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>Without AI, US economic growth would be meager. The assumption here is that, without AI, none of that capital would have been deployed anywhere. That intuitiv

>Without AI, US economic growth would be meager. The assumption here is that, without AI, none of that capital would have been deployed anywhere. That intuitively doesn't sound realistic. The article follows on with: >In the last two years, about 60 percent of the stock market’s growth has come from AI-related companies, such as Microsoft, Nvidia, and Meta. Which is a statement that's been broadly true since 2020, long before ChatGPT started the current boom. We had the Magnificent Seven, and before that the FAANG group. The US stock market has been tightly concentrated around a few small groups for a decades now. >You see it in the business data. According to Stripe, firms that self-describe as “AI companies” are dominating revenue growth on the platform, and they’re far surpassing the growth rate of any other group. The current Venn Diagram of "startups" and "AI companies" is two mostly concentric circles. Again, you could have written the following statement at any time in the last four decades: > According to [datasource], firms that self-describe as “startups” are dominating revenue growth on the platform, and they’re far surpassing the growth rate of any other group.

biophysboy 1y ago
Its also not fair to compare AI firms with others using growth because AI is a novel technology. Why would there be explosive growth in rideshare apps when its a mature niche with established incumbents?
- dragontamer 1y ago
  I think the explosive growth that people want is in manufacturing. Ex: US screws, bolts, rivets, dies, pcbs, assembly and such. The dollars are being diverted elsewhere. Intel a chip maker who can directly serve the AI boom, has failed to deploy its 2nm or 1.8nm fabs and instead written them off. The next generation fabs are failing. So even as AI gets a lot of dollars it doesn't seem to be going to the correct places.
  - biophysboy 1y ago
    They're not going to get it. The political economy of East Asia is simply better suited for advanced manufacturing. The US wants the manufacturing of East Asia without its politics. Sometimes for good reason - being an export economy has its downsides!
    - dragontamer 1y ago
      Taiwan isn't some backwater island making low skilled items. USA lost mass manufacturing (screws and rivets and zippers), but now we are losing cream of the crop world class manufacturing (Intel vs TSMC). If we cannot manufacture then we likely cannot win the next war. That's the politics at play. The last major war between industrialized nations shows that technology and manufacturing was the key to success. Now I don't think USA has to manufacture all by itself, but it needs a reasonable plan to get every critical component in our supply chain. In WW2, that pretty much all came down to ball bearings. The future is hard to predict but maybe it's chips next time. Maybe we give up on the cheapest of screws or nails. But we need to hold onto elite status on some item.
      - biophysboy 1y ago
        > Taiwan isn't some backwater island making low skilled items. Definitely not! Wasn't trying to imply this. > If we cannot manufacture then we likely cannot win the next war. If you think a war is imminent (a big claim!), then our only chance is to partner with specialized allies that set up shop here (e.g. Taiwan, Japan, South Korea). Trying to resurrect Intel's vertically integrated business model to compete with TSMC's contractor model is a mistake, IMO.
      - dangus 1y ago
        I think this is a gross oversimplification and an incorrect assessment of the US’ economic manufacturing capabilities. The US completely controls critical steps of the chip making process as well as the production of the intellectual property needed to produce competitive chips, and the lithography machines are controlled by a close ally that would abide by US sanctions. The actual war planes and ships and missiles are of course still built in the USA. Modern warfare with stuff that China makes like drones and batteries only gets you so far. They can’t make a commercially competitive aviation jet engine without US and Western European suppliers. And the US/NAFTA has a ton of existing manufacturing capability in a lot of the “screws and rivets” categories. For example, there are lots of automotive parts and assembly companies in the US. The industry isn’t as big as it used to be but it’s still significant. The US is the largest manufacturing exporter besides China.
  - trhway 1y ago
    >I think the explosive growth that people want is in manufacturing. Ex: US screws, bolts, rivets, dies, pcbs, assembly and such. And the [only] way to get that explosive growth is robotics. That is the Post-Post-Industrial Revolution that we're stepping into - it is when manufacturing stops being separate from the knowledge-based economy and instead becomes a part of it aa a form of an output, specifically a physical-world form of output from the knowledge-based economy. >The dollars are being diverted elsewhere. The dollars are going in exactly right direction - AI. After LLM the companies like NVDA and Google are making next steps - foundational world models and robotics. >Intel a chip maker who can directly serve the AI boom Intel is a managers' gravy train - just like for example Sun Microsystems was 20 years ago. Forget about it. >Intel ... has failed to deploy its 2nm or 1.8nm fabs and instead written them off. So even as AI gets a lot of dollars it doesn't seem to be going to the correct places. The dollars go to NVDA instead of Intel. Seems exactly to correct place.
