We’re back from Thanksgiving for the pre-Christmas sprint, with a big ol’ pile of stuff you may have missed and should probably be reading. But first, Oren attended an “AI Roundtable” and left with some thoughts:
The words on everyone’s mind, in discussions about AI’s diffusion through the economy, are “fear” and “trust.” There’s too much “fear” of AI, you see, especially from workers. The important thing is to build people’s “trust” in the technology. These shortcomings of the American proletariat are typically lamented with some combination of condescension and frustration at the failure to comprehend the promise of progress and the imperative to pursue it. And they are contrasted with the brave, bold, forward-looking attitude in China, where enthusiastic citizens are embracing the opportunity… to do things like strap brain-monitoring headbands on elementary school students.
But perhaps American workers are fearful of technological disruption because “experts” have spent the last generation telling them that technological disruption is responsible for their hardship. As I observed back in 2018 and have been arguing ever since:
Historically, economists and policymakers have led the effort to explain that technological innovation is good for workers throughout the economy, even as its “creative destruction” causes dislocation for some. So why, suddenly, are economists so eager to throw robots under the bus? It’s hard to avoid the conclusion that they wish to direct attention away from themselves. Without automation to blame, the stalling of the nation’s industrial economy begins to look like the result of poor policy choices, not unstoppable forces.
Heck, listen to my conversation on today’s American Compass podcast with Yale professor and former Mexican president Ernesto Zedillo about “Reassessing Globalization.” Count how many times he tries to change the subject to “technology.” Our expert friends can’t have it both ways, incoherently scapegoating technology for their past mistakes while getting frustrated that people have listened and now believe technological change is a force likely to make their lives worse.
As for the lack of trust, maybe that stems from, I don’t know, Big Tech’s truly outrageous abuse of the American people’s trust over the same period, on issues ranging from data and privacy to addictive algorithms to bias and censorship to kids’ safety. The only lesson the frontier AI labs seem to have learned from that experience is that such behavior is a great way to become really rich.
OpenAI, in particular, was founded as a nonprofit dedicated to the development of software that would benefit humanity. Then it launched an untested chatbot that became so popular, the organization converted itself to a for-profit company now worth perhaps half-a-trillion dollars and charged straight down the Facebook/TikTok path. Yes, Sam Altman still says he labors over the dilemma of whether to prioritize curing cancer or educating the world for free next year. But the actual product OpenAI rolled out the following week was its own infinite-scroll video-sharing service, specifically designed to encourage deepfakes. The New York Times had a nice story on the dynamic this week:
Until its A.I. can accomplish some incredible feat — say, generating a cure for cancer — success is partly defined by turning ChatGPT into a lucrative business. That means continually increasing how many people use and pay for it.
“Healthy engagement” is how the company describes its aim. “We are building ChatGPT to help users thrive and reach their goals,” Hannah Wong, OpenAI’s spokeswoman, said. “We also pay attention to whether users return because that shows ChatGPT is useful enough to come back to.”
Useful. Like cigarettes. OpenAI put a 30-year-old “product guy” in charge of ChatGPT, made addictiveness a key metric, and then wants us to be shocked, shocked that the resulting product became downright dangerous for many users. Now, worried that its product is falling behind competitors in the race for user eyeballs (and educating the world for free really soon, right after that, I’m sure), OpenAI is “pushing back work on other initiatives, such as advertising,” according to the Wall Street Journal. Let’s hope they fix it soon so they can focus more attention on advertising.
Zoom out from the AI race, and you find a broader ecosystem of “innovation” being sold as important and useful but in fact designed simply to separate people from their money.
Wall Street Journal: “Traders Are Flooding Markets With Risky Bets. Robinhood’s CEO Is Their Cult Hero.”
Financial Times: “The Housing Crisis Is Pushing Gen Z into Crypto and Economic Nihilism.”
Bloomberg: “Gambling, Prediction Markets Create New Credit Risks, BofA Warns.”
