The AI Bubble Is Widely Misunderstood | Steve Hou

“And that's one big differentiation between, I think, the AI bubble and the Internet bubble is that the AI bubble is very much adopted and used by everybody almost right away, unlike the dot-com bubble where you actually had a lot of sort of unused capacity that was at the end built out.”

“Now you have AI calling itself, right? Which changes the magnitude of AI compute demand, probably by a hundredfold or potentially more, depends on just how crazy you let the AI agents go. And that obviously changes the picture completely. And I think one reason why a lot of people underestimated the most recent acceleration, and that you have pointed out yourself, you know, the compute is underestimated, because most people don't code, right?”

“Currently, AI is too cheap, right? People are just out there consuming token because it's heavily subsidized, and they ask the most powerful model for cooking recipe. That's sort of your analogy, except that it's actually being used on the agent level as well, the agents are calling AI models inefficiently. Part of the reason why people run up these huge bills using open claw is exactly because the system has not been optimized for token deficiency, and part of the reason why is because price has not really been reflecting the genuine cost.”

“The aggregate numbers we're looking at, my intuition is that it's almost certainly not reflecting AI productivity, right? We are seeing measured labor productivity, which is a residual, right? And you basically sort of take a look at how total GDP growth is subtracted out, the stuff that you can measure and you attribute the rest of it to labor productivity. I suspect a big chunk of it is actually composition bias that we sort of move towards. If the labor intensive sectors are shrinking and then you have a lot more investments, and that is very capital intensive, and then productivity is measured on dollar value generated, it's going to look as though that productivity has gone up.”

“So I am quite skeptical of this argument that we should preemptively, you know, justify rate cuts on the anticipation, on proven anticipation that AI was going to have this miraculous and dramatic impact on inflation, if anything. I think, you know, the AI build-up which still happens, you know, in all the rage, we're talking about hundreds of billions of dollars of, you know, cutbacks in the US economy that is not very good at manufacturing stuff, you know, that has a lot of frictions, that has all sorts of electricity shortages, you know, dilapidated grid system, you know, you have shortage of hardware and that's literally being driven up in price by the demand of AI. That's causing its own inflation.”

“If you plot tax receipt, federal tax receipt is the share of GDP over the course of the US modern history. It's always about 18 to 20 percent of GDP. We've been through significant tax reform, right? We've cut personal income tax, we've cut corporate income tax, we've got a level curve, and we've raised tax and whatever. Regardless of what we have done, the total tax receipt is about 17 to 20 percent. Now, the problem with that is that then the spending has been rising secularly and because the debt load itself, which last peaked at over 20 to 100 percent of GDP during World War II, and it went down in the 70s and now came back up.”

“We are so deeply afflicted by this idea of a concept of Bourbon's disease, right? Which for people who are not familiar, it's basically this idea that some sectors such as, you know, nannies or child care or health care doesn't really progress with technological innovation as you would have, you know, with say manufacturing, right?”

“I'm having my roof repaired. I've got this 100-euro house with beautiful Spanish tiles that are also quite nettlesome when they break. And I've had, it's been a struggle for me since last fall. I've been looking for contractors, and it's quite difficult to find them, right? And when they are busy, they don't answer your calls. They've got terrible websites. When they show up, they don't speak your language.”

“I don't know if you saw the Dworkish podcast where Jensen was on there and he was saying that the biggest constraint they have right now is actually plumbers for their data center. That's where the bottom of that is, it's just like real life plumbers and that has a lot of real world impact if suddenly the average family does not have as easy access to a plumber.”