    - dragontamer 1y ago
      You don't need an LLM to run a Pick and Place machine, a lathe or a PCB line. EDIT: https://youtu.be/SRu02F6AOmg?si=LZHZhbuB1ITjVdkw https://youtu.be/SRu02F6AOmg?si=LZHZhbuB1ITjVdkw While the USA spent a $trillion on LLMs, China spent the past two decades mass making chip shooters and pick and place machines like above. Your LLMs aren't even fast enough to process or compete vs 15year old technology. Now USA has pick and place machines and other such equipment. But we are slower and we don't have nearly as many. And despite better software here in the USA out setup costs are far higher (jlcpcb orders are prewired up with premade libraries because of huge volumes of orders. USA has fewer orders and thus requires a human to setup each line).
thrance 1y ago
> > Without AI, US economic growth would be meager. > The assumption here is that, without AI, none of that capital would have been deployed anywhere. That intuitively doesn't sound realistic. That's the really damning thing about all of this, maybe all this capital could have been invested into actually growing the economy instead of fueling this speculation bubble that will burst sooner or later, bringing along any illusion of growth into its demise.
- ryandrake 1y ago
  Or all that money might have been churning around chasing other speculative technologies. Or it might have been sitting in US Treasuries making 5% waiting for something promising. Who knows what is happening in the parallel alternate universe? Right now, it feels like everyone is just spamming dollars and hoping that AI actually becomes a big industry, to justify all of this economic activity. I'm reminded of Danny DeVito's character's speech in the movie Other People's Money, after the company's president made an impassioned speech about why its investors should keep investing: "Amen. And amen. And amen. You have to forgive me. I'm not familiar with the local custom. Where I come from, you always say "Amen" after you hear a prayer. Because that's what you just heard - a prayer." At this point, everyone is just praying that AI ends up a net positive, rather than bursting and plunging the world into a 5+ year recession.
  - pfannkuchen 1y ago
    > Or it might have been sitting in US Treasuries making 5% Nit: if this happened, I believe the treasury yield would plummet.
- justonceokay 1y ago
  If the economy in my life has taught me anything, it’s that there will always be another bubble. The Innovators Dilemma mentions that bubbles aren’t even a bad thing in the sense that useful technologies are often made during them, it’s just that the market is messy and lots of people end up invested in the bubble. It’s the “throw spaghetti at the wall” approach to market growth. Not too different than evolution, in which most mutations are useless but all mutations have the potential to be transformative.
onlyrealcuzzo 1y ago
1. People aren't going to take on risk and deploy capital if they can't get a return. 2. If people think they can get an abnormally high return, they will invest more than otherwise. 3. Whatever other money would've got invested would've gone wherever it could've gotten the highest returns, which is unlikely to have the same ratio as US AI investments - the big tech companies did share repurchases for a decade because they didn't have any more R&D to invest in (according to their shareholders). So while it's unlikely the US would've had $0 investment if not for AI, it's probably even less likely we would've had just as much investment.
- jayd16 1y ago
  Why is it "unlikely" that the alternative is not US investment by these US companies? The big US software firms have the cash and they would invest in whatever the market fad is, and thus, bring it into the US economy.
  - onlyrealcuzzo 1y ago
    No - traditionally they return it as share buybacks, because they don't have any good investments.
    - UncleOxidant 1y ago
      Or, like Apple they just sit on the cash waiting for better opportunities.
      - onlyrealcuzzo 1y ago
        Apple had huge share buybacks. Companies need to have a healthy pile of cash as a percentage of their expenses. Apple just has enormous revenues and expenses.
      - int_19h 1y ago
        It's not just Apple, they all sit on huge piles of cash.
thiago_fm 1y ago
I agree, in any time in US history there has always been those 5-10 companies leading the economic progress. This is very common, and this happens in literally every country. But their CAPEX would be much smaller, as if you look at current CAPEX from Big Tech, most of it are from NVidia GPUs. If a Bubble is happening, when it pops, the depreciation applied to all that NVidia hardware will absolute melt the balance sheet and earnings of all Cloud companies, or companies building their own Data centers like Meta and X.ai
