AI could shift value to capital without shrinking labor income

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 14:41

   curious, where's this money coming from? Let's say OpenAI and Anthropoc combined get to $700 billion dollars in revenue next year. Is the money coming from these companies' labor pools? just additive because they can sell more uh where is the money that these companies are the customers of these companies where's that money coming from that they can funnel it into the ai companies it's a few factors right first off is um obviously companies are going to be able to accelerate what they're building um and so they can invest more um increasing share of r d dollars will go towards ai increasing share of cost of goods sold dollars will go towards ai But also you'll have a significant amount of money sort of going, coming from, you know, labor as well, right?

2. 15:33

   Labor, and I don't think labor shrinks per se. I think the rest of the economy grows so fast, at least in the short term, that labor sort of stays, you know, flattish. And so like, you know, in the past, we've had different cycles across the economy, but one longstanding one has been labor share of GDP has fallen over the decades. And it's been a steady slow line since the 70s. And so a lot of the like strife that people say, oh, America's economy sucks. And yet, oh, look, the economy is bigger is actually, well, like labor share of economy has shrank. And that's why. In reality, a lot more of the labor, the value is accruing to capital.

3. 16:10

   So what AI does is it's going to supercharge that trend, long term trend of labor share versus capital share, because AI tokens are generally basically just capital, you know, in the form of chips and data centers that are sitting there and creating labor. And so that labor share is going to fall even faster. And so, you know, I would hope and for society, that's my belief, you know, and maybe it's like a irrational belief, but I believe that we will just grow the economy so fast that labor in terms of dollars will not shrink.

4. 16:43

   and it might even grow slowly. It's just that the rest of the economy grows so fast. And that's sort of where it comes from, right? So all these companies that do offer various services, their services are going to get better. They're going to be able to charge more. They're going to be able to sell more. And they're going to be able to do it with fewer people. Or another way to look at it is they're going to have the same number of people and their business just going to get better.

5. 17:08

   And there's a number of industries where this is possible, right? You know, obviously, coding is an area where people have done it quite a bit. Obviously, general white collar work is getting rapidly automated, but also companies are just able to do a shitload more than they were able to do in the past. But there's a lot of industries like pharma and trading and chip design and such, right? Like chip design is a great example, right?

6. 17:32

   Chips, the number of American R&D engineers working in chip design has been basically flat for 20 years, and yet the economy for it has exploded. Now, obviously, manufacturing isn't, we're not counting manufacturing, we're just counting the designers. But the designers are like, you know, two of the most valuable companies in the world, right? NVIDIA, Broadcom, as well as like Google and all these other companies that are making their own chips and many others, right?

7. 17:55

   These designers have not really grown that much in terms of number of people. It's been flat as an industry for US. And yet the value that's accrued has exploded. And why is that? There have been a lot of tools. Now, what does AI-a-stitched chip design now do? Well, now all of the chips that are across the economy get better and better. Your phones are going to get better. Your AirPods are going to get better.

8. 18:16

   They're chipped in them. Chips for robots are going to get better. Chips for obviously AI are going to get better. Chips for all sorts of things, Bluetooth and GPS and all these other things. Sensors for gas leaks or whatever that Bosch makes. These are all just going to get better because AI can help you design chips. You do it with the same number of people. Revenue grows. Margins grow. Everything looks fantastic, right?

9. 18:36

   And that's sort of like, there's many industries where this can get replicated, in my view. Dylan, you've said that, I think in the past, you've said something to the extent of knowledge work is F'd.