“And I think one reason why a lot of people underestimated the most recent acceleration, and then you have pointed it out yourself, you know, the computers underestimate us because most people don't code. The vast majority of people don't code. And the fact that AI has enabled people who don't code to actually, you know, interact with, you know, code is actually a little bit misleading in that if you don't code, you wouldn't ask questions that you will ask if you did cold. It's a bit like watching tennis having never held a tennis racket yourself that, the moves you watch, you know, Roger Federer make looks a lot easier.”
Preemptive Fed cuts based on AI disinflation lack evidence
“So I'm quite skeptical of this argument that we should preemptively, you know, justify rate cuts on the anticipation, unproven 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, all in all the ways, all the rage. We're talking about hundreds of billions of dollars of, you know, CapEx 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.”
Agentic AI multiplied compute demand by 100x or more
“Now you have AI calling itself, right, which, you know, changes the magnitude of of AI compute demand probably by hundredfold or or potentially more. It depends on just how crazy you let the AI agents go. And that obviously changes the picture completely.”
Economics will be transformed by agentic simulation modeling
“What I do think AI is going to impact is we're gonna have much more modeling, a lot more varied modeling by everybody, really, and we're gonna have richer models, and I think we're gonna have much better agentic simulations. So this idea that, currently, how do you evaluate the impact of a policy supposed that we there's this discussion of the third is going to cut massively reduce the size of this balance sheet and, and and in in tandem cut interest rates. How would different parts of the economy system, financial system respond to it? And that is actually something that agentic simulation, right, can actually do, you know, a lot of work on.”
Plumbers and electricians are the real AI bottleneck
“I'm having my roof repaired. I've got this €100 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. When they are busy, they they don't answer your calls. They've got terrible websites. When they show up, they don't speak a language. And and then it's just a few of them. So this type of thing, I just don't see how AI is actually directly impacting it right away.”
“Currently, AI is too cheap. People are just out there consuming token, because it's heavily subsidized, and, they ask, you know, the most powerful model for cooking recipe. Part of the reason why people run up these huge bills using claw open claw is exactly because the the system has not been optimized for token efficiency. And part of the reason why is because price has not really been reflecting the genuine cost.”
The AI bubble is real but widely underestimated in scale
“I mean, of course, it's a bubble. I mean, yes, in the bubble, it was always going to be a bubble. Just because something's a bubble doesn't mean that you couldn't have a very large sustained impact, and especially if you if one that's actually, you know, much larger and longer lasting than people had anticipated. The question is not what to to I think the interesting debate is not whether or not AI was a bubble, will become a bubble. It manifestly was, and have become one. The question is, how long is the bubble? How big could the bubble get, and at what stage are we?”
Productivity gains showing up in data are likely a mirage
“The aggregate numbers we're looking at, I, my intuition is that it's almost certainly not reflecting AI productivity. We are seeing measured labor productivity, the which is a residual. I suspect a big chunk of it is actually a composition bias that we sort of, move towards you know, if if the labor intensive sectors are shrinking and then you have a lot more investments, you know, that is very capital intensive, and then your productivity is measured on dollar value, you know, generated. It's gonna look as though, right, that the productivity has gone up.”
Growing GDP is the only viable path out of US debt
“And this is a political economy, you know, issue. I think more has given up on the idea of raising taxes. So certainly not on the middle class if you want to have any shot of electoral success, and cutting spending, you know, has also proven quite difficult. So the only option left is to grow the denominator, to grow the GDP.”
Baumol's disease will limit AI's near-term inflation impact
“We are so deeply afflicted by this idea if of, concept of disease, right, which, for people who are not familiar, it's basically this idea that, some sectors such as, you know, nannies or or or childcare or health care doesn't really progress with technological innovation as you would have, you know, with, say, manufacturing. We've always had, good, you know, disinflation through automation of plasma TV. The you track the price has gone up. You know, everyone has seen that chart where a college tuition hospital and and and and health care went up secularly and and and, you know, manufactured goods went down over time.”