- rwmj 1y ago
  And NVidia don't even make the GPUs! They're all made on a brave little island off the coast of China, while 7 huge US companies shuffle them around and exchange vast amounts of money for them.
rsanek 1y ago
>assumption here is that, without AI, none of that capital would have been deployed anywhere. That intuitively doesn't sound realistic For the longest time, capex at FAANG was quite low. These companies are clearly responding specifically to AI. I don't think it's realistic to expect that they would raise capex for no reason. >a statement that's been broadly true since 2020, long before ChatGPT started the current boom I guess it depends on your definition of "long before," but the ChatGPT release is about mid-way between now and 2020. As for the startup vs. AI company point, have you read Stripe's whitepaper on this? They go into detail on how it seems like AI companies are indeed a different breed. https://stripe.com/en-br/lp/indexingai https://stripe.com/en-br/lp/indexingai
- trod1234 1y ago
  The sunsetting of research tax breaks would explain why they threw everything into this. They also view labor as a replaceable cost, as most accountant based companies that no longer innovate act. They forget that if you don't hire people, and pay people, you don't have any sales demand and this grows worse as the overall concentration or intensity of money in few hands grows. Most AI companies are funded on extreme leverage from banks that are money-printing and this coincided with 2020 where the deposit requirements were set to 0% effectively removing fractional banking as a system.
conductr 1y ago
I think the money is chasing growth in a market that is mostly mature. Tech is really the only hope in that situation, so that's where the dollars land.
camgunz 1y ago
I think it's more likely the assumption is you'd expect a far more diversified market. If we're really in a situation where the rational, good reasons move is to effectively ignore 98% of companies, that doesn't say good things about our economy (verging on some kind of technostate). You get into weird effects like "why invest in other companies" leading to "why start a company that will just get ignored" leading to even more consolidation and less dynamism.
- istjohn 1y ago
  But startups are thriving. That doesn't suggest decreasing dynamism to me. It suggests that there are abundant gains to be had by exploiting technological progress, and the legacy economy is not availing itself of these opportunities. A thriving tech startup sector is surely key to dynamism.
  - cman1444 1y ago
    I agree, except that it seems dynamism is almost restricted to digital tech. I wish tech would spread its dynamism a little better into legacy industries, and give some productivity gains/disruption to those areas.
    - bobthepanda 1y ago
      there's been plenty of disruption in traditional industries like retail, automotive, media, communications, etc. part of the problem is that the remaining set of industries is pretty tough to make dynamic using technology simply because the explosive market size isn't there for various reasons. if you wanted to disrupt aviation, for example, a plane takes tens of billions of dollars to bring to market, and an airline requires outlaying billions in capex on planes.
      - Supernaut 1y ago
        Such a shame. The passenger aircraft industry could certainly stand to be shaken up with some of that "move fast and break things" startup dynamism!
johnnienaked 1y ago
The capital would have, should have maybe, been deployed in stock buybacks and dividends. Investment already doesn't happen in the US, and that's an expected thing for a well-developed country with a trade deficit.
golly_ned 1y ago
Derek Thompson is not well suited to this kind of work. He is much better suited to his usual lame, predictable, centrist, lukewarm commentary on tired political and social topics.
johnnyanmac 1y ago
>The assumption here is that, without AI, none of that capital would have been deployed anywhere. With this recessionary behavior, it might not be that far fetched an assumption. I'm not sure where else it would flow outside of being hoarded up in assets if there wasn't this big speculation everyone wants to take advantadge of. Especially when you consider that there's so much money flowing into AI, but AI is not as of yet profitable.
- AlecSchueler 1y ago
  That's it, it's unusual times and the AI boom could be covering things up. I personally completely divested from US businesses since the start of the year but I can understand the allure of wanting to ride that particular gravy train
pj_mukh 1y ago
“The assumption here is that, without AI, none of that capital would have been deployed anywhere.” The question is could the capital be deployed somewhere more productive. If that was just used park it into REIT’s buying single family homes, would you be happier?
- SideburnsOfDoom 1y ago
  It depends on what "more productive" means to them. e.g. pyramid schemes are very productive if you exit early enough.

