Do Markets Believe in Transformative AI?
marginalrevolution.comThe markets and I agree then.
I'm a firm believer in technological progress, but not so fond of group-think hype trains. The LLM/diffusion breakthrough(s) are huge, but they aren't what their rabid fans/neurotic critics are thinking.
I'm not clear how the bond markets should behave if they say expect agi in five years. Do long bonds go up or down?
Thinking about it long bond should mostly reflect the rate of inflation which depends much more on monetary policy than tech. Like after WW1, Germany and the US had much the same tech but Germany had hyperinflation and the US very little because Germany printed a lot of money and the US was on the gold standard.
The equity markets seem quite keen on NVDA stock though.
Nominal Risk free rate includes expected inflation.
Default spread reflects... well the likelihood of default.
Cost of debt = rf rate + default spread
I wonder how they react to expected inflation, and how to build that in.
Official numbers say inflation has been 3% since Trump got in office in 2025. We’re seeing > 30% across the board on our bills, and GDP “growth” statistics imply inflation well above 3% (e.g., last quarter growth in the US was entirely due to increased health care spending).
I don't believe it'll work for anything that doesn't have a tight feedback loop. So while it can replace a lot of software engineers, it doesn't seem plausible to me that it would make a significant difference in other engineering industries.
It tells a lot about our society that the only way to apply capital is to build a slop machine that will make us redundant.
Nothing new here, that's basically what the luddites complained about: the machines that replaced them output worse quality garments and sent them all to the streets. It only benefitted the owners. Capital will always seek to rid itself of its dependence on labor, until it eventually succeeds...
> It only benefitted the owners.
And the buyers. As a ballpark estimate, it would take around 50 hours of human labor to produce a shirt by hand, fabric plus sewing, versus about an hour of human labor by industrial machines. That lowers the cost greatly, which most consumers demonstrably value over custom tailoring.
At the time, the quality of machine-made clothes was noticeably worse than human-made. It's debatable wether the "consumers" (the term certainly wasn't used at the time) won in the end. Terry Pratchett's "Boots theory" feels relevant here:
> Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.
> But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.
> It's debatable whether the "consumers" won in the end.
If "in the end" is now, it's pretty clear that automation has made clothing both better and cheaper. And paying $10 now for shoes of less than 1/5th value of $50 shoes much later, or not at all, can be entirely rational. Most of us make that kind of compromise frequently.
Is it really better if it's made by slaves in the Global South, from a mix of plastics and crops grown in an unsustainable way, then shipped across the globe, and made to last about seven washing cycles before being disposed? Debatable, as I said.
I just don't think that this is an accurate description of modern clothing. Cotton is not typically grown in unsustainable ways, and cheap 100% cotton clothing that will last for years is widely available at a variety of retailers.
But a lot of people don't want that. They want comfortable stretchy clothing, accepting or not realizing the inherent tradeoff with durability. Or they want thinner, lighter styles at the very edge of what a 50/50 polyester blend can hold together.
It's a cult, these people really just want to believe everything is better because of unhinged capitalism, not despite it.
I just bought a new shirt on eBay for $22, including shipping. If that shirt had taken 50x as much labor to produce, what would it have cost? Is it unhinged capitalism to prefer the cheap shirt?
The only reason why the shirt is cheap is because we value your labor in the dollars an hour and the shirt maker's labor in the pennies.
Now what if you made that same $5 a week as the shirt maker. Is that $22 shirt still cheap? How many might you own? Now think of what shirt the $5 week shirt maker is wearing. It says Chicago Bulls on it and was given to them by a nonprofit. The nonprofit only had this shirt available because people like him make 1000 shirts a day to sell to westerners to wear for a few weeks collectively before they give it for free to goodwill.
Does this seem like a sustainable, scalable system of resource and labor distribution to you? Or is it based entirely on the fact that there exist some orphan crushing machine still in some corner of the world to make it seem cheap and frictionless for those of us in the global 1%?
No it wouldn’t. American Apparel used to (maybe it still does) make its shirts in a factory in Los Angeles, and its shirts were not noticeably more expensive than the likes of Abercrombie that made clothes overseas. AA couldn’t have competed in the lower end of the market, but their clothes were still not astronomically expensive because the factory was already heavily automated via machines.
The larger cost for a lot of manufacturing in the richest countries is permitting and regulation, plus the fact that the manufacturing knowledge cluster is concentrated in China now, making every part of setting up a factory there smoother.