Kalshi just raised $1 billion at an $11 billion valuation. “The long-term vision is to financialize everything and create a tradable asset out of any difference in opinion,” says co-founder Tarek Mansour, creating “a new consumer habit that I don’t think is going to be undone.”
Milton Friedman advised that businesses should be managed “to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.” We are seeing what happens when that ethical custom either erodes or is simply ignored. In a sufficiently oversimplified economic model, namby-pamby custom just gets in the way of efficiency and growth, which are best achieved through the single-minded pursuit of profit. At a sufficiently isolated conference in Davos, free trade must obviously be preserved at all costs, even if that means telling a nonsensical little white lie about how technology rather than globalization and immigration and financialization is to blame for deindustrialization and wage stagnation. Stock market lines go up.
But leading a nation is the ultimate repeat game, and when elites don’t play it like one, everyone loses. This was the key insight from the recent recipients of the Nobel Prize in economics, emphasizing “the importance of society being open to new ideas and allowing change.” The “general equilibrium” models assuring us that free trade and financial deregulation will maximize growth do not have variables for trust and fear, and so economists have ended up advising policymakers and business leaders to consider neither.
The typical discussion turns eventually to solutions, which invariably require better marketing. How do we get people to trust us? When business leaders show that they use the technology and like it, perhaps that will put everyone’s minds at ease. Sure, if workers believe that what’s best for the boss is going to be best for them too, that might improve trust. But now success relies upon a solidarity and mutual obligation that the market fundamentalists have also thrown to the wind. Some worker power would help; too bad that too was dismissed as an unnecessary friction.
The only way to gain trust is to earn it. Democratic capitalism requires trust, which means it requires business leaders to be trustworthy. Failing that, the “basic rules of society” will more frequently have to be “embodied in law,” per the other half of Friedman’s formulation. While placing a tone-deaf and obviously conflicted tech investor in charge of setting national AI policy and then trying to sneak through a nationwide ban on regulation might seem like a pro-innovation masterstroke, its inevitable result will be the opposite. Which we can discuss, with condescension and frustration, at our next roundtable.—Oren
WHILE WE’RE ON THE SUBJECT…
Another interesting theme emerging, at the intersection of technology and reindustrialization, is the divergence between the American emphasis on frontier models and “artificial intelligence” and the Chinese emphasis on just using “good enough” AI to make things.
In “Robots and AI Are Already Remaking the Chinese Economy,” the Wall Street Journal reports that “Sam Altman wants artificial intelligence to cure cancer. Elon Musk says AI robots will eliminate poverty. China is focused on something more prosaic: making better washing machines.”
In “Is China Winning the Innovation Race?” the Financial Times notes, “whereas the biggest focus of US innovation has become potential moonshot technologies such as artificial general intelligence, for Beijing R&D largely focuses on addressing shortcomings in the real economy — part of Xi Jinping’s pursuit of technological self-sufficiency.”
In this context, preserving American leadership in advanced AI chips is critical as a matter of economic competitiveness, and as one of the key advantages the U.S. can leverage in rebuilding globally competitive domestic industry. To quote Palantir CTO Shyam Sankar, celebrating the announcement of his company’s partnership with Nvidia, “AI isn’t about AI – it is our asymmetric advantage to deliver country-scale transformation. AI is about Reindustrialization. AI is how we give the American worker superpowers and make them 50x more productive.”
Nvidia hopes to erode that asymmetric advantage by selling advanced chips to China. Once upon a time, ethical custom would have pointed them away from that path. Today, ensuring their conformance with the basic rules of society will require law. So it was encouraging to see a bipartisan group of senators respond to the latest Jensen Huang publicity tour across Capitol Hill with a new bill, the Secure and Feasible Exports (SAFE) Act, that would codify needed constraints.