biophysboy 1y ago

Its also not fair to compare AI firms with others using growth because AI is a novel technology. Why would there be explosive growth in rideshare apps when its a mature niche with established incumbents?

dragontamer 1y ago
I think the explosive growth that people want is in manufacturing. Ex: US screws, bolts, rivets, dies, pcbs, assembly and such. The dollars are being diverted elsewhere. Intel a chip maker who can directly serve the AI boom, has failed to deploy its 2nm or 1.8nm fabs and instead written them off. The next generation fabs are failing. So even as AI gets a lot of dollars it doesn't seem to be going to the correct places.
- biophysboy 1y ago
  They're not going to get it. The political economy of East Asia is simply better suited for advanced manufacturing. The US wants the manufacturing of East Asia without its politics. Sometimes for good reason - being an export economy has its downsides!
  - dragontamer 1y ago
    Taiwan isn't some backwater island making low skilled items. USA lost mass manufacturing (screws and rivets and zippers), but now we are losing cream of the crop world class manufacturing (Intel vs TSMC). If we cannot manufacture then we likely cannot win the next war. That's the politics at play. The last major war between industrialized nations shows that technology and manufacturing was the key to success. Now I don't think USA has to manufacture all by itself, but it needs a reasonable plan to get every critical component in our supply chain. In WW2, that pretty much all came down to ball bearings. The future is hard to predict but maybe it's chips next time. Maybe we give up on the cheapest of screws or nails. But we need to hold onto elite status on some item.
    - biophysboy 1y ago
      > Taiwan isn't some backwater island making low skilled items. Definitely not! Wasn't trying to imply this. > If we cannot manufacture then we likely cannot win the next war. If you think a war is imminent (a big claim!), then our only chance is to partner with specialized allies that set up shop here (e.g. Taiwan, Japan, South Korea). Trying to resurrect Intel's vertically integrated business model to compete with TSMC's contractor model is a mistake, IMO.
    - dangus 1y ago
      I think this is a gross oversimplification and an incorrect assessment of the US’ economic manufacturing capabilities. The US completely controls critical steps of the chip making process as well as the production of the intellectual property needed to produce competitive chips, and the lithography machines are controlled by a close ally that would abide by US sanctions. The actual war planes and ships and missiles are of course still built in the USA. Modern warfare with stuff that China makes like drones and batteries only gets you so far. They can’t make a commercially competitive aviation jet engine without US and Western European suppliers. And the US/NAFTA has a ton of existing manufacturing capability in a lot of the “screws and rivets” categories. For example, there are lots of automotive parts and assembly companies in the US. The industry isn’t as big as it used to be but it’s still significant. The US is the largest manufacturing exporter besides China.
- trhway 1y ago
  >I think the explosive growth that people want is in manufacturing. Ex: US screws, bolts, rivets, dies, pcbs, assembly and such. And the [only] way to get that explosive growth is robotics. That is the Post-Post-Industrial Revolution that we're stepping into - it is when manufacturing stops being separate from the knowledge-based economy and instead becomes a part of it aa a form of an output, specifically a physical-world form of output from the knowledge-based economy. >The dollars are being diverted elsewhere. The dollars are going in exactly right direction - AI. After LLM the companies like NVDA and Google are making next steps - foundational world models and robotics. >Intel a chip maker who can directly serve the AI boom Intel is a managers' gravy train - just like for example Sun Microsystems was 20 years ago. Forget about it. >Intel ... has failed to deploy its 2nm or 1.8nm fabs and instead written them off. So even as AI gets a lot of dollars it doesn't seem to be going to the correct places. The dollars go to NVDA instead of Intel. Seems exactly to correct place.
  - dragontamer 1y ago
    You don't need an LLM to run a Pick and Place machine, a lathe or a PCB line. EDIT: https://youtu.be/SRu02F6AOmg?si=LZHZhbuB1ITjVdkw https://youtu.be/SRu02F6AOmg?si=LZHZhbuB1ITjVdkw While the USA spent a $trillion on LLMs, China spent the past two decades mass making chip shooters and pick and place machines like above. Your LLMs aren't even fast enough to process or compete vs 15year old technology. Now USA has pick and place machines and other such equipment. But we are slower and we don't have nearly as many. And despite better software here in the USA out setup costs are far higher (jlcpcb orders are prewired up with premade libraries because of huge volumes of orders. USA has fewer orders and thus requires a human to setup each line).

