move away from friends and family to do so
- unlike in the past, to afford a home poeple have to move to worse cities with fewer oportunities, fewer amenities, worse dating markets
- too many have to rely on family gifts to get a home. Even if the number of home owners remains the similar, this is a sign that society is becoming less meritocratic
- higher costs and rents are not felt by everyone yet. Millenials renting in good cities, who are on rent control, can't move. If they move, they are priced out of the city.
- since the prices for homes are so crazy in good cities now, even if you manage to get a home in one, the likelihood of experiencing the same sort of wealth building via owneship as previous generations got is low, leading to more sense that this generation doesn't have it as good as the previous one did
- not all millenials are equally screwed. Older millenials (and ones that got a decent paying job) before pandemic might have gotten in on some ok deals. The ones that did not are more screwed going forward
On size/economic growth. The US did not grow spectacularly in spite of its size: its size is one of the reasons why we've grown so much. The US internal market is HUGE, which helps build economies of scale and provides 'safe' room to grow without needing to learn a whole different set of regulations and rules. Companies can compete in a big market and will then have advantages overseas. China's big market should help it grow too! There's a reason why the EU decided to create a common market: size matters and helps scale.
On Millennials. I have a friend. She's a communist. She constantly bitches about how she has 'negative' net worth and her life is screwed. She has a great job, with several weeks vacation, owns her own house (and has collected rent for years from roommates), has several pets and can enjoy riding her motorcycle most weekends.
In short she has a great life. That debt has not stopped her from enjoying it. The idea that Millennials are screwed was always dubious.
I’ve got to be careful how I talk about this due to NDA’s, but I’ve got first hand experience integrating AI into production lines in boring parts of the economy. I tend to think the role of AI is under appreciated in fueling future growth. But I don’t think it will be because of chatGPT models. There are a lot of more fundamental parts of the economy with highly technical aspects that will drive growth. Some hypothetical examples:
1) AI-driven alleviation of administrative burden (e.g. automated reading of forms, automated ID verification, etc.)
2) Signal processing, where AI can make a best guess of missing parts of a spectral signal to keep transmission humming
3) Micro-grid software, where AI can apportion energy use and estimate power output from power plants. As EVs are adopted, they can also estimate which portions of an existing grid should be prioritized for upgrades.
4) Manufacturing decision making, which shrinks the gap between problem presentation and solution for in-line processes.
None of these have the appeal of say, asking your computer to turn a family photo into a Picasso painting or having chatGPT adopt Tolstoy’s War and Peace for the wizarding world. But they are more likely to leave an impact. What’s more, the advances in consumer AI tend to outpace the use of highly technical AI. So as cool as chatGPT is, it vastly exceeds the AI applications in industry today. As such, I don’t think the current generation of AI techniques is baked in yet, and the current generation is moving fast.
20% growth is a huge overshoot for AI predictions. Ideas are useful, but we can see growth rates where the ideas are already there and just need to be implemented. This is what the developing world does; they copy existing models which is how they get such fast growth--textiles; steel; cars; electronics; etc. but maybe 9%, not 20%.
“I wish the people who complain about these things would imagine what their ideal situation for housing prices would look like.”
Probably they want everything to stay exactly the same forever. That’s the common human instinct which then turns into unspoken assumptions by journalists. It’s not very sensible!
This is spot-on. A job is a scholarship. They pay you to learn:
https://twitter.com/Noahpinion/status/1689737886370091009?utm_source=substack&utm_medium=email
On the five points...
1) China/Asian Coalitions: Chinese growth was driven by three items...all of which are in strategic decline:
a) Deficits: Extreme Deficit spending on the investments. (RE being the biggest, but not unique). Without market discipline, there are all sorts of capital misallocations.
b) Exports: Export driven by largely low-value manufacturing with the availability of cheap and highly scaled labor. Over time, it was no longer cheap and with demographics, no longer scalable. These are shifting rapidly from China to other locations and robotics is shifting the value of cheap labor in any case.
c) CCP: To maintain control, CCP has created conditions to kill internal and external partnerships.
Overall, it is unlikely that China will remain the world's manufacturing hub for long. BTW... Mexico just passed China as the biggest trading partner for US.
2) AI: AI is a misnomer ... there is no real intelligence there. However, there are significant additional capabilities which will add quite a bit of productivity in nearly all industrial sectors. The biggest impact is likely to be in the "physically" connected robotics (think Agriculture, Industrial, Transportation, etc). White collar work will also be impacted...especially the non-create mundane... low-level programming. I would not be surprised if medical delivery (as opposed to medical research) will also be impacted in an economic sense.
3) Regulation: This is a huge issue. The nature of the issue is finding the right impedance match between necessary regulation and market innovation. Fixing this is of benefit to all... on a policy level finding metrics/models to measure regulation impact, volatility, renewal rates is an important area to study.
A good post. I agree with all your points.
BTW, Juhasz, Lane, and Rodrik recently have an excellent paper on the new industrial policy https://www.nber.org/papers/w31538. You may want to make use of it in your discussion on this topic.
https://www.nytimes.com/2023/08/14/opinion/columnists/economists-disinflation-interest-rates.html?campaign_id=9&emc=edit_nn_20230817&instance_id=100252&nl=the-morning®i_id=96376757&segment_id=142236&te=1&user_id=bf65a32244bbe02dcf4565a7c11740dc
Hey Noah, do you have thoughts about the millenial Argentinian presidential hopeful Javier Milei? He is leading the race at the moment and says he wants to eliminate their central bank. I think he joking said he wanted to burn down the building in which the bank resides. I have a feeling you could do a great analysis of his economic ideas (and his haircut).