IN OTHER REINDUSTRIALIZATION NEWS
Five months after releasing a plan to accelerate the development of artificial intelligence, the Trump administration is turning to robots. Commerce Secretary Howard Lutnick has been meeting with robotics industry CEOs and is “all in” on accelerating the industry’s development, according to three people familiar with the discussions who were granted anonymity to share details. The administration is considering issuing an executive order on robotics next year, according to two of the people. A Department of Commerce spokesperson said: “We are committed to robotics and advanced manufacturing because they are central to bringing critical production back to the United States.
Segueing smoothly from the AI theme, the Wall Street Journal explains why “Data Centers Are a ‘Gold Rush’ for Construction Workers,” noting that “workers who move into the data-center industry—in roles ranging from electricians to project managers—often earn 25% to 30% more than they did before.”
All quiet on the tariff front? After the enormous volatility in the months after Liberation Day, rules of the road for U.S. trade have mostly stabilized with a strong finger on the scale for domestic investment and absent any of the predicted catastrophic effects to markets, industry, workers, or consumers. Shipments and orders remain healthy, unemployment and inflation remain low, interest rates have finally begun declining. A fascinating analysis from the Wall Street Journal finds that CEOs have calmed down too:
Executives are starting to chill out about tariffs after a year of anxiety. Months into President Trump’s roller coaster of a global trade war, something has shifted. Business leaders sound less gloomy about tariffs than they have for much of the year. They are talking less about risk when they discuss them with investors. And the subject is no longer dominating earnings calls like before.
Industrial policy continues to ramp up. The Department of Energy announced $134 million in funding to strengthen rare earth supply chains. The administration is taking a $150 million equity stake in a startup developing new chip-making technology. And, a deal under negotiation “could commit Taiwan to fresh investment and training of U.S. workers in semiconductor manufacturing and other advanced industries” (Reuters).
Green energy continues to flounder. It was always obvious that an overly aggressive push into uneconomic green energy sources would devastate energy-intensive industries. As the Wall Street Journal reports, “Europe’s Green Energy Rush Slashed Emissions—and Crippled the Economy” 🤯. Surprising, given that amazing green technologies are already cheaper than fossil fuels 🙄. Now, per the Financial Times:
Germany’s Friedrich Merz will request that Brussels scrap its strict ban on combustion engine cars and allow hybrid vehicles beyond its 2035 deadline, as the conservative chancellor seeks to ease the problems in his country’s automotive industry….“This is the key decision for the future of Europe as a centre of automotive manufacturing,” Merz said. “Our common goal should be innovation-friendly and technology-neutral regulation that reconciles climate protection and industrial competitiveness.”
At least we’ll always have Paris.
AS FOR THOSE EUROPEANS…
We’re on a roll with the segues today. Developments in the inevitable crisis between the EU and China were coming fast and furious over the past couple of weeks, but start with this fascinating column from Financial Times Asia editor Robin Harding: “China is making trade impossible.”
On a recent trip to mainland China, I found myself posing the same question, again and again, to the economists, technologists and business leaders who I met with. “Trade is an exchange. You provide something of value to me, and in return, I must offer something of value to you. So what is the product, in the future, that China would like to buy from the rest of the world?”
The answers were revealing. A few said “soyabeans and iron ore” before realising this was not much help to a European. Some observed that Louis Vuitton handbags are popular and then went on to talk about the export prospects for fast-rising Chinese luxury brands. “Higher education” was another common answer, qualified sometimes with the observation that Peking University and Tsinghua are harder to get into, and more academically rigorous, than anything on offer in the west.
Several of the economists, who had perhaps pondered the issue already, jumped ahead to a different point altogether: “This,” they said, “is why you should let Chinese companies set up factories in Europe.”
It is a train of thought that gives away the real answer to the question. Which is: nothing.