thrance 1y ago

> > Without AI, US economic growth would be meager. > The assumption here is that, without AI, none of that capital would have been deployed anywhere. That intuitively doesn't sound realistic. That's the really damning thing about all of this, maybe all this capital could have been invested into actually growing the economy instead of fueling this speculation bubble that will burst sooner or later, bringing along any illusion of growth into its demise.

ryandrake 1y ago
Or all that money might have been churning around chasing other speculative technologies. Or it might have been sitting in US Treasuries making 5% waiting for something promising. Who knows what is happening in the parallel alternate universe? Right now, it feels like everyone is just spamming dollars and hoping that AI actually becomes a big industry, to justify all of this economic activity. I'm reminded of Danny DeVito's character's speech in the movie Other People's Money, after the company's president made an impassioned speech about why its investors should keep investing: "Amen. And amen. And amen. You have to forgive me. I'm not familiar with the local custom. Where I come from, you always say "Amen" after you hear a prayer. Because that's what you just heard - a prayer." At this point, everyone is just praying that AI ends up a net positive, rather than bursting and plunging the world into a 5+ year recession.
- pfannkuchen 1y ago
  > Or it might have been sitting in US Treasuries making 5% Nit: if this happened, I believe the treasury yield would plummet.
justonceokay 1y ago
If the economy in my life has taught me anything, it’s that there will always be another bubble. The Innovators Dilemma mentions that bubbles aren’t even a bad thing in the sense that useful technologies are often made during them, it’s just that the market is messy and lots of people end up invested in the bubble. It’s the “throw spaghetti at the wall” approach to market growth. Not too different than evolution, in which most mutations are useless but all mutations have the potential to be transformative.

onlyrealcuzzo 1y ago

1. People aren't going to take on risk and deploy capital if they can't get a return. 2. If people think they can get an abnormally high return, they will invest more than otherwise. 3. Whatever other money would've got invested would've gone wherever it could've gotten the highest returns, which is unlikely to have the same ratio as US AI investments - the big tech companies did share repurchases for a decade because they didn't have any more R&D to invest in (according to their shareholders). So while it's unlikely the US would've had $0 investment if not for AI, it's probably even less likely we would've had just as much investment.

jayd16 1y ago
Why is it "unlikely" that the alternative is not US investment by these US companies? The big US software firms have the cash and they would invest in whatever the market fad is, and thus, bring it into the US economy.
- onlyrealcuzzo 1y ago
  No - traditionally they return it as share buybacks, because they don't have any good investments.
  - UncleOxidant 1y ago
    Or, like Apple they just sit on the cash waiting for better opportunities.
    - onlyrealcuzzo 1y ago
      Apple had huge share buybacks. Companies need to have a healthy pile of cash as a percentage of their expenses. Apple just has enormous revenues and expenses.
    - int_19h 1y ago
      It's not just Apple, they all sit on huge piles of cash.

thiago_fm 1y ago

I agree, in any time in US history there has always been those 5-10 companies leading the economic progress. This is very common, and this happens in literally every country. But their CAPEX would be much smaller, as if you look at current CAPEX from Big Tech, most of it are from NVidia GPUs. If a Bubble is happening, when it pops, the depreciation applied to all that NVidia hardware will absolute melt the balance sheet and earnings of all Cloud companies, or companies building their own Data centers like Meta and X.ai

rwmj 1y ago
And NVidia don't even make the GPUs! They're all made on a brave little island off the coast of China, while 7 huge US companies shuffle them around and exchange vast amounts of money for them.