Here's a bloomberg video of him (briefly) describing his desire to use the US dollar and eliminate the bank:
https://www.youtube.com/watch?v=MMds87zy5MQ&ab_channel=BloombergTelevision
So much hate for us Aussies on the pod!
The underlying problem is that democracy works too well and humans are too easily distracted by the low-hanging fruit of the highest standard of living the world has ever seen and expect everything to go their way, everyday and in every way.
It took hyperinflation to bring Hitler into power and then the depression to allow him to con the German people into giving him total power, but all Trump needed was his ability to make people feel like victims when conditions changed and they had to move and maybe settle for a somewhat less Bountiful standard of living.
I think you addressed that when you quoted someone as saying the millennials might have been expecting to be able to live in a large apartment in New York City when less than 100 years ago, my father grew up in a two room house, kitchen and bedroom, and there were seven kids. I spent Summers in that house and they still had their workhorses, now retired, replaced by a small tractor. We are going to have ups and downs, maybe a lot of them given climate change and the fact that the autocrats are making one more effort to be modern-day Tamerlanes.
l am more concerned that we same to have forgotten that that low-hanging fruit grows on the tree of Liberty and that needs to be watered and fertilized and paid attention to. As the saying goes "Eternal vigilance is the price of Liberty."
As for China's future I would like to see you and Peter Zeihan thrash out your conflicting visions of China's future. He thinks China also forgets that their success is due to us giving them a chance to develop their economy without having their exports hijacked on the high seas and forgetting that if they start a fight with us that's not going to apply anymore.
Regarding this non-stop exponential growth didn't someone in here make a statement that if something can't go on forever then it will stop sometime? Well, what form is all that growth going to take? What do humans need that would create demand for what? I know, that things will appear that we seem to think we need and I've been reading science fiction since 1955 so I know there is a lot of room for that growth but if there's only a few humans necessary to that growth, then who is going to consume it.
One last thing. I'm a big fan of AOC and I hope she is spending a lot of time at Nancy's knee learning how politics work.
With respect to progressives being open to deregulation why is it that I *never* hear about deadweight loss due to housing restrictions *except on Slow Boring*. Seems like a really important thing to tell people that density might be irritating in some cases but we’ll probably be wealthier for it. Too jargon-y and abstract for us, the hoi polloi?
How is that chart of homeownership rates supportive of the idea that millenials are doing fine?
It shows that, from 2000 - 2010, almost 50% of 25-34 year olds owned a home. Then, from 2010 - 2020, that dropped below 40%.
That is a pretty dramatic drop. Assuming that a lot of that homeownership is not people "buying a home" but just "Relatives dying and getting a home," the rate of newly bought homes was lower.
It’s interesting with AOC. Her sunscreen PSA is good and very needed and if this leads to real legislation honestly good on her. There will be so many less cases of skin cancer for what’s ultimately a cost less fix. Talk about low hanging fruit.
I say interesting because it’s very clear she’s changed some of her views since coming to Congress. Mostly for the better. Most important is housing. She’s clearly become more of a YIMBY and honestly good on her. Remember the kerfuffle over the Amazon HQ in Queens (talk about in retrospect an overrated story)? I’m curious what she would say about it now.
Gives me a lot more confidence she’s got the chops to really move up the food chain politically.
On millenials doing well, the figures you cite are misleading.
- yes they can afford homes, but too often have to move away from friends and family to do so
- unlike in the past, to afford a home poeple have to move to worse cities with fewer oportunities, fewer amenities, worse dating markets
- too many have to rely on family gifts to get a home. Even if the number of home owners remains the similar, this is a sign that society is becoming less meritocratic
- higher costs and rents are not felt by everyone yet. Millenials renting in good cities, who are on rent control, can't move. If they move, they are priced out of the city.
- since the prices for homes are so crazy in good cities now, even if you manage to get a home in one, the likelihood of experiencing the same sort of wealth building via owneship as previous generations got is low, leading to more sense that this generation doesn't have it as good as the previous one did
- not all millenials are equally screwed. Older millenials (and ones that got a decent paying job) before pandemic might have gotten in on some ok deals. The ones that did not are more screwed going forward
On size/economic growth. The US did not grow spectacularly in spite of its size: its size is one of the reasons why we've grown so much. The US internal market is HUGE, which helps build economies of scale and provides 'safe' room to grow without needing to learn a whole different set of regulations and rules. Companies can compete in a big market and will then have advantages overseas. China's big market should help it grow too! There's a reason why the EU decided to create a common market: size matters and helps scale.
On Millennials. I have a friend. She's a communist. She constantly bitches about how she has 'negative' net worth and her life is screwed. She has a great job, with several weeks vacation, owns her own house (and has collected rent for years from roommates), has several pets and can enjoy riding her motorcycle most weekends.
In short she has a great life. That debt has not stopped her from enjoying it. The idea that Millennials are screwed was always dubious.
One weakness of the newer Asian coalitions you discuss is they are a bit hamstrung by their trade dependence on China.
It's the #1 source for imports and exports for every country in the region. Even Japan and South Korea.
It is hard to be bellicose with your biggest trading partner. You have to walk a fine line.