Sometimes it seems the Europeans are finally getting serious:
Back to the Drawing Board: EU Revives Faltering China De-Risking Plans (SCMP)
Brussels Pushes for 70% of Critical Goods to Be ‘Made in Europe’ (FT)
Other times not so much:
‘Buy China’ Trend, Price Wars Push German Industry to Localise [in China] (SCMP)
EU Reviews Removing Tariffs on Volkswagen EVs Built in China (Reuters)
Europe Needs a Plan for Decoupling from America (Financial Times)
That last one is, bluntly, hilarious. Highly recommended. FT columnist Martin Sandbu scores high on self-righteousness while offering a “plan” that, um, does exactly what President Trump and his administration are demanding the Europeans do:
Reduce subsidies that encourage a European economic model predicated on exports to the United States. “The case is strong, then, for a conscious policy of reducing trade exposure to the US below what private companies will do by themselves. Merely stating a political goal of disengaging economically from the US would send a powerful message to the private sector. Authorities could withdraw trade promotion incentives for exports to the US.”
Stop dumping your savings into the acquisition of dollar-dominated assets (the flip-side of a trade surplus). “The EU should not be sending up to half a trillion euros’ worth of net savings outside the bloc every year. This may require leaning against individually rational decisions to invest outside rather than inside Europe.”
Step up on defense. “Europe needs a homegrown alternative to the strategic military capabilities for which it now depends on the US.”
That would show us. It is a testament to the administration’s trade strategy that proud Europeans now see doing the thing they need to do as the rational and necessary response. Whether they can do it, of course, is another matter entirely – one that Sandbu never gets around to considering, in a piece that mentions the word “China” not at all.
WHAT ELSE SHOULD YOU BE READING
And finally, a grab bag of what you might have missed over the holiday:
In a Dramatic Shift, Americans No Longer See Four-Year College Degrees as Worth the Cost (NBC):
Almost two-thirds of registered voters say that a four-year college degree isn’t worth the cost, according to a new NBC News poll, a dramatic decline over the last decade. Just 33% agree a four-year college degree is “worth the cost because people have a better chance to get a good job and earn more money over their lifetime,” while 63% agree more with the concept that it’s “not worth the cost because people often graduate without specific job no skills and with a large amount of debt to pay off.” In 2017, U.S. adults surveyed were virtually split on the question — 49% said a degree was worth the cost and 47% said it wasn’t. When CNBC asked the same question in 2013 as part of its All American Economic Survey, 53% said a degree was worth it and 40% said it was not.”
Two Men. One Identity. They Both Paid the Price. (New York Times): A very good story about the impacts felt by American citizens when their government accepts rampant identity theft as a way of life for an underclass of expendable labor… at least once you get past the framing of, “One guy stole from another guy, that other guy got stolen from. Two sides of the same coin, when ya’ think about it.”
The G.O.P. War on Property Taxes Will Lose Them the Suburbs (Aaron Renn, New York Times):
Republicans should be boasting about these successes and looking to Carmel as a model for other towns and cities. Instead, some of the most prominent Republicans in the country are waging war on the revenue model that powers them. In doing so, they pander to retired baby boomers who are eager to shift taxes away from their homes and onto those still working.
A Promising U.S. Healthcare Startup Battles for Survival Against Its Chinese Investor (Wall Street Journal): The Chinese company “had initially seemed to be a promising partner.” [Narrator: it wasn’t.]
Accommodation Nation (The Atlantic):
Accommodations in higher education were supposed to help disabled Americans enjoy the same opportunities as everyone else. No one should be kept from taking a class, for example, because they are physically unable to enter the building where it’s taught. Over the past decade and a half, however, the share of students at selective universities who qualify for accommodations—often, extra time on tests—has grown at a breathtaking pace. At the University of Chicago, the number has more than tripled over the past eight years; at UC Berkeley, it has nearly quintupled over the past 15 years.
AOC and Bernie Sanders are Not the Same (Liberal Patriot): “Progressives need to come to terms with the fact that Sanders’ enduring appeal stems from past moderation on issues of crucial importance to non-college workers, not just his authenticity.”
Enjoy the weekend!
It's been reported that higher management in the tech industry severely restrict access to platforms by their own children.
Regarding Milton Friedman, it needs to be remembered that his belief that corporations should focus almost exclusively on stockholders is, arguably, one of the key factors that have led to flat worker wages, declining communities, and steadily growing inequality.