rsanek 1y ago

>assumption here is that, without AI, none of that capital would have been deployed anywhere. That intuitively doesn't sound realistic For the longest time, capex at FAANG was quite low. These companies are clearly responding specifically to AI. I don't think it's realistic to expect that they would raise capex for no reason. >a statement that's been broadly true since 2020, long before ChatGPT started the current boom I guess it depends on your definition of "long before," but the ChatGPT release is about mid-way between now and 2020. As for the startup vs. AI company point, have you read Stripe's whitepaper on this? They go into detail on how it seems like AI companies are indeed a different breed. https://stripe.com/en-br/lp/indexingai https://stripe.com/en-br/lp/indexingai

trod1234 1y ago
The sunsetting of research tax breaks would explain why they threw everything into this. They also view labor as a replaceable cost, as most accountant based companies that no longer innovate act. They forget that if you don't hire people, and pay people, you don't have any sales demand and this grows worse as the overall concentration or intensity of money in few hands grows. Most AI companies are funded on extreme leverage from banks that are money-printing and this coincided with 2020 where the deposit requirements were set to 0% effectively removing fractional banking as a system.

conductr 1y ago

I think the money is chasing growth in a market that is mostly mature. Tech is really the only hope in that situation, so that's where the dollars land.

camgunz 1y ago

I think it's more likely the assumption is you'd expect a far more diversified market. If we're really in a situation where the rational, good reasons move is to effectively ignore 98% of companies, that doesn't say good things about our economy (verging on some kind of technostate). You get into weird effects like "why invest in other companies" leading to "why start a company that will just get ignored" leading to even more consolidation and less dynamism.

istjohn 1y ago
But startups are thriving. That doesn't suggest decreasing dynamism to me. It suggests that there are abundant gains to be had by exploiting technological progress, and the legacy economy is not availing itself of these opportunities. A thriving tech startup sector is surely key to dynamism.
- cman1444 1y ago
  I agree, except that it seems dynamism is almost restricted to digital tech. I wish tech would spread its dynamism a little better into legacy industries, and give some productivity gains/disruption to those areas.
  - bobthepanda 1y ago
    there's been plenty of disruption in traditional industries like retail, automotive, media, communications, etc. part of the problem is that the remaining set of industries is pretty tough to make dynamic using technology simply because the explosive market size isn't there for various reasons. if you wanted to disrupt aviation, for example, a plane takes tens of billions of dollars to bring to market, and an airline requires outlaying billions in capex on planes.
    - Supernaut 1y ago
      Such a shame. The passenger aircraft industry could certainly stand to be shaken up with some of that "move fast and break things" startup dynamism!

johnnienaked 1y ago

The capital would have, should have maybe, been deployed in stock buybacks and dividends. Investment already doesn't happen in the US, and that's an expected thing for a well-developed country with a trade deficit.

golly_ned 1y ago

Derek Thompson is not well suited to this kind of work. He is much better suited to his usual lame, predictable, centrist, lukewarm commentary on tired political and social topics.

johnnyanmac 1y ago

>The assumption here is that, without AI, none of that capital would have been deployed anywhere. With this recessionary behavior, it might not be that far fetched an assumption. I'm not sure where else it would flow outside of being hoarded up in assets if there wasn't this big speculation everyone wants to take advantadge of. Especially when you consider that there's so much money flowing into AI, but AI is not as of yet profitable.

AlecSchueler 1y ago
That's it, it's unusual times and the AI boom could be covering things up. I personally completely divested from US businesses since the start of the year but I can understand the allure of wanting to ride that particular gravy train

pj_mukh 1y ago

“The assumption here is that, without AI, none of that capital would have been deployed anywhere.” The question is could the capital be deployed somewhere more productive. If that was just used park it into REIT’s buying single family homes, would you be happier?

SideburnsOfDoom 1y ago
It depends on what "more productive" means to them. e.g. pyramid schemes are very productive if you exit early enough.